Global Geography Of Economic Freedom Tells Much about Values

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Heritage Foundation

Global geography of economic freedom tells much about values. Translating the methodology of economic freedom can lead us to conclusions about key geopolitical values in certain regions of the world.

U.S. think tank Heritage Foundation brings a new ranking where TOP 10 countries (with 78–90% economic freedom) are Hong Kong, Singapore, New Zealand, Switzerland, Australia, Ireland, Estonia, United Kingdom, Canada and United Arab Emirates. Seven out of ten countries belong to Anglo-Saxon cultural and economic sphere, i.e. six of them were under the influence of British colonialism and three of them belong to the British crown. Two of them are free market cities (Singapore and Hong Kong), with Hong Kong representing a huge contrast to ex-communist big neighbor. One of them is in the heart of Europe and yet is not a member of the European Union (Switzerland). One is an ex-Soviet communist republic (Estonia). Another one is a relatively small desert territory surrounded by crony and unstable neighborhood (United Arab Emirates).

Moving a bit farther away from the TOP 10 to TOP 20 (with economic freedom at the level of 75–77%), this second most economically free group includes such states as Denmark, Taiwan, Luxembourg, Sweden, Georgia, the Netherlands, the United States, Lithuania, and Chile. Two of them are Nordic countries (Denmark and Sweden), whereas three can be onsidered as belonging to the sphere of Northern-European cultural influence (Lithuania, Luxembourg, and the Netherlands). Two of them are ex-Soviet communist republics (Lithuania and Georgia). One of them is located in Latin America (Chile). Another one is struggling for independence from its big ex-Communist and still crony neighbor (Taiwan). One is a historical testament to economic freedom (the United States).

TOP 30, on the other hand (with economic freedom at the level of 72–75%) consists of Mauritius, Malaysia, Norway, the Czech Republic, Germany, Finland, South Korea, Latvia, Qatar, and Japan. One of them is aa island separated from Africa (Mauritius). One is a neighbor to Singapore (Malaysia). One has been saved by Americans from its hard-core communist neighbor (South Korea). Two of them are Nordic countries (Norway and Finland), one of them is an ex-Soviet republic (Latvia) and four can be considered as belonging to the sphere of Northern European cultural influence (Germany, Finland, Norway, and Latvia). One of them was one of most industrious and productive nations that was later repressed by Soviet communism (the Czech Republic). Another one is one of very few free territories in its unstable region (Qatar).

Looking at TOP 30 together (with economic freedom at the level of 72–90%) reveals geographical diversity. 40% of the states/cities are members of the European Union and NATO, while 50% are European countries. Several clusters can be therefore distinguished:

  1. Small territories show results despite repressive neighbors. Hong Kong was under the British rule until 1999 when it was taken by ex-communist and crony capitalist – China. Despite that, free-market capitalism exists and positively influences Chinese cities in a broader region. United Arab Emirates and Qatar are small territories in the unstable Middle East region. Despite having been surrounded by rather repressive regimes, these small countries achieved an impressive success. However, there still remains the question how fair is it to have very low taxes and public debt not because of fiscal prudence but due to oil rent. Luxembourg can also be included in this group.

  2. Anglo-Saxon countries are mostly in TOP 10, with only one in TOP 20. The U.S. is not such a sound global representative of high-level capitalism. Canada ranks slightly better despite some populist U.S. criticism of the Canadian “socialism”. Ireland is among the best due to successful liberalization reforms and British heritage of common law, economic freedom, and English as a dominant language. Being a predominantly Catholic country is not a barrier any more if liberal values are shared. Anglo-Saxon countries ranked among the most economically free due to the heritage of individual liberty, free market, common law, and other values characteristic of English-speaking world, which can be defined as both liberal and conservative.

  3. Northern European countries are almost among the most economically free. Estonia was once completely repressed by Soviet communists. However, it moved away from the Russian sphere of crony influence as far as it was possible. Due to its Lutheran heritage, historical influences, and proximity to the Nordic states, Estonia has been widely considered as a Nordic country (which applies also to Latvia). Although the Netherlands is not officially a Nordic country, it shares many values which are considered as typically Northern European (rather than just continental). If we count the United Kingdom and Ireland, it becomes even clearer that Northern Europe is economically freer than Continental and Southern Europe. Northern European countries are competitive thanks to their progressive taxation and welfare state. Nevertheless, they are among the best also in terms of institutional integrity, rule of law, open trade, and low regulations of businesses (including professions). High level of trust goes together with high economic freedom and serves as a compensation for high welfare and taxation. If institutions provide enough quality, high taxes could be (relatively) justified, although they should still be cut. High welfare can be justified in societies which do not produce welfare traps but rather value hard work and individual responsibility. After all, all Northern European countries have been developed despite high welfare, due to strong traditional legacy of individual and economic freedom, as well as predominantly Protestant values, which prevent institutional cheating on the part of taxpayers. Switzerland and Germany could be also clustered into this category, although they are mostly Continental countries. A general difference between the two is less taxation, less business, and less labor regulation in the former.

  4. Baltic countries rank relatively among the best. One (Estonia) is in TOP 10, two (Estonia and Lithuania) are in TOP 20, and all three (the two former and Latvia) in TOP 30. They were all once Soviet republics and all needed to move away from the Russian sphere of crony influence. Accepting Western values through Euro Atlantic integrations (the EU and NATO) has proved a key for the Baltic geopolitical success. Geography does not matter physically (since Russia is close enough) but you need to decide where you want to go since civilizational paths are different. Therefore values and alliances count so much and determine our destiny.

  5. Asian tigers are among TOP 30. We can count here Hong Kong and Singapore. South Korea is a capitalist country due to American and allied military intervention and assistance in freeing it from Soviet-sponsored communists, who have established the most repressive and the most dangerous regime on the planet. These are clearly two worlds. The lights of capitalist South Korea and the darkness of dangerous communists can be seen from the space. Taiwan is in this group due to its struggle for independence from China. Otherwise Taiwan (13th) would collectively be ranked 110th. Therefore, geopolitics matters and right decisions determine a state’s fate. 22nd Malaysia is Singapore’s neighbor that has had a chance to learn much from a small city-state.

  6. African island of Mauritius cannot be clustered in Africa. Maybe Botswana, Rwanda, and South Africa can relatively join this separated island, which is on a very high 21st place. Mauritius is separated enough from forces of cronyism, corruption, and instability, which hamper many entrepreneurial and growth opportunities of African people. The closest to Mauritius are 174 – Zimbabwe, 170th – Mozambique, 97t – Tanzania, and N/A – Somalia.

  7. Chile is the only highly ranked Latin American country. This is due to the legacy of market-oriented reforms which have (eventually) cured this country from the influence of extremist left and right ideologies.

Concluding Remarks

Global geography of economic freedom tells much about values. Economic freedom is far from being able to conduct structural reforms and downsizing bureaucracy. Values should come first and only then be followed by cooperation in the form of geopolitical alliances, which guarantee freedom from repression. Croatian priorities for boosting economic freedom are also clear in order to reach European competitive rankings. Solutions are in values which can than trigger necessary market-oriented reforms.

Daniel Hinst
Centre for Public Policy and Economic Analysis