The World’s Freest Economies

Which is more important, political freedom or economic freedom? Can you, in fact, have one without the other?

As you would surmise, the two are inextricably linked. The countries with the most political freedom tend to be the ones with the strongest economies and the most prosperity. While the opposite is almost always true – as Robert Mugabe’s ruthless dictatorship is proving once again in sad, sorry, and impoverished Zimbabwe.

So where, you might wonder, are the world’s freest economies? As it happens, we know the answer to that question. Because every year for the past 14 years, the Heritage Foundation and the Wall Street Journal have cooperated to produce something called “The Index of Economic Freedom.” The index uses 10 benchmarks to measure what’s happening in the economy of 162 nations around the globe.

You can see all of the rankings, as well as the factors that go into deciding each score, at www.heritage.org/index. Here are the top 10 countries in the 2008 index:

#1. Hong Kong. No real surprise here. With its strong commitment to economic freedom, Hong Kong has won the top spot in every index for the past 14 years. Despite fears that its unique success would suffer when Britain surrendered political control to China in 1999, the island has remained one of the world’s leading financial centers, with nary a hint of communist control to be found. Property rights are protected by an independent and virtually corruption-free judiciary.

#2. Singapore. This city-state, with a population of 4.5 million, is the most well-developed, prosperous country in Southeast Asia. Despite some restrictions on political freedom, the country is a world leader in all 10 areas of economic freedom. As a consequence, private investment and private enterprise have boomed.

#3. Ireland. Once one of the most impoverished countries in Europe, Ireland slashed taxes, lowered interest rates, and drastically decreased government regulation. As a result, this “Celtic Tiger” has enjoyed sustained growth for the past decade. Thanks to one of the world’s most business-friendly environments, it has become arguably the most prosperous country in Europe.

#4. Australia. Trailing just behind Ireland in economic success is another former British colony. Australians have enjoyed political and economic freedom for more than a century, with the result that the country is one of the richest in the Pacific Rim. Australia rates highly across the board, but is most impressive in financial freedom and property rights, with very little corruption.

#5. United States. The world’s wealthiest nation has prospered from a two-hundred-year legacy of political and economic freedom. However, the current trends are not encouraging. Total government spending has increased alarmingly since the index began 14 years ago and is now more than one-third of GDP. Corporate and personal taxes are high and are getting relatively higher, compared to other countries that are lowering taxes, reducing regulations, and rewarding investment.

#6. New Zealand. This two-island nation adjacent to Australia continues to benefit from the sound economic policies and structural reforms that were first begun two decades ago. The country has a modern, growing economy with one of the lowest unemployment rates in the West.

#7. Canada. Our northern neighbor has long been one of the world’s leading free-market democracies. Its vast natural resources, coupled with a strong respect for property rights and a low level of corruption, have assured its prosperity. Although government spending is high, thanks to elaborate social programs and a welfare state, Canada nevertheless trails the world average in the size and cost of its government.

#8. Chile. Chile has enjoyed almost three decades of political freedom and sound economic policies. Foreign investment and favorable tax policies have helped transform the country’s economy. Politically, however, the country has turned increasingly to the left in recent years. Will economic stagnation be far behind?

#9. Switzerland. The country continues to reject membership in the European Union, so it remains free of the most onerous rules and regulations that are taking their toll in many of its neighbors. The country’s banking and financial sectors are legendary for their strength, solvency, and privacy. While foreign residents and investors face numerous restrictions, its citizens enjoy one of the world’s freest and most competitive economies. And, as everyone knows, the trains run on time.

#10. United Kingdom. While the sun may be setting on the British Empire, the tiny island nation is enjoying renewed prosperity, thanks to a series of economic reforms first begun by Prime Minister Margaret Thatcher in the 1980s. They have privatized entire industries, streamlined the bureaucracy, and business regulation, while still significant, is at least efficient and free of corruption.

Our top 10 is a diverse group of countries. They vary dramatically in size, climate, population, and natural resources. Some have huge populations and vast areas; others are tiny, crowded, with virtually no natural resources.

Why do these 10 countries produce so much more, for themselves and for their customers, than the other 152 countries that appear in the index? What do these 10 have in common?

