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Economic Freedom of the World: 2008

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Title: Economic Freedom of the World: 2008


1
Economic Freedomof the World2008
  • Dr. Mark Mullins
  • Executive Director
  • The Fraser Institute
  • Celebrate Hong Kong, September 16, 2008

2
????? FRASERINSTITUTE 
3
THANK YOU FOR COMING!
  • The key to changing policy in the world is
    changing the climate of opinion about what works
    and what does not work in encouraging world
    development
  • The key to changing the climate of opinion is
    providing the widest possible audience with good
    information about the causes of development and
    under-development

4
Economic Freedom of the World Project
  • Objective find a way to measure economic freedom
    and explore the connection between it and other
    variables
  • 20 year project
  • Led by Professor Milton Friedman, Rose Friedman
    and Michael Walker
  • Involved 60 of the worlds top scholars

5
What is the Economic Freedom of the World Index?
  • An annual compilation of data representing
    factors which make a country economically free
  • Authors James Gwartney and Robert Lawson
  • A compendium of 42 government policies affecting
    economic freedom based on objective data or
    independent surveys
  • A ranking of 141 countries representing 95 of
    the worlds population according to the extent to
    which they permit their citizens to be
    economically free
  • Now a collaboration of Institutes in over 70
    different countries

6
What is Economic Freedom?
  • Individuals have economic freedom when property
    they acquire without the use of force, fraud, or
    theft is protected from physical invasions by
    others and they are free to use, exchange, or
    give their property as long as their actions do
    not violate the identical rights of others. An
    index of economic freedom should measure the
    extent to which rightly acquired property is
    protected and individuals are engaged in
    voluntary transactions.
  • James Gwartney et al. 1996

7
Economic Freedom of the World Index
  • Size of Government Expenditures, Taxes, and
    Enterprises
  • Legal Structure and Security of Property Rights
  • Access to Sound Money
  • Freedom to Trade Internationally
  • Regulation of Credit, Labor, and Business
  • Based entirely on objective, third party data or
    independent surveys for 141 countries

