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2011 Index of

Economic Freedom
CONTRIBUTORS
Ambassador Terry Miller is Director of the Center for International Trade
and Economics at The Heritage Foundation.

Kim R. Holmes, Ph.D., is Vice President for Foreign and Defense Policy Studies
and Director of the Kathryn and Shelby Cullom Davis Institute for International
Studies at The Heritage Foundation.

Edwin J. Feulner, Ph.D., is President of The Heritage Foundation.

Paul A. Gigot is Editor of The Wall Street Journal Editorial Page.

Anthony B. Kim is a Policy Analyst in the Center for International Trade and
Economics at The Heritage Foundation.

Bryan Riley is the Jay Van Andel Senior Trade Policy Analyst in the Center for
International Trade and Economics at The Heritage Foundation.

James M. Roberts is Research Fellow for Economic Freedom and Growth in


the Center for International Trade and Economics at The Heritage Foundation.

Caroline Walsh served as Research Assistant in the Center for International


Trade and Economics at The Heritage Foundation from 2007 to 2010.

Ben Lieberman is Senior Fellow in Environmental Policy at the Competitive


Enterprise Institute.

Sebastiano Bavetta, Ph.D., and Pietro Navarra, Ph.D., are Visiting Research


Associates in the Centre for Philosophy of Natural and Social Science at the
London School of Economics.
2011 Index of
Economic Freedom
Ambassador Terry Miller
Kim R. Holmes, Ph.D.

with Anthony B. Kim, Bryan Riley,


James M. Roberts, and Caroline Walsh
Copyright © 2011 by The Heritage Foundation and Dow Jones & Company, Inc.

The Heritage Foundation The Wall Street Journal


214 Massachusetts Avenue, NE Dow Jones & Company, Inc.
Washington, DC 20002 200 Liberty Street
(202) 546-4400 New York, NY 10281
heritage.org (212) 416-2000
www.wsj.com

Cover images by Dreamstime and iStockphoto


ISBN: 978-0-89195-282-9
ISSN: 1095-7308
Table of Contents

Foreword................................................................................................................................................... ix
Paul A. Gigot

Preface........................................................................................................................................................ xi
Edwin J. Feulner, Ph.D.

Acknowledgments................................................................................................................................. xiii
Ambassador Terry Miller and Kim R. Holmes, Ph.D.

Executive Highlights.................................................................................................................................1

Chapter 1: The Limits of Government...................................................................................................11


Ambassador Terry Miller

Chapter 2: Defining Economic Freedom...............................................................................................19


Ambassador Terry Miller and Anthony B. Kim

Chapter 3: Economic Freedom Around the World................................................................................29


Anthony B. Kim

Chapter 4: A Free Economy Is a Clean Economy: How Free Markets Improve the Environment.....53
Ben Lieberman

Chapter 5: Economic Freedom and the Pursuit of Happiness.............................................................61


Sebastiano Bavetta and Pietro Navarra

Chapter 6: The Countries........................................................................................................................69

v
Afghanistan....................................................... 73 Ecuador............................................................ 169
Albania............................................................... 75 Egypt................................................................ 171
Algeria............................................................... 77 El Salvador...................................................... 173
Angola...............................................................79 Equatorial Guinea.......................................... 175
Argentina........................................................... 81 Eritrea............................................................... 177
Armenia............................................................. 83 Estonia............................................................. 179
Australia............................................................ 85 Ethiopia............................................................ 181
Austria............................................................... 87 Fiji..................................................................... 183
Azerbaijan......................................................... 89 Finland............................................................. 185
The Bahamas..................................................... 91 France............................................................... 187
Bahrain............................................................... 93 Gabon............................................................... 189
Bangladesh........................................................ 95 The Gambia..................................................... 191
Barbados............................................................ 97 Georgia............................................................ 193
Belarus............................................................... 99 Germany.......................................................... 195
Belgium............................................................ 101 Ghana............................................................... 197
Belize................................................................ 103 Greece.............................................................. 199
Benin................................................................ 105 Guatemala....................................................... 201
Bhutan.............................................................. 107 Guinea.............................................................. 203
Bolivia.............................................................. 109 Guinea–Bissau................................................ 205
Bosnia and Herzegovina............................... 111 Guyana............................................................207
Botswana......................................................... 113 Haiti.................................................................. 209
Brazil................................................................ 115 Honduras......................................................... 211
Bulgaria............................................................ 117 Hong Kong...................................................... 213
Burkina Faso................................................... 119 Hungary.......................................................... 215
Burma............................................................... 121 Iceland.............................................................. 217
Burundi............................................................ 123 India................................................................. 219
Cambodia........................................................ 125 Indonesia......................................................... 221
Cameroon........................................................ 127 Iran................................................................... 223
Canada............................................................. 129 Iraq................................................................... 225
Cape Verde...................................................... 131 Ireland.............................................................. 227
Central African Republic............................... 133 Israel................................................................. 229
Chad................................................................. 135 Italy..................................................................231
Chile................................................................. 137 Jamaica............................................................. 233
China................................................................ 139 Japan................................................................ 235
Colombia......................................................... 141 Jordan............................................................... 237
Comoros.......................................................... 143 Kazakhstan...................................................... 239
Congo, Democratic Republic of ................... 145 Kenya............................................................... 241
Congo, Republic of......................................... 147 Kiribati............................................................. 243
Costa Rica........................................................ 149 Korea, North................................................... 245
Côte d’Ivoire................................................... 151 Korea, South.................................................... 247
Croatia.............................................................. 153 Kuwait............................................................. 249
Cuba................................................................. 155 Kyrgyz Republic............................................. 251
Cyprus............................................................. 157 Laos.................................................................. 253
Czech Republic............................................... 159 Latvia............................................................... 255
Denmark.......................................................... 161 Lebanon........................................................... 257
Djibouti............................................................ 163 Lesotho............................................................ 259
Dominica......................................................... 165 Liberia.............................................................. 261
Dominican Republic...................................... 167 Libya................................................................ 263

vi 2011 Index of Economic Freedom


Liechtenstein................................................... 265 Serbia................................................................ 359
Lithuania......................................................... 267 Seychelles........................................................ 361
Luxembourg.................................................... 269 Sierra Leone....................................................363
Macau............................................................... 271 Singapore......................................................... 365
Macedonia....................................................... 273 Slovakia........................................................... 367
Madagascar..................................................... 275 Slovenia........................................................... 369
Malawi............................................................. 277 Solomon Islands............................................. 371
Malaysia..........................................................279 South Africa.................................................... 373
Maldives.......................................................... 281 Spain................................................................. 375
Mali.................................................................. 283 Sri Lanka.......................................................... 377
Malta................................................................ 285 Sudan............................................................... 379
Mauritania....................................................... 287 Suriname.........................................................381
Mauritius......................................................... 289 Swaziland........................................................ 383
Mexico.............................................................. 291 Sweden............................................................385
Micronesia....................................................... 293 Switzerland..................................................... 387
Moldova..........................................................295 Syria................................................................. 389
Mongolia.........................................................297 Taiwan.............................................................. 391
Montenegro..................................................... 299 Tajikistan.......................................................... 393
Morocco........................................................... 301 Tanzania........................................................... 395
Mozambique................................................... 303 Thailand........................................................... 397
Namibia........................................................... 305 Timor-Leste..................................................... 399
Nepal................................................................ 307 Togo.................................................................. 401
The Netherlands............................................. 309 Tonga................................................................ 403
New Zealand................................................... 311 Trinidad and Tobago...................................... 405
Nicaragua........................................................ 313 Tunisia.............................................................. 407
Niger................................................................ 315 Turkey.............................................................. 409
Nigeria............................................................. 317 Turkmenistan.................................................. 411
Norway............................................................ 319 Uganda............................................................ 413
Oman...............................................................321 Ukraine............................................................ 415
Pakistan........................................................... 323 United Arab Emirates.................................... 417
Panama............................................................ 325 United Kingdom............................................. 419
Papua New Guinea........................................ 327 United States................................................... 421
Paraguay.......................................................... 329 Uruguay........................................................... 423
Peru.................................................................. 331 Uzbekistan....................................................... 425
The Philippines............................................... 333 Vanuatu............................................................ 427
Poland.............................................................. 335 Venezuela........................................................ 429
Portugal........................................................... 337 Vietnam............................................................ 431
Qatar................................................................339 Yemen............................................................... 433
Romania........................................................... 341 Zambia............................................................. 435
Russia............................................................... 343 Zimbabwe.......................................................437
Rwanda............................................................ 345
Saint Lucia....................................................... 347 Appendix......................................................... 439
Saint Vincent and the Grenadines................ 349 Index of Economic Freedom Scores,
Samoa............................................................... 351 1995–2011................................................440
São Tomé and Príncipe.................................. 353 Methodology.............................................. 447
Saudi Arabia.................................................... 355 Major Works Cited..................................... 459
Senegal............................................................. 357

Table of Contents vii


Foreword

F
inancial panics and global recessions tend up their balance sheets, but they are either sit-
to be bad times for free markets, as wor- ting on their capital or investing it elsewhere
ried citizens look to the state for relief. So around the world. My reporting suggests this is
it is a pleasant surprise to learn that the 2011 a classic “capital strike” related to government
Index of Economic Freedom has found an overall policies that have raised the costs of hiring
increase in liberty across the world after two and investment, targeted banks and corpora-
years of decline. Perhaps the Great Recession of tions for political vilification, and created great
2008–2009 will turn out to be only a detour, not uncertainty about America’s business climate.
a major disruption, in what had been a 30-year Another relative loser is the United King-
march of free-market reform. dom, which reacted to the financial panic by
If so, the turn will not have been led by the returning to the bad policy habits of the pre-
United States, which fell another spot in the Thatcher era. As recently as 2000, British gov-
world rankings to ninth, following a drop of ernment spending as a share of GDP was 36.4
two spaces last year. The demotion was well- percent; in 2007, it was 41 percent. As I write
earned, as Congress and the White House this, it is 47.5 percent following a Keynesian
imposed the largest expansion of government spending binge that was supposed to stimu-
in two generations. The health-care reform late growth but has resulted in a slower recov-
known as Obamacare will by itself push the ery than the one in Germany, which spent far
U.S. toward European levels of spending and less. Taxes have naturally followed spending
state economic control unless it can be repealed upward, with Britain’s top income tax rate
or replaced. rising to 50 percent from 40 percent. It’s thus
The U.S. economic recovery has also been no surprise that Britain has fallen out of the
lackluster, despite an unprecedented mon- world’s top 15 in this year’s Index.
etary and fiscal stimulus. Most disappointing The good news comes in small national
is that the recovery momentum that began in packages. Africa has been the continent least
late 2009 (5 percent growth in the final quarter) open to free-market ideas, but Rwanda and
has slowed to 2 percent or less. This is in con- Djibouti made significant gains in 2010. Several
trast to recent recessions when the American Middle Eastern nations continued their trend
economy led the world toward new periods toward more economic openness, albeit from
of expansion. U.S. businesses have cleaned a low base. As China and India have shown,

ix
however, countries can ignite a growth spurt harm in the short term, but it doesn’t repair the
by making even partial reforms that liberate damage already done by regulations and high-
their citizens to exploit their talents. The direc- er taxes that are still moving forward or are set
tion of policy is crucial. to take effect without legislative action. Much
On this point, the major question at the will depend on whether Mr. Obama accommo-
end of 2010 was whether the reaction that has dates the new public mood or digs in and takes
begun against statist policies could build into a populist left turn.
another era of expanded liberty. The evidence The larger point is that economic prosperity
is mixed. In the U.K., a new coalition govern- is not a national birthright. Rich countries can
ment was cutting spending but not taxes and fall into stagnation all too quickly, while long-
seemed to lack a pro-growth strategy. Europe suffering nations can ascend from poverty
was growing overall again but also bailing out to powerhouse in a matter of years. Think of
the likes of Greece and Ireland at the price of Argentina’s decline from a country with a GDP
austerity and higher taxes. akin to Europe’s to one of South America’s lag-
Asia is booming again, having avoided the gards or Japan’s two-decade malaise. Or con-
worst of the panic and policy mistakes, but sider China’s rise in a mere 30 years from a
inflation was also building, notably in China. nation whose main mode of transportation was
More important, some Asian nations are draw- the bicycle to a global industrial giant.
ing the wrong lesson from their relative suc- The abiding lesson of the Index of Economic
cess, giving credit to state-directed industrial Freedom is that the most important variable in
policy while asserting that the U.S.-led market the wealth of nations is liberty. What the world
model has been repudiated. If they believe this, economy needs above all at the end of 2010 is
they will court a political and trade backlash in for the United States government to recall that
the West and eventually hit a growth roadblock truth and act on it.
at home.
As for the U.S., voters have shut down Paul A. Gigot
Barack Obama’s historic government expan- Editorial Page Editor
sion by electing a Republican House of Repre- The Wall Street Journal
sentatives. This should prevent further policy November 2010

x 2011 Index of Economic Freedom


Preface

T
he results of the 2011 Index of Economic by storm. In fact, there has been little global
Freedom will be encouraging for cham- demand for a shift to government planning or
pions of individual freedom and policies extensive state ownership of private businesses
that promote openness and competition. After in the name of recovery and stability. Too many
two years of decline, the world’s average level people in too many parts of the globe have lived
of economic freedom is again on the rise, up under such systems too recently, missing out on
by about a third of a point. This news is par- chances to fulfill their dreams. Many of those
ticularly cheering because the current growth people truly understand the costs of big govern-
of economic freedom is driven primarily by ment and the limits of government effectiveness.
the sound policy choices of many evolving and They have no intention of giving up economic or
developing economies that have joined the free political freedoms only recently won.
world only recently. It should not, then, be a surprise that only
The embrace of capitalism by the young a small number of countries have responded
democracies of Eastern Europe and the former to the global financial and economic crisis of
Soviet Union has proved particularly durable, 2008–2010 with measures that sharply reduced
and many developing countries have made their citizens’ economic freedom. Just 19 of
major gains in reducing poverty by adopting the countries ranked in the Index of Economic
measures that open up their economies and Freedom have had cumulative drops of three
encourage economic engagement with the points or more in economic freedom since 2008.
world. The strong commitment to economic Unfortunately, among those countries were
freedom in these countries paves their way the United States and the United Kingdom,
to more vibrant economic growth and greater two economies that, more than many others,
prosperity in the years to come. have served as engines of growth for the world
Friedrich von Hayek once observed, “To be economy over the past century.
controlled in our economic pursuits means to We cannot, of course, know what would
be controlled in everything.” That observation have happened had the U.S. and the U.K. gone
resonates astonishingly well in today’s world. through the crisis with leaders who had high
Proposals for greater government control of levels of faith and confidence in free-market
economic activity have not taken the world institutions. The fact is, they didn’t. We do

xi
know that misguided and mismanaged gov- witnessed profound advances as the cause of
ernment interventions in these two economies freedom has swept the globe.
have produced a recession of unusual depth The 2011 Index records a resumption of this
and duration. We also, in a note of hope, can positive trend. Even more encouraging, politi­
see that the voters in both of these countries cal authorities have found themselves increas­
have recently repudiated both the policies and ingly held accountable by those they govern.
the officials responsible for the loss of economic People around the world are opting, when they
freedom. have a choice, for greater freedom. That their
Those governments that opted to move wisdom seems sometimes to outpace that of
away from economic freedom by continuing their leaders is one of the enduring lessons of
massive government spending in the name the benefits of democracy.
of Keynesian economic stimulus have, for In addition to the rankings and analysis of
the most part, seen their efforts fail. The Index the results, the 2011 Index contains two infor-
results show no positive correlation between mative chapters that examine facets of eco-
stimulus spending and the pace of recovery. nomic freedom that are particularly rel­evant to
The explosion of unsustainable debt and the today’s policy debates.
erosion of long-term competitiveness in coun-
tries that have been losing economic freedom • In chapter 4, Ben Lieberman, Senior Fellow
have led to a searing reassessment and some- in Environmental Policy at the Competitive
times painful readjustment of spending and Enterprise Institute, highlights the vital link
economic priorities. Indeed, for many coun- between economic freedom and the environ-
tries we may, as highlighted in a provocative ment. The same free-market principles that
essay by Index editor Terry Miller, have reached have proven to be the key to economic suc-
the limits of government expansion. cess can also deliver environmental success.
The 2011 Index of Economic Freedom docu- • In chapter 5, Professors Pietro Navarra and
ments a global economy that is progressing yet Sebastiano Bavetta of the London School of
still engaged in the great battle between gov- Economics contribute a pioneering empiri-
ernment and free markets. The fight for free- cal study that sheds light on the critical rela-
dom is a never-ending struggle. tionship between economic freedom and
The Index offers a valuable starting place broadly defined measures for individual
from which to reflect on the fundamental prin- well-being and the pursuit of happiness.
ciples of the free-market system and the lasting
value of economic freedom. As previous edi- The 2011 Index of Economic Free­dom, like its
tions of the Index have elaborated, economic predecessors, provides ample evidence of the
freedom is not a dogmatic ideol­ogy. It repre- benefits of economic freedom, both to indi-
sents instead a philosophy that rejects dogma viduals and to societies. With global economic
and embraces diverse and even compet­ing recovery far from secure, the need for greater
strategies for economic advancement. By dis- economic growth is stronger than ever.
persing economic power and decision-mak­ing Clearly, many countries are at a critical
throughout an economy, economic freedom juncture that requires both political will and
empowers ordinary people with more choices decisive policy choices. Those that fail to make
and greater oppor­tunity for success. the policy adjustments necessary to enhance
Over the past 17 years, the Index has ana- economic freedom and revitalize economic
lyzed and confirmed the strong interplay growth risk long-term stagnation or, worse, a
between economic freedom and prosperity in return to recession and crisis.
countries around the world. The Index began
to record the worldwide march of freedom and Edwin J. Feulner, Ph.D., President
free exchange shortly after the fall of the Berlin The Heritage Foundation
Wall. In spite of ups and downs, the Index has November 2010

xii 2011 Index of Economic Freedom


Acknowledgments

T
he Index of Economic Freedom has evaluated interns Margaret Crawford, Daniel Fullerton,
countries’ economic environments each Jacob Honsvick, Chelsey Mullins, Renee Pir-
year since 1995 with the help of count- rong, Holly Redmond, Andre Rougeot, and
less individuals and organizations around the Julia Swanson also contributed substantial
world. Their dedication to accuracy, context, research.
depth, and breadth of analysis has contributed Others at The Heritage Foundation also
greatly to the relevance and vitality of the Index. made valuable contributions to this year’s Index.
While it is impossible to mention them all, In the Kathryn and Shelby Cullom Davis Insti-
we wish to express our profound gratitude to tute for International Studies, Janice A. Smith,
the many individuals serving with various Special Assistant and Policy Coordinator for
international organizations, accounting firms, the Vice President, provided important pro-
businesses, research institutions, U.S. govern- duction assistance. A great debt is owed to the
ment agencies, foreign embassies, and other policy experts who wrote country backgrounds
organizations who cooperated by providing informed by their regional expertise. This year’s
us with the data used in the Index. Their assis- contributors were Ariel Cohen, Owen Graham,
tance is vital and appreciated each year. James Phillips, and Ray Walser of the Douglas
There are many members of The Heritage and Sarah Allison Center for Foreign Policy
Foundation who, under the vision and lead- Studies; Lisa Curtis, Bruce Klingner, Derek Scis-
ership of Dr. Edwin J. Feulner, our president, sors, and Director Walter Lohman of the Asian
have made valuable contributions to this 17th Studies Center; and Sally McNamara, Mor-
edition of the Index of Economic Freedom. gan Roach, and Brett Schaefer of the Margaret
The Heritage Foundation’s Center for Thatcher Center for Freedom.
International Trade and Economics (CITE) The Index of Economic Freedom is a substan-
produces the Index. The CITE team of Antho- tial publication brought to print each year by
ny Kim, Bryan Riley, James Roberts, and the incredibly talented team in Creative Ser-
Caroline Walsh were responsible for grad- vices. Director Therese Penne­father, Elizabeth
ing the 10 components of economic free- Brewer, Ralph Buglass, and Doug Sampson
dom, analyzing the results, and producing were responsible for all aspects of the produc-
the country reports included in this edition. tion process, handling design and layout for
Research Assistant Charlotte Cannon and the Index and each subsidiary product. With an

xiii
emphasis on reader accessibility, they devel- President, Leadership for America Operations;
oped and formatted world and country maps, and Michael Gonzalez, Vice President, Com-
charts, and tables, all of which bring to life the munications, is sincerely appreciated. We also
quantitative data underpinning the 2011 Index thank Deputy Director of the Kathryn and
findings. Shelby Cullom Davis Institute for Interna-
The Index stands on its commitment to accu- tional Studies James Jay Carafano, Center for
racy, and once again we wish to express our Data Analysis Director William Beach, Direc-
deepest appreciation to Senior Editor Richard tor of Coalition Relations Bridgett Wagner, and
Odermatt, who is responsible for final review Deputy Director of Government Relations
of the completed text, and Senior Copy Edi- James Dean for their insightful contributions
tor William T. Poole, who bears the primary to the Index.
responsibility for editing the entire book. Every As always, we acknowledge our enduring
year, their professionalism, commitment, and debt to Heritage Trustee Ambassador J. William
attention to detail are essential to maintain- Middendorf II, who originally encouraged us
ing consistency of tone and making the Index a to undertake such a study of global economic
reality. We are likewise grateful to Senior Data freedom. Very special thanks go to Paul Gigot
Graphics Editor John Fleming, who produced and Mary Anastasia O’Grady at The Wall Street
an automated system for generating some of Journal, whose enduring partnership and sup-
our charts and carefully reviewed all graphics port we truly cherish.
included in the book. Finally, we would like to express our appre-
The availability of the entire Index publi- ciation to the many people who respond so
cation and related raw data online at www. enthusiastically, year after year, to the Index of
heritage.org/index has greatly expanded the Economic Freedom. To those who read, share,
publication’s reach and accessibility. The and use the Index findings to engage in discus-
transposition to the Web each year would not sions about economic freedom, we thank you.
be possible without the expertise of Vice Presi- The support and encouragement of people in
dent of Information Technology Michael Spill- all parts of the world continue to inspire The
er and his team, including Director of Online Heritage Foundation and The Wall Street Journal
Communications Tim McGovern, Maria Sousa, in their ongoing collaboration on this impor-
Roger Spurzem, Jim Lawruk, Steve Sharman, tant work. We hope this year’s effort meets
Joel Smith, and Martha Galante. We are grateful the expectations of our supporters as well as
to the entire Heritage IT staff for their tireless the thoughtful critics who so often have pro-
work. vided the insights that enable us to continue to
The continuing support from Phil Truluck, improve the Index.
Executive Vice President of The Heritage Foun-
dation; Becky Norton Dunlop, Vice President, Ambassador Terry Miller
External Relations; Mike Franc, Vice President, Kim R. Holmes, Ph.D.
Government Relations; Genevieve Wood, Vice November 2010

xiv 2011 Index of Economic Freedom


Executive Highlights

E
conomic freedom advanced this year,
Global Average Economic Freedom
regaining much of the momentum lost
during the fiscal crisis and global reces- Average Score in the Index of Economic
sion. Many governments around the world Freedom Since 1995
have rededicated themselves to fiscal sound-
61
ness, openness and reform, and the majority of
countries are once again on a positive path to
greater freedom. 60.2
The 2011 Index of Economic Freedom reports 60
on economic policy developments since the 59.7
second half of 2009 in 183 economies. Based on
10 measures that evaluate openness, the rule of 59.4
law, and competitiveness, the Index ranks econ- 59
omies according to their economic freedom.
The principles of economic freedom empha-
sized in the Index are individual empower-
58
ment, non-discimination, and the promotion
of competition.

HIGHLIGHTS FROM THE 2011 57 57.1


INDEX OF ECONOMIC FREEDOM
• The global average economic freedom
score for the 2011 Index is 59.7, a 0.3 point
56
increase from last year. (See Chart 1.) Despite
the challenging global economic environment, 1995 2000 2005 2010 2011

the forces of economic freedom around the Sources: Terry Miller and Kim R. Holmes, 2011 Index of
world have been resilient and even increas- Economic Freedom (Washington, D.C.: The Heritage
Foundation and Dow Jones & Company, Inc., 2011), at
ing. In fact, economic freedom has taken an www.heritage.org/index.
upturn in the majority of the economies that
Chart 1 heritage.org
are assessed in the 2011 Index. Those gains are

1
particularly welcome and significant given the age in the 2011 Index. The South and Central
fact that the biggest improvements have been America/Caribbean region gained the second
achieved in developing and emerging econo- most freedom on average, exactly half a point,
mies where poverty reduction is a top priority. owing to significant progress in Colombia and
(See Table 1.) Costa Rica, among others. The Middle East
and North Africa and Asia–Pacific regions also
Biggest Gainers and Losers showed gains, but North America and Europe,
in the 2011 Index despite increases by some countries, experi-
enced a decline in economic freedom and no
Nations that Gained or Lost at Least 2 Points change, respectively, on average.
in their Index Scores from Last Year
• Along with Hong Kong and Singapore,
GAINERS LOSERS
Australia, New Zealand, Switzerland, and
Rwanda +3.6 Iceland –5.5 Canada have solidified their status as the
Djibouti +3.4 Algeria –4.5
Seychelles +3.3 Timor-Leste –3.0 world’s “free” economies. These top six econ-
Soloman Islands +3.0 Kuwait –2.8 omies are the only countries to achieve scores
Guinea–Bissau +2.9 Ireland –2.6 above 80 on the 0 to 100 economic freedom grad-
Jordan +2.8 Nepal –2.6 ing scale. Hong Kong was able to uphold its
Cape Verde +2.8 Greece –2.4
Bulgaria +2.6 Italy –2.4 status as the world’s freest economy, a position
Sri Lanka +2.5 Ecuador –2.2 it has held for 17 consecutive years. Singapore
Colombia +2.5 Angola –2.2 remains a close second, narrowing the gap with
Tonga +2.4 Chad –2.2
Cyprus +2.4 Madagascar –2.1 Hong Kong. Australia and New Zealand have
Belize +2.3 Albania –2.0 maintained their previous rankings of 3rd and
The Gambia +2.3 United Kingdom –2.0 4th in the 2011 Index, while Switzerland climbed
Oman +2.1
Burundi +2.1 up to the 5th spot, overtaking Ireland, which fell
Moldova +2.0 to 7th place. The relative strength of the “free”
Saudi Arabia +2.0 economies is no accident. Their strong com-
Togo +2.0 mitment to all facets of economic freedom has
Sources: Terry Miller and Kim R. Holmes, 2011 Index of endowed their economies with a high degree of
Economic Freedom (Washington, D.C.: The Heritage
Foundation and Dow Jones & Company, Inc., 2011), at resilience. All are recovering rapidly from the
www.heritage.org/index. shocks of the global slowdown.
Table 1 heritage.org
• Every region continues to maintain
at least one of the top 20 freest economies.
• The scores of 117 economies are better, Nine of them are in Europe, six are in the
the scores of 58 are worse, and those of four Asia–Pacific region, and two are from North
are unchanged. Of the 117 economies whose America. The other regions are represented
scores improved, 102 are developing or emerg- by one country each: Chile (South and Cen-
ing economies, many of which are in Sub-Saha- tral America/Caribbean region); Mauritius
ran Africa and the South and Central America/ (Sub-Saharan Africa region); and Bahrain
Caribbean region. (Middle East and North Africa region). Bah-
rain recorded impressive progress, now
• All regions except Europe and North becoming the world’s 10th freest economy.
America recorded increased levels of econom- Across all the regions, economic freedom is
ic freedom. The Sub-Saharan Africa region, the key to greater opportunity and prosper-
led by Rwanda, Djibouti, and Cape Verde, ity. (See Chart 2.)
achieved the largest score improvement, with • Economic freedom is key to overall
countries gaining over half a point on aver- well-being. The 2011 edition of the Index con-

2 2011 Index of Economic Freedom


Economic Freedom and Standard of Living
GDP per Capita (Purchasing Power Parity) Average Scores Top five nations
within Region Bottom five nations
$50,000
$47,570
$44,310

40,000
$34,848

30,000

$24,658

20,000

$10,413
10,000 $8,513 $8,527 $9,338

$3,042
$1,485
0
Europe Asia–Pacific Middle East Americas Sub-Saharan
and North Africa
Africa
Sources: Terry Miller and Kim R. Holmes, 2011 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and
Dow Jones & Company, Inc., 2011), at www.heritage.org/index.
Chart 2 heritage.org

firms findings from previous editions regard- est economy. The United Kingdom is now out
ing the various tangible benefits of living in of the top 15.
freer societies. Not only are higher levels of
economic freedom associated with higher per • High levels of government spending
capita incomes, but greater economic freedom in response to the global economic turmoil
is also strongly correlated to overall well-being, have not resulted in higher economic growth.
which takes into account such factors as health, In light of the economic crisis, many advanced
education, security, and personal freedom. (See economies’ governments have stepped up
Chart 3.) their direct interference in the economy with
government spending. Though volumes of
Responding to Crisis evidence have highlighted the negative results
• Policy responses to the global economic of massive government spending, in a time of
turmoil have led to noticeable reshuffling in crisis, some have tried the Keynesian policy
the top 20 countries in the 2011 Index. Nine prescription of stimulating demand with gov-
of the 20 freest economies are European, led ernment spending. That spending, more than
by Switzerland, Ireland, and Denmark. With any market factor, has posed the greatest risk
its economic freedom score declining by 5.5 to economic dynamism. Relying on govern-
points, Iceland slid out of the top 20 while ment spending in the form of various stimu-
Denmark surpassed the U.S. Continuing its lus packages not only has failed to promote
downward trend, the U.S. became the 9th fre- growth and employment, but also has seemed

Executive Highlights 3
to prolong the crisis by hampering private- fiscal crisis in many countries, with economic
sector investment. Bloated government debt stagnation fueling a long-term employment
has turned the economic slowdown into a crisis. (See Chart 4.)

Economic Freedom Promotes Overall Well-Being


Rank in Prosperity Index
1
Each dot represents
a nation in the Index
of Economic Freedom
21

41

61

e
Lin
nd
81 Tre

101
Correlation = 0.78
R2 = 0.61

101 81 61 41 21 1

Rank in 2011 Index of Economic Freedom


Sources: Terry Miller and Kim R. Holmes, 2011 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation
and Dow Jones & Company, Inc., 2011), at www.heritage.org/index, and 2010 Legatum Prosperity Index, at
http://www.prosperity.com/downloads/2010LegatumProsperityIndexBrochure.pdf (November 1, 2010).

Chart 3 heritage.org

4 2011 Index of Economic Freedom


Higher Government Spending, Lower Growth
Change in GDP
(Q4 2008–Q2 2010)
+10%

Each dot represents a


nation in the OECD
+5%

Tren
d Line
–5%

–10%

Correlation = –0.52
R2 = 0.27
–15%
20% 25% 30% 35% 40% 45% 50% 55% 60% 65%

Government Spending as % of GDP (Average, 2008–2009)


Source: Organisation for Economic Co-operation and Development, OECD.StatExtracts, Quarterly National Accounts:
Quarterly Growth Rates of GDP, volume, at http://stats.oecd.org/index.aspx (November 3, 2010).
Chart 4 heritage.org

Executive Highlights 5
2011 Index of Economic Freedom World Rankings

Investment Freedom
Monetary Freedom

Financial Freedom
Change from 2010

Business Freedom

Property Rights

Labor Freedom
Trade Freedom

Fiscal Freedom

Freedom from
Overall Score

Government
World Rank

Corruption
Spending
Country
1 Hong Kong 89. 7 0.0 98. 7 90.0 93.3 89.6 8 7. 1 90.0 90.0 90.0 82.0 86.2
2 Singapore 8 7.2 1.1 98.2 90.0 91.1 9 1 .3 86.2 75.0 60.0 90.0 92.0 98.0
3 Australia 82.5 –0. 1 90. 1 84.4 6 1 .3 64. 7 85.0 80.0 90.0 90.0 8 7.0 92.2
4 New Zealand 82.3 0.2 99.9 86.6 64. 7 49.3 84.8 80.0 80.0 95.0 94.0 89.2
5 Switzerland 8 1 .9 0.8 80.2 90.0 68.4 69.3 83.8 80.0 80.0 90.0 90.0 8 7.8
6 Canada 80.8 0.4 96.4 88. 1 78.0 52. 7 78.8 75.0 80.0 90.0 8 7.0 81.7
7 Ireland 78. 7 –2.6 92.0 8 7.6 72. 1 4 7. 1 80. 7 90.0 70.0 90.0 80.0 7 7.5
8 Denmark 78.6 0. 7 99. 7 8 7.6 43.2 1 9.5 8 1 .4 90.0 90.0 90.0 93.0 92. 1
9 United States 7 7.8 –0.2 9 1 .0 86.4 68.3 54.6 7 7.4 75.0 70.0 85.0 75.0 95. 7
1 0 Bahrain 7 7. 7 1 .4 7 7.4 82.8 99.8 80.2 74.0 75.0 80.0 60.0 5 1 .0 9 7.0
1 1 Chile 7 7.4 0.2 6 7.2 88.0 7 7. 7 86.6 7 7.9 80.0 70.0 85.0 6 7.0 74.5
1 2 Mauritius 76.2 –0. 1 82.0 88.0 9 1 .9 80.0 76. 1 90.0 70.0 60.0 54.0 70.4
1 3 Luxembourg 76.2 0.8 76.4 8 7.6 66. 7 58.5 82. 1 95.0 80.0 90.0 82.0 44. 1
1 4 Estonia 75.2 0.5 80.9 8 7.6 80. 7 52.2 78. 7 90.0 80.0 80.0 66.0 55.8
1 5 The Netherlands 74. 7 –0.3 8 1 .9 8 7.6 50.6 36.8 82. 7 90.0 80.0 90.0 89.0 58.3
1 6 United Kingdom 74.5 –2.0 94.6 8 7.6 52.0 32.9 74.9 90.0 80.0 85.0 7 7.0 7 1 .2
1 7 Finland 74.0 0.2 95.0 8 7.6 65.3 26.5 80. 7 85.0 80.0 90.0 89.0 4 1 .4
1 8 Cyprus 73.3 2.4 80. 1 82.6 74.6 45.6 8 7.6 75.0 70.0 80.0 66.0 7 1 .4
1 9 Macau 73. 1 0.6 60.0 90.0 76.6 93.3 83.4 85.0 70.0 60.0 53.0 60.0
20 Japan 72.8 –0. 1 83.8 82.6 6 7.0 58. 7 8 7.9 60.0 50.0 80.0 7 7.0 81.1
2 1 Austria 7 1 .9 0.3 72.8 8 7.6 50.3 28.0 82.9 80.0 70.0 90.0 79.0 78.2
22 Sweden 7 1 .9 –0.5 95.0 8 7.6 3 7.6 1 7.3 80. 1 85.0 80.0 90.0 92.0 54.0
23 Germany 7 1 .8 0. 7 89.6 8 7.6 58.5 42. 7 83.9 85.0 60.0 90.0 80.0 40.6
24 Lithuania 7 1 .3 1 .0 81.7 8 7.6 86. 1 58.0 74.5 80.0 80.0 60.0 49.0 55.6
25 Taiwan 70.8 0.4 84. 7 86.2 78.3 89. 7 82.0 65.0 50.0 70.0 56.0 46. 1
26 Saint Lucia 70.8 0.3 86.2 7 1 .9 74.4 7 1 .4 85.3 55.0 40.0 70.0 70.0 83.4
2 7 Qatar 70.5 1 .5 70.3 82.4 99.8 78. 1 7 1 .9 45.0 50.0 70.0 70.0 6 7.0
28 Czech Republic 70.4 0.6 69.8 8 7.6 8 1 .0 44.8 80.0 70.0 80.0 65.0 49.0 7 7.0
29 Georgia 70.4 0.0 8 7.3 89.2 8 7.5 60.3 76. 7 70.0 60.0 40.0 4 1 .0 92. 1
30 Norway 70.3 0.9 88.3 89.4 5 1 .6 5 1 .5 75. 1 65.0 60.0 90.0 86.0 45.8
3 1 Spain 70.2 0.6 7 7.2 8 7.6 6 1 .0 49.3 82.4 80.0 80.0 70.0 6 1 .0 53.0
32 Belgium 70.2 0. 1 92.6 8 7.6 4 1 .8 25.0 82.5 80.0 70.0 80.0 7 1 .0 7 1 .0
33 Uruguay 70.0 0.2 6 1 .5 83.0 84.3 76.5 72.8 80.0 30.0 70.0 6 7.0 74.9
34 Oman 69.8 2. 1 69.4 83.6 98.5 68. 1 69.5 55.0 60.0 50.0 55.0 89. 1
35 South Korea 69.8 –0. 1 9 1 .6 70.8 72.2 73.0 78. 7 70.0 70.0 70.0 55.0 46.5
36 Armenia 69. 7 0.5 82.4 85.5 89.2 85. 7 76.0 75.0 70.0 30.0 2 7.0 75.9
3 7 Slovak Republic 69.5 –0.2 73.4 8 7.6 84.2 63. 7 8 1 .6 75.0 70.0 50.0 45.0 64.5
38 Jordan 68.9 2.8 65.8 78.8 92. 7 60.9 8 1 .4 70.0 60.0 55.0 50.0 74.2

6 2011 Index of Economic Freedom


2011 Index of Economic Freedom World Rankings

Investment Freedom
Monetary Freedom

Financial Freedom
Change from 2010

Business Freedom

Property Rights

Labor Freedom
Trade Freedom

Fiscal Freedom

Freedom from
Overall Score

Government
World Rank

Corruption
Spending
Country

39 El Salvador 68.8 –1.1 65.5 85.0 85.8 88.0 79.9 75.0 70.0 40.0 34.0 64.9
40 Botswana 68.8 – 1 .5 70.5 75.2 78.4 5 1 .5 70.9 75.0 70.0 70.0 56.0 70.0
4 1 Peru 68.6 1 .0 7 1 .9 86.0 79.4 9 1 .0 83. 1 70.0 60.0 40.0 3 7.0 6 7. 7
42 Barbados 68.5 0.2 90.0 60.5 70. 7 48.8 76.3 45.0 60.0 80.0 74.0 80.0
43 Israel 68.5 0.8 66. 1 8 7.8 62.3 44.8 78.4 80.0 70.0 70.0 6 1 .0 64.3
44 Iceland 68.2 –5.5 92. 7 88.2 69.8 0.0 68.6 65.0 60.0 90.0 8 7.0 60. 7
45 Colombia 68.0 2.5 86. 1 73.2 74.5 78.9 75.8 65.0 60.0 50.0 3 7.0 79.3
46 The Bahamas 68.0 0. 7 72.5 42.2 9 7.2 86.9 74.6 30.0 70.0 70.0 55.0 8 1 .3
4 7 United Arab Emirates 6 7.8 0.5 6 7.3 82.6 99.9 79. 1 76.5 35.0 50.0 50.0 65.0 72.4
48 Mexico 6 7.8 –0.5 8 7.3 8 1 .2 8 1 .3 83. 1 75. 7 65.0 60.0 50.0 33.0 60.9
49 Costa Rica 6 7.3 1 .4 58.2 85.2 82.3 86.9 70. 7 70.0 50.0 55.0 53.0 62. 1
50 Saint Vincent and 66.9 0.0 79.3 73.3 72.3 65. 1 78.2 50.0 40.0 70.0 64.0 76.8
the Grenadines
5 1 Hungary 66.6 0.4 76.5 8 7.6 69. 7 2 7.4 75.9 75.0 70.0 65.0 5 1 .0 6 7. 7
52 Trinidad and Tobago 66.5 0.8 58.4 81.7 83. 7 75.8 7 1 .8 60.0 70.0 50.0 36.0 7 7. 1
53 Malaysia 66.3 1 .5 69. 7 78. 7 84.6 79.2 8 1 .3 45.0 50.0 50.0 45.0 79.2
54 Saudi Arabia 66.2 2.0 86. 1 82.2 99.4 74.6 64.3 40.0 50.0 45.0 43.0 7 7.0
55 Macedonia 66.0 0.3 64.6 83.6 90.0 64.3 84.5 60.0 60.0 35.0 38.0 79. 7
56 Latvia 65.8 –0.4 72.8 8 7.6 82.5 55.5 73.5 80.0 50.0 50.0 45.0 6 1 .3
5 7 Malta 65. 7 – 1 .5 70.0 8 7.6 62.5 39.8 80. 1 75.0 60.0 70.0 52.0 60.0
58 Jamaica 65. 7 0.2 86.3 72.2 75.9 64. 7 72.5 85.0 60.0 40.0 30.0 70.2
59 Panama 64.9 0. 1 75. 1 75.8 82.6 88.6 7 7. 1 65.0 70.0 40.0 34.0 41.1
60 Bulgaria 64.9 2.6 75.8 8 7.6 86.9 58.3 75.5 55.0 60.0 30.0 38.0 82.0
6 1 Kuwait 64.9 –2.8 64.4 8 1 .6 99.9 69. 7 69.3 55.0 50.0 50.0 4 1 .0 6 7.9
62 Thailand 64. 7 0.6 69.9 75.9 74.8 90.6 70.8 40.0 70.0 45.0 34.0 76.3
63 Romania 64. 7 0.5 72.0 8 7.6 86.8 5 7.6 74.4 80.0 50.0 40.0 38.0 60.8
64 France 64.6 0.4 85.6 82.6 52.3 1 6.4 83. 7 55.0 70.0 80.0 69.0 5 1 .4
65 Cape Verde 64.6 2.8 64.8 6 7.6 7 7.3 7 1 .0 79.2 60.0 60.0 65.0 5 1 .0 50.0
66 Slovenia 64.6 –0. 1 83.6 8 7.6 65. 1 41.1 80.5 70.0 50.0 60.0 66.0 4 1 .8
6 7 Turkey 64.2 0.4 68. 7 85.4 78.2 83.6 72. 7 70.0 50.0 50.0 44.0 39.6
68 Poland 64. 1 0.9 6 1 .4 8 7.6 74.0 43.8 78. 1 65.0 60.0 60.0 50.0 6 1 .2
69 Portugal 64.0 –0.4 80. 1 8 7.6 61.1 36.2 82.3 70.0 60.0 70.0 58.0 34. 7
70 Albania 64.0 –2.0 6 7. 1 79.8 92. 1 68. 7 79.9 65.0 70.0 35.0 32.0 50.4
7 1 Belize 63.8 2.3 73. 7 7 1 .5 82.3 76. 1 78.8 50.0 50.0 40.0 29.0 86.5
72 Dominica 63.3 0.0 74.8 74.3 69.5 45.8 86.3 65.0 30.0 65.0 59.0 62.8
73 Namibia 62. 7 0.5 72.9 86.4 6 7.9 74.8 70.9 55.0 40.0 30.0 45.0 84.6
74 South Africa 62. 7 –0. 1 72.3 7 7.2 69.6 7 7.5 7 1 .9 45.0 60.0 50.0 4 7.0 56. 7
75 Rwanda 62. 7 3.6 76.9 7 7.8 76.9 78.6 68.5 50.0 40.0 35.0 33.0 89.9

Executive Highlights 7
2011 Index of Economic Freedom World Rankings

Investment Freedom
Monetary Freedom

Financial Freedom
Change from 2010

Business Freedom

Property Rights

Labor Freedom
Trade Freedom

Fiscal Freedom

Freedom from
Overall Score

Government
World Rank

Corruption
Spending
Country
76 Montenegro 62.5 –1.1 7 1 .3 83.6 89.4 28.6 76.0 55.0 50.0 40.0 39.0 92.3
7 7 Paraguay 62.3 1 .0 61.7 83.0 9 7.6 93.4 80.9 70.0 60.0 30.0 2 1 .0 24.9
78 Kazakhstan 62. 1 1.1 74.3 80.9 8 7.3 78.5 69.9 30.0 50.0 35.0 2 7.0 88.4
79 Guatemala 6 1 .9 0.9 52. 1 84.6 79.5 94.4 76.4 60.0 50.0 35.0 34.0 53.4
80 Uganda 61.7 –0.5 50.3 74.8 80.6 90.5 73.2 45.0 60.0 30.0 25.0 8 7.8
8 1 Madagascar 6 1 .2 –2. 1 60.0 73.2 8 7.8 89. 7 75.9 55.0 50.0 40.0 30.0 50. 7
82 Croatia 61.1 1 .9 65.2 8 7.6 74.6 50.3 78.5 70.0 60.0 40.0 4 1 .0 44. 1
83 Kyrgyz Republic 61.1 –0.2 75.4 63.2 92.6 74.2 68.6 55.0 50.0 25.0 1 9.0 88. 1
84 Samoa 60.6 0.2 72.8 70.0 80. 1 6 7.9 68.5 30.0 30.0 60.0 45.0 82. 1
85 Burkina Faso 60.6 1 .2 6 1 .5 76.2 80.5 86.0 76.8 55.0 50.0 30.0 36.0 53.5
86 Fiji 60.4 0. 1 63.2 69.8 78. 1 8 1 .3 76. 1 30.0 60.0 30.0 40.0 75. 7
8 7 Italy 60.3 –2.4 7 7.3 8 7.6 55.4 28.6 82. 1 75.0 60.0 50.0 43.0 44.4
88 Greece 60.3 –2.4 76.2 82.6 65.9 34.3 80.6 60.0 60.0 50.0 38.0 55.2
89 Lebanon 60. 1 0.6 5 7.5 80.5 9 1 .0 64.9 7 7. 7 60.0 60.0 25.0 25.0 59.0
90 Dominican Republic 60.0 –0.3 56.4 79.8 85.3 89. 1 7 7. 1 55.0 40.0 30.0 30.0 5 7. 1
9 1 Zambia 59. 7 1.7 62.2 82.4 72.4 8 1 .8 7 7.3 55.0 50.0 30.0 30.0 56.3
92 Azerbaijan 59. 7 0.9 72.9 7 7. 1 83.9 7 1 .0 72.6 55.0 40.0 20.0 23.0 81.1
93 Morocco 59.6 0.4 75. 7 75.8 6 7.8 74.6 76.5 65.0 60.0 40.0 33.0 2 7.2
94 Mongolia 59.5 –0.5 6 7. 7 79.8 83.3 49.6 73.6 50.0 60.0 30.0 2 7.0 74. 1
95 Ghana 59.4 –0.8 63.4 6 7.8 83.3 46. 1 63.3 65.0 60.0 50.0 39.0 56. 1
96 Egypt 59. 1 0. 1 64.5 74.0 89.6 65.3 60.8 65.0 50.0 40.0 28.0 53.6
9 7 Swaziland 59. 1 1.7 66.4 79.8 6 7.2 65.9 7 1 .0 55.0 40.0 40.0 36.0 69.4
98 Nicaragua 58.8 0.5 54.3 84.8 78.8 8 1 .3 71.7 55.0 50.0 20.0 25.0 6 7. 1
99 Honduras 58.6 0.3 62. 1 7 7.0 83.5 85. 7 73.2 60.0 60.0 30.0 25.0 29. 7
1 00 Tunisia 58.5 –0.5 80.2 53.5 73. 7 7 7.6 7 7.3 35.0 30.0 50.0 42.0 65. 7
1 0 1 Serbia 58.0 1.1 59.0 75.2 83.6 4 1 .9 66.0 60.0 50.0 40.0 35.0 68.9
1 02 Cambodia 5 7.9 1 .3 39.5 70.0 90.9 94.2 78.0 60.0 50.0 30.0 20.0 46.3
1 03 Bhutan 5 7.6 0.6 59.8 52.0 83.9 64. 1 7 1 .8 20.0 30.0 60.0 50.0 84. 7
1 04 Bosnia and Herzegovina 5 7.5 1 .3 60.4 86.0 83.9 24. 1 80.6 70.0 60.0 20.0 30.0 60.2
1 05 The Gambia 5 7.4 2.3 5 7.8 60.4 73.2 79. 7 7 1 .4 55.0 50.0 30.0 29.0 6 7.2
1 06 Kenya 5 7.4 –0. 1 62.2 72.8 7 7.6 72.8 73.2 50.0 50.0 30.0 22.0 62.9
1 0 7 Sri Lanka 5 7. 1 2.5 7 1 .9 72.2 73.4 84. 7 65.8 30.0 40.0 40.0 3 1 .0 6 1 .8
1 08 Tanzania 5 7.0 – 1 .3 46.0 69.6 79.8 80.5 68.8 60.0 50.0 30.0 26.0 59.0
1 09 Mozambique 56.8 0.8 63. 1 8 1 .0 7 7.5 76.5 80.3 45.0 50.0 30.0 25.0 39.2
1 1 0 Gabon 56. 7 1 .3 5 7.3 6 1 .0 74.5 8 7.9 73.8 45.0 40.0 40.0 29.0 58.8
1 1 1 Nigeria 56. 7 –0. 1 5 1 .6 65.0 84.4 73.0 73.5 40.0 40.0 30.0 25.0 84.5
1 1 2 Vanuatu 56. 7 0.3 68.8 55. 1 96. 1 79. 1 76.5 30.0 40.0 40.0 32.0 49.8
1 1 3 Brazil 56.3 0. 7 54.3 69.8 69.0 49.6 75.9 50.0 50.0 50.0 3 7.0 5 7.8

