INDEX OF ECONOMIC FREEDOM

Good News for Europe
And bad news for Latin America.

BY MARY ANASTASIA O'GRADY
Tuesday, November 12, 2002 12:01 a.m. EST

In the 2003 Index of Economic Freedom, released today by the Heritage Foundation and The Wall Street Journal, the big story is Europe. Six of the 10 freest economies in the Index are in North America or Europe and half of all "free" economies are in Europe. European politicians may cling to the rhetoric of socialism, but on much of that continent, economic liberty is gaining ground.

This year, economic freedom has advanced throughout the world; every region has improved. World-wide, 74 countries have better scores, 49 have worse scores, and 32 have scores that are unchanged. Of the 156 countries numerically graded in the Index, 15 are classified as "free," 56 as "mostly free," 74 as "mostly unfree," and 11 as "repressed." (The full rankings are here.)

In Europe, capital-friendly Luxembourg is the freest economy, ranking third in the world. Croatia, Slovenia and Iceland made the most dramatic improvements. Scandinavia, previously most noted for its socialism, has continued a trend toward more freedom, with four out of five economies there ranked as "free." Competitive tax rates have helped Ireland maintain its title as the Celtic tiger and a "free" economy.

The most impressive European story, though, may be Estonia, which ties for sixth place--out of 161 countries--with the U.S. and Denmark. In an essay in this year's Index, former Prime Minister Mart Laar details the country's journey toward freedom, highlighting the importance of property rights and the rule of law.

Eleven Latin American countries improved their score this year, and 10 worsened, making it the worst-performing region. Chile dropped out of the Top 10 ranking. Hong Kong is the freest economy in the world and Asia has four economies in the Top 10. But most of the world's repressed economies are also in Asia.

Why any of this should matter is clear in an analysis between freedom and prosperity. Economically free countries tend to have higher per capita income than less free countries. For instance, while Hong Kong's GDP per capita in 2000 was $24,218, Iran's was $1,649. "Free" countries in 2000 had an average per capita income of $26,855, while "mostly free" countries had slightly less than half that. This demonstrates that while some liberalization brings rewards--"mostly unfree" economies averaged only $3,229 in per capita income--the gains from full liberalization are far more impressive.

Ms. O'Grady, who edits The Wall Street Journal's "Americas" column, is the co-editor, with Gerald P. O'Driscoll Jr. and Edwin J. Feulner, of the 2003 Index of Economic Freedom.