Economic Freedom of the World: Annual Report 2003

 Fraser Institute Policy Briefing  Toronto  July 8  2003

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THANK YOU FOR COMING!

 The key to changing policy in the world is changing the climate of opinion about what works and what does not work in encouraging world development  The key to changing the climate of opinion is providing the widest possible audience with good information about the causes of development and under-development

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Economic Freedom of the World Project

 Objective: find a way to measure economic freedom and explore the connection between it and other variables  18 year project   Led by Professor Milton Friedman, Rose Friedman and Michael Walker Involved 100 of the world’s top scholars

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What is The Economic Freedom of the World Index?

 An annual compilation of data representing factors which make a country economically free  Authors: James Gwartney and Robert Lawson  A compendium of 38 government policies affecting economic freedom based on objective data or independent surveys  A ranking of 123 countries representing 91% of the world’s population according to the extent to which they permit their citizens to be economically free  Now a collaboration of Institutes in 59 different countries

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What is Economic Freedom

Individuals have economic freedom when property they acquire without the use of force, fraud, or theft is protected from physical invasions by others and they are free to use, exchange, or give their property as long as their actions do not violate the identical rights of others. An index of economic freedom should measure the extent to which rightly acquired property is protected and individuals are engaged in voluntary transactions.

James Gwartney et al. 1996

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Components of The Economic Freedom of the World Index

 Size of government and taxation  Public versus private ownership  Private property and the rule of law  Trade regulation and tariffs  Foreign exchange and inflation  Controls on asset sales to foreigners  Based entirely on objective or third party data from 123 countries

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Talk about making a difference …

Member Institutes of Economic Freedom of the World Network

African Research Center for Public Policy and Market Process, Kenya The Free Market Foundation of Southern Africa, South Africa Albanian Center for Economic Research (ACER), Albania Association for Liberal Thinking, Turkey Association pour la Liberté Economique et le Progrès Social (ALEPS), France Cato Institute, United States of America Center for the Dissemination of Economic Knowledge (CEDICE), Venezuela Center for Free Enterprise, Korea Fundación DL, Colombia Fundación Economía y Desarrollo, Inc., Dominican Republic Fundación Libertad, Argentina Fundación Libertad, Panamá Fundación Libertad, Democracia y Desarrollo, Bolivia Hong Kong Centre for Economic Research, Hong Kong Liberales Institut, Switzerland Liberální Institut, Czech Republic Lithuanian Free Market Institute, Lithuania

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Making Our Economy Right (MOER), Bangladesh The Nassau Institute, Bahamas Center for Policy Research, Sri Lanka Institute for Advanced Strategic and Political Studies, Israel The New Zealand Business Roundtable, New Zealand The Center for Research and Communication, Philippines Institute for Market Economics, Bulgaria Open Republic Institute, Ireland Centre for Civil Society, India Centre for the New Europe, Belgium Institute of Business, Trinidad and Tobago The Institute of Economic Affairs, Ghana The Institute of Economic Affairs, United Kingdom Szazadveg Policy Research Center, Hungary TIGRA®, Austria Centro Einaudi, Italy Centro de Investigación para el Desarrollo A.C., Mexico Centro de Investigación y Estudios Legales (CITEL), Peru Centro de Investigaciones Económicas Nacionales, Guatemala Institute of Economic Analysis, Russia Institute of Economic Studies, Iceland The Institute of Economics, Croatia Institute of Public Affairs, Australia Timbro, Sweden The Ukrainian Center for Independent Political Research, Ukraine D’Letzeburger Land, Luxembourg Centrum im. Adama Smitha, Poland Institute of Public Policy Analysis, Nigeria Instituto Ecuatoriano de Economía Política, Ecuador The Institute for Development of Eco nomics and Finance, Indonesia The Estonian Institute for Open Society Research, Estonia Instituto Liberal do Rio de Janeiro, Brazil The F.A. Hayek Foundation, Slovak Republic The Fraser Institute, Canada Free Market Centre, Yugoslavia Instituto Libertad y Desarrollo, Chile Instituto para la Libertad y el Análisis de Políticas, Costa Rica Liberales Institut, Germany Liberty Network (LINE), Denmark Liberty Institute, Romania Bureau d’Analyse d’Ingenierie et de Logiciels (BAILO), Ivory Coast

