Somerset Area High School

Somerset, Pennsylvania

Teacher: William M. Simmons

Why Nations Are Free

By George Cook

12^th Grade 

Many people agree that the freer a nation’s economy the better.  Various studies have proven that freer economies are very successful in the long run.  In order to establish a free economy we must first understand it.  I will delve into the study several nations with unique economic system.  By comparing these nations I will determine what factors are necessary to sustain a healthy, free economy.

I will examine four nations, one from each of the four categories in the Index of Free Trade provided.  In the “Free” category, I will examine Switzerland.   In the “Mostly Free” category I will examine Latvia.  In the “Mostly Unfree” category I will examine Georgia.  And in the “Repressed” category I will examine Uzbekistan.  I will study each of these nations and determine what steps need to be taken by mostly unfree and repressed countries like Georgia and Uzbekistan to achieve a healthier economic status like Latvia and Switzerland.

Switzerland is located in central Europe, in the heart of the Alps.  Because of [its]… location among some of the world’s wealthiest nations, Switzerland has become very successful.  Switzerland’s policy of neutrality ensures good relations with all of her prosperous neighbors, allowing for smooth trade.  Switzerland lacks many natural resources; however [it] manages to maintain a strong economy through a skilled workforce and a stable modern market system.  [It is a] major exporter of chemicals, metals, watches, and industrial and agricultural machinery.  The USA is the second largest importer of Swiss products, purchasing over 10% of her exports.  Though Switzerland is not a member of the European Union (EU) she does maintain a good relationship and healthy trade with the member nations.  Because Switzerland has not joined the EU, the Euro is not in use.  The Euro is currently at a very strong value; however Switzerland does manage to preserve a strong currency.  The Swiss Franc is competitive with the US Dollar and manages to stay reasonably close to the Euro. 

Latvia does not share the central location of Switzerland.  Latvia does however lie on the Baltic Sea, allowing for trade by water.  Latvia has a long history of suppression from foreign powers.  Since 1994, when the last Russian soldiers left, Latvia’s economy has been booming.  The Latvians are constantly raising their GDP, while reducing inflation and unemployment.  The country has made many changes in their ten short years of freedom.  They have industrialized and modernized.  Latvia is slowly becoming an economic power.  In the past, Latvia has had some trouble keeping their currency, the Lat, competitive with their Western and Central European counterparts.  That problem will be invalid in only a matter of months as Latvia joined the EU in May of 2004 and is beginning the transition to the Euro.  The Latvian acceptance into the EU will allow free trade with the other 24 member nations.  This helps to ensure that the nation will continue to grow and prosper.  It also helps to ensure the tiny nation’s economic, political, and physical safety. 

Georgia has not been as successful as Latvia since the fall of the USSR.  Like Latvia the nation has a history of suppression from larger countries.  The Soviet Union relinquished control of the microstate in 1991 when the USSR fell.  The nation has made numerous attempts to modernize and industrialize but has had much difficulty.  The nation’s fragile democracy was put to the test in November of 2003 with an attempt by the government to manipulate legislative elections. This triggered widespread protests and caused the president of eight years to resign.  The country remained strong through the event, and recently elected their next president, showing the nations desire to change.  The country lacks the prosperous neighbors that both Latvia and Switzerland have, but still remains a major exporter of copper, manganese, citrus fruits, tea, hazelnuts, and grapes.  Georgia has received much help from the World Bank, and hopes to continue economic growth.  One major problem that Georgia faces in the inability of the government to enforce tax collection.  The nation has been struggling with unemployment, but recent deals with Russia and Turkey involving the construction of an oil pipeline promise to help provide some relief to the nation.  The Georgian currency, the Lari, has not remained very competitive and this could be part of the problem with the economy.  Georgia is making strides to join the World Trade Organization (WTO).  This membership could provide much needed relief to the economy. 

Like Georgia, Uzbekistan also has struggled since the fall of the USSR. Uzbekistan’s government has been unstable, making their economic transition difficult.  They have slowly begun the transition by reducing trade on the black market; however trade restrictions have had a negative impact of the nation’s economic growth.  Like Georgia, Uzbekistan has had difficulty keeping their currency, the Sum, strong.  Uzbekistan is a supplier of cotton and gold, which could prove lucrative if properly traded.  They have had little success in modernizing their industries, and unemployment is at a very high rate.  Uzbekistan’s location is not helpful to their desire to grow, and recent violence in the nation reduces the World Bank’s willingness to help. 

From researching these nations I have discovered that politically stability is necessary for economic stability.  If the country has a strong central government, it can make the executive decisions necessary for economic success.  If the nation has a weak central government it has difficulty performing necessary tasks like tax collection.  In order for a nation to achieve prosperity we must first ensure that a strong government is established, we can then begin to modernize the market system.  Taxes can be controlled and set to a reasonable level, and trade can flourish.  In order for mostly unfree nations and repressed nations to improve their economy they must establish a well-organized government.  The government must then be willing to accept help from such organizations as the World Bank, who are devoted to helping struggling economies.  The nation must focus on raising its GDP while maintaining low inflation and low unemployment.  This can be done by opening its borders to trade and keeping taxes at a moderate rate to encourage investment.   

Answers To Questions Triggered by the Required Reading

Question 1: Be the Devil’s Advocate and counter Benjamin Franklin’s statement that “No nation was ever ruined by trade.”

Ben Franklins quote seems to forget about our poor population.  Many of our workers need protection.  If we were to allow free trade jobs would be lost at home, and many local industries would be shut down. 

Question 2: Name five countries whose ranking surprised you.

Germany, Pakistan, Uzbekistan, Poland, United Kingdom.

Question 3: Write one sentence each to explain why you chose the countries you did in Q2.

I was surprised Germany was the highest in the “mostly free” category, in my experience; Germany has very high taxes and is almost a welfare state.

  - I was surprised about Pakistan being so low on the “mostly unfree” list because of the strides made by the authors of the required reading articles.

  - I was surprised about Uzbekistan being in the top ten most improved because of the political turmoil the nation is going through.

  - I was surprised about Poland being so low on the “mostly free” list because of the information I received on a recent visit to the Polish embassy.  However, it does make sense that they are on the top ten most improved list.

  - I was surprised about the United Kingdom because my teacher frequently undermines the British economic system for being too socialist.

Question 4: The USA was not ranked first in any of the years exhibited online in the Annual Report nor in the 2005 Index.  List the twelve countries that ranked higher on the index and the countries that outranked the USA in the eight Annual Reports. 

Hong Kong, Singapore, Luxembourg, Estonia, Ireland, New Zealand, United Kingdom, Denmark, Iceland, Australia, Chile, and Switzerland.

Question 5: The Index uses 50 variables in 10 categories.  The Report shows 21 variables in 5 categories and lists 24 sub-variables in its online charts.  Take the 10 categories of the Index and place all 45 variables found in the Annual Report charts under one of the Index categories.

5. I had prepared a table for number 5, but after searching the website for over an hour I was unable to find the 45 factors to be sorted into these 10 components. 

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