U.S. Plunges in Economic Freedom Index

The United States, long considered the standard bearer for economic freedom among large industrial nations, has experienced a substantial decline in economic freedom during the past decade, according to researchers who created the Economic Freedom of the World (EFW) index .

January 10 2013 by ChiefExecutive.net


From 1980 to 2000, the U.S. was generally rated the third freest economy in the world, ranking behind only Hong Kong and Singapore. After increasing steadily during the period from 1980 to 2000, the EFW rating of the United States fell from 8.65 in 2000 to 8.21 in 2005 and 7.70 in 2010. The chain-linked ranking of the United States has fallen precipitously from second in 2000 to eighth in 2005 and 19th in 2010 (unadjusted ranking of 18th).

In the most recent index, Hong Kong retains the highest rating for economic freedom, 8.90 out of 10. The other top 10 nations are:

Singapore, 8.69; New Zealand, 8.36; Switzerland, 8.24; Australia, 7.97; Canada, 7.97; Bahrain, 7.94; Mauritius, 7.90; Finland, 7.88; and Chile, 7.84.

The rankings (and scores) of other large economies in this year’s index are the United Kingdom, 12th (7.75); the United States, 18th (7.69); Japan, 20th (7.64); Germany, 31st (7.52); France, 47th (7.32); Italy, 83rd (6.77); Mexico, 91st, (6.66); Russia, 95th (6.56); Brazil, 105th (6.37); China, 107th (6.35); and India, 111th (6.26).

The scores of the bottom ten nations in this year’s index are: Venezuela, 4.07; Myanmar, 4.29; Zimbabwe, 4.35; Republic of the Congo, 4.86; Angola, 5.12; Democratic Republic of the Congo, 5.18; Guinea-Bissau, 5.23; Algeria, 5.34; Chad, 5.41; and, tied for 10th worst, Mozambique and Burundi, 5.45.

The index published in Economic Freedom of the World by The Fraser Institute,measures the degree to which the policies and institutions of countries are supportive of economic freedom. The cornerstones of economic freedom are personal choice, voluntary exchange, freedom to compete, and security of privately owned property. Forty-two variables are used to construct a summary index and to measure the degree of economic freedom in five broad areas:

  1. Size of Government;
  2. Legal System and Property Rights;
  3. Sound Money;
  4. Freedom to Trade Internationally;
  5. It attempts to provide a balanced and neutral measure of which nations do best in providing free markets and small government.

According to the researchers there are several reason why the United States has dropped from 10th to 18th during the Bush-Obama years. The U.S. “size of government” score has fallen from 8.65 in 2000 to 7.70 in the latest report, signaling that the burden of government spending has exploded during this time. In addition, the U.S. trade score also dropped significantly over the same period, from 8.78 to 7.65, meaning that the U.S. has become relatively more protectionist. The most dramatic decline, however, was the in the “legal system and property rights” category, where the U.S. plummeted from 9.23 in 2000 down to 7.12 in the new report. The U.S. is not quite Venezuela or Argentina, to be sure, but the trend is not encouraging.

Read: http://www.freetheworld.com/2012/EFW2012-complete.pdf