· · · · · · · · · · · · · · · · · · · · · Sampling of Press Coverage Economic Freedom of the World 2002 People’s Daily (China) The BBC World Service Financial Times of London CNN The Daily Star, (Dhaka, Bangladesh) · Frankfurter Allgemeine Zeitung · · Investor's Business Daily · · The Economist Business Week · · Agence France-Presse (4 articles) · · · ITAR-TASS · Notimex DPA (German Press Agency) · · Jiji Press · Sing Tao Daily (China) · Kyodo News Xinhua · · Japan Economic Newswire · Inter Press Service Press Trust of India · · National Post, (Canada) ·

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Ottawa Citizen (Canada) Bloomberg TV Reuters · · South China Morning Post (2 articles) New Zealand Herald · Hindustan Times · CNN en Espanol · White House Bulletin · Pravda · Reforma (Mexico) · El Diario (Chile) · Singapore Business Times · Komersant (Russia) · Vedomosti (Russia) · La Nacion (Costa Rica) · La Republica (Costa Rica) · Corporate Mexico Asia Pulse Asia Times AsiaPort Daily News Asia · · · · T he Christian Science Monitor Radio Free Europe Radio Free Asia SBS Broadcasting (Australia) Chinese Radio (US) El Comercio, Ecuador El Financiero, Ecuador Latin Trade, Florida Economia, Portugal Público, Portugal United Press International BNS, Lithuania Lietuvos Aidas, Lithuania Respublika, Lithuania Lietuvos Televizija (Lithuania) Znad Wilii, Poland Irish Times Globe and Mail (Canada) Times Banks & Exchanges (Russia)

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Introducing the 2003 Economic Freedom of the World Index Results

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The top ten and how they got there

0 10 Hong Kong Singapore United States

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20 30 40 New Zealand United Kingdom Canada Australia 50 60 Ireland Switzerland Netherlands 1970 1975 1980 1985 1990 1995 2000 2001

Source: The Fraser Institute.

Countries with significant deterioration since 1970

1 21 41 61 81 1970 1975 1980 1985 1990 1995 2000 2001

Source: The Fraser Institute.

Venezuela Cameroon Mali Malawi Paraguay Bulgaria Niger Iran Barbados Nepal

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Why is Economic Freedom Important?

 Economic rights are fundamental rights in the sense that without them there can be no political freedom or civil freedoms  They are a prerequisite for growth and development  They are a prerequisite for broader human development

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The impact on economic growth and development

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Income (per person) of the Bottom Ten

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Algeria Romania Ukraine Ecuador Zimbabwe Central Afr. Rep.

Guinea-Bissau Congo, Rep. Of Congo, Dem. R.

Malawi $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000

Sources: The Fraser Institute; The World Bank, World Development Indicators 2003 (Online).

Income (per person) of the Top Ten

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United States Switzerland Netherlands Ireland Canada Hong Kong Australia United Kingdom Singapore New Zealand $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000

Sources: The Fraser Institute; The World Bank, World Development Indicators 2003 (Online).

Per Capita Income and Economic Freedom Quintile

$25,000 $20,000 $15,000 $10,000 $5,000 $0 Bottom Quintile Fourth Quintile Third Quintile Second Quintile

Least Free …….. Most Free

Top Quintile

Sources: The Fraser Institute; The World Bank, World Development Indicators 2003 (Online).

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Growth in Real GDP Per Capita and Economic Freedom Quintile

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2.5

2.0

1.5

1.0

0.5

0.0

-0.5

-1.0

Bottom Quintile Fourth Quintile Third Quintile Second Quintile Top Quintile Least Free ……………..….. Most Free

Sources: The Fraser Institute; The World Bank, World Development Indicators 2003 (Online).

Economic Freedom, the Poor, and inequality

Human Poverty Index and Economic Freedom Quintile

35 30 25 20 15 10 5 0 Bottom Quintile Fourth Quintile Third Quintile Second Quintile Least Free …………..…. Most Free Top Quintile

Sources: The Fraser Institute; United Nations Development Programmme, Human Development Indicators 2002 (Online).

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Income Inequality, 1997-2001

Percent of income accruing to the

Poorest 20% 2nd 20% 3rd 20% 4th 20% Richest 20% 60 50 40 30 20 10 0 Bottom Quintile Fourth Quintile Third Quintile Second Quintile Least Free …….. Most Free Top Quintile

Sources: The Fraser Institute; The World Bank, World Development Indicators 2003 (Online).