8 2011 Index of Economic Freedom


2011 Index of Economic Freedom World Rankings

Investment Freedom
Monetary Freedom

Financial Freedom
Change from 2010

Business Freedom

Property Rights

Labor Freedom
Trade Freedom

Fiscal Freedom

Freedom from
Overall Score

Government
World Rank

Corruption
Spending
Country
1 1 4 Mali 56.3 0. 7 5 1 .2 73.2 60.5 86.5 7 7.6 50.0 40.0 30.0 28.0 65.8
1 1 5 The Philippines 56.2 –0.2 43.4 7 7.8 78.8 9 1 .0 76.3 40.0 50.0 30.0 24.0 50. 7
1 1 6 Indonesia 56.0 0.5 54.9 73.8 83.0 88.9 74.3 35.0 40.0 30.0 28.0 5 1 .8
1 1 7 Benin 56.0 0.6 43.0 58.8 75.8 84. 1 78.2 60.0 50.0 30.0 29.0 50. 7
1 1 8 Tonga 55.8 2.4 7 7.4 56.2 83. 1 73.2 71.1 30.0 20.0 25.0 30.0 92. 1
1 1 9 Malawi 55.8 1.7 42.4 7 1 .0 79.3 56. 7 7 1 .6 50.0 50.0 45.0 33.0 59. 1
1 20 Moldova 55. 7 2.0 69.5 80.2 85.6 48. 1 7 7.0 35.0 50.0 40.0 33.0 39.0
1 2 1 Senegal 55. 7 1.1 62.3 73.2 65.4 78.8 79. 7 45.0 40.0 40.0 30.0 42.9
1 22 Côte d’Ivoire 55.4 1 .3 43.3 72.2 78.5 88.4 80.2 35.0 50.0 30.0 2 1 .0 55. 7
1 23 Pakistan 55. 1 –0. 1 70.9 6 7.0 80.5 88.8 63.6 40.0 40.0 30.0 24.0 46.3
1 24 India 54.6 0.8 36.9 64.2 75.4 7 7.8 65. 1 35.0 40.0 50.0 34.0 6 7.2
1 25 Djibouti 54.5 3.4 32.9 59.6 79.6 50.5 76.6 60.0 60.0 30.0 28.0 6 7. 7
1 26 Niger 54.3 1 .4 36.9 7 1 .8 7 7.5 83.0 80.0 55.0 40.0 30.0 29.0 40.3
1 2 7 Yemen 54.2 –0.2 73. 7 8 1 .6 83.2 44.5 82.3 45.0 30.0 30.0 2 1 .0 50.9
1 28 Tajikistan 53.5 0.5 60. 7 82.5 88.6 7 7.3 64.5 20.0 40.0 25.0 20.0 56.4
1 29 Suriname 53. 1 0.6 40. 7 66.4 68. 1 80.3 76.4 1 0.0 30.0 40.0 3 7.0 8 1 .8
1 30 Bangladesh 53.0 1 .9 65.0 58.0 72. 7 92.4 68.6 55.0 20.0 20.0 24.0 54.3
1 3 1 Papua New Guinea 52.6 –0.9 60.2 85.4 66.3 63.3 72.9 35.0 30.0 20.0 2 1 .0 72.4
1 32 Algeria 52.4 –4.5 69.4 72.8 83.5 62.4 75.4 20.0 30.0 30.0 28.0 52.9
1 33 Haiti 52. 1 1 .3 3 7.5 74.8 80.9 90. 1 73. 7 30.0 30.0 1 0.0 1 8.0 76.4
1 34 Mauritania 52. 1 0. 1 48.3 69.9 81.1 73.9 7 7.4 30.0 40.0 25.0 25.0 50.3
1 35 China 52.0 1 .0 49.8 7 1 .6 70.3 8 7.0 75.3 25.0 30.0 20.0 36.0 54.9
1 36 Cameroon 5 1 .8 –0.6 44. 1 59.6 66.9 89. 7 73.3 35.0 50.0 30.0 22.0 4 7.0
1 3 7 Guinea 51.7 –0. 1 40.8 6 1 .2 69.6 90.9 70.3 40.0 40.0 20.0 1 8.0 66.6
1 38 Argentina 51.7 0.5 62.4 69.5 68. 7 81.7 63.2 45.0 30.0 20.0 29.0 4 7.9
1 39 Vietnam 5 1 .6 1 .8 6 1 .6 68.9 75.9 75. 1 79. 1 1 5.0 30.0 1 5.0 2 7.0 68.2
1 40 Syria 5 1 .3 1 .9 55.9 65.4 84.6 85.3 69. 7 20.0 20.0 30.0 26.0 55.8
1 4 1 Laos 5 1 .3 0.2 58.8 68.4 79.9 90. 1 80.4 25.0 20.0 20.0 20.0 49.9
1 42 Seychelles 5 1 .2 3.3 62.4 33.4 7 7. 7 52.5 54.9 45.0 30.0 50.0 48.0 58. 1
1 43 Russia 50.5 0.2 50. 7 68.2 82. 7 65. 1 63. 1 25.0 40.0 25.0 22.0 62.9
1 44 Ethiopia 50.5 –0. 7 6 7.4 65.6 74.5 88. 7 54.3 20.0 20.0 30.0 2 7.0 5 7. 1
1 45 Micronesia 50.3 –0.3 58. 7 8 1 .0 9 7.6 0.0 73.4 20.0 30.0 30.0 30.0 82.4
1 46 Nepal 50. 1 –2.6 59.2 6 1 .4 86.4 88.4 73.8 5.0 30.0 30.0 23.0 44.3
1 4 7 Bolivia 50.0 0.6 5 7.2 7 7.6 83.9 63. 7 68.8 20.0 50.0 1 0.0 2 7.0 4 1 .5
1 48 Burundi 49.6 2. 1 36.8 78.8 72.3 52.0 66. 1 55.0 30.0 20.0 1 8.0 6 7. 1
1 49 Sierra Leone 49.6 1.7 54.9 62.8 80.8 86.8 74.2 45.0 20.0 1 0.0 22.0 39.4
1 50 São Tomé and Príncipe 49.5 0. 7 32.0 66.6 8 7.2 6 7.5 62.2 45.0 30.0 30.0 28.0 46.4
1 5 1 Guyana 49.4 1 .0 66.8 7 1 .3 64.6 29. 1 75.8 30.0 40.0 30.0 26.0 60.3

Executive Highlights 9
2011 Index of Economic Freedom World Rankings

Investment Freedom
Monetary Freedom

Financial Freedom
Change from 2010

Business Freedom

Property Rights

Labor Freedom
Trade Freedom

Fiscal Freedom

Freedom from
Overall Score

Government
World Rank

Corruption
Spending
Country
1 52 Central African Republic 49.3 0.9 36.8 58. 1 65.4 92.8 7 1 .3 50.0 30.0 20.0 20.0 48.2
1 53 Togo 49. 1 2.0 36.8 62.2 68. 1 88.6 78. 1 25.0 30.0 30.0 28.0 43. 7
1 54 Maldives 48.3 –0. 7 8 1 .5 43.8 95.6 0.0 74. 1 35.0 30.0 25.0 25.0 73.4
1 55 Belarus 4 7.9 –0.8 70.6 80.3 83.6 26.2 62.2 20.0 1 0.0 20.0 24.0 82.3
1 56 Lesotho 4 7.5 –0.6 58.9 63.6 48.2 2 1 .4 7 1 .6 35.0 40.0 40.0 33.0 63. 7
1 5 7 Equatorial Guinea 4 7.5 –1.1 44.2 58.9 75.5 80.5 74.4 20.0 40.0 20.0 1 8.0 43. 1
1 58 Ecuador 4 7. 1 –2.2 53.5 76.0 78.9 50. 1 64.9 25.0 40.0 20.0 22.0 40. 1
1 59 Guinea–Bissau 46.5 2.9 25.5 63.6 88. 7 54.8 72.2 30.0 30.0 20.0 1 9.0 6 1 .4
1 60 Liberia 46.5 0.3 5 1 .8 53.8 73.3 66.5 69.5 20.0 20.0 30.0 3 1 .0 48.9
1 6 1 Angola 46.2 –2.2 4 1 .4 70.2 84.5 48. 1 6 1 .8 35.0 40.0 20.0 1 9.0 42.3
1 62 Solomon Islands 45.9 3.0 59.8 62.4 69.2 32.9 70.4 1 0.0 30.0 30.0 28.0 66.6
1 63 Uzbekistan 45.8 –1.7 66.8 66.2 90.5 7 1 .0 61.7 0.0 1 0.0 1 5.0 1 7.0 60.2
1 64 Ukraine 45.8 –0.6 4 7. 1 85.2 7 7.3 32.9 63.2 20.0 30.0 30.0 22.0 50.0
1 65 Chad 45.3 –2.2 25.3 55.6 50.4 85.3 70.6 45.0 40.0 20.0 1 6.0 44.8
1 66 Kiribati 44.8 1.1 62.9 55.4 60.3 0.0 71.1 25.0 30.0 30.0 28.0 85. 1
1 6 7 Comoros 43.8 –1.1 42.9 62.4 64.8 7 7.8 76.2 1 0.0 20.0 30.0 23.0 30. 7
1 68 Republic of Congo 43.6 0.4 40.8 6 1 .0 6 1 .8 79. 7 7 1 .4 20.0 30.0 1 0.0 1 9.0 42.3
1 69 Turkmenistan 43.6 1.1 30.0 79.2 93.6 95.5 69.6 0.0 1 0.0 1 0.0 1 8.0 30.0
1 70 Timor-Leste 42.8 –3.0 44.2 73.0 64. 7 0.0 78. 1 30.0 20.0 20.0 22.0 76.5
1 7 1 Iran 42. 1 – 1 .3 69.4 44.8 81.1 76.0 60. 7 0.0 1 0.0 1 0.0 1 8.0 50. 7
1 72 Democratic Republic of 40. 7 –0. 7 3 7.8 63.0 73.3 84.5 46. 7 1 5.0 20.0 1 0.0 1 9.0 3 7.3
Congo
1 73 Libya 38.6 – 1 .6 20.0 85.0 80.3 44.5 7 1 .0 1 0.0 20.0 1 0.0 25.0 20.0
1 74 Burma 3 7.8 1.1 20.0 72.3 8 1 .9 98. 1 56.6 0.0 1 0.0 5.0 1 4.0 20.0
1 75 Venezuela 3 7.6 0.5 4 7.8 6 1 .2 75.0 65.3 4 7.0 5.0 20.0 5.0 1 9.0 31.1
1 76 Eritrea 36. 7 1 .4 1 8.2 69. 1 73.0 3 1 .5 46.0 0.0 20.0 1 0.0 26.0 73.4
1 7 7 Cuba 2 7. 7 1 .0 1 0.0 62.2 49.0 0.0 7 1 .6 0.0 1 0.0 1 0.0 44.0 20.0
1 78 Zimbabwe 22. 1 0. 7 32. 1 45.0 70.3 0.0 0.0 0.0 1 0.0 5.0 22.0 36.8
1 79 North Korea 1 .0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 5.0 5.0 0.0
n/a Afghanistan n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
n/a Iraq n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
n/a Liechtenstein n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
n/a Sudan n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a

10 2011 Index of Economic Freedom


Chapter 1

The Limits of Government


Ambassador Terry Miller

A
critical battle has been raging between solutions into an acute crisis demanding
friends and foes of economic liberty. The immediate decisions about austerity mea-
global economic and financial turmoil sures to restrain national debt.
of the past two years emboldened critics of the
capitalist, free enterprise system and raised With battle lines drawn more starkly than at
questions about the best policy framework for any time since the fall of the Soviet Union, the
supporting economic growth, employment, advocates of free enterprise and economic free-
and overall prosperity. Questions relating to dom have faced new challengers from some
the role and size of government have been unexpected quarters, particularly the govern-
front and center, both in national debates and ments of the United States and, until May of
in international discussions: 2010, the United Kingdom. These governments,
championing state intervention and govern-
• With countries from Europe to China facing ment control for the first time since the Index
the demographic challenges of aging popu- of Economic Freedom began ranking countries in
lations, problems of funding pensions on a 1995, have led the calls for greater international
sustainable basis are becoming acute. regulation of business, backed away from the
• Health costs are rising rapidly around the cause of free trade, and shed economic free-
world, with many countries facing hard dom at home, stifling their own growth and,
choices about the allocation of care and in effect, turning off two of the most important
rationing. engines that had driven world growth for half
• The recession has strained social safety nets a century or more.
almost everywhere; increased spending in When dealing with democracies, of course,
some countries has turned what was pre- battles are fought not just among countries,
viously a debate about long-term funding but also within them through the political sys-

11
tem and the electoral process. A great debate
emerged, particularly in the United States, Government Size and
between those who claimed that economic Economic Growth
freedom caused, or at least exacerbated, the
first global economic crisis of the new century Nations with better scores in the Government
Spending component of the Index of
and those who blamed past government inter- Economic Freedom also have faster-growing
ventions that inflated unsustainable bubbles economies.
in housing and financial markets.
+2% 2009 +1.8%
U.S. voters, apparently more interested in GDP +1.6%
+1.4%
practical solutions than ideology, respond- Growth
ed pragmatically. As the first shock wave of +1% Rate
the global financial troubles washed over
them in late 2008, they elected President 0%
Barack Obama and installed a Congress with
large left-leaning majorities that massively
–1%
increased government spending and regula-
tion. Then, only two years later, voters just as
massively rejected the President’s failed statist –2%
solutions, as well as many of the politicians
who had championed them. -2.5%
–3% –2.7%
In Europe, decades of high social welfare
spending and stifling regulation have com- Worse Government Better
bined to reduce economic and social dynamism Scores Spending Scores Scores
and flexibility. As electorates were clamoring (by Quintile)
for action during the financial crisis and reces- Sources: Terry Miller and Kim R. Holmes, 2011 Index of
sion, governments’ scope for effective response Economic Freedom (Washington, D.C.: The Heritage
Foundation and Dow Jones & Company, Inc., 2011), at
proved surprisingly small. For governments www.heritage.org/index.
increasingly constrained by budget deficits
Chart 1 heritage.org
and rising debt, the disconnect between their
past promises and their capability to fulfill
them, and between their financial assets and to government spending: resources used by
liabilities, became difficult to ignore. A fun- government are unavailable for private-sector
damental rethinking of the social contract, the consumption or investment. In addition, gov-
basic relationship between government and ernments, because they operate outside of mar-
citizen, became, for some countries like Greece ket constraints and competition, are typically
or France, not just an academic exercise but a susceptible to excessive bureaucracy, corrup-
political debate that spilled into the streets. tion, and waste.
Whatever the ideal level of government
RIGHT-SIZING GOVERNMENT may be, the political and economic develop-
The Index of Economic Freedom has never, ments of the past year have made clear that in
in its methodology, claimed that there was many societies, particularly among the more
an appropriate or ideal level of government developed countries, the limits of appropriate
spending against which countries’ economic or tolerable government spending may have
performance should be measured. Factors been reached or even surpassed. Debates are
as diverse as culture and geography have an underway in many of these countries that may
impact on the need for government. Demands fundamentally alter the relationship between
on government vary widely between devel- citizen and state and provide new insights into
oped and developing countries. It is undeni- our understanding of government spending as
able, however, that there is an opportunity cost a constraint on economic freedom.

12 2011 Index of Economic Freedom


With global economic recovery far from Their skepticism is justified. Countries that
secure, many countries are at a critical juncture reduced government spending had economic
and face decisive policy choices. Leaders will growth rates almost two percentage points
either acknowledge the limits of government higher in 2009 than countries whose govern-
and make necessary policy adjustments, or ment spending scores worsened, and countries
they will carry on with ill-guided policies that with the highest rates of government spending
empower governments but not people. The had gross domestic product (GDP) growth
alternatives are clear: openness or protection- rates 4.5 percentage points lower on average
ism; austerity or fiscal collapse; entrepreneurial than countries where government spending
dynamism or economic stagnation. was best contained. (See Chart 1.)
The 2011 Index results demonstrate clearly
that for many of the countries of the world, par- ECONOMIC FREEDOM: THE
ticularly those that experienced the inevitable FOUNDATION FOR RESILIENCE,
results of state economic control under Com- INNOVATION, AND GROWTH
munist systems in the past, policy solutions that While the global economic crisis has tested
would re-regulate economic activity or undo the confidence in economic freedom, the Index
integration of economies in a globalized trade results, when compared with real data about
and investment market hold little attraction. changes in economic and social conditions in

Economic Freedom Promotes Greater Prosperity


GDP per Capita (Constant 2000 U.S. Dollars)
$60,000

Each dot represents


a nation in the Index

ine
$50,000 of Economic Freedom

L
Trend
$40,000

$30,000

Correlation = 0.67
$20,000 R2 = 0.45

$10,000

$0
20 30 40 50 60 70 80 90
2011 Index of Economic Freedom Score
Sources: Terry Miller and Kim R. Holmes, 2011 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and
Dow Jones & Company, Inc., 2011), at www.heritage.org/index; World Bank Group, World Development Indicators Online,
at http://publications.worldbank.org/WDI/ (November 5, 2010); International Monetary Fund, World Economic Outlook
Databases, at http://www.imf.org/external/ns/cs.aspx?id=28 (November 5, 2010).

Chart 2 heritage.org

Chapter 1 13
Economic Freedom Propels Innovation
Innovation Capacity
6

Each dot represents


a nation in the Index
5
of Economic Freedom

2
d Line
Tren

1
Correlation = 0.55
R2 = 0.30

0
20 30 40 50 60 70 80 90
2011 Index of Economic Freedom Score
Sources: Terry Miller and Kim R. Holmes, 2011 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and
Dow Jones & Company, Inc., 2011), at www.heritage.org/index; Global Competitiveness Report 2010–2011, World Economic
Forum, at http://www.weforum.org/en/initiatives/gcp/Global%20Competitiveness%20Report/index.htm (November 4, 2010).

Chart 3 heritage.org

societies around the world, provide strong ient and has promoted increased productivity
evidence that the free-market system remains and higher wages.
not only viable—with such core features as pri- The positive relationship between economic
vate property rights, openness, and flexibility freedom and prosperity has been confirmed yet
almost uncontested—but uniquely able to pro- again in the 2011 Index. GDP per capita is much
mote long-term prosperity. higher in countries with greater economic free-
Over the past decades, the globalized eco- dom. Chart 2 shows a strong positive relation-
nomic and trading system that is based on ship between the level of economic freedom
economic freedom has fueled unprecedented and GDP per capita.
economic growth around the world. From Given this relationship, it should be appar-
1980 to 2008, the world economy achieved real ent that a government’s most effective stimu-
GDP expansion of around 145 percent, lifting lus activity will not be to increase its own
hundreds of millions of people out of pover- spending or increase layers of regulation,
ty. Globally, poverty has fallen by 40 percent both of which reduce economic freedom. The
since 1990. Economic freedom has helped best results are likely to be achieved instead
economies to become more flexible and resil- through policy reforms that improve the

14 2011 Index of Economic Freedom


Economic Freedom Promotes Entrepreneurial Dynamism
Rank in the Entrepreneurship
and Opportunity Sub-Index
1

Each dot represents


a nation in the Index
21 of Economic Freedom

41

nd
Tre e
Ln
i
61

81

101 Correlation = 0.80


R2 = 0.64

101 81 61 41 21 1

Rank in the 2011 Index of Economic Freedom


Sources: Terry Miller and Kim R. Holmes, 2011 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation
and Dow Jones & Company, Inc., 2011), at www.heritage.org/index; 2010 Legatum Prosperity Index at
http://www.prosperity.com/downloads/2010LegatumProsperityIndexBrochure.pdf (November 4, 2010).

Chart 4 heritage.org

incentives that drive entrepreneurial activity, dynamism and vitality. Economic freedom is
creating greater opportunities for investment highly correlated with societies’ openness to
and job growth. entrepreneurial activity that creates new jobs
One proven path to stimulating economic and increases opportunity and choice for indi-
growth is to advance economic freedom by viduals in advancing their own well-being.
promoting policies that generate a virtuous (See Chart 4.)
cycle of innovation, job creation, productivity For countries in which the economic crisis
growth, and higher living standards that help lingers, and particularly for those in which job
create the social and economic resilience to creation is a priority, it is imperative to pick
sustain and empower individuals in a rapidly up the pace of economic reform. The political
evolving economic environment. As shown in will to resist elite and special interests that sup-
Chart 3, economic freedom is positively linked port the status quo, whether through tariffs
to innovation. and other protectionist measures or through
Today’s successful economies are not nec- domestic regulations so complex that only
essarily geographically large or richly blessed the largest and most well-entrenched com-
with natural resources. Many economies panies can afford to implement them, is criti-
have managed to expand opportunities for cal. Reforms to facilitate business startups are
their citizens by enhancing their economic essential, and those countries that lighten the

Chapter 1 15
regulatory and financial burden for the private individual lives. In making the best decisions
sector will be on the fast track to economic suc- for themselves, whether by seeking the lowest
cess in the future. cost for goods or the maximum opportunities
for profit, they are helping to identify their soci-
THE FREE MARKET: A DEMOCRATIC ety’s true priorities. Through their individual
CHALLENGE TO GOVERNMENT POWER decisions, they help determine the nature and
The Index of Economic Freedom has often characteristics of the society in which they live.
explored the relationship between economic This is the essence of democracy.
freedom and political freedom or democracy. In a political democracy, government deci-
There is a strong correlation between the two sions about economic matters may, of course,
and little doubt that higher levels in either reflect the will of the people, or at least 51 per-
can have a positive impact on the other. (See cent of the people. Unfortunately, a minority
Chart 5.) may have their freedom constrained or even
What has been ignored too often is the dem- repressed by one-size-fits-all government
ocratic nature of the free market itself. In a mar- solutions. A system that provides for economic
ket that is truly free, consumers, producers, and freedom allows for greater diversity, promot-
investors exercise sovereignty over their own ing creativity and innovation. In addition, a

Economic Freedom and Democratic Governance


EIU Democracy Index
12
Each dot represents

e
Lin
a nation in the Index

d
of Economic Freedom

en
10

Tr
8

2 Correlation = 0.65
R2 = 0.42

0
20 30 40 50 60 70 80 90

2011 Index of Economic Freedom Score


Sources: Terry Miller and Kim R. Holmes, 2011 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and
Dow Jones & Company, Inc., 2011), at www.heritage.org/index; Economist Intelligence Unit, EIU's Democracy Index, at
http://graphics.eiu.com/PDF/Democracy%20Index%202008.pdf (November 4, 2010).
Chart 5 heritage.org

16 2011 Index of Economic Freedom


free society requires the dispersal of power to will be interruptions from time to time as bub-
prevent monopoly or abuse. Competition for bles burst, or pauses to retool and restructure,
power will always occur within governments; but they know that over decades and even cen-
free markets provide an additional channel in turies, the trend will be dependably upwards.
which individuals may challenge entrenched By contrast, those who in a time of crisis turn
interests. to increased government power and control
for answers are repeating a fundamental error
RENEWING CONFIDENCE IN exposed many times in the past. No another
ECONOMIC FREEDOM systems that have been tried have come close
Perhaps the largest lesson of the past years to free-market capitalism in terms of providing
is that the fundamental superiority and value broad-based economic expansion. In no case
of economic liberty must be retaught to a new have even the best efforts of central planners
generation of political leaders, either by their and bureaucrats led to dependable growth
peers who have lived in less free systems and over an extended period. Such efforts are cer-
less free times or by their own citizens, who tain to be futile. Indeed, the only real question
understand instinctively that when individuals is how much damage they will do.
are allowed to decide for themselves how best The certain path to prosperity and a greater
to pursue their dreams and aspirations, their society is the path of renewal and recommit-
collective achievements can add up to a better ment to the fundamental principles of eco-
society for all. nomic freedom. That is the course charted and
Some world leaders have seemed shocked evaluated in the Index of Economic Freedom. The
and disoriented by the global financial crisis evidence is strong that individual liberty leads
and recession. Those with a greater knowledge to more sustainable development and to col-
of history, or perhaps just longer memories, lective happiness. Countries that embrace free-
have maintained their confidence in the free dom are sure to achieve a better future for their
enterprise system as the most rapid means to people.
increase prosperity. They understand that there

Chapter 1 17
Chapter 2

Defining Economic Freedom


Ambassador Terry Miller and Anthony B. Kim

Fortunately, we are waking up. We are again recognizing the dangers of an over-governed society,
coming to understand that good objectives can be perverted by bad means, that reliance on the free-
dom of people to control their own lives in accordance with their own values is the surest way to
achieve the full potential of a great society. Fortunately, also, we are as a people still free to choose
which way we should go—whether to continue along the road we have been following to ever bigger
government, or to call a halt and change direction.
—Milton and Rose Friedman1

I
n an economically free society, each person decision-making is characterized by open-
controls the fruits of his or her own labor ness and transparency, and the bright light
and initiative. Individuals are empow- of equal opportunity replaces the shadows
ered—indeed, entitled—to pursue their where discrimination can be most insidious.
dreams by means of their own free choice.1 In an economically free society, the power
In an economically free society, indi- of economic decision-making is widely
viduals succeed or fail based on their indi- dispersed, and the allocation of resources
vidual effort and ability. The institutions of for production and consumption is on the
a free and open society do not discriminate basis of free and open competition so that
against—or in favor of—individuals based every individual or firm has a fair chance to
on their race, ethnic background, gender, succeed.
class, family connections, or any other factor These three fundamental principles of
unrelated to individual merit. Government economic freedom—empowerment of the
individual, non-discrimination, and open com-
1. Milton Friedman and Rose D. Friedman, petition—underpin and inform every mea-
Free to Choose: A Personal Statement (New York:
Harcourt Brace Jovanovich, 1979), pp. 309–310.
surement in the Index of Economic Freedom.

19
ECONOMIC FREEDOM: supplied more efficiently by government than
AUTONOMY, NOT ANARCHY through private means. Some public goods,
The discussion of economic freedom has such as the maintenance of a police force to
at its heart consideration of the relationship protect property rights, a monetary authority
between the individual and the state. In gen- to maintain a sound currency, and an impar-
eral, state action or government control that tial judiciary to enforce contracts among
interferes with individual autonomy limits parties, are themselves vital ingredients of
economic freedom. an economically free society. When govern-
The Index of Economic Freedom is not, how- ment action rises beyond the minimal neces-
ever, a call for anarchy. The goal of economic sary level, however, it can become corrosive
freedom is not simply an absence of govern- to freedom—and the first freedom affected is
ment coercion or constraint, but the creation often economic freedom.
and maintenance of a sense of liberty for all. Throughout history, governments have
As individuals enjoy the blessings of economic imposed a wide array of constraints on eco-
freedom, they in turn have a responsibility to nomic activity. Though often imposed in the
respect the economic rights and freedoms of name of equality or some other noble soci-
others. Governments are instituted to create etal purpose, such constraints are most often
basic protections against the ravages of nature imposed for the benefit of societal elites or spe-
or the predations of one citizen over another so cial interests, and they come with a high cost
that positive economic rights such as property to society as a whole. Constraining economic
and contracts are given societal as well as indi- choice distorts and diminishes the production,
vidual defense against the destructive tenden- distribution, and consumption of goods and
cies of others. services (including, of course, labor services).2
A comprehensive definition of economic Government provision of goods and services
freedom should encompass all liberties and rights beyond those clearly considered public goods
of production, distribution, or consumption of goods imposes a separate constraint on economic
and services. The highest form of economic freedom freedom, crowding out private-sector activity
should provide an absolute right of property owner- and usurping resources that might otherwise
ship; fully realized freedoms of movement for labor, have been available for private investment or
capital, and goods; and an absolute absence of coer- consumption. By substituting political judg-
cion or constraint of economic liberty beyond the ments for those of the marketplace, government
extent necessary for citizens to protect and main- diverts entrepreneurial resources and energy
tain liberty itself. In other words, individuals from productive activities to rent-seeking, the
in an economically free society would be free quest for economically unearned benefits. The
and entitled to work, produce, consume, and result is lower productivity, economic stagna-
invest in any way they choose under a rule of tion, and declining prosperity.
law, with their freedom at once both protected
and respected by the state.
MEASURING ECONOMIC FREEDOM
Some government action is necessary for Assessing economic freedom in countries as
the citizens of a nation to defend themselves, different as Hong Kong and North Korea, Zim-
promote the peaceful evolution of civil society, babwe and Singapore, or Australia and Cuba is
and enjoy the fruits of their labor. This Lock- not an easy task. As the number and variety of
ean idea is embodied in the U.S. Constitution.
For example, citizens are taxed to provide rev- 2. “The property which every man has in his
own labor, as it is the original foundation of all other
enue for the protection of person and property property, so it is the most sacred and inviolable.”
as well as for the common defense. Most polit- Adam Smith, An Inquiry into the Nature and Causes
ical theorists also accept that certain goods— of the Wealth of Nations (New York: The Modern
what economists call “public goods”—can be Library, 1937), pp. 121–122; first published in 1776.

20 2011 Index of Economic Freedom


countries included in the Index have increased, interference from the state. Burdensome and
it has become ever more difficult to find con- redundant regulations are the most common
sistent and reliable data covering them all. Our barriers to the free conduct of entrepreneurial
research is indebted to various governmental activity.
and non-governmental international organiza- By increasing the costs of production, regu-
tions that have undertaken the arduous task of lations can make it difficult for entrepreneurs
data collection in their various areas of focus to succeed in the marketplace. Although many
and have shared their data with us. regulations hinder business productivity and
The Index of Economic Freedom is compre- profitability, the most inhibiting to entrepre-
hensive in its view of economic freedom as neurship are those that are associated with
well as in its worldwide coverage of coun- licensing new businesses.
tries. The Index looks at economic freedom In some countries, as well as many states in
from 10 different viewpoints. Some aspects the United States, the procedure for obtaining a
of economic freedom are external in nature, business license can be as simple as mailing in
measuring the extent of an economy’s open- a registration form with a minimal fee. In Hong
ness to global investment or trade. Most are Kong, for example, obtaining a business license
internal in nature, assessing the liberty of indi- requires filling out a single form, and the pro-
viduals to use their labor or finances without cess can be completed in a few hours. In other
restraint and government interference. Each economies, such as India and parts of South
is vital to the development of personal and America, the process of obtaining a business
national prosperity. The fundamental right of license can take much longer, involving end-
property, for example, has been recognized for less trips to government offices and repeated
centuries by the great philosophers of liberty, encounters with officious and sometimes cor-
such as Locke and Montesquieu, as a bulwark rupt bureaucrats.
of free people. Once a business is open, government regu-
Over time, scholars and practitioners have lation may interfere with the normal decision-
recognized many other pillars of economic lib- making or price-setting process. Interestingly,
erty, including free trade, stable currency, access two countries with the same set of regulations
to finance, control of government spending, and can impose different regulatory burdens. If one
lower taxation. Each one illuminates some aspect country, for instance, applies its regulations
of the interplay between the individual and the evenly and transparently, it lowers the regula-
state, and all should be viewed in light of the tory burden by facilitating long-term business
fundamental principles of economic liberty— planning. If the other applies regulations incon-
individual empowerment, non-discrimination, sistently, it raises the regulatory burden by cre-
and open competition—outlined above. ating an unpredictable business environment.
The 10 specific economic freedoms measured Finally, rigid and onerous bankruptcy proce-
in the Index of Economic Freedom are discussed dures are also distortionary, providing a disin-
below. Each of the freedoms is individually centive for entrepreneurs to start businesses in
scored on a scale of 0 to 100. A country’s over- the first place.
all economic freedom score is a simple aver-
age of its scores on the 10 individual freedoms. Trade Freedom
Detailed information about the methodology Trade freedom reflects an economy’s open-
used to score each component is contained in ness to the import of goods and services from
the appendix. around the world and the citizen’s ability to
interact freely as buyer or seller in the interna-
Business Freedom tional marketplace. Trade restrictions can man-
Business freedom is about an individual’s ifest themselves in the form of tariffs, export
right to establish and run an enterprise without taxes, trade quotas, or an outright trade ban.

Chapter 2 21
However, trade restrictions also appear in more Index of Economic Freedom, the burden of these
subtle ways, particularly in the form of regula- taxes is captured by measuring the overall tax
tory barriers. The degree to which government burden from all forms of taxation as a percent-
hinders the free flow of foreign commerce has age of total GDP.
a direct bearing on the ability of individuals
to pursue their economic goals and maximize Government Spending
their productivity and well-being. The burden of excessive government is a cen-
Tariffs, for example, directly increase the tral issue in economic freedom, both in terms
prices that local consumers pay for foreign of generating revenue (see fiscal freedom) and
imports, but they also distort production in terms of spending. Some government spend-
incentives for local producers, causing them ing, such as providing infrastructure or fund-
to produce either a good in which they lack ing research or even improvements in human
a comparative advantage or more of a pro- capital, may be thought of as investments. There
tected good than is economically efficient. are public goods, the benefits of which accrue
This impedes overall economic efficiency and broadly to society in ways that markets cannot
growth. In many cases, trade limitations also appropriately price. All government spend-
put advanced-technology products and ser- ing that must eventually be financed by higher
vices beyond the reach of local entrepreneurs, taxation, however, entails an opportunity cost
limiting their own productive development. equal to the value of the private consumption
or investment that would have occurred had
Fiscal Freedom the resources involved been left in the private
Fiscal freedom is a direct measure of the sector.
extent to which individuals and businesses are In other words, excessive government
permitted by government to keep and control spending runs a great risk of crowding out
their income and wealth for their own benefit private consumption, thereby thwarting the
and use. A government can impose fiscal bur- choices of individuals. Even worse, a govern-
dens on economic activity through taxation, ment’s insulation from market discipline often
but it also does so when it incurs debt that ulti- leads to inefficiency, bureaucracy, lower pro-
mately must be paid off through taxation. ductivity, and waste.
The marginal tax rate confronting an indi- Most notably, the government’s appetite
vidual is, in effect, the government’s cut of for private resources affects both economic
the profit from his or her next unit of work or freedom and lasting economic growth. Even
engagement in a new entrepreneurial venture; if an economy achieves fast growth through
whatever remains after the tax is subtracted is heavy government expenditure, such econom-
the individual’s actual reward for the effort. ic expansion tends to be only short-lived and
The higher the government’s cut, the lower the causes long-term damage to a country’s growth
individual’s reward—and the lower the incen- potential by eroding economic freedom.
tive to undertake the work at all. Higher tax
rates interfere with the ability of individuals Monetary Freedom
and firms to pursue their goals in the market- Monetary freedom, reflected in a stable cur-
place and reduce, on average, their willingness rency and market-determined prices, is to an
to work or invest. economy what free speech is to democracy. Free
While individual and corporate income tax people need a steady and reliable currency as a
rates are important to economic freedom, they medium of exchange, unit of account, and store
are not a comprehensive measure of the tax bur- of value. Without monetary freedom, it is diffi-
den. Governments impose many other indirect cult to create long-term value or amass capital.
taxes, including payroll, sales, and excise taxes, The value of a country’s currency is con-
tariffs, and the value-added tax (VAT). In the trolled largely by the monetary policy of its

22 2011 Index of Economic Freedom


government. With a monetary policy that action to redirect the flow of capital and limit
endeavors to fight inflation, maintain price sta- choice is an imposition on the freedom of both
bility, and preserve the nation’s wealth, people the investor and the person seeking capital.
can rely on market prices for the foreseeable The more restrictions a country imposes on
future. Investments, savings, and other longer- investment, the lower its level of entrepre-
term plans can be made more confidently. An neurial activity.
inflationary policy, by contrast, confiscates
wealth like an invisible tax and also distorts Financial Freedom
prices, misallocates resources, and raises the A transparent and open financial system
cost of doing business. ensures fairness in access to financing and
There is no single accepted theory of the promotes entrepreneurship. An open banking
right monetary policy for a free society. At one environment encourages competition to pro-
time, the gold standard enjoyed widespread vide the most efficient financial intermediation
support. What characterizes almost all mon- between households and firms and between
etary theories today, however, is support for investors and entrepreneurs.
low inflation and an independent central bank. Through a process driven by supply and
There is also now widespread recognition that demand, markets provide real-time informa-
price controls corrupt market efficiency and tion on prices and immediate discipline for
lead to shortages or surpluses. those who have made bad decisions. This
process depends on transparency in the mar-
Investment Freedom ket and the integrity of the information being
A free and open investment environment made available. An effective regulatory system,
provides maximum entrepreneurial opportu- through disclosure requirements and indepen-
nities and incentives for expanded economic dent auditing, ensures both.
activity, productivity increases, and job cre- Increasingly, the central role played by
ation. The benefits of such an environment banks is being complemented by other finan-
flow not only to the individual companies that cial services that offer alternative means for
take the entrepreneurial risk in expectation of raising capital or diversifying risk. As with the
greater return, but also to society as a whole. banking system, the useful role for government
An effective investment framework will be in regulating these institutions lies in ensuring
characterized by transparency and equity, sup- transparency; disclosure of assets, liabilities,
porting all types of firms rather than just large and risks; and ensuring integrity.
or strategically important companies, and will Banking and financial regulation by the
encourage rather than discourage innovation state that goes beyond the assurance of trans-
and competition. parency and honesty in financial markets
Restrictions on the movement of capital, can impede efficiency, increase the costs of
both domestic and international, undermine financing entrepreneurial activity, and limit
the efficient allocation of resources and reduce competition. If the government intervenes in
productivity, distorting economic decision- the stock market, for instance, it contravenes
making. Restrictions on cross-border invest- the choices of millions of individuals by inter-
ment can limit both inflows and outflows of fering with the pricing of capital—the most
capital, shrinking markets and reducing oppor- critical function of a market economy. Equity
tunities for growth. markets measure, on a continual basis, the
In an environment in which individuals expected profits and losses in publicly held
and companies are free to choose where and companies. This measurement is essential in
how to invest, capital will flow to its best use: allocating capital resources to their highest-
to the sectors and activities where it is most valued uses and thereby satisfying consum-
needed and the returns are greatest. State ers’ most urgent requirements.

Chapter 2 23
Property Rights ernment intervention in economic activity and
The ability to accumulate private prop- the amount of corruption. Almost any govern-
erty and wealth is understood to be a central ment regulation can provide an opportunity
motivating force for workers and investors in for bribery or graft. In addition, a government
a market economy. The recognition of private regulation or restriction in one area may create
property rights, with sufficient rule of law to an informal market in another. For example, a
protect them, is a vital feature of a fully func- country with high barriers to trade may have
tioning market economy. Secure property laws that protect its domestic market and pre-
rights give citizens the confidence to undertake vent the import of foreign goods, but these
entrepreneurial activity, save their income, and barriers create incentives for smuggling and a
make long-term plans because they know that black market for the restricted products.
their income, savings, and property (both real Transparency is the best weapon against
and intellectual) are safe from unfair expropria- corruption. Openness in regulatory procedures
tion or theft. and processes can promote equitable treatment
The protection of private property requires and greater regulatory efficiency and speed.
an effective and honest judicial system that
Labor Freedom
is available to all, equally and without dis-
crimination. The independence, transparency, The ability of individuals to work as much
and effectiveness of the judicial system have as they want and wherever they want is a key
proven to be key determinants of a country’s component of economic freedom. By the same
prospects for long-term economic growth. token, the ability of businesses to contract freely
Such a system is also vital to the maintenance for labor and dismiss redundant workers when
of peace and security and the protection of they are no longer needed is a vital mechanism
human rights. for enhancing productivity and sustaining
A key aspect of property rights protection overall economic growth. The core principle of
is the enforcement of contracts. The voluntary any market is free, voluntary exchange. That is
undertaking of contractual obligations is the as true in the labor market as it is in the market
foundation of the market system and the basis for goods.
for economic specialization, gains from com- State intervention generates the same prob-
mercial exchange, and trade among nations. lems in the labor market that it produces in
Even-handed government enforcement of pri- any other market. Government regulations
vate contracts is essential to ensuring equity take a variety of forms, including wage con-
and integrity in the marketplace. trols, hiring and firing restrictions, and other
restrictions. In many countries, unions play
Freedom from Corruption an important role in regulating labor freedom
Corruption is defined as dishonesty or and, depending on the nature of their activity,
decay. In the context of governance, it can be may be either a force for greater freedom or an
defined as the failure of integrity in the system, impediment to the efficient functioning of labor
a distortion by which individuals are able to markets. In general, the greater the degree of
gain personally at the expense of the whole. labor freedom, the lower the rate of unemploy-
Political corruption manifests itself in many ment in an economy.
forms such as bribery, extortion, nepotism, cro-
THE INDEX: AN EVOLVING
nyism, patronage, embezzlement, and, most
MEASURE OF DURABLE VALUES
commonly, graft, whereby public officials steal
or profit illegitimately from public funds. Taken together, these 10 economic freedoms
Corruption can infect all parts of an econo- provide a comprehensive, albeit imperfect,
my; there is a direct relationship between the picture of economic freedom, both in individ-
extent of government regulation or other gov- ual countries and in the global economy as a

24 2011 Index of Economic Freedom


whole. At present, our understanding of eco- crimination has broadened in recent decades.
nomic freedom has outpaced the availability Similar advances may occur in our understand-
of data on a worldwide basis. As data become ing of the ideal relationship between individu-
more readily available, we will continue to als and society and—critically—of the role that
refine the measures to provide the most com- government may play in bolstering equitable
plete picture possible. competition.
It also may well be that our understand- What will not change is our commitment
ing of various facets of economic freedom will to freedom, and particularly economic free-
improve or evolve over time. There is no ques- dom, as a fundamental and inalienable human
tion, for example, that our understanding of dis- right.

Chapter 2 25
The 10 Economic Freedoms: A Global Look
BUSINESS FREEDOM — 64.3 GOVERNMENT SPENDING — 63.9
While some countries have continued to The average score for government spending
streamline and modernize their business decreased by 1.1 points in the 2011 Index. In
frameworks, reforms have stalled in many response to the global financial and econom-
others, seemingly as a result of some combi- ic turmoil, many governments around the
nation of reform fatigue and complacency. In world, particularly in advanced economies,
a few countries, including the United States, launched various stimulus programs that
ongoing regulatory changes have injected increased spending. Deficits and debt levels
new uncertainty into the business environ- have increased, and better management of
ment, in itself a constraint on entrepreneurial public finance is urgently needed in many
activity. For the world as a whole, business countries. The average level of government
freedom worsened slightly by 0.3 point, with spending as a percentage of GDP is 33.5 per-
49 countries improving and 113 declining. cent, up from 32.8 percent in the 2010 Index.
The average level of gross public debt as a
TRADE FREEDOM — 74.8 percentage of GDP in advanced economies
Despite the challenging global economic envi- has risen sharply to over 90 percent.1
ronment, the world average����������������
for
���������������
trade free-
dom improved by 0.6 point in the 2011 Index. MONETARY FREEDOM — 73.4
Average applied tariffs fell by almost half a The 2011 Index registered a sharp improve-
percentage point over the past year to 6.4 per- ment in monetary freedom, with the global
cent. Only a few of the countries whose scores average score up 2.8 points as a result of
fell this year actually increased their tariffs. reduced inflationary pressures. Inflation has
Most resorted instead to a variety of other fallen more sharply in emerging economies
restrictive measures that impede the free flow than in the developed world. Interest rates
of goods or services, continuing a disturbing have been brought down considerably, close
trend toward increasing non-tariff barriers. to the zero floor in many advanced economies,
but price control measures have increased in
FISCAL FREEDOM — 76.3 some economies.
Over the previous year, 36 countries have
introduced reforms in direct taxes or have INVESTMENT FREEDOM — 50.2
implemented tax cuts as previously planned, Although progress was uneven, investment
despite the fiscal challenges caused by the freedom advanced in the 2011 Index. The
global economic slowdown. Six countries, average investment freedom score improved
including the United Kingdom, Iceland, and by 1.3 points. Of the 102 foreign invest-
Mexico, implemented either temporary or ment–related policy measures during 2009,
permanent tax rate increases. Overall fiscal
freedom improved by 0.9 point in the 2011 1. Organisation for Economic Co-operation
Index. The average top tax rate on individual and Development, OECD Economic
income is now 28.7 percent, and the average Outlook No. 87 (May 2010), Annex Table
top tax rate on corporate income is 24.8 per- 32, at http://www.oecd.org/document/61/0,334
3,en_2649_34573_2483901_1_1_1_1,00.html
cent. The average total tax burden as a per- (November 17, 2010).
centage of GDP is 24.4 percent.

