Economic Freedom Index Reveals Continued US Slide

By: Sofía Ramírez Fionda - Jan 14, 2014, 6:21 pm

EspañolThe Heritage Foundation — a US-based free market policy institute — today released its 2014 Index of Economic Freedom. This ranking, published since 1995, aims to compare the economic and entrepreneurial environments across 178 countries.

The report shows a slight increase for economic freedom across the entire world. However, it also affirms the continued decline of the United States, slipping to 12th from 10th, amid diverse results throughout the rest of the continent. Canada leads in sixth, closely followed by Chile in seventh; then Venezuela and Cuba occupy the tail end at 175th and 177th, respectively.

The average score of all 178 countries studied was 60.3, seven-tenths of a point above the 2013 average. For the highest score in the history of the index, 114 countries improved their scores, while just 59 declined.

The top-ten mostly occupy the Asia-Pacific region: Hong Kong, Singapore, and Australia head the index. Then Switzerland, New Zealand, Canada, Chile, Mauritius, Ireland, and Denmark constitute the top-ten — all with higher scores than 75 points.

South and Central America: Leading Both Extremes

South and Central America was the most varied of all regions within the Index. Composed of 29 nations, 17 improved their scores in 2014, while 12 countries declined.

The index categorizes one country as “Free” — Chile — and two as “Mostly Free” — Saint Lucia and Colombia. Colombia managed this climb by improving its score by 1.1 points. Chile, on the other hand, continues to lead the region and the world, maintaining its ranking of seventh with a score of 78.7.

south america economic freedon 2014

Source: Heritage Foundation, 2014 Index of Economic Freedom.

On the other hand, six Latin-American countries are in the “repressed economies” category: Haiti, Bolivia, Ecuador, Argentina, Venezuela, and Cuba. Argentina — which joined this group in 2012 — showed the worst decline in the region (-2.1), with a final score of 44.6. Cuba and Venezuela have even lower scores, at 28.7 and 36.3 points, respectively.

James Roberts, a research fellow for economic freedom and growth with the Heritage Foundation, thinks the foundations of economic freedom are collapsing in Venezuela and Argentina:

“[They] have tried price control strategies to try to reduce the runaway inflation that is plaguing both countries. The actual rates of inflation in both Argentina and Venezuela are much higher than the reports issued by governmental statistics agencies,” he shared with the PanAm Post.

“For Argentina, 8 of the 10 economic freedoms have deteriorated because of policies that include harsh capital controls, price fixing, restrictions on imports, and a series of nationalizations. The Venezuelan government’s highly expansive fiscal and monetary policy, coupled with exchange and price controls, has resulted in a sharply overvalued official exchange rate. . . . The inflation problems are the result of poor monetary and fiscal policies in a climate where rule of law and property rights are not respected. These price control strategies have failed and have exacerbated the loss of economic freedom.”

Heritage’s researchers added that, even though the South and Central America region gained in economic freedom last year, corruption and weak property rights impeded its progress.

Methodology and Categories

On a 0-100 scale, researchers measure 10 components in economic freedom, which they then weight equally and average. The scores classify countries as “free” (80 or more); “mostly free” (70-79.9); “moderately free” (60-69.9); “mostly unfree” (50-59.9); or “repressed” (under 50).

The freedom index takes into account four overarching aspects of the economic environment: rule of law, government size, regulatory efficiency, and openness to trade. The data that assesses these comes from the latter half of 2012 and the first half of 2013.

The first category, rule of law, has two components: property rights as a qualitative assessment — how freely individuals can accumulate private property, and freedom from corruption.

The second, government size, also includes two factors: fiscal freedom and government spending. fiscal freedom includes the burden of direct and indirect taxes imposed by all levels of government as a percentage of economic activity. Similarly, government spending is a total relative to the size of the economy, but Heritage does not offer an ideal level. Within the range on offer, simply lower is better.

The third variable, regulatory efficiency, includes ease of starting a business, labor mobility, and monetary freedom. That includes the inflation rate and price controls.

Finally, openness to trade is a function of tariff and non-tariff barriers (NTF), investment freedom — measured by constraints to the flow of investment capital — and financial freedom, which analyses banking efficiency.

This index methodology, however, has generated concern. Robert Lawson, coauthor of the Economic Freedom of the World Report by Fraser Institute, notes that “Their numbers are generally consistent with ours, though there are differences. [But] It hasn’t always been easy to discern how they arrive at their final ratings.”

For example, the index scores the freedom of corruption component with Transparency International’s Corruption Perceptions Index (CPI), which is based on perceptions, rather than actual cases of corruption.

