Lands of Liberty 2001
by Roger Donway[This is Navigator's fourth annual survey of world freedom.1998, 1999, 2000]
Tables from Lands of Liberty
Political Rights and Civil Liberties (PDF 13 KB)
Political-Civil Liberties and the Smallness of Government(PDF 14 KB)
Political-Civil Liberties and Economic Liberty(PDF 16 KB)
Objectivists typically measure America's freedom by looking backward or forward—backward to the early republic or forward to their ideal republic. But another useful standard can be obtained by looking outward—to the world's other republics, and to its non-republics as well. Fortunately, three publications make that easy to do.
For several decades, Freedom House has conducted an annual survey of global liberty. (This article uses the organization's report Freedom in the World, 1999-2000.) 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 Fraser Institute of Canada, 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, with the assistance of Dexter Samida. Likewise, the Heritage Foundation and the Wall Street Journal co-publish an annual Index of Economic Freedom, written this year by Gerald P. O'Driscoll Jr., Kim R. Holmes, and Melanie Kirkpatrick. Integrating the results of these surveys with Freedom House's thus 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-minute evaluations of freedom. For example, Freedom in the World records that, for the first time in seventy years, Mexico's dominant party chose its presidential candidate via a primary election rather than presidential appointment. But the work was published too soon to report that the candidate selected then faced genuine opposition in the general election and indeed lost that election.
Political Rights
To call a system democratic is to say only that its citizens determine the actions of its government, directly or through representatives. It says nothing about the scope of that government. Still, democratic mechanisms are an important part of a free society. As David Kelley points out in this issue (See p. 2), the fundamental principle of liberty is that a person ought to be in charge of his life, in every aspect. 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 within a yard fenced off by our parents.
For evaluating a country's level of democracy ("political rights"), Freedom House uses an eight-point checklist, including such unexceptionable criteria as free and fair elections for the chief executive and for legislators; real power for representatives; a significant opposition; the right to organize new parties; and so forth. Once Freedom House has evaluated a state according to its eight points, it places the country in one of seven categories, from "most free" (1) to "least free" (7). But this essay has put those ratings on a 0-to-10 scale, so that zero is least free and 10 is most free. States that are in the second tier of freedom are thus rated 8.33, and those in the third tier 6.67, and so on. (The advantages of this approach become clear when Freedom House's ratings are integrated with the ratings for economic freedom.)
Now, I said above that Freedom House's criteria for democratic rights include many unexceptionable factors. But that is not the whole story. Point Eight 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 that 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 minorities self-determination within the country would be collectivism. It would imply that the members of a minority deserve representation not for their ideas but for their genes.
To this, Freedom House might respond: "How many states today oppose autonomy and self-determination 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 rights of citizens belonging to a minority? In such circumstances, where civil liberties are weak, a wise political science might well declare that autonomy and self-determination are desirable democratic mechanisms."
That is a reasonable distinction, but it is not obviously one Freedom House makes. Modern Canada, for example, is not a country given to ethnic oppression. Yet Freedom House says: "Canada has . . . taken important steps to protect the rights of native groups. In April 1999, Canada created a new territory, Nunavut, consisting of regions of the country's vast north. The new territory is largely populated by Inuits, an indigenous group." That is a use of Point Eight 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.
The Democratic States
This year, Freedom House surveyed 192 independent countries, up by 1 owing to the independence of East Timor. Of these, 61 (32 percent) received a most-free 10 for political rights. That is impressive, and it marks an increase of 2 over the previous survey. Moreover, the increase is not just a net increase but a straightforward increase, for no country that had a 10 last year dropped below that height this year. This result stands in contrast to the disappointing news from the 1998-1999 survey, which showed no new countries added to the top rank of democratic states.