26 2011 Index of Economic Freedom


TEN ECONOMIC FREEDOMS: WORLD AVERAGES
Change from 2010
Business Freedom 64.3 – 0.3
Trade Freedom 74.8 + 0.6
Fiscal Freedom 76.3 + 0.9
Government Spending 63.9 – 1.1
Monetary Freedom 73.4 + 2.8
Investment Freedom 50.2 + 1.3
Financial Freedom 48.5 – 0.1
Property Rights 43.6 – 0.2
Freedom from Corruption 40.5 no change
Labor Freedom 61.5 – 0.6
00 50 100
least free20 40 60 80 100
most free

71 focused on further liberalization and pro- ments sought to justify expropriations and
motion of investment. Leading the global nationalizations on the basis of the global
recovery in foreign direct investment flows, financial and economic turmoil. On the
developing and transition economies attract- positive side, protection of property rights
ed half of global FDI inflows.2 improved in 15 countries.

FINANCIAL FREEDOM — 48.5 FREEDOM FROM CORRUPTION — 40.5


Following dramatic adjustments in the Corruption continues to be a significant drag
financial sector during the previous year, on economic freedom, and scores for freedom
stability has improved and ����������������
o���������������
nly a few coun- from corruption continue to lag behind those
tries’ financial freedom scores changed in of other components of the Index of Economic
the 2011 Index. The effectiveness of financial- Freedom. The average score for freedom from
sector reform measures ����������������
that������������
were ������
imple- corruption did not change in the 2011 Index.
mented during the first half of 2010 remains Only 15 countries scored 80 or higher on this
to be seen, but policy uncertainty continues. component, while 129 countries scored below
Governments that have reversed bailouts or 50. High levels of persistent corruption in
other interventionist actions were not further many of the less developed countries contin-
penalized. Overall, the average financial free- ue to severely undermine economic growth.
dom score remained essentially unchanged
from the past year. LABOR FREEDOM — 61.5
In light of the growing importance of labor-
PROPERTY RIGHTS — 43.6 market flexibility in enhancing productivity
The average score on property rights declined and improving job growth, many economies
by 0.2 point in the 2011 Index. Some govern- have adopted more flexible labor regulations
in recent years. Regrettably, reform progress
2. United Nations Conference on Trade slowed considerably this year, and the global
and Develop­ment, World Investment Report average score for labor freedom decreased by
2010: Investing in a Low-Carbon Economy,
0.6 point in the 2011 Index, with 64 countries
Overview, p. 19, at http://www.unctad.org/en/docs/
wir2010overview_en.pdf (November 17, 2010). improving and 106 declining.

Chapter 2
27
Chapter 3

Economic Freedom
Around the World
Anthony B. Kim

O
f the 179 economies graded in the 2011
Index, six are “free” economies that
Global Distribution of
score above 80. With ratings between
Economic Freedom
70 and 80, the next 27 countries are “mostly
Number of
free.” These 33 economies provide institu- Nations in 57 57
tional environments in which individuals and Each Freedom
private enterprises enjoy a substantial degree Category
of economic freedom in the pursuit of greater
prosperity and success. An equal number of
countries are divided between “moderately 32
27
free” and “mostly unfree,” accounting, in the
middle of the distribution, for the largest share
of the countries graded in the Index—114 coun-
tries. With scores below 50, there are 32 coun-
6
tries that remain economically “repressed.”
(See Chart 1.)
Each of the world’s regions has registered Free Mostly Moderately Mostly Repressed
at least one country that is ranked among the Free Free Unfree
top 20 freest economies in the 2011 Index. Aver- Sources: Terry Miller and Kim R. Holmes, 2011 Index of
Economic Freedom (Washington, D.C.: The Heritage
age levels of economic freedom, however, vary Foundation and Dow Jones & Company, Inc., 2011), at
widely among the regions, and there are some www.heritage.org/index.
stark differences in regional economic perfor- Chart 1 heritage.org
mance. Indeed, countries often do share certain

29
Economic Freedom by Region, with Population
Index of Economic Circle sizes are relative
= 500 million people
Freedom Score to region’s population
90

North
80 America
75.5
75

Europe 443 million


70 66.8
South and Middle
Central East/
Asia– America/ North
65 Pacific Caribbean Africa
57.4 60.2 60.6 813 million
Sub-
60 Saharan
Africa 334 million
53.5 460 million
55

3.7 billion
50 768 million

Sources: Terry Miller and Kim R. Holmes, 2011 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and
Dow Jones & Company, Inc., 2011), at www.heritage.org/index; International Monetary Fund, World Economic Outlook
Databases, at http://www.imf.org/external/ns/cs.aspx?id=28 (November 18, 2010)
Chart 2 heritage.org

characteristics—cultural, geographical, histori- entrepreneurship and prosperity can flour-


cal, or others—with their regional neighbors ish. Across all of the regions, as demonstrated
that may help to shed light on the particular in Chart 4, higher economic freedom induces
challenges to economic freedom that they face. greater overall human development as mea-
As shown in Chart 2, economic freedom sured by the United Nations Human Devel-
varies noticeably by region, with inhabitants of opment Index, which assesses the combined
North America and Europe enjoying greater lev- progress of life expectancy, literacy, education,
els of economic freedom than those who live in and the standard of living.
other regions of the world. Previous editions of the Index have confirmed
Despite varying degrees of economic the tangible benefits of living in freer societies.
freedom across the regions, the relationship Not only are higher levels of economic free-
between economic freedom and prosperity dom associated with higher per capita incomes
remains constant within the regions. Per capita and higher GDP growth rates, but those higher
incomes are much higher in countries that are growth rates seem to create a virtuous cycle,
economically free. (See Chart 3.) triggering faster poverty reduction and further
Not surprisingly, overall human develop- improvements in economic freedom. Over the
ment also thrives in an environment that is decade, the countries with improvements in
economically free. Economic freedom is about economic freedom achieved much better reduc-
more than a business environment in which tions in poverty, almost by a factor of two, as

30 2011 Index of Economic Freedom


Economic Freedom and Prosperity by Region
Each dot represents a nation in the Index of Economic Freedom.

Asia–Pacific Europe

Line
$60,000 GDP per Capita $60,000
(2000 Dollars)

Trend
$50,000 $50,000

l
Globa
$40,000 $40,000

$30,000 $30,000

$20,000 $20,000

$10,000 $10,000

$0 $0
20 30 40 50 60 70 80 90 20 30 40 50 60 70 80 90
2011 Index of Economic Freedom Score

Middle East/North Africa North America


$60,000 $60,000

$50,000 $50,000

$40,000 $40,000

$30,000 $30,000

$20,000 $20,000

$10,000 $10,000

$0 $0
20 30 40 50 60 70 80 90 20 30 40 50 60 70 80 90

South and Central America/Caribbean Sub-Saharan Africa


$60,000 $60,000

$50,000 $50,000

$40,000 $40,000

$30,000 $30,000

$20,000 $20,000

$10,000 $10,000

$0 $0
20 30 40 50 60 70 80 90 20 30 40 50 60 70 80 90

Note: Trend lines are for all countries in the Index of Economic Freedom.
Sources: Terry Miller and Kim R. Holmes, 2011 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and
Dow Jones & Company, Inc., 2011), at www.heritage.org/index; World Bank Group, World Development Indicators Online, at
http://publications.worldbank.org/WDI/ (November 5, 2010); International Monetary Fund, World Economic Outlook
Databases, at http://www.imf.org/external/ns/cs.aspx?id=28 (November 5, 2010).
Chart 3 heritage.org

Chapter 3
31
Economic Freedom and Human Development by Region
Each dot represents a nation in the Index of Economic Freedom.

Asia–Pacific Europe
1.00 1.00
Human
Development
Index
0.75 0.75

al
0.50 Glob d 0.50
re
T e n
Lin
0.25 0.25

0 0
20 30 40 50 60 70 80 90 20 30 40 50 60 70 80 90
2011 Index of Economic Freedom Score

Middle East/North Africa North America


1.00 1.00

0.75 0.75

0.50 0.50

0.25 0.25

0 0
20 30 40 50 60 70 80 90 20 30 40 50 60 70 80 90

South and Central America/Caribbean Sub-Saharan Africa


1.00 1.00

0.75 0.75

0.50 0.50

0.25 0.25

0 0
20 30 40 50 60 70 80 90 20 30 40 50 60 70 80 90

Global Correlation = 0.70, R2 = 0.49


Note: Trend lines are for all countries in the Index of Economic Freedom.
Sources: Terry Miller and Kim R. Holmes, 2011 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and
Dow Jones & Company, Inc., 2011), at www.heritage.org/index; and Human Development Reports, United Nations Human
Development Programme, at http://hdr.undp.org/en/reports (November 17, 2010).
Chart 4 heritage.org

32 2011 Index of Economic Freedom


measured by the United
Nations Human Poverty
Human Poverty Index (HPI)
Index. (See Table 1.)
Change in Percentage of
In a recent study that the Population in Poverty,
estimates the world’s From 2001 Index of Economic Freedom from the 1999 HPI Index
income distribution, Maxim to 2011 Index of Economic Freedom to the 2009 HPI Index
Pinkovskiy of the Massachu-
All countries –4.5
setts Institute of Technology
Countries that gained economic freedom –5.8
and Xavier Sala-i-Martin of
Countries that lost economic freedom –3.1
Columbia University also
find that world poverty Note: Data compiled from the Index of Economic Freedom, 2001 to 2011, and the
Human Poverty Index, 1999 to 2009.
has indeed been disappear-
ing faster than previously Sources: Terry Miller and Kim R. Holmes, 2011 Index of Economic Freedom
(Washington, D.C.: The Heritage Foundation and Dow Jones & Company, Inc., 2011), at
thought. As economic free-
1
www.heritage.org/index; and Human Development Reports, United Nations Human
dom has advanced steadily Development Programme, at http://hdr.undp.org/en/reports (November 17, 2010).
over the past decades, the Table 1 heritage.org
global poverty rate has been
cut significantly. According
to the two prominent scholars, “the percentage freedom on average, exactly half a point. The
of the world population living on less than $1 a Middle East/North Africa and Asia–Pacific
day went down to 5.4 percent in 2006 from 26.8 regions also showed gains. Economic freedom
percent in 1970,” with poverty rates dramati- held steady in Europe and actually declined in
cally falling across all the regions. North America.
Table 2 shows components of economic
Diverging Patterns of freedom in which regions perform better or
Economic Freedom worse than the world averages.
While the global average score for the 2011 Every region has two or more components
Index has improved since last year, progress in which the average level of economic free-
has not been uniform across the regions. North dom falls below the world average. The North
America and Europe have lagged, while much America region recorded drops in fiscal free-
of the developing world has surged ahead. dom and government spending, which now
(See Chart 5.) trail the world averages. European countries
The Sub-Saharan Africa region achieved the fall over five points below the world average
largest score improvement,
with countries gaining One-Year Freedom Score Change
over half a point on aver-
age in the 2011 Index. The Change in Score Since 2010
South and Central Amer- Region Index of Economic Freedom
ica/Caribbean region
North America –0.1
gained the second most Europe No change
Middle East/North Africa +0.2
1. Maxim Pinkovskiy Asia–Pacific +0.4
and Xavier Sala-i-Martin, South and Central America/Caribbean +0.5
“Parametric Estimations of Sub-Saharan Africa +0.6
the World Distribution of
Income,” National Bureau of Sources: Terry Miller and Kim R. Holmes, 2011 Index of Economic Freedom
(Washington, D.C.: The Heritage Foundation and Dow Jones & Company, Inc., 2011),
Economic Research Working at www.heritage.org/index.
Paper 15433, October 2009,
at http://www.nber.org/papers/ Chart 5 heritage.org
w15433 (November 16, 2010).

Chapter 3
33
Each Region’s Ten Economic Freedoms
in Comparison to the World Average

Investment Freedom
Monetary Freedom

Financial Freedom
Business Freedom

Property Rights

Labor Freedom
Trade Freedom

Fiscal Freedom

Freedom from
Government

Corruption
Spending
Region
North America +27.3 +10.4 –0.4 –0.4 +3.9 +21.5 +21.5 +31.4 +24.5 +17.9
Europe +12.7 +11 –5.2 –20 +4.4 +19.7 +15 +17.6 +15.5 +0.3
South and Central America/Caribbean –1.4 –0.3 +1.5 +8 +1 +0.1 –0.6 –2 –1.2 –0.4
Middle East/North Africa +2.4 +1.4 +11.2 +3.8 –0.6 –4.6 –2.6 –1.5 –0.4 –0.1
Asia–Pacific 0 –4.2 +1.9 +4.8 –1 –12.2 –7.3 –4.7 –4.2 +4.1
Sub-Saharan Africa –13.6 –7.4 –1.9 +8 –3.8 –7.3 –7.4 –12.4 –11.4 –5

Source: Terry Miller and Kim R. Holmes, 2010 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and Dow
Jones & Company, Inc., 2010), at www.heritage.org/index.

Table 2 heritage.org

in fiscal freedom and 20 points below the world investment. Although the region enjoys the
average in government spending—a reflec- highest degree of economic freedom among the
tion of their bloated government budgets that six regions, there has been a notable reordering
fund high levels of welfare spending. Rigid within the region in the aftermath of the recent
labor regulations also continue to hamper the global financial and economic crisis. While
region’s freedom, with negative results for job Canada has solidified its status as a “free”
creation and employment growth. economy, the U.S. and Mexico are seemingly
South and Central America/Caribbean stuck in the “mostly free” and “moderately
countries lag behind world averages in six free” categories, respectively. (See Table 3.)
components of economic freedom, particu- The U.S. government’s policy responses to
larly freedom from corruption and property the crisis and economic slowdown have been
rights. The Middle East/North Africa region far-reaching and implemented at the cost of cur-
has lower than average scores in six economic tailing economic freedom. Recent policy choices
freedoms, the Asia–Pacific region is behind in have included more intrusive and burdensome
six, and Sub-Saharan Africa lags in nine. regulations, government bailouts of private
firms, loose monetary policy, and increasingly
NORTH AMERICA protectionist trade policy.
North America’s three countries have been North America scores above the world aver-
linked by a regional trade agreement, the North age in eight areas of economic freedom. It has
American Free Trade Agreement (NAFTA), high levels of business freedom, trade freedom,
since 1994. NAFTA has been a positive force, monetary freedom, and labor freedom. Weak-
connecting more than 400 million people in nesses remain in property rights and freedom
an economic area with about one-third of the from corruption, as Mexico lags considerably
world’s total GDP. behind its two northern neighbors in these two
The North America region has long benefit- areas that are critical to long-term economic
ed from its openness to international trade and development.

34 2011 Index of Economic Freedom


North America

United
States

Canada

Economic Freedom Scores


80–100 Free
70–79.9 Mostly Free United States
60–69.9 Moderately Free
50–59.9 Mostly Unfree
0–49.9 Repressed
Not Ranked
Mexico

Sources: Terry Miller and Kim R. Holmes, 2011 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation
and Dow Jones & Company, Inc., 2011), at www.heritage.org/index.
Map 1 heritage.org

Economic Freedom in North American Countries


Investment Freedom
Monetary Freedom

Financial Freedom
Change from 2010

Business Freedom

Property Rights

Labor Freedom
Trade Freedom

Fiscal Freedom

Freedom from
Overall Score

Government
Region Rank
World Rank

Corruption
Spending

Country
6 1 Canada 80.8 0.4 96.4 88.1 78.0 52.7 78.8 75.0 80.0 90.0 87.0 81.7
9 2 United States 77.8 –0.2 91.0 86.4 68.3 54.6 77.4 75.0 70.0 85.0 75.0 95.7
48 3 Mexico 67.8 –0.5 87.3 81.2 81.3 83.1 75.7 65.0 60.0 50.0 33.0 60.9

80–100 Free
70–79.9 Mostly Free
60–69.9 Moderately Free
50–59.9 Mostly Unfree
0–49.9 Repressed Table 3 heritage.org

Chapter 3
35
36
Europe
Finland
Norway Sweden

Estonia

Iceland
Latvia Russia
Denmark
Netherlands Lithuania
Belgium
Belarus
United
Kingdom Poland
Germany
Ireland
Czech Ukraine
Economic Freedom Scores Luxembourg Republic
Slovakia Moldova
80–100 Free
70–79.9 Mostly Free Austria
Liechtenstein Hungary
60–69.9 Moderately Free Switzerland
Romania Sea of
50–59.9 Mostly Unfree Croatia Azov
France Italy Caspian
0–49.9 Repressed Sea
Not Ranked Serbia Black
Bulgaria Sea

2011 Index of Economic Freedom


Georgia

Spain
Slovenia Greece Turkey

Malta
Portugal Cyprus Armenia
Bosnia & Herzegovina Macedonia
Albania
Montenegro
Sources: Terry Miller and Kim R. Holmes, 2011 Index of Economic Freedom (Washington, D.C.:
The Heritage Foundation and Dow Jones & Company, Inc., 2011), at www.heritage.org/index. Map 2 heritage.org
EUROPE resulting in overall score improvements in 26
The Europe region consists of 43 countries reform-minded economies including Bulgaria,
and, taken as a whole, is enjoying economic Moldova, Serbia, Lithuania, and Poland. By
prosperity and stability. Extensive and long- contrast, 16 economies (including Iceland, Ire-
established free-market institutions in most land, Italy, Greece, and the United Kingdom,
countries allow the region to score above the each of which lost more than two points) have
world average in seven of the 10 economic free- recorded significant erosion of their economic
doms. It is over 15 points ahead in both prop- freedom.
erty rights and freedom from corruption. The Europe’s overall economic freedom rating
region’s business freedom and trade freedom is seriously undermined by weak scores in
lead world averages by slightly more than 10 government spending, fiscal freedom, and
points. labor freedom, reflecting the cost of wel-
Despite the recent global financial and eco- fare states that consume a large percentage
nomic turmoil, such policy improvements as of GDP. Burdensome labor regulations are
tax cuts, simplifying regulatory frameworks, plainly hindering both productivity growth
and other structural reforms have continued, and more dynamic job creation, causing

Economic Freedom in European Countries

Investment Freedom
Monetary Freedom

Financial Freedom
Change from 2010

Business Freedom

Property Rights

Labor Freedom
Trade Freedom

Fiscal Freedom

Freedom from
Overall Score

Government
Region Rank
World Rank

Corruption
Spending

Country

5 1 Switzerland 81.9 0.8 80.2 90.0 68.4 69.3 83.8 80.0 80.0 90.0 90.0 87.8
7 2 Ireland 78.7 –2.6 92.0 87.6 72.1 47.1 80.7 90.0 70.0 90.0 80.0 77.5
8 3 Denmark 78.6 0.7 99.7 87.6 43.2 19.5 81.4 90.0 90.0 90.0 93.0 92.1
13 4 Luxembourg 76.2 0.8 76.4 87.6 66.7 58.5 82.1 95.0 80.0 90.0 82.0 44.1
14 5 Estonia 75.2 0.5 80.9 87.6 80.7 52.2 78.7 90.0 80.0 80.0 66.0 55.8
15 6 The Netherlands 74.7 –0.3 81.9 87.6 50.6 36.8 82.7 90.0 80.0 90.0 89.0 58.3
16 7 United Kingdom 74.5 –2.0 94.6 87.6 52.0 32.9 74.9 90.0 80.0 85.0 77.0 71.2
17 8 Finland 74.0 0.2 95.0 87.6 65.3 26.5 80.7 85.0 80.0 90.0 89.0 41.4
18 9 Cyprus 73.3 2.4 80.1 82.6 74.6 45.6 87.6 75.0 70.0 80.0 66.0 71.4
21 10 Austria 71.9 0.3 72.8 87.6 50.3 28.0 82.9 80.0 70.0 90.0 79.0 78.2
22 11 Sweden 71.9 –0.5 95.0 87.6 37.6 17.3 80.1 85.0 80.0 90.0 92.0 54.0
23 12 Germany 71.8 0.7 89.6 87.6 58.5 42.7 83.9 85.0 60.0 90.0 80.0 40.6
24 13 Lithuania 71.3 1.0 81.7 87.6 86.1 58.0 74.5 80.0 80.0 60.0 49.0 55.6
28 14 Czech Republic 70.4 0.6 69.8 87.6 81.0 44.8 80.0 70.0 80.0 65.0 49.0 77.0
29 15 Georgia 70.4 0.0 87.3 89.2 87.5 60.3 76.7 70.0 60.0 40.0 41.0 92.1

80–100 Free (continued on next page)


70–79.9 Mostly Free
60–69.9 Moderately Free
50–59.9 Mostly Unfree
0–49.9 Repressed Table 4 heritage.org

Chapter 3
37
Economic Freedom in European Countries (continued)

Investment Freedom
Monetary Freedom

Financial Freedom
Change from 2010

Business Freedom

Property Rights

Labor Freedom
Trade Freedom

Fiscal Freedom

Freedom from
Overall Score

Government
Region Rank
World Rank

Corruption
Spending
Country

30 16 Norway 70.3 0.9 88.3 89.4 51.6 51.5 75.1 65.0 60.0 90.0 86.0 45.8
31 17 Spain 70.2 0.6 77.2 87.6 61.0 49.3 82.4 80.0 80.0 70.0 61.0 53.0
32 18 Belgium 70.2 0.1 92.6 87.6 41.8 25.0 82.5 80.0 70.0 80.0 71.0 71.0
36 19 Armenia 69.7 0.5 82.4 85.5 89.2 85.7 76.0 75.0 70.0 30.0 27.0 75.9
37 20 Slovak Republic 69.5 –0.2 73.4 87.6 84.2 63.7 81.6 75.0 70.0 50.0 45.0 64.5
44 21 Iceland 68.2 –5.5 92.7 88.2 69.8 0.0 68.6 65.0 60.0 90.0 87.0 60.7
51 22 Hungary 66.6 0.4 76.5 87.6 69.7 27.4 75.9 75.0 70.0 65.0 51.0 67.7
55 23 Macedonia 66.0 0.3 64.6 83.6 90.0 64.3 84.5 60.0 60.0 35.0 38.0 79.7
56 24 Latvia 65.8 –0.4 72.8 87.6 82.5 55.5 73.5 80.0 50.0 50.0 45.0 61.3
57 25 Malta 65.7 –1.5 70.0 87.6 62.5 39.8 80.1 75.0 60.0 70.0 52.0 60.0
60 26 Bulgaria 64.9 2.6 75.8 87.6 86.9 58.3 75.5 55.0 60.0 30.0 38.0 82.0
63 27 Romania 64.7 0.5 72.0 87.6 86.8 57.6 74.4 80.0 50.0 40.0 38.0 60.8
64 28 France 64.6 0.4 85.6 82.6 52.3 16.4 83.7 55.0 70.0 80.0 69.0 51.4
66 29 Slovenia 64.6 –0.1 83.6 87.6 65.1 41.1 80.5 70.0 50.0 60.0 66.0 41.8
67 30 Turkey 64.2 0.4 68.7 85.4 78.2 83.6 72.7 70.0 50.0 50.0 44.0 39.6
68 31 Poland 64.1 0.9 61.4 87.6 74.0 43.8 78.1 65.0 60.0 60.0 50.0 61.2
69 32 Portugal 64.0 –0.4 80.1 87.6 61.1 36.2 82.3 70.0 60.0 70.0 58.0 34.7
70 33 Albania 64.0 –2.0 67.1 79.8 92.1 68.7 79.9 65.0 70.0 35.0 32.0 50.4
76 34 Montenegro 62.5 –1.1 71.3 83.6 89.4 28.6 76.0 55.0 50.0 40.0 39.0 92.3
82 35 Croatia 61.1 1.9 65.2 87.6 74.6 50.3 78.5 70.0 60.0 40.0 41.0 44.1
87 36 Italy 60.3 –2.4 77.3 87.6 55.4 28.6 82.1 75.0 60.0 50.0 43.0 44.4
88 37 Greece 60.3 –2.4 76.2 82.6 65.9 34.3 80.6 60.0 60.0 50.0 38.0 55.2
101 38 Serbia 58.0 1.1 59.0 75.2 83.6 41.9 66.0 60.0 50.0 40.0 35.0 68.9
104 39 Bosnia and 57.5 1.3 60.4 86.0 83.9 24.1 80.6 70.0 60.0 20.0 30.0 60.2
Herzegovina
120 40 Moldova 55.7 2.0 69.5 80.2 85.6 48.1 77.0 35.0 50.0 40.0 33.0 39.0
143 41 Russia 50.5 0.2 50.7 68.2 82.7 65.1 63.1 25.0 40.0 25.0 22.0 62.9
155 42 Belarus 47.9 –0.8 70.6 80.3 83.6 26.2 62.2 20.0 10.0 20.0 24.0 82.3
164 43 Ukraine 45.8 –0.6 47.1 85.2 77.3 32.9 63.2 20.0 30.0 30.0 22.0 50.0
n/a n/a Liechtenstein n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a

80–100 Free
70–79.9 Mostly Free
60–69.9 Moderately Free
50–59.9 Mostly Unfree
0–49.9 Repressed Table 4 heritage.org

38 2011 Index of Economic Freedom


unemployment and slowing economic result of policy reforms. Twenty-five coun-
expansion. Stagnant growth has exacerbated tries in the region recorded gains in economic
debt levels, leaving many European coun- freedom, while only three had declines. With
tries with no choice but to cut spending to more than half of the region’s 29 economies
reduce fiscal deficits. implementing some form of business reform
Nine of the world’s 20 freest countries are over the past year, regulatory systems are
in Europe. (See Table 4.) Ireland, whose glob- becoming more transparent and modern,
al ranking has fallen to 7th, is now behind and the overall climate for entrepreneurship
Switzerland. Denmark passed the United is improving.
States this year to move into 8th place. The The countries in the South and Central
United Kingdom now stands at 16th, fall- America/Caribbean region perform better
ing out of the top 15 in the Index for the first than the world average in four of the 10 com-
time. The British economy has undergone ponents of economic freedom measured in the
far-reaching adjustments in reaction to the Index. Corruption and a lack of protection for
global financial and economic turmoil, and property rights are the major problem areas,
a dramatic expansion of state ownership has reflecting long-standing issues of poor gover-
taken place since late 2008. Luxembourg, the nance and weak rule of law.
Netherlands, Estonia, Finland, and Cyprus The typical country in the region stands
all score in the top 20. out positively in terms of limited taxation
Denmark’s overall score is 0.8 point higher and government expenditures. The freedom
than last year. In addition to high transpar- to trade and invest is slightly better protected
ency and low corruption, the Danish econ- than in other parts of the developing world.
omy boasts an efficient regulatory regime The region has maintained an overall level
and an independent judiciary. Both Bulgaria of economic freedom that is half a point higher
and Cyprus recorded score gains of over two than the global average of 59.7. Colombia is the
points, largely because of improved invest- most improved country in the region, gaining
ment freedom, freedom from corruption, and 2.5 points in the 2011 Index. (See Table 5.) It has
labor freedom. become one of South America’s most stable
Around 80 percent of the 43 European economies. Improvements in its entrepreneur-
countries score between 60 and 80, achiev- ial environment, facilitated by openness to
ing the status of either “moderately free” trade and investment, have led to steady eco-
or “mostly free.” Only Ukraine and Belarus nomic growth. Recent reforms have focused on
remain “repressed” with scores below 50. improving regulation and fostering a strong
private sector.
South and Central America/ One of the 29 countries in the South and Cen-
Caribbean tral America/Caribbean region ranks among
The countries of the South and Central the top 20 in the world: Chile (11th). Chile’s
America/Caribbean region range from continuing commitment to economic freedom
prosperous Chile and the developing eco- and its dynamic private sector have facilitated
nomic colossus of Brazil to the small island steady economic growth.
economies of the Caribbean Sea. The region, Noticeably, the region’s countries are dis-
which consists of 29 economies, is one of the tributed throughout the rankings in a more
world’s most diverse, economically as well balanced fashion than are the countries of any
as politically. other region, almost like a bell curve. All but
Although uneven, notable progress eight countries receive an economic freedom
toward greater economic freedom has been score between 50 and 70, and 15 countries fall
made in many countries of the region as the in the middle category of “moderately free.”

Chapter 3
39
South and Central America/Caribbean
The Bahamas
Cuba
Haiti
Dominican Republic
Belize
Honduras Jamaica Dominica
Guatemala St. Lucia
St. Vincent & The Grenadines
El Salvador Barbados
Trinidad & Tobago
Nicaragua
Costa Rica Venezuela Guyana
Panama Suriname
Colombia

Ecuador

Brazil
Peru

Bolivia
Economic Freedom Scores
80–100 Free
70–79.9 Mostly Free Paraguay
60–69.9 Moderately Free
50–59.9 Mostly Unfree
0–49.9 Repressed
Not Ranked

Chile Argentina
Uruguay

Note: French Guiana not depicted


because it is French territory.

Sources: Terry Miller and Kim R. Holmes, 2011 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and
Dow Jones & Company, Inc., 2011), at www.heritage.org/index.
Map 3 heritage.org

40 2011 Index of Economic Freedom


Economic Freedom in South and Central America/
Caribbean Countries

Investment Freedom
Monetary Freedom

Financial Freedom
Change from 2010

Business Freedom

Property Rights

Labor Freedom
Trade Freedom

Fiscal Freedom

Freedom from
Overall Score

Government
Region Rank
World Rank

Corruption
Spending
Country
11 1 Chile 77.4 0.2 67.2 88.0 77.7 86.6 77.9 80.0 70.0 85.0 67.0 74.5
26 2 Saint Lucia 70.8 0.3 86.2 71.9 74.4 71.4 85.3 55.0 40.0 70.0 70.0 83.4
33 3 Uruguay 70.0 0.2 61.5 83.0 84.3 76.5 72.8 80.0 30.0 70.0 67.0 74.9
39 4 El Salvador 68.8 –1.1 65.5 85.0 85.8 88.0 79.9 75.0 70.0 40.0 34.0 64.9
41 5 Peru 68.6 1.0 71.9 86.0 79.4 91.0 83.1 70.0 60.0 40.0 37.0 67.7
42 6 Barbados 68.5 0.2 90.0 60.5 70.7 48.8 76.3 45.0 60.0 80.0 74.0 80.0
45 7 Colombia 68.0 2.5 86.1 73.2 74.5 78.9 75.8 65.0 60.0 50.0 37.0 79.3
46 8 The Bahamas 68.0 0.7 72.5 42.2 97.2 86.9 74.6 30.0 70.0 70.0 55.0 81.3
49 9 Costa Rica 67.3 1.4 58.2 85.2 82.3 86.9 70.7 70.0 50.0 55.0 53.0 62.1
50 10 Saint Vincent and 66.9 0.0 79.3 73.3 72.3 65.1 78.2 50.0 40.0 70.0 64.0 76.8
the Grenadines
52 11 Trinidad and Tobago 66.5 0.8 58.4 81.7 83.7 75.8 71.8 60.0 70.0 50.0 36.0 77.1
58 12 Jamaica 65.7 0.2 86.3 72.2 75.9 64.7 72.5 85.0 60.0 40.0 30.0 70.2
59 13 Panama 64.9 0.1 75.1 75.8 82.6 88.6 77.1 65.0 70.0 40.0 34.0 41.1
71 14 Belize 63.8 2.3 73.7 71.5 82.3 76.1 78.8 50.0 50.0 40.0 29.0 86.5
72 15 Dominica 63.3 0.0 74.8 74.3 69.5 45.8 86.3 65.0 30.0 65.0 59.0 62.8
77 16 Paraguay 62.3 1.0 61.7 83.0 97.6 93.4 80.9 70.0 60.0 30.0 21.0 24.9
79 17 Guatemala 61.9 0.9 52.1 84.6 79.5 94.4 76.4 60.0 50.0 35.0 34.0 53.4
90 18 Dominican Republic 60.0 –0.3 56.4 79.8 85.3 89.1 77.1 55.0 40.0 30.0 30.0 57.1
98 19 Nicaragua 58.8 0.5 54.3 84.8 78.8 81.3 71.7 55.0 50.0 20.0 25.0 67.1
99 20 Honduras 58.6 0.3 62.1 77.0 83.5 85.7 73.2 60.0 60.0 30.0 25.0 29.7
113 21 Brazil 56.3 0.7 54.3 69.8 69.0 49.6 75.9 50.0 50.0 50.0 37.0 57.8
129 22 Suriname 53.1 0.6 40.7 66.4 68.1 80.3 76.4 10.0 30.0 40.0 37.0 81.8
133 23 Haiti 52.1 1.3 37.5 74.8 80.9 90.1 73.7 30.0 30.0 10.0 18.0 76.4
138 24 Argentina 51.7 0.5 62.4 69.5 68.7 81.7 63.2 45.0 30.0 20.0 29.0 47.9
147 25 Bolivia 50.0 0.6 57.2 77.6 83.9 63.7 68.8 20.0 50.0 10.0 27.0 41.5
151 26 Guyana 49.4 1.0 66.8 71.3 64.6 29.1 75.8 30.0 40.0 30.0 26.0 60.3
158 27 Ecuador 47.1 –2.2 53.5 76.0 78.9 50.1 64.9 25.0 40.0 20.0 22.0 40.1
175 28 Venezuela 37.6 0.5 47.8 61.2 75.0 65.3 47.0 5.0 20.0 5.0 19.0 31.1
177 29 Cuba 27.7 1.0 10.0 62.2 49.0 0.0 71.6 0.0 10.0 10.0 44.0 20.0

80–100 Free
70–79.9 Mostly Free
60–69.9 Moderately Free
50–59.9 Mostly Unfree
0–49.9 Repressed Table 5 heritage.org

Chapter 3
41
42
Middle East/North Africa

Caspian
Sea

Tunisia Lebanon Syria


Israel Iraq
Iran
Jordan
Morocco

Algeria
Kuwait
Libya
Egypt
Bahrain
Qatar

Saudi Arabia

United
Oman Arab
Emirates

2011 Index of Economic Freedom


Yemen
Economic Freedom Scores
80–100 Free
70–79.9 Mostly Free
60–69.9 Moderately Free
50–59.9 Mostly Unfree
0–49.9 Repressed
Not Ranked

Sources: Terry Miller and Kim R. Holmes, 2011 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and Dow Jones & Company, Inc., 2011), at www.heritage.org/index.

Map 4 heritage.org
MIDDLE EAST/NORTH AFRICA Despite some progress in recent years, struc-
The Middle East/North Africa region tural problems abound. The regional unem-
remains pivotal in world economic affairs. ployment rate, which averages more than 10
Encompassing some of the world’s most ancient percent, is among the highest in the world and
civilizations, it consists of 17 countries. Although is most pronounced among younger members
the region’s overall economic freedom has of the labor force. Despite the outflow of crude
increased by 0.2 point since the 2010 Index, many oil, the actual trade flows of the region’s coun-
of its economies remain only “moderately free” tries remain relatively low, indicating a lack of
or “mostly unfree.” Cursed in some ways by the economic dynamism. The oil industry requires
region’s enormous natural oil resources, many very little investment in labor or human capital
of the local populations suffer from extreme con- and only a marginal amount of investment in
centrations of wealth and poverty. the land. People need freedom to be produc-

Economic Freedom in Middle East/North African Countries

Investment Freedom
Monetary Freedom

Financial Freedom
Change from 2010

Business Freedom

Property Rights

Labor Freedom
Trade Freedom

Fiscal Freedom

Freedom from
Overall Score

Government
Region Rank
World Rank

Corruption
Spending

Country

10 1 Bahrain 77.7 1.4 77.4 82.8 99.8 80.2 74.0 75.0 80.0 60.0 51.0 97.0
27 2 Qatar 70.5 1.5 70.3 82.4 99.8 78.1 71.9 45.0 50.0 70.0 70.0 67.0
34 3 Oman 69.8 2.1 69.4 83.6 98.5 68.1 69.5 55.0 60.0 50.0 55.0 89.1
38 4 Jordan 68.9 2.8 65.8 78.8 92.7 60.9 81.4 70.0 60.0 55.0 50.0 74.2
43 5 Israel 68.5 0.8 66.1 87.8 62.3 44.8 78.4 80.0 70.0 70.0 61.0 64.3
47 6 United Arab 67.8 0.5 67.3 82.6 99.9 79.1 76.5 35.0 50.0 50.0 65.0 72.4
Emirates
54 7 Saudi Arabia 66.2 2.0 86.1 82.2 99.4 74.6 64.3 40.0 50.0 45.0 43.0 77.0
61 8 Kuwait 64.9 –2.8 64.4 81.6 99.9 69.7 69.3 55.0 50.0 50.0 41.0 67.9
89 9 Lebanon 60.1 0.6 57.5 80.5 91.0 64.9 77.7 60.0 60.0 25.0 25.0 59.0
93 10 Morocco 59.6 0.4 75.7 75.8 67.8 74.6 76.5 65.0 60.0 40.0 33.0 27.2
96 11 Egypt 59.1 0.1 64.5 74.0 89.6 65.3 60.8 65.0 50.0 40.0 28.0 53.6
100 12 Tunisia 58.5 –0.5 80.2 53.5 73.7 77.6 77.3 35.0 30.0 50.0 42.0 65.7
127 13 Yemen 54.2 –0.2 73.7 81.6 83.2 44.5 82.3 45.0 30.0 30.0 21.0 50.9
132 14 Algeria 52.4 –4.5 69.4 72.8 83.5 62.4 75.4 20.0 30.0 30.0 28.0 52.9
140 15 Syria 51.3 1.9 55.9 65.4 84.6 85.3 69.7 20.0 20.0 30.0 26.0 55.8
171 16 Iran 42.1 –1.3 69.4 44.8 81.1 76.0 60.7 0.0 10.0 10.0 18.0 50.7
173 17 Libya 38.6 –1.6 20.0 85.0 80.3 44.5 71.0 10.0 20.0 10.0 25.0 20.0
n/a n/a Iraq n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a

80–100 Free
70–79.9 Mostly Free
60–69.9 Moderately Free
50–59.9 Mostly Unfree
0–49.9 Repressed Table 6 heritage.org

Chapter 3
43
tive, but oil does not generate the incentives freedom that is significantly greater than that
needed for societies to embrace openness. To of other countries in the region.
the contrary, an abundance of oil seems most The lowest-ranking countries in the region
often to inspire repression. continue to be Iran and Libya, bonded together
The region’s overall economic freedom by economic freedom scores that are among the
score is slightly above the world average of worst in the world.
59.7, mainly due to a high degree of fiscal free-
dom that reflects low income and corporate tax ASIA–PACIFIC
rates. However, other institutional problems The Asia–Pacific region contains over half
pose serious impediments to private-sector of the world’s population: one-third in China
development and economic diversification. and nearly another third in India. Despite the
Investment freedom, financial freedom, prop- challenging global economic environment, the
erty rights, and freedom from corruption all region has achieved an average annual eco-
score below world averages, degrading the nomic growth rate of around 8 percent over the
region’s overall economic freedom and eco- past five years, largely driven by China, India,
nomic potential. and other export-oriented economies.
The ongoing transformation of innovative The Asia–Pacific region is distinguished
and reform-oriented states like Bahrain, Qatar, from other regions by the extraordinary dis-
Kuwait, Oman, and Israel may pave the way parity in levels of economic freedom among its
for more robust and dynamic regional econom- countries. Four of the world’s 10 freest econo-
ic growth. As Table 6 shows, scores for most of mies—Hong Kong, Singapore, Australia, and
the 17 countries in the region are concentrated New Zealand—are in this region, yet most of
between 50 and 70. Jordan and Oman made the the other countries remain “mostly unfree.”
biggest leaps forward with gains of over two Countries such as Turkmenistan and Burma
points in economic freedom. Improving the have economies that are “repressed.” North
entrepreneurial environment and broadening Korea, which continues to reject any form of
the economic base beyond the energy sector, free-market activity, remains the least free
a series of economic reforms has made Jordan economy, both in the region and in the world.
and Oman, respectively, the 6th and 15th most The region’s overall economic freedom score is
improved economies in the 2011 Index. above the world average of 59.7.
Bahrain, ranked 10th globally with an The Asia–Pacific region, which consists of 41
economic freedom score of 77.7, is the only economies, scores higher than the world aver-
Middle Eastern country among the world’s age in three of the 10 economic freedoms: fiscal
10 freest economies. Structural reforms and freedom, government spending, and labor free-
openness to global commerce have made Bah- dom. Lower government expenditures result in
rain a financial hub and the regional leader in a regional government spending score that is
economic freedom. One of the region’s least about five points better than the world aver-
oil-dependent economies, it has a competitive age. The region’s labor freedom score is also
tax regime and a sophisticated financial sector better than the world average by four points,
that facilitates the flow of capital and foreign although many small Pacific island economies
investment. still lack fully developed formal labor markets.
Qatar became a “mostly free” economy for The typical Asian country has notably lower
the first time in the 2011 Index, with gains in scores in four components: investment freedom,
areas such as freedom from corruption, proper- financial freedom, property rights, and freedom
ty rights, and monetary freedom. Seven “mod- from corruption. Asian countries could make
erately free” economies ranging from Israel to the most progress by strengthening their bank-
Saudi Arabia, while very different politically, ing and investment institutions and by enhanc-
share a common commitment to economic ing transparency and corporate governance.

44 2011 Index of Economic Freedom


Asia and the Pacific

Uzbekistan Tajikistan Kyrgyz Republic


Samoa
Vanuatu Fiji

Kazakhstan
Mongolia
Caspian
Sea Australia Tonga
North
Korea

Azerbaijan
Nepal Bhutan China
Turkmenistan
South Japan
Afghanistan Korea New Zealand

Pakistan Laos Taiwan


India Hong Kong
Macau
Bangladesh Cambodia

Chapter 3
Philippines Micronesia
Burma
Vietnam
Thailand
Maldives Malaysia
Sri Lanka
Indonesia Kiribati
Economic Freedom Scores
Singapore
80–100 Free
70–79.9 Mostly Free
60–69.9 Moderately Free
Timor-Leste Papua Solomon
50–59.9 Mostly Unfree
New Guinea Islands 0–49.9 Repressed
Not Ranked

Sources: Terry Miller and Kim R. Holmes, 2011 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and
Dow Jones & Company, Inc., 2011), at www.heritage.org/index. Map 5 heritage.org

45
Economic Freedom in Asia–Pacific Countries

Investment Freedom
Monetary Freedom

Financial Freedom
Change from 2010

Business Freedom

Property Rights

Labor Freedom
Trade Freedom

Fiscal Freedom

Freedom from
Overall Score

Government
Region Rank
World Rank

Corruption
Spending
Country
1 1 Hong Kong 89.7 0.0 98.7 90.0 93.3 89.6 87.1 90.0 90.0 90.0 82.0 86.2
2 2 Singapore 87.2 1.1 98.2 90.0 91.1 91.3 86.2 75.0 60.0 90.0 92.0 98.0
3 3 Australia 82.5 –0.1 90.1 84.4 61.3 64.7 85.0 80.0 90.0 90.0 87.0 92.2
4 4 New Zealand 82.3 0.2 99.9 86.6 64.7 49.3 84.8 80.0 80.0 95.0 94.0 89.2
19 5 Macau 73.1 0.6 60.0 90.0 76.6 93.3 83.4 85.0 70.0 60.0 53.0 60.0
20 6 Japan 72.8 –0.1 83.8 82.6 67.0 58.7 87.9 60.0 50.0 80.0 77.0 81.1
25 7 Taiwan 70.8 0.4 84.7 86.2 78.3 89.7 82.0 65.0 50.0 70.0 56.0 46.1
35 8 South Korea 69.8 –0.1 91.6 70.8 72.2 73.0 78.7 70.0 70.0 70.0 55.0 46.5
53 9 Malaysia 66.3 1.5 69.7 78.7 84.6 79.2 81.3 45.0 50.0 50.0 45.0 79.2
62 10 Thailand 64.7 0.6 69.9 75.9 74.8 90.6 70.8 40.0 70.0 45.0 34.0 76.3
78 11 Kazakhstan 62.1 1.1 74.3 80.9 87.3 78.5 69.9 30.0 50.0 35.0 27.0 88.4
83 12 Kyrgyz Republic 61.1 –0.2 75.4 63.2 92.6 74.2 68.6 55.0 50.0 25.0 19.0 88.1
84 13 Samoa 60.6 0.2 72.8 70.0 80.1 67.9 68.5 30.0 30.0 60.0 45.0 82.1
86 14 Fiji 60.4 0.1 63.2 69.8 78.1 81.3 76.1 30.0 60.0 30.0 40.0 75.7
92 15 Azerbaijan 59.7 0.9 72.9 77.1 83.9 71.0 72.6 55.0 40.0 20.0 23.0 81.1
94 16 Mongolia 59.5 –0.5 67.7 79.8 83.3 49.6 73.6 50.0 60.0 30.0 27.0 74.1
102 17 Cambodia 57.9 1.3 39.5 70.0 90.9 94.2 78.0 60.0 50.0 30.0 20.0 46.3
103 18 Bhutan 57.6 0.6 59.8 52.0 83.9 64.1 71.8 20.0 30.0 60.0 50.0 84.7
107 19 Sri Lanka 57.1 2.5 71.9 72.2 73.4 84.7 65.8 30.0 40.0 40.0 31.0 61.8
112 20 Vanuatu 56.7 0.3 68.8 55.1 96.1 79.1 76.5 30.0 40.0 40.0 32.0 49.8
115 21 The Philippines 56.2 –0.2 43.4 77.8 78.8 91.0 76.3 40.0 50.0 30.0 24.0 50.7
116 22 Indonesia 56.0 0.5 54.9 73.8 83.0 88.9 74.3 35.0 40.0 30.0 28.0 51.8
118 23 Tonga 55.8 2.4 77.4 56.2 83.1 73.2 71.1 30.0 20.0 25.0 30.0 92.1
123 24 Pakistan 55.1 –0.1 70.9 67.0 80.5 88.8 63.6 40.0 40.0 30.0 24.0 46.3
124 25 India 54.6 0.8 36.9 64.2 75.4 77.8 65.1 35.0 40.0 50.0 34.0 67.2
128 26 Tajikistan 53.5 0.5 60.7 82.5 88.6 77.3 64.5 20.0 40.0 25.0 20.0 56.4
130 27 Bangladesh 53.0 1.9 65.0 58.0 72.7 92.4 68.6 55.0 20.0 20.0 24.0 54.3
131 28 Papua New Guinea 52.6 –0.9 60.2 85.4 66.3 63.3 72.9 35.0 30.0 20.0 21.0 72.4
135 29 China 52.0 1.0 49.8 71.6 70.3 87.0 75.3 25.0 30.0 20.0 36.0 54.9
139 30 Vietnam 51.6 1.8 61.6 68.9 75.9 75.1 79.1 15.0 30.0 15.0 27.0 68.2
141 31 Laos 51.3 0.2 58.8 68.4 79.9 90.1 80.4 25.0 20.0 20.0 20.0 49.9
80–100 Free (continued on next page)
70–79.9 Mostly Free
60–69.9 Moderately Free
50–59.9 Mostly Unfree
0–49.9 Repressed Table 7 heritage.org

46 2011 Index of Economic Freedom


Economic Freedom in Asia–Pacific Countries (continued)

Investment Freedom
Monetary Freedom

Financial Freedom
Change from 2010

Business Freedom

Property Rights

Labor Freedom
Trade Freedom

Fiscal Freedom

Freedom from
Overall Score

Government
Region Rank
World Rank

Corruption
Spending
Country
145 32 Micronesia 50.3 –0.3 58.7 81.0 97.6 0.0 73.4 20.0 30.0 30.0 30.0 82.4
146 33 Nepal 50.1 –2.6 59.2 61.4 86.4 88.4 73.8 5.0 30.0 30.0 23.0 44.3
154 34 Maldives 48.3 –0.7 81.5 43.8 95.6 0.0 74.1 35.0 30.0 25.0 25.0 73.4
162 35 Solomon Islands 45.9 3.0 59.8 62.4 69.2 32.9 70.4 10.0 30.0 30.0 28.0 66.6
163 36 Uzbekistan 45.8 –1.7 66.8 66.2 90.5 71.0 61.7 0.0 10.0 15.0 17.0 60.2
166 37 Kiribati 44.8 1.1 62.9 55.4 60.3 0.0 71.1 25.0 30.0 30.0 28.0 85.1
169 38 Turkmenistan 43.6 1.1 30.0 79.2 93.6 95.5 69.6 0.0 10.0 10.0 18.0 30.0
170 39 Timor-Leste 42.8 –3.0 44.2 73.0 64.7 0.0 78.1 30.0 20.0 20.0 22.0 76.5
174 40 Burma 37.8 1.1 20.0 72.3 81.9 98.1 56.6 0.0 10.0 5.0 14.0 20.0
179 41 North Korea 1.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 5.0 5.0 0.0
n/a n/a Afghanistan n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
80–100 Free
70–79.9 Mostly Free
60–69.9 Moderately Free
50–59.9 Mostly Unfree
0–49.9 Repressed Table 7 heritage.org

Leading the world in four of the 10 econom- because of considerable deterioration in free-
ic freedoms, Hong Kong once again is the freest dom from corruption, property rights, and
economy overall in the 2011 Index. (See Table 7.) investment freedom.
Singapore is the top country in labor freedom India and China are ranked 25th and 29th,
and the second overall, both in the region and respectively, in the region, and both remain
in the world. Singapore grants private firms “mostly unfree.” Despite these seemingly low
the most flexibility in hiring and firing work- scores, however, there can be no denying that the
ers. New Zealand sets the standard for clean, winds of change are still blowing in Asia, particu-
corruption-free government and benefits sig- larly in these two economic leviathans. Notwith-
nificantly from its transparent and straightfor- standing their very slow progress domestically,
ward business environment. both have taken good advantage of opportunities
About two-thirds of the 41 countries in the available as a result of improvements in global
Asia–Pacific region score between 40 and 60 on economic freedom, especially in the area of trade.
the economic freedom scale, remaining either
“mostly unfree” or “repressed.” In the 2011 SUB-SAHARAN AFRICA
Index, the scores of 26 countries in the region Africa’s overall level of economic freedom
have improved, while those of 13 are worse. is weaker than that of any other region. Sub-
Boosted by improved scores in trade freedom Saharan Africa is ranked last in seven of the
and investment freedom, Sri Lanka became 10 components of economic freedom and per-
the region’s most improved country. Nepal, forms especially poorly in terms of property
by contrast, lost the most economic freedom rights and freedom from corruption.

