Transcript Economic Freedom of the World: Annual Report 2004

Economic Freedom of the
World: 2005 Annual Report
Fraser Institute
Policy Briefing
Sultan Qaboos
University
October 2, 2005
1
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
2
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 100 of the world’s top scholars
3
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 127 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 68 different
countries
4
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
5
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 127 countries
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Talk about making a difference …
7
Member Institutes of Economic Freedom of the World
Network
African Research Centre for Public
Policy Research and Analysis, Kenya
Albanian Center for Economic
Research (ACER), Albania
Alternate Solutions Institute,
Pakistan
Association for Liberal Thinking,
Turkey
Association pour la Liberté
Economique et le Progrès Social
(ALEPS), France
Bureau d'Analyse d'Ingenierie et de
Logiciels (BAILO), Ivory Coast
CATO Institute, USA
Causa Liberal, Portugal
Center for Economic and Political
Research, Azerbaijan
The Center for Entrepreneurship and
Economic Development, Montenegro
Center for Free Enterprise, Korea
Center for Politiske Studier,
Denmark
The Center for Research and
Communication, Philippines
Centre for Civil Society, India
The Centre for the Dissemination of
Economic Knowledge (CEDICE),
Venezuela
Centre for the New Europe, Belgium
The Centre for Research on the
National Economy, Guatemala
Centro de Investigación para el
Desarrollo A.C., Mexico
Centro de Investigación y Estudios
Legales (CITEL), Peru
Centro Einaudi, Italy
Centrum im. Adama Smitha, Poland
D'Letzeburger Land, Luxembourg
Economic Policy Institute-Bishkek
Consensus, Kyrgyz Republic
The Estonian Institute for Open Society
Research, Estonia
The F.A. Hayek Foundation, Slovak Republic
Free Market Center (FMC), Yugoslavia
The Free Market Foundation of Southern
Africa, South Africa
Fundación Economía y Desarrollo Inc.,
Dominican Republic
Fundación Libertad, Argentina
Fundación Libertad, Panama
Fundación Libertad, Democracia y
Desarrollo, Bolivia
Hong Kong Centre for Economic Research,
Hong Kong
ILP - Instituto Libertad y Progreso,
Colombia
Institut de Recherche pour la Liberte
Economique et la Prosperite (IRLEP), Haiti
Institute for Advanced Strategic and
Political Studies, Israel
The Institute for Development of Economics
and Finance, Indonesia
Institute for Market Economics, Bulgaria
Institute of Business, Trinidad and Tobago
The Institute of Economic Affairs, Ghana
The Institute of Economic Affairs, United
Kingdom
Institute of Economic Analysis, Russia
Institute of Economic Studies, Iceland
The Institute of Economics, Croatia
Institute of Public Affairs, Australia
Institute of Public Policy Analysis, Nigeria
Instituto Ecuatoriano de Economía Política,
Ecuador
Instituto Liberal do Rio de Janeiro, Brazil
Instituto Libertad y Desarrollo, Chile
Instituto para la Libertad y el
Análisis de Políticas, Costa Rica
Liberales Institut, Germany
Liberales Institut, Switzerland
Liberální Institut, Czech Republic
Lithuanian Free Market Institute,
Lithuania
Making Our Economy Right (MOER),
Bangladesh
The Nassau Institute, Bahamas
The New Zealand Business
Roundtable, New Zealand
Open Republic Institute, Ireland
Open Society Forum, Mongolia
Pathfinder Foundation, Sri Lanka
Research Center for
Entrepreneurship and Development
Policies, Vietnam
Romania Think Tank,Romania
Scientific Research Mises Center,
Belarus
Society for Disseminating Economic
Knowledge:“New Economic School –
Georgia”, Georgia
Szazadveg Policy Research Institute,
Hungary
TIGRA®, Austria
Timbro, Sweden
The Ukrainian Center for
Independent Political Research,
Ukraine
Zambia Institute for Public Policy
Analysis (ZIPPA), Zambia
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Sample of Press Coverage for
Fraser Institute’ Economic Freedom of the World 2004
Agence France Press
Al-Ahram Weekly, Jordan
All Africa Global Media
Arvamus, Estonia
Asia Pulse, Hong Kong
Asian Wall Street
Bahamas Financial Services
Board
BBC
Berlingske, Denmark
Business and Finance,
Ireland
Business Daily, Hong Kong
Business Day, South Africa
