2017 index of economic freedom - the heritage foundation · 2017-02-222017 index of economic...

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INSTITUTE FOR ECONOMIC FREEDOM

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Terry MillerAnthony B. Kim

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80100 Free7079.9 Mostly Free6069.9 Moderately Free5059.9 Mostly Unfree049.9 RepressedNot Graded

Economic Freedom Scores

Rank Country Overall Score Rank Country Overall Score Rank Country Overall Score

RANKING THE WORLD BY ECONOMIC FREEDOM

1 Hong Kong 89.8 2 Singapore 88.6 3 New Zealand 83.7 4 Switzerland 81.5 5 Australia 81.0 6 Estonia 79.1 7 Canada 78.5 8 United Arab Emirates 76.9 9 Ireland 76.7 10 Chile 76.5 11 Taiwan 76.5 12 United Kingdom 76.4 13 Georgia 76.0 14 Luxembourg 75.9 15 Netherlands 75.8 16 Lithuania 75.8 17 United States 75.1 18 Denmark 75.1 19 Sweden 74.9 20 Latvia 74.8 21 Mauritius 74.7 22 Iceland 74.4 23 South Korea 74.3 24 Finland 74.0 25 Norway 74.0 26 Germany 73.8 27 Malaysia 73.8 28 Czech Republic 73.3 29 Qatar 73.1 30 Austria 72.3 31 Macedonia 70.7 32 Macau 70.7 33 Armenia 70.3 34 Botswana 70.1 35 Brunei Darussalam 69.8 36 Israel 69.7 37 Colombia 69.7 38 Uruguay 69.7 39 Romania 69.7 40 Japan 69.6 41 Jamaica 69.5 42 Kazakhstan 69.0 43 Peru 68.9 44 Bahrain 68.5 45 Poland 68.3 46 Kosovo 67.9 47 Bulgaria 67.9 48 Cyprus 67.9 49 Belgium 67.8 50 Malta 67.7 51 Rwanda 67.6 52 Vanuatu 67.4 53 Jordan 66.7 54 Panama 66.3 55 Thailand 66.2 56 Hungary 65.8 57 Slovak Republic 65.7 58 Philippines 65.6 59 St. Vincent and the Grenadines 65.2 60 Turkey 65.2 61 Kuwait 65.1 62 St. Lucia 65.0 63 Costa Rica 65.0

64 Saudi Arabia 64.4 65 Albania 64.4 66 El Salvador 64.1 67 Dominica 63.7 68 Azerbaijan 63.6 69 Spain 63.6 70 Mexico 63.6 71 Fiji 63.4 72 France 63.3 73 Tonga 63.0 74 Guatemala 63.0 75 Cte d'Ivoire 63.0 76 Dominican Republic 62.9 77 Portugal 62.6 78 Namibia 62.5 79 Italy 62.5 80 Paraguay 62.4 81 South Africa 62.3 82 Oman 62.1 83 Montenegro 62.0 84 Indonesia 61.9 85 Seychelles 61.8 86 Morocco 61.5 87 Trinidad and Tobago 61.2 88 Swaziland 61.1 89 Kyrgyz Republic 61.1 90 Bahamas 61.1 91 Uganda 60.9 92 Bosnia and Herzegovina 60.2 93 Burkina Faso 59.6 94 Cambodia 59.5 95 Croatia 59.4 96 Benin 59.2 97 Slovenia 59.2 98 Nicaragua 59.2 99 Serbia 58.9 100 Honduras 58.8 101 Belize 58.6 102 Mali 58.6 103 Gabon 58.6 104 Belarus 58.6 105 Tanzania 58.6 106 Guyana 58.5 107 Bhutan 58.4 108 Samoa 58.4 109 Tajikistan 58.2 110 Moldova 58.0 111 China 57.4 112 Sri Lanka 57.4 113 Madagascar 57.4 114 Russia 57.1 115 Nigeria 57.1 116 Cabo Verde 56.9 117 Congo, Dem. Rep. of 56.4 118 Ghana 56.2 119 Guinea-Bissau 56.1 120 Senegal 55.9 121 Comoros 55.8 122 Zambia 55.8 123 Tunisia 55.7 124 So Tom and Prncipe 55.4 125 Nepal 55.1 126 Solomon Islands 55.0 127 Greece 55.0

128 Bangladesh 55.0 129 Mongolia 54.8 130 Barbados 54.5 131 Mauritania 54.4 132 Micronesia 54.1 133 Lao P.D.R. 54.0 134 Lesotho 53.9 135 Kenya 53.5 136 Gambia 53.4 137 Lebanon 53.3 138 Togo 53.2 139 Burundi 53.2 140 Brazil 52.9 141 Pakistan 52.8 142 Ethiopia 52.7 143 India 52.6 144 Egypt 52.6 145 Sierra Leone 52.6 146 Burma 52.5 147 Vietnam 52.4 148 Uzbekistan 52.3 149 Malawi 52.2 150 Cameroon 51.8 151 Central African Republic 51.8 152 Papua New Guinea 50.9 153 Kiribati 50.9 154 Niger 50.8 155 Iran 50.5 156 Argentina 50.4 157 Maldives 50.3 158 Mozambique 49.9 159 Haiti 49.6 160 Ecuador 49.3 161 Liberia 49.1 162 Chad 49.0 163 Afghanistan 48.9 164 Sudan 48.8 165 Angola 48.5 166 Ukraine 48.1 167 Suriname 48.0 168 Bolivia 47.7 169 Guinea 47.6 170 Turkmenistan 47.4 171 Djibouti 46.7 172 Algeria 46.5 173 Timor-Leste 46.3 174 Equatorial Guinea 45.0 175 Zimbabwe 44.0 176 Eritrea 42.2 177 Congo, Rep. of 40.0 178 Cuba 33.9 179 Venezuela 27.0 180 North Korea 4.9

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ECONOMICFREEDOM

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2017INDEX OF


ECONOMICFREEDOM

Terry MillerAnthony B. Kimwith James M. Roberts, Bryan Riley, and Tori Whiting

CONTENTSPreface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . viiForeword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ixExecutive Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Chapter 1: The Growth and Impact of Economic Freedom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Ambassador Terry Miller and Anthony B. Kim

Chapter 2: Defining Economic Freedom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Ambassador Terry Miller and Anthony B. Kim

Chapter 3: Economic Freedom by Region and Country . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27The Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Asia-Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101

Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197

Middle East/North Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297

Sub-Saharan Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341

Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 447Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 455Major Works Cited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 471Our International Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 473

viiThe Heritage Foundation | heritage.org/Index

PREFACE2016 was yet another year of startling changes around the globe. Three of the most notable political developments during the yearthe United Kingdoms Brexit, Americas election of Donald Trump as Presi-dent, and the passing of Cuban dictator Fidel Castrohave powerfully reminded us that freedom matters, and we must act to guard and nurture it.

The British exit from the European Union, a supranational entity, has been a long time coming. To a growing number of Brits, the EU has become an overregulated and undemo-cratic institution. In a historic referendum, by a margin of a million votes, the British people chose to leave the EU. Brexit embodies the very principles and ideals of conservatism: self-de-termination, limited government, democratic accountability, and economic liberty.

In my own country, the people have spoken too and have rejected failed liberal policies. For too long, the policy agenda in Washington has been defined by well-connected special in-terests that have severely undercut economic freedom for ordinary hardworking Americans. Beyond the walls of the backrooms where deep-pocketed elites secure favors from their friends in government, almost no one in Washington had seemed to be listening to the American people. The election of Donald Trump has clearly disrupted that deplorable status quo.

In Cuba, the death of brutal tyrant Fidel Castro marked the long-awaited end of a dark era for countless Cubans. Or perhaps it is just the beginning of the end, as the same re-pressive government that he created, with its

hostility toward freedom, remains strong. The tragedy that Castros Communist dictatorship has inflicted on the Cuban people for nearly six decades is beyond description. The death of Fidel opens an opportunity for change if the Cuban people can seize it.

As echoed in these three notable events of 2016, we know from history that the human spirit thrives on fairness, opportunity, and lib-erty. Yet there are those who persist in attack-ing freedom in the name of collectivism, soli-darity, and social justice. These false idols of a socialist nirvana may have emotional appeal for some, but the real-life results when they become the touchstones of government policy are all too predictable: economic stagnation, poverty, deprivation, and oppression. If we are going to continue to safeguard societies from errors that have brought nothing but misery throughout history, we must win the battle of ideas. The fight for freedom is a never-ending struggle, but people will not fight for freedom unless they understand it, value it, and believe it is at risk.

We free-market conservatives cannot af-ford complacency; we must tend the flames of liberty, side by side with our allies, new and old, around the globe.

The 2017 Index of Economic Freedom, our 23rd edition, provides ample evidence of the dynamic gains that flow from greater econom-ic freedom, both for individuals and for soci-eties. It is gratifying to see overall global prog-ress in advancing economic freedom reflected in rising scores in dozens of countries. The les-son is clear: The human spirit is the real well-spring of economic prosperity. That spirit is

viii 2017 Index of Economic Freedom

at its most inspired when it is unleashed from the chains in which it has been bound.

The imperative to advance economic free-dom and thereby revitalize vibrant entrepre-neurial growth is stronger than ever. It should be noted that free-market capitalism built on the principles of economic freedom does not just conserve. In many cases, it overturns and transforms. It pushes out the old to make way for the new so that real and true progress can take place. It leads to innovation in all realms: better jobs, better goods and services, and bet-ter societies.

A recurring theme in human history has been resilience and revival. The country pro-files presented in the 2017 Index provide many such examples of countries that have acceler-ated their economic and social progress. Their successes can be emulated by others. Indeed, they are a sure guide for ensuing greater pros-peritybut only a guide. What truly will mat-ter are the creative solutions to pressing world problems that are certain to flow from individ-uals who are, in the words of the late Milton and Rose Friedman, free to choose.

Jim DeMint, PresidentThe Heritage Foundation

December 2016

ixThe Heritage Foundation | heritage.org/Index

FOREWORDEconomic freedom is a critical element of human well-being and a vital linchpin in sustaining a free civil society. As Friedrich A. Hayek foresaw decades ago, The guiding principle in any attempt to create a world of free men must be this: a policy of freedom for the individual is the only truly progressive pol-icy. Indeed, the best path to prosperity is the path of freedom: letting individuals decide for themselves how best to achieve their dreams and aspirations and those of their families. It is that path whose course is charted in the Index of Economic Freedom.