Chapter 3
47
Some of the gaps between Sub-Saharan However, the 2011 Index shows some encour-
Africa’s scores and world averages are espe- aging developments. No region has made
cially striking. The region lags by over 10 greater strides in economic freedom than Sub-
points in business freedom and by about 12 Saharan Africa. With a score gain of 0.6 point
points in both property rights and freedom that reflects a net gain of economic freedom in
from corruption. Labor freedom is restricted, 28 countries, the Sub-Saharan Africa region is
reflecting in part the region’s lack of prog- the most improved region in the 2011 Index.
ress in developing modern and efficient labor Mauritius remains among the world’s 20
markets. freest economies. (See Table 8.) With an eco-

Sub-Saharan Africa

The Gambia
Senegal

Mauritania
Mali Niger Eritrea
Chad
Sudan
Burkina
Faso Djibouti
Guinea
Nigeria
Cote Ghana Ethiopia
Guinea- d'Ivoire Central African
Bissau Republic
Cameroon
Sierra Benin
Leone Liberia Togo Uganda
Kenya
Sao Tome Gabon Democratic
Cape Verde & Principe Rwanda
Republic of
Congo Burundi
Equatorial Guinea Comoros
Tanzania
Republic of Congo Seychelles

Angola
Note: Somalia and Western Sahara are not Zambia
depicted because their economies are not
in the Index of Economic Freedom. Malawi
Zimbabwe
Namibia Mozambique
Economic Freedom Scores Botswana
80–100 Free
70–79.9 Mostly Free
Swaziland Madagascar
60–69.9 Moderately Free
South Lesotho
50–59.9 Mostly Unfree Africa
0–49.9 Repressed Mauritius
Not Ranked

Sources: Terry Miller and Kim R. Holmes, 2011 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and
Dow Jones & Company, Inc., 2011), at www.heritage.org/index.

Map 6 heritage.org

48 2011 Index of Economic Freedom


Economic Freedom in Sub-Saharan Africa Countries

Investment Freedom
Monetary Freedom

Financial Freedom
Change from 2010

Business Freedom

Property Rights

Labor Freedom
Trade Freedom

Fiscal Freedom

Freedom from
Overall Score

Government
Region Rank
World Rank

Corruption
Spending
Country
12 1 Mauritius 76.2 –0.1 82.0 88.0 91.9 80.0 76.1 90.0 70.0 60.0 54.0 70.4
40 2 Botswana 68.8 –1.5 70.5 75.2 78.4 51.5 70.9 75.0 70.0 70.0 56.0 70.0
65 3 Cape Verde 64.6 2.8 64.8 67.6 77.3 71.0 79.2 60.0 60.0 65.0 51.0 50.0
73 4 Namibia 62.7 0.5 72.9 86.4 67.9 74.8 70.9 55.0 40.0 30.0 45.0 84.6
74 5 South Africa 62.7 –0.1 72.3 77.2 69.6 77.5 71.9 45.0 60.0 50.0 47.0 56.7
75 6 Rwanda 62.7 3.6 76.9 77.8 76.9 78.6 68.5 50.0 40.0 35.0 33.0 89.9
80 7 Uganda 61.7 –0.5 50.3 74.8 80.6 90.5 73.2 45.0 60.0 30.0 25.0 87.8
81 8 Madagascar 61.2 –2.1 60.0 73.2 87.8 89.7 75.9 55.0 50.0 40.0 30.0 50.7
85 9 Burkina Faso 60.6 1.2 61.5 76.2 80.5 86.0 76.8 55.0 50.0 30.0 36.0 53.5
91 10 Zambia 59.7 1.7 62.2 82.4 72.4 81.8 77.3 55.0 50.0 30.0 30.0 56.3
95 11 Ghana 59.4 –0.8 63.4 67.8 83.3 46.1 63.3 65.0 60.0 50.0 39.0 56.1
97 12 Swaziland 59.1 1.7 66.4 79.8 67.2 65.9 71.0 55.0 40.0 40.0 36.0 69.4
105 13 The Gambia 57.4 2.3 57.8 60.4 73.2 79.7 71.4 55.0 50.0 30.0 29.0 67.2
106 14 Kenya 57.4 –0.1 62.2 72.8 77.6 72.8 73.2 50.0 50.0 30.0 22.0 62.9
108 15 Tanzania 57.0 –1.3 46.0 69.6 79.8 80.5 68.8 60.0 50.0 30.0 26.0 59.0
109 16 Mozambique 56.8 0.8 63.1 81.0 77.5 76.5 80.3 45.0 50.0 30.0 25.0 39.2
110 17 Gabon 56.7 1.3 57.3 61.0 74.5 87.9 73.8 45.0 40.0 40.0 29.0 58.8
111 18 Nigeria 56.7 –0.1 51.6 65.0 84.4 73.0 73.5 40.0 40.0 30.0 25.0 84.5
114 19 Mali 56.3 0.7 51.2 73.2 60.5 86.5 77.6 50.0 40.0 30.0 28.0 65.8
117 20 Benin 56.0 0.6 43.0 58.8 75.8 84.1 78.2 60.0 50.0 30.0 29.0 50.7
119 21 Malawi 55.8 1.7 42.4 71.0 79.3 56.7 71.6 50.0 50.0 45.0 33.0 59.1
121 22 Senegal 55.7 1.1 62.3 73.2 65.4 78.8 79.7 45.0 40.0 40.0 30.0 42.9
122 23 Côte d’Ivoire 55.4 1.3 43.3 72.2 78.5 88.4 80.2 35.0 50.0 30.0 21.0 55.7
125 24 Djibouti 54.5 3.4 32.9 59.6 79.6 50.5 76.6 60.0 60.0 30.0 28.0 67.7
126 25 Niger 54.3 1.4 36.9 71.8 77.5 83.0 80.0 55.0 40.0 30.0 29.0 40.3
134 26 Mauritania 52.1 0.1 48.3 69.9 81.1 73.9 77.4 30.0 40.0 25.0 25.0 50.3
136 27 Cameroon 51.8 –0.6 44.1 59.6 66.9 89.7 73.3 35.0 50.0 30.0 22.0 47.0
137 28 Guinea 51.7 –0.1 40.8 61.2 69.6 90.9 70.3 40.0 40.0 20.0 18.0 66.6
142 29 Seychelles 51.2 3.3 62.4 33.4 77.7 52.5 54.9 45.0 30.0 50.0 48.0 58.1
144 30 Ethiopia 50.5 –0.7 67.4 65.6 74.5 88.7 54.3 20.0 20.0 30.0 27.0 57.1
148 31 Burundi 49.6 2.1 36.8 78.8 72.3 52.0 66.1 55.0 30.0 20.0 18.0 67.1
(continued on next page)
80–100 Free
70–79.9 Mostly Free
60–69.9 Moderately Free
50–59.9 Mostly Unfree
0–49.9 Repressed Table 8 heritage.org


Chapter 3 49
Economic Freedom in Sub-Saharan Africa Countries (continued)

Investment Freedom
Monetary Freedom

Financial Freedom
Change from 2010

Business Freedom

Property Rights

Labor Freedom
Trade Freedom

Fiscal Freedom

Freedom from
Overall Score

Government
Region Rank
World Rank

Corruption
Spending
Country
149 32 Sierra Leone 49.6 1.7 54.9 62.8 80.8 86.8 74.2 45.0 20.0 10.0 22.0 39.4
150 33 São Tomé and 49.5 0.7 32.0 66.6 87.2 67.5 62.2 45.0 30.0 30.0 28.0 46.4
Príncipe
152 34 Central African 49.3 0.9 36.8 58.1 65.4 92.8 71.3 50.0 30.0 20.0 20.0 48.2
Republic
153 35 Togo 49.1 2.0 36.8 62.2 68.1 88.6 78.1 25.0 30.0 30.0 28.0 43.7
156 36 Lesotho 47.5 –0.6 58.9 63.6 48.2 21.4 71.6 35.0 40.0 40.0 33.0 63.7
157 37 Equatorial Guinea 47.5 –1.1 44.2 58.9 75.5 80.5 74.4 20.0 40.0 20.0 18.0 43.1
159 38 Guinea–Bissau 46.5 2.9 25.5 63.6 88.7 54.8 72.2 30.0 30.0 20.0 19.0 61.4
160 39 Liberia 46.5 0.3 51.8 53.8 73.3 66.5 69.5 20.0 20.0 30.0 31.0 48.9
161 40 Angola 46.2 –2.2 41.4 70.2 84.5 48.1 61.8 35.0 40.0 20.0 19.0 42.3
165 41 Chad 45.3 –2.2 25.3 55.6 50.4 85.3 70.6 45.0 40.0 20.0 16.0 44.8
167 42 Comoros 43.8 –1.1 42.9 62.4 64.8 77.8 76.2 10.0 20.0 30.0 23.0 30.7
168 43 Republic of Congo 43.6 0.4 40.8 61.0 61.8 79.7 71.4 20.0 30.0 10.0 19.0 42.3
172 44 Democratic 40.7 –0.7 37.8 63.0 73.3 84.5 46.7 15.0 20.0 10.0 19.0 37.3
Republic of Congo
176 45 Eritrea 36.7 1.4 18.2 69.1 73.0 31.5 46.0 0.0 20.0 10.0 26.0 73.4
178 46 Zimbabwe 22.1 0.7 32.1 45.0 70.3 0.0 0.0 0.0 10.0 5.0 22.0 36.8
n/a n/a Sudan n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a

80–100 Free
70–79.9 Mostly Free
60–69.9 Moderately Free
50–59.9 Mostly Unfree
0–49.9 Repressed Table 8 heritage.org

nomic freedom score of 76.2, it is both the 12th in South Africa has been outpaced by other
freest economy in the world and the leader countries in the region.
in economic freedom in the region. It scores Most notably, several of the most improved
above the global average in eight economic economies in the 2011 Index are in Sub-Saha-
freedoms, including trade freedom, invest- ran Africa. Rwanda, whose competitive-
ment freedom, property rights, freedom from ness and entrepreneurial environment have
corruption, and fiscal freedom. Mauritius has been greatly enhanced by a series of recent
also demonstrated its strong commitment to reforms, is the most improved economy. Dji-
enhancing economic freedom by accelerat- bouti, Guinea–Bissau, and Cape Verde also
ing major tax reforms. Botswana remains the improved notably. Trade facilitation and other
region’s second freest economy, followed by regulatory reforms have strongly contributed
Cape Verde and Namibia. Despite consider- to advancing economic freedom in these
able progress over the past decade, reform countries.

50 2011 Index of Economic Freedom


Despite some progress, Eritrea and Zimba- that can promote entrepreneurship and dura-
bwe remain the region’s two most “repressed” ble economic gains irrespective of history,
economies. Political instability and poor man- resources, or level of development.
agement of macroeconomic policies severely Today’s world economy can emerge stron-
impede overall economic development in these ger if the right policy choices are made at this
countries. Harsh regulatory environments and critical juncture. The recent financial and eco-
pervasive corruption undermine the business nomic turmoil vividly illustrates the interde-
and investment climates. pendence of economies in different regions.
Bad policy choices that hurt economic freedom
Preserving and Advancing and retard economic performance in one coun-
Economic Freedom try may have profoundly negative effects in
The diversity of the world’s peoples and others. By the same token, good policies in one
cultures implies that there will be many paths country—for example, an openness to trade or
to economic development and prosperity. investment flows—may have positive effects
Indeed, the fundamental value that underpins elsewhere.
an economically free and open society is the A recurring theme of human history has
empowerment of individuals to choose their been resilience and revival. The Index of Eco-
own paths to prosperity. The whole idea of eco- nomic Freedom provides a road map for eco-
nomic freedom is to increase opportunities for nomic revival in the years ahead. The stories
diverse types of activities, with free and open of countries that have created environments
markets as the ultimate arbiter of societies’ val- for human progress and development chart a
ues and desires. positive course that others, who still face chal-
As shown in the Index over the past 17 lenges, can follow to their benefit. There are
years, economic freedom is the indispensable warnings, too, of the perils of conflict, autoc-
link between economic potential and prosper- racy, or simply the hubris of government plan-
ous outcomes. Other systems lag far behind ners who think they have all the answers.
in terms of providing for broad-based growth Every region has positive examples of coun-
or reduction in poverty. Those who are look- tries that have chosen freedom and reaped the
ing for solutions rather than excuses will find rewards for their citizens. Their course is the
in this Index the economic policies and actions one we extol in the Index of Economic Freedom.

Chapter 3
51
Chapter 4

A Free Economy Is a Clean


Economy: How Free Markets
Improve the Environment
Ben Lieberman

E THE CORRELATION BETWEEN


nvironmental protection has become
synonymous with big government: mas- ECONOMIC FREEDOM AND
sive environmental statutes and global ENVIRONMENTAL PERFORMANCE
treaties, volumes of expansive and expensive
While the Index ranks 179 economies based
regulations, and armies of bureaucrats micro-
on 10 measures of economic freedom, others
managing the private sector in an effort to re-
have tried to gauge nations’ environmental
duce pollution. This certainly describes nearly
performance. Such evaluations are subjec-
all of the existing policies for addressing envi-
tive—likely more so than measures of econom-
ronmental concerns as well as most pending
ic freedom—and limited by the availability of
proposals dealing with global warming.
reliable data. However, one well-regarded ef-
However, the Index of Economic Freedom
fort is the 2010 Environmental Performance
strongly suggests that this command-and-
Index (EPI), conducted by Yale University’s
control approach to “going green” is a fun-
Center for Environmental Law and Policy and
damentally misguided one. It is the nations
other organizations.1
whose economies are ranked as most free that
do the best to protect the environment, while 1. Yale Center for Environmental Law & Policy
the least free ones do the worst. Thus, the same and Center for International Earth Science Infor­
free-market principles that have proven to be mation Network in collaboration with the World
Economic Forum and Joint Research Centre of the
the key to economic success can also deliver
European Commission, 2010 Environmental Perfor­
environmental success and point the way to an mance Index, January 2010, at http://www.epi.yale.edu/
approach that advances both concerns. file_columns/0000/0157/epi2010_report.pdf, and “2010
53
Economic Freedom and Environmental Performance
2010 Environmental Performance Index
100
Each dot represents a
nation in the Index of
Economic Freedom

80

60

Trend Line

40

Correlation = 0.49
20
0 20 40 60 80 100
2011 Index of Economic Freedom Score
Sources: Yale Center for Environmental Law & Policy and Center for International Earth Science Information Network in
collaboration with the World Economic Forum and Joint Research Centre of the European Commission, 2010 Environmental
Performance Index, January 2010, at http://www.epi.yale.edu/file_columns/0000/0157/epi2010_report.pdf, and “2010
Environmental Performance Index: Summary for Policymakers,” at http://ciesin.columbia.edu/repository/epi/data/
2010EPI_summary.pdf; Terry Miller and Kim R. Holmes, 2011 Index of Economic Freedom (Washington, D.C.: The Heritage
Foundation and Dow Jones & Company, Inc., 2011), at www.heritage.org/index.

Chart 1 heritage.org

The EPI ranks 163 nations based on 10 cat- The EPI is not without its flaws, such as the
egories of environmental public health and excessive weight it gives to global warming rela-
ecosystem measures. Among the former are tive to other environmental concerns. Further-
access to safe drinking water and sanitation, more, America’s sharp drop in the rankings over
and among the latter are protection of for- a short span—28th in 2006, 39th in 2008, and 61st
ests and fisheries as well as efforts to address in 2010—raises methodological questions, espe-
global warming. Drawing on data from 2007 cially given that, by most measures, America’s
and 2008, the best performers include Iceland, environment was improving over this same pe-
Switzerland, Sweden, and Costa Rica. Among riod. Overall, however, the EPI is a useful gauge
the worst are Mauritania, the Central African of national environmental performance.
Republic, Turkmenistan, and Haiti. Correlating the two indices, one finds a
positive relationship between a nation’s level
Environmental Performance Index: Summary for of economic freedom and its environmental
Policymakers,” at http://ciesin.columbia.edu/repository/
epi/data/2010EPI_summary.pdf (cited hereafter as
performance. (See Chart 1.) In other words,
“2010 EPI Summary”). free economies tend to be clean economies.

54 2011 Index of Economic Freedom


“[w]ealth correlates highly
Environmental Performance by Region
with EPI scores.”3
2010 Environmental Performance Index There are simple reasons
75
for the association between
wealth and environmen-
tal performance. One can
Europe
think of environmental pro-
South and tection as a good that only
Central North prosperous societies can af-
America/ America ford. People who lack the
65 Caribbean
Brazil necessities do not have the
in e United luxury of worrying about
n dL States endangered species or the
Tre
health of forests, and even
Asia if they did, they would not
Pacific
have the wherewithal to do
55
Middle East/ much about it. However, as
North Africa economies develop, a point
is reached at which there
China India is both the willingness and
Sub-Saharan the means to address envi-
Africa ronmental concerns. Most
45
45 55 65 75 85 countries show increas-
2011 Index of Economic Freedom Score ing levels of environmen-
tal harm over time until a
Sources: Yale Center for Environmental Law & Policy and Center for International
Earth Science Information Network in collaboration with the World Economic certain level of per capita
Forum and Joint Research Centre of the European Commission, 2010 Environmental wealth is achieved, and
Performance Index, January 2010, at http://www.epi.yale.edu/file_columns/
0000/0157/epi2010_report.pdf, and “2010 Environmental Performance Index: then the environment be-
Summary for Policymakers,” at http://ciesin.columbia.edu/repository/epi/data/ gins to improve.4 The exact
2010EPI_summary.pdf; Terry Miller and Kim R. Holmes, 2011 Index of Economic
Freedom (Washington, D.C.: The Heritage Foundation and Dow Jones & Company, level of wealth needed be-
Inc., 2011), at www.heritage.org/index. fore things start to become
Chart 2 heritage.org cleaner varies across coun-
tries and among different
environmental concerns,
This pattern can be seen regionally as well. but the general trend is clear. This is often
(See Chart 2.) Recognition of this relationship referred to as the environmental transition
points to a number of significant policy lessons or the environmental Kuznets curve. (See
that can be drawn as nations seek to improve Chart 3.)
their approach to protecting the environment.

FREE = WEALTHY = CLEAN 3. “2010 EPI Summary,” p. 3.


4. Indur M. Goklany, The Improving State of the
The Index of Economic Freedom finds a very
World: Why We’re Living Longer, Healthier, More
clear association between economic freedom Comfortable Lives on a Cleaner Planet (Washington:
and prosperity.2 The EPI similarly finds that Cato Institute, 2007) pp. 103–116; Bruce Yandle,
Madhusudan Bhattarai, and Maya Vijayaraghavan,
2. See Chart 3, “Economic Freedom Promotes “Environmental Kuznets Curves: A Review of
Greater Prosperity,” in Terry Miller and Kim Findings, Methods, and Policy Implications,”
R. Holmes, 2010 Index of Economic Freedom Property and Environment Research Center
(Washington: The Heritage Foundation and Dow Research Study No. 02-1 Update, April 2004, at
Jones & Company, Inc., 2010), p. 49. http://www.perc.org/pdf/rs02_1a.pdf.

Chapter 4 55
vancement) that enabled
Environmental Kuznets Curve
progress in air quality at
the state and local levels
Turning Point as the public began to de-
Income
mand it. The private sector
also played a role, as the
Environmental Environmental
Deterioration

Decay Improvement profit motive leads to im-


provements in energy and
resource efficiency, which
drive down emissions per
unit of output.
Similarly, improvements
in America’s water quality
began decades before en-
Per-Capita Income actment of the Clean Water
Act and Safe Drinking Wa-
Sources: Property and Environment Research Center, “Environmental Kuznets ter Act in the early 1970s,
Curves,” p. 3, Figure 1, at http://www.perc.org/pdf/rs02_1a.pdf (October 14, 2010).
and similar trends have
Chart 3 heritage.org occurred in many other
nations.7 Once again, state
and local governments and
Many mistakenly believe that rising wealth private-sector innovation led the way. If any-
harms the environment as per capita usage of thing, national laws were a lagging indicator,
energy and other resources increases. Indeed, and to the extent that they were unnecessarily
some activists and academics pursue envi- expensive or interfered with ongoing efforts,
ronmentalism as if it were a crusade against they may even have been counterproductive.8
materialism.5 However, such views are out of Nor are environmental laws of any value
step with the empirical evidence. In reality, without the wealth to implement them. Many
anything that jeopardizes continued economic developing nations have tough laws on the
growth likely also jeopardizes continued envi- books that are simply underenforced or ig-
ronmental improvement. nored in practice. For example, Mexico has
Another common assumption is that the stringent air and water pollution statutes not
environment improves only after national unlike the American statutes, but air and wa-
laws and regulations are imposed, but this ter quality are worse south of the border.
is not the case. For example, air pollution in National laws are only one (and not neces-
America actually reached its peak and began sarily the best) means by which a society com-
improving before the enactment of the feder- mitted to addressing environmental concerns
al Clean Air Act and creation of the Environ- can do so. But it is the underlying wealth that
mental Protection Agency to implement it in
1970.6 To the extent that governments took the
7. Ibid., pp. 153–158, 232–234.
lead, it was state and local governments. In
8. Steven F. Hayward, “The United States and
effect, Americans reached a level of prosperi- the Environment: Laggard or Leader?” American
ty (as well as accompanying technological ad- Enterprise Institute Environmental Policy Outlook
No. 1, February 2008, at http://www.aei.org/out-
5. See Anne H. Ehrlich and Paul R. Ehrlich, look/27548; Jonathan H. Adler, “Free and Green:
Healing the Planet: Strategies for Resolving the A New Approach to Environmental Protection,”
Environmental Crisis (Reading, Pa.: Perseus Harvard Journal of Law & Public Policy, Vol. 24, No.
Publishing, 1991). 2 (Spring 2001), at http://www.thefreelibrary.com/
6. Goklany, The Improving State of the World, Free+and+green:+a+new+approach+to+environmental+
pp. 137–139, 232–234. protection-a074802881.

56 2011 Index of Economic Freedom


makes any chosen means feasible, and a free
economy is the best way to generate that nec-
Environmental Performance
essary wealth.
and Property Rights

NON-WEALTH FACTORS THAT In the chart below, nations are placed into
four equal-sized groups based on their
MAKE FREE ECONOMIES CLEAN Property Rights score in the 2011 Index of
Most significantly, a well-developed sys- Economic Freedom.
tem of private property rights, enforced Average Score of the Environmental
through an effective legal system, provides Performance Index
for better stewardship of natural resources 68.9
than is provided by a system that is character- Correlation = 0.58
61.2
ized by no clear ownership or overwhelming
52.8
government ownership.9 In fact, measures of 50.7
property rights (one of the 10 equally weight-
ed factors that comprise the Index of Economic
Freedom) correlate more closely with envi-
ronmental performance than do measures of
overall economic freedom. (See Chart 4.)
A property owner with the three d’s—
defined, defensible, and devisable rights—
is uniquely incentivized to take care of his
own property and actively discourage oth- Least Most
ers from harming it. We see this all around Protected Protected
us. Consider a typical homeowner’s yard, Property Rights Quartile
which is better maintained and kept freer of
Sources: Yale Center for Environmental Law & Policy and
trash than an unclaimed lot or a public park. Center for International Earth Science Information
This phenomenon turns out to be true on a Network in collaboration with the World Economic
Forum and Joint Research Centre of the European
larger scale as well, and with environmental Commission, 2010 Environmental Performance Index,
implications.10 For example, the devastating January 2010, at http://www.epi.yale.edu/file_columns/
0000/0157/epi2010_report.pdf, and “2010 Environmental
forest fires that have become common in the Performance Index: Summary for Policymakers,” at
western U.S. in recent years have originated http://ciesin.columbia.edu/repository/epi/data/
2010EPI_summary.pdf; Terry Miller and Kim R. Holmes,
primarily on federally controlled lands, not 2011 Index of Economic Freedom (Washington, D.C.: The
Heritage Foundation and Dow Jones & Company, Inc.,
in privately owned forests, which tend to be 2011), at www.heritage.org/index.
much better managed against such risks.11
Chart 4 heritage.org
Around the world, nations that lack well-
enforced private property rights—corrupt
states like Zimbabwe, where farmland is routinely confiscated and it is uncertain who
really owns what, or Communist states like
9. Robert J. Smith, “Privatizing the North Korea where the central government
Environment,” Policy Review, Spring 1982, controls nearly every acre—score low in
pp. 11–50; Terry L. Anderson and Donald R. both economic freedom and environmental
Leal, Free Market Environmentalism (Boulder,
Colo.: Westview Press, 1991). performance.12
Environmental measures that infringe on
10. Robert J. Smith,” Resolving the Tragedy of
the Commons by Creating Private Property Rights property rights often backfire, as evidenced in
in Wildlife,” Cato Journal, Vol. 1, No. 2 (Fall 1981), the United States by the Endangered Species
at http://cei.org/pdf/4420.pdf.
11. Robert Nelson, A Burning Issue: A Case for 12. Miller and Holmes, 2010 Index of Economic
Abolishing the U.S. Forest Service (Lanham, Md.: Freedom, pp. 255–256 and 447–448; “2010 EPI
Rowman & Littlefield, 2000). Summary,” p. 4.

Chapter 4 57
Act.13 The statute has a very poor record of ac-
tually helping listed species, in part because it
Environmental Performance
punishes farmers, ranchers, and other property
and Trade Freedom
owners with onerous restrictions if such spe-
In the chart below, nations are placed into
cies appear on their land. The application of four equal-sized groups based on their Trade
this law forces landowners—many, if not most, Freedom score in the 2011 Index of Economic
of whom would otherwise be predisposed to- Freedom.
ward helping species—to preemptively make Average Score of the Environmental
their land unsuitable for endangered animals Performance Index
(for example, by cutting down trees before they 69.6
become big enough to serve as nesting sites for Correlation = 0.42
certain listed birds) and thus avoid the act’s po- 57.9
54.6
tentially ruinous burdens.14 51.7
Free trade, another component of the Index
of Economic Freedom, also correlates strongly
with environmental performance. (See Chart
5.) The reasons go beyond the wealth created
by the mutually beneficial exchange of goods
and services. Perhaps more important, trade
encourages the development and widespread
deployment of cleaner and more efficient tech-
nologies regardless of their nation of origin.15 Least Most
It also allows nations to specialize, enhancing Protected Protected
efficiencies that are both economically and en- Trade Freedom Quartile
vironmentally beneficial. Of course, to the ex-
Sources: Yale Center for Environmental Law & Policy
tent that nations restrict trade, they forgo some and Center for International Earth Science Information
or all of these benefits. For example, some Network in collaboration with the World Economic
Forum and Joint Research Centre of the European
countries impose strict tariffs on technologies Commission, 2010 Environmental Performance Index,
that could reduce greenhouse gas emissions January 2010, at http://www.epi.yale.edu/file_columns/
0000/0157/epi2010_report.pdf, and “2010 Environmental
and air pollutants.16 Performance Index: Summary for Policymakers,” at
http://ciesin.columbia.edu/repository/epi/data/
2010EPI_summary.pdf; Terry Miller and Kim R. Holmes,
13. Implementation of the Endangered Species 2011 Index of Economic Freedom (Washington, D.C.: The
Act of 1973, Report to the House Committee Heritage Foundation and Dow Jones & Company, Inc.,
on Resources, Majority Staff, 109th Congress, 2011), at www.heritage.org/index.
May 2005, at http://www.waterchat.com/Features/ Chart 5 heritage.org
Archive/050517_ESA_Implementation_Report.pdf.
14. Charles C. Mann and Mark L. Plummer,
Noah’s Choice: The Future of Endangered Species Free economies also encourage social sta-
(New York: Alfred A. Knopf, 1995).
bility, which is necessary in dealing with
15. Daniella Markheim, “Opportunity at environmental challenges. This is especially
Copenhagen—Nations Should Promote Free Trade
at the Climate Conference,” Heritage Foundation true of environmental problems with costly
Copenhagen Consequences, No. 7, December 4, 2009, and complex solutions that require a long-
pp. 3–5, at http://s3.amazonaws.com/thf_media/2009/ term commitment. Economic freedom is also
pdf/CC7.pdf; Sallie James, “A Harsh Climate for correlated with democratization and freedom
Trade: How Climate Change Proposals Threaten from corruption: The governments that are
Global Commerce,” Cato Institute Trade Policy
Analysis No. 41, September 9, 2009, pp. 14–17, at Tariffs,” Institute of Public Affairs Backgrounder
http://www.cato.org/pub_display.php?pub_id=10520. 21/1, August 2008, at http://www.ipa.org.au/
16. Tim Wilson, “Undermining Mitigation library/publication/1219192134_document_wilson_
Technology: Compulsory Licensing, Patents and mitigationtechnology.pdf.

58 2011 Index of Economic Freedom


most responsive to the popular will are the state-run agriculture over this span did not do
ones that deal most effectively with their en- nearly as well. Improvements in yield per acre
vironmental concerns. have allowed other land to be left in its natural
In sum, the very same principles that make state; in fact, the extent of American forests and
people freer and unleash economic progress also other natural habitat has increased along with
serve to advance environmental improvement. rising farm productivity.20
The agriculture example also demonstrates
FREEDOM’S TECHNOLOGICAL EDGE how technology and trade can intersect to ex-
The role of technology is also critical to en- tend the environmental benefits around the
vironmental protection. Many environmen- world. American food production currently
tal challenges await the technologies that can exceeds domestic demand, and the surplus
address them effectively and affordably, and is exported to countries that are less able to
free economies foster such innovation. This is produce it as efficiently. In other instances, the
partially due to the wealth effect, as stronger technological advances themselves have been
economies invest more in research and devel- exported, allowing farmers in other nations to
opment and can more readily afford to deploy achieve similar yield gains using the break-
new technologies.17 In addition, free economies throughs pioneered in the U.S. Either way, the
reward successful entrepreneurs, including environment benefits by reducing the amount
those who find ways to improve efficiency or of global habitat destruction from conversion
reduce waste.18 Intellectual property rights also to cropland. Of course, such benefits can ac-
help to incentivize the development of new crue only to the extent allowed by trade policy.
technologies, as do tax policies that encourage Just as farmers operating in a free economy
the replacement of older and dirtier plant and have dramatically improved productivity and
equipment with newer and cleaner production efficiency by incorporating new technologies,
processes. On the other hand, governments that so have manufacturers. Over time, every ton
prop up inefficient state-run entities or impose of steel, ream of paper, or new car requires less
burdensome environmental regulations on new energy and other resource inputs to produce
facilities while grandfathering less efficient old- and thus causes less pollution to be emitted.
er ones impede the benefits of capital turnover. In other words, technological advancement al-
There are many examples of free economies lows for a shrinking environmental impact per
leading the way with advances that provide unit of production.21 Though the motive is cost
both economic and environmental benefits. reduction and increased profits, the end result
For example, American agriculture has become is good for the environment.
much more efficient by incorporating improve- Manufacturing in Germany provides a
ments in crop varieties as well as advances in good example of the technological and envi-
farming methods and machinery. This has en- ronmental benefits of economic freedom. Dur-
abled a nearly threefold increase in the amount ing the Cold War, West Germany had more
of food grown in the U.S. since 1930 while ac- freedom and a cleaner environment than East
tually decreasing the acreage needed to grow Germany. It produced energy and goods with
it.19 Needless to say, the many experiments in considerably lower emissions per unit of out-
put. With the collapse of Communism, supe-
17. Goklany, The Improving State of the World, p. 108. rior West German technology flooded into
18. Indur Goklany, “Richer Is Cleaner: Long-Term the former East Germany, and environmental
Trends in Global Air Quality,” in The True State of
the Planet: Ten of the World’s Premier Environmental 20. Dennis Avery, “Saving the Planet with
Researchers in a Major Challenge to the Environmental Pesticides: Increasing Food Supplies While
Movement, ed. Ronald Bailey (New York: Free Preserving the Earth’s Biodiversity,” in The True
Press, 1995), pp. 343–345. State of the Planet, pp. 72–73.
19. Goklany, The Improving State of the World, 21. Goklany, “Richer Is Cleaner,” in The True State
pp. 117–121, 190. of the Planet, pp. 344–345.

Chapter 4 59
quality has been improving there ever since. col has been remarkably ineffective, and the
Today, North Korea and South Korea are in the United States has done a better job of reduc-
same situation as East and West Germany be- ing emissions as a treaty outsider than have
fore the Berlin Wall came down, with dispari- many signatory nations.25 Further, unlike these
ties in economic freedom leading to disparities expensive and heavy-handed restrictions on
in technological progress and environmental energy use, economic freedom makes sense
performance. whether or not global warming actually turns
The benefits of technology are likewise sig- out to be a real crisis.
nificant when it comes to global warming pol- In effect, free economies spur technological
icy, as they can achieve reductions in carbon advances that allow us to meet human needs
dioxide emissions from fossil fuel use. Carbon while treading ever more lightly on the Earth.
intensity, defined as carbon dioxide emissions
per unit of gross domestic product (GDP), has POLICY LESSONS
been declining globally.22 The correlation between economic freedom
There is a correlation between carbon inten- and environmental protection and the reasons
sity trends and economic freedom: The freest behind it offer two important lessons as the
of the major economies have generally led the world addresses environmental concerns.
way in reducing carbon intensity.23 In other The first is that the same principles that
words, free economies encourage finding make societies wealthy—free markets, prop-
ways to improve energy efficiency or utilize erty rights, rule of law, free trade, limited gov-
alternative energy sources, and this minimizes ernment—can also make them clean. Thus,
the increases in carbon dioxide emissions that the potential for environmental improvement
are created by each additional dollar of GDP. offers yet another good reason for nations to
The carbon intensity declines point the way pursue an agenda that raises their score in the
to a rational market-based global warming Index of Economic Freedom.
policy that has been ignored in the rush to ex- The second is that environmental measures
pand the role of government. The 1997 Kyoto that take nations in a direction away from eco-
Protocol global warming treaty and national nomic freedom—for example, by destroying
laws and regulations restricting greenhouse wealth or undercutting the workings of the
gas emissions—one form or another of cen- free market—can be ineffective if not counter-
tralized control over energy use—are all costly productive and should be avoided.
departures from economic freedom that show
little promise.24 For example, the Kyoto Proto- Special Report No. 71, November 17, 2009, at
http://www.heritage.org/Research/Reports/2009/
11/What-Americans-Need-to-Know-About-the-
22. U.S. Department of Energy, Energy Copenhagen-Global-Warming-Conference; David
Information Administration, International Energy W. Kreutzer, Karen A. Campbell, William W.
Annual 2006, Table H.1pco2, “World Carbon Beach, Ben Lieberman, and Nicolas D. Loris,
Intensity—World Carbon Dioxide Emissions from “What Boxer–Kerry Will Cost the Economy,”
the Consumption and Flaring of Fossil Fuels per Heritage Foundation Backgrounder No. 2365,
Thousand Dollars of Gross Domestic Product January 26, 2010, at http://www.heritage.org/
Using Purchasing Power Parities, 1980–2006,” Research/Reports/2010/01/What-Boxer-Kerry-Will-
at http://www.eia.doe.gov/pub/international/iealf/ Cost-the-Economy; Ben Lieberman, “Proposed
tableh1pco2.xls. Global Warming Bills and Regulations Will Do
23. Todd Wynn, “Economic Freedom: More Harm Than Good,” Heritage Foundation
A No-Regrets Strategy for Reducing Global WebMemo No. 2665, October 23, 2009, at
Energy Consumption,” Cascade Policy Institute, http://www.heritage.org/Research/Reports/2009/10/
April 2010, at http://www.cascadepolicy.org/pdf/ Proposed-Global-Warming-Bills-and-Regulations-
041310_Freedom_on_Energy.pdf. Will-Do-More-Harm-Than-Good.
24. See Ben Lieberman, “What Americans 25. See Lieberman, “What Americans Need to
Need to Know About the Copenhagen Global Know About the Copenhagen Global Warming
Warming Conference,” Heritage Foundation Conference,” p. 2.

60 2011 Index of Economic Freedom


Chapter 5

Economic Freedom and


the Pursuit of Happiness
Sebastiano Bavetta, Ph.D., and Pietro Navarra, Ph.D.

S EXERCISING FREE CHOICE


eventeen years of freedom measurements
conducted by The Heritage Foundation
In a celebrated essay on freedom, Isaiah
show that economic freedom and eco-
Berlin singled out the notion of negative free-
nomic prosperity go hand in hand. The strong
dom: that is, being free from impediments
relationship between the two variables is im-
(chiefly coercion by other people or the state)
portant and desirable. Nonetheless, the rela-
in the exercise of one’s voluntary actions.1 One
tionship is subject to criticism for ignoring oth-
might measure such voluntariness empirically
er important aspects of prosperity that involve
through data that reflect an individual’s op-
non-material aspects of subjective well-being
portunity to choose in a given legal or policy
such as happiness. In broadening the under-
environment.
standing of the relationship, it is necessary to
This, in fact, is the thrust of The Heritage
expand the concept of economic freedom so that
Foundation’s Index of Economic Freedom. The
it can explicitly encompass individuals’ con-
following passage from the 2010 Index is re-
scious and responsible exercise of free choice.
vealing in this regard:
This chapter looks at ways in which a mea-
sure of economic freedom like the Index of
A comprehensive definition of economic
Economic Freedom might be broadened to include
freedom should encompass all liberties and
a quantitative assessment, through subjective
rights of production, distribution, or con-
testimony, of a constitutive aspect of economic
sumption of goods and services. The highest
freedom—that is, the extent of responsible ex-
ercise of free choice—and then tests the interre-
1. See “Two Concepts of Liberty,” in Isaiah
lationships between the more broadly defined Berlin, Four Essays on Liberty (London: Oxford
economic freedom and well-being. University Press, 1996).

61
form of economic freedom should provide an mity. The great advantage of the market,
absolute right of property ownership; fully on the other hand, is that it permits wide
realized freedoms of movement for labor, diversity. It is, in political terms, a system
capital, and goods; and an absolute absence of proportional representation. Each man
of coercion or constraint of economic liberty can vote, as it were, for the color of the
beyond the extent necessary for citizens to tie he wants and get it; he does not have
protect and maintain liberty itself. In other to see what color the majority wants and
words, individuals in an economically then, if he is in the minority, submit.
free society would be free and entitled to
work, produce, consume, and invest in It is this feature of the market we refer
any way they please under a rule of law, to when we say that the market provides
with their freedom at once both protected economic freedom.5
and respected by the state.2
The interesting point in both Buchanan
All of the features of economic freedom and Friedman’s quotations is that they iden-
mentioned by the Index’s authors—foremost tify the possibility of shaping one’s own view
among them the explicit reference to voluntary of life in a unique fashion offered by market
exchange—recall, within the Berlinian frame, exchanges as the essential feature of econom-
the idea of voluntariness of action and absence ic freedom. This is hardly surprising. Many
of coercion by the state. While this idea goes a authors share the romantic view—masterful-
long way in defining and delineating economic ly canvassed by John Stuart Mill—that self-
freedom, some thoughtful writers have suggest- determination is a fundamental part of being
ed that there may be more to consider. free. In this conception, it is not enough to
In his fundamental contribution to a con- have the opportunity to choose; rather, the
tractarian theory of the state, James Buchanan act of choosing, and the acceptance of respon-
writes that “the free market offers maximal sibility for the consequences of the choices
scope for private, personal eccentricity, for made, is the focal point around which one’s
individual freedom in its most elementary individuality is shaped and fostered, leading
meaning.”3 Similarly, Milton Friedman high- to the exercise of a person’s autonomy. This
lights, chiefly in Capitalism and Freedom and notion of autonomy is elaborated in a field of
Free to Choose,4 the intimate relationship that normative economics known as the Freedom
ties economic freedom to diversity. Consider, of Choice Literature.6 Given its relatively re-
for example, the following: cent elaboration and the difficulties of quan-
tifying the concepts involved, it is perhaps
The characteristic feature of action not surprising that this idea of autonomy as
through political channels is that it tends a constitutive dimension of freedom has re-
to require or enforce substantial confor- ceived scant treatment in conventional mea-
sures of economic freedom.
2. Terry Miller and Anthony B. Kim, “Defining The authors of the Index deal indirectly
Economic Freedom,” Chapter 5 in Terry Miller
and Kim R. Holmes, Ph.D., 2010 Index of Economic with this issue by identifying what they call
Freedom (Washington: The Heritage Foundation “fundamental principles of economic free-
and Dow Jones & Company, Inc., 2010), p. 58. dom—empowerment of the individual, non-
3. James M. Buchanan, The Limits of Liberty: discrimination, and open competition—[that]
Between Anarchy and Leviathan (Chicago: University underpin and inform every measurement in
of Chicago Press, 1975), p. 18.
4. See Milton Friedman, Capitalism and Freedom 5. Friedman, Capitalism and Freedom, p. 15.
(Chicago: University of Chicago Press, 1962), 6. See Sebastiano Bavetta and Francesco Guala,
and Milton Friedman and Rose Friedman, Free to “Autonomy Freedom and Deliberation,” Journal
Choose: A Personal Statement (New York: Harvest of Theoretical Politics, Vol. 15, No. 4 (October 2003),
Books, 1990). pp. 423–443.