Of the West European countries all but one garnered a 10 for democracy, the odd man out being Prince Rainier's Monaco, which is in the second tier. In East-Central Europe, the big news this year was Slovakia's winning a top-rated 10 for political rights, 1 of the 2 countries in the world that moved up to that status. (See sidebar.) This accession raised the region's politically "most free" states from 7 to 8. The other democratic East-Central states that retain their 10s are the Baltic states (Lithuania, Latvia, and Estonia), the 3 new NATO states (Poland, Hungary, and the Czech Republic), and 1 Balkan state (Slovenia). The continued achievement of the last-named country is all the more remarkable in light of its emergence from the break-up of Yugoslavia, which has dragged down so many other new nations.
Among Oceania's countries, Australia, New Zealand, and eight small island-states retained their "most free rating." So did four Sub-Saharan states (Cape Verde, Mauritius, São Tomé and Príncipe, and South Africa), one Middle Eastern state (Israel), and one East Asian state (Japan). In North America, Canada and the United States were of course dubbed "most free," along with seven Caribbean nations (Bahamas, Barbados, Dominica, Grenada, St. Kitts and Nevis, St. Lucia, Trinidad and Tobago).
Last but far from least, the volatile region of South America managed to hold on to its two "most free" democracies (Bolivia and Uruguay), while Central America retained its two (Belize and Costa Rica) and added one more, Panama, which thus joined Slovakia as one of the two states to enter the elite ranks of the world's top-rated democracies.
What happened in Panama was probably less noticed in the United States than what happened in Slovakia, where there were implications for NATO. Too, it must be admitted that the permanence of the Panamanian achievement is probably more fragile, for the country's people are fighting a long history of Central-American instability rather than (as in Slovakia) an authoritarianism that seemed embodied in one man, Vladimir Meciar, and one cause: ethnic nationalism. Nevertheless, Panama's achievement is worth recognizing.
The first step was taken when Panama's president wished, as many presidents do, to repeal a constitutional provision forbidding him to run for re-election. Frequently, in Latin America, such provisions are overturned, by votes fair or fraudulent. The people of Panama, however, overwhelmingly rejected their president's referendum and he accepted their decision. Next, the country's two leading parties chose candidates by primary elections; a reasonably fair vote was held in the general election; and the candidate opposed by the government won and was installed. Such democratic procedures are not the whole of good government, but they are a start toward accountability.
Civil Liberties
Freedom House uses a fourteen-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, several criteria are controversial. For example, the last of the fourteen points asks: "Is there equality of opportunity, which includes freedom from exploitation by or dependency upon landlords, employers, union leaders, bureaucrats or any other type of denigrating obstacle to a share of legitimate economic gains?" "Dependency on a bureaucrat" might well be a "denigrating obstacle" to one's share of legitimate economic gains, but "dependency on an employer"? For those who are not entrepreneurs, the only means of getting a "share of legitimate economic gains" is by dependency on an employer who has the ability to create a profitable source of work.
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: "legislation mandates that, in the next general election, 33 percent of the candidates be women." That is clearly a violation of Belgians' political rights, specifically, their right to put forward whomever they choose as their representatives. But since the fact is mentioned in a paragraph that begins "Belgium has enacted measures to promote sexual equality," one suspects that Freedom House's writers do not understand the truth of the matter.
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 fewer countries get top marks for civil liberties. Of the 192 countries surveyed, Freedom House rates only 27 (14 percent) "most free" in this field, less than half the number that are "most free" with regard to political rights. But, as with political rights, that figure is an improvement over last year, with one more country joining the world's civil-liberties elite
The failure of countries to provide civil liberty to the same extent as political liberty can be seen even in Western Europe. Of the 23 countries rated politically "most free" in that region, 6 (Belgium, France, Germany, Italy, Spain, and the United Kingdom) drop to the second tier in civil liberties, while Greece drops to the third tier. (But Monaco, though in the second tier politically, rates a 10 on civil liberties, thus bringing West Europe's total to seventeen.) All 8 of the East-Central European countries top-ranked politically fall to the second rank on civil liberties. In Africa, the Middle East, and Asia, no country is rated "most free" for civil liberties: The 4 African nations given 10s for political rights receive 8.33 for civil liberties, and so does Japan. There is good news with regard to Israel, however. For many years, its respect for civil liberties was put in the third tier; this year it has been placed in the second tier. The change was "due to the supreme court's decision to outlaw the use of torture by the General Security Service, the legalization of radio stations run by right-wing and religious groups, and the announcement of plans to cancel the legal basis for holding Lebanese prisoners in administrative detention."
