South Africa ranks 95 out of 159 countries measured for economic freedom, up 10 places from 105 last year, a remarkable and promising accomplishment. Good news in the face of relentless bad news.
The source of this information is Economic Freedom of the World: 2017 Annual Report (EFW) released today by the Free Market Foundation (FMF) in conjunction with Canada’s Fraser Institute.
Last year, SA ranked 105 with an overall rating of 6.64 out of 10 (where zero is unfree and 10 is free). This year, at 95, our rating is 6.63 due to the inclusion of the Gender Disparity Index (GDI) as a factor, without which, SA would have been ranked at 103, only two places better than last year. SA’s good rating on the GDI is a direct result of the change made in 1994 to a democratic order and the adoption of a constitution that guarantees gender equality.
Economic freedom as an essential growth factor
The evidence from two decades of research on the factors that determine economic growth, captured in the EFW annual reports, demonstrate that SA cannot expect to prosper unless the country opts for economic freedom in the true sense of the term. “Government should aim to climb back up to our 2000 ranking of 42 in the world or better. All that needs to be done is to unwind the errors of the past 16 years. Aim, initially, to be in the top 60 countries, alongside Botswana, France and Hungary, and then to the top 40’s alongside countries such as Albania, Bulgaria and Mongolia,” said FMF director Eustace Davie. “What needs to be corrected is clearly set out in the EFW annual report.”
Details about the EFW annual reports and what they reveal
Hong Kong and Singapore again top the index, continuing their streak as 1 and 2 respectively. New Zealand, Switzerland, Ireland, the United Kingdom, Mauritius, Georgia, Australia and Estonia round out the top 10.
“Where people are free to pursue their own opportunities and make their own choices, they lead more prosperous, happier and healthier lives,” said Fred McMahon, Dr. Michael A. Walker Research Chair in Economic Freedom with the Fraser Institute.
The 2017 report was prepared by James Gwartney, Florida State University, Robert A. Lawson, Southern Methodist University, and Joshua Hall, West Virginia University.
Based on data from 2015 (the most recent year of available comparable data), EFW measures economic freedom (levels of personal choice, ability to enter markets, security of privately owned property, rule of law, etc.) by analysing the policies and institutions of 159 countries and territories.
This year, for the first time, the ranking is adjusted for gender equality. In countries where women are not legally accorded the same level of economic freedom as men, that country receives a lower score.
“The link between economic freedom for all citizens and the prosperity they enjoy is undeniable, while the lowest-ranked countries are usually burdened by oppressive regimes that limit freedom and opportunity,” McMahon said.
The 10 lowest-ranked countries are: Iran, Chad, Myanmar, Syria, Libya, Argentina, Algeria, the Republic of the Congo, the Central African Republic and Venezuela. Some despotic countries such as North Korea and Cuba cannot be ranked due to lack of data.
Other notable rankings include the United States and Canada, which tied at 11, Germany (23), Japan (39), France (52), India (95), Russia (100), China (112) and Brazil (137).
The extraordinary benefits of economic freedom
According to research in top peer-reviewed academic journals, people living in countries with high levels of economic freedom enjoy greater prosperity, more political and civil liberties, and longer lives.
For example, countries in the top quartile of economic freedom had an average per-capita GDP of US$42,463 in 2015 compared to US$6,036 for bottom quartile nations.
Moreover, the average income in 2015 of the poorest 10 per cent in the most economically free countries (US$11,998) was almost twice the overall average per capita income in the least free countries. And life expectancy is 80.7 years in the top quartile of countries compared to 64.4 years in the bottom quartile.
South Africa’s economic freedom scores
South Africa’s scores in key components of economic freedom (from 1 to 10 where a higher value indicates a higher level of economic freedom):
- Size of government: declined to 5.10 from 5.47 in the last year’s report
- Legal system and property rights: declined to 5.76 from 5.79
- Access to sound money: improved to 8.07 from 8.04
- Freedom to trade internationally: declined slightly to 6.87 from 6.88
- Regulation of credit, labour and business: improved to 7.37 from 7.16
Production of the annual reports
The Fraser Institute produces the annual Economic Freedom of the World report in cooperation with the Economic Freedom Network, a group of independent research and educational institutes in nearly 100 nations and territories. It is the world’s premier measurement of economic freedom, measuring the degree to which the policies and institutions of countries support economic freedom and ranking those countries in five areas: size of government, legal structure and security of property rights, access to sound money, freedom to trade internationally, and regulation of credit, labour and business. The report also updates data in earlier reports in instances where data has been revised.
See the full report at www.fraserinstitute.org/economic-freedom.
Leon Louw’s proposals for radical economic transformation
FMF Executive Director, Leon Louw, said that: “Radical economic transformation can be achieved by adopting the following 8-point plan derived from EFW:
- Transfer ownership of land and houses occupied by the poor, and ownership of state-owned enterprises (in unit trusts) to the poor.
- Replace marginal income tax with a low flat tax system as other countries have done.
- Restore separation of the judiciary, and improve funding and management of the judiciary.
- Reform the police by concentrating on property crime and improving professionalism to drastically reduce the crime rate.
- Abolish exchange control and free up international trade and investment.
- Free the labour market to encourage employment especially by small and micro businesses.
- Drastically reduce red tape and compliance burdens.
- Provide unambiguous guarantees of property rights over all forms of assets.”
For more information on the Economic Freedom Network, datasets, and previous Economic Freedom of the World reports, go to www.fraserinstitute.org/economic-freedomwww.facebook.com/EconomicFreedomNetwork