FOSTERING INCLUSIVE AND SUSTAINABLE GROWTH

In practice, each countrys path to growth and development must be tailored to its own culture, history, and unique conditions, but there are certain fundamental characteristics of that path that are common to all countries. Nations with higher degrees of economic free-dom prosper because they tend to capitalize more fully on the knowledge and ability of all individuals in society. Given a chance, the free-market system provides a framework for organizing, without coercion, the skills, talents, and effort of individuals toward the production of the goods and services most in demand by their fellow citizens. For society as a whole, this generates dynamic economic growth and promotes innovation through the efficient allocation of resources.

In addition, policies that promote freedom, whether through improvements in the rule of law, the promotion of efficiency through com-petition and openness, or suitable restraints

on the size and economic reach of govern-ment, create an environment that is condu-cive to practical solutions to a wide range of economic and social challenges that face the worlds societies.

As the country profiles in the 2017 Index of Economic Freedom document, the link be-tween economic freedom and prosperity has never been clearer. Since the dawn of the modern age, a central question for policy-makers has been: What can government do to spur growth? The data provide an obvious answer: Adopt policies that advance econom-ic freedom.

Chart 1, which compares income per capi-ta and levels of economic freedom, illustrates the significant differences in income between countries with low levels of economic freedom and those that provide the greatest scope for individual initiative and choice. It also plots the impact that changes in economic free-dom have on economic growth rates. Coun-tries can get an immediate boost to economic growth by taking steps to increase economic freedom through policies that reduce taxes, rationalize the regulatory environment, open the economy to greater competition, and fight corruption.

WITH ECONOMIC FREEDOM COMES PROSPERITY AND MORE RAPID GROWTH

Equally important, of course, are the things that government should not do. Poli-cies that subsidize specific industries, impose one-size-fits-all central planning, attempt to buy growth through government stimulus

x 2017 Index of Economic Freedom

spending, or rack up excessive debt by accu-mulating budget deficits are highly counter-productive. The evidence is overwhelming that any gains from such strategies will be ephemeral at best. The economic distortions they create reduce efficiency, productivi-ty, and ultimately growth. That is too high a price to pay for any short-term benefits that such strategies might yield.

ECONOMIC FREEDOM: MORE THAN A GOOD BUSINESS ENVIRONMENT

To be sure, economic freedom is about much more than a business environment in which entrepreneurship and prosperity can flourish. With its far-reaching impacts on var-ious aspects of human development, econom-ic freedom empowers people, unleashes pow-erful forces of choice and opportunity, gives nourishment to other liberties, and improves the overall quality of life.

While the Index of Economic Freedom is concerned exclusively with the measurement of freedom in the economic sphere of life, it is clear that economic freedom is also connected to civil and political freedom. A free economy is a fertile environment for the promotion of democracy. By giving people greater control of their daily lives, economic freedom nurtures self-reliance and the acquisition of varied skills and resourceskey attributes of a mid-dle class.

The pursuit of greater economic freedom can thus be an important stepping-stone to democratic governance. Freedom in the eco-nomic sphere encourages individual initiative and promotes decentralized decision-mak-ing throughout society. It nurtures precisely those personal attributes that allow individu-als to challenge entrenched interests and com-pete for political power.

The dispersion of power in a well-func-tioning market system easily accommodates

WITH ECONOMIC FREEDOM COMES PROSPERITY AND MORE RAPID GROWTH

GDP per Capita, Purchasing Power Parity, Current U.S. Dollars

Economic Freedom Score by Quartile

1st 2nd 3rd 4th

heritage.orgChart 1

SOURCES: Terry Miller and Anthony B. Kim, 2017 Index of Economic Freedom (Washington: The Heritage Foundation, 2017), http://www.heritage.org/index; International Monetary Fund, World Economic Outlook Database, April 2016, https://www.imf.org/external/pubs/ft/weo/2016/01/weodata/index.aspx (accessed December 13, 2016); and The World Bank, World Development Indicators Online, http://databank.worldbank.org/data/reports.aspx? source=world-development-indicators (accessed December 13, 2016).

GDP per Capita, Purchasing Power Parity, 5Year Growth Rate

Change in Economic Freedom by Quartile

1st 2nd 3rd 4th

$43,342 $20,255 $8,384 $7,217 2.90 2.10 1.43 1.37

xiThe Heritage Foundation | heritage.org/Index

diversity of thought and action. In fact, per-haps the greatest benefit of the free-market system is that it can provide a powerful yet peaceful organizing principle for todays plu-ralistic societies. And on a wider scale, the mu-tually beneficial interactions of freely trading societies may be the best hope for a peace-ful world.

Undoubtedly, achieving greater political freedom and creating a well-functioning de-mocracy can be a messy and often excruciating

process. However, as shown in Chart 2, the positive relationship between economic free-dom and effective democratic governance is unmistakable.

THE STRUGGLE CONTINUESNow, as we progress further into the 21st

century, more countries, whether politically free or not, have realized the critical neces-sity of establishing institutional frameworks that can enhance economic freedom for their

DEMOCRATIC GOVERNANCE AND ECONOMIC FREEDOM

Democratic Governance

Overall Score in the 2017 Index of Economic Freedom

heritage.orgChart 2

SOURCES: Terry Miller and Anthony B. Kim, 2017 Index of Economic Freedom (Washington: The Heritage Foundation, 2017), http://www.heritage.org/index, and The Economist Intelligence Unit, "Democracy Index 2015," http://www.eiu.com/Handlers/WhitepaperHandler.ashx?fi=EIU-Democracy-Index-2015.pdf&mode=wp& campaignid=DemocracyIndex2015 (accessed December 13, 2016).

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citizens as the best path to development. Yet the struggle for economic freedom continues to face determined opposition.

For example, it has been common for those who feel exploited by the system in recent years to lash out at capitalism as the cause of their economic woes. When their complaints are examined, however, what stands out is not anger at an actual free-market capitalist system, but frustration with the prospect of an almost insurmountable existing system of privilege based on cronyism. Those who want special privileges will always pressure societ-ies to expand the size and weight of govern-ment intervention, but special privileges for the few mean less prosperity for the many. In many parts of the globe, aspiring entrepre-neurs, willing to work hard and full of ideas and energy, start out against a stacked deck because they lack political or family connec-tions. The struggle for economic freedom is the struggle against those who want to main-tain special privileges for the few.

To get ahead based on sheer merit and hard work, citizens of any country need a system that maintains non-discriminatory markets, allocates resources impartially, and rewards individual effort and success. That is the recipe for economic freedomand for the opportunity to escape poverty and build last-ing prosperity.

No alternative systemsand many have been triedcome close to the record of free-market capitalism in promoting growth and enhancing the human condition. The un-deniable link between economic freedom and prosperity is a striking demonstration of what people can do when they are left to pursue their own interests within the rule of law.

The late Milton and Rose Friedman were optimistic that such freedom would pre-vail. In the concluding chapter of their cel-ebrated book Free to Choose, they noted with assurance:

Fortunately, we are waking up. We are again recognizing the dangers of an over-governed society, coming to understand that good ob-jectives can be perverted by bad means, that reliance on the freedom of people to control their own lives in accordance with their own values is the surest way to achieve the full potential of a great society.

Though written in 1980, this observation is astonishingly relevant today.

James Wallner, PhDGroup Vice President for Research

The Heritage FoundationDecember 2016

1The Heritage Foundation | heritage.org/Index

EXECUTIVE HIGHLIGHTSThe Index of Economic Freedom provides compelling evidence of the wide-ranging tangible benefits of living in freer societies. Now in its 23rd edition, the Index analyzes economic policy developments in 186 coun-tries. Countries are graded and ranked on 12 measures of economic freedom that evaluate the rule of law, government size, regulatory ef-ficiency, and the openness of markets.

KEY FINDINGS OF THE 2017 INDEX Per capita incomes are much higher in

countries that are more economically free. Economies rated free or mostly free in the 2017 Index generate incomes that are more than double the average levels in other countries and more than five times higher than the incomes of people living in countries with repressed economies.

Not only are higher levels of economic freedom associated with higher per capita incomes, but greater economic freedom is also strongly correlated to overall well-being, taking into account such factors as health, education, environment, innovation, socie-tal progress, and democratic governance.

No matter what their existing level of development may be, countries can get an immediate boost in their economic growth by implementing steps to increase economic freedom through policies that reduce taxes, rationalize the regulatory environment, open the economy to greater competition, and fight corruption.

THE GROWTH OF ECONOMIC FREEDOM

Economic freedom has advanced in a ma-jority of the worlds countries over the past year. Global average economic freedom increased by 0.2 point to a record level of 60.9 on the 0100 scale used in the Index of Economic Freedom. Since the inception of the Index in 1995, average scores have increased by over 5 percent.

In the 2017 Index, 103 countries, most of which are less developed or emerging economies, showed advances in econom-ic freedom. Remarkably, 49 countries achieved their highest economic freedom scores ever. Two large economies (China and Russia) are included in this group.

While two countries (Mauritius and the United Kingdom) recorded no change in score, 73 experienced declines in econom-ic freedom. Sixteen of these 73 countries, including notably the Bahamas, Bahrain, El Salvador, Pakistan, Venezuela, and the United States, recorded their lowest eco-nomic freedom scores ever.

The AsiaPacific region is home to nine of the 20 most improved countries: Fiji, Kiri-bati, Kazakhstan, China, Turkmenistan, Uzbekistan, Vanuatu, Tajikistan, and the Solomon Islands all recorded score gains of four points or more. On the other hand, Sub-Saharan Africa has the most coun-tries (Cabo Verde, Djibouti, Ghana, Guin-ea, Kenya, The Gambia, and Madagascar)

2 2017 Index of Economic Freedom

recording notable score declines, followed by the Americas (Barbados, the Baha-mas, Venezuela, Suriname, Saint Lucia, and Brazil).

Of the 180 economies whose economic freedom has been graded and ranked in the 2017 Index, only five (Hong Kong, Singapore, New Zealand, Switzerland, and Australia) have sustained very high free-dom scores of 80 or more, putting them in the ranks of the economically free.

A further 29 countries, including Chile, the United Arab Emirates, the United Kingdom, Georgia, the United States, and Mauritius, have been rated as mostly free economies with scores between 70 and 80.

