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World: Survey Shows Level Of 'Economic Freedom' Rising

  • Antoine Blua

The U.S.-based Heritage Foundation and "The Wall Street Journal" newspaper have published an index of countries ranked according to their respect for economic freedom. The annual report, the "Index of Economic Freedom," shows that the level of economic freedom has risen in all regions of the world.

Prague, 14 November 2002 (RFE/RL) -- The U.S.-based Heritage Foundation and "The Wall Street Journal" newspaper this week released their 9th annual "Index of Economic Freedom."

The index ranks 156 countries according to such factors as trade policy, government intervention in the economy, and respect for private property. Countries where governments play less of a role in the economy are generally judged "more free" than countries where governments play an active role. The countries are classified into four groups: "free," "mostly free," "mostly unfree," or "repressed."

In general, the 2003 Index of Economic Freedom says economic freedom around the world is increasing. The study shows that in the past year 74 of the 156 countries surveyed became economically "more free" and 49 "less free."

Brett Schaefer is a fellow at the Heritage Foundation in Washington. He tells RFE/RL his group has found that countries with more economic freedom are generally more prosperous than are those with less economic freedom:

"The conclusion of the index is that if you want to have a higher per-capita income, your country should adopt policies that embrace and increase economic globalization and freedom."

Six of the highest-rated economies are in North America and Europe, and four are in Asia.

Of the former communist states, Estonia is the clear leader, placing 6th among all countries surveyed. Schaefer says Estonia has done "remarkably well" and serves as a model for others:

"Estonia has really adopted a market-oriented economy. Its trade policy is very open. Its fiscal burden of government is very low, partly resulting from the fact that it has a flat tax [on corporate profits and personal income]. The government intervention in the economy is at a very low level as well. Its monetary policy is very stable. It encourages capital flows and foreign investment. It protects property rights, which is one of the most difficult things to achieve from a former command economy into a free market economy."

The study says Estonia eliminated most of its tariff and nontariff barriers to trade as part of a 1999 accession to the World Trade Organization. The privatization of large and medium-sized enterprises is largely complete, and the private sector contributes over 75 percent of GDP.

At the bottom of the scale is Belarus, at 151 -- judged by the survey as the "least free" country in its region. Schaefer: "[Belarus] is a 'repressed' economy. It has staggering black-market activity. Its regulation is very restrictive for business activity. It has a very strong intervention on wages and prices. Its trade policy is very protectionist. Its fiscal burden on people's income and corporate taxation and government expenditures is very large, very heavy. And it has an inflation problem, an annual average rate of inflation of 112 percent between 1992 and 2001."

Close to the bottom is Uzbekistan, at 149. Observers have expressed strong skepticism about the government's willingness to fulfill its commitments to the International Monetary Fund involving economic reforms. Schaefer says it is a "repressed" economy.

"[Uzbekistan's] trade policy is protectionist, with an average tariff rate of 29 percent. It had a very high wage and inflation rate from 1999 to 2001, at 29 percent. It says that it seeks foreign investment, but its policies on capital flows and foreign investment actually discourage it. Its banking and finance score is not conducive to a free-market banking system."

Neighbors Tajikistan, at 143, and Kazakhstan, at 119, are judged a notch above Uzbekistan, at "mostly unfree."

The survey says Kyrgyzstan and Turkmenistan showed improvement in the past year, but this was due largely to better information.

"Both of these countries improved largely because we have more accurate information than we had before. As information quality improves you'll see adjustments in the scores for specific countries. And that's what happened with Kyrgyzstan and Turkmenistan. And this is one of the side benefits of the global economy: countries are feeling compelled to give more accurate information to international financial institutions and also to private investors."

Kyrgyzstan, at 104, is a "mostly unfree" economy, while Turkmenistan, at 146, remains "repressed."

Among the Balkan countries, Schaefer singles out Slovenia, at 62, and Croatia, at 89, as having improved.

"[Slovenia] improved its fiscal burden of government score -- which is a measure of income and corporate taxation and government expenditure -- which was a reflection of Slovenia's top income rating cut. Also the government expenditures decreased very slightly as a percentage of GDP. The government intervention on wages and prices also improved."

As for Croatia (89th), Schaefer says, the improvement is based on the low level of economic freedom it had previously. Nevertheless, the country's economy remains "mostly unfree."

"Croatia's fiscal burden of government score -- which measures the impact of the government policies on the economy through taxation, and government expenditures -- improved this year. And the government intervention and monetary policy scores have both improved."

The report says Zagreb has decreased subsidies to public enterprises and at the same time approved the sale of several state-owned companies, leading to an increase in foreign investment.

(For more information, see the Heritage Foundation's website