ECONOMIC FREEDOM OF THE WORLD: 2004 ANNUAL REPORT

The Washington Times - James Gwartney and Robert Lawson, The Fraser Institute,

Arriving in 1939 as a brand-new, wide-eyed mail clerk at the head office of IBM on Madison Avenue in Manhattan, I recall how struck I was by its bold 15-foot-high sign painted on the exterior wall. The sign read "World Peace Through World Trade" — an idea, I learned later, of IBM's ace thinker, founder and entrepreneur, Thomas J. Watson.

That Watson-IBM thought, to which I'll return, bears on this work that rates, indexes and ranks the degree of economic freedom for 123 countries. Like its competitor, the annual economic freedom index published jointly by the Heritage Foundation and the Wall Street Journal, this report — authored by economists James Gwartney of Florida State University and Robert Lawson of Capital University in Columbus, Ohio — finds a close connection between economic freedom and national prosperity, including per-capita income.

Messrs. Gwartney and Lawson acknowledge the ongoing help of economists Milton Friedman of the Hoover Institution and Michael Walker of the Fraser Institute in Vancouver, British Columbia.

They also acknowledge the support and participation of some 60 other free-market think tanks, including the Cato Institute, Centro Einaudi in Italy, the F.A. Hayek Foundation in the Slovak Republic, the Free Market Foundation of Southern Africa, the Hong Kong Centre for Economic Research, Britain's Institute of Economic Affairs, South Korea's Center for Free Enterprise and Timbro in Sweden.

The authors classify the various statistical components of their index under five areas: size of government expenditures, taxes and enterprises; legal structure and security of property rights; access to sound money; freedom to trade internationally; and regulation of credit, labor and business.

Messrs. Gwartney and Lawson find that Hong Kong retains the highest rating for economic freedom, or 8.7 out of a possible 10, whereas Singapore comes in second with 8.6, and bunched for third at 8.2 are the United States, Britain, New Zealand and Switzerland.

Australia, Canada, Ireland and Luxembourg, in that order, round out the top 10. The bottom five countries, in descendingorder,are Venezuela,theCentral African Republic, Congo, Zimbabwe, and, in last place, Myanmar (formerly Burma), with a score of 2.5.

In other of their findings, the authors note that booming China's rating has climbed from 3.8 in 1980 to 5.7 in 2001; prosperous Ireland's rating has advanced from 6.2 in 1985 to 7.8 in 2002; and ex-Soviet, newly admitted EU member Poland rose from 3.3 in 1990 to 6.6 in 2002.

Two notable nations moving down of late include Zimbabwe (formerly successful Rhodesia), whose rating fell from 6.0 in 1995 to 3.4 in 2002, and Argentina, whose rating fell from 6.7 in 1995 to 5.8 in 2002.

As Mr. Gwartney and Mr. Lawson remark, economically free nations grow faster; nations with more economic freedom both attract more investment and achieve greater productivity, and central to successful national growth is "a legal structure that provides for secure property rights, even-handed enforcement of contracts, and the rule of law."

Well, for our terror-haunted world, these constructive forces have apparently been at work over the last two decades. Good work: Only 15 of 104 countries had double-digit inflation rates in 2002, compared to 76 in 1980. In 2002, not a single country imposed a 60 percent marginal tax rate on personal income, while in 1980, 49 did so.

Tariff rates dove: In 2002, the average tariff rate was 10.4 percent, compared to 26.1 percent in 1980. Upshot: World trade expands, relatively and absolutely. From 1980 to 2002, on average, exports plus imports as a share of GDP went up by 25.2 percent.

So Thomas J. Watson's idea of "World Peace Through World Trade" seems to be d