A total of 92 economies, just over half of those graded in the 2017 Index, have earned a designation of moderately free or better. These economies provide insti-tutional environments in which individ-uals and private enterprises benefit from at least a moderate degree of economic freedom in the pursuit of greater competi-tiveness, growth, and prosperity.

On the opposite side of the spectrum, nearly half of the countries graded in the Index88 economieshave registered eco-nomic freedom scores below 60. Of those economies, 65 are considered mostly un-free (scores of 5060), and 23 are consid-ered repressed (scores below 50).

THE INTANGIBLE BENEFITS OF ECONOMIC FREEDOM

Economic freedom is about much more than a business environment in which entre-preneurship and prosperity can flourish.

With its far-reaching impacts on various aspects of human development, econom-ic freedom empowers people, unleashes powerful forces of choice and opportunity,

gives nourishment to other liberties, and improves the overall quality of life.

It is true that in practice, each countrys path to growth and development must be tailored to its own conditions and even what is politically possible. Howev-er, there are some fundamentals to bear in mind. Nations with higher degrees of economic freedom prosper because they tend to capitalize more fully on the ability of the free-market system not only to generate economic growth, but also to reinforce dynamic growth through effi-cient resource allocation, value creation, and innovation.

WHATS NEW IN THE 2017 INDEX?

The Index of Economic Freedom, The Her-itage Foundations flagship product, has be-come an essential reference tool and policy guidebook for many leaders and scholars around the world over the past 23 years. During that time, a number of improvements have been made in data collection, evaluation, and display in an effort to enhance the substance and overall quality of the publication. Follow-ing that tradition, the 2017 edition of the Index incorporates a number of enhancements that are intended to ensure that it remains a practi-cal resource that is both credible and relevant to a changing world while remaining true to its roots as an objective source of data-driven analysis and policy recommendations.

Specific enhancements this year include:

New Country Page Design. Individual country pages of the Index are intended to provide both a quick visual snapshot of a countrys overall economic freedom and as much detailed information as space allows about developments and conditions in var-ious aspects of that freedom. To improve the user-friendliness of the country pages, the 2017 Index incorporates a new page layout and full color charts that illustrate a


countrys overall economic freedom score in a more intuitive and visually attrac-tive way.

Presentation of Country Pages by Re-gion. The country pages in the 2017 Index are now grouped by region and presented in alphabetical order following a brief summary of regional developments. All countries of the Western Hemisphere are now grouped in a single Americas region.

Enhanced Methodology. The number of components of economic freedom that are separately evaluated and graded has increased from 10 to 12. The increased reliability and availability of worldwide data from a variety of sources has permit-ted the incorporation of new components specifically addressing Judicial Effec-tiveness and Fiscal Health. The former Freedom from Corruption component

has been refined, incorporating additional sub-factors and underlying data sources that are significantly more comprehensive than those formerly used, and renamed

Government Integrity. Finally, the Fiscal Freedom component of the Index has been renamed Tax Burden to better reflect exactly what is being measured. Details of these methodological changes are provid-ed in the Methodology Appendix.

Equal Weighting. The four pillars of economic freedomRule of Law, Gov-ernment Size, Regulatory Efficiency, and Open Marketsnow carry equal weight in the computation of the overall economic freedom score. Each now includes three equally weighted components, presenting opportunities for new types of analytical comparisons reflecting the impact of re-forms in broader policy areas.


2017 INDEX OF ECONOMIC FREEDOM WORLD RANKINGS

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1 1 Hong Kong 89.8 1.2 93.7 84.0 80.3 93.0 90.0 100 94.6 89.1 83.2 90.0 90 902 2 Singapore 88.6 0.8 97.1 91.5 87.9 90.5 90.1 80.7 95.1 90.8 84.3 90.0 85 803 3 New Zealand 83.7 2.1 96.1 88.5 89.9 70.8 46.5 97.8 91.8 86.2 90.1 87.4 80 804 1 Switzerland 81.5 0.5 86.9 77.6 80.3 70.9 67.5 95.8 76.8 72.2 84.4 90.0 85 905 4 Australia 81.0 0.7 81.7 92.9 74.8 63.2 59.0 84.6 89.3 84.1 86.4 86.2 80 906 2 Estonia 79.1 1.9 82.6 82.8 69.9 81.2 55.8 99.8 77.0 56.9 85.7 87.0 90 807 1 Canada 78.5 0.5 88.3 80.8 81.6 77.4 52.3 80.3 81.9 73.1 77.8 88.4 80 808 1 United Arab Emirates 76.9 4.3 76.7 85.0 74.2 96.4 67.4 99.2 81.1 80.9 78.4 83.5 40 60

9 3 Ireland 76.7 -0.6 85.8 78.3 78.3 72.7 57.1 60.3 80.3 73.6 87.6 87.0 90 70

10 2 Chile 76.5 -1.2 68.2 63.7 70.5 77.6 82.2 96.1 72.3 64.3 82.2 86.4 85 7011 5 Taiwan 76.5 1.8 86.5 67.7 70.5 75.3 89.5 83.7 93.4 55.0 85.2 86.2 65 6012 4 United Kingdom 76.4 0.0 93.8 93.0 78.3 65.1 41.9 40.4 89.9 72.8 85.0 87.0 90 8013 5 Georgia 76.0 3.4 55.1 66.5 65.0 87.3 74.4 93.5 87.2 75.9 78.2 88.6 80 6014 6 Luxembourg 75.9 2.0 85.8 77.0 78.3 64.5 46.0 99.0 68.6 43.8 86.2 87.0 95 8015 7 Netherlands 75.8 1.2 87.4 69.9 85.7 53.2 37.0 83.0 80.2 70.5 85.8 87.0 90 8016 8 Lithuania 75.8 0.6 73.0 62.4 69.7 86.9 64.1 93.6 79.1 63.6 90.0 87.0 70 7017 3 United States 75.1 -0.3 81.3 75.1 78.1 65.3 55.9 53.3 84.4 91.0 80.1 87.1 80 7018 9 Denmark 75.1 -0.2 86.7 68.5 84.9 37.2 5.7 95.4 93.9 85.8 85.5 87.0 90 8019 10 Sweden 74.9 2.9 88.6 82.2 87.4 44.4 21.7 93.4 90.8 53.2 85.3 87.0 85 8020 11 Latvia 74.8 4.4 72.6 59.7 67.3 84.7 57.4 95.0 79.8 72.0 86.5 87.0 75 6021 1 Mauritius 74.7 0.0 64.4 72.6 44.3 92.0 81.5 74.9 78.2 68.8 81.1 88.7 80 7022 12 Iceland 74.4 1.1 85.0 71.5 71.5 70.9 41.1 90.6 90.2 62.6 81.2 88.0 80 6023 6 South Korea 74.3 2.6 77.8 59.9 67.3 73.7 68.9 97.4 90.6 57.0 84.0 79.5 65 7024 13 Finland 74.0 1.4 90.6 82.7 90.0 66.6 0.0 77.3 90.2 53.4 85.1 87.0 85 8025 14 Norway 74.0 3.2 86.7 83.3 88.3 55.6 38.5 98.4 89.5 48.8 75.8 87.7 75 6026 15 Germany 73.8 -0.6 82.9 79.5 77.7 61.9 41.4 89.9 86.6 42.8 85.9 87.0 80 7027 7 Malaysia 73.8 2.3 85.3 67.3 51.8 85.3 78.7 76.5 90.8 73.1 85.3 81.2 60 5028 16 Czech Republic 73.3 0.1 70.3 55.9 55.9 82.9 45.3 92.0 67.2 77.7 85.8 87.0 80 8029 2 Qatar 73.1 2.4 74.8 63.0 59.0 99.6 71.2 97.4 68.1 65.4 80.6 83.1 55 6030 17 Austria 72.3 0.6 86.0 81.8 75.2 50.3 19.3 79.7 76.9 67.6 83.4 87.0 90 7031 18 Macedonia 70.7 3.2 67.0 61.4 52.0 91.9 68.9 72.6 81.5 66.7 80.8 86.1 60 6032 8 Macau 70.7 0.6 60.0 60.0 37.1 72.3 92.8 100 60.0 50.0 70.8 90.0 85 7033 19 Armenia 70.3 3.3 55.5 42.5 43.4 83.7 81.7 82.9 78.5 72.4 72.8 80.2 80 7034 2 Botswana 70.1 -1.0 58.1 54.0 57.6 77.1 61.2 99.4 68.8 68.6 77.9 83.8 65 7035 9 Brunei Darussalam 69.8 2.5 62.5 39.9 40.9 85.6 61.2 100 76.6 90.4 76.1 89.1 65 5036 3 Israel 69.7 -1.0 71.9 82.0 47.6 61.0 50.5 71.8 69.9 64.3 84.9 88.0 75 7037 4 Colombia 69.7 -1.1 63.8 25.2 39.6 80.1 74.2 89.8 77.1 77.9 77.0 81.6 80 7038 5 Uruguay 69.7 0.9 70.2 66.8 70.3 77.5 69.4 77.2 74.8 62.9 71.3 80.6 85 30


