Ideas@TheCentre
Ratings justify Australia’s economic freedoms
In a show of economic strength and resilience, Australia came in at 3 (as it did the year before) and New Zealand scored 4 (up one place) behind Hong Kong and Singapore in the 2010 Index of Economic Freedom released by the Heritage Foundation and the Wall Street Journal on 20 January.
The Index, which ranked 179 countries, is based on 2008 data and compiled in the second half of 2009, and given the impact of the global financial crisis, you’d be right in thinking that getting an accurate picture would be tricky. Ireland is ranked fifth, so it remains to be seen what the picture will be next year. Also, as the Index is a relative measure, not an absolute one, there will always be room for improvement here and elsewhere. Nevertheless, a higher score is clearly an indicator of something that is working, and higher is unquestionably better.
The Index does not aim to incorporate political or other freedoms, and some might regard this as a shortcoming. I do not. There are many other such ratings that do this, as well as those that endeavour to measure prosperity, quality of life, and so on (the Legatum Prosperity Index is one). But if we were to toss in a couple of additional categories that incorporate some of these measurements, then both Australia and New Zealand would score better again and almost certainly jump over Hong Kong and Singapore. Australia and New Zealand are clearly the places to be. The last three placegetters, Cuba, Zimbabwe and North Korea, clearly are not! There are though some hopeful signs at last for Zimbabwe.
What the Index of Economic Freedom does well is to highlight the institutions and conditions necessary to be such great places. The rule of law, property rights, ease of starting businesses, which is two days in Australia and one in New Zealand (the world average is a staggering 35 days, indicating that entrepreneurial endeavour in too many countries must be a nightmare), strong and open financial sectors, low or no corruption, flexible labour markets (about to be sorely tested in Australia), low levels of inflation, free trade, and so on.
If Australia and New Zealand are doing so well, then given the methodology, it follows that others aren’t. This is no time for us to be complacent though, and further improvements necessary here (such as reducing taxes and regulation) will be guides for others. That is one of the most important things these ratings can do: provide signposts.
A ‘you too can be like us’ flashing neon.
For more on the Index of Economic Freedom, go to http://www.heritage.org/Index/.
CIS is holding a forum on the latest findings of the Index. Please visit this link if you wish to attend: http://www.cis.org.au/events/current_events.html#1c.
Greg Lindsay is the Executive Director of the Centre for Independent Studies.
