The annual report on the “Economic Freedom of the World” by economists James Gwartney, Robert Lawson, and Joshua Hall has just been released by the Cato Institute for the year 2014 (based on 2012 data). The report has been published annually since 1996 and assesses the degree to which countries around the world support the cornerstones of economic freedom like personal choice, voluntary exchange, freedom to enter markets and compete, rule of law, and privately property rights. Here’s how the authors explain their mission:
The foundations of economic freedom are personal choice, voluntary exchange, and open markets. As Adam Smith, Milton Friedman, and Friedrich Hayek have stressed, freedom of exchange and market coordination provide the fuel for economic progress. Without exchange and entrepreneurial activity coordinated through markets, modern living standards would be impossible.
Potentially advantageous exchanges do not always occur. Their realization is dependent on the presence of sound money, rule of law, and security of property rights, among other factors. Economic Freedom of the World seeks to measure the consistency of the institutions and policies of various countries with voluntary exchange and other dimensions of economic freedom.
The empirical results from this year’s report demonstrate why economic freedom is so important:
Nations in the top quartile of economic freedom had an average per capita GDP of $39,899 in 2012, compared to $6,253 for bottom quartile nations (see top chart above). Moreover, life expectancy is 79.9 years in the top quartile compared to 63.2 years in the bottom quartile (see bottom chart above), and political and civil liberties are considerably higher in economically free nations than in unfree nations.
Citizens of economically free countries have a standard of living that is more than six times higher than citizens of unfree countries (based on per-capita GDP), and they live almost 17 years longer on average. Also, the average income of the poorest 10% in the most economically free countries ($11,610) is 8.5 times higher than the average income of the poorest 10% in the most unfree countries ($1,358). Those are huge differences and demonstrate the power of economic freedom for elevating the quality of life for both the average and poorest citizens.
From the report’s Executive Summary, a summary of the world’s most and least economically free countries:
Hong Kong and Singapore, once again, occupy the top two most free positions. The other nations in the top 10 for economic freedom are New Zealand, Switzerland, Mauritius, United Arab Emirates, Canada, Australia, Jordan, and, tied for 10th, Chile and Finland. The 10 lowest-rated countries for economic freedom are: Myanmar, Democratic Republic of Congo, Burundi, Chad, Iran, Algeria, Argentina, Zimbabwe, Republic of Congo, and, lastly, Venezuela.
As Scott Grannis reports, there are a few sobering conclusions from this year’s report:
The United States, once considered a bastion of economic freedom, now ranks 12th in the world, tied with the United Kingdom at 7.81. Due to a weakening rule of law, increasing regulation, and the ramifications of wars on terrorism and drugs, the United States has seen its economic freedom score plummet in recent years, compared to 2000 when it ranked second globally.
Global economic freedom fell slightly in this year’s report, and it remains well below its peak level of 6.92 in 2007. The average score fell to 6.84 in 2012, the most recent year for which data are available.
Looking at the details of the drop in America’s ranking for economic freedom over the last 30 years (see p. 172 in the Country Data Tables), it appears that one of the main reasons for the ongoing decline is in the area of “Legal System and Property Rights” – one of the five major areas of economic freedom (the others are Size of Government, Sound Money, International Trade, and Regulation). In 1980, the US ranked No. 1 in the world for the category “Legal System and Property Rights,” and by 2011 the US ranking fell to No. 38 before improving slightly to No. 36 in 2012. Since 2000 (the first year for some of the sub-categories), the US has declined for every single measure in this category: judicial independence, impartial courts, protection of property rights, military interference in rule of law and politics, and integrity of the legal system. And as the authors point out above, this deterioration in America’s ranking for “Legal System and Property Rights” is at least partly the result of America’s twin wars on Drugs and Terrorism. Because of the War on Drugs, the USA is the world’s largest jailer by far (50% of federal prisoners are serving time for drug offenses), and the Drug War has fueled the increasing militarization of America’s law enforcement agencies and 45,000 SWAT raids every year, and an increasing and disturbing frequency of civil asset forfeitures.
I realize that the Cato report measures economic freedom, and therefore doesn’t necessarily even capture the extent to which our civil freedoms have been eroded by America’s War on Drugs. So while we should certainly celebrate the demonstrated benefits of economic freedom highlighted in this year’s Economic Freedom of the World report, we should also be concerned about the fact that America, “long considered the standard bearer for economic freedom among large industrial nations, has experienced a substantial decline in economic freedom during the past decade.” And I would argue that at least part of America’s decline can be traced to America’s longest and most deadly, costly, and senseless and immoral War on
Drugs Otherwise Peaceful Americans Who Voluntarily Choose to Ingest Plants, Weeds and Intoxicants Arbitrarily Proscribed by the Government.