Economic Freedom Marches On
By GERALD P. O'DRISCOLL JR.,
The Wall Street Journal,
November 30, 1999.
KIM R. HOLMES,
and MELANIE KIRKPATRICK
At the dawn of a new century and a new
millennium, it's good news to learn that economic freedom is on the rise world-wide.
That's the principal finding of this year's edition of the Index of Economic Freedom, jointly published by the Heritage Foundation and The Wall Street Journal. Of the 161 countries rated, many more (57) expanded economic freedom during the past year than curtailed it (34).
If this trend continues, the world-wide growth in economic freedom will be measured by the increase in prosperity of more and more of the world's people. In future centuries, people may come to marvel over the concept of "poverty" and how some governments relegated their citizens to that awful state when they might instead have lifted them into prosperity.
But for now, poverty is still with us. Despite the gains recorded in this year's Index of Economic Freedom, the bad news is that a majority of the world's economies remain unfree. Overall, the economies of 73 countries are rated this year as "free" or mostly free," while 88 earned ratings of mostly unfree" or "repressed". The freest economies are concentrated in North America and Europe, while a majority of the repressed economies are in Asia and Africa. Latin America showed the most improvement.
The Index of Economic Freedom is now in its sixth edition. Every year we rank the world's economies according to 50 economic variables in 10 broad categories: banking, capital flows and foreign investment, monetary policy, fiscal burden of government, trade policy, wages and prices, government intervention in the economy, property rights, regulation, and black markets. Each year the data point to the same important conclusion:
Countries with the most economic freedom also have higher rates of long-term economic growth; their people are better off, at all income levels.
Here are the principal findings of the 2000 Index of Economic Freedom for
North America and Europe
This remains the most economically free region in the world, containing five of the 10 freest countries. Nineteen countries achieved better scores than last year, while only five saw their scores worsen.
The dominant trend this year is the improvement in monetary-policy scores: 10 of the 43 countries saw their ratings go up. In fact, this region can generally be characterized by its low inflation: half of the countries in Europe and North America have inflation rates below 6%.
The reasons for overall progress in economic freedom are threefold:
- First, some formerly communist countries have enacted policies that have yielded remarkable achievements since they gained their independence. Estonia (No. 22). Hungary (41), and Armenia (84) illustrate the economic success that can come from freemarket policies: Armenia's real gross domestic product has averaged 5.7% growth since 1994, while Estonia has grown by 4.2% and Hungary by 3.3%.
- Second, present-day Europe bears the marks of the 1992 Maastricht Treaty, which set strict monetary and fiscal disciplinary requirements for would-be member states of the European Monetary Union. This commitment to the economic union presented a policy challenge tep signatories. Some nations have struggled to meet the
Maastricht requirements or have barely tried to adhere to them, while others, such as Luxembourg (No. 4), have seized the opportunity to enact structural reforms. All 11 countries in the EMU rate the highest possible monetary policy score of 1. Nonetheless, many, of these countries continue to struggle with a high fiscal burden of government.
- The third thread evident in Europe and North America this year is the success of the Anglo-American pattern of capitalism in promoting economic freedom. While mainland Europe tends, in broad terms, to adhere to market socialism, the United Kingdom (No. 8), Ireland (7) and other countries with British roots such as the U.S. (4) and Canada (11) follow a more capitalist approach to economic policy. While not the only valid route, Anglo-American capitalism by and large has led to a high level of economic freedom, as this year's index indicates.