Calvert Hall College High School

Baltimore, Maryland

Teacher: George Kropp

 

Economic Freedom from Country to Country

By Malcolm White

11th grade

 

Each year, the Wall Street Journal and the Heritage Foundation release a particular report known as the Index of Economic Freedom.  This Index rates countries on a variety of variables to try and determine in their opinion which countries are economically freer than others.  The Index is conveniently categorized into four sections.  There are those countries that are considered free, countries that are considered mostly free, countries that are classified as mostly unfree, and finally there are those listed as repressed.  The most recent edition of the Index, displaying ratings for 2005, lists Hong Kong in its top spot, the most economically free country according to their standards.  On the opposite end of the spectrum, in the lowest spot ranks the country of North Korea.  This country has virtually no economic freedoms.

 

Hong Kong, listed under the economically free column, is in fact the most economically free of them all.  According to Wikipedia, there are several factors that contribute this nation's high ranking on the scale of economic freedoms. While not totally accurate, many have stated that Hong Kong's prosperity can be attributed to its laissez-faire form of government.  This form of government of course holds beliefs that the less a government is involved in its nations business, the easier it is for its economy to grow.  Another factor contributing to Hong Kong's economic freedom is its booming foreign trade industry.  With a population of 6.52 million and 3.52 million of those people employed, Hong Kong has quite a large labor force contributing to its economic standings as well. Additionally, with a Gross Domestic Product of $226.8 billion and a GDP growth of 8.1% in 2004, its easy to see why the nation is in such good economic shape.  With all of these factors going for it, there's no wonder that Hong Kong was ranked so very high.

 

Spain, listed as the 31st most economically free nation, is categorized under the "mostly free" column of The Index.  While performing pretty well in the economic sector, it is apparent that there are still a few issues holding it back.  According to Wikipedia, the factors hindering Spain's economy can be seen in the fascist arrangement left behind by Franco's administration.  Such factors include tedious procedures for both the hiring and firing of employees, the lack of a right to strike, and the government’s pervasive intervention in business practices.  Being forced to modernize its economy however, Spain has in more recent times improved its GDP growth and reduced its unemployment and inflation percentages among other things.  The country continues to improve its economic standings to this day, and is therefore understandably categorized in the “mostly free” column of The Index.

 

Colombia, its economic freedoms being predominately few, has been placed in the “mostly unfree” sector of The Index.  Having suffered from a highly regulated economy for quite some time, the country of Columbia began the process of freeing up its markets not too long ago in 1990.  The government’s former control over business is evidenced in the fact that Columbia is even now still in the process of translating over from the regulated economy that was once so prevalent.  Ever since President Trujillo's administration began loosening the government's grip on the economy, tariffs have gone down, a more liberal exchange rate has been instituted, and foreign investment is open to just about all sectors among other things.  Although Colombia continues to have its ups and downs economically, it's headed in the right direction.  Just two years ago, the country's GDP growth was among the highest in Latin America.

 

The people of Cuba, being listed under the "repressed" column of the Index's graph, have virtually no economic freedoms.  The driving force behind Cuba's current economic condition would have to be its communist government.  According to Wikipedia's page on the Cuban economy, the country's government owns and operates the majority of the means of production, employs seventy-five percent of the labor force, and controls just about all of the foreign trade.  Not too long back, the government attempted to deal with economic problems through implementing such measures as allowing tourism, legalizing the U. S. dollar, and other such reforms.  In recent years, Cuba has had its fair share of ups and downs economically.  Having been listed in the "repressed" column, it is apparent that the country is still not looking all that great.  Despite these ever present difficulties, Cuba is trying to do what it can to improve its economic situation both within its borders and in trade with various foreign countries.

 

 Answers To Questions Prompted By The Required Reading

 

Q1- Be the Devil's Advocate and counter Benjamin Franklin's statement that "No nation was ever ruined by trade."

 

A1- As beneficial as trade may be, it certainly has its problems as well.  Many nations have had major disputes over the prospect of trade with foreign countries.  Such an example exists in the early years of our own country, with the tariffs put on goods imported from England.  The New Englanders wanted to protect their industries, while the Southerners wanted to get the best goods at the best prices.  This produced much conflict in the nation.

 

Q2- Name five countries whose ranking surprised you.

 

A2- Five countries of surprising rank were Hong Kong, China, Luxembourg, the USA, and Japan.

 

Q3- Write one sentence each to explain why you chose the countries you did in Q2.

 

A3- First of all Hong Kong is not a country, and its being separated by itself is what surprised me.  China's rank was surprising because of its far difference between Hong Kong and the rest of the country.  Luxembourg being ranked number three is surprising considering it's such a small, rarely mentioned country.  I was surprised that the USA was not ranked higher than its current position.  Japan is supposed to be a leader in electronics, and so I expected it to fair higher as well (since economic freedom is supposed to have some correlation to economic success).

Q4- 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 out ranked the USA in the eight Annual Reports.

 

A4- The twelve countries ranking higher than the USA on the Index are Hong Kong, Singapore, Luxembourg, Estonia, Ireland, New Zealand, United Kingdom, Denmark, Iceland, Australia, Chile, and Switzerland. 

The countries ranking higher on the Annual Report are Hong Kong, Singapore, New Zealand, Switzerland, and the United Kingdom.
 

Q5- 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. The Trade Policy category is already done as an example. Many variables might well go under more than one category. Do the best you can using each variable only once until all are categorized. We will be able to tell if thought is put into this exercise.

A5-

Trade Policy

4A, 4Ai, 4Aii, 4Aiii, 4B, 4Bi, 4Bii, 4C

Fiscal burden of government

1A, 1C, 5Ciii

Government intervention in the economy

1B, 5Biv, 5C, 5Ci

Monetary policy

5Cv

Capital flows and foreign investment

3D, 4E, 4Ei, 4Eii

Banking and finance

5A, 5Ai, 5Aii, 5Aiii, 5Aiv, 5Av, 5Cii, 5Civ

Wages and prices

3A, 3B, 3C, 5B, 5Bi, 5Bii, 5Biii,

Property rights

2C

Regulation

1D, 1Di, 1Dii, 2A, 2B, 2D, 2E, 5Bv

Informal Market Activity (Black Market)

4D

BBACK