The 2002 Index of Economic Freedom, released today by the Heritage Foundation and The Wall Street Journal, might just as easily have been titled “A Guide to the Sources of Peace and Prosperity.” Or, as a primer for terrorism’s Western apologists, it could be called “Civilization for Dummies.”
The findings of this study, now in its eighth year, have always been straightforward: Countries with the most economic freedom also have higher rates of long-term economic growth. But this year, another pattern also jumps out at the reader. Economically free countries exhibit greater tolerance and civility than economically repressed ones, where hopelessness and isolation foment fanaticism and terrorism.
The world’s largest concentration of economic repression—Iran, Iraq, Syria and Libya—is also a primitive hotbed of terrorism. Egypt and Yemen are “mostly unfree,” while Afghanistan, Sudan, the Democratic Republic of Congo, Angola and Somalia are all so void of a rule of law that they are impossible to analyze.
Yet, on balance, the world is growing freer. For the eighth straight year, economic liberty has expanded. World-wide, 73 countries received better scores than last year, 53 received worse scores, and 27 remain unchanged. Of the 156 countries numerically graded in the 2002 Index, 71 are either “free” or “mostly free,” while 85 are “mostly unfree” or “repressed.”
The Index grades countries on such questions as the liberality of trade policy, how much citizens are burdened by taxes and regulation, the soundness of monetary policy, whether property rights are protected, and the size of the black market, a good indicator of the degree of repression. Data from the past eight years are now online at www.index.heritage.org.
Here, region by region, are the principal findings of the latest Index:
- North America and Europe: This remains the world’s most economically free region, with six of the top 10 freest countries in the world, one more than last year. The reforms in Ireland, Estonia, the United Kingdom, Spain and the Nordic countries are on the whole similar to those launched years ago by Ronald Reagan and Margaret Thatcher. By contrast, France’s economic freedom score is worse this year precisely because of further government economic intervention.
Former Soviet republics account for three of the 10 countries that have shown the greatest overall improvement over the eight-year history of the Index. Estonia has become one of the freest economies in the world.
- Latin America and the Caribbean: This is a region suffering from stalled reforms. Of 26 countries that are graded this year, 11 have improved in overall economic freedom and 11 are worse. It is the only region in the world that did not experience a net gain in economic freedom this year.
Chile is for the first time classified as a “free” country. But El Salvador, which was ranked as the freest country in the region last year, has been downgraded to “mostly free” because of an expanded fiscal burden and black market. Argentina’s current economic tribulations could plunge it into further disarray if economic reform is not implemented soon. Argentina’s trade policy, regulatory burden and black market scores are all worse this year.
- North Africa and the Mideast: The scores of nine countries have improved this year, while eight are worse, giving this region a net gain in economic freedom of only one country.
Bahrain remains the most economically free country in the region, and the 15th freest economy in the world. But its wages-and-prices scores worsened this year, and it fell to the category of “mostly free.” The United Arab Emirates has the second freest economy in the Middle East, led by the economic policies of the emirates of Dubai and Abu Dhabi (such as openness to foreign investment). It is followed by Israel, Jordan and Kuwait.
- Sub-Saharan Africa: Overall, economic freedom improved in 2001. The scores of 17 countries rose, while those of 12 declined. This makes the region the second most improved on net.
None of the countries received a rating of “free.” However, for the first time, five sub-Saharan African countries are designated as having “mostly free” economies: Botswana, Ivory Coast, Mali, Namibia and South Africa. Mauritius and Uganda miss this designation by a whisker.
- Asia-Pacific: With 17 Asian countries improved in the rankings and only seven worsened, the Asia-Pacific region experienced the greatest overall gain. Though Hong Kong’s score is a bit lower this year due to increased black market activity, it is once again ranked as the world’s freest economy. For the region overall, the black market factor was the most problematic, with six countries earning worse scores in that category. Better monetary policy accounts for the greatest gains, with 11 countries improving. Hong Kong, Singapore and New Zealand are classified as the three freest countries in the world this year.