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Executive Summary
I
n a period o slowing economic growth inmany parts o the world, popular pressureor governments to act to ix the situationcan be enormous. In responding to such pres-sure, it is vital that leaders understand the realcauses o negative economic developmentsand undertake actions that will ix them ratherthan exacerbate them. I intrusive governmentregulation has contributed to an economicproblem, it is unlikely that still more govern-ment regulation will cure it. I excessive taxeshave stiled investment and entrepreneurship,increasing tax rates is unlikely to spur econom-ic growth. I the monetary supply has been tooloose or credit too easily available, loweringinterest rates is unlikely to be the magic ix thepublic demands.The
Index of Economic Freedom
oers a time-tested ormula or sustained economic growth.Grounded in the classical liberal economictheories o Adam Smith and Friedrich Hayek,the
Index
promotes economic policies that:Put the individual irst and allow people
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to decide or themselves what is best or theirown well-being and that o their amilies;Recognize that the ree market is the only
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reliable predictor o the real prices o goods,labor, and capital;Use government to shape a air and secure
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environment, protect private property and thevalue o money, enorce contracts, and promotecompetition, but not to produce or sell goodsand services; andEmphasize openness to international
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trade and investment as the surest paths toincreased productivity and economic growth.A government that limits its involvement ineconomic activity consistent with these prin-ciples maximizes opportunities or individu-als to reach their ull economic potential andpromotes the greatest levels o prosperity andhuman well-being or society as a whole.In 2009, the
Index of Economic Freedom
is cel-ebrating its 15th anniversary. The idea o pro-
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2009 Index of Economic Freedom
ducing a user-riendly “indexo economic reedom” wasirst discussed at The HeritageFoundation in the late 1980s.The goal was to develop a sys-tematic, objective, and empiri-cal measurement o economicreedom in economies aroundthe world.The methodology or mea-suring economic reedomhas been gradually enhancedas the availability o datahas grown. The
2009 Index of Economic Freedom
covers 183countries
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and measures 10separate components o economic reedom.(See text box, “The 10 Components o EconomicFreedom.”) Chapter 1 and the methodologicalappendix explain these components and howto assess them in detail.Taken together, these 10 components o eco-nomic reedom provide a portrait o a country’seconomic policies and establish benchmarks by which to gauge strengths and weaknesses.A systematic analysis o the 10 reedoms overthe 15-year history o the
Index
demonstratesthat economic reedom is the key to creatingan environment in which entrepreneurshipand innovation lourish, with rapid economicgrowth and sustainable development as thehappy results.
HigHligHts from tHe 2009
Index
Despite the progress made over the past
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15 years, the struggle between the state andthe free market continues.
Many govern-ments are maintaining a strong commitmentto economic reedom, but others are regress-ing. Regrettably, populist attacks on the ree
1. The 2009
Index
has expanded its coverageto include or the frst time Aghanistan, Bhutan,Comoros, Dominica, Eritrea, Kiribati, Liberia,Liechtenstein, Macau, Maldives, Micronesia,Papua New Guinea, Saint Lucia, Saint Vincent andthe Grenadines, Samoa, São Tomé and Príncipe,Seychelles, Solomon Islands, Timor-Leste, Tonga,and Vanuatu.
market, ueled by the eco-nomic slowdown and thepolitical temptation o quickinterventionist remedies,have gained momentum.Even so, however, or coun-tries included in last year’s
Index
, economic reedomadvanced, rom an averagescore o 60.2 to an averagescore o 60.3. The overallaverage score this year or allranked countries, includingthe 21 appearing or the irsttime in the
Index
, is 59.5.
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•FourAsia–Pacificecon
-omies lead the world in economic freedom.
Hong Kong maintains its status as the world’sreest economy, a position it has held or 15
consecutive years. It was the only economyto score at least 90 on the 100-point economicreedom scale. Singapore remains close, rankedas the world’s second reest economy. Austra-lia has climbed to third place in the 2009
Index
,with New Zealand only 0.4 point back in ithplace.
Every region continues to maintain
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at least one of the top 20 freest economies.
Ten o the 20 reest economies are European,led by Ireland, Denmark, Switzerland, andthe United Kingdom. Five are in the Asia–Paciic region, and two (the United States andCanada) are rom North America. The otherregions are represented by one country each:Chile (South and Central America/Carib- bean region); Mauritius (Sub-Saharan Aricaregion); and Bahrain (Middle East/NorthArica region).
Economic freedom is strongly related
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to good economic performance.
Per capita
2. For countries graded in both the 2008 and 2009editions o the
Index of Economic Freedom
, averagescores increased rom 60.2 to 60.3. However, theaverage economic reedom score or all countriesin the 2009
Index
is only 59.5 because o theaddition to the Index rankings o 21 previouslyunrated economies, most o which score below theworld average.
The 10 Components of Economic Freedom
Business Freedom•Trade Freedom•Fiscal Freedom•Government Size•Monetary Freedom•Investment Freedom•Financial Freedom•Property Rights•Freedom from•CorruptionLabor Freedom•
incomes are much higher in countries that areeconomically ree. Economies rated “ree” or“mostly ree” in the 2009
Index
enjoy incomesthat are more than double the average lev-els in all other countries and more than eighttimes higher than the incomes o “repressed”economies.
Overall human development, political
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openness, and environmental sustainabilitythrive in an environment that is economicallyfree.
Economic reedom is about more than a business environment in which entrepreneur-ship and prosperity can lourish. With its ar-reaching impacts on various aspects o humandevelopment, economic reedom empowerspeople, unleashes powerul orces o choice andopportunity, gives nourishment to other liber-ties, and improves the overall quality o lie.(See below, “Economic Freedom Matters.”)
Asustainedcommitmenttoeconomic•
freedom is critical to fostering economicdevelopment and prosperity.
The
Index
indings reveal that sustained commitmentto policies that promote economic reedomis critical to achieving development and last-ing prosperity. Countries that are too quickto abandon their eorts at policy reormoten ind their economic reedom adingaway, along with their prosperity. We haveseen ebbs and lows o economic reedomin speciic countries or regions. The erosiono economic reedom in South America, orexample, relects reversals o ree-marketpolicies in some countries and a lack o per-severance in pursuing economic reedom inothers. Venezuela, in particular, is temptinglong-run decline as President Hugo Cháveztakes the country urther down an anti-dem-ocratic and anti–ree market path.As shown in Chart 2, o the 179 economiesthat are numerically graded in the 2009
Index
,
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only seven have very high reedom scores o80 or more, putting them in the “ree” category(the highest). The next 23 countries have scores
3. Numerical grading was not possible orAghanistan, Iraq, Liechtenstein, and Sudan due tothe limited availability o relevant data.
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