2017 INDEX OF ECONOMIC FREEDOM WORLD RANKINGSW

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39 20 Romania 69.7 4.1 63.9 58.5 45.9 87.4 65.3 90.9 65.9 62.5 83.6 87.0 75 5040 10 Japan 69.6 -3.5 89.4 73.8 86.1 68.5 52.3 9.5 82.3 77.5 83.0 82.6 70 6041 6 Jamaica 69.5 2.0 58.0 61.5 38.2 81.0 77.5 79.9 78.9 73.7 79.5 75.3 80 5042 11 Kazakhstan 69.0 5.4 56.1 56.5 38.0 93.3 85.7 98.9 74.5 82.5 73.9 78.5 40 5043 7 Peru 68.9 1.5 58.3 28.2 38.8 80.3 85.1 98.4 69.4 62.8 83.3 87.1 75 6044 4 Bahrain 68.5 -5.8 64.2 53.7 55.5 99.9 69.8 12.0 69.4 78.7 80.7 82.8 75 8045 21 Poland 68.3 -1.0 60.8 58.0 55.5 76.0 46.9 76.1 67.8 61.5 84.7 87.0 75 7046 22 Kosovo 67.9 6.5 70.3 58.0 45.9 93.5 77.8 88.9 68.8 65.3 80.0 70.8 65 3047 23 Bulgaria 67.9 2.0 62.5 38.9 41.8 91.0 58.4 86.4 66.7 68.3 83.3 87.0 70 6048 24 Cyprus 67.9 -0.8 75.4 60.7 53.6 73.0 48.8 72.9 75.8 58.6 83.3 87.0 75 5049 25 Belgium 67.8 -0.6 83.3 69.3 71.5 44.1 9.6 66.3 82.0 61.1 84.9 87.0 85 7050 26 Malta 67.7 1.0 67.7 62.9 53.6 62.8 44.9 85.1 62.5 57.2 83.5 87.0 85 6051 3 Rwanda 67.6 4.5 64.4 68.8 45.9 79.8 77.3 83.3 59.0 81.8 80.0 70.3 60 4052 12 Vanuatu 67.4 6.6 65.5 33.0 70.5 97.0 80.4 99.1 51.4 58.1 74.8 73.9 65 4053 5 Jordan 66.7 -1.6 60.1 49.5 49.8 91.3 73.3 55.5 63.9 58.1 86.7 82.0 70 6054 8 Panama 66.3 1.5 61.1 21.5 40.9 85.2 83.1 84.9 74.4 43.0 78.4 77.8 75 7055 13 Thailand 66.2 2.3 51.3 41.7 40.7 81.0 85.3 96.3 69.9 62.8 72.9 82.8 50 6056 27 Hungary 65.8 -0.2 60.1 51.8 41.5 79.3 25.3 79.3 64.0 64.4 91.7 87.0 75 7057 28 Slovak Republic 65.7 -0.9 69.0 38.0 39.6 79.7 47.2 82.9 64.9 54.4 81.1 87.0 75 7058 14 Philippines 65.6 2.5 49.2 37.1 38.7 78.9 89.4 97.2 62.6 57.2 80.6 76.4 60 60

59 9St. Vincent and the Grenadines

65.2 -3.6 37.3 68.8 47.6 72.8 71.7 66.7 80.3 74.5 82.9 65.2 75 40

60 29 Turkey 65.2 3.1 61.3 52.5 40.7 75.5 57.7 95.7 64.3 48.5 72.2 79.4 75 6061 6 Kuwait 65.1 2.4 55.5 56.4 41.3 97.7 40.8 99.8 61.2 61.5 73.6 78.7 55 6062 11 St. Lucia 65.0 -5.0 65.5 68.8 39.6 76.4 71.6 53.8 77.2 68.7 82.3 71.6 65 4063 10 Costa Rica 65.0 -2.4 51.6 55.6 55.4 79.4 88.5 42.4 68.1 53.9 80.8 84.7 70 5064 7 Saudi Arabia 64.4 2.3 62.0 65.0 45.9 99.7 54.5 65.7 73.8 68.5 70.1 78.2 40 5065 30 Albania 64.4 -1.5 54.0 28.5 39.7 86.9 72.5 51.5 79.3 50.7 81.4 87.7 70 7066 12 El Salvador 64.1 -1.0 45.3 35.4 31.7 79.0 85.9 74.7 57.3 54.5 79.2 86.5 80 6067 13 Dominica 63.7 -3.3 43.8 67.7 40.9 73.2 67.5 72.6 72.1 59.0 89.5 72.6 75 3068 15 Azerbaijan 63.6 3.4 50.5 33.0 37.6 87.7 57.5 97.4 71.5 75.0 73.6 74.4 55 5069 31 Spain 63.6 -4.9 71.2 53.9 57.2 62.5 41.4 26.9 66.9 55.3 85.5 87.0 85 7070 14 Mexico 63.6 -1.6 58.1 38.7 30.0 74.9 76.7 66.8 70.7 57.9 78.8 80.0 70 6071 16 Fiji 63.4 4.6 67.7 41.9 32.7 80.7 72.5 84.1 61.3 70.5 75.5 68.8 55 5072 32 France 63.3 1.0 85.0 72.7 69.7 47.6 2.0 57.0 78.0 44.1 81.6 82.0 70 7073 17 Tonga 63.0 3.4 65.5 19.8 47.6 86.9 74.4 79.6 76.1 86.0 80.6 79.7 40 2074 15 Guatemala 63.0 1.2 45.0 27.8 27.5 79.2 94.8 93.5 58.7 48.2 79.4 87.0 65 5075 4 Cte d'Ivoire 63.0 3.0 42.6 45.8 34.3 78.4 84.6 87.0 62.1 50.6 73.2 72.3 75 50



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76 16 Dominican Republic 62.9 1.9 56.1 25.3 30.9 84.6 90.2 90.1 52.8 56.2 76.7 77.0 75 4077 33 Portugal 62.6 -2.5 73.3 68.9 59.0 59.8 25.1 32.1 86.4 43.4 85.9 87.0 70 6078 5 Namibia 62.5 0.6 53.8 50.6 41.3 65.2 55.6 66.4 67.6 84.4 77.2 83.5 65 4079 34 Italy 62.5 1.3 74.6 55.4 44.7 54.9 22.3 66.9 69.8 52.9 86.9 87.0 85 5080 17 Paraguay 62.4 0.9 38.2 23.3 32.6 96.2 83.0 95.1 62.4 28.5 78.3 76.6 75 6081 6 South Africa 62.3 0.4 67.6 59.7 47.6 70.2 68.4 70.0 62.0 58.9 75.8 77.3 40 5082 8 Oman 62.1 -5.0 60.8 52.3 47.6 98.5 20.5 36.3 68.4 70.3 80.6 85.2 65 6083 35 Montenegro 62.0 -2.9 58.0 50.4 43.4 83.1 33.1 44.3 72.0 67.4 82.5 84.7 75 5084 18 Indonesia 61.9 2.5 48.3 39.3 44.7 83.6 89.9 90.1 49.1 48.9 74.0 80.5 35 6085 7 Seychelles 61.8 -0.4 55.2 42.6 44.3 78.8 63.9 90.7 63.4 55.9 78.3 83.4 55 3086 9 Morocco 61.5 0.2 55.0 41.9 37.1 71.7 69.4 55.0 67.7 33.8 82.7 84.0 70 7087 18 Trinidad and Tobago 61.2 -1.7 54.7 48.7 36.8 81.4 57.7 51.8 67.7 71.4 75.9 78.6 60 5088 8 Swaziland 61.1 1.4 53.5 33.3 30.9 74.8 71.6 93.2 57.5 64.4 75.6 88.9 50 4089 19 Kyrgyz Republic 61.1 1.5 50.9 17.2 30.3 93.7 55.2 78.9 73.7 79.8 68.5 75.3 60 5090 19 Bahamas 61.1 -9.8 45.3 48.7 38.2 97.1 83.8 42.3 68.5 71.5 77.0 50.6 50 6091 9 Uganda 60.9 1.6 39.3 34.6 28.7 73.7 91.0 78.1 42.4 84.6 80.3 78.3 60 4092 36 Bosnia and Herzegovina 60.2 1.6 41.2 40.0 32.7 83.5 33.7 89.3 47.4 59.3 84.0 86.6 65 6093 10 Burkina Faso 59.6 0.5 38.2 28.4 31.7 82.6 82.5 88.4 46.4 53.3 84.6 69.2 70 4094 20 Cambodia 59.5 1.6 42.4 22.1 12.8 90.2 88.1 95.7 29.6 62.0 81.0 80.3 60 5095 37 Croatia 59.4 0.3 65.5 56.8 43.4 66.8 31.3 44.7 58.2 43.3 80.3 87.4 75 6096 11 Benin 59.2 -0.1 36.0 29.4 31.3 68.6 85.9 71.3 51.9 52.4 85.4 68.7 80 5097 38 Slovenia 59.2 -1.4 75.0 55.1 53.6 58.7 28.6 6.1 80.6 60.2 85.3 87.0 70 5098 20 Nicaragua 59.2 0.6 31.1 15.9 27.4 77.2 80.8 96.1 59.0 55.6 71.2 81.0 65 5099 39 Serbia 58.9 -3.2 50.3 40.2 38.2 83.3 40.3 46.9 62.9 65.9 80.8 77.8 70 50

100 21 Honduras 58.8 1.1 45.0 38.2 32.2 83.3 74.7 64.1 56.9 31.2 77.3 78.4 65 60101 22 Belize 58.6 1.2 43.5 48.7 35.0 81.3 68.6 60.5 62.7 53.6 79.6 70.1 50 50102 12 Mali 58.6 2.1 36.7 33.8 34.3 69.4 88.0 87.8 44.2 51.1 83.0 70.1 65 40103 13 Gabon 58.6 -0.4 35.9 26.7 37.6 77.0 81.0 96.1 50.6 58.4 83.0 61.8 55 40104 40 Belarus 58.6 9.8 50.9 56.3 37.6 89.8 48.7 92.8 71.3 74.6 60.4 80.6 30 10105 14 Tanzania 58.6 0.1 33.8 28.8 29.2 80.3 89.5 76.6 50.1 64.3 69.6 76.0 55 50106 23 Guyana 58.5 3.1 37.7 34.1 33.9 68.0 72.8 80.9 63.2 70.9 79.8 70.7 60 30107 21 Bhutan 58.4 -1.1 60.1 50.7 44.7 83.1 73.6 61.7 72.6 77.6 67.1 60.0 20 30108 22 Samoa 58.4 -5.1 51.3 22.6 37.1 80.4 51.9 66.6 77.0 73.3 84.5 70.7 55 30109 23 Tajikistan 58.2 6.9 45.5 45.6 32.7 90.9 74.1 95.8 65.6 49.2 69.8 73.9 25 30110 41 Moldova 58.0 0.6 49.6 23.9 28.6 86.1 54.8 90.6 65.9 38.9 72.0 80.0 55 50111 24 China 57.4 5.4 48.3 60.7 41.6 70.0 73.0 92.5 53.9 63.4 71.8 73.6 20 20112 25 Sri Lanka 57.4 -2.5 48.0 48.3 30.0 85.3 90.2 31.2 72.8 57.5 76.0 74.5 35 40113 15 Madagascar 57.4 -3.7 34.8 21.4 25.0 91.0 93.2 79.8 43.3 43.8 73.3 78.0 55 50


