Media ReleaseIncreasing economic freedom leads to greater democracy and prosperity according to new reportTORONTO, ON, 8 July 2003 — The Economic Freedom of the World: 2003 Annual Report, released today by The Fraser Institute, provides a roadmap for building prosperous and democratic nations, according to Nobel Laureates who helped construct the report. There is a clear correlation between countries scoring high on the UN's Human Development Index, also released today, and those countries that score well in the Economic Freedom Report. The more economically free a country, the greater the level of human development enjoyed by its citizens. The top fifth most economically free countries have an average score of 9 out of 10 on the Human Development Index whereas the bottom fifth least economically free countries have an average score of 6. "Freeing people economically unleashes individual drive and initiative and puts a nation on the road to economic growth," says Nobel Laureate Milton Friedman, one of the original creators of the Economic Freedom Index. "In turn, economic prosperity and independence from government promote civil and political liberty." The key ingredients of economic freedom are personal choice, voluntary exchange, freedom to compete, and the protection of person and property. Using 38 variables for each country (where available) the report measures the institutions essential to ensuring the rule of law, property rights, freedom to trade, sensible regulation, and reasonably sized government. "The UN Index provides a measure of success but the Economic Freedom Report goes a step farther and provides a recipe for progress," says Fred McMahon, the Institute's director of trade and globalization studies. "Economic freedom is the key component for developing free and thriving nations." Canada's RankingCanada has the world's sixth highest level of economic freedom. Canada scores very highly on legal structure, property rights, sound money, and freedom to trade. However, our overall ranking is negatively affected by relatively high government spending and taxation, and by over-regulation. Canada's ranking on last year's Economic Freedom rankings was 7th overall. This year, Canada's ranking on the Economic Freedom rankings improved while our score on the UN Human Development Index dropped. Global Economic Freedom RankingsHong Kong retains the highest economic freedom rating, followed by Singapore, the United States, New Zealand, and the United Kingdom. The rankings of other large economies are Japan, 26; Germany, 20; Italy, 35; France, 44; Mexico, 69; China, 100; India, 73; Brazil, 82; and Russia, 112. The bottom five nations are Guinea-Bissau, Algeria, Zimbabwe, the Democratic Republic of the Congo, and Myanmar. One way economic freedom advances prosperity is by attracting increased investment. The top fifth economically-free nations draw in an average foreign per capita investment of US$2,657 compared to US$52 in the least free nations. "Growth and prosperity reflect the policies and institutions of an economy," says the Report's co-author James Gwartney of Florida State University. "Countries prosper when they establish an environment where individuals can engage in productive activities and invest for the future. On the other hand, countries will stagnate when their legal system and regulatory policies restrict trade, undermine the security of property rights, and erode the value of money." Economic Freedom Leads to Greater ProsperityEmpirical research shows economic freedom leads to economic progress. As Nobel Laureate Douglass North says, "The closest thing we have to [an explanation of efficient markets] is the Economic Freedom of the World Annual Report." Freer economies lead to richer people and richer people eventually demand political and civil freedoms. "As developed nations -- those that have reached high levels of economic freedom and therefore high levels of wealth and democracy -- look to help people in failed and war-torn nations, economic freedom provides a roadmap to building the institutions necessary for economic and political success," says co-author Robert Lawson of Ohio's Capital University. Among the nations in the top fifth of economic freedom, average per capita GDP is US$22,922 per year compared to US$3,251 in the bottom fifth; over the last decade, the freest nations have averaged annual economic growth of 2.3 per cent, while the least free nations have contracted by 0.6 per cent a year; in the economically freest nations, the poorest 10 per cent of the population have an average annual income of US$6,681 compared to $873 in the least free nations; and, on Freedom House's seven-point scale for civil and political freedoms, where low scores indicate greater freedoms, the economically freest nations average 1.87 and 1.57 respectively, the least free, 4.75 and 4.83 respectively. A Shining Example -- BotswanaThe least economically free nations tend to be clustered in the Middle East, Latin America and Africa. "But, even here exceptions show the power of economic freedom," says McMahon. "Botswana has long had significantly higher levels of economic freedom than other sub-Saharan African nations and this is demonstrated by how much better off the people of Botswana have become compared to the citizens of other African nations," he explains. In 1970, Botswana's per capital GDP was US$590, less than the sub-Saharan average of US$609. After three decades of relatively high economic freedom, Botswana's per capita GDP rose to US$3,950 while in the rest of Africa, where economic freedom levels were dismal, per capita GDP shrunk to US$564. In the 2003 report, Botswana has the 26th highest level of economic freedom, tied with eight other nations including Japan and Norway. About the ReportThe first Economic Freedom of the World Report, published in 1996, was the result of a decade of research by more than 100 leading scholars, including several Nobel Laureates, in a broad range of fields, from economics to political science and from law to philosophy. The Fraser Institute coordinates the Economic Freedom reports along with the Economic Freedom Network, a collaboration of member institutes in 59 nations. This, the seventh edition of Economic Freedom of the World, rates and ranks 123 nations for 2001, the most recent year for which data are available. The report also updates data in earlier reports in instances where data have been revised. The index contains 38 variables, including 18 survey-based variables obtained from survey data published in the International Country Risk Guide and the Global Competitiveness Report. While survey data have weaknesses, they provide insight into the important areas of legal structure and regulation and, to a lesser extent, of international trade. >In addition, Global Economic Software has developed a new commercial software package for analysis of Economic Freedom of the World data that can be used in conjunction with other important socio-economic indicators. –30– CONTACT: Established in 1974, The Fraser Institute is an independent public policy organization that focuses on the role competitive markets play in providing for the economic and social well-being of Canadians. For further information please contact: Suzanne Walters, Director of Communications, The Fraser Institute
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