Global Economic Freedom Falls For First Time in Decades, Yearly Study Finds

September 20, 2010

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The United States is the sixth-freest economy in the world, according to yearly rankings released today by the Cato Institute and the Canada-based Fraser Institute.

The Economic Freedom of the World: 2010 Annual Report also shows that economic freedom experienced its first global downturn in a quarter century, with the average score falling to 6.67 in 2008 (the most recent year for which data is available) from 6.74 in 2007. Of the 123 countries with economic freedom rankings dating back to 1980, 88 saw their rankings decrease while only 35 recorded increases.

By responding to the economic decline of 2008 through perverse credit expansion and regulatory policies, countries around the world weakened economic freedom and harmed future growth, said Ian Vasquez, director of Cato’s Center for Global Liberty and Prosperity.

The score for the United States (7.96) reflects a decrease in all areas of economic freedom measured, and results from an increase in government spending and regulations. The fall in U.S. economic freedom is part of a longer trend that saw the United States ranked as the third freest economy in the world in the year 2000, compared to sixth in this years report.

The report ranks Hong Kong number one, followed by Singapore and New Zealand. Zimbabwe once again has the lowest level of economic freedom among the 141 jurisdictions included in the study. Myanmar, Angola, and Venezuela were also listed at the bottom.

The Cato Institute co-publishes the annual peer-reviewed Economic Freedom of the World report in the United States with the Fraser Institute, Canada’s leading public policy think tank.

The Economic Freedom of the World report uses 42 different measures to create an index ranking countries around the world based on policies that encourage economic freedom. The cornerstones of economic freedom are personal choice, voluntary exchange, freedom to compete, and security of private property. Economic freedom is measured in five different areas: (1) size of government, (2) legal structure and security of property rights, (3) access to sound money, (4) freedom to trade internationally, and (5) regulation of credit, labor, and business.

Research shows that individuals living in countries with high levels of economic freedom enjoy higher levels of prosperity, greater individual freedoms, and longer life spans. Greater economic freedom is associated with improvements in the whole range of human development indicators. The standard of living in countries that maintain free and open markets is far superior to that of countries with government-managed economies—even in the wake of recession, said Vasquez.

This years report also contains new research showing the impact of economic freedom on rates of unemployment and homicide.

International Rankings

Hong Kong maintains the highest level of economic freedom worldwide, with a score of 9.05 out of 10. The other top scorers are Singapore (8.70), New Zealand (8.27), Switzerland (8.08), Chile (8.03), the United States (7.96), Canada (7.95), Australia (7.90), Mauritius (7.82), and the United Kingdom (7.81).

The rankings and scores of other large economies include Taiwan, 22nd (7.48); Germany, tied with Japan and Kuwait in 24th (7.46); France, 35th (7.32); South Korea, tied with Sweden in 37th (7.28); Spain, tied with Iceland and Honduras in 39th (7.26); Italy, tied with Montenegro and Poland in 66th (6.90); Mexico, 69th (6.89); China, tied with South Africa in 82nd (6.65); Russia, 84th (6.62); India, tied with Croatia and Moldova in 87th (6.51); Brazil, tied with Madagascar in 102nd (6.18); and Argentina, 114th (5.59).

Zimbabwe maintains the lowest level of economic freedom among the 141 jurisdictions analyzed. Myanmar, Angola, and Venezuela were also listed at the bottom.

Several countries have substantially lifted their scores and improved their relative levels of economic freedom over the past three decades. Ghana saw the biggest increase in this years report, climbing to a score of 7.17 from 3.27 in 1980, followed by Uganda, which rose to 7.15 from 3.42; Peru, which jumped to 7.36 from 4.27; Israel, which increased to 6.86 from 3.79; and Turkey, which climbed to 6.91 from 3.95.

Over the same period, economic freedom has steadily regressed in many other countries. Venezuela fell to 4.35 in 2008 from a score of 6.29 in 1980, while Zimbabwe dropped to 3.57 from 4.93, Myanmar to 3.49 from 4.84, Malaysia to 6.71 from 7.07, and Nepal to 5.44 from 5.75.

Economic Freedom and Unemployment, Homicide

This years report includes new research examining the impact of economic freedom on rates of unemployment. The results suggest that high levels of economic freedom lead to reduced joblessness. Denmark, for example, increased its economic freedom score to 7.8 in 2007 from 6.5 in 1980, causing a marked improvement in the Danish labor market and an estimated reduction in the unemployment rate between 1.0 and 1.3 percentage points over the period.

The report also examines the effect of economic freedom on rates of homicide in Venezuela, Colombia, South Africa, Latvia, and Lithuania. The results suggest that increases in economic freedom lead to decreases in homicides.

About the Economic Freedom Index

Economic Freedom of the World measures the degree to which the policies and institutions of countries are supportive of economic freedom. The 2010 report was prepared by James Gwartney, Gus A. Stavros Eminent Scholar Chair at Florida State University; Robert A. Lawson, Auburn University; and Joshua Hall, Beloit College.

This year’s publication ranks 141 nations representing 95% of the world’s population for 2008, the most recent year for which data is available. The report also updates data in earlier reports in instances where data have been revised.

For more information on the Economic Freedom Network, data sets, and previous Economic Freedom of the World reports, visit www.freetheworld.com