In Oceania, both Australia and New Zealand retain top honors for civil liberties, as do 3 of the small island-states. But of the other 5 island states that fared well politically, 3 drop to 8.33 on civil liberties and 2 (Nauru and Vanuatu) drop to 6.67. Micronesia, which lost its top ranking two years ago because of a press crackdown, seems to be on the road to recovery, but it is not there yet. Of the 14 states in the Americas that were rated "most free" politically, 6 are now also top-rated for liberty: The Bahamas, Barbados, Belize, Canada, Dominica, and the United States. The addition of St. Vincent and the Grenadines (which is in the second-tier politically) gives the hemisphere 7 states ranked "most free" for civil liberties.
The Bahamas is the only one of the world's country to move into the top rank of this department in 1999-2000, and Freedom House says the improvement is "due to government attempts to engage community organizations in an effort to achieve greater improvements in the area of public safety." What this means, apparently, is that the government of Hubert Ingraham, unlike its predecessor, has invited groups from civil society both to fight crime and to curb police brutality.
Economic Liberty: The Two Surveys
Navigator is once again employing two attempts to rate economic freedom in the world: the Fraser Institute effort (which evaluates 125 countries) and the Heritage-Wall Street Journal effort (which evaluates 161 countries). The former project uses 23 components and groups them into 7 categories. Those categories are: (1) size of government; (2) structure of the economy and use of markets; (3) monetary policy and price stability; (4) freedom to use alternative currencies; (5) legal structure and security of private ownership; (6) freedom to trade with foreigners; and (7) freedom of exchange in capital markets. The end products are a 0-to-10 rating for each component, for each of the 7 larger groups, and for the country overall. The Heritage-Wall Street Journal work looks at 10 components of economic freedom: (1) trade policy (protectionism); (2) the fiscal burden of government (including taxation and a government's expenditures, for its own purposes and as transfer payments); (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; (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.
Navigator has attempted to correlate these two surveys of economic freedom by putting them, like the adjusted Freedom House survey, on a 0-to-10 basis. The Fraser figures are already on a 0-to10 basis and thus require no change. The 1-to-5 system of the Heritage-Wall Street Journal's ratings has been transformed into a parallel 0-to-10 rating system by means of a simple formula.
How do the two sets of evaluations compare with regard to the ordinal ranking countries? If one compares the top 5 countries of Fraser and Heritage-WSJ (excluding Hong Kong as a dependency), they agree on 4: Heritage prefers Luxembourg to the United Kingdom; Fraser vice versa. Looking at the top 10, one uncovers an on-going war between the two surveys. Heritage-WSJ rates Bahrain 9th in the world for economic liberty. (Last year, it put Bahrain 3rd.) The Fraser survey puts Bahrain 31st.
In part, there seems to be a factual dispute over conditions in Bahrain. Heritage says: "Government consumes 20 percent of GDP." Fraser states "Government consumption (% of total): 32.7." Has the Fraser Institute overstated government consumption by 60 percent, or is the error in Heritage-WSJ? Fraser also gives Bahrain low marks for price controls (4.0). Heritage says there is a "low level of intervention" on wages and prices, and then quotes the U.S. Department of State: "With the exception of a few basic foodstuffs and petroleum products, the government does not attempt to control prices on the local market." Fraser also gives Bahrain low marks (4.0) for the percentage of the economy taken up by government enterprises. Heritage gives Bahrain a mid-level grade, saying: "The government also owns significant portions of some industries, including oil, which contributes most of the country's GDP." What raises Bahrain's score, clearly, is the high Heritage-WSJ rating for "the fiscal burden of government," which is largely a matter of taxation. Bahrain's score of 2 (7.5 on a 0-to10 scale) is better than Heritage-WSJ gives to any country above Bahrain in the rankings, and on a par with Hong Kong.
