The newly released Economic Freedom of the World report ranks the United States 11th among the 159 countries and territories surveyed. The report, compiled by the Cato Institute, the Fraser Institute, and 70 other think tanks throughout the world, “seeks to measure the consistency of the institutions and policies of various countries with voluntary exchange and the other dimensions of economic freedom.” The latest report uses data from 2015, the latest available.
The United States rose two spots over its ranking based on 2014 data. The authors note the United States was “for decades among the top four countries in the index,” though its trajectory was downward: second in 1980, third in 1990, fourth in 2000, and sixth in 2005. It held the 11th spot in 2010 before dropping to 13th in 2014. The United States scored 7.94 on a scale of 10 in the latest report. Its highest score was 8.62 in 2000.
Hong Kong and Singapore held on to their first- and second-place rankings with scores of 8.97 and 8.81. The other top-10 finishers were New Zealand, 8.48; Switzerland, 8.44; Ireland, 8.19; the United Kingdom, 8.05; Mauritius, 8.04; Georgia, 8.01; Australia, 7.99; and Estonia, 7.95.
The study uses five main measures of economic freedom: size of government, legal system and property rights, sound money, freedom to trade internationally, and regulation. Each main measure is divided into subcategories. For example, size of government includes government consumption, transfers and subsidies, government enterprises and investment, and top marginal tax rate. The category for legal system and property rights is broken down into judicial independence, impartial courts, protection of property rights, military interference in rule of law and politics, integrity of the legal system, legal enforcement of contracts, regulatory restrictions on sale of real property, reliability of police, and business costs of crime. Sound money is broken into money growth, standard deviation of inflation, inflation for the most recent year, and freedom to own foreign-currency bank accounts.
In the main categories, the United States scored best for sound money, 9.76. Its score for regulation was 8.77. Its other scores were 7.54 for international trade, 7.23 for legal system and property rights, and 6.43 for size of government.
Among its best scores in subcategories were 10 for freedom to own foreign-currency bank accounts, black market exchange rates, ownership of banks, interest rate controls, hiring regulations and minimum wage, labor-hours regulation, mandated cost of worker dismissal, and conscription. Its lowest scores were for top marginal tax rate (5.0), capital controls (3.85), controls of the movement of capital and people (3.70), and freedom of foreigners to visit (0.55).
Other noteworthy scores included 9.98 for inflation, 9.81 for starting a business, 9.76 for compliance cost for importing and exporting, 9.60 for licensing restrictions, 9.34 for credit-market regulations, 9.20 for money growth, 8.92 for regulatory restrictions on sale of real property, 8.88 for centralized collective bargaining, 8.38 for tariffs, 8.04 for cost of tax compliance, and 8.0 for government enterprises and investment.
The authors point out that the report, for the first time, “adjusts the rankings for gender equality. Countries receive lower scores if women there are not legally accorded the same level of economic freedom as men.” Rosemarie Fike, of Texas Christian University, writes, “In assuming that all members of society have equal rights under the law, past estimates of economic freedom have been overstated for countries that place additional legal and regulatory restrictions on the scope of women’s economic choices.” The United States has a gender-disparity index of 1.0 (listed under legal system and property rights), the best possible adjustment. By comparison, Saudi Arabia has a gender-disparity index of 0.41.
The authors emphasize the link between economic freedom and economic welfare. “Nations in the top quartile of economic freedom,” they write, “had an average per capita GDP of US$42,463 in 2015, compared to $6,036 for bottom quartile nations. Moreover, the average income of the poorest 10% in the most economically free nations is almost twice the average per capita income in the least free nations.” Moreover, “life expectancy is 80.7 years in the top quartile compared to 64.4 years in the bottom quartile.”
Finally, the report notes that “political and civil liberties are considerably higher in economically free nations than in unfree nations.” While the Cato/Fraser index is useful, dividing freedom into economic and noneconomic varieties implies we have economic and noneconomic values. But as Thomas Sowell insists, that division is artificial. When we pursue money, we do so because it ultimately serves nonmaterial aspirations. Thus we have only one kind of freedom.