Hong Kong tops 25th edition of Index. U.S. improves again, finishes with a global ranking of 12th, 81 countries improve, 92 decline
WASHINGTON, JAN. 25, 2019—The world economy is “moderately free,” but for the first time in six years, economic liberty declined globally, according to the editors of the 2019 Index of Economic Freedom.
The world average score of 60.8, a 0.3-point setback from last year. Yet that is still the third-highest global score recorded in the history of the Index. Among the 180 countries ranked, scores improved for 81 countries and declined for 92. Seven remained unchanged.
Six economies earned the Index’s designation of “free” (scores of 80 or above), while the next 88 are classified as “mostly free” (70-79.9) or “moderately free” (60-69.9).
Policies that promote economic freedom have, in recent decades, contributed to a doubling of the world economy, the Index editors write. “This progress has lifted hundreds of millions of people out of poverty and cut the global poverty rate by two-thirds,” they add.
Yet the number of economically “on-free” economies remains high: 64 are considered “mostly on-free” (50-59.9) and 22 are “repressed” (scores below 50).
Per capital incomes are much higher in nations that are more economically free, the Index editors note. Economies rated “free” or “mostly free” in the 2019 Index enjoy incomes more than twice the average levels in all other countries, and more than six times higher than the incomes of people living in “repressed” economies.
The United States continued to improve its standing, recording a score of 76.8, more than a full point above its score in the 2018 Index. It jumped six spots in the global rankings from last year, from No. 18 to No. 12 (and second in the “Americas” region, behind Canada), thanks in large measure to cuts in taxes and regulations. It remains “mostly free.”
Hong Kong and Singapore finished first and second in the rankings for the 25th consecutive year. Three other top 10 finishers – Australia (5th globally), Canada (8th) and the United Arab Emirates (9th) – recorded no score change from last year, but New Zealand (3rd), Switzerland (4th), Ireland (6th), and the United Kingdom (7th) all saw their scores rise, along with Taiwan (10th) who joined the top 10 for the first time.
Every region except sub-Saharan Africa has at least one representative among the top 20 freest economies: 11 in Europe, five in the Asia-Pacific region, three in the Americas, and one in the Middle East/North Africa region.
The Most Free
1. Hong Kong
3. New Zealand
7. United Kingdom
9. United Arab Emirates
The Least Free
180. North Korea
176. Rep. of Congo
174. Equatorial Guinea
Launched in 1995, the Index evaluates countries in four broad policy areas that affect economic freedom: rule of law; government size; regulatory efficiency; and open markets. There are 12 specific categories: property rights, judicial effectiveness, government integrity, tax burden, government spending, fiscal health, business freedom, labor freedom, monetary freedom, trade freedom, investment freedom, and financial freedom. Scores in these categories are averaged to create an overall score.
Based on an average score, each of 180 countries graded in the 2019 Index is classified as “free” (i.e., combined scores of 80 or higher); “mostly free” (70-79.9); “moderately free” (60-69.9); “mostly onfree” (50-59.9); or “repressed” (under 50).
The Index groups the world’s countries into five regions: the Americas, Asia-Pacific, Europe, Middle East/North Africa and Sub-Saharan Africa. Individual rankings and write-ups for each country can be found online at heritage.org/index/ranking.
Americas (7 economies improved, 23 declined, 2 unchanged):
- The Americas has no “free” economies. Three (Canada, Chile, United States) are “mostly free.” Five (Ecuador, Suriname, Bolivia, Cuba, Venezuela) are “repressed.” The remaining 24 are either “moderately free” or “mostly onfree.”
- Barbados earned the world’s largest overall score increase, 7.7 points, thanks to significant improvements in government spending and fiscal health. The biggest regional drop, however, was Cuba, saddled with the inefficiencies of a state-run economy.
- The rule of law and regulatory efficiency are major problem areas, reflecting long-standing weakness in the protection of property rights, ineffectiveness in the judiciary, and lack of government integrity.
Asia-Pacific (23 economies improved, 18 declined, 2 unchanged):
- Four of the world’s “free” economies are in this region (Hong Kong, Singapore, Australia, New Zealand), but so are four “repressed” economies (Turkmenistan, Kiribati, Timor-Leste, and North Korea). Five are “mostly free” (Taiwan, Malaysia, South Korea, Japan and Macau).
- Many of the Asia-Pacific countries are performing well in controlling the size of government, maintaining the rule of law, and regulating economic activity efficiently, the Index editors note. The region continues to lead worldwide economic growth, with average annual expansion of approximately 6.3 percent over the past five years driven largely by China, India and other market-oriented economies.
Europe (21 economies improved, 21 declined, 2 unchanged, 1 ungraded):
- Sixteen of the world’s 35 freest economies (overall scores above 70) are in this region, and two of the six world economies rated as “free” (Switzerland and Ireland).
- Most of Europe’s economies rated either “mostly free” or “moderately free.” Five—Moldova, Russia, Belarus, Greece and Ukraine—are “mostly unfree.”
- Relatively extensive and long-established free-market institutions in a number of European countries allow the region to score far above the world average in most measures of economic freedom. However, it still struggles with numerous policies that hamper expansion, such as overly protective and costly labor regulations, high tax burdens, and various market-distorting subsidies.
Middle East/North Africa (6 economies improved, 5 declined, 2 unchanged, 4 ungraded):
- The Middle East/North Africa has no “free” economies. Three (United Arab Emirates, Qatar and Israel) are “mostly free,” but most of the other 11 graded economies are either “moderately free” or “mostly unfree” (and one, Algeria, is repressed).
- Despite exports of crude oil, overall trade flows in the region remain very low. The region’s lack of economic opportunities remains a serious problem, the Index editors say, particularly for the younger working-age population, whose average unemployment rate exceeds 25 percent.
- Middle East/North Africa does lead the world in one area, however: tax burden. Its score on this Index factor beats the world average by more than 10 points.
Sub-Saharan Africa (23 economies improved, 24 declined, 1 ungraded):
- Sub-Saharan has no “free” economies. A majority of its 47 graded nations are “mostly unfree,” and more than half of the world’s “repressed” economies (12 out of 22) are in Sub-Saharan Africa.
- Rwanda’s 2-point improvement enabled it to join Mauritius in the ranks of the “mostly free.” Uganda’s 2.3-point drop, on the other hand, pushed it into the “mostly unfree” category.
- The population-weighted average GDP per capita is only $4,005, the lowest level for any region. Unemployment hovers at 7.5 percent.
- The single factor where Sub-Saharan Africa scores above the world average is government spending. But the region is plagued with a weak rule of law, inadequate protection of property rights, cronyism and endemic corruption.
“No alternative systems—and many have been tried—come close to the record of free-market capitalism in promoting growth and enhancing the human condition,” the editors write. “The undeniable link between economic freedom and prosperity is a striking demonstration of what people can do when they have the opportunity to pursue their own interests within the rule of law.”
The 2019 Index was edited by Ambassador Terry Miller, Director of Heritage’s Center for International Trade and Economics; Anthony B. Kim, the Center’s Research Manager; and James M. Roberts, the Center’s Research Fellow for Economic Freedom and Growth.
An interactive version of the Index, including full text, charts and graphs is available online at heritage.org/index. A hard-copy version totaling 474 pages may be downloaded there, as well.