In the end, then, the picture that emerges is of a government on the model of the early English monarchy. It allowed no democracy and few civil liberties. But the king got his money from crown lands and did not need to squeeze revenue out of the people. In Bahrain, where political and civil liberty is also lacking, oil appears to substitutes for crown lands. In such a situation, the usual measures of economic oppression, such as taxation, may fail to capture the situation adequately and may even work in reverse. After all, it was the English king's growing need to call on the people for revenue that became a major factor in freeing the English people from his yoke.
When one looks at the top 20 countries, consensus between the two surveys begins to fall apart. While the two surveys disagreed about only the anomalous Bahrain among their top 10 countries, they disagree about 4 countries in the top 20. Heritage likes Bahrain, Austria, Estonia, and the United Arab Emirates (all tied for 14th). Fraser prefers Argentina (12th); Panama (14th); Finland and Spain (in a tie for 18th). The case of the UAE simply repeats the case of Bahrain, and Austria is a minor disagreement: It is 25th on the Heritage survey.
Estonia is something else again. It is rated 14th by Heritage-WSJ and 57th by Fraser. What is going on? Apparently, the surveys' differences are partly factual, partly methodological, and partly a matter of factors considered. Heritage-WSJ asserts that Estonia received only 1.9 percent of its total revenue from state-owned enterprises. The Fraser survey gives Estonia a mark for government enterprises (4.0) that it hands out "when a substantial number of [state-owned enterprises] operated in many sectors, including manufacturing, and government investment was generally between 30 and 40 percent of the total." On the issue of inflation, the difference seems to arise from the way in which the two surveys treat a disastrous 1995, when the growth of the money supply was over 300 percent. Heritage-WSJ takes a weighted five-year average, with more recent years counting for more. Fraser takes a straight five-year average (adjusted for growth in real GDP). Under the circumstances, 1995 counts for more with Fraser than with Heritage-WSJ. Lastly, Heritage does not seems to treat conscription as a violation of economic liberty; Fraser does, considering it under "use of markets." Thus, Estonia gets a low mark, 3.0, for a period of conscription between six and twelve months.
Other countries that create interesting discrepancies between the two surveys are: Costa Rica (which Fraser ranks 22nd and Heritage-WSJ ranks 58th)),Taiwan (which Heritage-WSJ ranks 11th and Fraser ranks 51st); ), and The Bahamas (which Heritage-WSJ ranks 23rd and Fraser ranks 60th). There are also curious discrepancies at the bottom of the charts, of which Haiti may serve as an example. The Fraser Institute puts Haiti at a level of economic freedom approximately equal to Barbados; Heritage puts it just above Vietnam. If these discrepancies are still present next year, Navigator will make an effort to explore them.
Rating Economic Liberty
What do we find if we look at the numerical rankings of the two surveys, and apply to economic freedom the same high-level criteria used in the Freedom House survey. That is, what countries get better than a second-tier 8.3 in economic liberty?
According to the Fraser ratings, there are 12 countries that pass the test (excluding Hong Kong as a dependency): Argentina, Australia, Canada, Denmark, Ireland, Luxembourg, Netherlands, New Zealand, Singapore, Switzerland, the United Kingdom, and the United States. Half, we see, are large, British-culture countries (Australia, Canada, Ireland, New Zealand, the United Kingdom, and the United States); 4 are from Continental Europe; 1 is Latin American; and 1 is an Asian city-state dependent on trade. According to the Heritage-WSJ ratings, however, only 2 states have scores above 8.3: Singapore and Ireland.
