Economic Freedom of the World 2001

When the Economist Magazine was reviewing the Century in its End of Millennium edition, they returned to a question which has held the fascination of economists and other worldly philosophers for three centuries. That is, why do some nations prosper while others decline? In particular why does a very large fraction of the world’s population languish in poverty and despair?

The Economist considered a number of possible explanations, including the exploitation model, but concluded that the most fruitful explanation was to be found in a book published annually by the Fraser Institute. The book, which has been released in 55 countries today, is the Economic Freedom of the World. This volume contains information on 123 countries comprising 91 per cent of the world’s population and it measures the comparative extent to which the countries permit their citizens to engage in capitalist acts.

The top scoring countries inevitably get most of the attention since most journalists and their readers want to know which country won the race and which were the runners up. But, as The Economist pointed out, the most interesting entrants are those which are at the bottom of the ranking and those which have been doing less well as time passes. Invariably, those countries which have low levels of economic freedom and those whose governments are reducing the comparative level of freedom are also the countries which are experiencing low growth and declining living standards.

Far from being the inevitable result of population pressures or the niggardliness of nature, poor economic performance is primarily the result of the policy choices which are made by a country’s leaders. The recipe for economic stagnation is clear: Comparatively high rates of taxation and regulation shaken with an over sized public sector, a liberal portion of public ownership and regular expropriation of private property on a bed of fluctuating and high rates of inflation. Some industries aimed largely at foreign markets may be able to survive this regime and so additional measures are required. High and variable taxes on imports in combination with controls on capital transactions with foreigners and procedures which make it very difficult to get foreign currency will be helpful in stamping out any surviving sprouts of affluence.

Given the compelling evidence that such policies destroy growth and impede economic development, why do governments pursue them? A partial answer can be found in the activities of groups like those who are assembling in and around Quebec to protest the further elaboration of a hemispheric agreement for the liberalization of trade. While the motives of the demonstrators range from, “I did it to have a good time” to, ‘I want to protect the indigenous culture of my country…”, the effect of their efforts, if successful, would be to make it more difficult for citizens in the poorest countries in the hemisphere to trade and to do anything else.

And, the governments in the America’s have been quite successful in pursuing the stagnation recipe without the aid of the demonstrators. Brazil, for example, the largest country in the South ranked 96 out of 123 in the Freedom Index indicating that in most areas of economic endeavor Brazilians are stymied by their government. Thus, one of the naturally most rich countries in the world bounces from one crisis to the next and millions of people exist in a state of desperation. Is this what the demonstrators have in mind as they impede a trade agreement which might challenge this status quo?

Venezuela, a country which harbors one of the largest stocks of oil outside the Middle East, and one which used to enjoy a level of freedom comparable to Canada’s, ranked 77 out of 123 in this years ranking. Persistent effort by a series of socialist governments has been required to drag this country down to its current torpor. Once in the top twenty, Venezuela now challenges Colombia for its spot as the 81st ranked nation.

The consequences of the policies which these Latin countries pursue are devastating and are measured in human misery and a decay of future possibilities. The meeting in Quebec is about developing a vision for enhanced transparency and trade in the region which might begin a process of opening and bring the hope of a better future. Do the demonstrators really want to deny that possibility to the least fortunate citizens of the hemisphere. If not, what is their alternative to the proposals that will be discussed in Quebec City?

As they ponder this question, they might want to peruse the Economic Freedom of the World 2001 and its catalogue of the freedom enhancing policies like trade liberalization which have been pursued by successful countries on all the continents – including Latin America.