Mexico

Free to Grow

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Which country has the most economic freedom? That's the question economists James Gwartney of Florida State University and Robert Lawson of Capital University set out to answer each year in Economic Freedom of the World. Published by Canada's Fraser Institute, the latest edition, which tracks nations through 1999, is out and available online.

Gwartney and Lawson, who were assisted by American University's Walter Park and Florida State grad student Charles Skipton, analyze data collected from dozens of international sources to rank 123 countries on measures including the size of government, top marginal tax rates, interest rate controls, and the freedom of citizens to use alternative currencies. Topping their list is Hong Kong, followed by Singapore and the U.S. Rounding out the bottom are Syria, Uganda, Russia, and Myanmar.

Reason Editor-in-Chief Nick Gillespie spoke with Robert Lawson in early June.

Q: Over the past decade, has there been a general gain in economic freedom?

A: Yes. In an absolute sense, most countries are improving—there has been a worldwide binge in cutting marginal tax rates, for instance. Economic freedom correlates strongly with higher incomes, economic growth, and increased standards of living. Standing pat in this environment is like going backward, which is one reason Mexico has dropped from a 35 ranking to a 62 ranking over the past decade; it didn't really do that much to liberalize its economy. Ireland, on the other hand, actually cut the size of its government—and now has the fastest-growing economy in Western Europe.

Q: How do countries free up their economies?

A: Some countries, such as Singapore and Chile, did it through autocratic dictates. Others, such as Ireland and New Zealand, did it through democratic means, which is gratifying for those of us who worry about dictators. At least in relatively small democracies, it seems that economic freedom can come as a result of legislatures, rather than being forced by strong men.

Q: Does your research support the idea that economic freedom is necessary but not sufficient for political freedom?

A: If you look at the whole world, there's no question that, overall, economically free countries have more political freedom, too. Economic freedom, however, is only one measure of freedom. In the long run—as long as 50 years, say—economic freedom definitely bolsters political liberties, though the transition can be pretty ugly.

Economically free people get rich, and rich people demand political rights—freedom of speech, a legitimate legal system, and the like. Look at Taiwan and South Korea, for instance. They opened up their economies first. Then as they got wealthier, they transitioned to a relatively freer political environment, too. The transition wasn't easy—they went through very difficult periods, with riots in the streets. But they did it eventually. Even as repressive a place as Singapore will have to increase political freedom if it wants to stay rich.