In light of that difference, it seems necessary to try to bring the two surveys into closer alignment, if we are to profit from having two surveys. To achieve alignment, Navigator took the top 50 countries in the Heritage-WSJ ratings, put their scores on a 0-to-10 scale, and then subtracted them from the countries' Fraser rating. The average difference, to one decimal place, was 0.8, and that is the amount that Navigator shall henceforward add to Heritage-WSJ rankings when comparing the surveys' ratings of countries at the top of the heap. The result, however, is so far from the actual score awarded by the Heritage-WSJ survey that this article will refer to the highly adjusted figure as the Heritage-based score.
Fortunately, Navigator is concerned only with countries at the top of the ratings, for it is not clear whether any similar adjustment should be made to the lower end of the Heritage-WSJ ratings, and, if so, what it might be. For one thing, comparisons between the Heritage-WSJ rating and the Fraser ratings are simply impossible in many cases: of the Heritage-WSJ's bottom 15, the Fraser survey does not rate 10: Belarus, Bosnia, Cuba, Iraq, Laos, Libya, North Korea, Turkmenistan, Uzbekistan, and Vietnam. In addition, at the bottom of the scale, one is generally dealing with economies that are not only unfree but also little understood, and a lot of guesswork is needed to make an evaluation. Thus, one cannot decide—as one can when dealing with the open economies at the top of the scale—whether the Heritage-WSJ team is evaluating data differently from the Fraser people or starting with completely different guesses.
At any rate, when we now look at the highly adjusted, Heritage-based ratings, we see a much more comparable list and a much more useful one for making comparisons. The countries rated above 8.3 are: Australia, Bahrain, El Salvador, Ireland, Luxembourg, Netherlands, New Zealand, Singapore, Switzerland, the United Kingdom, and the United States. Thus, there are 11 countries instead of 2, and 9 on the Fraser list are also on this list. In addition to Bahrain, already discussed, El Salvador makes the cut with Heritage-based ratings, but not with Fraser. The difference, though, is a minor one: El Salvador's score in the Heritage-based ratings is just over 8.3 (8.43), and is right on the line in the Fraser ratings (8.3). The much more instructive difference is the absence, from the Heritage-based list, of Canada and Denmark. Canada gets 8.5 from Fraser, but only 8.175 from the Heritage-based ratings; Denmark gets 8.4 and 8.175 respectively. This is symptomatic of a real difference in evaluation between the two surveys: When it comes to developed countries with substantial welfare states, Fraser is much more lenient.
The Free World
What happens if we integrate our three lists to produce a picture of the Free World? Let us insist that to be a member of the Free World a country's three scores must yield an overall A average (9.00 or better), and that the country cannot have a score below B in any of the three fields (8.33 in political and civil liberty; 8.0 in economics).
We saw above that 61 countries get the top rating of 10 for political rights; an additional 25 get the second tier rating of 8.33. So, on the basis of democracy alone, 86 countries are in the running for Free-World status.
However, we must eliminate any of these countries country that gets a grade lower than 8.33 on civil liberties, and of these there are 19: Four that receive a 10 for democracy and a 6.67 for civil liberties; 13 that receive an 8.67 for democracy but a 6.67 for civil liberties; and two anomalous states (Madagascar and Moldova) that manage to combine a fair degree of democracy (8.33 ) with a fair degree of repression (5.00).
Because we require an overall average of 9.0, we must also eliminate the 8 states that receive 8.33's in both democracy and civil liberties. They would have a combined score of 16.66 coming out of the Freedom House survey. So even a perfect 10 in economic liberty would not bring them up to the overall score of 27 needed to obtain a 9.0 average. As we turn to the economic surveys, then, the pool of candidates is down to 59.
Sixteen countries (such as the micro-states of Europe and the tiny island-nations of Oceania) do not receive evaluations from either of the two economic surveys. This brings the final competition down to 43 countries. Fraser holds that 29 countries have an 8.0 or better in economic liberty, but, of these, 6 have already been eliminated by the Freedom House survey: Argentina, Bolivia, Chile, El Salvador, Singapore, and Thailand. Heritage-based ratings say 21 states have an 8.0 or better, but six have been eliminated the Freedom House survey: Bahrain, Chile, El Salvador, Singapore, Taiwan, and the UAE. Thus, the Fraser ratings have 23 candidates for the Free World and the Heritage-based ratings offer 15. As only Estonia among the Heritage-based candidates is excluded from Fraser's list, Navigator's final economic evaluation is derived by taking a simple average of the two surveys' scores for the Fraser 23 plus Estonia.
