The Heritage Foundation have released its 2011 Index of Economic Freedom, which compares metrics like the tax burden, ease of doing business and other reflections of these countries’ economic freedom. A few thoughts:
- Since the values are relative, the fact that a country like the UK does fairly well (ranking 16th out of 179 countries) doesn’t tell us very much about the state of economic freedom here in any helpful sense. It just tells us that most other places are even worse.
- Historical comparisons are a more useful guide than contemporary ones, because shifts in economic freedom often trend across the world. If most countries bailed out their banks to roughly the same extent during the financial crisis, for example, the rankings wouldn’t show much movement.
- Direct comparisons between all countries can be misleading. Some have pointed out the UK’s abysmally low ranking in the ‘fiscal freedom’ list, which shows the proportion of total tax revenue. But some other countries that score badly here are quite wealthy and economically healthy – Denmark, Sweden, the Netherlands – while some that score well – Turkmenistan, Albania, Cambodia – are not. This discrepancy can be explained by the fact that it is less harmful to take a large chunk of people’s income in wealthy countries – where the marginal value is lower – than in poor countries – where the marginal value would be rather high.
- Free markets are like rocket fuel for poor countries. Two of sub-Saharan Africa’s richest economies, Botswana and Mauritius, are also by far its freest. (Gabon and Equatorial Guinea are also rich but do badly on the scale – both have recently tapped into enormous oilfields, and the money is almost entirely siphoned off by government officials.)
- Free markets and free people correlate strongly. All but 3 of the 33 “free” or “mostly free” economies are also rated as being “free” or “partly free” by Freedom House. In contrast, more than two thirds of the bottom 33 are rated as being “not free”.
It’s probably impossible to correctly weigh the relative importance of different economic factors in an economy, and there’s no reason to think that the same weights would apply to different countries. Nevertheless, the list is useful and I may try to graph economic freedom against growth rates, civil liberties, and other factors that might correlate interestingly. Heritage have done good briefings on each country, so the list is well worth a look.
