The List: How Free is Your Economy?

Hong Kong has taken top honors on The Heritage Foundation's Index of Economic Freedom for the 17th year on the trot. According to the rankings, released Wednesday, the US fell into the second tier, coming in ninth behind the leader as well as other top-tier nations Singapore, Australia, New Zealand, Switzerland and Canada. Outside the top-tier, Ireland and Denmark also scored higher than the US on the list. The Index ranks countries on a composite score which includes measures of various economic, trade and government markers, policies and statistics.

Hong Kong managed a score of 89.7, while the US scored 77.8. The world world average came in at 59.7 according to Reuters. Those looking for only the quick and dirty list with composite scores can find it here, while those interested in a deeper dive of the data would do best to start their searches here. A look at the data stacks makes it obvious fairly quickly that the US fell behind others due mainly to a very low score in the government spending category. This reflects the large recent increase in government spending as a percentage of economic output in the world's largest economy.

After delving through some of the numbers, one observation can be made fairly quickly; successful economies are built primarily on two pillars. The first is perhaps the most obvious to the casual observer as well as those focused on the business world. This first pillar could be summed up as permissive policies intended to stimulate business and trade. These policies are typically promulgated through legislation and, to a lesser extent, judicial decisions. Those with more of a legal background might focus more on the second pillar, the rule of law. Very basically the rule of law in this context can be thought of as a legal system which provides protections, and thus certainty, for everything from contracts to property rights.


Though both are obviously important, it is more likely that a deficiency in this second pillar, the rule of law, would create the most problems for an economy. Business can typically get around a restrictive operating environment more efficiently than an environment where the rule of law does not exist if for no other reason than the possibility to at least plan for the former. In the case of a deficiency in the rule of law, however, there is almost no certainty for business. This lack of a rule of law can be summarized simply as corruption. Though it is part of the Index, it is therefore worth taking a closer look at corruption as a subject of its own. Such a study is provided to us by Transparency International here.

Both the heat map format provided on the page and the list itself are instructive. The complete report, also available for download, is quite interesting for those who would like to do a deep dive. Perhaps unsurprisingly, those willing to take the time to do a side by side comparison will note that states which are highly rated on one tend to highly rated on the other and vice versa. However, the relationship is so strong that it underlines the point made above that rather than merely serving as a component of free-ness, corruption is likely to be in and of itself a strong predictor of economic freedom.

Of course it is worth noting that all of these measures carry a degree of subjectivity. Additionally, some countries scoring poorly in certain areas still have overall decent economies. However, if there is one main lesson to learn, it may be that it takes many positive factors to build a strong economy, while it doesn't take many missteps to hinder one. A simple lesson perhaps, but nonetheless still one which too frequently fails to be acted upon.