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July 17, 2004

Asia Tops Economic Freedom Survey


by Eli Clifton

Hong Kong, followed closely by Singapore, retains the highest rating in the latest edition of the "Economic Freedom of the World" annual report released here Thursday by the Cato Institute and more than 50 other libertarian think tanks around the world.

The United States tied for third place with New Zealand, Switzerland and the United Kingdom.

The document, which ranks 123 nations, concludes that citizens and businesses in Africa, Latin America and the former Soviet bloc states comprise among the least economically free countries in the world, with Democratic Republic of Congo, Zimbabwe and Myanmar claiming the cellar.

The report is based on 38 variables in five major categories designed to measure economic freedom.

The five categories include the size of government, as determined in part by spending, taxes and state enterprises; the legal structure and security of property rights; access to sound money that is not weakened by high inflation rates; the freedom to exchange goods and services with foreigners unencumbered, for example, by tariffs, quotas or currency controls; and the degree to which business and credit and labour markets are regulated by the government.

The basic philosophy guiding the ratings is that of classical economic liberalism or, as the third U.S. president, Thomas Jefferson, famously put it: "That government is best which governs least," except perhaps insofar as it actively protects private property rights.

"Freeing people economically unleashes individual drive and initiative and puts a nation on the road to economic growth," said Nobel Economics laureate Milton Friedman, whose basic economic ideas have acted as guideposts for the report and Cato and the other think tanks that co-published it, including the Fraser Institute of Canada, the F.A. Hayek Foundation in the Slovak Republic, the Fundacion Libertad in Argentina, the Center for Civil Society in India and the Institute for Advanced Strategic and Political Studies in Israel.

At the same time, the study asserts that economic freedom is highly correlated with per-capita income, economic growth and life expectancy, and does not necessarily lead to greater income inequality.

Of course, not everyone agrees with this rosy assessment. For years, civil society organizations around the world have complained that unchecked globalization and the "free trade" model being pushed by multinational corporations is driving a race to the bottom in environmental and labor standards.

The just-released Cato report, the eighth in an annual series, should not be confused with the "Index of Economic Freedom" published by the Wall Street Journal and the right-wing Heritage Foundation here, although the results are fairly similar. Like the Cato report, the Index rated Hong Kong and Singapore as the two countries of a total of 156 with the greatest economic freedom.

According to Cato's survey, which covers 2002, the year for which the most comprehensive data is available, economic freedom has gained ground around the world over the eight-year period since the first ratings were published for 1995. The average rating for 2002 stood at 6.5, the same as in 2000, but substantially more than the 5.1 in 1980.

The report shows that the turning point over the past 30 years took place in 1980 coincidentally perhaps, the same year the World Bank introduced structural adjustment programs (SAPs) for its developing country borrowers, which were designed to reduce the impact of government on the economy when ratings averaged 5.36, according to Cato's calculations.

Out of a 10-point scale, Hong Kong gained the highest rating for economic freedom in 2002 at 8.7, closely followed by Singapore at 8.6 and the United States, New Zealand, Switzerland and the United Kingdom at 8.2. The four other nations in the top 10 were also heavily tilted toward Anglo influence: Australia, Canada, Ireland and Luxembourg.

Although the rankings did not precisely follow those used in the Wall Street Journal Index, eight of the 10 top nations overlapped the two surveys. In the Journal's survey, Denmark and Estonia made it into the top 10 at the expense of Australia and Canada.

But the findings of the Index and Cato report contrast fairly dramatically with the results of the United Nations Human Development Index (HDI), which ranks nations based on social welfare, educational enrolment, maternal and infant health and political freedoms, as well as per capita income, among many other criteria.

Northern European and other developed countries monopolize the HDI's top 25 rankings, while Hong Kong, Singapore and South Korea rank 23, 25 and 28.

The rankings of other large economies in the Cato survey included Germany, 22; Japan, 36; Italy, 36; France, 44; Mexico, 58, India, 68; Brazil, 74; China, 90; and Russia, 114. In the Journal poll, Germany ranked 18; Japan, 38; Italy, 26; France, 44; Mexico, 63; India, 121; Brazil, 80; China, 128; and Russia, 114.

The Journal poll's major categories included trade policies; the government's fiscal burden; its intervention in the economy; monetary policy; foreign investment policies; banking and finance policies; wage-to-price ratios; property rights; regulations; and the black market.

Among developing countries rated in the Cato poll, the United Arab Emirates rated highest at 16 followed by Botswana, Kuwait and Oman at 18. They were followed closely by Chile, the Latin American leader, at 22, where it was tied with Germany, Hungary, Sweden and Taiwan.

El Salvador, Mauritius, Panama and Portugal tied for 27, while Bahrain, Costa Rica, South Korea, Spain and Trinidad and Tobago tied at 31.

Other major African countries included South Africa at 44; Uganda and Zambia (51); Namibia and Kenya (61); Nigeria (90), Benin and Chad (103), Cameroon (94), Madagascar (100) and Niger (107). Democratic Republic of Congo (DRC) and Zimbabwe placed last among the Africans at 121 and 122, respectively.

Aside from Chile, El Salvador and Panama, the highest-ranking Latin American countries included Costa Rica (31); Peru and Uruguay (44); the Dominican Republic (51); Bolivia (58); and Guatemala, Honduras and Nicaragua (61). Lowest ranked were Ecuador (94), Colombia (107) and Venezuela (118).

Aside from the emirates in the Gulf, highest-ranking Middle Eastern states included Jordan (36); Israel (51); Egypt (74); Tunisia (68); Iran (78); and Morocco (83). Lowest ranking included Syria (103) and Algeria (118).

Besides the overall two winners, Asian countries with high marks included South Korea (31); Japan (36); Thailand (50); the Philippines (51); Malaysia (58); and Sri Lanka (78). Aside from Myanmar, also known as Burma, the lowest-ranking Asian countries included Indonesia (86), and China and Pakistan (90).

The UN HDI's top Latin American countries include Argentina (34); Chile (43); Costa Rica (45); Uruguay (46); Cuba (52); and Mexico (53).

In Africa, aside from Cape Verde (105), oil producing Equatorial Guinea tops the HDI list (109); followed by South Africa (119), Gabon (122), Namibia (126) and Botswana (128).

(Inter Press Service)


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Eli Clifton is a reporter for IPS.

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