The Economic Freedom of the World: 2011 Report Economic Freedom Overview: Benefits, Arab and World data, and Index Comparisons. Fred McMahon Vice-president International Research The Fraser Institute
Economic Freedom of the World Project • Objective: find a way to measure economic freedom and explore the connection between it and other variables • 30 year project • Led by the late Milton Friedman and Rose Friedman, and Michael Walker • Involved 60 of the world’s top scholars
What is the EconomicFreedom of the World Index?• An annual compilation of data representing factors which make a country economically free• Authors: James Gwartney, Robert Lawson, and Joshua Hall• A compendium of 42 government policies affecting economic freedom based on objective data or independent surveys• A ranking of 141 countries representing 95% of the world’s population according to the extent to which they permit their citizens to be economically free• Now a collaboration of Institutes in 80 nations and territories
What is Economic Freedom Individuals have economic freedom when property they acquire without the use of force, fraud, or theft is protected from physical invasions by others and they are free to use, exchange, or give their property as long as their actions do not violate the identical rights of others. An index of economic freedom should measure the extent to which rightly acquired property is protected and individuals are engaged in voluntary transactions. James Gwartney et al. 1996
Components of the EconomicFreedom of the World Index•Size of government and taxation•Private property and the rule of law•Soundness of money•Trade regulation and tariffs•Regulation of business, labour and capital marketsBased entirely on objective, third party data and independent surveys for 141 countries
The Fraser World Index and the Arab Economic Freedom IndexCompared to the Competition
ECONOMIC FREEDOM INDICES• The Fraser non-quantitative variables are in fact transparent and because of this, they are replicable. In each case, the Fraser analysts explain how they obtained and scored these variables.• The Heritage reports quantitative variables are much less transparent and, as a result are not reliably replicable by outsiders.
USAID MISSION/CAIRO:The argument for preferring the Fraser … index to the Heritage method is as follows:• First, the Fraser Index is decidedly less ideological in composition and more strongly based in economic theory …• Second, its methodology has consistently been far more transparent;• Third, the Fraser analysts see their index as an evolving tool, introducing methodological modifications in each succeeding report as continuing research may indicate—and doing so in transparent fashion;• Fourth, the lengthy time series of Fraser Index values for Egypt give us a track record that can be compared to actual historical conditions;• Finally, the Fraser analysts confine their efforts to a smaller sample of countries, which may be possibly indicative of greater care and selectivity in the use of available data.
Member Institutes of Economic Freedom of The World NetworkAfghanistan Economic and Legal Studies Liberales Institut, GermanyOrganization (AELSO), Afghanistan The Institute of Economic Affairs, GhanaAlbanian Center for Economic Research (ACER), Centro de Investigaciones Económicas Nacionales, Initiative for Public Policy Analysis, NigeriaAlbania Guatemala Center for Business and Society Incorporated (Civita),Fundación Libertad, Argentina InafEcon-Institute of African Economics, Guinea NorwayCentre of Political, Legal and Economic Researches Institut de Recherche pour la Liberté Economique et la International Research Foundation (IRF), Omanand Forecasting (PLERF), Armenia Prospérité (IRLEP), Haiti Alternate Solutions Institute, PakistanInstitute of Public Affairs, Australia Centro de Investigaciones Economicas y Sociales (CIES), Pal-Think for Strategic Studies, PalestineTIGRA®, Austria Honduras Fundación Libertad, PanamaCenter for Economic and Political Research, Hong Kong Centre for Economic Research, Hong Kong Centro de Investigación y Estudios Legales (CITEL), PeruAzerbaijan Szazadveg Foundation, Hungary The Center for Research and Communication, PhilippinesThe Nassau Institute, Bahamas Centre for Social and Economic Research (RSE), Iceland Centrum im. Adama Smitha, PolandMaking Our Economy Right (MOER), Bangladesh Centre for Civil Society, India Causa Liberal, PortugalScientific Research Mises Center, Belarus The Institute for Development of Economics and Finance, Romania Think Tank, RomaniaCentre for the New Europe, Belgium Indonesia Institute of Economic Analysis, RussiaPoliticas Publicas para la Libertad (POPULI), Bolivia Open Republic Institute, Ireland Free Market Center (FMC), SerbiaInstituto Liberal do Rio de Janeiro, Brazil Jerusalem Institute for Market Studies, Israel The F.A. Hayek Foundation, Slovak RepublicInstitute for Market Economics, Bulgaria Centro Einaudi, Italy The Free Market Foundation of Southern Africa, SouthLe Centre des Affaires Humaines (CEDAH), Burkina Young Entrepreneurs Association, Jordan AfricaFaso Central Asian Free Market Institute, Kazakhstan Fundacio Catalunya, SpainThe Cambodia Institute of Development Study, African Research Center for Public Policy and Market Pathfinder Foundation, Sri LankaCambodia Process, Kenya Nile Institute of Economic Studies, SudanInstituto Libertad y Desarrollo, Chile Center for Free Enterprise, Korea Timbro, SwedenCenter for China & Globalization, China Group for Legal and Political Studies, Kosovo Liberales Institut, SwitzerlandInstituto de