Transcript Economic Freedom of the World: Annual Report 2004

Economic Freedom and Hong Kong:
A Status Report
November 30, 2006
Mark Mullins, Executive Director
The Fraser Institute
1
Economic Freedom of the
World Project

Objective: find a way to measure economic
freedom and explore the connection
between it and other variables
 20 year project
 Led by Professor Milton Friedman, Rose
Friedman and Michael Walker
 Involved 60 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 130 countries representing 93% 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 72 different
countries
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Economic Freedom Defined
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
Private property and the rule of law
Soundness of money
Trade regulation and tariffs
Regulation of business, labour and capital
markets
Based entirely on objective or third party data for
130 countries
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Talk about making a difference …
6
Member Institutes of Economic Freedom of the World
Albanian Center for Economic
Network
Research, Albania
Fundación Libertad, Argentina
Institute of Public Affairs, Australia
TIGRA®, Austria
Center for Economic and Political
Research, Azerbaijan
The Nassau Institute, Bahamas
Making Our Economy Right (MOER),
Bangladesh
Scientific Research Mises Center,
Belarus
Centre for the New Europe, Belgium
Fundacion Libertad y Democracia
(FULIDE), Bolivia
Instituto Liberal do Rio de Janeiro,
Brazil
Institute for Market Economics,
Bulgaria
Cambodia Institute of Development
Study, Cambodia
The Fraser Institute, Canada
Instituto Libertad y Desarrollo, Chile
ILP- Instituto Libertad y Progreso,
Colombia
Instituto para la Libertad y el
Análisis de Políticas, Costa Rica
The Institute of Economics, Croatia
Liberální Institut, Czech Republic
Center for Politiske Studier (CEPOS),
Denmark
Fundación Economía y Desarrollo
Inc., Dominican Republic
Instituto Ecuatoriano de Economía
Política, Ecuador
International University Concordia
Audentes, Audentes University,
Estonia
Association pour la Liberté
Economique et le Progrès Social
(ALEPS), France
Society for Disseminating Economic
Knowledge:“New Economic School –
Georgia”, Georgia
Liberales Institut, Germany
The Institute of Economic Affairs, Ghana
Centro de Investigaciones Económicas
Nacionales, Guatemala
Institut de Recherche pour la Liberte
Economique et la Prosperite (IRLEP), Haiti
Hong Kong Centre for Economic Research,
Hong Kong
Szazadveg Foundation, Hungary
Centre for Social and Economic Research,
Iceland
Centre for Civil Society, India
The Institute for Development of Economics
and Finance, Indonesia
Open Republic Institute, Ireland
Institute for Advanced Strategic and
Political Studies, Israel
Centro Einaudi, Italy
Bureau d'Analyse d'Ingenierie et de
Logiciels (BAILO), Ivory Coast
African Research Center for Public Policy
and Market Process, Kenya
Center for Free Enterprise, Korea
Economic Policy Institute-Bishkek
Consensus, Kyrgyz Republic
Lithuanian Free Market Institute, Lithuania
D'Letzeburger Land, Luxembourg
Centro de Investigación para el Desarrollo
A.C., Mexico
Open Society Forum, Mongolia
The Center for Entrepreneurship and
Economic Development, Montenegro
The New Zealand Business Roundtable, New
Zealand
Institute of Public Policy Analysis, Nigeria
Civita – Center for Business and Society
Alternate Solutions Institute, Pakistan
Fundación Libertad, Panama
Centro de Investigación y Estudios
Legales (CITEL), Peru
The Center for Research and
Communication, Philippines
Centrum im. Adama Smitha, Poland
Causa Liberal, Portugal
Romania Think Tank, Romania
Institute of Economic Analysis, Russia
The F.A. Hayek Foundation, Slovak
Republic
The Free Market Foundation of Southern
Africa, South Africa
Pathfinder Foundation
, Sri Lanka
International Research Foundation (IRF),
Sultanate of Oman
Timbro, Sweden
Liberales Institut, Switzerland
Arthur Lok Jack Graduate School of
Business, The University of the West
Indies, Trinidad, W.I.
Association for Liberal Thinking, Turkey
The Ukrainian Center for Independent
Political Research, Ukraine
The Institute of Economic Affairs, United
Kingdom
CATO Institute, USA
The Centre for the Dissemination of
Economic Knowledge (CEDICE),
Venezuela
Research Center for Entrepreneurship and
Development Policies, Vietnam
Free Market Center (FMC), Yugoslavia
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Zambia Institute for Public Policy Analysis
(ZIPPA), Zambia
Sample of Press Coverage for
Fraser Institute’ Economic Freedom of the World 2005
All Africa, Africa
Asia Pulse, Australia
Australian Financial Review,
Australia
Scoop, Australia
Latin America News Digest,
Brazil
Capital Weekly, Bulgaria
El Diario de Hoy, Central
America
Diario Financiero, Chile
El Financiero, Chile
Xinhua News Agency, China
South China Morning Post,
China
China Daily-Hong Kong
Edition, China
Ambiito Juridico, Colombia
Portafolio, Colombia
La Prensa Libre, Costa Rica
El Financiero, Costa Rica
Hina, Croatia
Hospodarske Noviny, Czech
Republic
Borsen, Denmark
Jyllands-Posten, Denmark
Baltic Business Weekly, Estonia
BBC Monitoring, Europe
Radio Liberty, Georgia
Frankfurter Allgemeine, Germany
Vereinigte, Germany
Financial Express, India
Hindustan Times, India
Journal of Commerce, International
El Cronista Comercial, International
El Nacional, International
International Herald Tribune,
International
Israel Business Arena, Israel
Jerusalem Post, Israel
ItaliaOggi, Italy
Il Sole, Italy
Il Giornale, Italy
Korea Times, Korea
Seoul Daily, Korea
Korea Herald, Korea
Noticias Latinoamericanas, Mexico
Agencia Mexicanan De Noticias,
Mexico
Republika, Montenegro
Financial Times Deutschland,
Netherlands
Times of Oman, Oman
Daily times, Pakistan
Rzeczpospolita, Poland
La Tribune, Canada
Montreal Gazette, Canada
Rumanian, Romania
St. Petersburg Times, Russia
Moscow Times, Russia
Interfax, Russia
Russian Publication, Russia
Plenipotentiary, Russia
Republika, Serbia/Montenegro
Vijesti, Serbia/Montenegro
Pobjeda, Serbia/Montenegro
Straits Times, Singapore
Ekonomicka Sloboda, Slovakia
Hodin Daily, Slovakia
Pravda Daily, Slovakia
Business Day, South Africa
El Economista, Spain
Libertad Digital, Spain
L'Agefl Suisse, Switzerland
Bangkok Post, Thailand
Trinidad Guardian, Trinidad & Tobago
Financial Times, UK
Investor's Business Daily, US
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Financial Times, US
Economic Freedom Projects
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Marketization Index of Chinese Provinces
10
Economic Freedom Index of Indian States
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Economic Freedom of North America
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Economic Freedom Index of Argentine
Provinces
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Economic Freedom of the Arab World
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Arab Economic Freedom Project

