Economic liberty moves economies

The latest Economic Freedom of the World report confirms yet again what happens when the state moves aside and allows the private sector to perform, says James Gwartney, professor of economics at Florida State University, and Robert Lawson, professor of economics at Capital University.

Published by a network of private "think tanks" in more than 60 countries, the report uses 38 different components to rate the institutions and policies of 127 countries on a 10-point scale.

Essentially, the ratings reflect the degree to which countries rely on voluntary exchange and markets rather than taxes, government spending and regulations to allocate goods and resources.

As the rankings indicate, Hong Kong is still the world's freest economy.

Singapore ranks second, while New Zealand, Switzerland and the United State are tied for third.

The United Kingdom, Canada and Ireland occupy the next three spots.

The rankings of the world's largest economies include Germany 19th Japan 30th, France 38th, Italy 54th, Mexico 59th, India 66th, China 86th and Russia 115th.

Compared to 1980, marginal tax rates are lower, international trade is freer and monetary policy is more stable. This shows up in the economic freedom measure. Of the 102 countries with ratings in both 1980 and 2003, only four recorded less economic freedom in 2003 than in 1980.

Does economic freedom make a difference? A substantial body of scholarly research indicates that it does. Countries that are economically free tend to grow more rapidly and achieve higher levels of income than those that are less free, say Gwartney and Lawson.

Source: James Gwartney and Robert Lawson, There's Power in Economic Liberty, Investor's Business Daily, September 8, 2005; and Economic Freedom of the World: 2005 Annual Report, Fraser Institute, September 8, 2005.

For text: http://www.freetheworld.com/release.html

For more on Economic Freedom and Growth: http://www.ncpa.org/iss/int/

FMF Policy Bulletin/ 13 September 2005