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Per Capita Income of poorest 10% and Economic Freedom

$8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 Bottom Quintile Fourth Quintile Third Quintile Second Quintile Top Quintile 2.5

2.4

2.3

2.2

2.1

2.0

2.9

2.8

2.7

2.6

Per Capita Income of the Poorest 10%

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Income Share of the Poorest 10% Least Free …….. Most Free Sources: The Fraser Institute; The World Bank, World Development Indicators 2003

As the world’s eyes again turn to Africa … 24 Economic Freedom Making a Difference An Example…

7.5

7 6.5

6 5.5

5 4.5

4 3.5

Economic Freedom in Botswana, and Sub- Sahara Africa

1980 1985 African average 1990 1995 2001 Botswana

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Average Per Capita GDP

$4,500 $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 Botswana Sub-Saharan Africa

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Economic Freedom, Other Freedoms and Democracy

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Economic Freedom Versus Corruption

3 2 1 0 8 7 6 5 4 Bottom Quintile Fourth Quintile Third Quintile Second Quintile Least Free ………….. Most Free Top Quintile

Sources: The Fraser Institute; Transparency International, Corruption Perceptions Index 2002 (Online).

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Political Stability and Economic Freedom Quintile

10 8 6 4 2 0 Bottom 20% 2nd Quintile 3rd Quintile 4th Quintile Top 20% Least Free ………..… Most Free

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Economic and Political Freedom

7 6 5 1 0 4 3 2 Bottom Quintile Fourth Quintile Third Quintile Second Quintile Top Quintile Least Free …… Most Free Political Rights, 2001-02

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Sources: The Fraser Institute; Freedom House, Freedom in the World Country Ratings, 1972-73 to 2001-02 (Online).

Economic and Civil Freedom

7 6 5 1 0 4 3 2 Bottom Quintile Fourth Quintile Third Quintile Second Quintile Top Quintile Least Free …… Most Free Civil Liberties, 2001-02

Sources: The Fraser Institute; Freedom House, Freedom in the World Country Ratings, 1972-73 to 2001-02 (Online).

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The impact of Economic Freedom on the UN’s Human Development Index and other indicators of well-being

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Human Development Index, 2000, and Economic Freedom Quintiles

1.0

0.8

0.6

0.4

0.2

0.0

Bottom Quintile Fourth Quintile Third Quintile Second Quintile Top Quintile Least Free ……………. Most Free

Sources: The Fraser Institute; United Nations Development Programmme, Human Development Indicators 2002 (Online).

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Infant Mortality and Economic Freedom Quintile

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70 60 50 40 30 20 10 0 Bottom Quintile Fourth Quintile Third Quintile Second Quintile Top Quintile

Least Free ………..…. Most Free Sources: The Fraser Institute; The World Bank, World Development Indicators 2003 (Online).

Economic Freedom and Labor force, children 10-14 (% of age group), 2001

18 16 14 12 10 8 6 4 2 0 Bottom Quintile Fourth Quintile Third Quintile Second Quintile Top Quintile Least Free ……………. Most Free

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Sources: The Fraser Institute; The World Bank, World Development Indicators 2003 (Online).

Access to Essential Drugs, 1999, and Economic Freedom Quintiles

100 80 60 40 20 0 Bottom 20% 2nd Quintile 3rd Quintile 4th Quintile Least Free …………..Most Free Top 20%

Sources: The Fraser Institute; The World Bank, World Development Indicators 2002 (CD-ROM).

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% of Population Using Improved Water Sources, 2001

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100 80 60 40 20 0 Bottom Quintile Fourth Quintile Third Quintile Second Quintile Least Free …………….. Most Free Top Quintile

Sources: The Fraser Institute; The World Bank, World Development Indicators 2003 (Online).

Life Expectancy at Birth, 2001, and Economic Freedom Quintiles

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30 20 10 0 80 70 60 50 40 Bottom Quintile Fourth Quintile Third Quintile Second Quintile Top Quintile Least Free ……………. Most Free

Sources: The Fraser Institute; The World Bank, World Development Indicators 2003 (Online).

Conclusions

Economic Freedom spurs  Increased prosperity for all  Poverty reduction  Other freedoms  Quality of life improvements All this can be seen in today’s data and lessons from history

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