8
Talk about making a difference
9
Member Institutes of the Economic Freedom of the
World Network
Albanian Center for Economic Research (ACER),
Albania Fundación Libertad, Argentina Institute
of Public Affairs, Australia TIGRA,
Austria Center for Economic and Political
Research, Azerbaijan The Nassau Institute,
Bahamas Making Our Economy Right (MOER),
Bangladesh Scientific Research Mises Center,
Belarus Centre for the New Europe,
Belgium Fundacion Libertad y Democracia (FULIDE),
Bolivia Instituto Liberal do Rio de Janeiro,
Brazil Institute for Market Economics,
Bulgaria Le Centre des Affaires Humaines (CEDAH),
Burkina Faso Cambodia Institute of Development
Study, Cambodia The Fraser Institute,
Canada Instituto Libertad y Desarrollo,
Chile Instituto Libertad y Progreso (ILP),
Colombia Instituto para la Libertad y el Análisis
de Políticas, Costa Rica The Institute of
Economics, Croatia Liberální Institut, Czech
Republic Center for Politiske Studier (CEPOS),
Denmark Fundación Economía y Desarrollo Inc.,
Dominican Republic Instituto Ecuatoriano de
Economía Política, Ecuador International
University Audentes, Audentes University,
Estonia Association pour la Liberté Economique et
le Progrès Social (ALEPS), France
Society for Disseminating Economic KnowledgeNew
Economic School Georgia, Georgia Liberales
Institut, Germany The Institute of Economic
Affairs, Ghana Centro de Investigaciones
Económicas Nacionales, Guatemala Institut de
Recherche pour la Liberte Economique et la
Prosperite (IRLEP), Haiti Hong Kong Centre for
Economic Research, Hong Kong Szazadveg
Foundation, Hungary Centre for Social and
Economic Research (RSE), Iceland Centre for Civil
Society, India The Institute for Development of
Economics and Finance, Indonesia Open Republic
Institute, Ireland Jerusalem Institute for
Market Studies, Israel Centro Einaudi,
Italy Bureau d'Analyse d'Ingenierie et de
Logiciels (BAILO), Ivory Coast African Research
Center for Public Policy and Market Process,
Kenya Center for Free Enterprise, Korea Economic
Policy Institute-Bishkek Consensus, Kyrgyz
Republic Lithuanian Free Market Institute,
Lithuania D'Letzeburger Land, Luxembourg Centro
de Investigación para el Desarrollo A.C.,
Mexico Open Society Forum, Mongolia The Center
for Entrepreneurship and Economic Development
(CEED), Montenegro The Prosperity Foundation,
Nepal The New Zealand Business Roundtable, New
Zealand Institute of Public Policy Analysis,
Nigeria Center for Business and Society
Incorporated (Civita), Norway International
Research Foundation (IRF), Oman
Alternate Solutions Institute, Pakistan Pal-Think
for Strategic Studies, Palestine Fundación
Libertad, Panama Centro de Investigación y
Estudios Legales (CITEL), Peru The Center for
Research and Communication, Philippines Centrum
im. Adama Smitha, Poland Causa Liberal,
Portugal Romania Think Tank, Romania Institute of
Economic Analysis, Russia Free Market Center
(FMC), Serbia The F.A. Hayek Foundation, Slovak
Republic Free Society Institute (FSI),
Slovenia The Free Market Foundation of Southern
Africa, South Africa Pathfinder Foundation, Sri
Lanka Timbro, Sweden Liberales Institut,
Switzerland Arthur Lok Jack Graduate School of
Business, The University of the West Indies,
Trinidad and Tobago Association for Liberal
Thinking, Turkey The Ukrainian Center for
Independent Political Research, Ukraine The
Institute of Economic Affairs (IEA), United
Kingdom CATO Institute, USA The Centre for the
Dissemination of Economic Knowledge (CEDICE),
Venezuela Research Center for Entrepreneurship
Development, Vietnam Zambia Institute for Public
Policy Analysis (ZIPPA), Zambia
10
Sample of Press Coverage for Fraser Institutes
Economic Freedom of the World 2007
  • Dawn, Pakistan
  • Invertia Peru, Peru
  • Philippine Daily Enquirer, Philippines
  • Poland Press, Poland
  • Rompres, Romania
  • Russian Paper, Russia
  • Blic Online, Serbia
  • Finance, Slovenia
  • Izvoznookno, Slovenia
  • Slovanian Press agency, Slovenia
  • The Strait Times, Singapore
  • IVO.co.za, South Africa
  • Mail and Guardian, South Africa
  • News 24, South Africa
  • Actualidad Economica, Spain
  • Agencia EFE, Spain
  • Europa Press, Servicio Economico,
  • Spain
  • Invertia, Spain

All Africa, Africa Business Day,
Africa Business.lafrica.com, Africa La Nacion,
Argentina Universia, Argentina Hetq Online,
Armenia Gulf Daily News, Bahrain Zero Hora,
Brazil Portal Acionista, Brazil O'Globo,
Brazil Sofia Echo, Bulgaria Bulgarian Paper,
Bulgaria Calgary Sun, Canada Globe and Mail,
Canada National Post, Canada Toronto Sun,
Canada Toronto Star, Canada Vancouver Sun,
Canada China Post, China China Knowledge online,
China Xinhua News, China Chinese Paper,
China Business Day, Colombia Listin Diaro,
Dominican Republic El Universon, Ecuador Faz.net,
Germany German paper, Germany Die Presse,
Germany Hong Kong Daily, Hong Kong Living in Hong
Kong, Hong Kong Portfolio, Hungary Business
Standard, India India Paper, India
Business Standard, International El Economista,
International Economist, International US4Arabs,
International Reuters, International Globes
Israel, Israel Israel Business Area,
Israel Jerusalem Post, Israel Il Sole, Italy Al
Ghad, Jordan Alrai Newspaper, Jordan Addustour
Newspaper, Jordan Greaterkashmir.com,
Kashmir Donga Daily, Korea Segye Daily,
Korea Baltic Business Weekly, Latvia Latvian News
Agency, Latvia Baltic Business Weekly,
Latvia Nufooz web, Lebanon Edge Financial,
Malaysia Edge Daily, Malaysia Agencia Mexicana de
Noticias, Mexico La Jordana, Mexico La Cronica,
Mexico UB Post, Mongolia Republika,
Montenegro Market Montenegro, Montenegro Scoop,
New Zealand Press, New Zealand Arabic Paper,
Oman Oman Tribune, Oman Times of Oman,
Oman Pakistan Press International, Pakistan The
Post, Pakistan Pakistan Defence, Pakistan AHN,
Pakistan
11
Sub-National and Regional Indices
12
Marketization Index of Chinese Provinces
13
Economic Freedom of Indian States
14
Economic Freedom of the Arab World
15
Economic Freedom of Argentine Provinces
16
Economic Freedom of German States
17
Economic Freedom of North America
18
Why is Economic Freedom Important?
  • Economic rights are fundamental rights in the
    sense that without them there can be no political
    or civil freedoms
  • They are a prerequisite for economic growth and
    development
  • They are a prerequisite for broader human
    development