The result is that 15 of the 24 countries are found to have a B average. The hard-luck kid is Iceland with a score of 7.96. Heritage faulted Iceland, reasonably enough, for having a flat income tax rate of 38 percent. The remaining countries, with their scores, are Sweden (7.83), Portugal (7.78), Spain (7.75), Norway (7.64), Panama (7.61), France (7.53), Estonia (7.49), and Costa Rica (7.39).
Of the 15 candidates for inclusion in the Free World, how many have an overall 9.0 average? All but three: Belgium, Germany, and Japan. Each of these countries came into the competition with the onus of a second-tier grade (8.33) in civil liberties, and their performance in economic liberty was not sufficient to overcome that handicap. No wonder: Countries that lack a perfect score in either democracy or civil liberties (that is, countries having only second-tier status in one or the other) must have an economic rating of at least 8.67 to retain a 9 point average. This year, only one country achieved that task: the United Kingdom with an overall average of 9.17. All other members of the Free World had the luxury of receiving top-flight 10s in both democracy and civil liberty.
In sum, then, the Free World consists of an even dozen countries: Australia, Austria, Canada, Denmark, Finland, Ireland, Luxembourg, the Netherlands, New Zealand, Switzerland, the United Kingdom, and the United States. What is their secret? In every single case, these countries got the top mark from Heritage-WSJ for the security of property rights. In every single case, they got the top mark for monetary policy. In every case but one (Denmark), they got the top mark for lack of a black market. In every single case, they were in the second-tier for lack of protectionism.
In the Fraser ratings, one sees much the same pattern. When it comes to the "security of property rights and viability of contracts," 8 of the countries get perfect 10s; Canada and Switzerland both get 9.4. When it comes to monetary policy and price stability, the scores range from 9.1 to 9.8. And when one looks to the freedom to use alternative currencies, worth almost 15 percent of a country's total score, all of the countries score perfect 10s.
Better and Worse
That is why all 12 countries are part of the Free World. How, and by how much, do they differ among themselves.
The bottom three of the Free-World states are, in reverse order: the United Kingdom (9.17); Finland (9.35); and Austria (9.36). The case of the U.K. has been discussed; it was brought down by its second-tier standing in civil liberties. Where it would stand if it had been top-ranked in civil liberties will be discussed below. Finland's chief sins are that its government expenditures equal 49 percent of GDP, and its banking system is moderately regulated. Government expenditures in Austria are about the same as Finland's (50 percent of GDP), but Heritage-WSJ says that banking and finance are at a low level of regulation.
The next triad of countries is: Denmark (9.43), Canada (9.45), and Switzerland (9.51). In Denmark, government expenditures are even higher than in Finland and Austria (55 percent of GDP), but wages and prices face a very low level of intervention and its regulatory regime is simple, efficient, and fair. Canada's position in the middle of the Free-World pack will surprise Canadian Objectivists. But the answer can be found in the Fraser Institute's analysis: Government consumption as a percentage of total consumption is lower in Canada than in Denmark (26.5 percent versus 33.6 percent) and transfers and subsidies are lower as a percentage of GDP (17.7 percent versus 26.5 percent). Switzerland, though it is set back by its high burden of government expenditures (51 percent of GDP), is blessed with low taxes and free banking.
