Business Day

Free­dom in­dex a guide to grow the econ­omy

- NEIL EMERICK Overpopulation · Finance · Latin America News · Politics · World Finances · European Politics · Social Issues · Society · Business · Vancouver · World Bank · Hong Kong · Singapore · New Zealand · Switzerland · Canada · Mauritius · United Arab Emirates · Georgia · Ireland · Australia · United Kingdom · Iran · Algeria · Chad · Guinea · Angola · Central African Republic · Argentina · Democratic Republic of Congo · Republic of Congo · Libya · Venezuela · France · Germany · Japan · Brazil · China · India · Russia · Russian Empire · Fraser Institute

CRY the beloved econ­omy. To­day sees the re­lease of the 2016 Eco­nomic Free­dom of the World re­port, pub­lished by the Fraser In­sti­tute in Van­cou­ver. To every South African’s de­spair our coun­try has dropped another 12 places in the rank­ings to 105th.

The Eco­nomic Free­dom of the World pro­ject scores coun­tries based on their lev­els of free­dom across five eco­nomic cat­e­gories: size of govern­ment, le­gal struc­ture and prop­erty rights, ac­cess to sound money, free­dom to trade in­ter­na­tion­ally, and reg­u­la­tion of credit, labour and busi­ness. The cat­e­gories them­selves are made up of sub­cat­e­gories, which are drawn from in­ter­na­tional re­ports such as the World Bank Do­ing Busi­ness Re­port, the In­ter­na­tional Coun­try Risk Guide and oth­ers. The in­di­vid­ual scores are placed on a scale from one to 10 and the cat­e­gory rank­ings de­rived from the av­er­ages.

The top 10 coun­tries in 2016’s list are Hong Kong, Sin­ga­pore, New Zea­land, Switzer­land, Canada, Mau­ri­tius, United Arab Emi­rates, Ge­or­gia and Ire­land, with Aus­tralia and the UK shar­ing 10th spot. Bot­tom of the list are Iran, Al­ge­ria, Chad, Guinea, An­gola, Cen­tral African Repub­lic, Ar­gentina, Repub­lic of Congo, Libya and, last, Venezuela.

The rank­ings of some large economies are: US (16), France (57), Ger­many (30) and Ja­pan (40). Our friends in the Brics rank: Brazil (124th), China (113th), In­dia (112th) and Rus­sia (102nd).

Brazil is a par­tic­u­larly in­ter­est­ing case. The in­dex shows the coun­try drop­ping 25 places in the past 10 years, re­flect­ing its move to­wards a left­ist pol­icy set. Fore­cast­ers us­ing the in­dex pre­dicted in­creased unem­ploy­ment, re­duced for­eign in­vest­ment and ul­ti­mately lower eco­nomic growth, all of which tran­spired. Brazil con­tin­ues to vie with SA as the most un­equal so­ci­ety in the world.

In the past 20 years SA has moved from a rel­a­tively free econ­omy (47th in 1995) to this year’s 105th out of 159 coun­tries, and in that time our unem­ploy­ment has re­mained trag­i­cally high, our in­vest­ment pro­file has di­min­ished and our growth looks nonex­is­tent. It is clear that SA has to rad­i­cally al­ter its course if the econ­omy is to be turned around.

This is where the eco­nomic free­dom in­dex is most use­ful. Schol­ars use the re­port to plot coun­tries and their free­dom rank­ings against other in­ter­est­ing eco­nomic vari­ables (such as growth) and sug­gest that to be like the suc­cess­ful coun­tries we should copy their suc­cess­ful poli­cies. If SA is to pro­vide the “bet­ter life for all” that has been promised, we need to start do­ing what the high­est-ranked coun­tries are do­ing.

SA scores badly in the fol­low­ing ar­eas: cost of tax com­pli­ance (157), li­cens­ing re­stric­tions (153), start­ing a busi­ness (152), labour mar­ket re­la­tions (144), credit mar­ket re­la­tions (141), busi­ness costs of crime (135) and in­fla­tion (125).

As the rand col­lapses, our sovereign debt sta­tus be­comes ques­tion­able and peo­ple all over the coun­try look for ev­i­dence of the rain­bow prom­ise, it is time the govern­ment takes a hard look at the poli­cies it has fol­lowed and tries some­thing dif­fer­ent. Busi­ness has been too qui­es­cent in not rep­re­sent­ing its in­ter­ests pub­licly and ag­gres­sively enough. The govern­ment must be pre­pared to let its peo­ple ex­er­cise their en­trepreneur­ial free­doms rather than at­tempt to cre­ate an over-reach­ing reg­u­la­tory state that wants a fin­ger in every pie.

To date, more than 400 aca­demic pa­pers cite the in­dex in their anal­y­sis, and their con­clu­sions point over­whelm­ingly to the idea that free mar­kets, small govern­ment, open trade borders and sound money are the keys to pros­per­ity and gen­eral well­be­ing. If SA is to es­cape the fate of coun­tries such as Brazil, Ar­gentina and Venezuela, it should an­a­lyse the re­port care­fully and pur­sue those poli­cies that help it score bet­ter.

A rad­i­cal turn­around is re­quired if we are to re­store the struc­tural abil­ity to gen­er­ate growth and cre­ate true wealth for our peo­ple.

Emerick is an as­so­ciate of the Free Mar­ket Foun­da­tion. The re­port data can be found at http://efw­data.com.

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