Hong Kong and Singapore remain the world's freest economies, but are beginning to face stiff competition from Europe where several countries, notably in the former Eastern bloc, are putting in place more liberal economic policies, according to the Index of Economic Freedom, published annually by the Heritage Foundation, the Washington DC-based free market think tank. Hong Kong and Singapore, described in the Heritage Foundation report as "the economic jewels of Asia", finished 1st and 2nd respectively in the rankings for the 12th straight year, but perhaps the most surprising finding of the 2005 survey was the significant representation from Europe.
Ireland, which has attracted strong investment interest from the US in recent years with its 12.5% corporate tax rate, was a notable performer last year, overtaking Luxembourg and Estonia to clinch third spot in the index. Meanwhile, Iceland moved up three spaces to fifth place, where it is tied with the United Kingdom. Estonia fell to 7th place followed by Denmark in 8th. The United States improved enough to re-enter the top 10 after falling out last year for the first time ever, and was considered the 9th freest economy in 2005, tied with Australia and New Zealand.
Of the top 20 freest economies, 15 were in Europe, and Austria, Germany and Cyprus led the pack of 33 countries which joined the ranks of "free" economies last year.
The Heritage index rates countries on 10 broad measures of economic freedom including: trade policy, fiscal burden of government, government intervention in the economy, monetary policy, capital flows and foreign investment, banking and finance, wages and prices, property rights, regulation and black market activity.
The report explains that: “The countries with the most economic freedom also have higher rates of long-term economic growth and are more prosperous than are those with less economic freedom.”
Of the 157 countries graded in the 2006 Index, 99 improved their overall scores, compared to 51 whose scores worsened and five that remained unchanged. Overall, 20 are classified as “free,” 52 as “mostly free,” 73 as “mostly unfree” and 12 as “repressed.”
The ten most repressed economies, in descending order, were Turkmenistan, Laos, Cuba, Belarus, Libya, Venezuela, Zimbabwe, Burma, Iran and North Korea.
Illustrating the disparity in wealth between the most open and most repressed economies, citizens of countries categorised as "mostly unfree” or “repressed” earn on average 70 percent less than those in countries with “mostly free” economies, while "free” economies enjoy a per capita income more than twice that of "mostly free" economies.
In other regions, economic freedom improved marginally in Latin America and the Caribbean, but Chile, "the region’s most dynamic economy" according to the report, remains its only member of the “free” economic club.
North Africa and the Middle East was the only region to experience a net decline in economic freedom in last year’s Index, as seven of 11 countries recorded worse scores. Bahrain declined for the second straight year but remained the freest in the region despite deriving 80 percent of its revenues from the state-controlled oil company.
Sub-Sahran Africa still lacks a "free" economy, although Botswana managed to reach the top thirty with improved scores on government intervention and fiscal burden of government.
Asia-Pacific meanwhile, was a continent of contrasts. While Hong Kong and Singapore further improved their ratings in 2005 thanks to reduced government spending in the former and tax cuts in the latter, the region is also home to more “repressed” economies than any other.
However, four Asia-Pacific countries including Pakistan, Kyrgyz Republic, Turkmenistan and Kazakhstan are among the 10 most improved, along with Romania, Suriname, Armenia, Georgia, Turkey and Tajikistan.
Meanwhile, the ten countries whose score worsened the most last year included Iran, Italy, Guinea, Bolivia, United Arab Emirates, Oman, Equatorial Guinea, Sri Lanka, Egypt, El Salvador and Nicaragua.
