The Fraser Institute and the Cato Institute are re-releasing the Economic Freedom Report, which analyzes the degree of economic freedom that individuals have in each country of the world. Although the publication comes out in 2021, the information published is for 2019, as not all countries have published the information for 2020 to make an international comparison.
The Index of Economic Freedom measures the degree to which countries’ policies and institutions support economic freedom. The pinnacles of economic freedom are personal choices, voluntary exchange, the ability to enter and participate in markets, and the security of personal and private property in these countries.
To measure the degree of economic freedom of countries, the Index uses indicators such as the size of government, the quality of the legal system and the effectiveness of property rights, monetary policy, freedom to trade and the impact of regulations as benchmarks to construct an indicator to compare the degree of economic freedom across countries.
Due to the measures taken to contain the pandemic, the authors of the Index of Economic Freedom acknowledge that the scores will be significantly affected and some countries such as Hong Kong are likely to drop in rank in light of recent events with China.
For 2019, the U.S. took the No. 6 spot in economic freedom, ranking below the Republic of Georgia, and above Lithuania. By 2019, the U.S. economy enjoyed solid growth, as well as a historically low unemployment rate, just above 3%.
With the pandemic, the U.S. resorted to monetary expansion and the most extensive level of government spending seen since World War II, which will most likely affect its score going forward.
Although the United States managed to improve in the Index of Economic Freedom, the economic freedom of countries within its trading sphere such as Taiwan and Hong Kong have undoubtedly been affected by the influence of a foreign power: China.
Hong Kong retained its top spot in the Index in 2019 and the city remains the autonomous territory with the most economic freedom in the world, however, the index does not capture the impacts of the new extradition law passed by Parliament, as well as the inference of China.
In the Heritage Foundation‘s economic freedom report, Hong Kong completely disappeared from the Index, as the study’s authors believe that the city completely lost its autonomy when the extradition law with China was passed.
Below Hong Kong is Singapore, which retains second place for its strong property rights, efficient government, low taxes and complete international openness. In the Heritage Foundation report, Singapore was ranked first, due to the absence of Hong Kong.
The other Southeast Asian giant, Taiwan, ranked 17th. Taiwan is currently one of the world’s leading technology centers and a crucial location for semiconductor production. Although the Taiwanese government has a higher fiscal expenditure than its counterparts in Singapore and Hong Kong, the inhabitants of the island of Formosa retain a lot of economic freedom.
Australia and New Zealand ranked third and ninth as the freest economies. For decades, both oceanic nations have been characterized by their openness to trade and ease of doing business, as well as a justice system and a state that does not interfere with the economic freedoms of its citizens.
One of the countries that most concerns the authors of the study is South Africa whose score was strongly affected by the efforts of the ruling African National Congress (ANC) party to introduce a law that allows the expropriation of physical property without acute compensation. For the authors of the study, South Africa is on the verge of imposing a law that could end up affecting the country’s poorest minorities.
Although the results of the pandemic on the world’s economic freedoms are still a year away, the 2019 Index of Economic Freedom is a good starting point to observe the quality of economic rights of the world’s citizens before states imposed quarantines and mobility restrictions to protect the Covid-19 population.