62 2011 Index of Economic Freedom


the Index of Economic Freedom.”7 The Index does it is unlikely that acting autonomously de-
not, however, attempt to provide empirical livers happiness; people have few if any op-
data that directly measure these fundamental portunities for self-determination, and real
principles of economic freedom. choices are severely constrained. In the second
The following analysis attempts to fill that country, market institutions and private own-
gap, using an empirical measure of autonomy ership are firmly established. People are the
introduced by Bavetta et al. in 20098 that is masters of their lives and, acting out of their
based on data from the World Values Survey own choices, determine the quantity and qual-
(WVS).9 The goal is to determine whether and ity of the goods and services they consume. In
the extent to which the effect on well-being such a country, though the exercise of freedom
exercised by an individual’s perception of his of choice entails some costs, as far as it gives
or her autonomy (autonomy freedom) is either people control over their lives, it makes them
reinforced or moderated by the traditional happier.
measures of economic freedom involving the The first country is representative of
absence of government coercion. state-led economies—for example, a former
Communist country in Eastern Europe or
THEORETICAL HYPOTHESES an authoritarian state in the Middle East—
The basic claim of this analysis is that eco- where goods and services are publicly pro-
nomic freedom and autonomy freedom com- vided and people are passive recipients of
plement each other in the enhancement of an heteronymous choices made by the govern-
individual’s well-being. This claim can be test- ment. The second is representative of market
ed through the development and examination economies—for example, an Organisation for
of two theoretical hypotheses. Economic Co-operation and Development
(OECD) country—where private enterprise
Hypothesis 1: For a given level of autonomy guides the allocation of goods and services to
freedom, the probability of greater well-being is their most efficient use out of people’s volun-
higher for individuals who live in countries with tary choices.
a higher level of economic freedom and lower for
individuals who live in countries with a lower level Hypothesis 2: A given increase in autonomy
of economic freedom. freedom has a larger impact on well-being in coun-
tries where economic freedom is lower and a smaller
Consider two countries. In the first, state in- impact on well-being in countries where economic
tervention supplants individual decision pro- freedom is higher.
cesses, leading to atrophy of people’s delibera-
tive skills and attitudes. In such a country, citi- Although changes in the level of econom-
zens are mere recipients of public goods and ic freedom affect the relationship between
services, the quantity and quality of which are autonomy and well-being as described in
decided by others. Under these circumstances, Hypothesis 1, it is important to examine the
effect on individual well-being of changes
7. Miller and Kim, “Defining Economic
in autonomy for different levels of economic
Freedom,” p. 57.
freedom. We hypothesize that a given change
8. See Sebastiano Bavetta, Maria Bottero, Dario
Maimone Ansaldo Patti, and Pietro Navarra, in autonomy grants higher well-being returns
“Autonomy Freedom: An Empirical Measure for in countries that are characterized by a lower
a Theoretical Concept,” mimeographed, London level of economic freedom.
School of Economics, Centre for Philosophy of Consider two countries with different lev-
Natural and Social Science, 2009. els of economic freedom. In the first, a high
9. See World Values Survey 1981–2008 Official degree of economic freedom makes a wider
Aggregate v. 20090901, 2009. World Values Survey
Association (www.worldvaluessurvey.org). Aggregate
set of opportunities to choose available to in-
File Producer: ASEP/JDS, Madrid. dividuals. Such opportunities, however, bring

Chapter 5 63
about higher deliberative costs for decision “very happy,” “rather happy,” “not very hap-
makers since processing the available infor- py,” and “not at all happy.” On the basis of this
mation in order to make truly autonomous scale, a binary dummy variable is constructed
choices requires greater effort. The exercise of taking the value of 1 if the individual is rather
autonomous behavior has limited effects on happy or very happy and 0 otherwise. Life sat-
well-being. In the second country, low levels isfaction is measured by asking respondents to
of economic freedom leave individuals with indicate how satisfied they are with their life as
few opportunities for choice. Under this cir- a whole, using a scale that ranges from 1 (not
cumstance, an increase in autonomy is unlike- at all satisfied) to 10 (very satisfied). Again, a
ly to bring about the higher deliberative costs binary dummy variable takes the value of 1 if
that might lead to significant improvements in the individual’s level of life satisfaction falls be-
the perceived level of well-being. Therefore, tween 6 and 10 and the value of 0 otherwise.
we expect that the same increase in the level of Happiness and life satisfaction are two dif-
autonomy provides greater well-being returns ferent elements of subjective well-being. In
in countries that are characterized by a lower order to corroborate the results of the analy-
level of economic freedom. sis, each person’s responses to the questions
Hypotheses 1 and 2 can be empirically about happiness and life satisfaction are com-
tested. bined to produce a composite measure of
subjective well-being (SWB) by giving equal
DATA AND EMPIRICAL weight to each variable. However, to accom-
METHODOLOGY plish this task, it is necessary to consider two
The data used in this empirical analysis facts.
are drawn from two main sources: the World
Value Survey database and The Heritage • Life satisfaction is measured on a 10-point
Foundation/Wall Street Journal Index of scale, while happiness is measured on a
Economic Freedom. The dataset allows a cross- four-point scale, and
country analysis that takes into consideration • The two survey questions have opposite
about 60 countries over a time span covering polarity.
the period 2004–2008. The
list of countries under in- Countries Under Investigation in This Analysis
vestigation in the empiri-
cal analysis is reported in Argentina India Rwanda
Table 1. Australia Indonesia South Africa
The dependent variable Brazil Iran South Korea
Bulgaria Iraq Serbia
in the empirical analysis is Burkina Faso Italy Slovenia
the extent of well-being en- Canada Japan Spain
joyed by individuals. The Chile Jordan Sweden
China Malaysia Switzerland
two measures commonly Colombia Mali Taiwan
adopted in the literature to Cyprus Mexico Thailand
evaluate the extent of indi- Egypt Moldova Trinidad and Tobago
Ethiopia Morocco Turkey
vidual well-being are hap- Finland Netherlands Ukraine
piness and life-satisfaction. France New Zealand Uruguay
Data for both variables are Georgia Norway United Kingdom
drawn from the WVS data- Germany Peru United States
Ghana Poland Vietnam
base. Happiness is assessed Guatemala Romania Zambia
by asking respondents to Hong Kong Russia
indicate how happy they Table 1 heritage.org
are, using four categories:

64 2011 Index of Economic Freedom


Therefore, following Ronald Inglehart et disentanglement of the effects of two different
al.,10 the SWB composite index is constructed components on an individual’s level of well-be-
as follows: SWB = life satisfaction – 2.5 × happi- ing: a random component (upper level) given
ness. If 100 percent of a given country’s people by the level of economic freedom (opportunity
are very happy and extremely satisfied, such a to choose) existing in the country where the
country will get the maximum score of 7.5. If individual lives and a fixed component (lower
happiness and life satisfaction are evenly bal- level) given by the extent of autonomy (autono-
anced, the country will get a score of zero. If my to choose) that the individual enjoys.
there are more people dissatisfied or unhappy This econometric technique allows examina-
than satisfied or happy, the country will get tion of whether and to what extent the impact
a negative score. As before, a binary dummy of autonomy on the level of the individual’s
variable takes the value of 1 if SWB ranges be- well-being is either reinforced or moderated
tween 5 and 7.5 and 0 otherwise. by the degree of economic freedom existing in
The determinant of individual well-being the country where he lives. With this objective
is freedom of choice. As noted, there are two in mind, the following equation is estimated:
aspects of free choice: opportunity to choose
and autonomy to choose. To calculate the ex- WBij = α0 + α1AFij + α2HEFj +ν0j + ν1jHEFj + εij
tent to which individuals enjoy opportunity to
choose, we use The Heritage Foundation/Wall where WB is the extent of well-being of individ-
Street Journal Index of Economic Freedom. This ual i in country j, AF indicates his level of au-
is a numerical indicator that ranges between 0 tonomy, HEF indicates the extent of economic
(the lowest degree of economic freedom) and freedom in country j, and ε is the error term.
100 (the highest degree of economic freedom). The terms ν0j and ν1jHEFj contextualize the
For the sake of a better data comparison, the relationship between an individual’s autono-
Index is rescaled over a range that goes from 1 my and his own well-being by considering the
(low economic freedom) to 10 (high economic level of economic freedom in the country where
freedom). As far as the measurement of the he lives. More specifically, ν0j is the specific ef-
individual’s extent of autonomy to choose, fect that shifts the intercept of the relationship
the measure of autonomy freedom (AF) in- between autonomy and well-being above or
troduced in Bavetta et al. is used. Such a mea- below the mean according to the extent of the
sure is based on individual-level data from the country’s economic freedom. The term ν1jHEFj
WVS in which survey respondents are asked allows the slope of the relationship between
to indicate to what extent they feel they have autonomy and well-being to be steeper or flat-
free choice and control over their lives, using ter than the mean according to the level of the
a scale that ranges from 1 (none at all) to 10 (a country’s economic freedom.
great deal). Therefore, the higher the value of Therefore, according to this equation, the
responses, the greater the extent of autonomy level of economic freedom existing in a specific
to choose. country shifts the intercept term of the regres-
A multilevel logit (ML) model is used to sion line above or below the mean and makes
establish whether economic freedom and au- its slope flatter or steeper.
tonomy complement each other to enhance
individual well-being. The ML model allows ESTIMATION AND RESULTS
Table 2 displays six ML regression mod-
10. Ronald Inglehart, Roberto Foa, Christopher els. In columns (a) and (b), the focus is on the
Peterson, and Christian Welzel, “Development, relationship between freedom of choice and
Freedom, and Rising Happiness: A Global
happiness. More specifically, in column (a) a
Perspective (1981–2007),” Perspectives on
Psychological Science, Vol. 3, No. 4 (2008), random intercept model is carried out. This is
pp. 264–285. a simplified estimation of the foregoing equa-

Chapter 5 65
Freedom of Choice and Individual Well-Being: Multilevel Logit Models
Standard errors are in parentheses.
Freedom of
Choice and Freedom of Choice and
Happiness Life Satisfaction, Subjective Well-Being

Independent Variables A B C D E F

Constant –1.827* –1.875* –4.551* –4.547* –4.906* –4.995*


(0.621) (0.666) (0.619) (0.693) (0.633) (0.691)

Individual-level variable: Autonomy 0.196* 0.197* 0.277* 0.278* 0.268* 0.269*


(0.004) (0.004) (0.004) (0.004) (0.005) (0.005)

Country-level variable: Economic Freedom 0.036* 0.036* 0.035* 0.036* 0.026* 0.028*
(0.009) (0.01) (0.009) (0.01) (0.009) (0.01)

Explained country-level variance (intercept) 12.24% 40.72% 12.34% 46.61% 12.69% 54.34%

Explained country-level variance (slope) 9.03% 10.84% 17.54%

* Statistically significant at 1 percent. Note: Individual-level variance: 3.29.


Sources: Authors’ calculations.
Table 2 heritage.org

tion, in which the between-country hetero- amination of the between-country heterogene-


geneity captured by differences in economic ity in terms of economic freedom by moves in
freedom is only given by shifts in the intercept the intercept as well as in the slope of the re-
of the regression. The results indicate that a gression line.
rise in autonomy as well as in economic free- Results in column (b) confirm the positive
dom increases the probability of happiness. effect of both autonomy and economic freedom
The ML analysis shows also that the level on the probability of happiness as in column
of economic freedom explains 12.24 percent (a). They also show that economic freedom af-
of country-level differences in the relation- fects the relationship between autonomy and
ship between autonomy and happiness. This happiness in both the intercept and the slope.
implies that economic freedom and autonomy The level of economic freedom explains 40.72
are two complementary aspects of freedom of percent of the country-level differences in the
choice in enhancing happiness: For a given relationship between autonomy and happi-
level of autonomy, the probability of happi- ness in terms of shifts in the intercept and 9.03
ness is higher in countries where the extent percent in terms of changes in the slope.
of economic freedom is higher and lower in These findings bring about two important
countries where the extent of economic free- implications.
dom is lower. First, as in column (a), for a given level of
This finding, depicted in Chart 1, con- autonomy the probability of happiness is great-
firms empirically the prediction stated in er in countries with higher levels of economic
Hypothesis 1. freedom and lower in countries with lower lev-
Column (b) displays the results obtained by els of economic freedom. Therefore, Hypothesis
estimating a random slope model in which the 1 is once more confirmed by the data.
full specification of our equation is estimated. Second, a change in the level of autonomy
As already pointed out, this model allows ex- freedom grants higher happiness returns in

66 2011 Index of Economic Freedom


Freedom of Choice and Happiness, Economic Freedom, Freedom of
by Country Choice, and Happiness
Taking two individuals enjoying the same In this chart, countries are clustered in two
extent of autonomy (AF), the probability groups according to their level of economic
of being happy is greater for the one who freedom, low and high. The average indicates
lives in a country with higher levels of the average level of economic freedom in the
economic freedom. Therefore, economic sample of countries under investigation. Taking
freedom and autonomy are complementary two individuals enjoying the same extent of
aspects of freedom of choice in enhancing autonomy (AF), the probability of being happy
happiness. The level of economic freedom is greater for the one who lives in a country
is the highest in Country 1 and progressively with higher levels of economic freedom. How-
declines in Countries 2, 3, and 4. The average ever, the same change in autonomy for both
refers to the average level of economic individuals (from AF to AF’) grants higher happi-
freedom in the sample of countries under ness returns to the one who lives in a country
investigation. belonging to the low economic freedom group.
Probability of Probability of Economic
Happiness Countries Happiness Freedom
Level
try 1
Coun
High
try 2
Coun ge
ge Avera
Avera
Low
try 3
Coun
try 4
Coun

AF AF AF’

Autonomy Autonomy
Note: Chart is based on a random-intercept multilevel Note: Chart is based on a random-intercept multilevel
logit model. logit model.

Chart 1 heritage.org Chart 2 heritage.org

countries endowed with lower levels of eco- columns (a) and (b) is used. The results mir-
nomic freedom and lower happiness returns ror those obtained for happiness and there-
in countries with higher levels of economic fore represent an empirical validation of
freedom. This result, depicted in Chart 2, em- Hypotheses 1 and 2.
pirically supports the theoretical predictions First, economic freedom and autonomy are
stated in Hypothesis 2. two aspects of freedom of choice that comple-
Columns (c) to (f) explore the relationship ment each other in determining life satisfac-
between freedom of choice and both life sat- tion and subjective well-being.
isfaction and subjective well-being. The same Second, a given change in the level of au-
econometric analysis already implemented in tonomy grants higher returns in terms of life

Chapter 5 67
satisfaction and/or subjective well-being in The results of our analysis, however, point
countries that are characterized by greater lev- to a different hypothesis. As a matter of fact,
els of economic freedom and lower returns in economically freer countries are character-
countries that are characterized by lower lev- ized by institutional environments in which
els of economic freedom. decision makers learn how to use the oppor-
Third, the same change in the level of auton- tunities on offer. The positive slope of the re-
omy awards higher returns in terms of both lationship between autonomy and happiness
life satisfaction and subjective well-being in depicted in Chart 1 shows that the know-how
countries displaying lower levels of economic that people acquire systematically prevails
freedom and lower returns in countries with over the complexity of the deliberative pro-
higher levels of economic freedom. cess. Contrary to some dissenting positions,
this analysis concludes that autonomy never
POLICY PRESCRIPTIONS depresses well-being, no matter how the latter
AND CONCLUSIONS term is defined.
This chapter argues that economic freedom The second consideration, which applies to
and autonomy are complementary measures. countries that do not experience substantial
The claim is confirmed by means of a robust levels of economic freedom, is more an intu-
empirical analysis. Estimation results show ition than a direct consequence of the analysis.
that both economic freedom and autonomy The results show that economic freedom and
foster individual well-being. autonomy complement each other. Observing
More specifically, a given level of autonomy the incredible variety of consequences pro-
leads to higher levels of happiness in coun- duced by liberalization processes, it is highly
tries that display a higher level of economic likely that autonomy plays a fundamental role
freedom. The reason for such a conclusion is in their success. As state-led economies open
that people in countries where market mecha- to market-oriented reforms, it is likely that
nisms prevail acquire the know-how to use their both material and non-material well-being
autonomy. However, a change in autonomy will increase. Yet, because of complementarity,
increases the probability of happiness more in this requires that the degree of autonomy en-
those countries in which economic freedom is joyed by individuals also increases. If it does
low. The reason for this conclusion is the lim- not, one could observe liberalizations with-
ited cost of choice imposed on decision makers out prosperity or, alas, a failure of the model.
where opportunities are restricted by the per- Restricting reflections to the first case only, the
vasiveness of the state or the absence of mate- policy consequence is that any government
rial prosperity. genuinely interested in the implementation of
Our estimation results suggest some prac- effective liberalization must foster autonomy
tical considerations concerning the role of au- or run the risk of being unsuccessful.
tonomous choice as a policy instrument for the Be that as it may, one should always re-
advancement of well-being. A dissenting view member that autonomy can never be imposed
states that an increase in the complexity of the successfully from above. Policymakers should
deliberative process jeopardizes the achieve- never lose sight of the fact that the desire for
ment of higher levels of well-being, especially responsibility, the search for one’s unique iden-
in advanced countries that enjoy the benefit of tity and way of living, is a seed that delivers
high levels of economic freedom and, as a con- fruit only if planted in each individual’s soul.
sequence, offer decision makers wider possibil- Such a fragile trait, no less than the sense of
ities for choice. As the exercise of autonomous a person’s dignity inscribed in the affirmation
behavior increases, it is argued, frustration of his or her identity, is almost certainly trans-
pushes individual well-being backwards be- mitted mainly and most effectively through
cause the complexity of the deliberative process cultural values and traditions that pass from
imposes costs that people can hardly manage. generation to generation.

68 2011 Index of Economic Freedom


Chapter 6

The Countries

T
his chapter reports data on economic free-
dom in each of the 183 countries covered
Albania’s Overall 2011
in the Index of Economic Freedom. Of these
Economic Freedom Score
183 countries, 179 are fully scored and ranked.
Economic Freedom Score
Because of data constraints, the remaining 50
four—Afghanistan, Iraq, Sudan, and Liechten- 25 75
stein—are covered without numerical grading. Least Most
Ranked countries are given a score ranging free 0 100 free
from 0 to 100 on each of the 10 components of 64.0
economic freedom, and these scores are then
Chart 1 heritage.org
averaged (using equal weights) to get the coun- Country’s Score Over Time
try’s final Index of Economic Freedom score.
In addition to the scores, the country pages est yearEconomic
for
Economic Freedom
which dataFreedom Score
are available)
Scorethrough
80
include a brief introduction describing eco- 2010. In some cases, 50
a 50
country is not graded
2525all 16 years, 70
7575 often because
nomic strengths and weaknesses and the polit- continuously for
ical and economic background influencing a Least
Least Most
Most60
free
free 00 100
100 free
free
country’s performance, as well as a statistical The Evolution of Albania’s
profile giving the country’s main economic Economic 64.0
64.0
Freedom Score50
indicators. These statistics and their sources are 40
outlined in detail below. Country’s
Country’s Score
ScoreOver
OverTimeTime
1995 ’97
’99 ’01 ’03 ’05 ’07 ’09 2011
Four visuals are included for each coun-
try. (The charts for Albania presented here are Country Comparisons 8080
examples of what the reader will see on each 7070
100
country page.)
6060
The first chart indicates the total economic 84.1
freedom score earned in the 2010 Index. The 80
5050
range of scores, from 0 to 100, is displayed on 64.0 66.8
a 180 degree arc, and a pointer indicates the 59.7 40
6040
country’s economic freedom level. 1995
1995 ’97’97 ’99’99 ’01’01 ’03’03 ’05’05 ’07’07 ’09’09 2011
2011
The second shows the evolution of the coun- Chart 2 heritage.org
Country
CountryComparisons
Comparisons 40
try’s score over time, from 1995 (or the earli-
100
20100
69
84.1
84.1
8080
Economic Freedom Score
50
25 75
Least Most
grading did
free not0 begin in the 1995
100 edition
free and Additionally, in the headings for the para-
64.0 political instabil-
frequently because violence, graphs explaining the country’s score in each
ity, or natural disaster has resulted in a lack of component, an indication is provided of the
reliableCountry’s
information,Score
making continuous
Over Time scor- change in the score for that component from
ing impossible. the 2010 Index to the 2011 Index.
The third chart graphs the country’s 80 eco- To assure consistency and reliability for each
nomic freedom score in comparison to the of the 10 components on which the countries
70
world average, the regional average, and the are graded, every effort has been made to use
average score of “free” economies in the 60 2011 the same data source consistently for all coun-
Index. tries; when data are unavailable from the pri-
50 mary source, secondary sources are used. (See
Albania’s 2011 Economic Freedom 40
Appendix, “Methodology for the 10 Economic
Score
1995 ’97 Versus Average
’99 ’01 ’03 Ratings
’05 ’07 ’09 2011
Freedoms.”)

Country Comparisons DEFINING THE “QUICK FACTS”


Each country page includes “Quick Facts”
100 with eight different categories of information.
84.1 Unless otherwise indicated, the data in each
80 country’s profile are for 2009 (the year for
64.0 66.8 which the most recent data are widely avail-
59.7 60 able) and in current 2009 U.S. dollars (also the
most recent available). The few cases in which
no reliable statistical data were available are
40
indicated by “n/a.” Definitions and sources
for each category of information are as follows.
20

• Population: 2009 data from World Bank,


0 World Development Indicators Online. For
Country World Regional Free
average average economies some countries, another source is the coun-
try’s statistical agency and/or central bank.
Chart 3 heritage.org
• GDP: Gross domestic product—total pro-
duction of goods and services—adjusted to
The fourth visual shows the country’s reflect purchasing power parity (PPP). The
global ranking in each of the 10 components of primary source for GDP data is World Bank,
economic freedom so that readers can quickly World Development Indicators Online 2010.
identify the comparative strengths and weak- The major secondary source is Internation-
nesses of economic freedom in each country. al Monetary Fund, World Economic Outlook
Database April 2010. Other sources include a
Albania’s Global Ranking by the 10 country’s statistical agency and/or central
Components of Economic Freedom bank.
• GDP growth rate: The annual percentage
COUNTRY’S WORLD RANKINGS growth rate of real GDP derived from con-
Business Freedom No. 85 Investment Freedom No. 50 stant national currency units, based on coun-
Trade Freedom No. 78 Financial Freedom No. 17
Fiscal Freedom No. 16 Property Rights No. 94 try-specific years. Annual percent changes
Government Spending No. 93 Freedom from Corruption No. 95 are year-on-year. The primary source is
Monetary Freedom No. 42 Labor Freedom No. 130
International Monetary Fund, World Eco-
Chart 4 heritage.org nomic Outlook Database April 2010. Secondary
sources include World Bank, World Develop-

70 2011 Index of Economic Freedom


ment Indicators Online 2010; Economist Intel- statistical agency and/or central bank.
ligence Unit, Country Reports, 2008–2010; • Foreign direct investment (FDI) inward
Asian Development Bank, Asian Develop- flow: This indicates the total annual inward
ment Outlook 2010; and a country’s statistical flow of FDI. Data are in current 2009 U.S.
agency and/or central bank. dollars, reported in millions. FDI flows are
• GDP five-year compound annual growth: defined as investments that acquire a last-
The compound average growth rate mea- ing management interest (10 percent or more
sured over a specified period of time. The of voting stock) in a local enterprise by an
compound annual growth rate is measured investor operating in another country. Such
using data from 2004 to 2009, based on real investment is the sum of equity capital, rein-
GDP expressed in constant national cur- vestment of earnings, other long-term capi-
rency units, based on country-specific years. tal, and short-term capital as shown in the
It is calculated by taking the nth root of the balance of payments and both short-term
total percentage growth rate, where n is the and long-term international loans. Data are
number of years in the period being consid- from United Nations Conference on Trade
ered. The primary source is International and Development, World Investment Report
Monetary Fund, World Economic Outlook 2010, and Economist Intelligence Unit, Coun-
Database, April 2010. Secondary sources are try Reports, 2008–2010.
World Bank, World Development Indicators
Online 2010, and Asian Development Bank, COMMONLY USED ACRONYMS
Asian Development Outlook 2010. • CARICOM: Caribbean Community and
• GDP per capita: Gross domestic product Common Market, composed of Antigua and
(adjusted for PPP) divided by total popula- Barbuda, the Bahamas, Barbados, Belize,
tion. The sources for these data are World Dominica, Grenada, Guyana, Haiti, Jamaica,
Bank, World Development Indicators Online Montserrat, Saint Lucia, St. Kitts and Nevis,
2010; International Monetary Fund, World St. Vincent and the Grenadines, Suriname,
Economic Outlook Database April 2010; U.S. and Trinidad and Tobago.
Central Intelligence Agency, The World Fact- • CEMAC: Central African Economic and
book 2010; and a country’s statistical agency Monetary Community, which includes Cam-
and/or central bank. eroon, the Central African Republic, Chad,
• Unemployment rate: A measure of the por- the Republic of Congo, Equatorial Guinea,
tion of the workforce that is not employed and Gabon.
but is actively seeking work. The primary • EU: European Union, consisting of Aus-
sources are U.S. Central Intelligence Agen- tria, Belgium, Bulgaria, Cyprus, the Czech
cy, The World Factbook 2010; Economist Intel- Republic, Denmark, Estonia, Finland,
ligence Unit, Country Reports, 2008–2010; France, Germany, Greece, Hungary, Ireland,
International Monetary Fund, Article IV Staff Italy, Latvia, Lithuania, Luxembourg, Malta,
Reports, 2008–2010; and a country’s statisti- the Netherlands, Poland, Portugal, Roma-
cal agency. nia, Slovakia, Slovenia, Spain, Sweden, and
• Inflation: The annual percent change in the United Kingdom.
consumer prices as measured for 2009 (or • IMF: International Monetary Fund, estab-
the most recent available year). The primary lished in 1945 to help stabilize countries
source for 2009 data is International Mone- during crises; now includes 186 member
tary Fund, World Economic Outlook Database, countries.
April 2010. Secondary sources are Econo- • MERCOSUR: Customs union that includes
mist Intelligence Unit, Country Reports, Argentina, Brazil, Paraguay, Uruguay, and
2008–2010; Asian Development Bank, Asian Venezuela.
Development Outlook 2010; and a country’s • OECD: Organisation for Economic Co-

Chapter 6 71
operation and Development, an interna- South Africa, and Swaziland.
tional organization of developed countries, • WTO: World Trade Organization, founded
founded in 1948; now includes 32 member in 1995 as the central organization dealing
countries. with the rules of trade between nations and
• SACU: Southern African Customs Union, based on signed agreements among 153
consisting of Botswana, Lesotho, Namibia, member countries.

72 2011 Index of Economic Freedom


AFGHANISTAN
Economic Freedom Score
50
25 75
Least Most
free 0 100 free
World Rank: Not ranked Regional Rank: Not ranked The economy is not graded

A fghanistan’s economic freedom cannot be graded


because of a lack of reliable data. Political uncertainty
and security challenges remain formidable, and govern-
Country’s Score Over Time
50
ment compilations of official economic data have been
inadequate. This Index assessment is based on the limited 40
data available from government and international sources.
Not graded this year 30
Afghanistan’s economic freedom will be ranked in future
editions when more reliable information becomes available. 20

Despite a decade of serious political and social upheavals, 10


the Afghan economy has achieved uneven but noticeable
1995 ’97 ’99 ’01 ’03 ’05 ’07 ’09 2011
development. Construction is the main driver of growth in
the formal, legitimate economy. Massive foreign assistance Country Comparisons
has permitted some improvements in areas such as health
and education. 100

Overall, the economic, political, and security environment 84.1


tends to suppress entrepreneurial activity, and there has 80
been little growth in productivity. Mid-level government
officials can impose bureaucratic delays on approvals and 59.7 57.4 60
permits and may be out of step with official policies aimed
at fostering a vibrant private sector. Continued political
instability and corruption are serious challenges to eco- 40
nomic development. The judicial system is weak.
20
BACKGROUND: Roiled by conflict since the 1978 Communist
Not
coup, Afghanistan is one of the world’s poorest countries. graded
After an American-led coalition ousted the Taliban govern- 0
Country World Regional Free
ment in 2001, a U.N.-sponsored conference established a average average economies
framework that led to a new constitution and successful
elections for a president in 2004 and parliament in 2005. Quick Facts
GDP grew significantly in 2009, largely as a result of foreign Population: 28.9 million
aid, but the economy remains hobbled by poor infrastruc- GDP (PPP): $27.0 billion
ture, a Taliban-led insurgency, and the government’s inabil- 22.5% growth in 2009
ity to extend the rule of law to many rural areas. President 11.9% 5-year compound annual growth
Hamid Karzai was re-elected in 2009 after his chief rival, $935 per capita
Dr. Abdullah Abdullah, declined to participate in the runoff Unemployment: 35.0% (2008)
elections, citing alleged vote-rigging in the first round of Inflation (CPI): –12.0%
elections. The economic dominance of illegal opium produc- FDI Inflow: $185 million
tion is a major impediment to political stability and sustain-
able development.

How Do We Measure Economic Freedom?


See page 447 for an explanation of the methodology 2009 data unless otherwise noted.
or visit the Index Web site at heritage.org/index. Data compiled as of September 2010.
73
AFGHANISTAN (continued)
THE TEN ECONOMIC FREEDOMS
BUSINESS FREEDOM: NOT GRADED
Processes for establishing businesses and obtaining busi-
COUNTRY’S WORLD RANKINGS
ness licenses have been relatively streamlined, but other Business Freedom n/a Investment Freedom n/a
Trade Freedom n/a Financial Freedom n/a
structural barriers persist. The inadequate regulatory sys- Fiscal Freedom n/a Property Rights n/a
tem and corruption among the officials who administer it Government Spending n/a Freedom from Corruption n/a
seriously impede entrepreneurial activity. Monetary Freedom n/a Labor Freedom n/a

TRADE FREEDOM: NOT GRADED cerns, inadequate regulations, lack of financial capacity,
Afghanistan’s weighted average tariff rate in 2008 was 6.5
corruption, inefficient bureaucracy, and slow privatization
percent. Inefficient customs administration, inadequate
of the many state-owned enterprises.
economic and physical infrastructure, undeveloped regu-
latory administration, and corruption delay transactions FINANCIAL FREEDOM: NOT GRADED
and increase costs. If Afghanistan were being graded, 15 The economy remains largely cash-based. There are 17
points would be deducted from its trade freedom score to commercial banks. Restructuring of state-owned banks
account for non-tariff barriers. has progressed, and domestic private banks account for
around half of total assets. Nevertheless, the financial
FISCAL FREEDOM: NOT GRADED sector, with its inadequate management and irregulari-
The top income and corporate tax rates are 20 percent. There
ties concerning insider lending, remains weak and a key
is also a 2 percent to 5 percent sales tax. In the most recent
impediment to private-sector development. Most bank
year, overall tax revenue as a percentage of GDP was 4.8
credit is short-term, and regulatory inefficiency under-
percent. Authorities are working to improve the tax system,
mines development. The difficulty of accessing credit
but weak governance and corruption impede tax collection. through formal financial institutions makes existing firms
dependent on family funds and limits opportunities for
GOVERNMENT SPENDING: NOT GRADED
entrepreneurial activity. Facing sudden withdrawals of
Though security spending is rising, increased donor fund-
cash deposits triggered by allegations of corruption in
ing has kept the fiscal balance relatively stable. In the
2010, the government stepped in to prevent the collapse of
most recent year, total government expenditures, includ-
Kabul Bank, the largest private bank, which has ties to the
ing consumption and transfer payments, remained low at
Karzai administration.
19.4 percent of GDP. Commercial laws that could lay the
foundation for further privatization have not been imple- PROPERTY RIGHTS: NOT GRADED
mented. Public enterprises need greater transparency and Afghanistan’s judicial system is severely underdeveloped.
stronger governance. There is no enforcement of patent and copyright laws. Pro-
tection of property rights is weak due to a lack of property
MONETARY FREEDOM: NOT GRADED
registries or a land titling database, disputed land titles,
Lower world food prices and prudent monetary policy
lack of capacity by commercial courts, and widespread cor-
pushed the 12-month rate of inflation down from a peak
ruption. The bankruptcy law is ineffective. Afghanistan has
of 43 percent in May 2008 to –13 percent in November
no legislation on intellectual property rights and does not
2009. Price controls exist in major cities, and controls on
belong to any international IPR-protection organizations.
egg, milk, cheese, bread, meat, fruit, and vegetable prices
vary by municipality. If Afghanistan were being graded, FREEDOM FROM CORRUPTION: NOT GRADED
10 points would be deducted from its monetary freedom Corruption is perceived as rampant. Afghanistan ranks
score to account for measures that distort domestic prices. 179th out of 180 countries in Transparency International’s
Corruption Perceptions Index for 2009. Corruption per-
INVESTMENT FREEDOM: NOT GRADED meates all sectors and levels of government and seriously
Foreign and domestic firms are treated equally under the
impedes the rebuilding of state institutions. The very
law, but foreign investment in certain sectors, such as non-
large opium economy is the most significant source of
banking financial activities, insurance, natural resources,
corruption.
power, water, sewage, waste treatment, airports, telecom-
munications, and health and education facilities, receives LABOR FREEDOM: NOT GRADED
special scrutiny. Foreign investors may not own land but Political and security instability prevents the development
may own 100 percent of a company. Afghanistan has no of a modern labor market. Laws and regulations on wage
capital or currency controls. The state can expropriate an rates and work hours are ineffective. Opium-related activi-
investment or asset for public-interest purposes on a non- ties and a large informal economy dampen development
discriminatory basis and must provide fair-market-value of a functioning labor market. A new labor law went into
compensation. No seizures of foreign-owned assets have effect in mid-2009, but the government lacks the capacity
been reported. Investment is discouraged by security con- to enforce labor regulations.

74 2011 Index of Economic Freedom


ALBANIA
Economic Freedom Score
50
25 75
Least Most
free 0 100 free
World Rank: 70 Regional Rank: 33 64.0

A lbania’s economic freedom score is 64, making its econo-


my the 70th freest in the 2011 Index. Its level of economic
freedom declined by 2 points during the past year, due pri-
Country’s Score Over Time
80
marily to decreases in trade freedom, investment freedom,
freedom from corruption, labor freedom, and its govern- 70
ment spending score. Albania is ranked 33rd freest among
60
the 43 countries in the Europe region, and its overall score
is above the world average. 50

Albania has achieved strong economic growth over the past 40


five years, driven mainly by the services and construction
1995 ’97 ’99 ’01 ’03 ’05 ’07 ’09 2011
sectors and reflecting significant diversification of the eco-
nomic base. The government has taken steps to enhance the Country Comparisons
business environment and has adopted broad structural
reforms to foster growth in the private sector. 100

Although foreign direct investment has increased in recent 84.1


years, levels still remain among the lowest in the region. 80
Albania’s overall economic freedom score is constrained by 64.0 66.8
weak property rights and pervasive corruption. The low 59.7 60
property rights score is largely a result of political interfer-
ence in the judiciary.
40
BACKGROUND: Albania remains one of Europe’s poorest
countries despite some economic and political reform since
20
1992, when nearly 50 years of Communist rule ended. The
government has been pursuing greater integration into the
Euro–Atlantic community for several years. Albania signed 0
Country World Regional Free
a Stabilization and Association Agreement with the Euro- average average economies
pean Union in June 2006 as the first step toward EU mem-
bership and submitted a full application for membership Quick Facts
in April 2009. The EU is currently working with Albania Population: 3.2 million
to liberalize European visa requirements so that Schengen- GDP (PPP): $22.8 billion
area countries may be entered without a visa. In April 2009, 2.8% growth in 2009
Albania achieved full membership in NATO, marking a 5.5% 5-year compound annual growth
milestone in its political development. Albania’s transpor- $7,164 per capita
tation and energy infrastructure are poor by European stan- Unemployment: 12.8%
dards. The agricultural sector remains the largest source of Inflation (CPI): 2.2%
employment. FDI Inflow: $979.4 million

How Do We Measure Economic Freedom?


See page 447 for an explanation of the methodology 2009 data unless otherwise noted.
or visit the Index Web site at heritage.org/index. Data compiled as of September 2010.
75
ALBANIA (continued)
THE TEN ECONOMIC FREEDOMS
BUSINESS FREEDOM: 67.1 – 0.9
Albania’s regulatory system is not fully transparent but COUNTRY’S WORLD RANKINGS
is becoming more conducive to entrepreneurial activity. Business Freedom No. 85 Investment Freedom No. 50
Trade Freedom No. 78 Financial Freedom No. 17
Establishing and running a business has been facilitated
Fiscal Freedom No. 16 Property Rights No. 94
by recent reforms. Many license requirements have been Government Spending No. 93 Freedom from Corruption No. 95
abolished, and a broad simplification of licensing proce- Monetary Freedom No. 42 Labor Freedom No. 130
dures has been undertaken.

TRADE FREEDOM: 79.8 – 6.0 ate an investment or asset in rare cases for public-interest
purposes, but there are legal provisions for compensation.
Albania’s weighted average tariff rate in 2009 was 5.1 per-
cent. Import taxes may be based on a government-deter- Inadequate infrastructure, lack of reliable power, weak rule
of law, poorly defined property rights, inefficient bureau-
mined fair market price, regardless of the actual price paid.
cracy, and corruption discourage foreign investment.
Weak enforcement of intellectual property rights, inade-
quate trade capacity, and administrative bureaucracy delay FINANCIAL FREEDOM: 70 no change
trade and increase costs. Ten points were deducted from Albania’s financial sector has grown rapidly and is totally
Albania’s trade freedom score to account for non-tariff dominated by commercial banks funded with private capi-
barriers. tal. Currently, 16 banks are in operation: two domestically
FISCAL FREEDOM: 92.1 – 0.5 owned banks and 14 foreign or joint ventures. Banking has
benefited from more competition and better availability of
Personal income and corporate tax rates are a flat 10 per-
services. Supervisory regulations have been strengthened
cent. Other taxes include a value-added tax (VAT), a prop-
to preserve financial stability. In response to the global
erty tax, and an inheritance tax. In the most recent year,
financial crisis, the Bank of Albania has acted to increase
overall tax revenue as a percentage of GDP was 24 percent.
liquidity and maintain public confidence. With little or no
GOVERNMENT SPENDING: 68.7 – 5.5 direct exposure to recently troubled international financial
assets, Albania’s banking system has been able to with-
A fiscal stimulus totaling 1 percent of GDP was financed
in large part by privatization of the national electricity dis- stand the global financial shock with little disruption.
tribution systems. In the most recent year, total govern-
PROPERTY RIGHTS: 35 no change
ment expenditures, including consumption and transfer
Albania’s constitution provides for an independent judi-
payments, rose slightly to 32.3 percent of GDP. The once-
ciary, but political pressure, intimidation, corruption, lim-
steady fiscal deficit jumped to 7.4 percent of GDP, driving
ited resources, and organized crime are obstacles to the
public debt to 60 percent of GDP, the legal limit in Albania.
effective administration of justice. Overall protection of
MONETARY FREEDOM: 79.9 + 1.2 intellectual property rights is weak, although there has
been some progress with respect to industrial property
Inflation was relatively low at 2.2 percent in 2009 due to
the sharp fall in international oil prices and food price and trademarks. Albania still lacks a clear property rights
disinflation, but averaged 4.1 percent in the first quarter system, particularly for land tenure. Security of land rights
of 2010 following the depreciation of the lek against the remains a problem in coastal areas where there is potential
euro and the U.S. dollar. Regulatory agencies continue to for tourism development.
oversee prices. Ten points were deducted from Albania’s
monetary freedom score to account for measures that dis-
FREEDOM FROM CORRUPTION: 32 – 2.0
Corruption is perceived as widespread. Albania ranks 95th
tort domestic prices.
out of 180 countries in Transparency International’s Cor-
INVESTMENT FREEDOM: 65 – 5.0 ruption Perceptions Index for 2009, a decline from 2008.
While significant reforms of the legal system are underway,
Foreign and domestic firms are treated equally under
the courts are slow, inefficient, and subject to political pres-
the law, and nearly all sectors are open to foreign invest-
sures and corruption. Albania is a major transit country for
ment. Foreigners may not purchase agricultural land but
human trafficking and illegal arms and narcotics.
may rent it for up to 99 years. They also may purchase
commercial property if the proposed investment is worth
three times the price of the land. There are no restrictions
LABOR FREEDOM: 50.4 – 1.7
Albania has a high level of self-employment, which in
on foreign ownership of other property. Foreigners may part reflects poor development of the labor market. Labor
own 100 percent of Albanian companies, and monetary demand in the formal economy is largely restricted to the
expatriation is legal. Residents and non-residents may public sector. Rigid employment regulations hinder pro-
hold foreign exchange accounts. The state can expropri- ductivity growth.

76 2011 Index of Economic Freedom


ALGERIA
Economic Freedom Score
50
25 75
Least Most
free 0 100 free
World Rank: 132 Regional Rank: 14 52.4

A lgeria’s economic freedom score is 52.4, making its econ-


omy the 132nd freest in the 2011 Index. Its overall score is
4.5 points lower than last year due to worsened investment
Country’s Score Over Time
80
freedom, government spending, freedom from corruption,
and labor freedom. Algeria is ranked 14th among the 17 70
countries in the Middle East and North Africa region, and its
60
score remains lower than both the regional and world averages.
50
Algeria still faces critical economic challenges. Structural
reforms to diversify the economic base have achieved only 40
marginal success. Government revenue from hydrocarbons
1995 ’97 ’99 ’01 ’03 ’05 ’07 ’09 2011
has allowed reductions in external debt, but the inefficient
business environment continues to impede development of Country Comparisons
the non-hydrocarbon sector and job creation.
100
In more than half of the 10 economic freedoms, Algeria per-
forms below world averages. Persistent problems include 84.1
an underdeveloped financial sector, corruption, and politi- 80
cal interference in the judiciary. A 49 percent cap on foreign
investors’ ownership in significant ventures introduced 59.7 60.6
60
in 2009 has caused Algeria’s investment freedom score to 52.4
decline. Liberalization of external trade has slowed, and
accession to the World Trade Organization has been further 40
delayed.
20
BACKGROUND: After Algeria gained its independence from
France in 1962 following eight years of civil war, the revo-
lutionary government adopted a socialist economic model 0
Country World Regional Free
that held back development. Violent conflict in the 1990s average average economies
between Islamist militants and the government claimed
more than 100,000 lives. A peace accord negotiated in 1999 Quick Facts
delivered greater political stability, but some Islamist mili- Population: 35.0 million
tants merged with al-Qaeda in 2006 and remain a threat. GDP (PPP): $240.3 billion
Although President Abdelaziz Bouteflika was re-elected by 2.0% growth in 2009
a wide margin in 2009, some opposition leaders questioned 2.4% 5-year compound annual growth
the fairness of the elections. Algeria is the world’s fourth- $6,869 per capita
largest exporter of natural gas and has the world’s eighth- Unemployment: 10.2%
largest natural gas reserves and 15th-largest oil reserves. Inflation (CPI): 5.7%
The government hopes to diversify the economy by attract- FDI Inflow: $2.8 billion
ing foreign and domestic private investment in non-energy
sectors.

How Do We Measure Economic Freedom?


See page 447 for an explanation of the methodology 2009 data unless otherwise noted.
or visit the Index Web site at heritage.org/index. Data compiled as of September 2010.
77
ALGERIA (continued)
THE TEN ECONOMIC FREEDOMS
BUSINESS FREEDOM: 69.4 – 1.8
Years of ineffective regulatory reform have brought little COUNTRY’S WORLD RANKINGS
relief. The inefficient entrepreneurial environment contin- Business Freedom No. 78 Investment Freedom No. 152
Trade Freedom No. 110 Financial Freedom No. 133
ues to impede broader economic development and worsen
Fiscal Freedom No. 53 Property Rights No. 99
unemployment. The regulatory framework is often under- Government Spending No. 111 Freedom from Corruption No. 113
mined by complex bureaucracy and inconsistent applica- Monetary Freedom No. 90 Labor Freedom No. 122
tion of commercial laws.

TRADE FREEDOM: 72.8 + 2.1 The investment code is transparent, but administration and
bureaucracy can be burdensome. Residents and non-resi-
Algeria’s weighted average tariff rate in 2009 was 8.6 per-
cent. Problems with customs clearance procedures are the dents may hold foreign exchange, subject to some restric-
principal complaint from foreign companies. Inconsistent tions. Foreign investors may repatriate profits, subject to
enforcement of property rights, import and export controls, restrictions. Tax law requires companies to reinvest within
and restrictive labeling, sanitary, and phytosanitary regula- four years the value of any tax incentives received or face
tions still delay trade and increase costs. Ten points were a 30 percent penalty, and foreign companies transferring
deducted from Algeria’s trade freedom score to account profits out of Algeria are subject to a tax of 15 percent.
for non-tariff barriers.
FINANCIAL FREEDOM: 30 no change
FISCAL FREEDOM: 83.5 no change Banking and financial reform, ostensibly a goal over the
The top income tax rate is 35 percent. The top corporate tax past decade, has been uneven and slow. The financial
rate is 25 percent, though production, public works, and system remains vulnerable to government interference.
tourism are subject to a 19 percent rate. Other major taxes Delays in modernizing the banking sector and reducing
include a value-added tax (VAT) and a withholding tax state involvement have led to inefficient credit allocation
on dividends. In the most recent year, overall tax revenue and have kept the non-hydrocarbon sector from develop-
as a percentage of GDP has held steady at 8 percent. Tax ing. State-owned banks account for around 90 percent of
reform efforts have centered on improving the collection assets. In late 2007, citing the slowdown of global financial
of non-hydrocarbon taxes. markets, the government delayed the privatization of one
of the state-owned banks, Credit Populaire d’Algerie; it
GOVERNMENT SPENDING: 62.4 – 11.0 has now been suspended indefinitely. The stock exchange
Hydrocarbon export revenue continues to finance gov- remains undeveloped and lists only three companies.
ernment spending, including the public infrastructure
program. Government spending has risen to 35.4 percent PROPERTY RIGHTS: 30 no change
of GDP. Authorities have acknowledged the need to mod- The constitution provides for an independent judiciary,
ernize the budgetary system and improve the efficiency of but the legal system is inefficient, and the executive branch
public spending to maintain long-term fiscal stability and influences judicial actions. Most real property is govern-
counter Algeria’s first fiscal deficit in a decade, reported at ment-owned, and conflicting title claims make buying and
8 percent of GDP. financing real estate difficult. Implementation of legislation
protecting copyright and related rights, trademarks, pat-
MONETARY FREEDOM: 75.4 – 1.8 ents, and integrated circuits is inconsistent, and enforce-
Domestic price pressures remained high in 2010 with ment remains spotty.
inflation, which averaged 5.8 percent in 2009, only slightly
weaker at a projected 4.9 percent due to robust domestic FREEDOM FROM CORRUPTION: 28 – 4.0
demand and monopolistic price rigidity in a number of Corruption is perceived as widespread. Public procure-
product markets. Distortionary subsidies and direct price ment is often tainted with irregularities, including exces-
controls on some essential commodities including water, sive use of private agreements. Algeria ranks 111th out of
energy, and agricultural products remain in place. Ten 180 countries in Transparency International’s Corruption
points were deducted from Algeria’s monetary freedom Perceptions Index for 2009, a drop from 2008. There were a
score to account for measures that distort domestic prices. number of arrests in 2009 and early 2010 in several corrup-
tion scandals involving high-ranking officials in a variety
INVESTMENT FREEDOM: 20 – 25.0 of ministries and state-owned enterprises.
The Complementary Finance Law of 2009 requires major-
ity Algerian ownership of new foreign investment. For- LABOR FREEDOM: 52.9 – 3.5
eign ownership is limited to joint-venture relationships With about 75 percent of the unemployed younger than
in hydrocarbons and some other sectors. Privatization has 30, youth unemployment remains persistently high. The
stalled due to limited interest among foreign investors and non-salary cost of employing a worker is high, although
the government’s lack of confidence in the process. The dismissing a redundant employee is relatively easy and
global financial crisis has put bank privatization on hold. inexpensive.