International Research Foundation founded in
Oman
 Third Annual Economic Freedom of the Arab
World Report
 Regional economic freedom conferences in the
Middle East – Muscat and Beirut
 Economic Freedom of the Arab World Awards
 Omani and Lebanese Audits
 Documentaries on entrepreneurship and policy
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Hong Kong’s Relative Success
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Hong Kong’s Relative Success

Number one ranked since 1970
 Highest ever economic freedom in the world at
9.1 out of 10 in 1995
 But …
–
–
–
–
–
Peaked in 1995
Tenth worst decline in world in past decade
Slipping relative to top 10, top 20, and the world
Accelerating decline over time
Broad decline in many measures
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Overall Economic Freedom Index
and the Top 10
Hong Kong
Singapore
United States
Switzerland
New Zealand
Average of Top 10
United Kingdom
Ireland
Canada
Luxembourg
Iceland
0
2
4
6
Score (out of 10)
Source: The Fraser Institute.
8
10
19
Overall Economic Freedom
10
8
1995
6
2000
4
2004
2
0
World
Top Ten
Hong Kong
20
Source: The Fraser Institute.
Hong Kong’s Relative Success




Still number one in the 2006 report
High economic freedom rating at just under 8.7
But the trend is not Hong Kong’s friend
And what about China where economic freedom is
rising?

