Thursday, 16 January 2014

We’re (not so) free

The United States continues to plunge down the Heritage Institute’s World Index of Economic Freedom, out today, while ironically New Zealand continues to ride high at number five.

The 20th anniversary edition of the Index of Economic Freedom reveals that the United States has dropped out of the top 10 freest economies in the world.
    When President Obama took office, the U.S. was ranked 6th. Now it is 12th…
    Over the 20-year history of the Index, the U.S.’s economic freedom has fluctuated significantly. During the first 10 years, its score rose gradually, and it joined the ranks of the economically “free” in 2006. Since then, it has suffered a dramatic decline of almost 6 points, with particularly large losses in property rights, freedom from corruption, and control of government spending. The U.S. is the only country to have recorded a loss of economic freedom each of the past seven years.

imageThis is not to celebrate New Zealand’s performance too much however, because New Zealand has recorded a loss of economic freedom too, every year since Gerry Brownlee became Gauleiter of the Province of Canterbury.

That said, there are many things wrong with the way these indices are scored – none of them inspiring much confidence in their methodology.

The Index of Economic Freedom scores countries according to a subjective scale on the size of their government; their legal system and property rights;  the size and scope of government; freedom to trade internationally (or not); and something they call oxymoronically  “regulatory efficiency.”

I say a subjective scale because these numbers recorded to three significant figures are based largely on surveys conducted by business groups in each host country; and are difficult to take seriously when New Zealand comes in with a whopping 95 out of 1o0 for property rights (tell that to property owners in Christchurch suffering under Brownlee, or in Auckland slowly waking up to Len Brown’s Unitary Plan and the awesome powers of the unelected Maori Statutory Board, or in Pauanui getting to grips with Ngati Hei’s plans for the coastline…) and 96.1 out of 100 for business freedom (in other words, almost as good as it’s possible to get) allowing New Zealand to share a top ten looking like this:

  1. Hong Kong, with a calculated score of 90.1 out of 10o
  2. Singapore  89.4
  3. Australia, 82
  4. Switzerland, 81.6
  5. New Zealand  81.2
  6. Canada, 80.2
  7. Chile, 78.7
  8. Mauritius, 76.5
  9. Ireland, 76.2
  10. Denmark, 76.1

Bear in mind that the only reason American foundations produce indices like these is to browbeat American politicians. But if New Zealand is nearly as good as it gets in this modern world, there really is something wrong with the world we’re in. (Insert obvious comments here.) It might be more accurate to say these places are about as good as it gets at present, but are very far indeed from being as good as things could be or should be.

On that basis, with a more objective scale used, New Zealand might still be fifth, but with a score of maybe half what the Heritage Foundation gives us… (insert non-obvious responses here).

But note that the Foundation does mark us down to 32.3 out of 100 for govt debt, tax burden and still out-of-control government spending…

The overall tax burden equals 31.7 percent of gross domestic income. Government spending equates to about 47.5 percent of GDP.

Curious to note that around half of the top ten places are those in which the British came, saw and then buggered off, leaving behind them rule of law and the British legal and common law system. Thank Galt for the Brits, eh. (As they say in Dublin.)

And notice too, as the authors of a similar index last year did, that nations that are economically freer even by the shoddy standards of these surveys generally out-perform less-free nations in wealth and all other indicators of well-being.

  • Nations in the top quartile of economic freedom had an average per-capita GDP of $37,691 in 2010, compared to $5,188 for bottom quartile nations in 2010 current international dollars
  • In the top quartile, the average income of the poorest 10% was $11,382, compared to $1,209 in the bottom in 2010 current international dollars
    Interestingly, the average income of the poorest 10% in the most economically free nations is more than twice the overall average income in the least free nations
  • Life expectancy is 79.5 years in the top quartile compared to 61.6 years in the bottom quartile
  • Political and civil liberties are considerably higher in economically free[r] nations than in unfree nations

By the way:

The scores of the bottom ten nations in this year’s index are, in increasing order of slave-stateness: Republic of Congo, Timor-Leste (which NZ helped to “liberate” not long ago), Turkmenistan, Republic of Congo (splitters!), Iran (the place with the nuclear bomb fixation), Eritrea, Venezuela (the place socialism “liberated”), Zimbabwe, Cuba and North Korea.

These are places overseen by their governments in a manner making them a threat to the whole world, not just to the people inside their borders.

And if you’re wondering, the gradings for and Syria and Libya are “suspended” – although this last place dramatically outscores us for “fiscal freedom.” Something about which someone should ask Bill English.


  1. I still disagree with Heritage on the relative rankings of NZ and Oz, but less than I did last go-round. Christchurch rebuild has revealed a fair bit about economic freedom here.

  2. Thanks. Particularly interesting is this point "Curious to note that around half of the top ten places are those in which the British came, saw and then buggered off, leaving behind them rule of law and the British legal and common law system. Thank Galt for the Brits, eh. (As they say in Dublin.)"

    This is because English Common Law is explicitly based on Natural Rights (you own yourself), straight from Locke to Sir Blackstone's commentaries - Note he also said patents and copyrights were property under Locke's formulation for property rights


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