78 2011 Index of Economic Freedom


ANGOLA
Economic Freedom Score
50
25 75
Least Most
free 0 100 free
World Rank: 161 Regional Rank: 40 46.2

A ngola’s economic freedom score is 46.2, making its econ-


omy the 161st freest in the 2011 Index. Its overall score
has declined by 2.2 points, primarily because of worsened
Country’s Score Over Time
50
scores in business freedom, government spending, and
labor freedom. Angola is ranked 40th out of 46 countries in 40
the Sub-Saharan Africa region.
30
The Angolan economy remains heavily dependent on oil
20
production, with growth vulnerable to global oil prices. The
drop in oil prices triggered by the global economic slow- 10
down had a significant effect on government revenue.
1995 ’97 ’99 ’01 ’03 ’05 ’07 ’09 2011
Despite the government’s plan to diversify its economic
base away from oil and diamonds, progress in stimulating
Country Comparisons
development of the non-oil private sector has been sluggish.
100
Pervasive corruption and a lack of institutional momentum
undermine the implementation of other important reform 84.1
policies. Monetary stability remains fragile, regulation 80
chokes private business investment, and the judiciary is
politically influenced. Inconsistent and confusing regula- 59.7 60
tions make entrepreneurial activity costly and difficult. 53.5
46.2
Monopolies and quasi-monopolies still dominate the lead-
ing sectors of the economy. 40

BACKGROUND: Since the end of a 27-year civil war in 2002,


20
Angola has been repairing and improving its ravaged infra-
structure and weak political and social institutions. Presi-
dent José Eduardo dos Santos has ruled since 1979, and his 0
Country World Regional Free
Popular Movement for the Liberation of Angola (MPLA) average average economies
won a strong victory in the 2008 parliamentary elections.
Despite promising to hold presidential elections in 2009, Quick Facts
dos Santos has made an election date contingent on the Population: 17.3 million
drafting of a new constitution. Angola has extensive oil GDP (PPP): $105.9 billion
and gas resources, diamonds, hydroelectric potential, and –0.4% growth in 2009
rich agricultural land, but many Angolans remain poor and 12.6% 5-year compound annual growth
dependent on subsistence agriculture. The recent decline in $6,117 per capita
international oil prices has depressed economic growth and Unemployment: 40% (2006)
strained the budget. Corruption and public-sector misman- Inflation (CPI): 14.0%
agement are pervasive, particularly in the oil sector, which FDI Inflow: $13.1 billion
accounts for approximately 85 percent of GDP, 95 percent of
exports, and 80 percent of government revenue.

How Do We Measure Economic Freedom?


See page 447 for an explanation of the methodology 2009 data unless otherwise noted.
or visit the Index Web site at heritage.org/index. Data compiled as of September 2010.
79
ANGOLA (continued)
THE TEN ECONOMIC FREEDOMS
BUSINESS FREEDOM: 41.4 – 2.0
Despite some progress, burdensome regulations continue COUNTRY’S WORLD RANKINGS
to hinder private-sector development. The regulatory sys- Business Freedom No. 157 Investment Freedom No. 123
Trade Freedom No. 123 Financial Freedom No. 106
tem lacks transparency and clarity, and regulations are
Fiscal Freedom No. 41 Property Rights No. 146
inconsistently enforced. Government Spending No. 137 Freedom from Corruption No. 164
Monetary Freedom No. 168 Labor Freedom No. 155
TRADE FREEDOM: 70.2 – 0.2
Angola’s weighted average tariff rate was 7.4 percent in
2009. Angola is the first Southern African Development ing). The regulatory system is non-transparent and time-
Community country to publish a consolidated customs consuming, lacks capacity, and is subject to corruption.
code. Barriers to free trade include preferential treatment There are few specific performance requirements on for-
eign investments, but “Angolanization” of companies and
for domestic companies with respect to government pro-
greater use of Angolan suppliers are encouraged. Reforms
curement, variable and high customs fees and taxes, import
have improved local access to foreign exchange, and repa-
licensing, government import authorizations, the unclear
triation of profits for officially approved foreign investment
regulatory environment, inadequate customs capacity,
is guaranteed, subject to some restrictions. Land generally
and issues involving enforcement of intellectual property
must be obtained from the state. Direct expropriation of
rights. Fifteen points were deducted from Angola’s trade
foreign investors’ assets is relatively unlikely.
freedom score to account for non-tariff barriers.
FINANCIAL FREEDOM: 40
FISCAL FREEDOM: 84.5 – 0.6 no change
Banking is relatively well capitalized, and foreign banks
Angola has a relatively low income tax rate but a burden-
have driven growth. There are 18 commercial banks, but
some corporate tax rate. The top income tax rate has been
three major banks (two of them government-owned) still
raised to 17 percent. The top corporate tax rate is 35 per-
dominate the system. The granting of credit to the private
cent, though the mining and oil industries are subject to
sector, which had increased sharply before the global finan-
rates as high as 50 percent, while agriculture benefits from
cial crisis, has slowed. Banking services remain rudimen-
a 20 percent rate. Other taxes include a fuel tax and a con-
tary. Complicated administrative procedures for obtaining
sumption tax. In the most recent year, overall tax revenue
a loan or opening a bank account have limited access to
as a percentage of GDP remained steady at 6.1 percent.
financial services. After years of delay, the Luanda Stock
GOVERNMENT SPENDING: 48.1 – 14.7 Exchange was expected to open during 2010 with 10 com-
panies listed. The insurance sector has only five companies
Increased oil revenue has funded rising expenditures,
though external financing still accounts for most public and is funded primarily from the oil and gas sector.
infrastructure investment. Government interference in the
PROPERTY RIGHTS: 20 no change
economy is widespread. In the most recent year, total gov-
Angola’s legal and judicial system is inefficient and sub-
ernment spending, including consumption and transfer
ject to executive influence. Legal fees are high, and most
payments, rose to 41.6 percent of GDP. The fiscal deficit
businesses avoid taking commercial disputes to court. All
reached 9 percent of GDP. Debt management capacity is
non-urban and some urban land is ultimately state-owned
fragmented and weak.
but can be leased to private entities. Regulations to imple-
MONETARY FREEDOM: 61.8 – 0.8 ment the 2004 land-tenure law have not been issued. Prop-
erty registration is lengthy and expensive. Angola ranked
Inflation rose to an average of 13.7 percent in 2009. Mon-
etary and exchange-rate policy has been politicized as a 114th out of 115 countries in the 2009 International Prop-
result of the loss in May 2010 of central bank indepen- erty Rights Index.
dence in setting interest rates, and inflation is forecast to FREEDOM FROM CORRUPTION: 19 no change
remain above 13 percent through 2011. Key sectors remain Corruption is perceived as rampant, especially among gov-
government-owned, and price controls are pervasive in ernment officials at all levels, and investigations and prose-
many sectors, including fuel and electricity. Fifteen points cutions of government officials are practically nonexistent.
were deducted from Angola’s monetary freedom score to Angola ranks 162nd out of 180 countries in Transparency
account for measures that distort domestic prices. International’s Corruption Perceptions Index for 2009.
INVESTMENT FREEDOM: 35 no change
Foreign investors receive equal treatment, but investment
LABOR FREEDOM: 42.3 – 2.9
Restrictive labor regulations hinder employment and
in certain sectors is restricted. Government approval is productivity growth. The non-salary cost of employing
needed for foreign investments exceeding $100,000 and a worker is low, but dismissing a redundant employee is
investments that require a concession (such as oil and min- relatively costly.

80 2011 Index of Economic Freedom


ARGENTINA
Economic Freedom Score
50
25 75
Least Most
free 0 100 free
World Rank: 138 Regional Rank: 24 51.7

A rgentina’s economic freedom score is 51.7, making its


economy the 138th freest in the 2011 Index. Its overall
score has increased by 0.5 point from the 2010 Index. Argen-
Country’s Score Over Time
80
tina is ranked 24th out of 29 countries in the South and
Central America/Caribbean region, and its overall score is 70
below the regional and world averages.
60
Having weathered the global economic slowdown, the
50
Argentine economy is recovering from a sharp economic
contraction in 2009. Recent growth has been driven mainly 40
by the agricultural sector and exports of agricultural com-
1995 ’97 ’99 ’01 ’03 ’05 ’07 ’09 2011
modities. The strength of the economic rebound, however,
may be held back by the government’s ongoing expansion- Country Comparisons
ary fiscal and monetary policies.
100
The government has increased regulatory intervention
in recent years, undermining previous years’ structural 84.1
reforms that encouraged diversification and private invest- 80
ment. The state’s role in the economy has grown, and the
financial sector remains constrained by government influ- 59.7 60.2
60
ence. Institutional weaknesses, including corruption and a 51.7
weak judiciary, continue to hold back Argentina’s overall
economic freedom and development. 40

BACKGROUND: Argentina has a long history of political


20
instability; since World War II, three democratically elected
presidents have been forced out of office. Cristina Fernán-
dez de Kirchner succeeded her husband Néstor as president 0
Country World Regional Free
in late 2007. Argentina is a leading exporter of agricul- average average economies
tural commodities, especially soybeans and beef, and has
rich natural resources, a highly literate population, and a Quick Facts
diversified industrial base. President Kirchner’s popularity Population: 40.1 million
declined steadily starting in early 2008 after she attempted GDP (PPP): $584.4 billion
to impose steep export taxes on commodities when world 0.9% growth in 2009
prices were booming. The seizure of more than $25 billion 6.1% 5-year compound annual growth
in private pension funds to support increasingly statist gov- $14,561 per capita
ernment spending adversely affected private investment Unemployment: 8.7%
and economic growth, as did the global economic down- Inflation (CPI): 6.3%
turn. By the middle of 2010, the economy had recovered FDI Inflow: $4.9 billion
slightly as a result of higher commodity prices.

How Do We Measure Economic Freedom?


See page 447 for an explanation of the methodology 2009 data unless otherwise noted.
or visit the Index Web site at heritage.org/index. Data compiled as of September 2010.
81
ARGENTINA (continued)
THE TEN ECONOMIC FREEDOMS
BUSINESS FREEDOM: 62.4 + 0.3 COUNTRY’S WORLD RANKINGS
Argentina’s regulatory environment remains burdensome,
inconsistent, and not fully transparent. The state’s rules Business Freedom No. 103 Investment Freedom No. 103
governing market entry and the creation of new corpora- Trade Freedom No. 130 Financial Freedom No. 133
Fiscal Freedom No. 137 Property Rights No. 146
tions, as well as various sectoral regulations, do not sup- Government Spending No. 49 Freedom from Corruption No. 107
port innovation and productivity growth. Monetary Freedom No. 164 Labor Freedom No. 138

TRADE FREEDOM: 69.5 no change


Argentina’s weighted average tariff rate was 5.3 percent public-sector securities purchased in the secondary market
in 2009. Import and export bans and controls, restrictions are restricted. Foreign and domestic institutional investors
on trade in services, import and export taxes and fees, are restricted to total currency transactions of $2 million per
minimum and reference pricing, regulations and licensing month; transactions by institutions acting as intermediaries
provisions, sanitary and phytosanitary rules, subsidies, do not count against this limit. Investments may be expro-
restrictions on ports of entry, domestic preference in gov- priated or nationalized only for public purposes and upon
ernment procurement, and issues involving enforcement of prompt payment of compensation at fair market value. Cor-
intellectual property rights add to the cost of trade. Twen- ruption, weak institutions, and uncertain creditor, contract,
ty points were deducted from Argentina’s trade freedom and property rights are serious deterrents to investment.
score to account for non-tariff barriers.
FINANCIAL FREEDOM: 30 no change
FISCAL FREEDOM: 68.7 – 0.8 The Argentinean government has considerable control
Argentina has relatively high tax rates. The top income and over financial activities. Argentina’s largest bank is state-
flat corporate tax rates are 35 percent. Other taxes include a owned and may be the sole financial institution in some
value-added tax (VAT), a wealth tax, and a tax on financial areas. Since the 2001–2002 debt default and banking crisis,
transactions. In the most recent year, overall tax revenue regulation and supervision have become more prudential.
as a percentage of GDP was 26.1 percent. The banking sector has expanded faster than the overall
economy since 2005 but is struggling to regain confidence
GOVERNMENT SPENDING: 81.7 + 6.1 and stability. Capital controls remain in place. The stock
In the most recent year, total government expenditures, exchange is active and lists over 100 companies, but the
including consumption and transfer payments, fell to investor base is small. Private pension funds were nation-
24.7 percent of GDP. Price setting still prevails in energy alized in 2008. In mid-2010, the government provided a
and transportation, but some subsidies have been eased debt restructuring process for private holders of defaulted
because of shrinking revenues and growing public debt, bonds in which two-thirds of the private bondholders
which has reached 49.8 percent of GDP. Government own- participated.
ership persists in banking, electricity, and energy.
PROPERTY RIGHTS: 20 no change
MONETARY FREEDOM: 63.2 + 2.0 The executive branch influences Argentina’s judiciary. The
According to Argentina’s national statistics agency, the courts are notoriously slow, inefficient, secretive, and cor-
official inflation rate hit a four-year high of 11 percent rupt, and many foreign investors resort to international
in June 2010; unofficial estimates place the actual rate at arbitration. Patent protection is problematic, and pirated
almost 30 percent. The government subsidizes or regu- copies of copyrighted products are widely available. Gov-
lates prices of electricity, water, retail-level gas distribu- ernment manipulation of inflation statistics has caused for-
tion, urban transport, and local telephone services. It also eign and domestic bondholders to lose billions in interest
pressures companies to fix prices and wages to contain payments.
rising inflationary pressures. In 2010, the executive branch
subordinated the formerly independent Central Bank to its FREEDOM FROM CORRUPTION: 29 no change
authority. Twenty points were deducted from Argentina’s Corruption is perceived as widespread. Argentina ranks
monetary freedom score to account for measures that dis- 106th out of 180 countries in Transparency International’s
tort domestic prices. Corruption Perceptions Index for 2009. Foreign investors
complain about government and private-sector corruption.
INVESTMENT FREEDOM: 45 no change Money laundering, trafficking in narcotics and contraband,
Foreign and domestic investors have equal rights to estab- and tax evasion plague the financial system.
lish and own businesses, but foreign investment is prohib-
ited in a few sectors. Foreign exchange and capital flows are LABOR FREEDOM: 47.9 – 2.2
subject to restrictions. Foreign companies may send profits Rigid labor regulations hinder employment creation and
abroad, but export proceeds must be repatriated to Argen- productivity growth. The non-salary cost of employing a
tina. Inflows of foreign funds from certain private-sector worker is high, and dismissing a redundant employee can
debt, inflows for most fiduciary funds, and investments in be costly.

82 2011 Index of Economic Freedom


ARMENIA
Economic Freedom Score
50
25 75
Least Most
free 0 100 free
World Rank: 36 Regional Rank: 19 69.7

A rmenia’s economic freedom score is 69.7, making its


economy the 36th freest in the 2011 Index. Its overall score
increased by 0.5 point from last year. Armenia is ranked 19th
Country’s Score Over Time
80
freest among the 43 countries in the Europe region, and its
70
score puts it above the world and regional averages.
Armenia receives high marks in eight of the 10 economic 60
freedoms. Over the past decade, market liberalization and
50
privatization have recharged the economy. Despite the eco-
nomic slowdown in recent years, a macroeconomic policy 40
environment supported by low taxes and stable government 1995 ’97 ’99 ’01 ’03 ’05 ’07 ’09 2011
spending has promoted steady economic growth. The regu-
latory framework is sound, and an open trade regime with Country Comparisons
low tariffs facilitates the free flow of goods.
100
Further growth in economic freedom in Armenia will
require deeper institutional reforms that include better pro- 84.1
tection of property rights and strengthening of the judicial 80
system. Corruption remains widespread in many sectors of 69.7 66.8
the economy. Despite relatively low tax rates, tax evasion 59.7 60
has become a growing concern.
BACKGROUND: Armenia achieved independence from the 40
Soviet Union in 1991. The 21-year dispute with Azerbaijan
over Nagorno–Karabakh remains unresolved. Although a 20
cease-fire has been in effect since 1994 and most displaced
ethnic Armenians have returned home, more than 500,000
Azeris still live as refugees in Azerbaijan, and borders with 0
Country World Regional Free
Azerbaijan and Turkey remain closed. In October 2009, average average economies
Armenia and Turkey signed two protocols aimed at reopen-
ing their borders and re-establishing diplomatic links, but Quick Facts
the agreements were not ratified. Armenia’s economy relies Population: 3.3 million
on manufacturing, services, remittances, and agriculture. GDP (PPP): $16.2 billion
Most sectors are recovering from the 2008 global finan- –14.4% growth in 2009
cial crisis. The government, which relies on loans from the 4.2% 5-year compound annual growth
World Bank, the International Monetary Fund, the Asian $4,966 per capita
Development Bank, and Russia, is running a large budget Unemployment: 6.9%
deficit. Inflation (CPI): 3.4%
FDI Inflow: $837.6 million

How Do We Measure Economic Freedom?


See page 447 for an explanation of the methodology 2009 data unless otherwise noted.
or visit the Index Web site at heritage.org/index. Data compiled as of September 2010.
83
ARMENIA (continued)
THE TEN ECONOMIC FREEDOMS
BUSINESS FREEDOM: 82.4 – 1.0
Licensing requirements have been reduced, and the bank- COUNTRY’S WORLD RANKINGS
ruptcy procedure has been modernized. However, the Business Freedom No. 28 Investment Freedom No. 26
Trade Freedom No. 43 Financial Freedom No. 17
bureaucratic application of business regulations, coupled
Fiscal Freedom No. 25 Property Rights No. 99
with petty corruption, remains a considerable impediment Government Spending No. 38 Freedom from Corruption No. 122
to conducting business. Monetary Freedom No. 81 Labor Freedom No. 45

TRADE FREEDOM: 85.5 + 5.0 accounts, invisible transactions, or current transfers, and
Armenia had a low weighted average tariff rate of 2.3 per-
cent in 2008. Customs procedures have been improved, but there are no repatriation requirements. Investment regu-
excise taxes and fees, inadequate infrastructure, customs lations can be burdensome and lack transparency, and
their administration is inefficient and prone to corruption.
valuation concerns, inefficient customs administration,
Non-residents may lease but not own land. By law, for-
weak enforcement of property rights, and corruption add
eign investments cannot be expropriated except in extreme
to the cost of trade. Ten points were deducted from Arme-
cases of a natural or state emergency, upon a decision by
nia’s trade freedom score to account for non-tariff barriers.
the courts, and with compensation.
FISCAL FREEDOM: 89.2 – 0.1 FINANCIAL FREEDOM: 70 no change
The top income and corporate tax rates are 20 percent.
Armenia has accelerated the pace of legal and regula-
Other taxes include a value-added tax (VAT) and excise
tory reform to restructure its financial sector. Regulatory
taxes. In the most recent year, overall tax revenue as
reforms have included adoption of international account-
a percentage of GDP was 16.8 percent. In response to a
ing standards, and many banks have closed or merged. The
dramatic shortfall in tax revenue in early 2009, authorities
state no longer has a stake in any bank, and banks are all
announced intentions to improve tax administration, step
privately owned. Financial-sector infrastructure has been
up compliance, boost revenue, and widen the tax base.
enhanced through improved market transparency. How-
GOVERNMENT SPENDING: 85.7 – 5.2 ever, the banking sector, which accounts for over 90 percent
of total financial-sector assets, still suffers from insufficient
Total government expenditures, including consumption
and transfer payments, increased to 21.8 percent of GDP long-term funding and market segmentation. Capital mar-
in the most recent year, owing primarily to increased social kets and insurance are not fully developed. The securi-
spending during the financial crisis and recession. Public ties market has a legal framework in place but remains
debt has increased dramatically and is approaching 50 per- small. Due to the limited external exposure of local banks,
cent of GDP. Authorities have expressed a commitment to the global financial turmoil has not had a direct adverse
reducing the deficit and bringing the debt back down to a impact on the financial system’s stability.
sustainable level.
PROPERTY RIGHTS: 30 no change
MONETARY FREEDOM: 76 + 3.1 Armenia ranks 109th out of 125 countries in the 2010 Inter-
national Property Rights Index. Its score on the compo-
The devaluation of the dram in March 2009 pushed up the
cost of imports denominated in U.S. dollars. Combined nent of the IPRI concerned with intellectual property rights
with a 40 percent increase in the price of gas imports from was the world’s second lowest. The judicial system is still
Russia in April, this encouraged a resurgence of inflation- recovering from underdevelopment and corruption—lega-
ary pressures that were tempered somewhat by lower cies of the Soviet era that substantially impede the enforce-
money supply growth and weaker domestic demand. Gov- ment of contracts.
ernment subsidies and regulations distort prices in some
sectors, such as public transportation, electricity, and gas.
FREEDOM FROM CORRUPTION: 27 – 2.0
Corruption is perceived as widespread and even perva-
Ten points were deducted from Armenia’s monetary free- sive. Demands for bribes by government officials are rou-
dom score to account for measures that distort domestic tine. Government-connected businesses hold monopolies
prices. on the importation of numerous vital products. Armenia
ranks 120th out of 180 countries in Transparency Interna-
INVESTMENT FREEDOM: 75 no change
tional’s Corruption Perceptions Index for 2009.
Officially, foreign and domestic investors are treated equal-
ly and have the same right to establish businesses in nearly
all sectors. Privatization, though generally successful and
LABOR FREEDOM: 75.9 + 5.3
Armenia’s labor market has undergone regulatory reforms
legally open to all bidders, has not been transparent, and to increase flexibility and overall productivity growth. The
some sectors are dominated by a few domestic firms. non-salary cost of employing a worker is moderate, and
There are no restrictions or controls on foreign exchange dismissing a redundant employee is relatively inexpensive.

84 2011 Index of Economic Freedom


AUSTRALIA
Economic Freedom Score
50
25 75
Least Most
free 0 100 free
World Rank: 3 Regional Rank: 3 82.5

A ustralia’s economic freedom score is 82.5, making its


economy the 3rd freest in the 2011 Index. Its overall score
is 0.1 point lower than last year. Australia is ranked 3rd out
Country’s Score Over Time
100
of 41 countries in the Asia–Pacific region, and its score is
well above the regional and world averages. 90

While many large advanced economies have emerged from 80


the recent economic downturn with growing debt burdens,
70
Australia’s gross public debt stands at less than 25 percent
of GDP. With robust supervision and sound regulation, the 60
banking system has coped well with the financial turmoil,
1995 ’97 ’99 ’01 ’03 ’05 ’07 ’09 2011
and the government’s budget deficit is much lower than
those of other major economies. Temporary stimulus mea- Country Comparisons
sures have largely been phased out.
100
Australia’s modern and competitive economy performs well
on many of the 10 economic freedoms. The country has a 82.5 84.1
strong tradition of openness to global trade and investment, 80
and transparent and efficient regulations are applied evenly
in most cases. An independent judiciary protects property 59.7 57.4 60
rights, and the level of corruption is quite low.
BACKGROUND: Australia is one of the Asia–Pacific’s richest 40
countries. With a population of about 22 million and a land
mass of 3 million square miles, it is one of the world’s least
20
densely populated countries and one of the most urbanized,
with most of the population concentrated in coastal cities.
From the early 1980s until 2007, successive Labor and Lib- 0
Country World Regional Free
eral governments deregulated financial and labor markets average average economies
and reduced trade barriers. Australia has enjoyed economic
expansion for almost two decades and has come through Quick Facts
the recession relatively unscathed, maintaining good levels Population: 21.9 million
of business investment and employment. However, recent GDP (PPP): $851.2 billion
stimulus spending by the Labor government has led the 1.3% growth in 2009
country into deficit in a single year. Australia is an inter- 2.7% 5-year compound annual growth
nationally competitive producer of services, technologies, $38,911 per capita
and high-value-added manufactured goods. Exports remain Unemployment: 5.6%
heavily focused on mining and agriculture. Inflation (CPI): 1.8%
FDI Inflow: $22.6 billion

How Do We Measure Economic Freedom?


See page 447 for an explanation of the methodology 2009 data unless otherwise noted.
or visit the Index Web site at heritage.org/index. Data compiled as of September 2010.
85
AUSTRALIA (continued)
THE TEN ECONOMIC FREEDOMS
BUSINESS FREEDOM: 90.1 – 0.2
The efficient regulatory framework strongly helps business COUNTRY’S WORLD RANKINGS
formation and operation to be dynamic and innovative. Business Freedom No. 14 Investment Freedom No. 14
Trade Freedom No. 52 Financial Freedom No. 1
The government generally follows a hands-off approach
Fiscal Freedom No. 161 Property Rights No. 2
in sectors dominated by small businesses. Government Spending No. 104 Freedom from Corruption No. 8
Monetary Freedom No. 7 Labor Freedom No. 5
TRADE FREEDOM: 84.4 – 0.7
Australia’s weighted average tariff rate was 2.8 percent in
2009. Import restrictions and bans, stringent sanitary and INVESTMENT FREEDOM: 80 no change
biotechnology measures, a quarantine regime, subsidies Foreign and domestic investors receive equal treatment,
and other support programs for agriculture and manufac- but foreign investments may be screened. The government
turing products, and barriers to trade in services raise the generally must be notified about investments in Australian
cost of trade. Exports of bulk and containerized wheat have businesses above certain monetary thresholds and may
been liberalized, but bulk exports still require a license reject proposals deemed inconsistent with the “national
before shipment. Imports may be subject to antidumping interest.” Foreign investors may own land, subject to
laws, and government procurement procedures maintain approval and a number of restrictions. Residents and non-
some preferences for domestic producers. Ten points were residents have access to foreign exchange and may conduct
deducted from Australia’s trade freedom score to account international payments and capital transactions. There are
for non-tariff barriers. no controls on capital repatriation. Private property can be
expropriated for public purposes in accordance with the
FISCAL FREEDOM: 61.3 – 0.1 law, and compensation is paid.
Australia has a high income tax rate and a moderately high
corporate tax rate. The top income tax rate is 45 percent FINANCIAL FREEDOM: 90 no change
(plus a Medicare levy of 1.5 percent). The corporate tax rate Australia’s well-developed and highly competitive financial
is a flat 30 percent. The thresholds for some intermediate sector includes banking, insurance, and equity industries.
tax brackets have been raised in the past two years. Other All banks are privately owned. Government regulation is
taxes include a goods and services tax and a tax on the minimal, and foreign banks, licensed as branches or sub-
transfer of real property (applied at the state level). In the sidiaries, offer a full range of services. The banking sector
most recent year, overall tax revenue as a percentage of is dominated by four major Australian banks that are not
GDP was 30.8 percent. The most recent stimulus package allowed to merge. Relatively low leverage and a high ratio
included special tax breaks for small businesses. Authori- of capital adequacy, coupled with banks’ limited exposure to
ties have proposed a super profits tax that targets mining securitized assets, helped to avert a sharp credit contraction
companies. The Carbon Pollution Reduction Scheme has during the global financial crisis. Foreign insurance com-
been put on hold due to political opposition. panies are permitted, and regulation is focused on capital
adequacy, solvency, and prudential behavior.
GOVERNMENT SPENDING: 64.7 – 0.2 PROPERTY RIGHTS: 90 no change
In the most recent year, total government expenditures,
including consumption and transfer payments, held steady Property rights are well protected. The rule of law is highly
at 34.3 percent of GDP. A large stimulus package of trans- respected, and enforcement is even-handed. The government
fers to households and increased infrastructure spending respects the independence of the judiciary. Protection of intel-
lectual property rights meets or exceeds world standards.
shifted the fiscal balance into deficit. Although budget
Contracts are secure, and expropriation is highly unusual.
plans call for further government spending on infrastruc-
ture, the deficit should narrow on account of strong rev- FREEDOM FROM CORRUPTION: 87 no change
enues led by the mining sector. Corruption is perceived as minimal. Australia ranks 8th
MONETARY FREEDOM: 85 + 2.3 out of 180 countries in Transparency International’s Cor-
ruption Perceptions Index for 2009, and the government
Inflation has been moderate, with the consumer price index
actively promotes international efforts to curb bribery of
rising 2.9 percent in the first quarter of 2010, up from an
foreign officials.
average of 2.5 percent between 2007 and 2009 . The govern-
ment can impose price controls, but competition reforms
are reducing the range of goods subject to control. Five
LABOR FREEDOM: 92.2 – 2.7
Highly flexible employment regulations enhance employ-
points were deducted from Australia’s monetary freedom ment and productivity growth. The non-salary cost of
score to account for measures that distort retail gas and employing a worker is moderate, and dismissing a redun-
electricity prices. dant employee is costless. Unemployment remains well
below the OECD average.

86 2011 Index of Economic Freedom


AUSTRIA
Economic Freedom Score
50
25 75
Least Most
free 0 100 free
World Rank: 21 Regional Rank: 10 71.9

A ustria’s economic freedom score is 71.9, making its econ-


omy the 21st freest in the 2011 Index. Its score is 0.3 point
better than last year. Austria is ranked 10th out of 43 coun-
Country’s Score Over Time
90
tries in the Europe region, and its overall score is well above
the regional and world averages. 80

Over the past two years, Austria has been through its first 70
major recession since the early 1980s. Austrian banks, with
a large exposure to Central and Eastern European coun- 60
tries that were hit hard by the global financial crisis, have
50
been under considerable strain. Still, the overall impact of
1995 ’97 ’99 ’01 ’03 ’05 ’07 ’09 2011
the economic slowdown has not been as severe as in other
advanced economies. Country Comparisons
Austria’s international orientation and tradition of strong
100
property rights are the backbone of its economic growth.
The government has streamlined time-consuming regu- 84.1
lations, and a comprehensive legal framework promotes 80
competition. Foreign investment requirements are not par- 71.9
66.8
ticularly stringent, and the financial market facilitates entre- 59.7 60
preneurial activity. The corporate tax regime is competitive,
although individuals still face high tax rates and an onerous
overall tax burden. 40

BACKGROUND: Austria joined the European Union in 1995,


and from 2000–2007, People’s Party Chancellor Wolfgang 20
Schüssel accelerated market reform and significantly lim-
ited government intervention in the economy. The sub- 0
sequent coalition government of Social Democrat Alfred Country World Regional Free
Gusenbauer was dissolved after 18 months. In the Septem- average average economies
ber 2008 parliamentary elections, far-right anti-immigrant
parties made significant gains, but Social Democrat Werner Quick Facts
Faymann was able to form a center-right coalition govern- Population: 8.3 million
ment with the People’s Party. In April 2010, Federal Pres- GDP (PPP): $322.5 billion
ident Heinz Fischer was reelected for a second term. EU –3.6% growth in 2009
member states account for more than 80 percent of Austria’s 1.3% 5-year compound annual growth
trade. The government has gradually relinquished control $38,839 per capita
of formerly nationalized oil, gas, steel, and engineering Unemployment: 4.8%
companies and has deregulated telecommunications and Inflation (CPI): 0.4%
electricity. Austria’s economy relies on large services and FDI Inflow: $7.1 billion
industrial sectors and a small but highly developed agri-
cultural industry.

How Do We Measure Economic Freedom?


See page 447 for an explanation of the methodology 2009 data unless otherwise noted.
or visit the Index Web site at heritage.org/index. Data compiled as of September 2010.
87
AUSTRIA (continued)
THE TEN ECONOMIC FREEDOMS
BUSINESS FREEDOM: 72.8 – 0.8 COUNTRY’S WORLD RANKINGS
Austria’s overall regulatory framework encourages busi-
ness innovation and productivity growth. Lingering bar- Business Freedom No. 59 Investment Freedom No. 14
Trade Freedom No. 12 Financial Freedom No. 17
riers to market entry have been eased in wholesale and Fiscal Freedom No. 173 Property Rights No. 2
retail trade. The administrative cost of launching a busi- Government Spending No. 162 Freedom from Corruption No. 16
ness remains burdensome. Monetary Freedom No. 15 Labor Freedom No. 36

TRADE FREEDOM: 87.6 + 0.1 domestic private enterprises may establish, acquire, and
Austria’s trade policy is the same as that of other members
dispose of business interests, except in some infrastructure
of the European Union. The common EU weighted average
areas, utilities, and a few state monopolies. Environmen-
tariff rate was 1.2 percent in 2009. However, the EU has
tal restrictions are strict, and many industries fall under
high or escalating tariffs for agricultural and manufactur-
a greenhouse-gas emissions trading system. There are no
ing products, and its MFN tariff code is complex. EU-wide
controls or requirements on current transfers, access to
non-tariff barriers include agricultural and manufacturing
foreign exchange, or repatriation of profits. Real estate
subsidies, quotas, import restrictions and bans on some
transactions are subject to approval by local authorities.
goods and services, market access restrictions in some ser-
Legal, regulatory, and accounting systems are transpar-
vices sectors, non-transparent and restrictive regulations
ent, but bureaucracy can be cumbersome and unpre-
and standards, and inconsistent regulatory and customs
dictable. Expropriation is rare and requires special legal
administration. There are additional restrictions on bio-
authorization.
technology and certain service sectors. Ten points were
deducted from Austria’s trade freedom score to account FINANCIAL FREEDOM: 70 no change
for non-tariff barriers. Austria has one of the world’s most competitive bank-

FISCAL FREEDOM: 50.3 – 0.9 ing systems. Banks provide a wide range of credit and
financial services, credit is allocated at market terms, and
Austria has a high income tax rate and a moderate corpo-
domestic and foreign investors enjoy unrestricted access to
rate tax rate. The top income tax rate is 50 percent, and the
capital markets. The five largest banking groups account
top corporate tax rate is 25 percent. Other taxes include a
for around 60 percent of total assets. Financial regulations
value-added tax (VAT), a tax on insurance contracts, and a
are consistent with international norms. Foreign exchange
tax on real estate transfers. In the most recent year, overall
is fully liberalized, and there are no limitations on cross-
tax revenue as a percentage of GDP was 42.9 percent. border transactions. The government has responded to
GOVERNMENT SPENDING: 28 – 0.8 banks’ exposure to troubled assets in Central and Eastern
Europe with a deposit guarantee and capital injections. In
Spending is high even in comparison to other European
December 2009, the government nationalized the Hypo
countries. In the most recent year, total government expen-
Group Alpe Adria.
ditures, including consumption and transfer payments,
equaled 49 percent of GDP. Stimulus spending drove PROPERTY RIGHTS: 90 no change
public-sector debt to nearly 67 percent of GDP. Sustain- Private property is very secure. Contractual agreements are
ability of the pension program and other social schemes enforced, and the protection of intellectual property is well
is in jeopardy. established. The rule of law is respected, and the judiciary

MONETARY FREEDOM: 82.9 + 3.6 is independent.

Austria is a member of the euro zone. Inflation has been


roughly in line with the euro area’s average and is forecast
FREEDOM FROM CORRUPTION: 79 – 2.0
Corruption is perceived as minimal. Austria ranks 16th out
to be 1.6 percent–1.7 percent for 2010–2011. As a participant of 180 countries in Transparency International’s Corrup-
in the EU’s Common Agricultural Policy, the government tion Perceptions Index for 2009. Bribery of an Austrian or
subsidizes agricultural production, distorting the prices foreign government official is subject to criminal penalties.
of agricultural products. It also subsidizes rail transporta- In September 2009, the government amended and defined
tion and operates some state-owned firms, utilities, and more precisely its criminal regulations against corruption
services. Ten points were deducted from Austria’s mon- to alleviate some measures viewed as too strict.
etary freedom score to account for measures that distort
domestic prices. LABOR FREEDOM: 78.2 – 0.9
Relatively flexible labor regulations facilitate employment
INVESTMENT FREEDOM: 80 + 5.0 and productivity growth. However, the non-salary cost of
For foreign investments, at least one manager must meet employing a worker remains high, and the cost of fringe
residency and other legal qualifications, and non-residents benefits per employee is among the EU’s highest. There is
must appoint a representative in Austria. Foreign and no nationally mandated minimum wage.

88 2011 Index of Economic Freedom


AZERBAIJAN
Economic Freedom Score
50
25 75
Least Most
free 0 100 free
World Rank: 92 Regional Rank: 15 59.7

A zerbaijan’s economic freedom score is 59.7, making its


economy the 92nd freest in the 2011 Index. Its overall
score is 0.9 point higher than last year, reflecting significant
Country’s Score Over Time
60
improvements in fiscal freedom, monetary freedom, and
freedom from corruption. Azerbaijan is ranked 15th out of 50
41 countries in the Asia–Pacific region, and its overall score
40
is above the regional average.
30
Azerbaijan’s government has embraced wide-ranging
reforms to improve economic freedom. Openness to glob- 20
al trade, relatively moderate taxation, and streamlined
1995 ’97 ’99 ’01 ’03 ’05 ’07 ’09 2011
business processes have aided the country’s transition to
a market-based system. Continued transformation and Country Comparisons
restructuring are needed both to capitalize on Azerbaijan’s
well-educated labor force and tradition of entrepreneurship 100
and to diversify production.
84.1
Despite considerable gains in regulatory reform and eco- 80
nomic diversification, substantial challenges remain,
particularly in implementing deeper institutional and sys- 59.7 59.7 57.4 60
temic reforms. Property rights and freedom from corruption
remain weak, and government interference and control hurt
overall monetary stability and foreign investment. 40

BACKGROUND: Oil-rich Azerbaijan’s dispute with Armenia


20
over the region of Nagorno–Karabakh has cost thousands
of lives and a fifth of Azerbaijan’s territory. Baku is balanc-
ing its foreign relationships with major regional powers but 0
Country World Regional Free
has also inched toward Russia, hoping to gain concessions average average economies
from Armenia. Limits on the media include the suspension
of foreign radio broadcast licenses. President Ilham Aliyev’s Quick Facts
New Azerbaijan Party won the December 2009 municipal Population: 9.0 million
elections, but questions of fairness and legitimacy persist. A GDP (PPP): $85.8 billion
constitutional amendment to abolish presidential term lim- 9.3% growth in 2009
its, passed by national referendum in 2009, allowed Aliyev 19.5% 5-year compound annual growth
to seek a third term. While Azerbaijan was hurt by the glob- $9,564 per capita
al economic downturn, real GDP expanded in 2009 by 9.3 Unemployment: 6.0%
percent. Expanded oil and gas production has reduced the Inflation (CPI): 1.5%
impact of lower energy prices, and increased private invest- FDI Inflow: $473.3 million
ment and consumption reflect growing investor confidence.

How Do We Measure Economic Freedom?


See page 447 for an explanation of the methodology 2009 data unless otherwise noted.
or visit the Index Web site at heritage.org/index. Data compiled as of September 2010.
89
AZERBAIJAN (continued)
THE TEN ECONOMIC FREEDOMS
BUSINESS FREEDOM: 72.9 – 1.7
Azerbaijan’s overall regulatory framework has improved, COUNTRY’S WORLD RANKINGS
but private-sector development has been held back by the Business Freedom No. 57 Investment Freedom No. 75
Trade Freedom No. 90 Financial Freedom No. 106
lack of regulatory transparency and such other institution-
Fiscal Freedom No. 47 Property Rights No. 146
al shortcomings as poor access to financing for starting and Government Spending No. 88 Freedom from Corruption No. 145
expanding a business. Monetary Freedom No. 116 Labor Freedom No. 31

TRADE FREEDOM: 77.1 no change


Azerbaijan’s weighted average tariff rate was 3.9 percent foreign investors be “not less favored” than local inves-
in 2009. A weak legal regime, arbitrary customs adminis- tors and allows repatriation of profits, revenues, and other
tration, regulatory conflicts of interest, subsidies, import investment-related funds as long as applicable taxes are
and export controls and restrictions, weak enforcement of paid. There are few restrictions on converting or transfer-
property rights, and customs corruption add to the cost ring investment-associated funds into freely tradable cur-
of trade. Fifteen points were deducted from Azerbaijan’s rency. Foreign citizens and enterprises may lease but not
trade freedom score to account for non-tariff barriers. own land. Expropriation may occur in the event of natural
disaster, epidemic, or other extraordinary situation, and
FISCAL FREEDOM: 83.9 + 4.4 foreign investors are entitled to adequate compensation.
As of January 1, 2010, the top individual income tax rate
was lowered to 30 percent from 35 percent, and the top cor- FINANCIAL FREEDOM: 40 no change
porate tax rate was reduced to 20 percent from 22 percent. Azerbaijan’s banking sector has been growing rapidly.
Income of self-employed persons is taxed at 20 percent. Bank credit has expanded, and prudential supervision has
Other taxes include a value-added tax (VAT) and a prop- been the central bank’s priority. Private banks have grown
erty tax. In the most recent year, overall tax revenue as a faster than state-owned banks, but banking remains domi-
percentage of GDP was 17.7 percent. nated by the state-owned International Bank of Azerbaijan,
and the availability of long-term financial instruments for
GOVERNMENT SPENDING: 71 – 6.5 small and medium-sized enterprises is still limited. The
Increased social spending and capital investment have government and corporate bond market remains small
been financed by transfers from the State Oil Fund of Azer- and illiquid. The government sold a 50 percent stake in the
baijan. In the most recent year, total government spend- state-owned Kapital Bank in 2007 and further privatized
ing, including consumption and transfer payments, rose the bank in 2008. In 2009, the central bank stepped in with
to 31.1 percent of GDP. Public-sector debt stands at around measures to support and stabilize the banking system.
12 percent of GDP.
PROPERTY RIGHTS: 20 no change
MONETARY FREEDOM: 72.6 + 9.9 Azerbaijan’s judicial system, filled with bureaucratic
Inflation reached 20.8 percent—the highest rate for more requirements and generally seen as corrupt and inefficient,
than a decade—in 2008 but dropped to 1.5 percent in 2009 does not function independently of the executive. The poor
as lower international oil prices reduced export revenues quality, reliability, and transparency of governance, as
and inflationary pressures. Higher energy and commod- well as regulatory abuse and poor contract enforcement,
ity prices, combined with increased capital inflows, high significantly impede the ability of many companies to do
government spending, and a rise in domestic demand, con- business.
tributed to a moderately higher rate in 2010. The govern-
ment controls prices of most energy products and operates FREEDOM FROM CORRUPTION: 23 + 4.0
several state-owned enterprises. Monopolist importers in Corruption is perceived as rampant. Azerbaijan ranks
many sectors prevent declines in commodity prices from 143rd out of 180 countries in Transparency International’s
being fully passed on to consumers. Ten points were Corruption Perceptions Index for 2009. Judicial and police
deducted from Azerbaijan’s monetary freedom score to corruption is widespread. Arbitrary tax and customs
account for measures that distort domestic price. administration creates opportunities for graft, regulatory
practices favor monopolies, and corruption exists at all lev-
INVESTMENT FREEDOM: 55 no change els. Politically connected businesses have achieved control
Foreign direct investment is allowed in most sectors, but of several lucrative sectors of the economy.
foreign investment in areas related to national security and
defense is prohibited, and the government controls other LABOR FREEDOM: 81.1 – 1.4
key sectors, such as energy and communications. The regu- Relatively flexible employment regulations have been
latory system has been improved, but non-transparency, implemented as a result of recent reforms. The non-salary
corruption, weak legal institutions, and informal bureau- cost of employing a worker is moderate, and dismissing a
cratic controls hinder competition. The law provides that redundant employee is not burdensome.

90 2011 Index of Economic Freedom


THE BAHAMAS
Economic Freedom Score
50
25 75
Least Most
free 0 100 free
World Rank: 46 Regional Rank: 8 68.0

T he Bahamas’ economic freedom score is 68, making its


economy the 46th freest in the 2011 Index. Its overall score
is 0.7 point better than last year, due primarily to higher
Country’s Score Over Time
90
scores in fiscal freedom, government spending, and mone-
tary freedom. The Bahamas is ranked 8th out of 29 countries 80
in the South and Central America/Caribbean region, and its
70
overall score is higher than the regional and world averages.
60
Relatively sound macroeconomic management has contrib-
uted to steady economic growth, interrupted by the recent 50
global economic slowdown. There is no personal income
1995 ’97 ’99 ’01 ’03 ’05 ’07 ’09 2011
tax, corporate tax, or value-added tax (VAT). The labor mar-
ket is flexible, and the overall regulatory environment is Country Comparisons
relatively efficient. The financial services sector’s domestic
and offshore activities contribute around 15 percent of GDP. 100

The poor trade regime remains one of the most cumber- 84.1
some challenges. An abundance of tariff and non-tariff bar- 80
riers continues to create a costly trade burden. Intrusively 68.0
bureaucratic approval processes hinder investment freedom 59.7 60.2
60
and undermine development of a more vibrant private
sector.
40
BACKGROUND: The Bahamas is a parliamentary democracy
with two main parties, the Free National Movement (led by
20
Prime Minister Hubert Ingraham) and the Progressive Lib-
eral Party. Its legal and political traditions closely follow the
United Kingdom’s. The Bahamas is also one of the Carib- 0
Country World Regional Free
bean’s most prosperous nations. Tourism generates about average average economies
half of all jobs and accounts for more than 60 percent of
GDP. The number of visitors dropped significantly in 2008– Quick Facts
2009 as a result of the global economic recession. Tourism Population: 341,000
has rebounded slightly, but there have been no substantial GDP (PPP): $9.0 billion
increases in sector investments. Financial and business ser- –5.0% growth in 2009
vices profits, which account for more than one-third of GDP, –0.5% 5-year compound annual growth
have also shrunk. Stricter financial regulations have caused $26,474 per capita
some international businesses to leave the country. Histori- Unemployment: 14.2% (2006)
cally, the Bahamas has been a haven for drug smugglers and Inflation (CPI): 2.1%
illegal aliens seeking to enter the United States. FDI Inflow: $653.7 million

How Do We Measure Economic Freedom?


