Economic Freedom of the World: 2011 Annual Report

The latest edition of this annual report, published in association with the Institute of Economic Affairs Executive Summary: The index published in Economic Freedom of the World measures the degree to which the policies and institutions of countries are supportive of economic freedom. The cornerstones of economic freedom are personal choice, voluntary exchange, freedom to compete, and security of privately owned property. Forty-two data points are used to construct a summary index and to measure the degree of economic freedom in five broad areas: Size of Government: Expenditures, Taxes, and Enterprises; Legal Structure and Security of Property Rights; Access to Sound Money; Freedom to Trade Internationally; Regulation of Credit, Labor, and Business. Economic freedom has suffered another setback The chain-linked summary index (exhibit 1.4) permits comparisons over time. The average economic freedom score rose from 5.53 (out of 10) in 1980 to 6.74 in 2007, but fell back to 6.67 in 2008, and to 6.64 in 2009, the most recent year for which data are available. (See chapter 1 for a discussion.) In this year’s index, Hong Kong retains the highest rating for economic freedom, 9.01 out of 10. The other na- tions among the top 10 are: Singapore (8.68); New Zealand (8.20); Switzerland (8.03); Australia (7.98); Canada (7.81); Chile (7.77); United Kingdom (7.71); Mauritius (7.67); and the United States (7.60). The rankings (and scores) of other large economies are Germany, 21 (7.45); Japan, 22 (7.44); France, 42 (7.16); Italy, 70 (6.81); Mexico, 75 (6.74); Russia, 81 (6.55); China, 92 (6.43); India, 94 (6.40); and Brazil, 102 (6.19). The bottom 10 nations are: Zimbabwe (4.08); Myanmar (4.16); Venezuela (4.28); Angola (4.76); Democratic Republic of Congo (4.84); Central African Republic (4.88); Guinea-Bissau (5.03); Republic of Congo (5.04); Burundi (5.12); and Chad (5.32). The world’s largest economy, the United States, has suffered one of the largest declines in economic freedom over the last 10 years, pushing it into tenth place. Much of this decline is a result of higher government spending and borrowing and lower scores for the legal structure and property rights components. Over the longer term, the summary chain- linked ratings of Venezuela, Zimbabwe, United States, and Malaysia fell by eight-tenths of a point or more between 1990 and 2009, causing their rankings to slip. The chain-linked summary ratings of Uganda, Zambia, Nicaragua, Albania, and Peru have increased by three or more points since 1990. The summary ratings of eight other countries—Bulgaria, Poland, El Salvador, Romania, Ghana, Nigeria, Hungary, and Guinea-Bissau—increased by between two and three points during this same period. Nations that are economically free out-perform non-free nations in indicators of well-being Nations in the top quartile of economic freedom had an average per-capita GDP of $31,501 in 2009, compared to $4,545 for those nations in the bottom quartile, in constant 2005 international dollars. Nations in the top quartile of economic freedom had an average growth in per-capita GDP between 1990 and 2009 of 3.07%, compared to 1.18% for those nations in the bottom quartile, in constant 2005 international dollars (exhibit 1.10). In the top quartile, the average income of the poorest 10% of the population was $8,735, compared to $1,061 for those in the bottom quartile, in constant 2005 international dollars (exhibit 1.12). Interestingly, the aver- age income of the poorest 10% in the top quartile is almost double the overall income per capita in the bot- tom quartile ($4,545, exhibit 1.9): the poorest people in the most economically free countries are nearly twice as rich as the average people in the least free countries. Life expectancy is 79.4 years in the top quartile compared to 60.7 years in the bottom quartile (exhibit 1.13). The $1.25-per-day poverty rate is 2.7% in the top quartile compared to 41.5% in the bottom quartile (exhibit 1.17).