The three next-freest states are, in reverse order: Australia (9.525); the Netherlands (9.529); and Luxembourg (9.57). Australia beats Switzerland hollow when it comes to government expenditures. (Australia's are only 33 percent of GDP), and it also beats the Netherlands on the same ground. (The latter's government expenditures are 50 percent of GDP.) But whereas Switzerland and Australia were both rated only second-tier in the field of restrictions on foreign investment, the Netherlands wins a slight edge over Australia by having "few restrictions" in that department. Luxembourg's superiority is demonstrated both in the burden of government (expenditures equal 33 percent of GDP), and in the regulatory environment: Heritage-WSJ says "red tape can be a problem in the Netherlands," but in Luxembourg "regulations are fair and transparent, and are applied evenly in most cases."
Interestingly, if the United Kingdom had received double 10s from Freedom House, it would replace Luxembourg as the fourth freest country on earth. The explanation certainly is not the size of government: in the U.K., government expenditures are 41 percent of GDP. Nevertheless, Britain comes storming back on three fronts. The percentage of GDP devoted to transfers and subsidies is lower: 17 percent versus 26 percent. The extent of wage and price controls is less. And the percentage of total credit devoted to the private sector is greater: 98.5 percent versus 67.0 percent.
The Medal Winners
Lastly, then, we come to the bronze, silver, and gold medals. And the remaining three countries are Ireland, New Zealand, and the United States. If one went by the Heritage-based rating alone, Ireland would come out on top, New Zealand second, and the United States third. If one went by the Fraser ratings alone, New Zealand would come out first, the United States second, and Ireland third. And if one went by government expenditures as a percentage of GDP, the United States would come out first, Ireland second, and New Zealand third. But of course we must put everything together.
Once again, as last year, Ireland takes home the bronze, with a score of 9.65. As against Luxembourg, Ireland wins on the basis of government expenditures (31 percent versus 33 percent), but as against its two main competitors what hurts Ireland most is its top income tax rate (46 percent) and its average taxpayer's marginal rate (also 46 percent.) In any event, for the fourth year running, the contest for the silver and gold medals comes down to the United States and New Zealand.
Heritage-WSJ awards New Zealand a 1.70 on its 1-to-5 scale. That translates into a Heritage-based rating of 9.05. The United States gets 1.80 from Heritage-WSJ, which translates into a Heritage-based score of 8.8. The Heritage-WSJ ratings recognize that the fiscal burden of government is heavier in New Zealand than in the United States: government expenditures are 39.6 percent of GDP in New Zealand versus 30.5 percent in the United States. But Heritage-WSJ faults America for restrictions on foreign investment in some industries, finding that New Zealand's yoke is lighter in that field.
For the Fraser ratings, the competition between New Zealand and the Unites States basically comes down to three factors. First, as in the competition between Ireland and Luxembourg, is the matter of transfers and subsidies as a percentage of gross domestic product. According to Fraser, the figures are 13.8 percent for the United States and 12.4 percent for New Zealand. More significant, though, is the extent of government enterprises and government investment. Fraser gives New Zealand a 10.0 for this component, representing "few SOEs and government investment was generally less than 15 percent of total investment." The United States gets an 8.0, representing "few SOEs other than those involved in industries where economies of scale reduce the effectiveness of competition (e.g., power generation) and government investment was between 15 and 20 percent of the total." The third factor is price controls. New Zealand's score means "no price controls or marketing boards were present." America's score means "price controls were limited to industries where economies of scale may reduce the effectiveness of competition." As a result of these and a few other differences, the Fraser ratings gave New Zealand a 9.1 and the United States a 9.0. Averaging the Heritage-based rating and the Fraser rating gives New Zealand a economic-liberty score for of 9.09 and the United States a score of 8.97.
Since each country receives 10s in the fields of political rights and civil liberties, the overall scores are 9.70 for New Zealand and 9.66 for the United States. Thus, for the fourth year running, the United States takes the silver, while New Zealand—this time by 4 one-hundredths of a point—takes the gold medal as the freest country on earth.
Sadly, Heritage-WSJ reports that actions taken by the Irish government and the New Zealand government after June 30, 2000, may go far to alter the standings of those two countries next year.
Also check out the Navigator Letters Column on Lands of Liberty. Read the dissenting opinions of many New Zealanders.