The Fraser Institute of Canada’s 2021 World Economic Freedom (EFW) ranking shows that freedom is essentially unchanged in the United States. But significant changes in the rankings will be coming soon.
Economic freedom is based on “the concept of self-ownership”. We should have ‘the right to choose – to decide how to use [our] time and talent to shape [our] lives. “What does economic freedom mean in practice?” 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 to the goods of others. ”With a high degree of economic freedom,“ the choices of individuals will decide what and how goods and services are produced ”.
The EFW index transforms this concept into a measure now applied to 165 countries. The index has five components: size of government (levels of taxation and spending); Legal system and property rights; healthy money; Freedom to trade internationally; and regulation, which includes credit and labor markets as well as general trade restrictions. Each element is scored from 0 to 10 (10 being more freedom) and the five zone scores are averaged to generate a nation’s score.
The United States ranks 6e in 2021 (as in 2020) with a score of 8.24, barely 0.02 points lower than last year. Hong Kong and Singapore occupy the top two places, with scores of 8.91 and 8.81, while New Zealand, Switzerland and the Republic of Georgia round out the top five. The last five countries are Zimbabwe, Algeria, Libya, Sudan and Venezuela last. Socialist Venezuela is not necessarily the most consistent practitioners of Marxism today, as a lack of date prevents Cuba and North Korea from being rated.
In all five areas of the index, the United States ranks 6the in regulation, 15e in Healthy Money, 19e in property rights, 52sd in government size, and 64e in International Trade. The government size scores are worth commenting on. Many European countries have high taxes and expenses, but otherwise a lot of freedom. For example, Denmark ranks 10e in the general classification despite the 150th ranke in government size. On the other hand, many weak governments tax and spend little by failing to protect property rights; Sudan ranks 7e in the size of government but penultimate in overall freedom.
The EFW 2021 ranking uses data from 2019 due to delays in compiling statistics and surveys. The rankings are therefore always somewhat retrograde. Two ongoing events will soon shake up the audiences.
The first concerns the Chinese crackdown on Hong Kong. Hong Kong has always been rated separately from China (currently 116e), first because it was a British colony, then because of its status as a special administrative region. Yet China is backing away from this deal. The score of Hong Kong’s legal system is expected to drop precipitously, producing a new No.1 for the first time in EFW history.
The current report also does not reflect political responses to the pandemic. For me, the freedom to trade internationally is the most vulnerable. The pandemic has started what some are calling de-globalization. COVID-19 has made international travel and trade unsafe as it wasn’t before.
Over the past 18 months, the international shipping of goods has been disrupted but rarely strictly prohibited. Travel was more restricted. Quarantine rules and potential travel suspensions increase the cost of supplier visits to Malaysia or China. The relevant economic question is whether companies can maintain global operations without frequent face-to-face interaction.
It probably depends on the often anticipated “death of distance”, where technology eliminates the need for face-to-face interactions. Still, supporters have predicted the disappearance of the distance for two decades. The adequacy of remote communications probably depends more on psychology than on economics.
Economist Adam Smith identified how the division of labor increases productivity with a larger market allowing for greater division of labor. A global market allows for the greatest possible division, to our advantage. Our standard of living depends on the survival of international trade with a decrease in international travel.
PHOTO: American flag. PHOTO BY: Cristian Ramirez, Attribution 2.0 Generic (CC BY 2.0).