The Washington-based Cato Institute has released its "Economic Freedom of the World: 2004 Annual Report", produced in conjunction with the Fraser Institute of Canada.
Key ingredients of economic freedom valued were personal choice, voluntary exchange, freedom to compete and protection of person and property. "Institutions and policies are consistent with economic freedom when they provide an infrastructure for voluntary exchange and protect individuals and their property from aggressors seeking to use violence and coercion and fraud to seize things that do not belong to them."
The report also says governments play an important role in economic freedom when they facilitate access to sound money, "but economic freedom requires government to refrain from many activities," such as interfering with freedom to enter and compete in labor and product markets.
Hong Kong retained the highest rating for economic freedom (8.7 out of 10), followed closely by Singapore at 8.6. The United States tied for third place (8.2) with New Zealand, whilst Switzerland, the United Kingdom, Australia, Canada, Ireland, and Luxembourg rounded out the top 10.
The major findings of the analysis are:
- economically free countries grow more rapidly;
- countries with more economic freedom both attract more investment and generate a higher productivity from that investment than countries with less economic freedom;
- increases in economic freedom during the 1980s and 1990s enhanced growth during the period from 1980 to 2000;
- long-term differences in economic freedom explain approximately two-thirds of the variation in cross country per-capita GDP;
- a legal structure that provides for secure property rights, even-handed enforcement of contracts, and rule of law is essential if a country is going to grow and achieve a high level of income.
John B. Taylor, Under Secretary for International Affairs, U.S. Department of the Treasury, says there is much to learn from Cato's new findings. Further, the series has for many years been at the forefront of research into the determinants of economic growth, setting the foundations for systematic quantitative analysis of economic freedom. "Indeed," he claims, "a whole host of quantitative indices that have followed in the tradition of the economic freedom index are now having direct impact on public policy, including the development policy of the United States." As a matter of fact, the Under Secretary says that in implementing President Bush's new development assistance program -- the Millennium Challenge Account (MCA) -- the US Government directly applied research on economic freedom.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.