Freedom index a guide to grow the economy
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.