Economic Freedom of the World The Role of Government in the Modern Growth Economy

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Economic Freedom of the World - The Role of
Government in the Modern Growth Economy

• Presentation to
• Institute X
• LOCATION
• DATE
• PRESENTER
• PRESENTING Institute

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The crucial questions for economic management

• What causes Economic Success?
• What are the practices of economically successful
  countries and regions?
  
• How can countries and provinces achieve success
  and avoid failure
  
• What are the implications of successful
  strategies?

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Why do some countries succeed and others fail?

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A Tale of Two Countries

• Hong Kong and Venezuela
• From poor to rich
• From rich to poor

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Hong Kong and Venezuela1950
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Hong Kong and Venezuela today
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Hong Kong and Venezuela compared
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Hong Kong and Venezuela population growth 1950 -
present
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What differences caused Hong Kong to become Rich
and Venezuela to become Poor?

• Population - evidently not
• Natural Resources - not likely
• Ability to afford infrastructure - certainly not
  
  
• Policy differences - a possible source of the
  difference

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The Attitude of Successeconomic freedom in Hong
Kong and Venezuela
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Hong Kongs Freedom Advantage over Venezuela
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The story of Hong Kong and Venezuela is repeated
around the globe

• Motivated the creation of the Economic Freedom of
  the World Project to examine whether there were
  empirical regularities that could be found
  between economic freedom and other
  characteristics of societies including economic
  growth and development

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Economic Freedom of the World Project

• 15 year project examining policies of successful
  and unsuccessful regions
  
• Led by Professor Milton Friedman, Rose Friedman
  and Michael Walker
  
• Involved 60 of the worlds top economists, four of
  whom received the Nobel Prize
  
• Objective find a way to measure economic freedom
  and explore the connection between it and
  other attributes

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What does Economic FreedomMean?

• The right to pursue voluntary acts of trade and
  exchange without interference by government or
  others via force or fraud
  
• The ability to access an impartial judiciary for
  the enforcement of property rights
  
• The right of citizens to keep the majority of
  the income they earn

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What is the Index of Economic Freedom?

• An attempt to identify the factors which make a
  country economically free
  
• A compendium of 21 freedom factors based on
  objective data or independent surveys
  
• A ranking of 123 countries according to the
  extent to which they are free
  
• Now a collaboration of 55 Institutes in 55
  different countries

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The Index measures 21 factors which are practica
l indicators of the extent to which consenting
adults can engage in Capitalist Acts. It is
the broadest, most objective measure of economic
freedom ever constructed.
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The components of The Economic Freedom Index

• Size of Government
• Structure of the Economy
• Monetary and Price Stability
• Freedom to Use Alternative Currencies
• Legal Structure and Property Rights
• International Exchange
• Freedom of Exchange in Capital Markets

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The Top Eleven
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The Next Ten
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How does Canadas level of Economic Freedom
compare with the ten most free countries and with
NAFTA trading partners?
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World Average Economic Freedom
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World Average Economic Freedom, adjusted for
population
Countries with ranks in 1970
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World Average Government Consumption as a
Percentage of GDP
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World Average Transfers as a percentage of GDP
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World Average Publicly owned assets as a
percentage of GDP
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World Average Existence of Price Controls
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World Average Right to own Foreign Currency
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World Average Right to Own Private Property
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World Average Tariff Rate
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World Average Private Ownership of Banks
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World Average Right to have Capital Transactions
with Foreigners
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Population of the world, by economic freedom
rating
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The top ten and how they got there
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Some Asian Countries
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Countries which have increased or decreased the
level of Economic Freedom
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Countries having significant improvement since
1970
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Countries with significant deterioration since
1970
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The Race Toward Capitalism in the Eastern and
Former Soviet Transitional Economies
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Why is Economic Freedom Important?