2017 INDEX OF ECONOMIC FREEDOM WORLD RANKINGSW

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114 42 Russia 57.1 6.5 47.6 44.5 38.2 81.8 61.5 93.4 74.8 50.8 57.3 75.2 30 30115 16 Nigeria 57.1 -0.4 35.3 33.2 12.2 85.2 95.2 87.2 48.9 73.9 71.3 62.3 40 40116 17 Cabo Verde 56.9 -9.6 42.6 50.2 41.8 78.3 70.7 1.2 65.5 43.2 86.7 68.2 75 60

117 18 Congo, Dem. Rep. of 56.4 10.0 40.6 48.7 28.6 73.4 94.7 99.3 59.9 38.4 78.6 64.6 30 20

118 19 Ghana 56.2 -7.3 51.6 40.9 35.5 84.5 76.3 9.2 59.6 57.4 64.5 65.1 70 60119 20 Guinea-Bissau 56.1 4.3 33.8 48.7 28.7 89.0 87.5 75.3 46.7 60.9 77.7 65.2 30 30120 21 Senegal 55.9 -2.2 44.0 39.3 42.1 70.9 74.3 51.8 50.8 38.9 86.0 73.1 60 40121 22 Comoros 55.8 3.4 37.3 22.6 30.0 64.6 81.2 98.6 58.5 50.6 81.5 70.2 45 30122 23 Zambia 55.8 -3.0 49.6 39.8 35.0 73.1 81.6 21.6 66.6 48.2 70.7 78.3 55 50123 10 Tunisia 55.7 -1.9 49.6 39.9 37.3 73.7 73.4 53.4 80.6 56.1 75.9 63.8 35 30124 24 So Tom and Prncipe 55.4 -1.3 37.7 15.9 39.7 87.8 67.9 67.1 65.0 47.2 69.6 71.8 65 30125 26 Nepal 55.1 4.2 37.3 32.0 26.7 84.9 89.5 98.4 64.6 47.6 72.2 68.1 10 30126 27 Solomon Islands 55.0 8.0 39.3 41.9 33.9 62.8 34.4 99.8 68.5 70.5 81.0 83.0 15 30127 43 Greece 55.0 1.8 52.5 56.1 41.3 61.1 5.4 58.1 74.3 51.0 78.2 82.0 60 40128 28 Bangladesh 55.0 1.7 34.9 26.0 19.1 72.8 94.0 78.7 53.4 68.7 68.6 63.6 50 30129 29 Mongolia 54.8 -4.6 51.3 28.4 36.8 87.1 57.6 0.0 67.2 76.6 72.3 74.9 45 60130 24 Barbados 54.5 -13.8 55.5 33.0 34.3 74.0 39.0 0.0 69.6 67.7 83.7 62.2 75 60131 25 Mauritania 54.4 -0.4 22.5 13.8 29.2 81.2 73.2 77.1 64.4 57.4 81.9 62.3 50 40132 30 Micronesia 54.1 2.3 30.0 30.0 40.7 90.7 0.0 98.6 57.8 67.7 83.6 85.6 35 30133 31 Lao P.D.R. 54.0 4.2 35.3 35.9 32.6 86.1 76.6 61.2 66.3 54.4 70.2 74.6 35 20134 26 Lesotho 53.9 3.3 51.6 50.9 39.6 55.7 0.0 92.2 52.2 57.7 76.4 80.2 50 40135 27 Kenya 53.5 -4.0 45.1 42.7 24.7 78.5 77.9 14.4 50.0 62.4 73.8 67.2 55 50136 28 Gambia 53.4 -3.7 39.1 38.8 38.2 74.9 74.3 3.2 52.8 65.6 63.8 65.0 75 50137 11 Lebanon 53.3 -6.2 43.8 25.3 23.3 91.8 76.1 0.0 51.5 49.5 78.4 84.4 65 50138 29 Togo 53.2 -0.4 33.8 39.9 36.8 68.2 79.8 45.1 50.3 46.2 77.5 71.3 60 30139 30 Burundi 53.2 -0.7 25.7 19.8 24.6 73.8 69.5 69.6 53.5 67.4 75.2 74.2 55 30140 25 Brazil 52.9 -3.6 55.0 49.7 33.4 70.1 53.1 22.8 61.3 52.3 67.0 69.4 50 50141 32 Pakistan 52.8 -3.1 36.4 34.1 30.5 78.9 87.3 30.8 61.2 37.8 74.8 67.2 55 40142 31 Ethiopia 52.7 1.2 32.6 29.6 37.6 77.1 90.3 86.5 50.0 57.2 65.7 65.1 20 20143 33 India 52.6 -3.6 55.4 44.4 44.3 77.2 77.4 11.0 52.8 41.6 75.0 72.6 40 40144 12 Egypt 52.6 -3.4 35.4 56.3 32.7 86.1 63.0 4.6 66.8 51.3 69.6 70.2 55 40145 32 Sierra Leone 52.6 0.3 37.4 27.0 18.9 81.3 90.2 76.2 49.6 29.7 71.1 69.4 60 20146 34 Burma 52.5 3.8 23.0 12.9 29.6 86.2 81.5 89.9 50.1 77.1 65.4 74.2 20 20147 35 Vietnam 52.4 -1.6 49.7 32.0 24.6 79.6 74.6 21.1 61.2 62.2 76.0 83.1 25 40148 36 Uzbekistan 52.3 6.3 48.0 41.9 27.5 90.7 66.2 99.8 64.8 50.4 61.1 66.8 0 10149 33 Malawi 52.2 0.4 36.0 44.2 31.3 79.1 69.8 33.5 45.3 56.9 54.7 70.5 55 50150 34 Cameroon 51.8 -2.4 43.5 29.6 17.4 75.4 84.4 60.9 44.3 47.8 80.1 53.4 35 50151 35 Central African Republic 51.8 6.6 12.6 33.0 28.7 65.8 94.1 84.1 27.2 42.7 68.2 55.2 80 30



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152 37 Papua New Guinea 50.9 -2.3 37.7 54.0 32.7 67.8 64.5 16.7 59.8 67.4 69.8 85.4 25 30153 38 Kiribati 50.9 4.7 48.0 33.0 37.6 73.6 0.0 99.5 51.5 71.9 82.0 58.2 25 30154 36 Niger 50.8 -3.5 33.8 22.6 35.0 76.3 73.4 38.5 39.1 46.1 83.3 66.4 55 40155 13 Iran 50.5 7.0 32.4 36.0 29.6 81.1 92.7 94.9 64.8 54.5 55.5 54.5 0 10156 26 Argentina 50.4 6.6 32.4 39.6 38.2 62.6 54.6 56.4 57.3 46.1 50.9 66.7 50 50157 39 Maldives 50.3 -3.6 45.1 33.0 31.4 93.0 51.5 9.4 80.6 70.4 76.3 47.8 35 30158 37 Mozambique 49.9 -3.3 40.6 32.4 30.9 73.2 58.2 22.7 58.8 41.0 79.9 76.7 35 50159 27 Haiti 49.6 -1.7 12.6 25.1 19.1 80.3 81.0 51.8 49.4 62.1 73.8 70.6 40 30160 28 Ecuador 49.3 0.7 38.7 22.3 33.9 79.1 46.1 56.4 55.4 47.3 67.7 69.7 35 40161 38 Liberia 49.1 -3.1 33.6 41.0 31.4 83.6 60.1 36.2 53.1 48.5 71.8 60.1 50 20162 39 Chad 49.0 2.7 30.6 24.1 24.6 46.0 87.2 74.6 27.5 44.9 74.3 54.7 60 40163 40 Afghanistan 48.9 N/A 12.6 28.4 27.5 91.6 79.9 97.3 54.2 59.9 69.3 66.0 0 0164 40 Sudan 48.8 N/A 31.1 19.8 18.9 86.5 95.1 85.5 53.9 49.7 59.3 50.5 15 20165 41 Angola 48.5 -0.4 36.4 19.8 12.8 87.7 58.6 70.7 58.5 40.4 70.6 56.7 30 40166 44 Ukraine 48.1 1.3 41.4 22.6 29.2 78.6 38.2 67.9 62.1 48.8 47.4 85.9 25 30167 29 Suriname 48.0 -5.8 45.1 15.4 31.7 70.1 69.6 16.2 48.6 76.1 75.1 68.4 30 30168 30 Bolivia 47.7 0.3 25.7 15.4 32.6 86.1 49.1 81.4 58.9 35.8 66.4 76.0 5 40169 42 Guinea 47.6 -5.7 15.6 13.1 27.5 69.1 78.4 34.2 55.8 54.8 71.1 61.2 50 40170 41 Turkmenistan 47.4 5.5 32.4 5.0 29.6 95.3 92.3 98.9 30.0 20.0 74.8 80.0 0 10171 43 Djibouti 46.7 -9.3 12.3 10.3 32.6 80.9 39.5 13.8 51.6 59.0 75.3 54.9 80 50172 14 Algeria 46.5 -3.6 38.2 29.6 31.7 81.1 51.0 19.8 62.1 49.5 67.0 63.3 35 30173 42 Timor-Leste 46.3 0.5 6.8 10.3 29.2 64.7 65.6 20.0 72.2 63.9 77.5 80.0 45 20174 44 Equatorial Guinea 45.0 1.3 35.4 13.1 24.6 75.4 53.6 46.4 50.9 38.5 78.3 53.8 40 30175 45 Zimbabwe 44.0 5.8 27.3 26.1 14.7 61.1 75.2 90.6 36.2 33.1 76.5 52.8 25 10176 46 Eritrea 42.2 -0.5 36.4 10.3 27.5 81.3 74.7 0.0 56.7 69.7 61.0 69.2 0 20177 47 Congo, Rep. of 40.0 -2.8 34.8 22.6 30.5 66.8 36.2 11.6 32.1 37.5 76.1 52.2 50 30178 31 Cuba 33.9 4.1 32.4 10.0 41.8 51.3 0.0 81.2 20.0 20.0 66.0 64.5 10 10179 32 Venezuela 27.0 -6.7 6.8 10.3 11.6 72.5 51.5 15.2 39.7 28.5 16.8 60.7 0 10180 43 North Korea 4.9 2.6 32.4 5.0 11.6 0.0 0.0 0.0 5.0 5.0 0.0 0.0 0 0N/A N/A Iraq N/A N/A 37.3 15.9 19.1 N/A 36.1 11.3 61.2 68.0 76.9 N/A N/A N/AN/A N/A Libya N/A N/A 6.8 22.6 26.7 95 0 11.4 65.0 52.5 69.2 80.0 N/A N/AN/A N/A Liechtenstein N/A N/A N/A N/A N/A N/A N/A N/A 92.3 85.7 N/A 90.0 85 80N/A N/A Somalia N/A N/A 6.8 N/A 11.6 100 N/A 0.0 92.3 91.8 N/A N/A N/A N/AN/A N/A Syria N/A N/A 37.3 22.6 30.0 N/A N/A 0.0 66.4 55.7 N/A 56.6 N/A N/AN/A N/A Yemen N/A N/A 37.3 22.6 17.4 N/A 77.2 10.6 51.4 54.2 59.7 N/A N/A N/A


CHAPTER 1

THE GROWTH AND IMPACT OF ECONOMIC FREEDOMAmbassador Terry Miller and Anthony B. Kim

Economic freedom has advanced in over 100 countries over the past year. Global average economic freedom increased by 0.2 point to a record level of 60.9 on the 0100 scale used in the Index of Economic Freedom. In the years since the inception of the Index in 1995, average scores have increased by over 5 percent.

