Croatia Now Ranks among the Freest Countries in the World

This article appeared on Poslovni Dnevnik on January 10, 2020.
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With the rise of populism and hybrid forms of authoritarianism, people’s rights and freedoms are under assault in many corners of the globe. Unsurprisingly, among the countries with the most substantial deterioration in freedom in the last year are Angola, Venezuela and Tajikistan. The good news is that freedom has taken root in a diverse set of societies and it is spreading in many of them. Among them is Croatia, which for the first time ranks among the freest countries in the world by quartile.

We recently released the fifth annual Human Freedom Index, the most comprehensive measure of freedom ever created for a large number of countries across the globe. With the index, my co‐​author Ian Vásquez and I cover 162 jurisdictions and use 76 distinct indicators of personal and economic freedom, applying data from 2008 to 2017, the most recent year for which sufficient data are available. Because of inherent value of human freedoms and their contribution to well‐​being, freedoms deserve the most vigorous defense. The report is co‐​published by the Fraser Institute in Canada, the Cato Institute in the United States and the Friedrich Naumann Foundation for Freedom in Germany.

In the recently released index, we again rank New Zealand and Switzerland as the two freest countries in the world while we again rank Venezuela and Syria last. Other selected countries rank as follows: Germany (8th place), Sweden (11), United Kingdom (14), the United States (15), Japan (25), Chile (28), France (33), Poland (40), Argentina (77), Kenya (79), Mexico (92), India (94), Brazil (109), Russia (114), Turkey (122), Saudi Arabia (149) and Iran (154).

How do the former Yugoslav republics rank? The freest country is Slovenia (35), followed by Croatia (37), Montenegro (53), Bosnia and Herzegovina (55), Serbia (58) and, the least free, North Macedonia (65).

The index confirms that global freedom remains in retreat as the average human freedom rating for 2017 again falls. At a country level, human freedom tumbles in more countries than not, with some 88 countries experiencing a decline in their freedom ratings compared to 70 countries increasing its freedom since last year. Within the latter group, Croatia experienced the 20th highest increase in the world by increasing its level of human freedom from 7.72 (43rd rank) in 2016 to 7.86 (37th rank) in 2017. Before this significant leap on the Index, Croatia has consistently ranked in the second quartile of countries included. In the recently released report, Croatia for the first time ranks among the freest countries in the world by quartile.

Notably, while Croatia has increased both personal and economic freedom in the last decade, it is its economic freedom that has seen flourishing recently, which resulted in the country’s jump from the 73rd position on economic freedom to 56th rank globally, with which the country surpassed Poland and Hungary and is not closely trailing Slovenia and Slovakia.

Croatia Economic Freedom Index Ranking

So what advances did Croatia see during the first year of Prime Minister Andrej Plenković centre‐​right government to increase the country’s economic freedom? Granted, some of these strides were spillovers from 2016 when the government was led by former Prime Minister Tihomir Orešković.

First, on regulations, Croatia decreased restrictions on the sale of real property measured in days and costs required to register and transfer ownership of property; cut financial barriers to obtain a construction license; maintained commitment to the implementation of a one‐​stop shop business registration not only to save time and cost but also can make procedural requirements more transparent and accessible; and cut the risk that businesses become more costly due to the regulatory environment, including compliance and bureaucratic inefficiency and opacity.

Second, on the size of government, Croatia reduced the extent of government borrowing relative to borrowing by the private sector, decreased the government investment as a share of total investment in the country and reduced the degree to which the state owns and controls capital in the industrial, agricultural and service sectors.

Third, on monetary parameters, in light of pursued sound monetary policy by the Croatian National Bank (Hrvatska narodna banka – HNB) and its resistance to devaluate the Croatian currency, the kuna, in order to stimulate export demand, Croatia decreased both the average annual growth of the money supply and the standard deviation of the inflation rate.

However, not everything went in the right direction for Croatia in 2017, as the country weakened the rule of law even more than it used to be, with gaining lower scores for judicial independence, the impartiality of courts, protection of property rights and reliability of police. The inability to strengthen the rule of law is actually a common problem of former socialist economies in the Balkans.

Finally, the evidence shows the importance of freedom for development. Indeed, the Human Freedom Index report finds a strong relationship between the level of freedom and income. The freest countries in the world by quartile enjoy much higher income per person ($40,171) compared to those in the least‐​free quartile ($15,721). Further, looking at economic freedom specifically, extensive empirical literature reveals that it is

positively associated with not only national income but also economic growth, living standards, economic equality, alleviation of poverty and a variety of other desirable social and economic outcomes. That said, Croatians are projected to experience other positive trends than an increase in freedom to pursue their own opportunities and make their own choices.

Tanja Porčnik

Tanja Porčnik is a Senior Fellow of the Fraser Institute specializing in economic and human freedom studies.