Another case would be the non-tariff barriers component, which merges both qualitative and quantitative data, due to the difficulty of identifying them quantitatively. NTBs include quotas, investment, and price restrictions, but also some qualitative categories, such as regulatory restrictions and direct government intervention.

2014 Heritage Index of Economic Freedom

South America, Central America, and the Caribbean
Country NameWorld RankRegion Rank2014 Score
Saint. Lucia33270.7
Saint. Vincent and the Grenadines52866.9
Costa Rica53966.9
El Salvador591166.1
Trinidad and Tobago731462.7
Dominican Republic801661.3
Sofía Ramírez Fionda Sofía Ramírez Fionda

Based in Buenos Aires, Argentina, Ramírez Fionda is a former Spanish-language editor and journalist with the PanAm Post. She holds degrees in political science and international relations, and you can follow her on Twitter @SofiFionda.

Fixing Puerto Rico: Part I

By: Frank Worley-Lopez - Jan 14, 2014, 1:16 pm

Read: Part II, Part III, and Part IV. I have always been a moral rebel. I’ve broken at least half of the Ten Commandments, maybe more. I don’t like being told what to do and don’t like government trying to be my parent. However, despite my years as a prodigal son, it is hard not to recognize that the fundamentals of right and wrong are critical to the survival of all societies. It is probably important to address what the fundamentals of right and wrong actually entail. Right and wrong are not about sexual preferences; they are not about whether you drink or smoke; and they are not about any other personal choice issue. Right and wrong are not about lechon (pork), Reggaeton music, or sexually suggestive dancing. Those are moral codes, developed by and imposed by religion and something each individual should resolve with his own deity. Right and wrong are the basic rules highlighted in the poem by Robert Fulghum: Share everything. Play fair. Don't hit people. Put things back where you found them. Clean up your own mess. Don't take things that aren't yours. Say you're sorry when you hurt somebody. Wash your hands before you eat. Flush. Warm cookies and cold milk are good for you. Live a balanced life - Learn some and think some And draw and paint and sing and dance And play and work everyday some. Take a nap every afternoon. When you go out into the world, Watch out for traffic, Hold hands and stick together. Be aware of wonder. I am a big fan of cookies and naps, but not milk. These simple rules, when not taken out of context could save Puerto Rico. They are the simple application of decency in its simplest expression. Maybe not all apply in every circumstance, but most apply at least once a day. These kinds of simple non-intrusive rules are lost on generations whose sense of entitlement has twisted their understanding of how their actions or lack of actions impact others. Allow me to highlight a few. Play Fair The whole world could use some of this, although it may be just too hard for humanity to achieve. A simple sense of fairness that you have to be honest in your dealings with others, including your opponents, struggles to find traction. In politics, one party supports one thing, and the other opposes it. A few years later, roles are reversed on exactly the same issue. Both parties likely already know how to solve the island's problems, but partisan politics and fears of attacks from the other party make it impossible for either side to simply move forward. Don’t Hit People (or kill them) There exists almost no respect for others on the streets of Puerto Rico. Women and men are often abused by spouses, and the violence on the streets — although the murder rate is down — is still out of control. Put Things Back Where You Found Them; Clean Up Your Own Mess From politicians to individual citizens, imagine how much time and money could be saved if people did this on their own. If a government policy turns disastrous, it is incumbent on the instigator to acknowledge the failure and fix it. Similarly, if you want to clean the environment, stop throwing trash on the ground. Don’t Take Things That Aren’t Yours Petty theft, armed robbery, and respect for private property are lost in the Puerto Rico of today. This trend follows the socialist left's attempt to make all property public and to hate those who have more property than they do. Want prices to go down, insurance rates? Respect for private property is a must. Say You’re Sorry Accept responsibility for your actions, whether in your private life or public life. Make amends to those whom you have hurt. There are so many people who seem to think that an apology is a sign of weakness, when in fact it is a sign of strength and resilience. We can do better, and it starts with how we treat others. All of these things fall under the heading of "personal responsibility." It is the part of liberty, however, that everyone seems to forget: you are free to choose, but you and you alone are responsible for the choices you make. This basic rule should be taught in every kindergarten class in Puerto Rico, and if I had my way, throughout the world. The fundamentals of right and wrong may seem inflexible, but they should be. Further, while some basic rules should be taught in school, parents have the primary responsibility for teaching these things in voice and in act. So far, most of us have failed. There is one other point from this poem that I would like to highlight and it may be the most important one. Be Aware of Wonder Puerto Rico is an amazing place, full of amazing people. Yet her beauty and style is tarnished by decades of dirty politics and the blood of thousands of murder and other crime victims. We should not lose sight of this ever. If we must fight, if we must argue and debate, can we at least agree on what direction we are trying to go? Our intent is and should be to bring paradise back to itself.

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