Some good news to start the New Year: Freedom’s on the rise. I’m not referring to the war on terrorism (though that is making the world a freer place). I’m talking about economic freedom — or how much liberty people worldwide have when it comes to making decisions about their own money.
How do we know such liberty is on the rise? The Heritage Foundation measures it. Every year for the last decade, Heritage has crunched the numbers and released them in its annual ìIndex of Economic Freedom,’ co-published with the Wall Street Journal
. The findings: Last year, 75 countries improved their index ìscores,’ while 69 lost ground.
Progress is slow, to be sure. But any improvement means that countries are moving toward higher levels of economic freedom, and those with more economic freedom have higher living standards.
The index measures 50 variables in ten broad categories, including trade policy, fiscal burden of government, property rights, regulation, and black-market activity. People in poorly rated countries may feel overwhelmed at the thought of making big improvements in all those areas.
That’s why Heritage is sharing an important secret: Small changes can have a big effect. Simply starting to adopt economic freedom will provide an almost immediate boost to a country’s economic activity.
One reason for this is that the world is so interconnected. Currency traders note any changes in a country’s monetary policies and issue buy-or-sell orders within minutes. That can make or break a country’s economy in days — all the more reason for governments to make the correct decisions, right off the bat.
And the numbers prove that the right decisions are the ones that expand economic freedom. When a government stops meddling with its people’s money, cuts taxes, or sells state-owned assets to private industry, it encourages growth and investment. And the more a country expands economic freedom, the faster it will grow — and the longer that growth will last. But simply getting started is critical.
Consider two neighbors, North and South Korea.
South Korea is one of Asia’s economic tigers. Its economy grew a solid 3 percent in 2001, and its people enjoy a per capita gross domestic product of $13,338.
Right next door, North Korea shares a common language and heritage, and similar natural resources. But it’s an economic basket case. Its repressed economy makes it impossible to measure GDP. It depends on other nations to supply it with food, and even with such aid, millions of North Koreans have starved to death in recent years.
Economic freedom makes all the difference. This year, South Korea moved up six spots in the Heritage index to 46th place worldwide (out of 155 countries graded) by increasing its levels of economic freedom. Its economy is considered ìmostly free.’
North Korea, on the other hand, is dead last on the index. It remains the world’s least free country. Sadly, it earns more revenue selling illegal drugs than from legitimate commerce. Pyongyang has nowhere to go but up — should its government ever make the sensible decision to do so.
It probably won’t — as a Stalinist regime, North Korea’s government actually fears economic freedom. Dictator Kim Jong Il has surely taken note that many countries of the former Soviet bloc were once as repressed as his now is, yet today are successful economically and are among the best-ranked countries in the Heritage index. It’s no coincidence that their economic freedom came hand in hand with political freedom.
For leaders who are interested in promoting prosperity for their people, the path is clear. Governments should treat the Heritage index as a 10-step plan to end dependency. As with any self-help plan, the key is to get started. Let economic freedom ring far and wide throughout the New Year.
– Ed Feulner is president of the Heritage Foundation.