Business Standard, India
Canale Italia, Italy
Chosun Ilbo, Korea
Critica, Panama
Cronache, Italy
CTK Daily News,
Czechoslovakia
Dan, Montenegro
Dominion Post, New
Zealand
Dong-a Ilbo, Korea
Dow Jones, Germany
Dow Jones International
Economist
El Comercio, Spain
El Diario, Chile
El Economista, Spain
El Nuevo Dia, Spain
Examiner, Canada
Financial Express, India
Forbes
Frankfurter Allgemeine Zeitung
Herald Sun, Australia
Hong Kong Economic Journal
Hospodarske, Czech Republic
In Copertina, Italy
Independent Business Weekly, New
Zealand
Indian Business Insight
Inter Press, Hong Kong
International Herald Tribune
Investor's Business Daily, US
Irish Independent
Izvestia, Russia
Jakarta Post
Jerusalem Post
JoongAng Daily, Korea
Korea Economic Daily
Korea Times
La Estrella de Panama
La Nacion, Costa Rica
La Prensa, Panama
L'Adige, Italy
Latin America News Digest
Latvian News Agency
Lianhe Zaobao, Singapore
NavHind Times
New Zealand Herald
News Aktuell
Pobjeda, Montenegro
Primera, Mexico
Publika, Montenegro
Segye Times, Korea
Seoul Daily, Korea
Sing Tao Daily News, Hong Kong
South China Morning Post
Spanish News Digest
Spanish Worldstream
Standard, Hong Kong
Telegraph, India
Times of Oman
Washington Times
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Xinhua News Agency, China
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Introducing the 2005 Economic
Freedom of the World Index Results
11
Overall Economic Freedom Index
and the Top 12
Hong Kong
Singapore
New Zealand
United States
Switzerland
United Kingdom
Average of Top 12
Canada
Ireland
Australia
Unit. Arab Em.
Luxembourg
Estonia
0
2
4
6
Score (out of 10)
Source: The Fraser Institute.
8
10
12
Overall Economic Freedom Index
and the Bottom Ten
Gabon
Central Afr. Rep.
Congo, Rep. Of
Algeria
Burundi
Guinea-Bissau
Venezuela
Congo, Dem. R.
Zimbabwe
Myanmar
0
2
4
6
Score (out of 10)
Source: The Fraser Institute.
8
10
13
Economic Freedom Over Time
Economic Freedom Score
10
8
6
5.7
5.2
5.1
5.2
1975
1980
1985
5.5
5.9
6.3
6.4
6.4
6.4
2000
2001
2002
2003
4
2
0
1970
1990
1995
14
Source: The Fraser Institute.
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
16
Income (per person) of the
Bottom Ten
Gabon
Algeria
Venezuela
Zimbabwe
Rwanda
Central Afr. Rep.
Congo, Rep. Of
Guinea-Bissau
Congo, Dem. R.
Burundi
0
10,000
20,000
30,000
40,000
50,000
60,000
GDP per Capita, 2003 (ppp)
Sources: The Fraser Institute; The World Bank, World Development
Indicators CD-ROM, 2005.
17
Income (per person) of the Top 12
Luxembourg
Ireland
United States
Canada
Switzerland
Australia
Hong Kong
United Kingdom
Singapore
New Zealand
Unit. Arab Em.
Estonia
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
GDP per Capita, 2003 (ppp)
Sources: The Fraser Institute; The World Bank, World Development Indicators18
CD-ROM, 2005.
Per Capita Income and Economic
Freedom Quintile
GDP Per Capita
(ppp), 2003
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$0
Bottom
Quintile
Fourth
Quintile
Third
Quintile
Second
Quintile
Top Quintile
Least Free …………… Most Free
Sources: The Fraser Institute; The World Bank, World Development
Indicators CD-ROM, 2005.
19
GDP Per Capita % Growth,
1994-2003
Growth in Real GDP Per Capita
and Economic Freedom Quintile
2.5
2.0
1.5
1.0
0.5
0.0
Bottom
Quintile
Fourth
Quintile
Third
Quintile
Second
Quintile
Top Quintile
Least Free ……………..….. Most Free
Sources: The Fraser Institute; The World Bank, World Development Indicators20
CD-ROM, 2005.
Economic Freedom and
Investment
Gross Investment per Capita
(constant 2000 US$), 2003
$5,000
$4,000
$3,000
$2,000
$1,000
$0
Bottom
Quintile
Fourth
Quintile
Third
Quintile
Second
Quintile
Top Quintile
Least Free ……………..….. Most Free
Sources: The Fraser Institute; The World Bank, World Development Indicators21
CD-ROM, 2005.
Total Unemployment (% of total
labor force), 2000-2002
Economic Freedom and
Unemployment
15.0
12.0
9.0
6.0
3.0
0.0
Bottom
Quintile
Fourth
Quintile
Third
Quintile
Second
Quintile
Top Quintile
Least Free ……………..….. Most Free
Sources: The Fraser Institute; The World Bank, World Development
Indicators CD-ROM, 2005.
22
New research:
Economic Freedom and Peace
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Economic Freedom and Peace:
1) the “democratic peace”

Does the concept of a “democratic peace” hold up
to scrutiny?