Here are the warning signs for the five components of
economic freedom in Hong Kong ….
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Warning Sign:
Wrong-Sizing Government
22
Size of Government and the Top 10
Hong Kong
Singapore
United States
Switzerland
Average of Top 10
Iceland
New Zealand
United Kingdom
Canada
Ireland
Luxembourg
0
2
4
6
Score (out of 10)
Source: The Fraser Institute.
8
10
23
Size of Government
10
1995
8
6
2000
4
2004
2
0
World
Top Ten
Hong Kong
24
Source: The Fraser Institute.
General government consumption
spending
10
8
1995
6
2000
4
2004
2
0
World
Top Ten
Hong Kong
25
Source: The Fraser Institute.
Transfers and subsidies
10
8
1995
6
2000
4
2004
2
0
World
Top Ten
Hong Kong
26
Source: The Fraser Institute.
Wrong-Sizing Government Policies

New GST will raise the tax burden and increase
government consumption and transfers
 The tax is not “tax neutral”
 Industrial subsidies distort investment and
increase political intervention in economy
 Spending down recently but the government is
caught in vocal demands for more interventions
27
Warning Sign:
Politics and the Law
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Legal System and Property Rights
and the Top 10
New Zealand
Iceland
United Kingdom
Ireland
Switzerland
Luxembourg
Average of Top 10
Canada
Singapore
United States
Hong Kong
0
2
Source: The Fraser Institute.
4
6
Score (out of 10)
8
10
29
Legal System and Property Rights
10
8
1995
6
2000
4
2004
2
0
World
Top Ten
Hong Kong
30
Source: The Fraser Institute.
Judicial independence
10
8
1995
6
2000
4
2004
2
0
World
Top Ten
Hong Kong
31
Source: The Fraser Institute.
Impartial courts
10
8
1995
6
2000
4
2004
2
0
World
Top Ten
Hong Kong
32
Source: The Fraser Institute.
Integrity of the legal system
10
8
1995
6
2000
4
2004
2
0
World
Top Ten
Hong Kong
33
Source: The Fraser Institute.
Politics and the Law Policies

The weakest component and slipping further
 Perceptual issues regarding politicization of
judicial and legal systems
 Integration with China may be part of the
problem – producer and intellectual property
rights are slipping there
 Democratization begets politicization
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Green Light:
Money Remains Sound
35
Sound Money and the Top 10
United States
Ireland
Switzerland
Luxembourg
Singapore
Canada
New Zealand
Average of Top 10
United Kingdom
Hong Kong
Iceland
0
2
Source: The Fraser Institute.
4
6
Score (out of 10)
8
10
36
Sound Money
10
8
1995
6
2000
4
2004
2
0
World
Top Ten
Hong Kong
37
Source: The Fraser Institute.
Sound Money Policies

Peg is secure
 System was tested through Asian crisis and
deflation
 Monetary Authority retains its independence
 Steady progress to renminbi-based trade and
finance
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Warning Sign:
Trade Regulations and Capital
39
Freedom to Trade Internationally
and the Top 10
Hong Kong
Singapore
Luxembourg
Ireland
Average of Top 10
New Zealand
United Kingdom
Canada
Switzerland
United States
Iceland
0
2
Source: The Fraser Institute.
4
6
Score (out of 10)
8
10
40
Freedom to Trade Internationally
10
8
1995
6
2000
4
2004
2
0
World
Average of
Top Ten
Hong Kong
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Source: The Fraser Institute.
Regulatory trade barriers
10
8
1995
6
2000
4
2004
2
0
World
Top Ten
Hong Kong
42
Source: The Fraser Institute.
International capital market controls
10
8
1995
6
2000
4
2004
2
0
World
Top Ten
Hong Kong
43
Source: The Fraser Institute.
Access of citizens to foreign capital
markets/foreign access to domestic capital
markets
10
8
1995
6
2000
4
2004
2
0
World
Top Ten
Hong Kong
44
Source: The Fraser Institute.
Restrictions on citizens to engage in
capital market exchange with foreigners
10
1995
8
6
2000
4
2004
2
0
World
Top Ten
Hong Kong
45
Source: The Fraser Institute.
Trade and Capital Policies