See page 447 for an explanation of the methodology 2009 data unless otherwise noted.
or visit the Index Web site at heritage.org/index. Data compiled as of September 2010.
91
THE BAHAMAS (continued)
THE TEN ECONOMIC FREEDOMS
BUSINESS FREEDOM: 72.5 – 0.9 COUNTRY’S WORLD RANKINGS
Overall, the regulatory environment remains favorable
to private-sector development. However, the process for Business Freedom No. 61 Investment Freedom No. 134
Trade Freedom No. 177 Financial Freedom No. 17
obtaining a business license is not always transparent and Fiscal Freedom No. 9 Property Rights No. 26
straightforward, and officials have considerable discretion- Government Spending No. 32 Freedom from Corruption No. 38
ary power. Monetary Freedom No. 94 Labor Freedom No. 29

TRADE FREEDOM: 42.2 no change


by non-residents require approval, but exchange controls
According to the World Bank, the Bahamas’ weighted
are not known to hamper repatriation of approved invest-
average tariff rate was 23.9 percent in 2006. Tariffs provide
ment capital. To buy real estate for commercial purposes
about 60 percent of government revenue. High tariffs and a
or to buy more than five acres, foreigners must obtain a
“stamp” tax on most imports, high duties that protect a few
permit from the Investments Board.
agricultural items and consumer goods, occasional import
bans, and some import licensing and permits add to the FINANCIAL FREEDOM: 70 no change
cost of trade. Ten points were deducted from the Bahamas’ The financial sector accounts for around 20 percent of GDP.
trade freedom score to account for non-tariff barriers. The government has adopted incentives to encourage for-

FISCAL FREEDOM: 97.2 + 2.0 eign financial business, and further banking and finance
reforms have moved forward gradually. The government
The Bahamas has one of the world’s lowest tax burdens.
plans to merge the regulatory functions of key financial
The government imposes national insurance, property,
institutions, including the Central Bank of the Bahamas
and stamp taxes but no income tax, corporate income tax,
(CBB) and the Securities and Exchange Commission. There
capital gains tax, value-added tax (VAT), or wealth tax. In
are restrictions and controls on capital and money market
the most recent year, overall tax revenue as a percentage of
instruments, and the CBB administers exchange controls.
GDP was 16.8 percent.
Development of local capital markets has been rather slow.
GOVERNMENT SPENDING: 86.9 + 3.3 Reflecting the banking system’s relative soundness, the
impact of the global financial crisis on the financial sector
In the most recent year, total government spending, includ-
ing consumption and transfer payments, decreased slight- has been limited, but the number of non-performing loans
ly to 20.9 percent of GDP. Spending priorities have shifted has been rising.
toward capital and unemployment benefits. Lagging tour-
PROPERTY RIGHTS: 70 no change
ism and low import duties led to a revenue shortfall and
The Bahamas has an efficient legal system based on British
a deteriorating fiscal balance. The fiscal deficit reached 5
common law. The judiciary is independent. The judicial
percent of GDP and drove debt up to 40 percent of GDP. process tends to be very slow, and some investors com-
MONETARY FREEDOM: 74.6 + 1.9 plain of malfeasance by court officials. Copyright laws are
widely ignored, and there is widespread piracy of video
Inflation, which reached 4.5 percent in 2008, moderated to
and music recordings and broadcasts.
2.1 percent in 2009. Fifteen points were deducted from the
Bahamas’ monetary freedom score to account for measures FREEDOM FROM CORRUPTION: 55 no change
that distort domestic prices for such “breadbasket” items The law provides criminal penalties for official corrup-
as medicines, gasoline, diesel oil, and petroleum gas. tion, and the government generally implements these
laws effectively. Piracy of software, music, and videos is
INVESTMENT FREEDOM: 30 no change
a problem. Illegal drug trafficking and money laundering
Activities reserved exclusively for Bahamians include
reportedly involve police, coast guard, and other govern-
wholesale and retail operations; commission import–
ment employees. Violent crime has escalated sharply. Even
export agencies; real estate and property management;
though Internet gambling is illegal, many online gambling
newspaper and magazine publication; advertising and
sites are reportedly based in the Bahamas, sometimes using
public relations firms; nightclubs and certain restaurants;
Internet cafes as fronts. The Bahamas has neither signed
security services; distribution and building supplies; cer-
nor ratified the U.N. Convention Against Corruption.
tain construction, personal cosmetics and beauty services;
certain fishing operations; auto and appliance service oper-
ations; and public transportation. All other foreign direct
LABOR FREEDOM: 81.3
Flexible employment regulations have not been imple-
+ 0.3
investment must be approved by the government. New mented effectively. Employment contracts, though not
foreign ventures perceived as competing with existing mandatory, are often used. There is no legal entitlement to
Bahamian businesses may face loss or refusal of business notice of termination. Unemployment has been on the rise
licenses. All outward capital transfers and inward transfers in recent years, reaching around 14 percent.

92 2011 Index of Economic Freedom


BAHRAIN
Economic Freedom Score
50
25 75
Least Most
free 0 100 free
World Rank: 10 Regional Rank: 1 77.7

B ahrain’s economic freedom score is 77.7, making its econ-


omy the 10th freest in the 2011 Index. Its overall score is
1.4 points better than last year, with improvements in invest-
Country’s Score Over Time
90
ment freedom and labor freedom. Bahrain is ranked 1st out
of 17 countries in the Middle East/North Africa region, and 80
its economic freedom score is well above the world average.
70
Commitment to structural reforms and openness to glob-
60
al commerce have enabled Bahrain to become a financial
hub and the regional leader in economic freedom. As one 50
of the region’s least oil-dependent economies, it benefits
1995 ’97 ’99 ’01 ’03 ’05 ’07 ’09 2011
from a competitive tax regime and a sophisticated finan-
cial sector that facilitates the free flow of capital and foreign Country Comparisons
investment. The government has modernized its regulatory
framework and continues to focus on diversifying the pro- 100
ductive base.
84.1
The global economic downturn has slowed overall econom- 77.7 80
ic growth, but its impact on Bahrain’s banking sector has
been relatively subdued. There has been no severe liquid- 59.7 60.6
60
ity contraction, and the financial sector has demonstrated
a high degree of resilience. Despite the implementation
of more flexible employment regulations, unemployment 40
remains high.
20
Background: Bahrain has developed one of the Persian
Gulf’s most advanced economies and most progressive
political systems since gaining independence from Great 0
Country World Regional Free
Britain in 1971. Under a constitution promulgated by Sheikh average average economies
Hamad bin Isa al-Khalifa, the country became a constitu-
tional monarchy in 2002, and the government has sought to Quick Facts
reduce dependence on declining oil reserves and encourage Population: 1.0 million
foreign investment by diversifying the economy. Home to GDP (PPP): $28.1 billion
many multinational firms that do business in the region, 2.9% growth in 2009
Bahrain has a modern communications and transportation 5.9% 5-year compound annual growth
infrastructure, a reliable regulatory structure, and a cosmo- $27,068 per capita
politan outlook. In 2006, the U.S. and Bahrain implemented Unemployment: 15.0% (2005)
the first free trade agreement between the U.S. and a Persian Inflation (CPI): 2.8%
Gulf state. The global financial crisis and lower oil prices FDI Inflow: $257.2 million
slowed Bahrain’s economy in 2009.

How Do We Measure Economic Freedom?


See page 447 for an explanation of the methodology 2009 data unless otherwise noted.
or visit the Index Web site at heritage.org/index. Data compiled as of September 2010.
93
BAHRAIN (continued)
THE TEN ECONOMIC FREEDOMS
BUSINESS FREEDOM: 77.4 – 0.4
Bahrain’s commercial law system is relatively straightfor- COUNTRY’S WORLD RANKINGS
ward, but the regulatory environment is uncoordinated. Business Freedom No. 40 Investment Freedom No. 26
The government is working with the private sector to Trade Freedom No. 58 Financial Freedom No. 4
Fiscal Freedom No. 3 Property Rights No. 42
streamline regulations and create the necessary entrepre- Government Spending No. 55 Freedom from Corruption No. 45
neurial infrastructure. Monetary Freedom No. 101 Labor Freedom No. 2

TRADE FREEDOM: 82.8 – 0.1


Bahrain’s weighted average tariff rate was 3.6 percent in pursue domestic commercial sales exclusively. Gulf Coop-
2009. There are few non-tariff barriers, but a limited num- eration Council nationals may own 100 percent of the shares
ber of products are subject to import and export prohibi- of firms listed on the stock exchange; non-GCC nationals
tions or restrictions, and standards can be inconsistent. are limited to 49 percent. There are no restrictions on repa-
Foreign companies must have a local presence to compete triation of profits or capital, no exchange controls, and no
for government procurement contracts. Enforcement of restrictions on converting or transferring funds, whether
intellectual property rights is improving but can still be a associated with an investment or not.
problem. Ten points were deducted from Bahrain’s trade
freedom score to account for non-tariff barriers. FINANCIAL FREEDOM: 80 no change
Bahrain is a regional financial hub. Foreign and local indi-
FISCAL FREEDOM: 99.8 – 0.1 viduals and companies enjoy access to credit on market
Historically, Bahrain has imposed no taxes on personal terms. With more than 400 banks and financial institutions,
income. However, the government levies a 1 percent tax the financial sector accounts for over 25 percent of GDP.
on the salaries of Bahraini nationals and a 3 percent tax on Foreign and domestic investors have access to a wide range
the salaries of expatriate employees working for compa- of financial services. Financial regulation has become more
nies with more than 50 employees as a way to fund unem- flexible and comprehensive. The financial services industry
ployment schemes. Most companies are not subject to a is regulated by the Central Bank of Bahrain. The impact
corporate tax, but a 46 percent corporate tax is levied on of the global financial turmoil has been mild, although
oil companies. A small stamp duty is collected on property Gulf Finance House, Bahrain’s Islamic investment bank,
transfers, and a new tax on property purchases was estab- has undergone intensive debt restructuring. In 2009, the
lished in November 2009. In the most recent year, overall banking sector accounted for the largest contribution to
tax revenue as a percentage of GDP was 4.8 percent. GDP for the first time, although there are concerns about
loan quality.
GOVERNMENT SPENDING: 80.2 – 0.6
In the most recent year, total government expenditures, PROPERTY RIGHTS: 60 no change
including consumption and transfer payments, remained Property ownership is secure, and expropriation is unlike-
relatively low at 25.7 percent of GDP. Authorities are com- ly. The king can appoint judges and amend the constitu-
mitted to fiscal prudence and long-term sustainability, but tion, but the legal system is well regarded, and foreign
expenditures spiked in the run-up to the 2010 elections, firms can resolve disputes through the local courts. There
and there is considerable work to do on privatization. are no prohibitions on the use of international arbitration
to safeguard contracts. Bahrain was ranked 38th out of 125
MONETARY FREEDOM: 74 + 0.6 countries in the 2010 International Property Rights Index.
Inflation averaged a moderate 3 percent between 2007 and
2009. Fifteen points were deducted from Bahrain’s mon- FREEDOM FROM CORRUPTION: 51 – 3.0
etary freedom score to account for extensive price controls Corruption is perceived as present. Bahrain ranks 46th
and subsidies that distort domestic prices for many food out of 180 countries in Transparency International’s Cor-
products, electricity, water, and petroleum. ruption Perceptions Index for 2009. Corruption affects the
management of scarce water resources, and significant
INVESTMENT FREEDOM: 75 + 10.0 areas of government activity lack transparency.
The government generally welcomes foreign investment,
but certain sectors are restricted. Bahrain permits 100 per- LABOR FREEDOM: 97 + 7.6
cent foreign ownership of new industrial entities and the Bahrain has pursued more flexible labor regulations. There
establishment of representative offices or branches of foreign is no nationally mandated minimum wage, and the gov-
companies without local sponsors. Wholly foreign-owned ernment has adopted a four-pillar labor reform process to
companies may be established for regional distribution ser- enhance productivity and create more private-sector job
vices and operate within the domestic market if they do not opportunities.

94 2011 Index of Economic Freedom


BANGLADESH
Economic Freedom Score
50
25 75
Least Most
free 0 100 free
World Rank: 130 Regional Rank: 27 53.0

B angladesh’s economic freedom score is 53, making its


economy the 130th freest in the 2011 Index. Its overall
score is 1.9 points better than last year, mainly reflecting
Country’s Score Over Time
70
improvements in business freedom and investment free-
dom. Bangladesh is ranked 27th out of 41 countries in the 60
Asia–Pacific region.
50
Bangladesh’s economy remains overly dependent on agri-
40
culture, which accounts for almost 20 percent of GDP and
employs more than half of the labor force. State-owned 30
enterprises are a significant presence in most productive
1995 ’97 ’99 ’01 ’03 ’05 ’07 ’09 2011
sectors, including those that are usually dominated by the
private sector in other economies. Country Comparisons
Weak governance and structural problems continue to con-
100
strain Bangladesh’s development. The inefficient regulatory
regime is often heavily politicized, and the substantial pres- 84.1
ence of state-owned enterprises crowds out private invest- 80
ment. Corruption, coupled with onerous bureaucracy, is still
perceived as pervasive, and the underdeveloped financial 59.7 57.4 60
sector impedes the growth of a more dynamic private sector. 53.0

Background: After nearly two years of military-backed 40


rule, the People’s Republic of Bangladesh returned to
democracy in December 2008. The secular Awami League
20
won over two-thirds of the 300 parliamentary seats, rein-
stalling Sheikh Hasina Wajed as prime minister, a post she
had held from 1996–2001. Bangladesh is one of the world’s 0
Country World Regional Free
poorest and most densely populated nations, and the major- average average economies
ity of its people work in agriculture, though service indus-
tries now account for over half of GDP. Weak institutions, Quick Facts
poverty, and corruption undermine economic development Population: 164.7 million
and fuel social and political unrest despite relatively large GDP (PPP): $241.3 billion
inflows of remittances and around $100 million a year in 5.4% growth in 2009
aid from the United States. Sheikh Hasina faced the most 6.1% 5-year compound annual growth
serious challenge to her leadership in February 2009 when $1,465 per capita
a mutiny broke out within the Bangladesh Rifles, part of the Unemployment: 5.1%
armed forces. Islamist extremist groups also threaten Ban- Inflation (CPI): 6.1%
gladesh’s democracy and pluralist traditions, although the FDI Inflow: $716 million
government has taken steps to curb their activities.

How Do We Measure Economic Freedom?


See page 447 for an explanation of the methodology 2009 data unless otherwise noted.
or visit the Index Web site at heritage.org/index. Data compiled as of September 2010.
95
BANGLADESH (continued)
THE TEN ECONOMIC FREEDOMS
BUSINESS FREEDOM: 65 + 5.6
Existing commercial regulations are not enforced effec- COUNTRY’S WORLD RANKINGS
tively. The entrepreneurial environment is hampered by Business Freedom No. 93 Investment Freedom No. 75
regulatory uncertainty that raises start-up and operational Trade Freedom No. 166 Financial Freedom No. 159
Fiscal Freedom No. 121 Property Rights No. 146
costs. Other institutional weaknesses such as pervasive Government Spending No. 8 Freedom from Corruption No. 141
petty corruption continue to impede private production Monetary Freedom No. 149 Labor Freedom No. 116
and investment.

TRADE FREEDOM: 58 no change The law guarantees the right of repatriation of invested
Bangladesh’s weighted average tariff rate was 11 per- capital, profits, capital gains, post-tax dividends, and
cent in 2007. Import and export restrictions, numerous approved royalties and fees. Foreign firms may repatriate
border taxes and fees, restrictive labeling requirements, funds without much difficulty, provided the appropriate
burdensome import licensing rules, export subsidies documentation is in order. In general, government laws
and other support programs, government monopolies and regulations and their implementation create rather
and state trading boards, complex and non-transparent than reduce distortions or impediments to investment.
government procurement, inefficient and corrupt cus-
toms administration, and weak enforcement of intellec- FINANCIAL FREEDOM: 20 no change
tual property rights also add to the cost of trade. Twenty Bangladesh’s banking sector has recorded credit and depos-
points were deducted from Bangladesh’s trade freedom it growth as well as a reduction in non-performing loans in
score to account for non-tariff barriers. recent years. However, with limited options for financing
and uneven access, the financial sector remains underdevel-
FISCAL FREEDOM: 72.7 – 0.1 oped. State-owned commercial banks account for more than
Bangladesh has a moderate income tax rate and a high cor- 30 percent of total banking assets, undermining competi-
porate tax rate. The top income tax rate is 25 percent, and tiveness and efficiency. The system is afflicted with weak
the top corporate tax rate is 45 percent. Other taxes include financial supervision, fraudulent transactions, mismanage-
a value-added tax (VAT) and a tax on interest. In the most ment, and political influence in lending practices. Govern-
recent year, overall tax revenue as a percentage of GDP ment ownership and interference are quite heavy. There are
was 8.8 percent. controls and limits on transactions regarding money market
instruments. An extensive microfinance presence remains
GOVERNMENT SPENDING: 92.4 – 1.5 largely unsupervised. Two stock exchanges are in place, but
In the most recent year, total government expenditures, their market capitalization is low.
including consumption and transfer payments, equaled
15.9 percent of GDP. Expenditures on welfare spending PROPERTY RIGHTS: 20 no change
increased as a response to the global crisis, but budget Bangladesh has a civil court system based on the Brit-
reallocation kept the total fiscal stimulus relatively low. ish model. The constitution provides for an independent
Underimplementation of the Annual Development Plan judiciary, but the lower courts are considered to be part of
kept the fiscal balance steady despite revenue shortfalls. the executive branch and suffer from serious corruption.
Cash flow from the treasury to independent ministries is Contract enforcement is weak, and dispute settlement is
poorly managed. further hampered by shortcomings in accounting practices
and real property registration.
MONETARY FREEDOM: 68.6 + 2.0
Inflation is on pace to average 8 percent in 2010, compared
with 5.4 percent in 2009, because of global commodity
FREEDOM FROM CORRUPTION: 24
Corruption is perceived as pervasive. Bangladesh ranks
+ 3.0
price increases. Subsidies and other government assistance 139th out of 180 countries in Transparency International’s
to agriculture have doubled since 2005. Public finances are Corruption Perceptions Index for 2009, a slight improve-
further strained by the government’s determination to con- ment from 2008. Corruption remains a serious impediment
tinue subsidies for electricity. Fifteen points were deducted to investment and economic growth. By some estimates,
from Bangladesh’s monetary freedom score to account for off-the-record payments by firms result in an annual loss of
measures that distort domestic prices for petroleum prod- 2 percent–3 percent of GDP. Given that corruption blights
ucts, some pharmaceuticals, and goods produced in state- all other economic freedoms, this continues to be a key area
owned enterprises. for improvement.

INVESTMENT FREEDOM: 55 + 10.0


Officially, foreign investment is welcomed, but certain sec-
LABOR FREEDOM: 54.3
Bangladesh has not been able to develop a well-function-
+ 0.5
tors remain restricted, and potential investors face a host ing labor market, and much of the labor force is employed
of challenges: delays in project approvals, burdensome in the agricultural sector. Worsened by the inefficient labor
bureaucratic procedures, high levels of corruption, and market infrastructure, underemployment has become a
uncertainty about contract and regulatory enforcement. growing problem.

96 2011 Index of Economic Freedom


BARBADOS
Economic Freedom Score
50
25 75
Least Most
free 0 100 free
World Rank: 42 Regional Rank: 6 68.5

B arbados’s economic freedom score is 68.5, making its


economy the 42nd freest in the 2010 Index. Its score is
0.2 point better than last year due to improvements in its
Country’s Score Over Time
90
freedom from corruption and monetary freedom scores.
Barbados is 6th out of 29 countries in the South and Central 80
America/Caribbean region, and its overall score remains
70
well above global and regional averages.
60
The Barbados government’s economic policies are focused
on attracting international companies. Business regula- 50
tions facilitate private-sector growth, and labor policies are
1995 ’97 ’99 ’01 ’03 ’05 ’07 ’09 2011
not burdensome. Transparency levels the playing field for
domestic and foreign businesses, despite certain restrictions Country Comparisons
on foreign investment. The legal system adjudicates busi-
ness disputes effectively and encourages a relatively low 100
level of corruption. The financial sector has been modestly
84.1
affected by the global financial turmoil, and the overall mac-
80
roeconomic situation remains stable.
68.5
Barbados is one of the Caribbean region’s most prosperous 59.7 60.2
60
economies, and offshore finance and tourism have been
important sources of economic growth. However, growth
has slowed in recent years, and government spending has 40
increased. Due to a large fiscal deficit, government debt has
continued to rise rapidly. As of June 2010, the debt level 20
equaled approximately 95 percent of GDP.
BACKGROUND: Barbados is a parliamentary democracy and 0
Country World Regional Free
member of the British Commonwealth. The Democratic average average economies
Labor Party won the 2008 elections, ousting the business-
friendly Barbados Labor Party after 14 years in power. Quick Facts
Barbados has transformed itself from a low-income, agri- Population: 276,000
cultural economy producing sugar and rum into a middle- GDP (PPP): $5.0 billion
income economy built on tourism and offshore banking. –5.3% growth in 2009
Tourism accounts for more than 15 percent of GDP and was 0.3% 5-year compound annual growth
severely affected by the global economic recession. Many $18,131 per capita
construction and trade jobs were lost, and the government Unemployment: n/a
has responded by increasing spending, creating concerns Inflation (CPI): 3.5%
about the country’s credit rating. Freundel Stuart was FDI Inflow: $289.5 million
named prime minister in October following the untimely
death of Prime Minister David Thompson.

How Do We Measure Economic Freedom?


See page 447 for an explanation of the methodology 2009 data unless otherwise noted.
or visit the Index Web site at heritage.org/index. Data compiled as of September 2010.
97
BARBADOS (continued)
THE TEN ECONOMIC FREEDOMS
BUSINESS FREEDOM: 90 no change
The overall process for obtaining licenses and starting a COUNTRY’S WORLD RANKINGS
business is straightforward. The Company Act ensures Business Freedom No. 15 Investment Freedom No. 103
Trade Freedom No. 159 Financial Freedom No. 38
flexibility and simplicity in establishing and operating Fiscal Freedom No. 127 Property Rights No. 20
companies. Transparent policies and effective laws gener- Government Spending No. 136 Freedom from Corruption No. 20
ally facilitate competition. Monetary Freedom No. 76 Labor Freedom No. 32

TRADE FREEDOM: 60.5 no change


a period determined by the central bank. Companies can
Barbados’s weighted average tariff rate was 14.8 percent
freely repatriate profits and capital from foreign direct
in 2007. Import levies and fees; requirements for permits,
investment if they registered with the central bank at the
licenses, or permission before importation; labeling, sani-
time of investment. Central bank approval is required for
tary, and phytosanitary policies; and direct and indirect
residents and non-residents to hold and transact in foreign
export subsidies add to the cost of trade. State trading is
exchange accounts. The government can acquire property
limited to imports of chicken and turkey wings. Certain
for public use upon prompt payment of compensation at
state companies are de facto sole traders. Ten points were
fair market value. Acquisition of real estate by foreigners
deducted from Barbados’s trade freedom score to account
requires permission from the central bank.
for non-tariff barriers.
FINANCIAL FREEDOM: 60 no change
FISCAL FREEDOM: 70.7 + 0.6 Barbados’s six commercial banks are dominated by Carib-
Barbados has a relatively high income tax rate and a mod-
bean Community and Common Market and Canadian
erate corporate tax rate. The top income tax rate is 35 per-
institutions. The banking sector provides a wide range of
cent, and the top corporate tax rate is 25 percent. Other
services for domestic and foreign investors. While main-
taxes include a value-added tax (VAT) and a property tax.
taining strong regulatory standards, the government also
In the most recent year, overall tax revenue as a percentage
seeks to expand offerings in other financial services. Com-
of GDP fell slightly to 32.9 percent. pliance with international supervisory standards is high
GOVERNMENT SPENDING: 48.8 – 5.8 for offshore and onshore banking institutions. Revised
guidelines have further refined controls on money laun-
In the most recent year, total government expenditures,
dering. CARICOM-related exchange controls have been
including consumption and transfer payments, have risen
abolished, and restrictions on non-CARICOM transac-
slightly to 41.3 percent of GDP. Following the global eco-
tions are to be removed eventually. Securities markets are
nomic crisis, the fiscal deficit has soared. Authorities are
illiquid and lack depth. While the banking system remains
attempting to dampen wage bill growth, improve man-
well capitalized, there has been a significant rise in non-
agement of state-owned enterprises, and better prioritize
performing loans.
capital spending.
PROPERTY RIGHTS: 80
MONETARY FREEDOM: 76.3 + 3.2 Barbados has an efficient legal system based on Brit-
no change
Inflation dipped to 3.5 percent in 2009 but rose significantly
ish common law. Private property is well protected. The
in 2010. Although prices are generally set by the market,
Caribbean Court of Justice is the court of final appeal for
ten points were deducted from Barbados’s monetary free-
Barbados and other CARICOM member states. By regional
dom score to account for measures that distort domestic
standards, the police and courts are efficient and unbiased.
prices for basic food items, transportation, and fuel.

INVESTMENT FREEDOM: 45 no change


FREEDOM FROM CORRUPTION: 74
Corruption is perceived as present. Barbados ranks 20th
+ 4.0
Barbados is generally open to foreign investors. Tour
out of 180 countries in Transparency International’s Cor-
operators, travel agents, certain ground transport, and
ruption Perceptions Index for 2009. There are criminal pen-
food retail services are reserved for locally domiciled
alties for official corruption, and the government generally
firms. There are few monopolies other than utilities and implements these laws effectively. Barbados is a narcotics
some state trading enterprises. Residents’ purchases of trafficking transit country and attracts drug money–laun-
securities abroad require exchange control approval, and dering operations.
earnings must be repatriated and surrendered to an autho-
rized dealer. Credit operations and direct investments LABOR FREEDOM: 80 no change
also require exchange control approval. The central bank Flexible employment regulations enhance overall produc-
regulates investment transfers and capital remittances. tivity growth and job creation. Employees are guaranteed
In general, foreign currency may be freely repatriated at least two weeks of annual leave and are covered by
for current transactions; if substantial capital gains have unemployment benefits and national insurance legislation.
been realized, repatriation must generally be phased over Employers are not legally obligated to recognize unions.

98 2011 Index of Economic Freedom


BELARUS
Economic Freedom Score
50
25 75
Least Most
free 0 100 free
World Rank: 155 Regional Rank: 42 47.9

B elarus’s economic freedom score is 47.9, making its econ-


omy the 155th freest in the 2010 Index. Its overall score is
0.8 point worse than last year due to declines in five of the
Country’s Score Over Time
60
10 economic freedoms. Belarus is ranked 42nd among the
43 countries in the Europe region. 50

Belarus has achieved limited success in only a few of the 40


10 economic freedoms. The costs of starting a business are
30
relatively low compared to the world average. The aver-
age tariff rate is competitive, but trade is limited by restric- 20
tions. The moderate corporate tax rate is coupled with a low
1995 ’97 ’99 ’01 ’03 ’05 ’07 ’09 2011
income tax rate to generate high fiscal freedom.
Although Belarus has undergone minor advances towards
Country Comparisons
deregulation, a major shift toward a more liberal economic
100
policy has not been a priority. Corruption remains wide-
spread, and the enforcement of property rights is subject to 84.1
an ineffective judiciary and time-consuming bureaucracy. 80
Government interference with the private sector still weak- 66.8
ens monetary freedom, investment freedom, and financial 59.7 60
freedom. 47.9
BACKGROUND: In October 2004, authoritarian President 40
Alexander Lukashenko, in power since 1994, changed the
constitution, effectively becoming president for life. In 2005,
20
Lukashenko vowed to guide Belarus toward “market social-
ism,” and the economy has been deteriorating ever since.
Industry and state-controlled agriculture are uncompetitive. 0
Country World Regional Free
GDP is expected to grow by only 3.5 percent in 2011, a lag- average average economies
gard pace for an emerging market. In 2008, Russia extended
a $2 billion loan to Belarus that was linked to creation of a Quick Facts
single currency between the two countries. The Internation- Population: 9.5 million
al Monetary Fund approved a $2.46 billion loan in January GDP (PPP): $120.8 billion
2009. Growing ties with Iran, Venezuela, and China have not 0.2% growth in 2009
improved economic prospects; nor did Belarus’s effort to 7.1% 5-year compound annual growth
move toward a customs union with Russia and Kazakhstan $12,737 per capita
as a part of the Eurasian Economic Community. Unemployment: n/a
Inflation (CPI): 13.0%
FDI Inflow: $1.9 billion

How Do We Measure Economic Freedom?


See page 447 for an explanation of the methodology 2009 data unless otherwise noted.
or visit the Index Web site at heritage.org/index. Data compiled as of September 2010.
99
BELARUS (continued)
THE TEN ECONOMIC FREEDOMS
BUSINESS FREEDOM: 70.6 – 1.5
Recent reforms have enhanced the overall freedom to COUNTRY’S WORLD RANKINGS
establish and run a business, but lingering government Business Freedom No. 68 Investment Freedom No. 152
Trade Freedom No. 76 Financial Freedom No. 172
interference and the lack of consistency in enforcing regu-
Fiscal Freedom No. 51 Property Rights No. 146
lations continue to discourage much-needed private-sector Government Spending No. 165 Freedom from Corruption No. 141
development. Monetary Freedom No. 167 Labor Freedom No. 24

TRADE FREEDOM: 80.3 no change


Belarus’s weighted average tariff rate was 2.3 percent in and current transfers are subject to restrictions. When
2009. Extensive import restrictions and quotas, licensing expropriating property, the government commonly alleges
requirements, non-transparent and arbitrary regulations, breaches of business law and offers no compensation.
weak enforcement of property rights, domestic preference
in government procurement, and government subsidies
FINANCIAL FREEDOM: 10 no change
Belarus’s banking system remains heavily government-
add to the cost of trade. Fifteen points were deducted
influenced, with commercial banks’ lending practices
from Belarus’s trade freedom score to account for non-
subject to state pressure. State-directed lending through
tariff barriers.
government-owned banks accounts for about 50 percent
FISCAL FREEDOM: 83.6 – 1.6 of lending and causes inefficient credit allocation through-
out the economy. Foreign banks face major impediments,
Belarus has a low income tax rate and a moderate corpo-
rate tax rate. The income tax rate is a flat 12 percent. The and barriers to credit remain high. Businesses have access
top corporate tax rate remains 24 percent. The value-added to various credit mechanisms, but long bureaucratic delays
tax (VAT) has been increased from 18 percent to 20 percent; discourage smaller companies. The small non-bank finan-
taxes on agriculture and vehicles have been reduced; and cial sector is inhibited by state intervention and irregular
excise taxes on alcohol and tobacco, raised as of July 1, regulatory enforcement. The stock market is small and
2009, are set to increase again. In the most recent year, over- largely dormant.
all tax revenue as a percentage of GDP was 30.4 percent.
PROPERTY RIGHTS: 20 no change
GOVERNMENT SPENDING: 26.2 – 5.8 The structure of property rights is unchanged since the
In the most recent year, total government expenditures, Soviet period, with state ownership of land and govern-
including consumption and transfer payments, have risen ment-controlled collective and state farms. The legal sys-
to 49.6 percent of GDP. The government plans to curtail tem does not fully protect private property, and inefficient
some subsidies but has not made progress with privatiza- courts do not enforce contracts consistently. The judiciary
tion of state-owned enterprises in energy and telecommu- is neither independent nor objective by international stan-
nication and refuses to liberalize state wages. The budget dards. The government has wide scope to interfere in com-
deficit stands just below 1 percent of GDP. mercial transactions. Registration, assessment, sales, and
purchases of property are highly bureaucratic and time-
MONETARY FREEDOM: 62.2 – 0.4 consuming. Independent lawyers cannot practice without
Inflation was forecast to average 7 percent in 2010, down a special license from the Ministry of Justice. Protection of
from 12.9 percent in 2009. The government subsidizes intellectual property is weak.
many basic goods and services, sets prices of products
made by state-owned enterprises, controls wages, and FREEDOM FROM CORRUPTION: 24
Corruption is perceived as pervasive. Belarus ranks 139th
+ 4.0
regulates retail-sector prices. Fifteen points were deducted
from Belarus’s monetary freedom score to account for mea- out of 180 countries in Transparency International’s Cor-
sures that distort domestic prices. ruption Perceptions Index for 2009. Owners of import–
export businesses complain of corruption at every point in
INVESTMENT FREEDOM: 20 no change a transaction. According to independent polls, corruption
The government discriminates against domestic and for- is most pervasive among local government officials, direc-
eign private parties in favor of state-owned businesses. tors of large state enterprises, police, doctors, and teachers.
Foreign investments undergo additional screening and are The lack of transparent discrimination between the presi-
allowed only on a case-by-case basis. Numerous industries dent’s personal funds and official government accounts
remain the exclusive domain of the state, and profitable and a heavy reliance on off-budget revenues suggest cor-
and strategic sectors are often under de facto government ruption within the executive branch.
control. Inefficient bureaucracy, corruption, contradic-
tory enforcement of regulations, lack of respect for law, LABOR FREEDOM: 82.3 – 2.5
and official resistance to the private sector hinder foreign The Belarus economy has failed to benefit much from a rela-
investment. Foreigners and businesses may not own land. tively flexible labor code, as it lacks a dynamic private sector
Capital transactions, resident and non-resident accounts, in which job creation and productivity growth could occur.

100 2011 Index of Economic Freedom


BELGIUM
Economic Freedom Score
50
25 75
Least Most
free 0 100 free
World Rank: 32 Regional Rank: 18 70.2

B elgium’s economic freedom score is 70.2, making its


economy the 32nd freest in the 2011 Index. Its overall
score has improved slightly from last year, primarily due to
Country’s Score Over Time
90
increases in monetary and labor freedom. Belgium is ranked
18th freest among the 43 countries in the Europe region, and 80
its overall score is above the regional and global averages.
70
Generally friendly to free-market competition, Belgium’s
60
economy has long benefited from its openness to global
trade and investment. However, lingering structural weak- 50
nesses hinder reforms to enhance economic freedom and
1995 ’97 ’99 ’01 ’03 ’05 ’07 ’09 2011
international competitiveness. The tax system is burden-
some, and the extensive welfare state is supported by high Country Comparisons
government spending, with the government’s debt burden
soaring over 100 percent of GDP. Despite some progress, 100
labor market rigidities remain a considerable barrier to pro-
84.1
ductivity and job growth.
80
The global financial crisis has caused a sharp economic 70.2 66.8
slowdown in Belgium. In response to the turmoil in the 59.7 60
banking sector and the subsequent contraction in overall
economic activity, the government has stepped in to sup-
port the financial system and implement a moderate-size 40
fiscal stimulus package. The economic recovery that began
in mid-2009 has been modest and uneven, with the sound- 20
ness of public finance deteriorating.
BACKGROUND: Belgium is a federal state consisting of three 0
Country World Regional Free
culturally different regions: Flanders, Wallonia, and the average average economies
capital city of Brussels, which houses the headquarters of
NATO and the European Union. Christian Democrat Her- Quick Facts
man Van Rompuy, formerly president of the Chamber of Population: 10.8 million
Representatives, became prime minister on January 5, GDP (PPP): $382.7 billion
2009. When Van Rompuy was selected to become the first –3.0% growth in 2009
president of the European Council on December 1, 2009, 0.8% 5-year compound annual growth
former premier Yves Leterme again became prime min- $35,422 per capita
ister. Belgium assumed the EU presidency in July 2010. Unemployment: 7.9%
Services account for 75 percent of economic activity. Lead- Inflation (CPI): –0.2%
ing exports are electrical equipment, vehicles, diamonds, FDI Inflow: $33.8 billion
and chemicals.

How Do We Measure Economic Freedom?


See page 447 for an explanation of the methodology 2009 data unless otherwise noted.
or visit the Index Web site at heritage.org/index. Data compiled as of September 2010.
101
BELGIUM (continued)
THE TEN ECONOMIC FREEDOMS
BUSINESS FREEDOM: 92.6 – 0.3
The overall freedom to establish and run a business is well COUNTRY’S WORLD RANKINGS
protected. An innovative form of limited enterprise was Business Freedom No. 10 Investment Freedom No. 14
Trade Freedom No. 12 Financial Freedom No. 17
introduced in 2010; “starter” firms with no minimum capi-
Fiscal Freedom No. 177 Property Rights No. 20
tal may retain part of their profits to improve their financial Government Spending No. 166 Freedom from Corruption No. 21
viability but are expected to develop into full limited-lia- Monetary Freedom No. 17 Labor Freedom No. 57
bility companies within five years.

TRADE FREEDOM: 87.6 + 0.1 INVESTMENT FREEDOM: 80 no change


Foreign investors may enter into joint ventures and part-
Belgium’s trade policy is the same as that of other members
of the European Union. The common EU weighted average nerships on the same basis as domestic parties, except for
tariff rate was 1.3 percent in 2008. However, the EU has such professions as doctors, lawyers, accountants, and
high or escalating tariffs for agricultural and manufactur- architects. Permission is required to open department
ing products, and its MFN tariff code is complex. Non- stores, provide transportation and security services, pro-
tariff barriers reflected in EU and Belgian policy include duce and sell certain food items, cut and polish diamonds,
agricultural and manufacturing subsidies, quotas, import or sell firearms and ammunition. There are no restrictions
restrictions and bans for some goods and services, market on the purchase of real estate, resident and non-resident
access restrictions in some services sectors, non-transpar- foreign exchange accounts, repatriation of profit, or trans-
ent and restrictive regulations and standards, and incon- fer of capital. If the government acquires property for a
sistent regulatory and customs administration among EU public purpose, adequate compensation is paid.
members. Ten points were deducted from Belgium’s trade
freedom score to account for non-tariff barriers. FINANCIAL FREEDOM: 70 no change
Belgium’s modern financial sector is dominated by bank-
FISCAL FREEDOM: 41.8 – 0.4 ing. Domestic and foreign banks operate in a very competi-
Belgium’s income tax rate is one of the world’s highest, tive environment. Credit is allocated at market terms, but
and its corporate tax rate is moderately high. The top regional authorities may subsidize medium- and long-term
income tax rate is 50 percent, and the top corporate tax borrowing. Capital markets are integrated into Euronext, a
rate is effectively 34 percent (33 percent plus a 3 percent broader European exchange. Responding to the financial
austerity tax charged on the income tax due). Other taxes crisis, the government has bailed out several major banks.
include a value-added tax (VAT), a real property tax, and Other financial groups have received additional recapi-
an estate tax. Rates of the last two vary by region. In the talization, and the government has offered inter-bank
most recent year, overall tax revenue as a percentage of loan guarantees. The banking sector’s financial situation
GDP was 46.5 percent. remains fragile.

GOVERNMENT SPENDING: 25 – 5.0 PROPERTY RIGHTS: 80 no change


Total government expenditures, including consumption Property ownership is protected, and contracts are secure.
and transfer payments, are very high. In the most recent Laws are codified, and the judiciary and civil service, while
year, government spending rose to 50 percent of GDP. often slow, are of high quality. Intellectual property rights
Post-crisis intervention led to a deteriorating fiscal bal- are protected, but implementation of relevant EU direc-
ance and a deficit of 6 percent of GDP. The Belgian Stabil- tives is slow.
ity Program has as its goal the achievement of a balanced
budget by 2015. FREEDOM FROM CORRUPTION: 71 – 2.0
Corruption is perceived as minimal. Belgium ranks 21st
MONETARY FREEDOM: 82.5 + 4.6 out of 180 countries in Transparency International’s Cor-
ruption Perceptions Index for 2009. Belgium outlaws both
Belgium is a member of the euro zone. The weighted aver-
age annual rate of inflation rose to 2.5 percent in 2010 after active bribery and “passive bribery,” whereby officials
dropping nearly to zero in 2009. As a participant in the request or accept bribes to benefit themselves or others in
EU’s Common Agricultural Policy, the government sub- exchange for certain behavior.

+ 3.9
sidizes agricultural production, distorting the prices of
agricultural products. Price-control policies affect water LABOR FREEDOM: 71
Employment regulations have gradually become less
supply, waste handling, homes for the elderly, medicines
burdensome. The non-salary cost of employing a worker
and implantable medical devices, certain cars, compulsory
remains high, and dismissing a redundant employee is
insurance, fire insurance, petroleum products, cable televi-
relatively costly.
sion, and certain types of bread. Ten points were deducted
from Belgium’s monetary freedom score to account for
measures that distort domestic prices.

102 2011 Index of Economic Freedom


BELIZE
Economic Freedom Score
50
25 75
Least Most
free 0 100 free
World Rank: 71 Regional Rank: 14 63.8

B elize’s economic freedom score is 63.8, making its econ-


omy the 71st freest in the 2011 Index. Its overall score is
2.3 points better than last year, primarily due to improved
Country’s Score Over Time
80
scores in fiscal, monetary, and labor freedoms. Belize is
ranked 14th out of 29 countries in the South and Central 70
America/Caribbean region.
60
Belize’s record on structural reforms has been uneven, and
50
more dynamic economic growth is constrained by lingering
policy weaknesses in many parts of the economy. Entrepre- 40
neurial activity continues to be limited, and recovery from
1995 ’97 ’99 ’01 ’03 ’05 ’07 ’09 2011
the recent economic slowdown has been narrowly based.
Burdensome tariff and non-tariff barriers, together with the Country Comparisons
high cost of domestic financing, hinder private-sector devel-
opment and economic diversification. 100

Belize’s overall economic freedom remains limited by other 84.1


institutional weaknesses. The overall regulatory infrastruc- 80
ture is inefficient and raises the cost of conducting entrepre- 63.8
neurial activity. Special licensing requirements discourage 59.7 60.2
60
foreign investment in many sectors, and foreign exchange
regulations are inconsistent and non-transparent. The judi-
cial system remains vulnerable to political interference, and 40
corruption is common.
20
BACKGROUND: Belize is a parliamentary democracy and
member of the British Commonwealth. In February 2008,
the United Democratic Party defeated the incumbent Peo- 0
Country World Regional Free
ple’s United Party—a visible response to the country’s high average average economies
unemployment, high crime rates, and growing involve-
ment in the drug trade. Prime Minister Dean Barrow has Quick Facts
worked to restore confidence in the government, but high Population: 0.3 million
public-sector debt leaves him little fiscal room to maneu- GDP (PPP): $2.6 billion
ver. Tourism and agriculture account for most of Belize’s –1.1% growth in 2009
small, private enterprise–led economy. Both tourism and 2.1% 5-year compound annual growth
the production of sugar, which is the country’s principal $7,719 per capita
export, have decreased significantly during the recession. Unemployment: 8.2% (2008)
Oil exploration increased during 2009. Belize is plagued by Inflation (CPI): 2.0%
crime, money-laundering, and poverty. FDI Inflow: $95.4 million

How Do We Measure Economic Freedom?


See page 447 for an explanation of the methodology 2009 data unless otherwise noted.
or visit the Index Web site at heritage.org/index. Data compiled as of September 2010.
103
BELIZE (continued)
THE TEN ECONOMIC FREEDOMS
BUSINESS FREEDOM: 73.7 – 0.4
The process for setting up a business and completing COUNTRY’S WORLD RANKINGS
regulatory requirements has been streamlined a bit, but, Business Freedom No. 53 Investment Freedom No. 94
Trade Freedom No. 119 Financial Freedom No. 70
entrepreneurial activity often faces such challenges as
Fiscal Freedom No. 62 Property Rights No. 73
poor enforcement of the commercial code and lack of Government Spending No. 74 Freedom from Corruption No. 107
transparency. Monetary Freedom No. 46 Labor Freedom No. 16

TRADE FREEDOM: 71.5 no change


Belize’s weighted average tariff rate was 9.3 percent in assess and pay appropriate compensation if it expropri-
2008. Import restrictions, import licensing rules for some ates an asset.
products, customs corruption, and weak enforcement of
intellectual property rights add to the cost of trade. Ten
FINANCIAL FREEDOM: 50 no change
Belize’s financial system is small but growing, and obtain-
points were deducted from Belize’s trade freedom score to
ing credit is relatively straightforward. There are five
account for non-tariff barriers.
commercial banks, eight international banks, and several
FISCAL FREEDOM: 82.3 + 14.0
Belize has moderate personal income and corporate tax
quasi-government banks. Government policy has fostered
development of offshore financial activities. Subsidiaries
rates. The top income and corporate tax rates are 25 per- of foreign banks are competitive, but approval is required
cent, with petroleum profits taxed at 40 percent. Other to secure a foreign currency loan from outside Belize, and
taxes include a goods and services tax and a stamp duty. only authorized dealers may retain foreign currency. The
In the most recent year, overall tax revenue as a percentage government influences the allocation of credit through
of GDP was 22.7 percent. the quasi-government banks. The financial system has
remained largely insulated from the global financial crisis,
GOVERNMENT SPENDING: 76.1 + 1.2
In the most recent year, total government expenditures,
but non-performing loans have increased considerably.

including consumption and transfer payments, held steady PROPERTY RIGHTS: 40 no change
at 28.2 percent of GDP. Public debt is high at 83 percent of The judiciary is constitutionally independent but subject
GDP, but continued and transparent fiscal consolidation to political influence. There is a severe lack of trained
should help to implement long-term debt reduction. prosecutors, and police officers often assume that role in
the magistrates’ courts. There are lengthy trial backlogs.
MONETARY FREEDOM: 78.8 + 3.2
Inflation is increasing, averaging 4.1 percent in 2010 after
Expropriation of personal property is relatively rare. Many
property disputes involve foreign investors and landown-
a steep decline in 2009. The government sets the prices of ers, and it is often difficult to trace the ownership history or
some basic commodities, such as rice, flour, beans, sugar, specific borders of land holdings. Protection of intellectual
bread, butane gas, and fuel, and controls the retail price property rights is lax.
of electricity. Price controls are enforced for a handful of
goods, although regulations define administrative prices FREEDOM FROM CORRUPTION: 29 no change
or mark-ups for several other products. Ten points were Corruption is perceived as widespread. Belize was ranked
deducted from Belize’s monetary freedom score to account 109th out of 179 countries in Transparency International’s
for measures that distort domestic prices. Corruption Perceptions Index for 2008 (it was not ranked
in 2009 due to shortage of survey sources within Belize).
INVESTMENT FREEDOM: 50 no change Money laundering, related primarily to narcotics traffick-
Belize generally is non-discriminatory toward foreign ing and contraband smuggling, occurs through banks
investment, but there are restrictions in certain sectors. operating in Belize. In 2009, nine persons were arrested
Full foreign ownership of businesses is legal, although the in connection with money laundering, and charges of cor-
government encourages partnerships with locals. Bureau- ruption and misconduct were levied against the mayor of
cracy can be non-transparent, and dispute resolution can Belize City. There is one licensed Internet gaming site, but
be time-consuming. Residents and non-residents may hold an undisclosed number of Internet gaming sites operate
foreign exchange accounts subject to government approv- illegally.
al. Officially, no person other than authorized dealers and
depositories may retain any foreign currency without the
central bank’s consent. All capital transactions must be
LABOR FREEDOM: 86.5 + 4.8
The non-salary cost of employing a worker is relatively
notified to or approved by the central bank. Applications to low, and terminating labor contracts is not cumbersome.
buy more than 10 acres of land require the Ministerial Cabi- Overall, flexible employment regulations support employ-
net’s approval, and non-residents must obtain approval for ment and productivity growth, but a formal labor market
transfers of any land or buildings. The government must has not been fully developed.

