1997 Index of Economic Freedom by Kim R. Holmes, Bryan T. Johnson, and Melanie Kirkpatrick

A Highly Useful Reference Work

The Heritage Foundation and Dow Jones & Company • 1997 • 486 pages • $24.95

Mr. Leef is the book review editor of The Freeman.

This is one of the most useful reference works that an advocate of economic freedom can own. What the authors have done, continuing and expanding on a project begun in 1994, is to provide a detailed look at the economies of 150 countries of the world. Only a small number, mainly in Africa and southwestern Asia (recently independent nations formerly part of the Soviet Union), are not analyzed.

The authors have compiled data allowing them to assess each nation’s degree of economic freedom in ten categories: trade policy, taxation, government intervention, monetary policy, capital flows and foreign investment, banking policy, wage and price controls, property rights, regulation, and black markets. Based on their analysis, they then categorize each nation as being free, mostly free, mostly unfree, or repressed. Color maps enable the reader to see at a glance where freedom is to be found and where it is not. Alas, you don’t see much blue (representing free nations) on the maps. Only eight nations merit that designation. More than half (78) are classified as mostly unfree or repressed.

That most of the world has little or no freedom is unsettling if not startling news. Also disturbing is a trend identified by the authors: Wealthy and economically free countries tend to reintroduce restrictions on economic freedom over time. As they become wealthy, countries begin adding welfare and other social programs that were not affordable when they were poorer. Thus, after they have become economically ‘liberated,’ countries like Germany and France tend to fall back down the scale of economic freedom, getting worse scores than newly emerging free economies like Hong Kong or Singapore (p. xiv).

We know that this has been happening in the United States for many decades. (The United States now ranks fifth—tied with Switzerland—in the overall ranking. The pre-New Deal United States would certainly have been number one.) The authors are correct in saying, the seeds of destruction can exist in the fruits of success. Prosperity has usually brought along with it politicization of society that throws economic progress into reverse. Believers in freedom everywhere need to pay attention to this phenomenon and think ahead to the problem of preserving economic freedom once it is attained.

The major, inescapable conclusion of the Index is that there is a direct relationship between prosperity and the degree of economic freedom. The authors present the Curve of Economic Freedom, plotting nations on a graph, where the vertical axis is the degree of freedom and the horizontal axis is the per capita Gross Domestic Product. The resulting curve slopes upward to the right—that is, high income correlates with freedom, low income correlates with repression. You find no nations that are free, yet poor, and you find no nations that are repressed, yet wealthy. If anyone can think of a way to get this information into classrooms across America, please speak up.

The country-by-country analyses are very interesting. For example, which of the nations that were formerly part of the Soviet Union’s prison house of nations have done the best at throwing off the yoke of statism and establishing the conditions necessary for economic growth? The Czech Republic has done the best (tied for 11th freest; the Slovak Republic, its former partner in nationhood, is much less free, at 75th), followed by Estonia, which at 25 is freer than France, at 31. Russia has done poorly in making the transition from communism (ranking 115th), but some of its old allies have done even worse. Ukraine, for example, ranks 123rd, Belarus 129th, and Azerbaijan a repressive 142nd.

I hope The Heritage Foundation and the Wall Street Journal will keep this project up to date. It will be useful to be able to look at changes over time. It might, I believe, help to demonstrate the Hayekian point that once governments start interfering with freedom, they are apt to continue to do so.

Someone should undertake a similar study of the United States. It would be nice to have an Index of Freedom in the United States on the shelf next to this excellent volume.