Watch non-tariff regulatory trade barriers
 Is a non-preferential capital investment policy
being eroded through industrial subsidies?
 Capital restrictions must be addressed
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Warning Sign:
Tied Up in Red Tape
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Regulations and the Top 10
Iceland
Hong Kong
United States
New Zealand
Canada
Average of Top 10
Switzerland
United Kingdom
Singapore
Luxembourg
Ireland
0
2
Source: The Fraser Institute.
4
6
Score (out of 10)
8
10
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Regulations
10
8
1995
6
2000
4
2004
2
0
World
Top Ten
Hong Kong
49
Source: The Fraser Institute.
Credit Market Regulations
and the Top 10
New Zealand
United States
United Kingdom
Iceland
Luxembourg
Canada
Average of Top 10
Hong Kong
Switzerland
Ireland
Singapore
0
2
4
6
8
10
Score (out of 10)
50
Source: The Fraser Institute.
Credit Market Regulations
10
8
1995
6
2000
4
2004
2
0
World
Top Ten
Hong Kong
51
Source: The Fraser Institute.
Competition: domestic banks face
competition from foreign banks
10
8
1995
6
2000
4
2004
2
0
World
Top Ten
Hong Kong
52
Source: The Fraser Institute.
Extension of credit: percentage of credit
extended to private sector
10
8
1995
6
2000
4
2004
2
0
World
Top Ten
Hong Kong
53
Source: The Fraser Institute.
Labor Market Regulations
and the Top 10
Hong Kong
Iceland
United States
Switzerland
Average of Top 10
Canada
United Kingdom
Singapore
New Zealand
Ireland
Luxembourg
0
2
4
6
8
10
Score (out of 10)
54
Source: The Fraser Institute.
Labor Market Regulations
10
8
1995
6
2000
4
2004
2
0
World
Top Ten
Hong Kong
55
Source: The Fraser Institute.
Hiring and firing practices
10
8
1995
6
2000
4
2004
2
0
World
Top Ten
Hong Kong
56
Source: The Fraser Institute.
Business Regulations
and the Top 10
Iceland
Singapore
New Zealand
Hong Kong
Average of Top 10
Canada
Ireland
Luxembourg
Switzerland
United States
United Kingdom
0
2
Source: The Fraser Institute.
4
6
Score (out of 10)
8
10
57
Business Regulations
10
8
1995
6
2000
4
2004
2
0
World
Top Ten
Hong Kong
58
Source: The Fraser Institute.
Price controls
10
8
1995
6
2000
4
2004
2
0
World
Top Ten
Hong Kong
59
Source: The Fraser Institute.
Time with government bureaucracy
10
8
1995
6
2000
4
2004
2
0
World
Top Ten
Hong Kong
60
Source: The Fraser Institute.
Red Tape Policies

Credit regulation is not improving
 Government is squeezing out private credit
 Labour market is sound but watch out for
minimum wage
 Business regulations are the key weakness
 Dramatic increase in time management spends
with bureaucracy
 World Bank Doing Business indicators coming
for 2007 – Hong Kong likely to improve
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Conclusion
Do not take Hong Kong’s number one status for
granted – Singapore is very close at number two
 A declining trend may be in place
 Government interference with markets is
growing
 Policy choices matter
 Political developments are the driving factor

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www.freetheworld.com
www.fraserinstitute.ca
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Economic Freedom and Hong Kong:
A Status Report
November 30, 2006
Mark Mullins, Executive Director
The Fraser Institute
64