Venezuela Dead Last for Economic Freedom
If the Chavistas hoped to extinguish capitalism in Venezuela, they have been successful. For the second year in a row, the Economic Freedom of the World Report has identified the “Bolivarian Republic” as the least free in its 152-nation ranking. The only consolation may be that other notorious cellar-dwellers for freedom — Cuba, North Korea, and Eritrea — did not have sufficient data to be included.
The 2013 report, released this week and published by the Fraser Institute of Canada, utilizes data for 2011, the most recent available — and it finds Hong Kong, Singapore, and New Zealand to be the top three. The Republic of Congo (150), Myanmar (151), and Venezuela (152) occupy the bottom of the list.
Canada and Chile are the top performers in the Americas, at 8th and 11th, respectively — although both have fallen since last year, from 5th and 10th. The United States (17), Peru (22), and the Bahamas (39) rounded out the top five on the continent.
The project began as the brainchild of Milton Friedman back in the early 1990s, and the authors identify “personal choice, voluntary exchange, freedom to compete, and security of private property” as “the cornerstones of economic freedom.” More specifically, they break that down into: size of government, legal system and property rights, sound money, freedom to trade internationally, and regulation (p.12, PDF).
They affirm these as necessary not only for elevated productivity and longer lifespans, but also for political and civil liberties.
“The link between economic freedom and prosperity is undeniable,” says Fred McMahon, the research chair who oversees the project. “The nations with the most economic freedom also offer people the best quality of life. Compare the bottom-ranked countries, where oppressive regimes deny their citizens opportunities for economic growth and personal freedom.”
Venezuela achieves its outcome by performing poorly in all five measurement areas. However, it fares worst with its openness to international trade (151), regulatory environment (151), and sound money (149) — or lack thereof (p.22, PDF). Considering that Venezuela is entering a period of hyperinflation, depending on one’s definition of the term, its standing will only have worsened since the 2011 data.
Canada, the only nation in the Americas to make the top ten, does so on account of its legal system and property rights (11) and stable regulatory environment (8). Chile, which slipped out of the top ten this year, performs best in openness to trade (17).
The primary criticisms of indexes such as these focus on the weightings — that they are arbitrary. In fact, a newer freedom index, the Freedom in the 50 States ranking by the Mercatus Center, responds to this by weighting each input based on public polling. They also allow for personal preferences, whereby one can adjust the input weightings to observe customized results.
Additionally, many critics dispute whether all inputs, such as marginal income tax rates and the size of government, have any clear bearing on economic growth. New Zealand, for example, is one of the top performing nations that has a relatively large government sector — ranked 72nd at 40 percent of the economy — but, according to the ranking, the nation offsets that with a superior legal environment.