Book Review: Economic Freedom of the World: 1975–1995

January/​February 1996 • Policy Report

The United States places fourth in a ranking of nations in terms of economic freedom, according to a new book published worldwide by the Cato Institute and 10 other market‐​liberal think tanks. Economic Freedom of the World: 1975–1995, by James D. Gwartney, Robert A. Lawson, and Walter E. Block, rates Hong Kong number 1, with a score of 9 on a scale of 10 and a grade of A‐​plus, followed by New Zealand and Singapore. The United States has a score of 8 and a grade of A. Rounding out the top 10 countries are Switzerland, the United Kingdom, Canada, Ireland, Australia, and Japan.

The index developed for the book had 17 components grouped in four areas: money and inflation, government operations and regulations, takings and discriminatory taxation, and restrictions on international exchange. According to the authors, since no “best way” to weight the components could be found, three alternative indexes were derived and the results averaged.

Twenty‐​seven countries at the low end of the scale were given a grade of F‐​minus: Brazil, Haiti, Nicaragua, Venezuela, Hungary, Iran, Romania, Syria, Nepal, Algeria, Benin, Burundi, Central African Republic, Congo, Cote d’Ivoire, Madagascar, Morocco, Niger, Nigeria, Rwanda, Sierra Leone, Tanzania, Togo, Uganda, Zaire, Zambia, and Zimbabwe.

The five countries that increased economic freedom the most from 1975 to 1990 were Chile, Jamaica, Iceland, Malaysia, and Pakistan. The steepest declines were found in Nicaragua, Somalia, Iran, Honduras, and Venezuela.

Among other findings, the study notes that countries earning a grade of A or B had average annual growth rates of per capita real gross domestic product of around 2.5 percent. “No country with a persistently high economic freedom rating during the two decades failed to achieve a high level of income,” the authors state. “In contrast, no country with a persistently low rating was able to achieve even middle‐​income status.”

Economic Freedom of the World is the result of the participation of 62 economists, philosophers, legal scholars, and intellectual entrepreneurs in a series of symposia sponsored by the Liberty Fund of Indi‐​anapolis. Included in that group were Cato president Edward H. Crane and Edward L. Hudgins, director of regulatory studies. Other participants included Nobel laureates Milton Friedman, Gary Becker, and Douglass North.

Copublishing the volume with Cato were the Center for Research on National Economy in Guatemala, the Center for Free Enterprise Research in Mexico, the Fraser Institute in Canada, the Free Market Foundation of Southern Africa, the Hong Kong Centre for Economic Research, the Institute of Economic Affairs in the United Kingdom, the Institute of Economic Affairs Ghana, the Institute of Public Affairs in Australia, the Israel Center for Social and Economic Progress, and the Liberal Institute in Germany.