104 2011 Index of Economic Freedom


BENIN
Economic Freedom Score
50
25 75
Least Most
free 0 100 free
World Rank: 117 Regional Rank: 20 56.0

B enin’s economic freedom score is 56, making its economy


the 117th freest in the 2011 Index. Its overall score is 0.6
point better than last year, with increases in trade freedom,
Country’s Score Over Time
80
monetary freedom, and labor freedom. Benin is ranked 20th
out of 46 countries in the Sub-Saharan Africa region, and its 70
overall score is slightly higher than the regional average.
60
Benin’s entrepreneurial environment benefits from a rela-
50
tively stable political and macroeconomic situation. Con-
tinuing its efforts to promote economic diversification and 40
modernization, the government has introduced structural
1995 ’97 ’99 ’01 ’03 ’05 ’07 ’09 2011
reforms to revitalize the economy. However, inefficient reg-
ulation and the lack of political momentum to implement Country Comparisons
necessary reforms fully continue to be serious obstacles to
advancing economic freedom. 100

The most visible constraints on private-sector development 84.1


are related to fiscal pressure, administrative complexities, 80
and the lack of respect for contracts. Bureaucratic ineffi-
ciency and corruption affect much of the economy. Court 59.7
56.0 53.5 60
enforcement of property rights remains vulnerable to politi-
cal interference. The lack of economic freedom has fueled
the growth of the informal sector, which accounts for about 40
60 percent of Benin’s GDP.
20
BACKGROUND: President Mathieu Kérékou, who ruled
Benin for almost 20 years following a military coup, stepped
down following a democratic transition in the early 1990s 0
Country World Regional Free
and later served two five-year elected terms. Current Presi- average average economies
dent Boni Yayi, former head of the West African Develop-
ment Bank, came to power in 2006 in elections that were Quick Facts
generally regarded as free and fair. The next elections are Population: 9.4 million
scheduled for 2011. Benin remains underdeveloped and GDP (PPP): $13.6 billion
dependent on subsistence agriculture. Cotton, the main 2.7% growth in 2009
commercial crop, accounts for over 40 percent of foreign 4.0% 5-year compound annual growth
exchange earnings, 17 percent of exports, and about 7 per- $1,445 per capita
cent of GDP. In order to increase economic growth, Benin Unemployment: n/a
is attempting to attract foreign investment in tourism, food Inflation (CPI): 2.2%
processing, and agriculture. FDI Inflow: $92.5 million

How Do We Measure Economic Freedom?


See page 447 for an explanation of the methodology 2009 data unless otherwise noted.
or visit the Index Web site at heritage.org/index. Data compiled as of September 2010.
105
BENIN (continued)
THE TEN ECONOMIC FREEDOMS
BUSINESS FREEDOM: 43 + 0.7 COUNTRY’S WORLD RANKINGS
Benin’s overall entrepreneurial environment remains bur-
densome. Bureaucratic procedures are not streamlined and Business Freedom No. 154 Investment Freedom No. 62
Trade Freedom No. 164 Financial Freedom No. 70
lack transparency. Obtaining necessary business licenses is Fiscal Freedom No. 103 Property Rights No. 99
time-consuming and costly. Closing a business is a cumber- Government Spending No. 44 Freedom from Corruption No. 107
some process. Monetary Freedom No. 53 Labor Freedom No. 129

TRADE FREEDOM: 58.8 + 1.8 Transfers exceeding 300,000 FCFA (approximately $600)
Benin’s weighted average tariff rate was 15.6 percent in
2009. Customs inefficiency and corruption, restrictions on to a Western country other than France require central
some imports, and import taxes add to the cost of trade, bank and government approval. There are no restrictions
and the enforcement of intellectual property rights is inad- on remittance of profits by companies, but remittances by
equate. Ten points were deducted from Benin’s trade free- individual resident investors can be restricted. Foreign
dom score to account for non-tariff barriers. investors generally may own land. The government can
seize property by eminent domain but is required to pay
FISCAL FREEDOM: 75.8 – 0.1 compensation to the owners.
The top income tax rate is 35 percent, and the top corpo-
rate tax rate is 30 percent, with oil companies subject to FINANCIAL FREEDOM: 50 no change
a 45 percent rate. Other taxes include a value-added tax Benin’s highly concentrated banking sector is predomi-
(VAT), a property tax, and a tax on insurance contracts. In nantly private, and foreign ownership is allowed. Despite
the most recent year, overall tax revenue as a percentage of the noticeable development of microfinance institutions,
GDP was 17.2 percent. overall access to credit remains low. Bank credit to the
economy is estimated at equivalent to less than 20 percent
GOVERNMENT SPENDING: 84.1 – 1.1 of GDP in 2009. The Central Bank of West African States
In the most recent year, total government expenditures, governs Benin’s financial institutions, and regulatory over-
including consumption and transfer payments, held steady sight can be unwieldy. Banks have difficulty with non-
at 23 percent of GDP. Privatizations in cotton, banking, performing loans and recovering collateral on those loans.
wood, and cement are complete, and Benin Telecom is
expected to follow suit. Government involvement in util- PROPERTY RIGHTS: 30 no change
ity pricing has compounded problems with energy short- Benin’s legal system is weak and subject to corruption.
ages and high electricity costs. Limiting recurrent spending Businesses and other litigants routinely complain that
to open up space for critical investment in infrastructure corruption is particularly widespread at the trial court
remains a major fiscal goal but will be possible only with a level and in administrative hearings. There are no sepa-
serious commitment to curbing public sector wage growth. rate commercial courts, and backlogs of civil cases cause
long delays. International donor assistance projects aim
MONETARY FREEDOM: 78.2 + 3.6 to improve the judiciary by training staff and expanding
As a member of the West African Economic and Monetary physical capacity. Benin was ranked 75th out of 125 coun-
Union, Benin uses the CFA franc, which is pegged to the tries in the 2010 International Property Rights Index.
euro. Inflation was projected to rise slightly to 3.3 percent
in 2010 from 2.2 percent in 2009. The government regulates FREEDOM FROM CORRUPTION: 29 – 2.0
prices in the state-owned water, telecommunications, and Corruption is perceived as widespread. Benin ranks 106th
electricity sectors, and the parastatal cotton sector benefits out of 180 countries in Transparency International’s Cor-
from government subsidies and price supports. State sub- ruption Perceptions Index for 2009, a decline from 2008.
sidies to the troubled electricity sector have jumped, as Despite several high-profile prosecutions, government
have public-sector wages. Ten points were deducted from corruption continues to impede development and deter
Benin’s monetary freedom score to account for measures investment. Benin’s citizens reportedly encounter demands
that distort domestic prices. for bribes at every turn in their day-to-day dealings with
government officials.
INVESTMENT FREEDOM: 60 no change
Benin officially encourages foreign investment, and foreign LABOR FREEDOM: 50.7 + 2.9
investors have taken advantage of opportunities linked to The agriculture sector accounts for nearly 70 percent of
the privatization of state-owned enterprises. Bureaucracy the workforce. Outmoded employment regulations hinder
is inefficient and subject to corruption. Judicial resolution overall job creation and productivity growth. Restrictions
of civil disputes is time-consuming. International intel- on the number of working hours remain rigid, and the non-
lectual property agreements are not adequately enforced. salary cost of employing a worker is high.

106 2011 Index of Economic Freedom


BHUTAN
Economic Freedom Score
50
25 75
Least Most
free 0 100 free
World Rank: 103 Regional Rank: 18 57.6

B hutan’s economic freedom score is 57.6, making its


economy the 103rd freest in the 2011 Index. Its score
has improved slightly from last year, primarily because of
Country’s Score Over Time
70
improved scores in government spending and investment
freedom. Bhutan is ranked 18th out of 41 countries in the 60
Asia–Pacific region, and its overall score is slightly below
50
the global average.
40
Bhutan has made progress in modernizing its economic
structure and reducing poverty. The public sector, especially 30
hydropower, has long been the main source of economic
1995 ’97 ’99 ’01 ’03 ’05 ’07 ’09 2011
growth, but the government now recognizes that develop-
ing the private sector is crucial. A higher policy priority has Country Comparisons
been given to measures to diversify the economy, partic-
ularly in light of demographic shifts that will bring more 100
young people into the labor market. Steps to ensure greater
84.1
security for property rights have been also taken.
80
Lingering constraints on private-sector development
include the inefficient regulatory framework, pervasive 57.6 59.7 57.4 60
non-tariff barriers, and a rudimentary investment code. The
financial sector remains small and without adequate regula-
tion or supervision. The lack of access to financing precludes 40
entrepreneurial growth
20
BACKGROUND: Bhutan, a small Himalayan constitutional
monarchy that made the transition from absolute monar-
chy to parliamentary democracy in March 2008, has one of 0
Country World Regional Free
the world’s smallest and least-developed economies. Until a average average economies
few decades ago, this still largely agrarian country had few
roads, little electricity, and no modern hospitals. Rugged ter- Quick Facts
rain makes the development of infrastructure difficult, but Population: 0.7 million
recent interregional economic cooperation, particularly in GDP (PPP): $3.5 billion
the area of trade with Bangladesh and India, is helping to 6.3% growth in 2009
encourage economic growth. Bhutan’s international trade 9.2% 5-year compound annual growth
has long been dominated by India, and connections to glob- $5,212 per capita
al markets are limited. Unemployment: 4.0%
Inflation (CPI): 8.7%
FDI Inflow: $36.4 million

How Do We Measure Economic Freedom?


See page 447 for an explanation of the methodology 2009 data unless otherwise noted.
or visit the Index Web site at heritage.org/index. Data compiled as of September 2010.
107
BHUTAN (continued)
THE TEN ECONOMIC FREEDOMS
BUSINESS FREEDOM: 59.8 – 0.7
A modern regulatory framework has not been fully devel- COUNTRY’S WORLD RANKINGS
oped. Despite recent efforts, the business climate is still Business Freedom No. 119 Investment Freedom No. 152
Trade Freedom No. 173 Financial Freedom No. 133
hampered by inconsistent enforcement of regulations and
Fiscal Freedom No. 45 Property Rights No. 42
a lack of transparency. Government Spending No. 107 Freedom from Corruption No. 48
Monetary Freedom No. 122 Labor Freedom No. 19
TRADE FREEDOM: 52 no change
Bhutan’s weighted average tariff rate in 2007 was 16.5
percent. Bhutan has not yet joined the World Trade Orga- FINANCIAL FREEDOM: 30 no change
nization. Import and export restrictions, services market Bhutan needs a more efficient and competitive financial
access restrictions, inadequate infrastructure and trade sector to mobilize savings and channel long-term capital
capacity, underdeveloped markets, and non-transparent to facilitate private-sector development. The financial sec-
and arbitrary regulation add to the cost of trade. Fifteen tor is small, and an underdeveloped regulatory framework
points were deducted from Bhutan’s trade freedom score limits access to capital for entrepreneurs. Two state-owned
to account for non-tariff barriers. commercial banks have branches around the country. The
Bank of Bhutan enjoyed a monopoly for many years,
FISCAL FREEDOM: 83.9 – 0.2 but competition has improved with the establishment of
Bhutan has moderate personal income tax and corporate
the Bhutan National Bank and the opening of the sector
tax rates. The top income tax rate is 25 percent, and the cor-
to more foreign partnerships. The government-owned
porate tax rate is 30 percent. Other taxes include a motor
Bhutan Development Finance Corporation and Royal
vehicle tax, a property tax, and an excise tax. A value-added
Insurance Corporation of Bhutan have high levels of non-
tax (VAT) is set to be introduced in an effort to broaden the
performing loans. Credit is not always allocated on mar-
tax base. In the most recent year, overall tax revenue as a
ket terms. Foreign exchange is tightly regulated, and the
percentage of GDP was 9 percent.
currency is not convertible. The four state-owned finan-
GOVERNMENT SPENDING: 64.1 + 5.8 cial institutions dominate the Royal Securities Exchange.
In 2010, a Financial Services Bill, aimed at divesting the
In the most recent year, total government expenditures,
including consumption and transfer payments, declined two state-owned banks, was ratified by the lower house
slightly to 34.6 percent of GDP. As part of the tightened fis- of parliament.
cal management advocated by the tenth five-year develop-
ment plan (2008–2013), budgetary targets are now updated
PROPERTY RIGHTS: 60 no change
Bhutan has taken some steps that facilitate private-sec-
several times a year. Public spending is targeted toward
tor development. Protections of intellectual property
transportation infrastructure and hydropower. External
rights are stipulated in the Industrial Property Act and
borrowing from India for hydropower development is
the Copyright Act. The Ministry of Trade and Industry’s
responsible for high public debt, but the fiscal balance
Intellectual Property Division is responsible for imple-
remains stable. Further development is planned to rely on
menting intellectual property policies. Property rights are
public–private partnerships, although there is currently no
legal framework for them. more equally protected than in most of South Asia, with
women rather than men inheriting and owning property
MONETARY FREEDOM: 71.8 – 1.6 in some areas.
Inflation decreased from a high of 8.4 percent in 2008 to
4.3 percent in 2009. The government maintains an effec- FREEDOM FROM CORRUPTION: 50 – 2.0
tive monopoly on imports of rationed goods such as fer- Corruption is perceived as present. Bhutan ranks 49th
tilizer, kerosene, and liquefied petroleum gas, providing out of 180 countries in Transparency International’s Cor-
these to domestic users at subsidized prices. Ten points ruption Perceptions Index for 2009. The government’s
were deducted from Bhutan’s monetary freedom score to Anti-Corruption Commission has identified misuse of
account for the economy’s lack of competition and broad- resources, bribery and collusion, and nepotism as major
based ownership. forms of corruption.

INVESTMENT FREEDOM: 20 + 5.0 LABOR FREEDOM: 84.7 – 0.4


Foreign investment is prohibited in some industries and Dynamic private-sector growth is critical to correcting the
capped in others. Foreign direct investment has been a sen- imbalance between labor supply and demand in Bhutan.
sitive issue, largely because of concerns about its effect on Economic diversification has not progressed much, and
culture and traditions and possibly because of the private unemployment has risen in recent years. Despite flexible
sector’s unwillingness to lose the benefits that restrictions employment regulations that could facilitate overall pro-
provide. Foreign exchange and capital transactions are ductivity growth, a formal and efficient labor market is
subject to government controls. not yet fully developed.

108 2011 Index of Economic Freedom


BOLIVIA
Economic Freedom Score
50
25 75
Least Most
free 0 100 free
World Rank: 147 Regional Rank: 25 50.0

B olivia’s economic freedom score is 50, making its econo-


my the 147th freest in the 2011 Index. Its overall score is
0.6 point better than last year, with improvements in four
Country’s Score Over Time
80
of the 10 economic freedoms. Bolivia is ranked 25th out of
29 countries in the South and Central America/Caribbean 70
region, and its overall score is below the world and regional
60
averages.
50
Bolivia’s overall economic development remains severely
hampered by structural and institutional problems. Heavily 40
dependent on the hydrocarbon sector, the economy suffers
1995 ’97 ’99 ’01 ’03 ’05 ’07 ’09 2011
from a lack of dynamism. Poor economic infrastructure and
weak regulatory and judicial frameworks impede expansion Country Comparisons
and diversification of the productive base.
100
The state’s presence in economic activity is gradually
increasing through nationalization, and the judicial system is 84.1
becoming more vulnerable to political interference. Corrup- 80
tion is prevalent and the rule of law is weak in many areas.
The lack of access to financing precludes entrepreneurial 59.7 60.2
60
growth, and the investment regime lacks transparency. 50.0
Background: From the mid-1980s until 2005, successive 40
elected governments pursued economic and social reform.
President Gonzalo Sánchez de Lozada (1993–1997) imple-
20
mented partial privatization and lowered taxes and tariffs.
In a second term in office in 2003, Sánchez de Lozada pro-
posed tax hikes and a plan to export Bolivian gas through 0
Country World Regional Free
Chile, but leftist nationalists led riots that brought down average average economies
his government. In 2005, they similarly unseated President
Carlos Mesa. In 2006, anti-market populist Evo Morales took Quick Facts
office. Morales used violence and intimidation to impose a Population: 10.2 million
new constitution that expanded executive power, state con- GDP (PPP): $45.6 billion
trol of key natural resources and industries, and the redis- 3.3% growth in 2009
tribution of land. Re-elected in December 2009, he promised 4.7% 5-year compound annual growth
to move Bolivia toward “communitarian socialism” with a $4,455 per capita
powerful state to integrate the economic system. Bolivia Unemployment: 8.5%
continues to look to Cuba and Venezuela for governance Inflation (CPI): 3.5%
models. Almost two-thirds of Bolivia’s people live in pov- FDI Inflow: $423 million
erty, engaged primarily in subsistence agriculture.

How Do We Measure Economic Freedom?


See page 447 for an explanation of the methodology 2009 data unless otherwise noted.
or visit the Index Web site at heritage.org/index. Data compiled as of September 2010.
109
BOLIVIA (continued)
THE TEN Economic Freedoms
BUSINESS FREEDOM: 57.2 – 0.1
The entrepreneurial environment is burdened with red Country’s WORLD RankINGS
tape, corruption, and inconsistent enforcement of commer- Business Freedom No. 130 Investment Freedom No. 152
Trade Freedom No. 88 Financial Freedom No. 70
cial regulations. Overall, interventionist policies continue
Fiscal Freedom No. 46 Property Rights No. 166
to impair the business environment and limit the private Government Spending No. 108 Freedom from Corruption No. 122
investment needed for faster economic growth. Monetary Freedom No. 147 Labor Freedom No. 157

TRADE FREEDOM: 77.6 + 0.7 future nationalizations, and social unrest. There are mini-
Bolivia’s weighted average tariff rate was 3.7 percent in
2009. Inconsistent customs valuation, import bans and mal restrictions on currency transfers and remittances.
restrictions, domestic preference in government procure- The government can expropriate property but must pro-
ment, inconsistent sanitary and phytosanitary rules, export vide compensation. Competing claims to land titles and
subsidies, customs corruption, weak infrastructure, and the absence of reliable dispute resolution create risk and
issues related to the enforcement and protection of intellec- uncertainty in real property acquisition.
tual property rights add to the costs of trade. Many imports
are smuggled into the country to avoid taxation. Fifteen FINANCIAL FREEDOM: 50 no change
points were deducted from Bolivia’s trade freedom score Bolivia’s financial sector is vulnerable to state interference
to account for non-tariff barriers. and remains poorly developed, although it has grown
and become more open. Credit is generally allocated on
FISCAL FREEDOM: 83.9 – 0.4 market terms, but domestic collateral is required. Credit to
Bolivia has a relatively low income tax and a moderate the private sector has expanded very slowly. Political and
corporate tax. The top income tax rate is 13 percent, and social unrest hinder the development of a modern securi-
the corporate tax rate is 25 percent. Other taxes include a ties exchange. Capital markets are focused on trading in
value-added tax (VAT) and a transaction tax. In the most government bonds, although corporate debt and mutual
recent year, overall tax revenue as a percentage of GDP funds have grown.
was 28.5 percent.
PROPERTY RIGHTS: 10 no change
GOVERNMENT SPENDING: 63.7 – 3.8 Article 308 of the 2009 constitution states that “the private
In the most recent year, total government expenditures, accumulation of economic power” will not be permitted
including consumption and transfer payments, rose slight- to “endanger the economic sovereignty of the State” and
ly to 34.8 percent of GDP. Strategic sectors (hydrocarbons that the “the right to own private property either individ-
and telecommunications) are nationalized, and public ually or collectively [must] fulfill a social function” and
spending is on the rise. The public debt is roughly 38 per- “not harm the collective interest.” Although other statutes
cent of GDP. The division of spending responsibilities at guarantee property rights, the judicial process is subject to
various levels of government is being worked out through political influence and corruption. Enforcement of intel-
an agreement called the Fiscal Pact. lectual property rights is erratic and largely ineffective.

MONETARY FREEDOM: 68.8 + 5.6 Competing claims to land titles and the absence of reliable
dispute resolution make acquisition of real property risky.
Inflation declined significantly from 14.0 percent in 2008
Expropriation is a problem, as is illegal squatting on rural
to 3.5 percent in 2009 but is forecast to rise in 2010–2011
private property.
due to expansionary monetary policy, growing domestic
demand, and high government spending. Weather condi-
tions have a significant impact on local food production
FREEDOM FROM CORRUPTION: 27 – 3.0
Corruption is perceived as pervasive and growing. Bolivia
and food price inflation. Regulations control prices for ranks 120th out of 180 countries in Transparency Interna-
most public utilities, petroleum products, and potable tional’s Corruption Perceptions Index for 2009, a signifi-
water. Fifteen points were deducted from Bolivia’s mon- cant decline from 2008. Officials accused of corruption are
etary freedom score to account for measures that distort rarely prosecuted or convicted. A government report has
domestic prices. rated the national police, customs, and justice system as
INVESTMENT FREEDOM: 20 + 5.0 the most corrupt institutions. More than one-third of total
imports are smuggled into the country.
Bolivia’s 2009 constitution prioritizes domestic investment
over foreign investment. Residents and non-residents
may hold foreign exchange accounts. The government
LABOR FREEDOM: 41.5 + 2.1
Bolivia’s labor market is not fully developed, and employ-
has nationalized several large industries. Despite a rela-
ment regulations are rigid and not conducive to produc-
tively transparent investment code, private investment
tivity growth. The government has established minimum
is hindered by arbitrary implementation, cumbersome
wages for the public and private sectors.
bureaucracy, pervasive corruption, uncertainty about

110 2011 Index of Economic Freedom


BOSNIA AND HERZEGOVINA
Economic Freedom Score
50
25 75
Least Most
free 0 100 free
World Rank: 104 Regional Rank: 39 57.5

B osnia and Herzegovina’s economic freedom score is 57.5,


making its economy the 104th freest in the 2011 Index.
Its overall score is 1.3 points better than last year, with sig-
Country’s Score Over Time
60
nificant improvements in trade freedom, monetary freedom,
and property rights. Bosnia and Herzegovina is ranked 39th 50
out of 43 countries in the Europe region, and its overall score
40
remains well below the regional average.
30
After several years of strong economic growth, Bosnia and
Herzegovina’s economic performance has deteriorated 20
markedly, partly because of the global economic crisis and
1995 ’97 ’99 ’01 ’03 ’05 ’07 ’09 2011
also because of the generally slow pace of the transition to
greater economic freedom. Inefficient and high government Country Comparisons
spending, weak protection of property rights, and wide-
spread corruption discourage entrepreneurial activity. The 100
rule of law is weak, and local courts are subject to substan-
84.1
tial political interference and lack the resources to prosecute
80
complex crimes. Intrusive bureaucracy and costly registra-
tion procedures reflect a history of central planning. The 66.8
57.5 59.7
informal economy remains quite large. 60

The entrepreneurial environment has improved a bit but


remains one of the region’s most burdensome. Early eco- 40
nomic development was boosted by reconstruction efforts,
but international trade has been the major source of eco- 20
nomic expansion.
BACKGROUND: The 1995 Dayton Agreement ended three 0
Country World Regional Free
years of war and finalized Bosnia and Herzegovina’s seces- average average economies
sion from the former Yugoslavia. Under a loose central gov-
ernment, two separate entities exist along ethnic lines: the Quick Facts
Republika Srpska (Serbian) and the Federation of Bosnia and Population: 4.0 million
Herzegovina (Muslim/Croat). The European Union signed GDP (PPP): $29.5 billion
a Stabilization and Association Agreement with Bosnia and –3.4% growth in 2009
Herzegovina in June 2008, moving the country closer to EU 3.6% 5-year compound annual growth
membership. The EU is currently working with Bosnia and $7,361 per capita
Herzegovina to liberalize European visa requirements so Unemployment: 40.0%
that Schengen area countries may be entered without a visa. Inflation (CPI): –0.4%
Bosnia received NATO’s Membership Action Plan in May FDI Inflow: $501.3 million
2010, outlining but not guaranteeing the steps required for
membership in the alliance.

How Do We Measure Economic Freedom?


See page 447 for an explanation of the methodology 2009 data unless otherwise noted.
or visit the Index Web site at heritage.org/index. Data compiled as of September 2010.
111
BOSNIA AND HERZEGOVINA (continued)
THE TEN ECONOMIC FREEDOMS
BUSINESS FREEDOM: 60.4 – 0.9
Despite progress in recent years, regulatory inefficiency COUNTRY’S WORLD RANKINGS
still impairs the business environment and limits the pri- Business Freedom No. 114 Investment Freedom No. 38
Trade Freedom No. 41 Financial Freedom No. 38
vate investment needed for faster economic growth. The
Fiscal Freedom No. 48 Property Rights No. 146
processes for getting business licenses and launching a Government Spending No. 167 Freedom from Corruption No. 99
business remain cumbersome and vulnerable to bureau- Monetary Freedom No. 32 Labor Freedom No. 93
cratic delays.

TRADE FREEDOM: 86 + 5.2 state-owned enterprises lags behind other countries in the
region. There are few restrictions on capital transactions and
Bosnia and Herzegovina’s weighted average tariff rate
was 2 percent in 2009. Import and export restrictions, non- foreign exchange accounts. The law prohibits expropriation
transparent regulations and government procurement, and nationalization of assets, except under special circum-
additional import duties on agriculture products, and stances and with due compensation.
numerous border fees add to the cost of trade. Low-priced
imports may be penalized with antidumping or counter-
FINANCIAL FREEDOM: 60 no change
The financial sector has undergone more restructuring than
vailing duties. Enforcement of intellectual property rights
any other sector of Bosnia and Herzegovina’s economy.
remains problematic. Tariffs on 11,000 products from the
The banking system has expanded rapidly, and consolida-
EU have been eliminated, and the country is working
tion and privatization have followed. Most banks are in pri-
to join the World Trade Organization. Ten points were
vate hands, accounting for more than 80 percent of banking
deducted from Bosnia and Herzegovina’s trade freedom
capital. Along with relatively easy access to financing, a
score to account for non-tariff barriers.
wide range of financial services is available. Credit to the
FISCAL FREEDOM: 83.9 + 0.7 private sector has fallen substantially during the economic
downturn. Foreign-owned banks account for over 90 per-
Bosnia and Herzegovina’s various governing entities have
different tax policies. The top income tax rate and top cor- cent of total banking assets. Long-term lending is still hin-
porate tax rate are 10 percent. Other taxes include a value- dered by insufficient enforcement of contracts and the poor
added tax (VAT), a sales tax, and a property tax. In the most regulatory environment. The central bank has attempted
recent year, overall tax revenue as a percentage of GDP to consolidate financial oversight, but the process has been
was 37.6 percent. sluggish. Capital markets remain underdeveloped. There
are no restrictions on payments and transfers related to
GOVERNMENT SPENDING: 24.1 – 4.7 international current and capital transactions.
In the most recent year, total government expenditures,
including consumption and transfer payments, rose to 50.3 PROPERTY RIGHTS: 20 + 10.0
percent of GDP. The fiscal deficit is 5.3 percent of GDP. Property registers are largely unreliable, leaving transfers
Authorities plan to freeze wages following reductions in open to dispute. Efforts are being made to update real
2009. Pension reform and improved budget transparency estate property laws, annul previous conflicting laws, and
are high priorities. develop new workable registries in the two sub-federal
entities. The judicial system does not cover commercial
MONETARY FREEDOM: 80.6 + 5.9 activities adequately. Court decisions are difficult to
In 2009, inflation declined sharply from its high of 7.4 enforce. Contracts are almost unenforceable, and imple-
percent in 2008, although it has increased slightly in 2010. mentation of laws protecting intellectual property rights
Price controls apply to electricity, gas, and telecommunica- is inadequate.
tions services. Ten points were deducted from Bosnia and
Herzegovina’s monetary freedom score to account for mea- FREEDOM FROM CORRUPTION: 30 – 2.0
sures that distort domestic prices. Corruption is perceived as widespread. Bosnia and Her-
zegovina ranks 99th out of 180 countries in Transparency
INVESTMENT FREEDOM: 70 no change International’s Corruption Perceptions Index for 2009. Cor-
The law accords foreign investors the same rights as domes- ruption remains prevalent in many political and economic
tic investors. With the exception of armaments and media, institutions. Judges typically request bribes and respond
where foreign control is limited to 49 percent, there are no to pressure from public officials. Business registration and
restrictions on investment. The right to transfer and repa- licensing are particularly vulnerable to corruption.
triate profits and remittances immediately is guaranteed. A
complex legal and regulatory framework, non-transparent LABOR FREEDOM: 60.2 – 1.0
business procedures, and a weak judiciary remain serious Relatively flexible employment regulations are not
obstacles to investment. Myriad state and municipal admin- enforced effectively. A rigid system of wage determination,
istrations make up a non-transparent bureaucratic system influenced strongly by an outmoded collective bargaining
that creates opportunities for corruption. Privatization of system, undermines job creation and worker mobility.

112 2011 Index of Economic Freedom


BOTSWANA
Economic Freedom Score
50
25 75
Least Most
free 0 100 free
World Rank: 40 Regional Rank: 2 68.8

B otswana’s economic freedom score is 68.8, making its


economy the 40th freest in the 2011 Index. Its overall score
is 1.5 points worse than last year, due primarily to a large
Country’s Score Over Time
90
increase in government spending as a percentage of GDP.
Botswana is ranked 2nd out of 46 countries in the Sub- 80
Saharan Africa region, and its overall score is well above the
70
regional and world averages.
60
Botswana continues its transformation from one of the world’s
poorest countries to a fast-growing, dynamic economy. A 50
sensible regulatory environment, openness to foreign invest-
1995 ’97 ’99 ’01 ’03 ’05 ’07 ’09 2011
ment and trade, and relatively flexible employment regula-
tions promote competitiveness and flexibility. The financial Country Comparisons
sector is fairly well developed, with an independent central
bank and little government intervention. The independent 100
judiciary provides strong protection of property rights.
84.1
In an effort to move away from dependence on diamond 80
production, the government has instituted competitive 68.8
corporate tax rates, streamlined the application process for 59.7 60
business ventures, and committed to increased transparen- 53.5
cy. The economy is emerging from the effects of the global
economic slowdown, which severely affected economic 40
growth and exports. With large fiscal deficits in recent years,
Botswana faces the challenge of ensuring a return to sustain- 20
able levels of public spending.
BACKGROUND: The Botswana Democratic Party has gov- 0
Country World Regional Free
erned this multi-party democracy since independence average average economies
in 1966. Ian Khama assumed the presidency in 2008 as
hand-picked successor to former President Festus Mogae. Quick Facts
With significant natural resources and a market-oriented Population: 1.8 million
economy that encourages private enterprise, Botswana has GDP (PPP): $25.4 billion
Africa’s highest sovereign credit rating. Despite efforts to –6.0% growth in 2009
diversify the economy, minerals (principally diamonds) 1.7% 5-year compound annual growth
account for three-fourths of exports and over 40 percent $13,992 per capita
of GDP. Botswana has worked with other countries in the Unemployment: 7.5% (2007)
Southern African Development Community to mitigate the Inflation (CPI): 8.1%
impact of the political turmoil in neighboring Zimbabwe FDI Inflow: $234.5 million
and the resulting influx of Zimbabwean refugees. Botswana
has the world’s second highest HIV/AIDS infection rates.

How Do We Measure Economic Freedom?


See page 447 for an explanation of the methodology 2009 data unless otherwise noted.
or visit the Index Web site at heritage.org/index. Data compiled as of September 2010.
113
BOTSWANA (continued)
THE TEN ECONOMIC FREEDOMS
BUSINESS FREEDOM: 70.5 no change
The overall freedom to establish and run a business is rela- COUNTRY’S WORLD RANKINGS
tively well protected under Botswana’s regulatory environ- Business Freedom No. 69 Investment Freedom No. 26
Trade Freedom No. 97 Financial Freedom No. 17
ment. A one-stop shop for entrepreneurs is in place, and Fiscal Freedom No. 87 Property Rights No. 26
the process for closing a business has become easy and Government Spending No. 127 Freedom from Corruption No. 36
straightforward. Monetary Freedom No. 134 Labor Freedom No. 60

TRADE FREEDOM: 75.2 + 1.3 fees, and service fees can be repatriated without limits.
Botswana’s weighted average tariff rate was 7.4 percent
in 2009. Import bans and restrictions on some products, There are no restrictions on foreign exchange accounts
import taxes, import licensing, domestic bias in govern- or international transfers. The constitution prohibits the
ment procurement, and weak enforcement of intellectual nationalization of private property.
property rights add to the cost of trade. Botswana may
FINANCIAL FREEDOM: 70 no change
apply antidumping and countervailing duties to low-
Botswana’s banking sector is one of Africa’s most
priced imports. Ten points were deducted from Botswana’s
advanced. Generally adhering to global standards in the
trade freedom score to account for non-tariff barriers.
transparency of financial policies and banking supervi-
FISCAL FREEDOM: 78.4 + 4.3 sion, the financial sector provides considerable access
to credit and has expanded in recent years. In 2009, the
Botswana’s tax rates remain among the lowest in Southern
Africa. The top income and corporate tax rates are 25 per- Dutch bank ABN AMRO, one of the world’s leading
cent. Other taxes include a property tax, an inheritance tax, diamond banks, established a branch in Botswana. The
and a value-added tax (VAT), increased from 10 percent to government is involved in banking through state-owned
12 percent as of April 1, 2010. In the most recent year, over- financial institutions and a special financial incentives
all tax revenue as a percentage of GDP was 30.2 percent. program that is aimed at increasing Botswana’s status
as a financial center. Credit is allocated on market terms,
GOVERNMENT SPENDING: 51.5 – 15.6 although the government provides subsidized loans.
In the most recent year, total government expenditures, Reform of non-bank financial institutions has continued,
including consumption and transfer payments, soared to and a newly created single financial regulatory agency
40.2 percent of GDP. Years of fiscal surpluses built on dia- provides more effective supervision. The government
mond revenues allowed for spending on a growing pub- has abolished exchange controls, and the Botswana Stock
lic-sector wage bill, social programs, and infrastructure. Exchange is growing.
Authorities are committed to bringing social spending
down to prior levels and are confident that development PROPERTY RIGHTS: 70 no change
spending will fall as infrastructure projects are completed. The constitution prohibits the nationalization of private
property and provides for an independent judiciary, and
MONETARY FREEDOM: 70.9 + 2.1 the government respects this in practice. The legal sys-
Inflation declined from 12.6 percent in 2008 to 8.1 percent tem is sufficient to enforce secure commercial dealings,
in 2009. Most prices are set by the market, but the govern- although a growing backlog of cases prevents timely tri-
ment maintains price policies for some agricultural and als. Protection of intellectual property rights has improved
livestock goods and can influence prices through numer- significantly. Botswana is ranked 44th out of 125 countries
ous state-owned enterprises and service providers. Ten in the 2010 International Property Rights Index, second
points were deducted from Botswana’s monetary free- only to South Africa among sub-Saharan Africa countries.
dom score to account for measures that distort domestic
prices. FREEDOM FROM CORRUPTION: 56 – 2.0
Corruption is perceived as present. Botswana ranks 37th
INVESTMENT FREEDOM: 75 – 5.0 out of 179 countries in Transparency International’s Cor-
While generally open to foreign participation in its econo- ruption Perceptions Index for 2009 and remains Africa’s
my, Botswana reserves a number of sectors for citizen par- least corrupt country.
ticipation. Foreign investment plays a significant role in the
privatization of state-owned enterprises. Foreign investors LABOR FREEDOM: 70 – 0.8
must register a company in Botswana in order to invest. Botswana’s employment regulations are relatively flexible.
Investment regulations are transparent, and bureaucratic Employers are not required to make pension, health insur-
procedures are straightforward and open, though slow ance, and unemployment insurance contributions. The
in execution. Profits and dividends, debt service, capital non-salary cost of employing a worker is very low, and
gains, returns on intellectual property, royalties, franchise dismissing a redundant employee can be almost costless.

114 2011 Index of Economic Freedom


BRAZIL
Economic Freedom Score
50
25 75
Least Most
free 0 100 free
World Rank: 113 Regional Rank: 21 56.3

B razil’s economic freedom score is 56.3, making its econo-


my the 113th freest in the 2011 Index. Its score is 0.7 point
better than last year as a result of improvements in invest-
Country’s Score Over Time
80
ment freedom and trade freedom. Brazil is ranked 21st out
of 29 countries in the South and Central America/Caribbean 70
region, and its overall score is below the regional and world
60
averages.
50
The Brazilian economy has been expanding with the help
of booming commodity exports. Over the past decade, eco- 40
nomic growth has averaged around 4 percent, accompanied
1995 ’97 ’99 ’01 ’03 ’05 ’07 ’09 2011
generally by low inflation. Brazil has a large agricultural and
industrial base, but a growing services sector has accounted Country Comparisons
for over 60 percent of GDP in recent years. The global finan-
cial and economic turmoil’s impact has been moderate. 100

The state’s role in the economy has been heavy and even 84.1
increasing. However, the efficiency and overall quality of 80
government services remain poor despite high government
spending as a percentage of GDP. Barriers to entrepreneur- 59.7 60.2
56.3 60
ial activity include burdensome taxes, inefficient regulation,
poor access to long-term financing, and a rigid labor market.
The judicial system remains vulnerable to political influence 40
and corruption.
20
BACKGROUND: Brazil’s democratic constitution dates from
1988. Workers’ Party President Luiz Inacio “Lula” da Silva,
elected in 2002 and re-elected in 2006, was constitution- 0
Country World Regional Free
ally barred from seeking a third term. In the October 2010 average average economies
presidential elections, Lula’s hand-picked successor, Dilma
Rousseff, was elected Brazil’s first female president. Brazil Quick Facts
has benefited from surging prices for its booming exports of Population: 191.5 million
commodities and weathered the global economic downturn GDP (PPP): $2.0 trillion
in 2009 better than many developed countries did. A stable –0.2% growth in 2009
currency has boosted living standards, and the middle class 3.7% 5-year compound annual growth
is growing. Brazil is the world’s fifth-largest country. Its $10,514 per capita
almost 200 million people are heavily concentrated on the Unemployment: 8.1%
coast, where a dozen major metropolitan areas offer direct Inflation (CPI): 4.9%
access to the Atlantic Ocean. FDI Inflow: $25.9 billion

How Do We Measure Economic Freedom?


See page 447 for an explanation of the methodology 2009 data unless otherwise noted.
or visit the Index Web site at heritage.org/index. Data compiled as of September 2010.
115
BRAZIL (continued)
THE TEN ECONOMIC FREEDOMS
BUSINESS FREEDOM: 54.3 – 0.2
Despite some progress, organizing new investment and COUNTRY’S WORLD RANKINGS
production remains cumbersome and bureaucratic. It is Business Freedom No. 136 Investment Freedom No. 94
Trade Freedom No. 127 Financial Freedom No. 70
costly and time-consuming to launch or close a business.
Fiscal Freedom No. 136 Property Rights No. 52
TRADE FREEDOM: 69.8 + 0.6 Government Spending
Monetary Freedom
No. 132
No. 83
Freedom from Corruption
Labor Freedom
No. 75
No. 103
Brazil’s weighted average tariff rate was 7.6 percent in
2009. Import bans and restrictions, market access barriers
in services, high tariffs, border taxes and fees, restrictive putes can be time-consuming. There are few restrictions on
regulatory and licensing rules, subsidies, complex customs foreign exchange transactions. Foreign investors, upon reg-
procedures, and problematic protection of intellectual istering their investments with the central bank, may remit
property rights add to the cost of trade. Fifteen points were dividends, capital (including capital gains), and royalties.
deducted from Brazil’s trade freedom score to account for The central bank regulates outward direct investment in
non-tariff barriers. some cases, including transfers and remittances. Foreign
investors must obtain specific authorization to purchase
FISCAL FREEDOM: 69 + 0.6 land along borders.
Brazil’s top income tax rate is 27.5 percent. The standard
corporate tax rate is 15 percent, but a surtax of 10 percent FINANCIAL FREEDOM: 50 no change
and a 9 percent social contribution on net profit paid by Brazil’s financial sector is diversified and competitive, but
most industries bring the effective rate to 34 percent. Other the state’s role remains considerable. Public-sector com-
taxes include a real estate transfer tax and a tax on financial mercial and development bank assets account for around
transactions. In the most recent year, overall tax revenue as 40 percent of the financial system’s total assets. The two
a percentage of GDP was 34.4 percent. largest state-owned banks control about 25 percent of total
assets, and the government directs banks to channel loans
GOVERNMENT SPENDING: 49.6 – 0.7 to preferred sectors. Three of the top 10 banks are now for-
In the most recent year, total government expenditures, eign-owned. Brazil’s insurance sector is now the region’s
including consumption and transfer payments, held steady largest, and the reinsurance market was opened to private-
at 41 percent of GDP. Public debt is now below 40 per- sector competition in 2008. A Credit Guarantee Fund was
cent of GDP. Besides debt service, government spending introduced in March 2009 to provide state guarantees on
is focused mainly on pensions, transfers to local govern- bank certificates of deposit. Overall, the banking sector has
ments, and the bureaucracy. Additional planned stimulus withstood the global financial turmoil relatively well.
spending will widen the overall fiscal deficit. Tax and pen-
sion reform, abandoned during the global crisis, are back PROPERTY RIGHTS: 50 no change
on the fiscal agenda. Contracts are generally considered secure, but Brazil’s
judiciary is inefficient, subject to political and economic
MONETARY FREEDOM: 75.9 + 0.1 influence, and lacks resources and staff training. Decisions
Inflation has been better controlled in recent years, averag- can take years, and judgments by the Supreme Federal
ing 5 percent between 2007 and 2009. Prudent fiscal and Tribunal are not automatically binding on lower courts.
monetary policies are credited with helping Brazil to avoid Protection of intellectual property rights has improved, but
the worst of the global financial crisis of 2008 and 2009. piracy of copyrighted material persists.
Although such public services as railways, telecommuni-
cations, and electricity have been privatized, regulatory FREEDOM FROM CORRUPTION: 37 + 2.0
agencies oversee prices. The National Petroleum Agency Corruption is perceived as significant. Brazil ranks 75th
fixes the wholesale price of fuel, and the government con- out of 180 countries in Transparency International’s Cor-
trols airfares. Ten points were deducted from Brazil’s mon- ruption Perceptions Index for 2009. Corruption can be an
etary freedom score to account for price controls. obstacle to investment. Businesses bidding on government
procurement contracts can encounter corruption, which is
INVESTMENT FREEDOM: 50 + 5.0 also a problem in the lower courts.
Foreign investors are granted national treatment, but
foreign investment is restricted in several industries. In LABOR FREEDOM: 57.8 + 0.3
general, Brazilian nationals must constitute at least two- Rigid and outmoded labor regulations undermine employ-
thirds of all employees and receive at least two-thirds of ment and productivity growth. The non-salary cost of
total payroll in firms employing three or more persons. employing a worker is high, and dismissing a redundant
Bureaucracy and administration are non-transparent, bur- employee can be costly. Mandated benefits amplify overall
densome, complex, and subject to corruption. Legal dis- labor costs. The informal sector remains sizeable.

116 2011 Index of Economic Freedom


BULGARIA
Economic Freedom Score
50
25 75
Least Most
free 0 100 free
World Rank: 60 Regional Rank: 26 64.9

B ulgaria’s economic freedom score is 64.9, making its


economy the 60th freest in the 2011 Index. Its overall score
is 2.6 points better than last year, reflecting gains in seven of
Country’s Score Over Time
80
the 10 economic freedom categories. Bulgaria is ranked 26th
out of 43 countries in the Europe region, and its overall score 70
is above the world average but below the regional average.
60
Bulgaria has implemented substantial economic reforms
50
over the past decade. While maintaining macroeconom-
ic stability, it has made considerable progress in income 40
growth and poverty reduction. Competitive flat tax rates
1995 ’97 ’99 ’01 ’03 ’05 ’07 ’09 2011
and an open trade regime, supported by a relatively efficient
regulatory framework, have encouraged the development Country Comparisons
of a growing entrepreneurial sector. Bulgaria has weathered
the impact of the global economic downturn relatively well, 100
with the economy supported by generally prudent fiscal
84.1
policy and sound public debt management.
80
Continued reform in other areas, however, will be indis- 64.9 66.8
pensable to sustaining high economic growth in coming 59.7 60
years. Corruption and the weak rule of law increase the
cost of conducting business and constrain more dynamic
economic development. 40

BACKGROUND: Bulgaria held its first multi-party election


20
since World War II in 1990 and joined the European Union in
January 2007. Boiko Borisov of the center-right GERB (Citi-
zens for European Development of Bulgaria) party was the 0
Country World Regional Free
clear winner in general elections held in July 2009. The major average average economies
challenge for his government was to combat widespread
corruption that had prevented Bulgaria from using its EU Quick Facts
funds, which were made available after the government Population: 7.6 million
implemented reforms in December 2009. Tourism, agricul- GDP (PPP): $90.1 billion
ture, and natural resource mining, including coal, copper, –5.0% growth in 2009
and zinc, are the leading industries. Since the signing of an 3.2% 5-year compound annual growth
EU accession agreement in 2004, Bulgaria has experienced $11,900 per capita
a vast inflow of capital and high rates of growth, although Unemployment: 9.1%
the economy contracted in 2009. Inflation (CPI): 2.5%
FDI Inflow: $4.5 billion

How Do We Measure Economic Freedom?


See page 447 for an explanation of the methodology 2009 data unless otherwise noted.
or visit the Index Web site at heritage.org/index. Data compiled as of September 2010.
117
BULGARIA (continued)
THE TEN Economic Freedoms
BUSINESS FREEDOM: 75.8 – 2.0 Country’s WORLD RankINGS
The overall freedom to establish and run a business remains
relatively well protected within the regulatory framework. Business Freedom No. 47 Investment Freedom No. 75
Trade Freedom No. 12 Financial Freedom No. 38
Launching a business has become less time-consuming, Fiscal Freedom No. 32 Property Rights No. 99
and licensing requirements have been eased, though the Government Spending No. 116 Freedom from Corruption No. 72
pace of change lagged behind some other countries. Monetary Freedom No. 89 Labor Freedom No. 26

TRADE FREEDOM: 87.6 + 0.2 bureaucracy deter investment, as do pervasive co