Ciencia Politica, Colombia Economic Policy Institute-Bishkek Consensus, Kyrgyz Tajikistan Free Market Centre, TajikistanInstituto para la Libertad y el Análisis de Políticas, Republic Arthur Lok Jack Graduate School of Business, TheCosta Rica Lithuanian Free Market Institute, Lithuania University of the West Indies, Trinidad and TobagoAudace Institut Afrique, Côte d’Ivoire DLetzeburger Land, Luxembourg Association for Liberal Thinking, TurkeyThe Institute of Economics, Croatia Institute for Democracy and Economic Affairs (IDEAS), The Ukrainian Center for Independent Political Research,Liberální Institut, Czech Republic Malaysia UkraineCenter for Politiske Studier (CEPOS), Denmark Centro de Investigación para el Desarrollo A.C., Mexico The Institute of Economic Affairs (IEA), United KingdomFundación Economía y Desarrollo Inc, Dominican Open Society Forum, Mongolia CATO Institute, USARepublic The Center for Entrepreneurship and Economic The Centre for the Dissemination of Economic KnowledgeInstituto Ecuatoriano de Economía Política, Ecuador Development, Montenegro (CEDICE), VenezuelaInstitut Economique Molinari, France The Prosperity Foundation, Nepal Research Center for Entrepreneurship Development,Society for Disseminating Economic Knowledge: New The New Zealand Business Roundtable, New Zealand VietnamEconomic School, Georgia Zambia Institute for Public Policy Analysis (ZIPPA), Zambia
Translations and Sub-national and Regional Indices
Introducing the 2011 EconomicFreedom of the World Index Results
Overall Economic Freedom Index and the Top 10 Hong Kong Singapore New Zealand Switzerland Australia Canada ChileUnited Kingdom Mauritius United States 0 2 4 6 8 10 Score (out of 10) Source: The Fraser
Overall Economic Freedom Index and the Bottom Ten Chad Burundi Congo, Rep. Of Guinea-BissauCentral Afr. Rep. Congo, Dem. R. Angola Venezuela Myanmar Zimbabwe 0 2 4 6 8 10 Score (out of 10) Source: The Fraser
Why is Economic Freedom Important?• Economic rights are fundamental rights in the sense that without them there can be no political freedom or civil freedoms• They are a prerequisite for growth and development• They are a prerequisite for broader human development
Per Capita Income and Economic Freedom Quartile $35,000 $30,000GDP Per Capita $25,000 (ppp), 2009 $20,000 $15,000 $10,000 $5,000 $0 Most Free 2nd Quartile 3rd Quartile Least Free Quartile Quartile Most Free ……………. Least Free Sources: The Fraser Institute; The World Bank, World Development Indicators, 2011.
Growth in Developing Nations PerCapita and Economic Freedom Quartile GDP Per Capita % Growth, 3.5 3.0 2.5 1990-2009 2.0 1.5 1.0 0.5 0.0 Most Free 2nd Quartile 3rd Quartile Least Free Quartile Quartile Most Free ……………. Least Free Sources: The Fraser Institute; The World Bank, World Development Indicators, 2011.
Income Share of the Poorest 10% and Economic Freedom 3.0% Lowest 10%, 1990-2009 Income Share Held by 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Most Free 2nd 3rd Least Free Quartile Quartile Quartile Quartile Most Free ……………. Least Free Sources: The Fraser Institute; The World Bank, World Development Indicators, 2011.
Income of the Poorest 10% and Economic Freedom $9,000Income of the Lowest $8,000 10%, 1990-2009 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 Most Free 2nd 3rd Least Free Quartile Quartile Quartile Quartile Most Free ……………. Least Free Sources: The Fraser Institute; The World Bank, World Development Indicators, 2011.
Economic Freedom and Political Rights Low scores indicate high level of rights 5.0 4.0Political Rights (out of 7) 3.0 2.0 1.0 0.0 Most Free 2nd Quartile 3rd Quartile Least Free Quartile Quartile Most Free ……………. Least Free Sources: The Fraser Institute; Freedom House, Freedom in the World Country Ratings, 2009, available at http://www.freedomhouse.org/.
Economic Freedom and Civil Rights Low scores indicate high level of rights 5.0 4.0Civil Liberties (out of 7) 3.0 2.0 1.0 0.0 Most Free 2nd Quartile 3rd Quartile Least Free Quartile Quartile Most Free ……………. Least Free Sources: The Fraser Institute; Freedom House, Freedom in the World Country Ratings, 2009, available at http://www.freedomhouse.org/.
Economic Freedom and Corruption High scores indicate low corruption 10Corruption Rating 8 (out of 10) 6 4 2 0 Most Free 2nd Quartile 3rd Quartile Least Free Quartile Quartile Most Free ……………. Least Free Sources: The Fraser Institute; Transparency International, Corruption Perceptions Index, 2010 available at http://www.transparency.org.
The impact of Economic Freedom onother indicators of well-being
Economic Freedom and Life Satisfaction 8.0 7.0 Life Satisfaction 6.0 (out of 10) 5.0 4.0 3.0 2.0 1.0 0.0 Most Free 2nd Quartile 3rd Quartile Least Free Quartile Quartile Most Free ……………. Least FreeSources: The Fraser Institute; (un)Happy Planet Index 2.0. Why good lives dont haveto cost the Earth. 2009.
Literacy Male Female 100.5 80.5 60.5 40.5 20.5 0.5 Most Free Quartile 2nd Quartile 3rd Quartile Least Free Quartile Most Free ……………. Least FreeSources: The Fraser Institute; United Nations Development Programmme, HumanDevelopment Indicators 2011, available at http://hdr.undp.org/.
Life Expectancy at Birth andEconomic Freedom Quartiles 80 60 Years 40 20 0 Most Free 2nd Quartile 3rd Quartile Least Free Quartile Quartile Most Free ……………. Least FreeSources: The Fraser Institute; The World Bank, World Development Indicators, 2011.
ConclusionsEconomic Freedom• Increases prosperity for all• Reduces poverty• Increases other freedoms• Improves quality of life• To achieve these gains, Malaysia needs to increase economic freedom