Democracies tend not to go to war with each other
but go to war about as often in general as nondemocracies.

Developing democracies are as prone as nondemocracies to violent conflict.

Thus, “democratic peace” fails close study.
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Economic Freedom and Peace:
2) the “capitalist peace”

Stable democracies typically have high levels of
economic freedom – which promotes peace.
 When both are included in a statistical test,
economic freedom is 50 times more potent in
reducing conflict than democracy.
 Nations which score below 2 in the EF index are
14 times more prone to conflict than top scoring
nations.
 Economically free nations fight each other less
and go to war against other nations less as well.
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Causes of the Capitalist Peace




Wealth and power are created by markets and the efficient
production that arises from them, not by conquest of land
or raw materials.
Wealth created by market economies through efficient
production, unlike wealth derived from land or resources,
is difficult for nations to “steal” by violent action.
Efficient production requires property rights and free
decisions by market participants that cannot be effectively
coordinated to the victor’s advantage.
Markets provide new methods for signaling among nations
and create areas in which states can compete without
having to go to war.
26
Source: The Fraser Institute.
27
Source: The Fraser Institute.
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Policy Implications:

Efforts to promote democracy may not produce
the peace dividend

Policy should be to promote economic
freedom

Economic freedom has been shown to promote
democracy over the long term (and many other
good outcomes)