• Economic rights are fundamental rights in the
  sense that without them there can be no political
  freedom or civil freedoms
  
• They are a prerequisite for growth and
  development
  
• They are a prerequisite for broader human
  development

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Least Free...Most Free
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Least Free...Most Free
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Growth of Real Per Capita Output in the 1990s of
Countries That Improved the Most Since 1980.
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Of course capitalism works to boost economic
outcomes ...ButWhat about Human Development?
Do countries have to choose between economic
development and community values and social
development?
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Least Free...Most Free
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Least Free...Most Free
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Least Free...Most Free
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Least Free...Most Free
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Least Free...Most Free
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Least Free...Most Free
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Least Free...Most Free
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Percent of income accruing to the
Least Free...Most Free
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Underground Economy of GDP
Outlier Countries
Bolivia Guatemala Honduras Panama Peru
Bigger Underground Economy
Least Free...Most Free
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More Intellectual Property Rights
Least Free...Most Free
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Least Free...Most Free
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Least Free...Most Free
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Least Free...Most Free
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Least Free...Most Free
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Least Free...Most Free
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Ingredients in the growth recipe evidence from
123 Countries
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Size of Government and Growth
Hong Kong
Mexico
US
Spain
Can
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Private Ownership and Growth
China
Can US
Hong Kong
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Government Transfers and Subsidies and Growth
Mexico
Hong Kong
US
Can
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Growth and the Friendliness of the Tax System
(tax rates and brackets)
China
Hong Kong
Mexico
Can
US
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Growth and Taxes on Trade
China
Hong Kong
US
Mexico
Can
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Some extensions of the Economic Freedom of the
World Project

• Marketization indices for sub-national
  jurisdictions
  
• The Fraser Institute Index for North America
• The National Institute for Economic Research
  (Beijing) Marketization index for the 31 Chinese
  Provinces
  

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Economic Freedom of the Provinces

• Learning from international experience with the
  Economic Freedom index
  
• Growth and affluence are options and are not
  predetermined
  
• Recognize that the provinces have very different
  selections from the range of policy options
  
• Policy settings generally determine the
  perimeters for wealth creation activity

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Economic Freedom of the Provinces

• Government Operations
• Takings
• Interprovincial sector
• Labour Market Regulation

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Government Operations
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Takings
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Labour Market Regulations
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Economic Freedom of the Provinces

• Overall Provincial Ranking

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Conclusions

• Growth and development are choices rather than
  predetermined
  
• The ingredients of the growth recipe can be
  determined by observing the policies of
  successful jurisdictions
  
• The key to high economic performance is providing
  economic freedom to citizens
  
• The key to progressive social and human
  development is economic freedom
  

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The Endphew!www.freetheworld.comwww.fraser
institute.ca
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Other Slides of Interest
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Least Free...Most Free
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Least Free...Most Free
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Next Scores in Each Area Adjusted by Population
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World Average Economic Freedom, adjusted for
population
Countries with ranks in 1970
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World Average Government Consumption as a
Percentage of GDP, adjusted for population
Countries with ranks in 1970
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World Average Transfers as a percentage of GDP,
adjusted for population
Countries with ranks in 1970
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World Average Publicly owned assets as a
percentage of GDP, adjusted for population
Countries with ranks in 1970
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World Average Existence of Price Controls,
adjusted for population
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World Average Right to own Foreign Currency,
adjusted for population
Countries with ranks in 1970
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World Average Tariff Rate, adjusted for
population
Countries with ranks in 1980
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World Average Right to have Capital Transactions
with Foreigners, adjusted for population
Countries with ranks in 1980
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World Average Government Consumption as a
Percentage of GDP, adjusted for population
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World Average Transfers as a percentage of GDP,
adjusted for population
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World Average Publicly owned assets as a
percentage of GDP, adjusted for population
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World Average Existence of Price Controls,
adjusted for population
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World Average Right to own Foreign Currency,
adjusted for population
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World Average Tariff Rate, adjusted for
population
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World Average Right to have Capital Transactions
with Foreigners, adjusted for population