2015 INDEX OF ECONOMIC FREEDOM:
The world economy is “moderately free,” with a slight rise in economic liberty leading to a third annual global increase, according to the editors of the 2015 Index of Economic Freedom, released today by The Heritage Foundation and The Wall Street Journal.
The world average score of 60.4 is only one-tenth of a point above the 2014 average, but represents a 2.8-point overall improvement since the inception of the Index in 1995. Thirty-seven countries, including Taiwan, Israel, Poland and Colombia, achieved their highest-ever Index scores. Among the 178 countries ranked, scores improved for 101 countries and declined for 73. Ninety economies, or about half of all nations and territories graded in the Index, provide at least a moderate level of economic freedom for their citizens.
Yet the number of people living in economically “unfree” countries remains high: 4.5 billion, or about 65 percent of the world’s population. More than half live in just two countries: China and India. Twenty-six countries have “repressed” economies (scores below 50), while only five have earned the Index’s designation of “free” (scores above 80).
“The fundamental relationship between economic freedom and prosperity is readily apparent worldwide,” the editors write. “No matter the region, per capita income levels are consistently higher in countries that are economically freer.”
Despite being the only North American economy to improve in the 2015 Index, the United States remained stuck in the 12th spot globally and the second one regionally (behind Canada, which is once again No. 6 globally despite a 1.1-point drop in its score). The 2015 Index reports modest gains in six categories for the U.S., including control of government spending, which outweighed a small decline in business freedom.
Hong Kong and Singapore finished first and second in the rankings for the 21st consecutive year, although only two-tenths of a point separate their overall scores. New Zealand, which logged almost a full-point improvement last year, moved up two slots and reclaimed third place in the rankings, outperforming Australia (4th) and Switzerland (5th).
Chile’s score declined slightly, but it took seventh place. The score for Mauritius, the only Sub-Saharan country to rank among the top 10, declined one-tenth of a point, and it slid from eighth place globally to 10th. Estonia, meanwhile, rode an improved score into the world’s No. 8 slot, while Ireland again finished ninth.
The Most Free
1. Hong Kong
3. New Zealand
The Least Free
178. North Korea
173. Equatorial Guinea
170. Rep. of Congo
Launched in 1995, the Index evaluates countries in four broad policy areas that affect economic freedom: rule of law; limited government; regulatory efficiency; and open markets. There are 10 specific categories: property rights, freedom from corruption, fiscal freedom, government spending, business freedom, labor freedom, monetary freedom, trade freedom, investment freedom, and financial freedom. Scores in these categories are averaged to create an overall score.
Based on an average score, each of 178 countries graded in the 2015 Index is classified as “free” (i.e., combined scores of 80 or higher); “mostly free” (70-79.9); “moderately free” (60-69.9); “mostly unfree” (50-59.9); or “repressed” (under 50).
The world’s most-improved country is São Tomé and Príncipe, which saw its score rise 4.5 points, thanks to improvements in seven of the 10 economic freedoms, including regulatory efficiency and the rule of law. But it remains a “mostly unfree” economy with an overall score of 53.3. Equatorial Guinea’s Index score declined the most worldwide (4.0 points) due largely to an increase in government spending. This dropped it further in the “repressed” category and placed it among the world’s “bottom 10” economically.
The Index also studies economic freedom on a regional basis. In the 2015 Index, economic freedom levels rose in all but two regions: North America, and South and Central America/Caribbean. Middle-East/North Africa, Europe, and Sub-Saharan Africa charted regional improvements, with The Philippines, Malaysia and Taiwan in particular helping the Asia-Pacific region post the biggest gain.
Asia-Pacific countries dominate both the top and the bottom of the 2015 Index rankings. Hong Kong, Singapore, New Zealand and Australia took four of the top five slots worldwide. North Korea remains least economically free in the world, and Uzbekistan, Burma, Kiribati, Timor-Leste and Turkmenistan all rank 160th or lower.
Hong Kong maintained its status as the world’s freest economy, but a 0.5 drop in its score narrowed the gap between it and Singapore, (whose score remained unchanged from the 2014 Index) to only 0.2 points. Hong Kong’s “failure to deliver promised meaningful electoral reform has galvanized greater pro-democracy sentiments … and undermined trust and confidence in the government,” the editors note.
Europe continues to boast a large number of economically free countries: nine of the world’s 20 freest are in Europe, and the vast majority in that region are considered at least “moderately free.” But, the editors say, Europe “still struggles with a variety of policy barriers to dynamic economic expansion,” such as costly labor regulations and higher tax burdens, leading to stagnant economic growth, fiscal deficits and mounting debt.
Three Baltic economies (Estonia, Lithuania and Latvia) have made good strides and are experiencing greater economic freedom as a result. Overcoming severe recessions following the global financial turmoil, these countries have maintained their openness to global markets and competition, further reformed their economies, and made their governments smaller. Each has advanced economic freedom and moved up in the global rankings every year since 2012.
North America is still the world’s freest region. Yet Canada, which has led the region since 2010, lost 1.1 points and slid into the “mostly free” category. The United States is also a “mostly free” economy; Mexico is “moderately free.” The U.S. recorded modest gains in six of the 10 Index-measured freedoms, but it still has much work to do (in the area of business freedom, for example) before it can regain a spot among the world’s 10 freest economies.
The South and Central America/Caribbean region as a whole countered the positive direction charted in the 2015 Index. Of its 29 countries, 13 recorded gains in economic freedom, 15 declined, and one stayed the same. Despite a small drop in its score, Chile easily retained the top spot in the region, joined by Colombia (which logged its highest Index score ever) and Saint Lucia as the region’s only “mostly free” economies. Haiti’s score improved by 2.4 points, lifting it out of the “repressed” category. Argentina and Venezuela continued to drop in the rankings, edging closer to the region’s least free economy, Cuba.
Most of the 15 countries graded in the Middle East/North Africa region are in the “moderately free” or “mostly unfree” categories, with two repressed (Iran and Algeria ) and four “mostly free” (Bahrain, United Arab Emirates, Qatar, and Israel, whose 2.1-point gain lifted it into the “mostly free” category). Bahrain remained the region’s top performer in the Index at No. 18, despite a 1.7 point loss, and an overall score of 73.4 points. Morocco posted a 1.8-point rise in its score, pulling it out of the ranks of the “mostly unfree.”
Sub-Saharan Africa’s overall level of economic freedom remains low, yet the region recorded the most widespread gains in economic freedom over the last year, according to the Index editors. Sub-Saharan Africa is home to six of the 10 biggest score improvements (São Tomé and Príncipe, Democratic Republic of Congo, Togo, Senegal, Burundi and Zimbabwe), although a majority of the region’s economies are either “mostly unfree” or “repressed.”
Twenty-seven of its 46 economies posted improved Index scores. São Tomé and Príncipe’s 4.5-point gain moved it out of the “repressed” category, while the Democratic Republic of Congo’s 4.4-point improvement lifted it out of the world’s bottom 10 economies. Mauritius, despite a slight decline in its score, remains the region’s leader, followed by Botswana, which lost 2.2 points, dropping it into the “moderately free” category.
The 2015 Index was edited by Ambassador Terry Miller, director of Heritage’s Center for Trade and Economics and Center for Data Analysis; and Anthony B. Kim, senior policy analyst in the Center for Trade and Economics. Copies of the Index (492 pages, $24.95) may be ordered online at www.heritage.org/index or by calling 1-800-975-8625. The full text, including charts and graphs, also is available online.
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