19
The impact on economic growth and development
20
Per Capita Income and Economic Freedom Quartile
Least Free ... Most Free
Sources The Fraser Institute The World Bank,
World Development Indicators, 2008.
21
Income (per person) of the Top 10
Sources The Fraser Institute The World Bank,
World Development Indicators, 2008.
22
Income (per person) of the Bottom Ten
Sources The Fraser Institute The World Bank,
World Development Indicators, 2008.
23
Foreign Direct Investment and Economic Freedom
Quartile
Least Free ...... Most Free
Sources The Fraser Institute The World Bank,
World Development Indicators, 2008.
24
Economic Freedom,the Poor, andInequality
25
Income Share of the Poorest 10 and Economic
Freedom
Least Free .. Most Free
Sources The Fraser Institute The World Bank,
World Development Indicators, 2008.
26
Income Level of the Poorest 10 and Economic
Freedom
Least Free .. Most Free
Sources The Fraser Institute The World Bank,
World Development Indicators, 2008.
27
Economic Freedom, Other Freedoms and Democracy
28
Economic Freedom and Political Rights Higher
ratings indicate higher levels of political rights
Least Free . Most Free
Sources The Fraser Institute Freedom House,
Freedom in the World Country Ratings, 2006,
available at http//www.freedomhouse.org/.
29
Economic Freedom and Civil Liberties Higher
ratings indicate higher levels of civil liberties
Least Free Most Free
Sources The Fraser Institute Freedom House,
Freedom in the World Country Ratings, 2006,
available at http//www.freedomhouse.org/.
30
Economic Freedom and CorruptionLower values
indicate lower levels of corruption
Least Free . Most Free
Sources The Fraser Institute Transparency
International, Corruption Perceptions Index,
2006/2007, available at http//www.transparency.o
rg.
31
The impact of Economic Freedom on the UNs Human
Development Index and other indicators of
well-being
32
Human Development Index and Economic Freedom
QuartilesHigher ratings indicate higher levels
of development
Least Free . Most Free
Sources The Fraser Institute United Nations
Development Programme, Human Development
Indicators 2008, available at http//hdr.undp.org/
.
33
Life Expectancy at Birth and Economic Freedom
Quartiles
Least Free . Most Free
Sources The Fraser Institute The World Bank,
World Development Indicators, 2008.
34
Infant Mortality and Economic Freedom Quartile
Least Free ... Most Free
Sources The Fraser Institute The World Bank,
World Development Indicators, 2008.
35
of Population Using Improved Water Sources
Least Free ... Most Free
Sources The Fraser Institute The World Bank,
World Development Indicators, 2008.
36
Environmental Performance and Economic Freedom
QuartileHigher ratings indicate higher levels of
environmental performance
Least Free .... Most Free
Sources The Fraser Institute The World Bank,
World Development Indicators, 2008.
37
Introducing the 2008 Economic Freedom of the
World Index Results
38
(No Transcript)
39
Hong Kong Tops the RankingsNumber One for Three
Decades
40
Overall Economic Freedom Index and the Top 10
Source The Fraser Institute.
41
Overall Economic Freedom Index and the Bottom Ten
Source The Fraser Institute.
42
Economic Freedom Over Time
Source The Fraser Institute.
43
Economic Freedomand the Top 10
44
Size of Government and the Top 10
Source The Fraser Institute.
45
Size of Government
Source The Fraser Institute.
46
Transfers and subsidies
Source The Fraser Institute.
47
Wrong-Sizing Government Policies
  • Industrial subsidies distort investment and
    increase political intervention in economy
  • Spending down recently but the government is
    caught in vocal demands for more interventions
  • This is how a democratic system operates