Behind this record of advancing economic freedom are stories of human progress and the achievements of countries and their cit-izensliterally billions of people around the world whose lives have been measurably im-proved. There also are stories of policy failure, backsliding, and continuing repression.

GAINS AND LOSSESIn the 2017 Index, 103 countries, the ma-

jority of which are less developed or emerg-ing economies, showed advances in economic freedom over the past year. Remarkably, 49 countries achieved their highest economic freedom scores ever. Two large economies (China and Russia) are included in this group.

While two countries (Mauritius and the United Kingdom) recorded no change in score, 73 experienced declines in economic freedom, and 16 countries, including notably the Baha-mas, Bahrain, El Salvador, Pakistan, Venezue-la, and the United States, recorded their low-est economic freedom scores ever.

The AsiaPacific region is home to nine of the 20 most improved countries: Fiji, Kiribati, Kazakhstan, China, Turkmenistan, Uzbekistan, Vanuatu, Tajikistan, and the Solomon Islands all recorded score gains of four points or more. On the other hand, Sub-Saharan Africa has the

heritage.orgChart 1

SOURCE: Terry Miller and Anthony B. Kim, 2017 Index of Economic Freedom (Washington: The Heritage Foundation, 2017), http://www.heritage.org/index.

GLOBAL ECONOMIC FREEDOM SCORE

56

57

58

59

60

61

1995 2000 2005 2010 2015 2017

60.9


most countries (Cabo Verde, Djibouti, Ghana, Guinea, Kenya, The Gambia, and Madagascar) recording notable score declines, followed by the Americas (Barbados, the Bahamas, Venezu-ela, Suriname, Saint Lucia, and Brazil).

Score improvements in 19 countries, all of which are developing or emerging economies, were significant enough to merit upgrades in their economic freedom status in the Index. Notably, Macedonia and Armenia have joined the ranks of the mostly free, with Macedonia ranked mostly free for the first time ever and Armenia regaining a level of economic free-dom it had not experienced since 2006. Seven developing countries (Fiji, Tonga, Indonesia, Swaziland, the Kyrgyz Republic, Uganda, and Bosnia and Herzegovina) have advanced into the ranks of the moderately free, and 10 oth-ers (Belarus, the Democratic Republic Congo, the Solomon Islands, Laos, Burma, Uzbeki-stan, the Central African Republic, Kiribati, Iran, and Argentina) have escaped the status of economically repressed.

Of the 180 economies whose economic freedom has been graded and ranked in the 2017 Index, only five have sustained very high

freedom scores of 80 or more, putting them in the ranks of the economically free. The five are Hong Kong, Singapore, New Zealand, Switzerland, and Australia. A further 29 coun-tries, including Chile, the United Arab Emir-ates, the United Kingdom, Georgia, the Unit-ed States, and Mauritius, have been rated as

mostly free economies with scores between 70 and 80.

A total of 92 economies, or about 51 per-cent of all nations and territories graded in the 2017 Index, have earned a designation of

moderately free or better. These economies provide institutional environments in which individuals and private enterprises benefit from at least a moderate degree of economic freedom in the pursuit of greater competitive-ness, growth, and prosperity. On the opposite side of the spectrum, nearly half of the coun-tries graded in the Index88 economieshave registered economic freedom scores below 60. Of those, 65 economies are considered most-ly unfree (scores of 5060), and 23 are con-sidered repressed (scores below 50).

Despite the global progress recorded over the 23-year history of the Index, the number

GLOBAL ECONOMIC FREEDOM IN 2017

heritage.orgChart 2

SOURCE: Terry Miller and Anthony B. Kim, 2017 Index of Economic Freedom (Washington: The Heritage Foundation, 2017), http://www.heritage.org/index.

REPRESSED MOSTLY UNFREE

MODERATELY FREE

MOSTLY FREE FREE

23 65 58 295

Number of Nations in

Each Category


ECONOMIC FREEDOM AND PER CAPITA INCOME

GDP per Capita (Purchasing Power Parity)

GDP per Capita (Purchasing Power Parity)

heritage.orgChart 3

SOURCES: Terry Miller and Anthony B. Kim, 2017 Index of Economic Freedom (Washington: The Heritage Foundation, 2017), http://www.heritage.org/index, and International Monetary Fund, World Economic Outlook Database, April 2016, https://www.imf.org/external/pubs/ft/weo/2016/01/weodata/index.aspx (accessed December 13, 2016).

100

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

20 30 40 50 60 70 80 90 100


$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

Middle East / North Africa

Asia-Pacific Europe Americas Sub-Saharan Africa

Five Most Free Nations Five Least Free Nations

Tren

d$59,118

$54,460

$38,693

$32,034

$10,482 $14,655

$8,319

$16,498 $12,655

$9,015

Correlation: 0.63




of people suffering from a lack of economic freedom remains disturbingly high: around 4.5 billion, or about 65 percent of the worlds population. More than half of these people live in just two countries, China and India, where advancement toward greater economic freedom has been both limited and uneven. In the two most populous economies, structural reforms in a few key sectors have sometimes boosted growth, but the governments have failed to institutionalize open environments that promote broad-based and sustainable im-provements in the economic well-being of the population as a whole.

ECONOMIC FREEDOM AROUND THE GLOBE

Patterns of economic freedom are quite diverse both within and among the five Index regions, reflecting the unique culture and his-tory of the nations and the individuals that inhabit them, not to mention circumstances of geography or endowments of natural re-sources. With an average score of 68, Europe has recorded the highest level of average eco-nomic freedom among the regions. Despite the ongoing economic and political turmoil in a number of countries in the Middle East and North Africa, the region as a whole has still achieved an average economic freedom score slightly above 60 due to high ratings of economic freedom in the United Arab Emir-ates, Qatar, Israel, and Bahrain. Despite some progress in recent years, the average eco-nomic freedom score in Sub-Saharan Africa continues to be below 60.

As demonstrated in previous editions of the Index, it is notable that despite varying degrees of economic freedom across the re-gions, the fundamentally positive relationship between economic freedom and prosperity is readily apparent worldwide. Chart 3 shows that, no matter the region, the higher a coun-trys level of economic freedom is, the higher its income per capita also is.

The diversity of the worlds peoples and cultures implies that there will be many paths

to economic development and prosperity. The whole idea of economic freedom is to empow-er people with more opportunity to choose for themselves how to pursue and fulfill their dreams, subject only to the basic rule of law and honest competition from others.

There is no single answer to the particular challenges of development that we face as in-dividuals or as members of distinct societies. One thing, however, is proven: Governments that respect and promote economic freedom provide the best environment for experi-mentation, innovation, and progress, and it is through these that humankind grows in pros-perity and well-being.

THE PROVEN IMPACT OF ECONOMIC FREEDOM

As successive editions of the Index have documented since 1995, the affirmative link between economic freedom and long-term development is unmistakable and robust. Countries that allow their citizens more eco-nomic freedom achieve higher incomes and better standards of living. People in econom-ically free societies have longer lives. They have better health and access to more ef-fective education. They are able to be better stewards of the environment, and they push forward the frontiers of human achievement in science and technology through great-er innovation.

It has become quite apparent that despite ups and downs, the principles and lessons of economic freedom have been widely under-stood, accepted, and implemented in practice by a significant number of countries around the globe. Their progress is seen in the score changes. The poorer-performing countries, by contrast, have tried only some of the ideas, adulterated others, or even in a few cases re-jected them outright.

The economic performance of countries with various rankings in the Index provides numerous examples of the consequences of the rise and fall of economic freedom around the globe. For example:


Countries that allow private ownership of property protected by an effective judicial system encourage more entrepreneurial initiative than do countries that require collective or government ownership or control of economic resources.

Governments that dominate their coun-tries economies with heavy taxation and deficit spending end up impoverishing their citizens through prolonged eco-nomic stagnation exacerbated by high debt burdens.

Open competition, facilitated by regu-latory efficiency, promotes greater pro-ductivity and ensures better-organized allocation of resources than do systems of central planning.

Countries that practice some version of free-market capitalism, with economies open to global trade, investment, and fi-nancial markets, do better than those that are protectionist or that shun economic linkages with others.

Policies that promote economic freedom, whether through improvements in the rule of law, the promotion of efficiency and openness, or suitable restraints on the size and reach of government, therefore provide the environ-ment that can best inspire people to develop practical solutions to the economic and social challenges that confront our world.

AS ECONOMIC FREEDOM RISES, THE GLOBAL ECONOMY EXPANDS AND POVERTY FALLS

Average Score in the Index of Economic Freedom

heritage.orgChart 4

SOURCES: Terry Miller and Anthony B. Kim, 2017 Index of Economic Freedom (Washington: The Heritage Foundation, 2017), http://www.heritage.org/index.org/index; The World Bank, World Development Indicators, http://databank.worldbank.org/data/reports.aspx?source=world-development-indicators (accessed December 16, 2016); and The World Bank, PovcalNet, http://iresearch.worldbank.org/PovcalNet/povDuplicateWB.aspx (accessed December 16, 2016). Some figures have been interpolated.

