The Economic Freedom of the World: 2000 Annual Report was released to the world press in Hong Kong this week. Dr. Milton Friedman, the Nobel Laureate, and Michael Walker of the Fraser Institute initiated this study in 1984. Today it is co-sponsored by 51 research institutes around the world including the Institute for Economic Freedom.
The Report analyzes economic freedom in 123 nations and relates this to economic growth. “The core ingredients of economic freedom are personal choice, protection of private property, and freedom of exchange.” It measured this freedom by looking at 23 specific components such as the rule of law, price controls, exchange controls, etc. It examined these in 123 countries ranging from “A” for Albania to “Z” for Zimbabwe. The report found that for the years 1997/1998 —
- The top four countries with the greatest economic freedom were Hong Kong, Singapore, New Zealand and the United States and the lowest were Rwanda, Sierra Leone, Congo and Myanmar.
- There was a direct relationship between freedom and growth. The top rated countries for economic freedom were also top rated for per capita income and the rate of growth in gross domestic product.
- This growth got translated into elements that relate to the quality of life… food production, life expectancy, infant mortality, literacy, corruption, etc.
- Economic growth does not make the rich richer and the poor poorer. In fact, income inequality (the difference between the top 10 per cent and the lowest 10 percent) was twice as great in the countries with the lowest freedom rating. For all countries above that lowest level the Report showed that the distribution of income is not closely related to economic freedom.
The section on the Bahamas reads as follows:
“The Bahamas is a very small island country that has a highly regulated, centrally managed economy. All business ventures face a complex set of often-contradictory entry restraints, tax breaks, and subsidies. For instance, a licensing system restrains and controls business entry so that a business venture may get a construction permit, construct its facilities and then not receive the necessary operating license. Foreigners are excluded from the wholesale and retail business sector but qualify for tax breaks in other areas. Expatriate employees must have work permits that are increasingly costly. The Government has invested heavily in the tourist industry and still owns the utilities.
“Consequently, the Bahamas has a rating of 6.7 [on the Economic Freedom Index], which places it 60th in the world. Most disturbing though, is the Bahamas- relative decline: it ranked 43rd in the world as late as 1990 and 21st in 1975…
“However, a new administration in 1992 promised and subsequently produced a more honest government, sought foreign investment, and sold its largest hotels. This has produced four years of real per-capita growth in the range of 1-? to 2-? percent per year, reduced unemployment, and increased wage rates.
“Despite the newfound prosperity, the government has problems. It created a fast track through the maze of bureaucratic controls for selected investments but it has not changed the maze. Its efforts to privatize the utilities have been slow. The first project, Bahamas Telecommunications, has not been concluded. A 62 percent reduction in staff, an apparent prerequisite to a sale, has produced exceedingly high separation costs and significant labour unrest. This case illustrates how political factors can sometimes undermine movement toward a more efficient and competitive economy.”
For more information on this Report please refer to the Free The World web site.