The Fraser Institute’s latest annual report ranked Iran among the 10 worst-scoring countries in terms of economic freedom.
The newly released dataset, which dates back to 2020, shows Iran in 159th place out of 165 jurisdictions.
The new Economic Freedom of the World (EFW) ranking is down one place from the previous edition of the report (2019 data).
Hong Kong remains in the lead, although its rating has fallen a further 0.28 points. Singapore, once again, comes second. Other top performers include Switzerland, New Zealand, Denmark, Australia, United States, Estonia, Mauritius and Ireland.
The rankings of some other major countries are Japan (12th), Canada (14th), Germany (25th), Italy (44th), France (54th), Mexico (64th), India ( 89th), Russia (94th), Brazil (114th) and China (116th).
The 10 countries with the lowest ratings are: the Democratic Republic of Congo, Algeria, the Republic of Congo, Iran, Libya, Argentina, Syria, Zimbabwe, Sudan and finally Venezuela.
Iran’s 4.96 rating in the new EFW report is the lowest in 20 years, according to the Tehran Chamber of Commerce.
The global average score fell to 6.84 in 2020 from 7 in 2019, erasing about a decade of improvement in economic freedom around the world. Policy responses to the coronavirus pandemic have undoubtedly contributed to an erosion of economic freedom for most people in 2020. Even after the recent decline between 2000 and 2020, the average economic freedom score fell from 6.59 at 6.84.
Countries in the top quartile of economic freedom had an average GDP per capita of $48,251 in 2020, compared to $6,542 for countries in the bottom quartile (constant 2017 PPP, international dollars).
In the top quartile, the average income of the poorest 10% was $14,204, compared to $1,736 in the bottom quartile. Interestingly, the average income of the bottom 10% in the most economically free countries is more than twice the average per capita income in the least free countries.
In the top quartile, 2.02% of the population lives in extreme poverty ($1.90 per day) compared to 31.45% in the bottom quartile.
Life expectancy is 80.4 years in the upper quartile compared to 66 years in the lower quartile.
The Fraser Institute is a Canadian public policy think tank headquartered in Vancouver, with additional offices in Calgary, Toronto and Montreal, and links to a global network of 80 think tanks through the Economic Freedom Network.
Definition of economic freedom
Economic freedom is based on the concept of self-ownership. Because of this self-ownership, individuals have the right to choose – to decide how to use their time and talents to shape their lives.
On the other hand, they are not entitled to the time, talents and resources of others. Thus, they have no right to take things from others or to demand that others provide them with things.
The cornerstones of economic freedom are personal choice, voluntary exchange, open markets, and clearly defined and enforced property rights. Individuals are economically free when they are allowed to choose for themselves and engage in voluntary transactions as long as they do not harm the person or property of others. When economic freedom is present, the choices of individuals will decide what and how goods and services are produced. In other words, economically free individuals will be allowed to decide for themselves rather than having options imposed on them by the political process or the use of violence, theft or fraud by others.
The EFW Index is designed to measure the degree to which countries’ institutions and policies are compatible with economic freedom. In order to achieve a high EFW rating, a country must do certain things, but refrain from others.
Governments enhance economic freedom when they provide an infrastructure for voluntary exchange and protect people and their property from aggressors using violence, coercion and fraud to seize things that do not belong to them. To this end, the legal system is particularly important.
The country’s legal institutions must protect the person and property of all individuals against acts of aggression by others and enforce contracts impartially. It must also refrain from actions that restrict personal choice, interfere with voluntary trading, and limit market entry.
Economic freedom is reduced when taxes, government spending, and regulations substitute for personal choice, voluntary exchange, and market coordination.
The EFW measure could be thought of as a measure of the extent to which scarce resources are allocated through personal choices coordinated by markets rather than central planning directed by the political process. It could also be seen as an effort to identify the extent to which a country’s institutions and policies correspond to the classic liberal ideal of limited government, where the government protects property rights and organizes the provision of a limited set of “public goods”. such as national defense and access to safe money, but little beyond these essential functions.
The degree of economic freedom is measured in five main areas:
Size of government: As government spending, taxation, and government-controlled enterprises increase, government decision-making substitutes for individual choice and economic freedom is reduced. Iran’s score in this area in the new report stood at 6.99, placing it in 62nd place.
Legal system and property rights: The protection of people and their legitimately acquired property is central to both economic freedom and civil society. In fact, it is the most important function of government. Iran’s score in this area in the new report stood at 3.6, placing it in 145th place.
Sound Money: Inflation erodes the value of legitimately earned wages and savings. Sound money is therefore essential to protect property rights. When inflation is not only high but also volatile, it becomes difficult for individuals to plan for the future and thus to use economic freedom effectively. Iran’s score in this area in the new report stood at 6.2, placing it in 154th place.
Freedom to trade internationally: freedom to trade – in its broadest sense, to buy, sell, enter into contracts – is essential to economic freedom, which is reduced when freedom of trade does not include businesses and individuals from other countries. Iran’s score in this area in the new report stood at 2.6, placing it in 164th place.
Regulation: Governments not only use a number of tools to limit the right to trade internationally; they can also impose onerous regulations that limit the right to trade, obtain credit, hire or work for whomever you choose, or operate your business freely.
Iran’s score in this area stood at 5.5, placing it in 150th place.