South Africa continues to perform exceptionally well from an economic freedom point of view, having moved up from 44th to 38th in the rankings according to the Economic Freedom of the World: 2005 Annual Report, released today by the Economic Freedom Network. The annual report is published by Canadas Fraser Institute, in conjunction with independent research and educational institutes in over 60 countries, including SAs Free Market Foundation. Nations that are economically free out-perform non-free nations in indicators of well-being
Economic freedom is almost 50 times more effective than democracy in diminishing violent conflict between nations, according to the report. In new research published in this years report, Erik Gartzke, a political scientist from Columbia University, compares the impact of economic freedom on peace to that of democracy on peace. Researchers have long known democracies go to war about as often as other nations but tend not to go to war with each other. However, stable democracies typically have strong levels of economic freedom, leading to the question of whether it is democracy or economic freedom that affects the probability of violent conflict, says co-author of the Index, James Gwartney, Professor of Economics at Florida State University.
When measures of both economic freedom and democracy are included in a statistical study, economic freedom is about 50 times more effective than democracy in diminishing violent conflict. The impact of economic freedom on whether states fight or have a military dispute is highly significant while democracy is not a statistically significant predictor of conflict.
Nations with a low score for economic freedom (below 2 out of 10) are 14 times more prone to conflict than states with a high score (over 8). The overall pattern of results does not shift when additional variables, such as membership in the European Union, nuclear capability, and regional factors, are added.
Markets and the efficient production that arises from them create wealth and power, not conquest of land or raw materials, Gartzke points out. Changes in the nature of production in modern capitalist states make conquest unprofitable.
Economic freedom on the rise
The worlds average economic freedom score rose from 5.2 (out of 10) in 1985 to 6.4 in the most recent year for which data are available. Of the 109 nations with scores in 1985 and which are included in the most recent index, 96 recorded improvement in their economic freedom score, seven saw a decline, and six registered changes of under 0.1 points, commented co-author, Robert Lawson, Professor of Economics at Capital University, Ohio, USA.
International economic freedom rankings
Botswana at 30th (7.2 out of 10) and Mauritius at 35th (7.0) are the only African-area countries above South Africa (6.9) in the rankings. It is pleasing to note that other African countries are also improving their ratings. However, as a continent Africa has a great deal of catching up to do.
In this years index, Hong Kong retains the highest rating for economic freedom, 8.7 of 10, closely followed by Singapore at 8.5. New Zealand, Switzerland, and the United States tied for third with ratings of 8.2. The United Kingdom, Canada, and Ireland ranked 6th, 7th, and 8th, respectively. Australia, Estonia, Luxembourg, and the United Arab Emirates tied for 9th. The rankings of other large economies are Germany, 19; Japan, 30; France, 38; Italy, 54; Mexico, 59; India, 66; China, 86; Brazil, 88; and Russia, 115.
Among those nations that have made substantial gains in economic freedom since 1985 are Bolivia, Brazil, El Salvador, Ghana, Iceland, Jamaica, Nicaragua, Peru, Poland, Tanzania, Uganda, and Zambia, though some of these began at very low levels or have experienced ups and downs over the period. Among those nations that have registered significant losses in economic freedom since 1985 are Myanmar, Venezuela, and Zimbabwe.
Most of the lowest-ranking nations are African, Latin American, or former communist states. Botswanas ranking of 30 is the best among continental sub-Saharan African nations. Chile and Costa Rica, tied at 20, have the best record in Latin America. The bottom nations were Burundi, Guinea-Bissau, the Democratic Republic of Congo, Venezuela, Zimbabwe, and Myanmar. However, a number of other nations for which data are not available, such as North Korea and
Cuba, may have even less economic freedom.
In addition to its important impact on peaceful coexistence among nations, high degrees of economic freedom have other significant advantages:
Nations in the top quintile (one-fifth) in economic freedom have an average per capita GDP of US$25,062, compared to US$2,409 for those nations in the bottom quintile.
The top quintile has an average per capita economic growth rate of 2.5 percent, compared to 0.6 percent for the bottom quintile.
In nations of the top quintile, the average income of the poorest 10 percent of the population is US$6,451, compared to $1,185 for those in the bottom quintile.
Unemployment in the top quintile averages 5.2 percent, compared to 13.0 percent in the bottom quintile.
Life expectancy is 77.7 years in the top quintile compared to 52.5 years in the bottom quintile.
In nations of the top quintile, only 0.1 percent of children are in the labour force, compared to 22.6 percent in the least economically free nations.
Nations in the top quintile of economic freedom, have an average score of 1.7 for political rights on a scale of 1 to 7, where 1 marks the highest level of freedom and 7, the lowest level. The bottom quintile has an average score of 5.0.
About the Economic Freedom Index
Economic Freedom of the World measures the degree to which the policies and institutions of countries are supportive of economic freedom. The cornerstones of economic freedom are personal choice, voluntary exchange, freedom to compete, and security of privately owned property.
The first Economic Freedom of the World Report, published in 1996, was the result of a decade of research by a team that included several Nobel Laureates and over 60 other leading scholars in a broad range of fields, from economics to political science, and from law to philosophy.
This is the 9th edition of Economic Freedom of the World and this years publication ranks 127 nations for 2003, the most recent year for which data are available. The report also updates data in earlier reports in instances where data have been revised. Thirty-eight components and sub-components are used to construct a summary index and to measure the degree of economic freedom in five areas: (1) size of government; (2) legal structure and protection of property rights; (3) access to sound money; (4) international exchange; and (5) regulation.
Author: Leon Louw is the Executive Director of the Free Market Foundation. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the authors and are not necessarily shared by the members of the Free Market Foundation.
For more information on the Economic Freedom Network, data sets and previous Economic Freedom of the World reports, go to www.freetheworld.com.
FMF Feature Article / 6 September 2005
Publish date: 08 September 2005
The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation.