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October 2004 -- Americans typically measure their freedom by looking backward or forward—backward to the early republic or forward to their ideal republic. But another useful gauge is obtained by looking outward—to the world's other republics, and to its non-republics as well. That is, we may ask, in the spirit of international sports competitions, how well does America do in its pursuit of freedom, when compared with other countries?
Fortunately, three publications make that easy to determine.
For several decades, Freedom House has conducted an annual survey of global liberty. (This article uses the organization's report Freedom in the World 2004 .) However, as Freedom House itself recognizes, this survey is limited to just two aspects of freedom: political rights (democracy) and civil liberties. The obvious missing element is economic freedom.
Two surveys by free-market institutes attempt to make up for that lack. The Vancouver-based Fraser Institute, in conjunction with several dozen pro-capitalist institutes from around the world (including the Cato Institute), publishes an annual report called Economic Freedom of the World , written this year by James Gwartney and Robert Lawson. Likewise, the Heritage Foundation and the Wall Street Journal co-publish an annual Index of Economic Freedom, produced this year by Marc A. Miles, Edwin J. Feulner Jr., and Mary Anastasia O'Grady, together with Ana Isabel Eiras and Aaron Schavey. Integrating the results of these two surveys with Freedom House's allows one to make at least a comparative estimate of how liberty is faring around the world. Of course, given the time required for research and writing, none of the surveys can offer up-to-the-minute evaluations of freedom. But barring dramatic upheavals, a country's level of political and economic freedom does not often leap about. In any case, we must make do with what we have.
To call a system democratic is to say principally that its citizens determine to some significant degree the actions of its government, directly or through representatives. To call a system democratic says nothing about the scope of that government. Still, democratic mechanisms are an important part of a free society. After all, the fundamental principle of liberty is that a person ought to be in charge of his life. Since government is the means by which people carry out the extremely important activity of defending themselves against coercion, it follows that they ought to be in charge of that aspect of their lives. If we had our rights protected by a benevolent monarch, we would be like children let out on our own—but only within a yard fenced off by our parents.
For evaluating a country's level of democracy ("political rights"), Freedom House uses a ten-point checklist, including such unexceptionable criteria as free and fair elections for the chief executive and for legislators, a significant opposition, real power for representatives, the right to organize new parties, and so forth. Once Freedom House has evaluated a state according to its ten points, it places the country in one of seven categories, from "most free" (1) to "least free" (7).
Now, I said above that Freedom House's criteria for democratic rights include many unexceptionable factors. But that is not the whole story. Point Seven should give pause to classical liberals. It asks: "Do cultural, ethnic, religious, and other minorities have reasonable self-determination, self-government, autonomy, or participation through informal consensus in the decision-making process?" One can look at this in two ways. An individualist state would probably allow minorities no autonomy or self-determination, on the grounds that people become citizens of the state as individuals, not as members of a minority. To grant ethnic minorities self-determination within the country would be collectivism. It would imply that the members of a minority deserve representation not for their political ideas but for their genes, religion, and folk traditions.
To this, a person might respond: "But how many states today oppose autonomy and self-determination for minorities on those individualist grounds? Is it not more usual, globally, for an ethnic majority to oppose autonomy for an ethnic minority because the majority wishes to use majoritarianism in order to violate the freedom of minority citizens to sustain their heritage?"
True enough. Where majoritarianism runs rampant, a wise political scientist might well declare that autonomy and self-determination are desirable democratic mechanisms. But the distinction between individualist opposition to ethnic autonomy and majoritarian opposition to ethnic autonomy is not a distinction that Freedom House makes. Contemporary Canada, for example, is not a country given to ethnic oppression. Yet Freedom House applauds it in the following words: "During 2003, the federal government reached an agreement whereby it ceded control of a tract of land the size of Switzerland to the Tlicho First Nation." That is a use of Point Seven that treats ethnic collectivism as freedom and individualistic democracy as unfreedom. Friends of liberty could perform a signal service by informing researchers at Freedom House of the difference between collectivism's ethnic oppression of other collectives and individualism's indifference to collectivist identity.
This year, Freedom House surveyed 192 independent countries, the same number and the same countries that it surveyed in 2001. Of these, 59 (31 percent) receive a most-free 1 rating for political rights.
Of the 24 western European countries, all but one is top-ranked, the odd man out being Prince Rainier's Monaco, which receives a 2. Of the fifteen states in east-central Europe, nine receive 1s for political rights: Estonia, Latvia, Lithuania, Poland, Hungary, the Czech Republic, Slovakia, Slovenia, and, this year for the first time, Bulgaria. In terms of democratic rights, then, all of the former Soviet satellites in Europe are now among the world's most-free countries, and one part of the former Yugoslavia (Slovenia) has made it. That is good news, indeed. During the Cold War, the Bulgarian dictator Todor Zhivkov ruled for thirty-five years (1954-89), in the most slavishly pro-Soviet fashion, even proposing at one point that his country should be absorbed into the U.S.S.R. That Bulgaria should today have greater political freedom than India, Taiwan, and South Korea is nothing less than astounding. However, the four other remnants of Yugoslavia—plus Albania—still have a ways to go. But at least there has been no backsliding among them. Four of these states have moved up a notch in political rights: Albania, Macedonia, and Serbia from 4 to 3, and Bosnia-Herzegovina from 5 to 4.
The countries that made up the former Soviet Union are not doing nearly as well. Mongolia (which I have added to this category) is perhaps best off. Freedom House places its political rights in the second tier, and a severe dispute over last summer's parliamentary elections was settled politically. Elsewhere in the region, political freedom is largely a sham.
In the Middle East and North Africa, only the anomalous state of Israel rates a 1 for political freedom. The sub-Saharan region's 48 states (25 percent of the world's total) include only three countries top-ranked for political freedom (5 percent of the world's free states). Those three countries are two small island-nations—Mauritius, in the Indian Ocean; and Cape Verde, in the Atlantic—plus South Africa. But though democracy may be nominally alive in South Africa, the reality of democratic challenge seems minimal. In the April 2004 elections, the ruling African National Congress won 70 percent of the vote, with the runner-up party winning only 13 percent of the vote.
In south, southeast, and east Asia, only Japan's democracy qualifies for a 1. Taiwan's rating for political freedom has gone from a 1 to a 2 in the past three years, but that resulted from a change in Freedom House's methodology. Government corruption, which is significant in Taiwan, has moved from the checklist of civil liberties to that of political rights.
In Oceania, democratic 1s are merited by Australia, New Zealand, and six small island-states, and all of these eight countries, interestingly, belong to that English-speaking Free World that is coming to be called the Anglosphere. For that reason, it is interesting to examine as a separate group the thirteen independent countries of British North America, taking in ten Caribbean nations and Belize, in addition to Canada and the United States. Of these thirteen, fully nine rate 1s for political freedom, and another rates a 2. Of the ten non-English-speaking countries in the region, only Panama gets a 1.
In the volatile area of South America, Uruguay and Suriname managed to hold on to their "most free" status as democracies, and they were joined this year by Chile. Unfortunately, over the last three years, Argentina has slipped from the first rank in political rights to the second and Bolivia to the third. More exactly, Argentina's course has been from a 1 to a 3 to a 2. The deterioration of its political system occurred especially in 2001, when the elected president was forced to resign and his replacement quit a week later. A turnaround of sorts took place in 2003 with the election of Nestor Kirchner. Worse has been the fall of Bolivia, which went from a 1 to a 3 because of government corruption, the influence of drug money in politics, and, in October 2003, the resignation of the elected president in the face of street protests.
Freedom House uses a fifteen-point checklist for civil liberties, including freedom of speech and press, freedom of assembly, equality before the law, an impartial judiciary, and a strong civil society that is independent of government. Here again, though, several other criteria are controversial. For example, Point Three asks: "Is there academic freedom, and is the educational system free of extensive political indoctrination?" But this criterion makes no distinction between privately run schools and publicly run schools. Would Freedom House declare a country lacking in civil liberties if most of its universities were established by capitalists who insisted on having their schools teach capitalism? Probably so. After all, it was just such a situation that gave rise to the academic-freedom movement in the United States at the beginning of the 20th century.
Another point on the checklist asks: "Is there freedom of political or quasi-political organization?" That is certainly a good question, but how is the test used? In the entry for Belgium, we are told: "Belgium passed a law in 1994 that stipulated that two-thirds of each party's candidates must be of a different sex." That is clearly a violation of the freedom of political organizations. But one suspects that Freedom House's authors give Belgium a plus for the law rather than a minus, for the report goes on to boast: "Women won more than 35 percent of the seats in the lower house of parliament during elections in 2003, a 10 percent increase since the previous elections in 1999."
What are the results of applying Freedom House's criteria? Given that the world approves of democracy far more than of freedom, it is no wonder that fewer countries get top marks for civil liberties. Of the 192 countries surveyed, Freedom House rates 41 (21 percent) "most free" in this field. But that is up from 30 (16 percent) only three years ago. What happened? First, Freedom House has now given 1s to six western European nations that received 2s three years ago: Belgium, France, Germany, Italy, Spain, and the United Kingdom. Slovenia has become the first state from the former Yugoslavia to earn top marks in civil liberties, and Cape Verde has become the first African state to do so. The three small island-states of Micronesia, Nauru, and Palau have also been given 1s. And Chile has joined Uruguay in the top rank of civil liberties.
Of course, there is a certain unreality about these numbers, even apart from the strictly relative measure of freedom involved. Does it make sense to count each nation equally? In a sense, yes. Each individual country represents another chance for a separate and slightly different polity to get it right philosophically or to get it wrong. From a cultural perspective, therefore, each failure or success is worth noting. But there is another perspective: How many individual human beings live in free societies? The population of the United States is now approximately 300 million, and that represents more than 40 percent of all the world's free people. For if one adds to the American population the populations of the remaining thirty-eight countries receiving double 1s from Freedom House, the total number of people living in this relative degree of freedom increases to only 700 million. That is just over a tenth of the world's total population.
By contrast, look at the number of people living in unfreedom. The population of China alone is 1.3 billion. And if one adds in just the populations of Vietnam, North Korea, and Burma (to stay in the region), another 150 million unfree humans join the debit side of the ledger. Looking elsewhere in the world, there is Iran, with 65 million people; Egypt, with 65 million people; the Congo (formerly Zaire), with 50 million people. Those seven countries alone account for two and a half billion people living in unfreedom.
So, there is plenty of reason to despair. Still, one must also remember that the China of today is not the China of the Cultural Revolution, and the Russia of today is not the Soviet Union of Brezhnev, much less Stalin: "Say not the struggle naught availeth, the labor and the wounds are vain."
Navigator is once again employing two attempts to rate economic freedom in the world: the Fraser Institute effort (which this year evaluated 122 countries, plus Hong Kong) and the Heritage Foundation-Wall Street Journal effort (which evaluated 154 countries, plus Hong Kong). The former project uses 21 components and groups them into five categories. Those categories are: (1) size of government; (2) legal structure and security of property rights; (3) access to sound money; (4) freedom to trade internationally; and (5) regulation of credit, labor, and business. The end products are a 0-to-10 rating for each of the five large groups and for the country overall. The Heritage-Wall Street Journal work looks at ten components of economic freedom: (1) trade policy (protectionism); (2) the fiscal burden of government (including taxation and a government's expenditures as a percentage of the gross domestic product [GDP]); (3) government intervention in the economy (including government consumption as a percentage of the economy and government ownership of business); (4) monetary policy; (5) capital flows and foreign investment; (6) restrictions on banking and finance; (7) market or non-market determination of wages and prices; (8) protection of private-property rights; (9) regulation; and (10) black-market activity. Here, each factor is rated from 1 (most free economically) to 5 (least free economically), and an overall 1-to-5 country rating is produced for each country.
When one compares the two sets of evaluations, some interesting disputes emerge. For example, Heritage rates Cyprus (that is, Greek Cyprus) very highly: 14th in rank. Fraser places it 50th in rank. What gives? The difference appears to lodge in the two surveys' evaluation of Cyprus's international trade. Heritage says Cyprus has a low level of protection and gives the country a second-tier ranking in that field. Fraser does not disagree, especially about tariffs; on that, it gives Cyprus a 6.7 out of a possible 10. But Fraser also measures the size of a country's trade sector relative to what the authors calculate is the size to be expected. (The method of determining the expected size is not given but is available from the authors on request.) The idea, I guess, is that a country with a trade sector much smaller than expected is restricting it one way or another, even if the particular means differ from country to country. In the trade area, then, Fraser ranks Cyprus 108th out of 123, way down there with Egypt and the Congo.
Another interesting case is India. The Fraser Institute places India 68th in economic freedom, tying the Bahamas, with a score of 6.3 out of 10. Heritage ranks India 121st, below Russia, with a score of 3.53 (5 being the lowest). Heritage complains of high levels of protectionism, high levels of corporate taxation, state domination of the banking system, and extensive regulation. The Fraser Institute likewise gives India poor marks for protectionism and for private ownership of banks. It also gives India low marks for regulation of business—but not for regulation of credit and labor (the last rating being boosted by an absence of conscription and the presence of collective bargaining). Moreover, Fraser does not directly take account of corporate taxation. Such is the stuff of differences.
Another surprise is that the Fraser Institute places Jordan well above Israel: 36th to 51st. But Heritage disagrees strongly, placing Israel 29th and Jordan 51st. Why? The surveys' agreements about the two countries seem much larger than their differences. Both say the burden of government in Israel is higher. Heritage puts it at 55 percent of GDP versus 35 percent for Jordan. Moreover, government in Israel consumes for its own purposes 31 percent of GDP (understandably, given its need for defense expenditures), and Jordan consumes only 23 percent. But subtracting the latter two figures from the former two suggests that the Israeli government also uses up more of GDP in transfers and subsidies—indeed, twice as much as Jordan's government. One point in Israel's favor, however, is that its government receives only 3.5 percent of revenues from state enterprises, whereas Jordan's government receives more than 14 percent. But again, both surveys seem to agree on all these points. Where does their different overall rating come from, then? As far as I can see, it comes from two factors. One is this mysterious thing called "expected size of the trade sector," which is unique to the Fraser survey and is a place where Israel scores well below Jordan. The other factor is in the area termed "labor regulation." Israel receives a 3.6, partly because of its burdensome conscription, while Jordan receives a 6.2. That strikes me as somewhat misleading in a survey of economic freedom (as opposed to civil liberties), so long as a large part of the population must be employed in defending the national homeland.
What do we find in the way of economic freedom around the world? For all the vaunted freeing-up of trade in the European Union, the major states of the Continent do not fare well. Neither France, nor Germany, nor Italy, nor Spain makes the top twenty of the Fraser list, and on the Heritage list only Germany makes it, at 18th. However, it must be said that of the twenty western European countries surveyed by Fraser, none is below the top fifty, though France comes close at 44th. (Heritage also places France 44th.)
Among the states of east-central Europe, Estonia is clearly the comer, ranking 6th on Heritage's list and 11th on Fraser's. But Latvia and Lithuania are also doing well: 29th and 22nd, respectively, on the Heritage list; 36th and 44th on Fraser's. The former Soviet states are as lacking in economic freedom as in political freedom, though again Mongolia is the best of a bad lot: 63rd in Heritage's survey. Russia ranks 114th on both lists.
Perhaps surprisingly, there is hope in the Middle East, principally among the Persian Gulf states. Fraser rates the United Arab Emirates 16th, puts Kuwait and Oman in a tie for 18th, and lists Bahrain as 31st. Heritage is not so hopeful. It puts Bahrain (for which it has long harbored a fondness) at 20th, the UAE at 42nd, Kuwait at 48th, and Oman at 54th. Still, even those lower rankings put all four countries above Poland.
In the sub-Saharan region, Botswana is once again the champion, ranking 18th in the Fraser survey (tied with Belgium) and 38th in the Heritage survey (one notch below Japan). Fraser ranks Mauritius 27th, but Heritage puts it 71st, citing very high levels of protection and wage-price regulation.
In south, southeast, and east Asia, Singapore is clearly the standout, inasmuch as both surveys rank it the economically freest independent country in the world and second only to Hong Kong. In the Heritage survey, nothing else in the region comes close: Taiwan is 34th, Japan is 38th, and South Korea is 46th. The Fraser survey sees the area more positively: Taiwan is 22nd, South Korea is 31st, and Japan is 36th. In the Pacific region, both surveys put Australia and New Zealand in the top eleven.
In North and South America, the leaders are clearly the United States, Canada, and Chile, which are all in Heritage's top twenty; Chile is slightly below that in Fraser's survey, at 22nd.
What happens if one attempts to integrate all three surveys? In order to do this, I have had to present both the Freedom House rankings and the Heritage rankings on a 0-to-10-basis scale that makes them commensurate with the Fraser rankings. With the Freedom House survey, I have assumed that a 1 does not represent perfect freedom, nor a 7 perfect unfreedom, and I have therefore translated its scoring system of 1 (high) to 7 (low) as 8.75, 7.50, 6.25, 5.00, 3.75, 2.50, and 1.25. I have attempted to correlate Heritage's system, ranging from 1 (high) to 5 (low), by inverting and expanding it thus: 10, 7.5, 5, 2.5, and 0.
What do we find if we average the revised numerical rankings of the two economic surveys, and apply to economic freedom the same high-level criteria used in the Freedom House survey? That is, how many countries get better than a second-tier 7.5 in economic liberty? The answer is: Sixteen do. Six states are above 8; ten more range from above 7.5 to 8.
What happens if we average all three of our lists? Not much. All but two states in the top twenty of the most economically free have double 1s (double 8.75s) from Freedom House. Singapore is knocked out of the contest by receiving a 3.75 for political rights and a 5 for civil liberties. Estonia is knocked down but not out: Its 8.75 for political rights and 7.5 for civil liberties are high enough to stay in the game.
Of these fifteen states, the bottom four are Chile, Sweden, and (in a tie) Iceland and the Netherlands. Before being faulted, Chile deserves to be celebrated just for showing up. It is the only one of the fifteen most-free countries that is neither in western Europe nor in the Anglosphere.
Now to determine this year's overall rankings.
15 and 14. Chile and Sweden. Sweden is actually in a tie with Chile in the Fraser survey and comes out a mere 0.01 ahead in the Heritage list. The apparent reason for Sweden's edge is the slightly greater "informal market" in Chile, which suggests greater restrictions on the open market. But given the much greater burden of government in Sweden, this is a highly arguable decision.
13 and 12. Iceland and the Netherlands. The next two states, going up the scale of freedom—Iceland and the Netherlands—are tied, although Fraser prefers the Netherlands (by 0.1) and Heritage prefers Iceland (by 0.04). The top tax rate in Iceland is 49 percent and government expenditures amount to 45 percent of GDP, while the top tax rate in the Netherlands is 52 percent and government expenditures are 47.3 percent of GDP. Not much to choose from there. But against the size and burden of government, the Fraser Institute apparently likes the Netherlands for its freedom of international trade.
Incidentally, the Netherlands, with a population of fifteen million people, is the most populous of the Continental European countries among the top fifteen. Perhaps it is the small states' need for international trade that helps offset the dirigiste culture of Continental Europe. In the Anglosphere, larger countries (with less need for international trade) would seem to remain free through their more Lockean culture. This hypothesis is lent credence by the poor mark the Netherlands receives for the burden of government and the excellent marks it receives for openness to foreign investment and capital flows.
11. Estonia. Despite its second-tier status in civil liberties, Estonia manages to occupy the 11th position with a high ranking from both Fraser and Heritage. It profits greatly from having a flat income tax rate of 26 percent. Government expenditures are 38.5 percent of GDP. On the down side, Estonia has a rather poor score for the size of its informal market, receiving a 2.5 from Heritage.
10 and 9. Canada and Finland. Two states not often thought of as particularly free—Canada and Finland—occupy the 10th and 9th places on the list of freest states. Canada, in keeping with its popular image, does have a burdensome government: Government expenditures are 41 percent of GDP, and the top federal tax rate is 29 percent, with provincial taxes adding perhaps an additional 10 percent. There is also some nationalist protectionism. Otherwise, however, markets operate fairly well. In Finland, government expenditures take 49 percent of GDP, but the top income tax rate is 36 percent. As compared with Canada, and in accordance with the Netherlands hypothesis, openness to foreign investment is greater in Finland.
8 and 7. Denmark and Australia. In 8th place is Denmark, another big-government state but a relatively free one. The top income tax rate is 59 percent and government expenditures are 55 percent of GDP. In this category, according to the Fraser Institute, it therefore places 112th among 123 countries. But property rights are secure, money is sound, international trade is open, and regulation is light. Australia surpasses Denmark and moves into 7th place, because the same good things can be said of it, but the top income tax rate is 47 percent and government expenditures take 36 percent of GDP.
6. Ireland. Ireland bests Australia on the basis of taxes. The top income tax rate is 42 percent and government expenditures take 34 percent of GDP, somewhat better than in Australia. But Ireland's top corporate tax rate is an astounding 12.5 percent, versus Australia's 30 percent.
5. Luxembourg. In light of the above, the question is: On what basis does big-government Luxembourg best Ireland? Inflation. Yes, Luxembourg's top income tax rate is 39 percent and government expenditures take 46 percent of GDP. But according to Heritage's measure of weighted inflation rates for the last ten years, Luxembourg's rate is just over 2 percent, whereas Ireland's is over 4.5 percent.
4. The United States. The United States loses out decisively to Ireland and Luxembourg in the Heritage ratings; it is the Fraser Institute that helps save American honor. One area where Fraser favors the United States over Luxembourg is in the relatively low percentage of GDP devoted to transfers and subsidies; another is in the top marginal tax rate, especially when payroll taxes are included.
Why does America lose out to Ireland and Luxembourg in the Heritage ratings? Certainly, it is not the burdensomeness of government. In the United States, the top federal income tax rate is 35 percent and government expenditures are 36 percent of GDP, comparable to or better than Ireland's and Luxembourg's figures. (Of course, given the U.S. federal system, these figures are misleading, but that seems not to be the objection in the Heritage survey.)
The area where Heritage principally faults the United States is in restrictions on foreign financial transactions, noting particularly U.S. national-security embargoes against six countries and "specified terrorist groups." Again, as in the case of Israel, one has to wonder: Are we seeing the "broken window" fallacy here? The embargoes' restriction of economic freedom is obvious; not obvious are the violations of property rights that (witness the World Trade Center) may be prevented by embargoes on financial transactions with terrorists.
3, 2, and 1. Lastly, we come to the final three countries: the bronze, silver, and gold. In the Heritage survey, Switzerland loses out to Luxembourg, but the Fraser survey puts it well above Luxembourg, sending Switzerland into the final threesome. Virtually the entire difference rests on burden of government. In that dimension, Fraser says, Luxembourg ranks 96th out of 123 countries; Switzerland ranks 32nd. As noted above, Luxembourg's top income tax rate is 39 percent and government expenditures take 46 percent of GDP. Switzerland, as a federal system, has no directly comparable figure for taxes, but federal, canton, and city tax rates generally amount to about 30 percent. Government consumption takes 40 percent of GDP.
Why does Switzerland beat the United States this year? In the Fraser rankings, they tie. So the advantage comes entirely from Heritage, and it amounts to exactly 0.01 in the ten-point scale. Switzerland's advantage comes principally from its top federal tax rate, which is 11.5 percent versus 35 percent for the United States. Since both countries are federal systems, the comparison here is more direct than when comparing Switzerland's rate with those of other Continental countries.
In the United Kingdom, the burden of government is approximately the same as in Switzerland (both governments take approximately 40 percent of GDP), and indeed the Fraser Institute gives the two countries exactly the same grade. But the top income tax rate in the United Kingdom is 40 percent. So why does the Heritage Foundation give the edge to the U.K.? The answer is regulations, which Heritage finds are "extensive, particularly at the local level," in Switzerland.
Fraser also gives New Zealand the same mark as Switzerland, the United Kingdom, and the United States. And Heritage ranks New Zealand's government burden as slightly worse than that of the U.K.: the top income tax rate is 39 percent, equal to the U.K.'s, and the top corporate tax rate is 33 percent, as opposed to 30 percent in the U.K. But government expenditures in New Zealand are 36.5 percent of GDP, somewhat better than the U.K.'s 40 percent. Another marginal difference is that the Heritage Foundation gives New Zealand superior marks for openness to foreign investment. The Fraser Institute also notes the somewhat lighter burden of regulation in New Zealand, placing it 4th in the world in this category and the U.K. 7th.
Therefore, as in years past, the gold medal in this year's Freedom Olympics goes to New Zealand.
This article was originally published in the October 2004 issue of Navigator magazine, The Atlas Society precursor to The New Individualist.
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