56

58

60

62

1995 2017

Global GDP, in Trillions of 2010 U.S. Dollars

$30

$40

$50

$60

$70

$80

1993 2015

Percentage of Global Population in Poverty

0%

10%

20%

30%

40%

1993 2013

60.9$74.6

10.7%


ECONOMIC FREEDOM ALLEVIATES POVERTY AND PROMOTES OVERALL HUMAN DEVELOPMENT

The free-market system that is rooted in the principles of economic freedom has fueled unprecedented economic growth around the world. As the global economy has moved to-ward greater economic freedom over the past two decades, real world GDP has increased by about 80 percent, and the global poverty rate has been cut in half, lifting hundreds of mil-lions of people out of poverty.

Achieving greater overall prosperity that goes beyond the materialistic and monetary dimensions of well-being is equally important.

The societal benefits of economic freedom ex-tend far beyond reductions in poverty. Coun-tries with higher levels of economic freedom enjoy higher levels of human development in terms of life expectancy, literacy, education, and overall quality of life.

As Chart 5 shows, governments that choose policies that increase economic freedom are placing their societies on the path to more ed-ucation opportunities, better health care, and higher standards of living for their citizens.

ECONOMIC FREEDOM FACILITATES INNOVATION AND BETTER ENVIRONMENTAL PROTECTION

The positive link between economic free-dom and higher levels of innovation ensures greater economic dynamism in coping with various developmental challenges by spurring a virtuous cycle of investment, innovation (in-cluding in greener technologies), and dynamic entrepreneurial growth.

In recent years, government policies and actions concerning the environment have become more intrusive and economically distortionary. Many governments have pro-moted programs to tax carbon emissions and increase taxes on gasoline, have organized non-transparent and sometimes corrupt exchanges for the buying and selling of car-bon emissions, and have provided subsidies for clean energy to politically favored firms. Such policies impose a huge direct cost on so-ciety and retard economic growthand all for uncertain environmental benefits.

In addition, the fact that the most remark-able improvements in clean energy use and energy efficiency over the past decades have occurred not as a result of government regula-tion, but rather as a result of advances in tech-nology and trade should not be overlooked. Around the world, economic freedom has been a key factor in enhancing countries capacity for innovation and, by so doing, in improving their overall environmental performance.

heritage.orgChart 5

SOURCES: Terry Miller and Anthony B. Kim, 2017 Index of Economic Freedom (Washington: The Heritage Foundation, 2017), http://www.heritage.org /index, and U.N. Human Development Programme, Human Development Report 2015, http://hdr.undp.org/en/2015-report (accessed December 16, 2016). Human Development values have been converted to a 01 scale.

GREATER ECONOMIC FREEDOM MEANS GREATER HUMAN DEVELOPMENT

Human Development Indicator

Overall Score in the Index of Economic Freedom

00

0.25

0.50

0.75

1.00

25 50 75 100

Health Per Capita Income

Education


ECONOMIC FREEDOM, INNOVATION, AND THE ENVIRONMENT

Innovation Index Score

heritage.orgChart 6

SOURCES: Terry Miller and Anthony B. Kim, 2017 Index of Economic Freedom (Washington: The Heritage Foundation, 2017), http://www.heritage.org/index; Cornell University, INSEAD, and World Intellectual Property Organization, The Global Innovation Index 2016 (Geneva: World Intellectual Property Organization, 2016), https://www.globalinnovationindex.org/gii-2016-report (accessed December 16, 2016); and Yale University, 2016 Environmental Performance Index, http://epi.yale.edu/reports/2016-report (accessed December 16, 2016).

20 30 40 50 60 70 80 90 100

0

10

20

30

40

50

60

70

REPRESSED MOSTLY UNFREE

MODERATELY FREE

MOSTLY FREE FREE

58.3 59.3 73.5 81.4 87.3

Environmental Performance Index


Correlation: 0.73




ECONOMIC FREEDOM ENSURES GREATER SOCIETAL PROGRESS

The massive improvements in global indica-tors of income and quality of life largely reflect a paradigm shift in the debate about how soci-eties should be structured to achieve the most optimal outcome. Over the past two decades, this debate has largely been won by capitalism. However, fears that the immediate benefits of capitalism are fading have led to concerns about economic mobility and economic freedom.

At the heart of ensuring upward econom-ic mobility is the task of advancing economic freedom so that ordinary people in a free so-ciety can enjoy the fruits of dynamic and in-clusive growth. Economic freedom is critical to generating the broader-based economic growth that brings more opportunities for a greater number of people to work, produce, and save. In other words, ensuring greater eco-nomic freedom is directly related to preserv-ing and enhancing dynamic upward mobility.

ECONOMIC FREEDOM AND SOCIAL PROGRESS

Social Progress Index Score

Overall Score in the Index of Economic Freedom

heritage.orgChart 7

SOURCES: Terry Miller and Anthony B. Kim, 2017 Index of Economic Freedom (Washington: The Heritage Foundation, 2017), http://www.heritage.org/index, and Social Progress Imperative, Social Progress Index 2015, http://www.socialprogressimperative.org/data/spi (accessed December 8, 2016).

25 35 45 55 65 75 85

20

40

60

80

100



Correlation: 0.73

Trend


Not surprisingly, societies based on eco-nomic freedom are the ones that have demon-strated the strongest social progress. As shown in Chart 7, countries that more fully embrace economic freedom have provided the insti-tutional environments that are most condu-cive to societal progress. Countries that have improved their competitiveness and have opened their societies to new ideas have large-ly achieved the high levels of societal progress that their citizens demand. It is not massive redistributions of wealth or government dic-tates on income levels that produce the most positive societal outcomes. Instead, mobility and progress require lower barriers to market entry, freedom to engage with the world, and less government intrusion.

ADVANCING ECONOMIC FREEDOM: THE SOURCE OF TRUE PROGRESS

Regrettably, it has been an avoidable hu-man tragedy that not all of the worlds people have participated in our eras spread of eco-nomic freedom. Free-market capitalism, giv-en a chance, does benefit the greatest number of people. No other systems that have been tried have come close in terms of providing

broad-based prosperity. Countries that have not joined the march of freedom have left their citizens lagging behind and even, in the worst cases, stuck in poverty or destitution.

Such failures are inexcusable. Most im-portant, they are preventable.

Advancing the free market is the most dem-ocratic and effective way to challenge big gov-ernment, concentrated government power, and the status quo. Perhaps one of the critical lessons of the past years is that the fundamen-tal superiority and value of economic liberty must be retaught to a new generation of po-litical leaders, either by their peers who have lived in less free systems and less free times or by their own citizens, who understand in-stinctively that when individuals are allowed to decide for themselves how best to pursue their dreams and aspirations, their collective achievements can add up to a better society for all.

As Friedrich A. Hayek once observed, If old truths are to retain their hold on mens minds, they must be restated in the language and concepts of successive generations. The Index of Economic Freedom provides the basis for such a dialogue and a foundation for eco-nomic revival in the years ahead.


CHAPTER 2

DEFINING ECONOMIC FREEDOMAmbassador Terry Miller and Anthony B. Kim

Economic freedom is at its heart about indi-vidual autonomy, concerned chiefly with the freedom of choice enjoyed by individuals in acquiring and using economic goods and re-sources. The underlying assumption of those who favor economic freedom is that individ-uals know their needs and desires best and that a self-directed life, guided by ones own philosophies and priorities rather than those of a government or technocratic elite, is the foundation of a fulfilling existence. Indepen-dence and self-respect flow from the ability and responsibility to take care of oneself and ones family and are invaluable contributors to human dignity and equality.

Living in societies as we do, individual au-tonomy can never be considered absolute. Many individuals regard the well-being of their families and communities as equal in importance to their own, and the personal rights enjoyed by one person may well end at his neighbors doorstep. Decisions and activ-ities that have an impact or potential impact on others are rightly constrained by societal norms and, in the most critical areas, by gov-ernment laws or regulations.

In a market-oriented economy, societal norms, not government laws and regulations, are the primary regulator of behavior. Such norms grow organically out of society it-self, reflecting its history, its culture, and the

experience of generations learning how to live with one another. They guide our understand-ing of ethics, the etiquette of personal and pro-fessional relationships, and consumer tastes. Democratic political systems, at their best, reflect societal norms in their laws and regu-lations, but even democratic governments, if unconstrained by constitutional or other tra-ditional limits, may pose substantial threats to economic freedom. A constraint imposed on economic freedom by majority rule is no less a constraint than one imposed by an absolute ruler or oligarch. It is thus not so much the type of government that determines the de-gree of economic freedom as it is the extent to which government has limits beyond which it may not, or at least does not, go.

Inevitably, any discussion of economic freedom will focus on the critical relationship between individuals and the government. In general, state action or government control that interferes with individual autonomy lim-its economic freedom.

However, the goal of economic freedom is not simply the absence of government coer-cion or constraint, but rather the creation and maintenance of a mutual sense of liberty for all. Some government action is necessary for the citizens of a nation to defend themselves and to promote the peaceful evolution of civil society, but when government action rises beyond the


minimal necessary level, it is likely infringing on someones economic or personal freedom.

Throughout history, governments have im-posed a wide array of constraints on economic activity. Such constraints, though sometimes imposed in the name of equality or some other ostensibly noble societal purpose, are in fact imposed most often for the benefit of societal elites or special interests. As Milton and Rose Friedman once observed:

A society that puts equalityin the sense of equality of outcomeahead of freedom will end up with neither equality nor freedom. The use of force to achieve equality will destroy freedom, and the force, introduced for good purposes, will end up in the hands of people who use it to promote their own interests.1

Governments excessive intrusion into wide spheres of economic activity comes with a high cost to society as a whole. By sub-stituting political judgments for those of the marketplace, government diverts entrepre-neurial resources and energy from produc-tive activities to rent-seeking, the quest for economically unearned benefits. The result is lower productivity, economic stagnation, and declining prosperity.

MEASURING ECONOMIC FREEDOM

The Index of Economic Freedom takes a comprehensive view of economic freedom. Some of the aspects of economic freedom that are evaluated are concerned with a countrys interactions with the rest of the world (for ex-ample, the extent of an economys openness to global investment or trade). Most, however, focus on policies within a country, assessing the liberty of individuals to use their labor or finances without undue restraint and govern-ment interference.

Each of the measured aspects of economic freedom plays a vital role in promoting and sustaining personal and national prosperity. All are complementary in their impact, how-ever, and progress in one area is often likely

to reinforce or even inspire progress in anoth-er. Similarly, repressed economic freedom in one area (for example, a lack of respect for property rights) may make it much more dif-ficult to achieve high levels of freedom in oth-er categories.