There appear to be two ingredients that are absolutely essential for economic prosperity. The first is a respect for private property. In every one of the top 10 countries, you are allowed to own things – land, equipment, inventory, even ideas. And two, you can keep the fruits of your labors. Or at least most of the fruits, most of the time. Your enterprise is rewarded. And your production is protected from theft – even (or especially) theft by your own government.

At the Other End of the Scale

A look at the 10 countries comprising the bottom of the Index of Economic Freedom is almost as illuminating as those at the top. Without exception, they have little or no foreign investment (and in many cases, the government has stolen most that was there). In every case, property rights are virtually non-existent. And, in most of them, corruption is rampant.

Oh, and do I need to mention that almost every country suffers under a malignant dictatorship, where the state possesses all rights and the citizens have virtually none?

I won’t add any commentary to the list of sad and suffering countries that follow. Suffice it to say, no matter what their past glories, today you wouldn’t want to live there. Heck, you probably wouldn’t even want to visit them.

Those countries at the bottom of the index, numbers 153 to 162, are Venezuela, Bangladesh, Belarus, Iran, Turkmenistan, Burma, Libya, Zimbabwe, Cuba, and North Korea.

Here’s hoping that someday, the citizens of these sorry satrapies will enjoy even a fraction of the freedoms most of us take for granted. For, as history shows over and over and over again, where political freedom exists, economic prosperity follows.

Let’s make sure more voters here in the States remember that.

Chip Shots

* That’s a long time to wait for your wife. The typical husband in Britain spends a year of his life waiting for his wife, according to a recent survey of 20,000 adult men there. This includes 20 weeks hanging about while his better half gets ready to go out, 22 weeks sitting in stores while his wife tries on clothes, and one week waiting for her to show up at a lunch or dinner date. Sixty-one percent of the men surveyed said waiting for a spouse drives them nuts. Ten percent said they had broken off a relationship over frequent tardiness.

* Getting a human on the line. Tired of a computer voice answering your call to customer service – and then directing you to one of those endless loops of press 1 for this, press 2 for that? GetHuman.com and NoPhoneTrees.com are two websites that claim to help callers bypass automated systems and connect with a real live human being. On the other hand, you might just try swearing at your phone. I’m serious. A publication called Lifehacker says that many interactive voice response systems are programmed to recognize “bad” words and will connect you immediately to a human operator when you say them.

* This ad didn’t convince me. Our local Burger King has apparently decided that it needs to sell more fish sandwiches. Okay, I can see that. What I can’t see is the promise they put on a huge sign out front: “Best Fish In Town.” Does anyone anywhere really expect to find the best fish in town at Burger King?

* They Vote, Too? Here’s another gem from this now-and-then feature. Seems a woman called the technical support people at her company for help when she couldn’t get her computer to turn on. The problem? She had plugged her new power strip back into itself, rather than into a wall outlet. And for the life of her, she couldn’t figure out why nothing worked.

This Week in History

On March 30, 1943, Rodgers and Hammerstein’s first musical opened in New York City – and changed forever the face of musical theater in this country. “Oklahoma!” was a smash hit right from opening night. Never before had musical numbers been used to advance the plot, as Rodgers and Hammerstein did in “Oklahoma!” and several hits that followed.

Theatergoers who were used to songs being part of a vaudeville performance didn’t know what to make of “Oh, What A Beautiful Morning,” “I’m Just A Girl Who Can’t Say No,” or “Poor Judd Is Dead.” But they knew they were hearing something special.

Since that illustrious beginning 65 years ago, Rodgers and Hammerstein went on to become America’s most successful composers for the stage. Among their numerous collaborations were “Carousel,” “The King and I,” “South Pacific,” and “The Sound of Music.” I think it’s safe to say that hardly a night goes by when one of their musicals isn’t performed somewhere in this country. Altogether, the duo garnered 34 Tony Awards, 15 Academy Awards, two Grammys, and the Pulitzer Prize.

Not bad for a couple of Depression-era lads who said they just wanted to tell a story.

Until next time, keep some powder dry.

Chip Wood

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Straight Talk is a weekly commentary written by Chip Wood.
For many years Chip was the host of an award-winning radio
talk show in Atlanta, Georgia. He is the founder of Soundview Publications and serves as an MC at several investment conferences. His weekly rants and raves are free for the asking
at www.straighttalkletter.com.

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