The 247-page report utilizes data from 157 countries, and measures the degree of economic freedom in five areas: size of government; legal structure and security of property rights; access to sound money; freedom to trade internationally; and regulation of credit, labor, and business. The index is based on data from 2013, the most recent year for which all numbers are available.
— The Fraser Institute (@FraserInstitute) September 14, 2015
“Economic freedom is present when individuals are permitted to choose for themselves and engage in voluntary transactions as long as they do not harm the person or property of others,” the study reads.
“The cornerstones of economic freedom are personal choice, voluntary exchange, freedom to enter markets and compete, and security of the person and privately owned property.”
The top three winners for this year, just as in 2014, are Hong Kong, Singapore, and New Zealand. Switzerland, the United Arab Emirates, Mauritius, Jordan, Ireland, Canada, and the United Kingdom and Chile (tied for 10th position), respectively complete the list of the top 10 freest economies of the world.
The United States, which occupied 12th position last year, fell down to 16th. On this change, authors James Gwartney, Robert Lawson, and Joshua Hall wrote:
“Nowhere has the reversal of the rising trend in the economic freedom been more evident than in the United States … unless policies undermining economic freedom are reversed, the future annual growth of the US economy will be only about half its historic average of 3%.”
Although the United States has seen percentage reductions in the EWF’s five areas of study, the most “alarming” decline has been to the legal system and protection of property rights.
According to the report, factors behind this plunge include “the increased use of eminent domain to transfer property to powerful political interests, the ramifications of the wars on terrorism and drugs, and the violation of the property rights of bondholders in the auto-bailout case.”
Latin America on the Wrong Track
Although Chile remains an example of economic freedom and development in Latin America, most countries in the region exhibit an unfavorable performance on this year’s EWF index.
Peru has had a significant fall, from 20th in 2014 to 41st in 2015. In the same vein, Costa Rica has descended from 23rd to 25th.
Furthermore, Brazil fell 15 spots to an unenviable 118th; whereas neighbour countries Colombia and Ecuador also descended from 104th to 106th and 131st to 135th, respectively.
Among the lowest-rated countries of the world, Cristina Kirchner’s Argentina takes the 152nd spot, and Nicolás Maduro’s Venezuela remains stuck at the end of the list.
The other nations that complete the bottom 10 are: Angola (148), the Central African Republic (149), Zimbabwe (150), Algeria (151), Syria (153), Chad (154), Libya (155), and the Republic of Congo (156).
On the other hand, a few Latin American nations have had better luck in the ranking. Between 2014 and 2015, Guatemala rose 15 spots to occupy the 33rd place. Moreover, Panama managed to rise 17 spots, and is now ranked 49th.
More Economic Freedom, More Happiness
The last chapter of the report, written by Hans Pitlik, Dulce M. Redín, and Martin Rode, is titled “Economic Freedom, Individual Perceptions of Life Control, and Life Satisfaction.” It explains that living in a country with high overall economic freedom is a relevant determinant of feeling in control of one’s own life.
Thus, the authors state that economic freedom has a strong impact on individual happiness, because it gives people the feeling of being more in control of their own lives, and grants them the opportunity to choose between the different options offered in the market.
The report further concludes that people living in countries with high levels of economic freedom enjoy greater prosperity, more political and civil liberties, and longer lives than those living in nations with less economic freedom.
It shows that the average income of the poorest 10 percent of people in the most economically free nations is about 50 percent greater than the overall average income in the least free nations. In terms of life expectancy, the bottom quartile has an average of 63.1 years compared to 80.1 years in the top quartile.
Fred McMahon of the Fraser Institute points out that “economic freedom breeds prosperity, and the most economically free countries offer the highest quality of life while the lowest-ranked countries are usually burdened by oppressive regimes that limit the freedom and opportunity of their citizens.”