The 12 aspects of economic freedom mea-sured in the Index may be grouped into four broad categories:

Rule of law (property rights, judicial ef-fectiveness, and government integrity);

Government size (tax burden, govern-ment spending, and fiscal health);

Regulatory efficiency (business freedom, labor freedom, and monetary freedom); and

Market openness (trade freedom, invest-ment freedom, and financial freedom).

RULE OF LAWProperty Rights. In a market economy,

the ability to accumulate private property and wealth is a central motivating force for work-ers and investors. The recognition of private property rights and an effective rule of law to protect them are vital features of a fully func-tioning market economy. Secure property rights give citizens the confidence to under-take entrepreneurial activity, save their in-come, and make long-term plans because they know that their income, savings, and property (both real and intellectual) are safe from un-fair expropriation or theft.

Property rights are a primary factor in the accumulation of capital for production and investment. Secure titling is key to unlocking the wealth embodied in real estate, making natural resources available for economic use, and providing collateral for investment fi-nancing. It is also through the extension and protection of property rights that societies avoid the tragedy of the commons, the phe-nomenon that leads to the degradation and


exploitation of property that is held commu-nally and for which no one is accountable. A key aspect of property rights protection is the enforcement of contracts. The voluntary undertaking of contractual obligations is the foundation of the market system and the basis for economic specialization, gains from com-mercial exchange, and trade among nations. Even-handed government enforcement of pri-vate contracts is essential to ensuring equity and integrity in the marketplace.

Judicial Effectiveness. Well-functioning legal frameworks protect the rights of all cit-izens against infringement of the law by oth-ers, including by governments and powerful parties. As an essential component of the rule of law, judicial effectiveness requires efficient and fair judicial systems to ensure that laws are fully respected, with appropriate legal ac-tions taken against violations.

Judicial effectiveness, especially for devel-oping countries, may be the area of economic freedom that is most important in laying the foundations for economic growth, and in ad-vanced economies, deviations from judicial effectiveness may be the first signs of serious problems that will lead to economic decline.

There is plenty of evidence from around the world that judicial effectiveness is a criti-cal factor in empowering individuals, ending discrimination, and enhancing competition. In the never-ending struggle to improve the human condition and achieve greater pros-perity, an institutional commitment to the preservation and advancement of judicial ef-fectiveness is critical.

Government Integrity. In a world charac-terized by social and cultural diversity, practic-es regarded as corrupt in one place may simply reflect traditional interactions in another. For example, small informal payments to service providers or even government officials may be regarded variously as a normal means of com-pensation, a tip for unusually good service, or a corrupt form of extortion.

While such practices may indeed con-strain an individuals economic freedom, their

impact on the economic system as a whole is likely to be modest. Of far greater concern is the systemic corruption of government in-stitutions by practices such as bribery, nep-otism, cronyism, patronage, embezzlement, and graft. Though not all are crimes in every society or circumstance, these practices erode the integrity of government wherever they are practiced. By allowing some individuals or special interests to gain government bene-fits at the expense of others, they are grossly incompatible with the principles of fair and equal treatment that are essential ingredients of an economically free society.

There is a direct relationship between the extent of government intervention in eco-nomic activity and the prevalence of corrup-tion. In particular, excessive and redundant government regulations provide opportuni-ties for bribery and graft. In addition, gov-ernment regulations or restrictions in one area may create informal markets in another. For example, by imposing numerous burden-some barriers to conducting business, includ-ing regulatory red tape and high transaction costs, a government can incentivize bribery and encourage illegitimate and secret interac-tions that compromise the transparency that is essential for the efficient functioning of a free market.

GOVERNMENT SIZETax Burden. All governments impose

fiscal burdens on economic activity through taxation and borrowing. Governments that permit individuals and businesses to keep and manage a larger share of their income and wealth for their own benefit and use, however, maximize economic freedom.

The higher the governments share of in-come or wealth, the lower the individuals re-ward for economic activity and the lower the incentive to undertake work at all. Higher tax rates reduce the ability of individuals and firms to pursue their goals in the marketplace and thereby lower the level of overall pri-vate-sector activity.


Individual and corporate income tax rates are an important and direct constraint on an individuals economic freedom and are re-flected as such in the Index, but they are not a comprehensive measure of the tax burden. Governments impose many other indirect tax-es, including payroll, sales, and excise taxes, as well as tariffs and value-added taxes (VATs). In the Index of Economic Freedom, the burden of these taxes is captured by measuring the overall tax burden from all forms of taxation as a percentage of total gross domestic prod-uct (GDP).

Government Spending. The cost, size, and intrusiveness of government taken together are a central economic freedom issue that is measured in the Index in a variety of ways (see, for example, Tax Burden and Regulatory Effi-ciency). Government spending comes in many forms, not all of which are equally harmful to economic freedom. Some government spend-ing (for example, to provide infrastructure, fund research, or improve human capital) may be considered investment. Government also spends on public goods, the benefits of which accrue broadly to society in ways that markets cannot price appropriately.

All government spending, however, must eventually be financed by higher taxation and entails an opportunity cost. This cost is the value of the consumption or investment that would have occurred had the resources in-volved been left in the private sector.

Excessive government spending runs a great risk of crowding out private economic activity. Even if an economy achieves faster growth through more government spending, such economic expansion tends to be only temporary, distorting the market allocation of resources and private investment incentives. Even worse, a governments insulation from market discipline often leads to bureaucracy, lower productivity, inefficiency, and mounting public debt that imposes an even greater bur-den on future generations.

Fiscal Health. A governments budget is one of the clearest indicators of the extent to

which it respects the principle of limited gov-ernment. By delineating priorities and allo-cating resources, a budget signals clearly the areas in which government will intervene in economic activity and the extent of that in-tervention. Beyond that, however, a budget reflects a governments commitment (or lack thereof ) to sound financial management of resources, which is both essential for dynamic long-term economic expansion and critical to the advancement of economic freedom.

Widening deficits and a growing debt bur-den, both of which are direct consequences of poor government budget management, lead to the erosion of a countrys overall fiscal health. Deviations from sound fiscal positions often disturb macroeconomic stability, induce eco-nomic uncertainty, and thus limit econom-ic freedom.

Debt is an accumulation of budget defi-cits over time. In theory, debt financing of public spending could make a positive con-tribution to productive investment and ulti-mately to economic growth. Debt could also be a mechanism for positive macroeconomic countercyclical interventions or even long-term growth policies. On the other hand, high levels of public debt may have numer-ous negative impacts such as raising interest rates, crowding out private investment, and limiting governments flexibility in respond-ing to economic crises. Mounting public debt driven by persistent budget deficits, partic-ularly spending that merely boosts govern-ment consumption or transfer payments, of-ten undermines overall productivity growth and leads ultimately to economic stagnation rather than growth.

REGULATORY EFFICIENCYBusiness Freedom. An individuals abili-

ty to establish and run an enterprise without undue interference from the state is one of the most fundamental indicators of econom-ic freedom. Burdensome and redundant reg-ulations are the most common barriers to the free conduct of entrepreneurial activity. By


increasing the costs of production, regula-tions can make it difficult for entrepreneurs to succeed in the marketplace.

Although many regulations hinder busi-ness productivity and profitability, the ones that most inhibit entrepreneurship are of-ten those that are associated with licensing new businesses. In some countries, as well as many states in the United States, the proce-dure for obtaining a business license can be as simple as mailing in a registration form with a minimal fee. In Hong Kong, for ex-ample, obtaining a business license requires filling out a single form, and the process can be completed in a few hours. In other econo-mies, such as India and parts of South Ameri-ca, the process of obtaining a business license can take much longer and involve endless trips to government offices and repeated en-counters with officious and sometimes cor-rupt bureaucrats.

Once a business is open, government reg-ulation may interfere with the normal deci-sion-making or price-setting process. Inter-estingly, two countries with the same set of regulations can impose different regulatory burdens. If one country applies its regulations evenly and transparently, it can lower the regulatory burden by facilitating long-term business planning. If the other applies regu-lations inconsistently, it raises the regulatory burden by creating an unpredictable busi-ness environment.

Labor Freedom. The ability of individuals to find employment opportunities and work is a key component of economic freedom. By the same token, the ability of businesses to con-tract freely for labor and dismiss redundant workers when they are no longer needed is es-sential to enhancing productivity and sustain-ing overall economic growth.

The core principle of any economically free market is voluntary exchange. That is just as true in the labor market as it is in the market for goods.

State intervention generates the same problems in the labor market that it produces

in any other market. Government labor regu-lations take a variety of forms, including min-imum wages or other wage controls, limits on hours worked or other workplace conditions, restrictions on hiring and firing, and other constraints. In many countries, unions play an important role in regulating labor freedom and, depending on the nature of their activity, may be either a force for greater freedom or an impediment to the efficient functioning of la-bor markets.

Onerous labor laws penalize businesses and workers alike. Rigid labor regulations prevent employers and employees from freely negotiating changes in terms and conditions of work, and the result is often a chronic mis-match of labor supply and demand.

Monetary Freedom. Monetary freedom requires a stable currency and market-de-termined prices. Whether acting as entre-preneurs or as consumers, economically free people need a steady and reliable currency as a medium of exchange, unit of account, and store of value. Without monetary free-dom, it is difficult to create long-term value or amass capital.

The value of a countrys currency can be influenced significantly by the monetary pol-icy of its government. With a monetary pol-icy that endeavors to fight inflation, main-tain price stability, and preserve the nations wealth, people can rely on market prices for the foreseeable future. Investments, savings, and other longer-term plans can be made more confidently. An inflationary policy, by contrast, confiscates wealth like an invisible tax and distorts prices, misallocates resources, and raises the cost of doing business.

There is no single accepted theory of the right monetary policy for a free society. At one time, the gold standard enjoyed widespread support. What characterizes almost all mon-etary theories today, however, is support for low inflation and an independent central bank. There is also widespread recognition that price controls corrupt market efficiency and lead to shortages or surpluses.


MARKET OPENNESSTrade Freedom. Many governments place

restrictions on their citizens ability to interact freely as buyers or sellers in the international marketplace. Trade restrictions can manifest themselves in the form of tariffs, export taxes, trade quotas, or outright trade bans. However, trade restrictions also appear in more subtle ways, particularly in the form of regulatory barriers related to health or safety.

The degree to which government hind

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