48
Legal System and Property Rights and the Top 10
Source The Fraser Institute.
49
Integrity of the legal system
Source The Fraser Institute.
50
Judicial independence
Source The Fraser Institute.
51
Politics and the Law Policies
  • Perceptual issues regarding politicization of
    legal systems
  • Integration with China may be part of the problem
    producer and intellectual property rights are
    still an issue there
  • Democratization begets politicization
  • Judicial independence is however improving

52
Sound Money and the Top 10
Source The Fraser Institute.
53
Sound Money
Source The Fraser Institute.
54
Sound Money Policies
  • Peg is secure and system was tested through Asian
    crisis and deflation
  • Monetary Authority retains its independence
  • Steady progress to renminbi-based trade and
    finance
  • A bit of recent slippage owing to inflation

55
Freedom to Trade Internationally and the Top 10
Source The Fraser Institute.
56
International capital market controls
Source The Fraser Institute.
57
Restrictions on engaging in capital market
exchange with foreigners
Source The Fraser Institute.
58
Trade and Capital Policies
  • Is a non-preferential capital investment policy
    being eroded through industrial subsidies?
  • Capital restrictions must be addressed

59
Regulations and the Top 10
Source The Fraser Institute.
60
Regulations
Source The Fraser Institute.
61
Credit Market Regulations and the Top 10
Source The Fraser Institute.
62
Extension of credit percentage of credit
extended to private sector
Source The Fraser Institute.
63
Business Regulations and the Top 10
Source The Fraser Institute.
64
Time with government bureaucracy
Source The Fraser Institute.
65
Labor Market Regulations and the Top 10
Source The Fraser Institute.
66
Labor Market Regulations
Source The Fraser Institute.
67
Red Tape Policies
  • Government is squeezing out private credit
  • Labour market is sound but watch out for hiring
    and firing regulations and minimum wage
  • Dramatic increase in time management spends with
    bureaucracy

68
Economic Freedom in ActionMinimum Wagesand
theWage Protection Movement
69
Overview
  • Good intentions but many misconceptions
  • Not effective in alleviating poverty
  • Serious negative impacts on the labour market -
    especially for those people targeted for
    assistance
  • Wages are linked to productivity and labour
    market neither of these change with a minimum
    wage

70
Impact
  • Creates barriers for low-skilled workers
  • Fewer voluntary contracts
  • Takes first rung away from career ladder
  • Capital-labour and labour-labour substituting
  • Economic effects
  • Reduction in employment and hours worked
  • Reduction in training and benefits
  • More school dropouts
  • Impact exacerbated with more labour market
    regulations

71
Evidence
  • Prof. Neumark and Dr. Wascher (2007)
  • Over 100 studies covering 20 countries
  • overwhelming majority of studies show minimum
    wage reduces employment
  • Stronger effect on least-skilled groups
  • Prof. Gunderson (2007)
  • Ontario government commissioned study
  • no effect on reducing overall poverty

72
Wage Protection Movement
  • Regulatory approach with threat of legislation
    a degree of coercion
  • Newspeak wage protection, vulnerable workers,
    reasonable wage, decent living
  • Cleaners and guards today who else tomorrow?

73
WPM How It Works
  • Average wage target biases wages higher
  • No link to productivity or market diversity
  • Firms act as regulators of subcontractors
    agents of the government
  • Contracts introduce work practice rigidities
  • Complicated administration and enforcement
  • Loss of competitiveness no change in
    productivity

74
WPM Ultimate Impact
  • Perverse outcome fewer jobs for cleaners and
    guards and fewer opportunities for low skill
    workers
  • Thin edge of the wedge effect damage will
    magnify
  • Is this the way to deal with the opening of the
    labour market to China?

75
Better Policy Solutions
  • Address skills gaps with training and education
  • Address poverty gaps with general income support
    programs
  • Reduce entry barriers for low skill and new
    workers including welfare programs
  • Avoid unnecessary interventions
  • Replace politics with economics in policy
    development

76
Websites
  • www.freetheworld.com
  • www.fraserinstitute.org

77
Today Celebrate Hong KongsEconomic Freedom
78
Economic Freedomof the World2008
  • Dr. Mark Mullins
  • Executive Director
  • The Fraser Institute
  • Celebrate Hong Kong, September 16, 2008
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