The latest Economic Freedom of the World (EFW) report reveals a disturbing decline in the level of economic freedom of South Africans compared to the freedoms enjoyed by the citizens of many other countries. Former Soviet-dominated countries have shrugged off the communism that was imposed on them and are thriving under economic freedom policies that have moved fifteen of them up the rankings into the top 50% of the world’s freest economies. Five of them, Georgia, Romania, Armenia, Lithuania and Latvia are in the top 25%.
Six Middle East countries are in the top 25% of mostly-free economies. Three of those, the UAE (5th), Jordan (7th) and Quatar (13th) are in the top 10%.Only three African countries, Mauritus (6th), Rwanda (34th) and Botswana (68th) feature in the top 50% of most economically free countries.
That the countries mentioned feature in the top 50% of the EFW rankings is no accident. Those countries that have maintained their positions or moved higher in the rankings have done so because of sound government policies. Countries that have followed superior policy options, characterised by the retention and improvement in economic freedom, have provided their citizens with better outcomes in the form of higher incomes, greater life expectancy, more political rights and civil liberties, greater personal safety and more secure property rights.
Measuring the level of economic freedom in a country is no simple matter. Five major areas are measured: 1. Size of Government 2. Legal System and Security of Property Rights 3. Sound money 4. Freedom to Trade Internationally, and 5. Regulation. The index comprises 42 distinct variables. Three decades of experience and refinement have shown that these EFW measures pick up revealing trends in the various aspects of the economies of countries measured. South Africa’s decline from 42nd place (7.08 on a scale of 10) in 2000 to 96th (6.74) in 2013 should not be taken lightly. The 0.34 decline in the rating looks small but consider that if the rating had remained at 7.08 in 2013, SA would have ranked 74th and remained in the top 50%. On the other hand, an improvement of 0.34 on the 2000 rating to 7.42, would have given SA a ranking of 35, together with Latvia and Portugal in the top 25%.
The rating, and particularly the direction of change in the rating, is a measure of the economic freedom pulse of a country. An advance tells us that the economy is going well and is likely to keep improving whereas a decline tells us that there is a problem with the country’s economic well-being and if policies do not change, the economy will keep declining. In this evaluation we focus on the area of Legal Systems and Property Rights and current ratings are compared with the ratings in 2000 in order to determine the direction of change over the period 2000 to 2013.
SA’s overall score in the area of Legal Systems and Property Rights has declined from 6.54 to 5.81 (out of 10). In the sub-component, Judicial Independence, the rating has improved from 7.18 to 7.40. The rating for Impartial Courts has declined from 8.02 to 6.76. (the ratings for these two sub-components are from the Global Competitiveness Report and in the case of impartiality of the courts the Rule of Law rating from the World Bank’s Worldwide Governance Indicators is taken into account).
The rating for Protection of Property Rights has improved from 5.82 to 7.67, which will come as some surprise to many South Africans, given government’s intentions. This rating also comes from the Global Competitiveness Report and assesses whether property rights, including financial assets, are either poorly defined and not protected by law or clearly defined and well protected by law. It is clear that assaults on property rights in SA do have to contend with the law and the Constitution.
On Military Interference in Rule of Law and Politics SA’s rating has remained at a creditable 8.33. The rating for Integrity of the Legal System at 3.33 is the same as it was in 2000 after a period of being set at 4.17. This rating comes from the International Country Risk Guide component for Law and Order, which measures the “strength and impartiality of the legal system” and the “popular observance of the law”.
On Legal Enforcement of Contracts the rating is a poor 3.93, which comes from the World Bank’s Doing Business estimates of the time and money required to recover a clear-cut debt. The rating for Regulatory Costs of the Sale of Real Property is a creditable 7.53. For Reliability of Police the rating of 4.39 comes from the Global Competitiveness Report and is based on the question: “to what extent can police services be relied upon to enforce law and order in your country?” The final sub-component in the area of Legal Systems and Property Rights is Business Costs of Crime, for which the rating is a poor 2.92 out of 10. This component is from the Global Competitiveness Report question: “To what extent does the incidence of crime and violence impose costs on your country?
Finland has the highest EFW score in the area of Legal System and property Rights of all the countries measured. It has an overall score of 8.85 (SA 5.81) out of 10. In the sub-component Reliability of Police, Finland scored 9.55 (SA 4.39), on Military Interference 10.00 (SA 8.33) and on Integrity of the Legal System a remarkable 10.00 (SA 3.33). Perhaps a visit to Finland by members of the South African government could provide them with useful information on how to combat crime and improve perceptions regarding the integrity of SA’s legal system.
Author: Eustace Davie is a 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 author’s and are not necessarily shared by the members of the FMF.