Therefore, promoting economic freedom will
both lead to less conflict and, in the long run,
to democracy.
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Economic Freedom,the Poor, and
Inequality
30
Human Poverty Index, 2002, and
Economic Freedom Quintile
Human Poverty Index
40
35
30
25
20
15
10
5
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 2004, available at
http://hdr.undp.org/statistics/data/index_indicators.cfm (accessed on July 5,312005).
Income Inequality, 1998-2002
Percent of income accruing to the
Poorest 20%, 1998-2002
3rd 20%, 1998-2002
Richest 20%, 1998-2002
2nd 20%, 1998-2002
4th 20%, 1998-2002
60
Percentage
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 CDROM, 2005.
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Income Share of the Poorest 10% and
Income Share Held by
Lowest 10%, 1999-2003
Economic Freedom
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Bottom
Quintile
Fourth
Quintile
Third
Quintile
Second
Quintile
Top
Quintile
Least Free …….. Most Free
Sources: The Fraser Institute; The World Bank, World Development Indicators CDROM, 2005.
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Per Capita Income of Poorest 10%
and Economic Freedom
Income Level of the Poorest 10%, 1999-2003
Income share of the lowest 10%, 1999-2003
$7,000
3.0
$6,000
2.5
$5,000
2.0
$4,000
1.5
$3,000
1.0
$2,000
$1,000
0.5
$0
0.0
Bottom Quintile Fourth Quintile
Third Quintile
Second Quintile
Top Quintile
Least Free …….. Most Free
Sources: The Fraser Institute; The World Bank, World Development Indicators34
CD-ROM, 2005.
Economic Freedom,
Other Freedoms and
Democracy
35
Economic Freedom Versus Corruption
10 =highly corrupt and 0 =highly clean
Corruption Rating
(out of 10)
10
8
6
4
2
0
Bottom
Quintile
Fourth
Quintile
Third
Quintile
Second
Quintile
Top Quintile
Least Free ………….. Most Free
Sources: The Fraser Institute; Transparency International, Corruption Perceptions Index
2004, available at
http://www.transparency.org/cpi/2004/cpi2004.en.html#cpi2004 (accessed 36
on
Economic Freedom and Voice and
Accountability
Voice and Accountability,
2004
-2.5 =low voice and accountability and 2.5 =high voice and
accountability
1.5
0.5
-0.5
-1.5
Bottom
Quintile
Fourth
Quintile
Third
Quintile
Second
Quintile
Top Quintile
Least Free ………….. Most Free
Sources: The Fraser Institute; The World Bank Group, Governance & Anti-Corruption,
available at http://info.worldbank.org/governance/kkz2004/tables.asp
37
(accessed on July 5, 2005).
Political Stability and Economic Freedom
Political Stability, 2004
-2.5 =low political stability and 2.5 =high political stability
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 Group, Governance & Anti-Corruption,
38
available at http://info.worldbank.org/governance/kkz2004/tables.asp
(accessed on July 5, 2005).
Economic Freedom and Political Rights
Political Rights
(out of 10)
ten representing the highest degree of political rights and
zero the lowest
10
8
6
4
2
0
Bottom
Quintile
Fourth
Quintile
Third
Quintile
Second
Quintile
Top
Quintile
Least Free ……………. Most Free
Sources: The Fraser Institute; Freedom House, Freedom in the World Country Ratings,
1972 through 2003, available at http://www.freedomhouse.org/ratings/index.htm
39
(accessed on July 5, 2005).
Economic Freedom and Civil Liberties
ten representing the highest degree of civil liberties
and zero the lowest
Civil Liberties
(out of 10)
10
8
6
4
2
0
Bottom
Quintile
Fourth
Quintile
Third
Quintile
Second
Quintile
Top Quintile
Least Free …….. Most Free
Sources: The Fraser Institute; Freedom House, Freedom in the World Country
Ratings, 1972 through 2003, available at
40
http://www.freedomhouse.org/ratings/index.htm (accessed on July 5, 2005).
The impact of Economic Freedom on
the UN’s Human Development Index
and other indicators of well-being
41
United Nations
Human Development
Index, 2002
Human Development Index, 2002,
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 2004, available at
42
http://hdr.undp.org/statistics/data/index_indicators.cfm (accessed on July 5, 2005).
Life Expectancy at Birth and
Economic Freedom Quintiles
80
Years
60
40
20
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 CD-
ROM, 2005.
43
Per 1,000 live births, 2003
Infant Mortality and Economic
Freedom Quintile
100
80
60
40
20
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
44
Adult Mortality (2000) and
Economic Freedom Quintile
Mortality rate, adult (per
1,000 adults)
500
400
300
200
100
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
CD-ROM, 2005.
45
Economic Freedom and Labor force,
children 10-14 (% of age group)
Percentage of children
10-14 who are in the
labour force
25
20
15
10
5
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
CD-ROM, 2005.
46
% of Population Using Improved
Water Sources, 2002
100
Percentage
80
60
40
20
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
CD-ROM, 2005.
47
The Arab
World
48
Area 1: Size of Government
7
6
5
4
3
2
1990
Non Gulf stae
1995
2000
World Average
2003
Gulf states
49
Area 2: Rule of Law
7
6
5
4
3
2
1990
Non Gulf stae
1995
2000
World Average
2003
Gulf states
50
Area 3: Sound Money
9.5
9
8.5
8
7.5
7
6.5
6
5.5
5
1990
Non gulf states
1995
2000
World Average
2003
Gulf states
51
Area 4: Freedom to Trade
8
7.5
7
6.5
6
5.5
5
4.5
1990
Non Gulf states
1995
2000
World Average
2003
Gulf states
52
Area 5: Regulations
7.5
7
6.5
6
5.5
5
4.5
4
1990
Non Gulf states
1995
2000
World Average
2003
Gulf states
53
Overall Score
8
7.5
7
6.5
6
5.5
5
4.5
4
1990
Non Gulf states
1995
2000
World Average
2003
Gulf states54
Compared to top 12
10
9
8
7
6
5
4
3
2
1
0
Non Gulf
states
World
Average
Gulf
states
Top 12
Size of Govt. Legal System Sound Money Freedom to
trade
Regulation
Overall
55
Oman’s Profile
10
Size of gov
9
Rule of law
8
Sound money
7
Trade
6
Regulation
5
Overall
4
1990
1995
2000
2003
56
Arab Overview
1990
0
20
40
60
80
100
120
1995
2000
2003
Unit. Arab Em
Oman
Bahrain
Kuwait
Jordan
Egypt
Tunisia
Morocco
Syria
57
Arab World Conclusions

Arab nations have closed the gap with world
average or moved ahead
 But this reflects two trends
– Gulf states typically high and gaining in economic
freedom
– Other Arab states backsliding or stagnant, except for
gains by Jordan

Gulf states typically in or close to the top 12
 Rest of Arab world must continue progress to
reach top 12
58
Conclusions
Economic Freedom spurs

Increased prosperity for all
 Poverty reduction
 Other freedoms
 Reduces Probability of War
 Quality of life improvements
All this can be seen in today’s data
and lessons from history
59
www.freetheworld.com
www.fraserinstitute.ca
[email protected]
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