Lands of Liberty 1999

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, two organizations now make that easy to do.

For several decades, Freedom House has conducted an annual survey of the world's freedom. (This article uses the organization's report Freedom in the World: 1997-1998.) However, as Freedom House itself recognizes, its survey is limited to just two aspects of freedom: political rights (democracy) and civil liberties. The obvious missing element is economic freedom.

The Fraser Institute of Canada, in conjunction several dozens pro-capitalist institutes from around the world, has remedied this deficiency by undertaking to publish an annual report called Economic Freedom of the World, written by James Gwartney and Robert Lawson. Integrating the results of this survey 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, neither survey can offer up-to-minute evaluations of freedom. Freedom House's report on Indonesia was written prior to the resignation of President Suharto. To be as current as possible, though, Navigator is using an interim version of the Fraser Institute report, taken from the World Wide Web.

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, when restricted by individual rights, democratic mechanisms are an important part of a free society. The fundamental principle of liberty, after all, is that a person ought to be in charge of his life, in every aspects. 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.

The logic of this link is demonstrated by the chart on page 12. The ratings for political rights and civil liberties differ by two points for only eight of the countries listed, and by three points only in the special case of Hong Kong.

For evaluating a country's level of democracy ("political rights"), Freedom House uses an eight-point checklist: 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.

Freedom House then places countries in one of seven categories, from "most free" to "least free." (In Freedom House's ratings, 1 is "most free," but in this essay the numbers have been reversed to correspond better with the intuitive notion that the highest number represents the greatest quantity.) Of 191 countries surveyed, 59 (30 percent) win a most-free 7 for political rights; 31 (16 percent) are in the democratic doghouse with 1's. Two countries-Bolivia and Latvia-joined the top rank this year.

Elsewhere, the state of democracy remains largely static. In Western Europe, all but one of the twenty-four countries surveyed garnered a 7; odd man out was Prince Rainier's Monaco, with a 6. In East-Central Europe, seven states formerly under communist dictatorship are rated "most free," as Latvia joins last year's six: Czechia, Hungary, Poland, Estonia, Lithuania, and Slovenia. But again only four states in Africa are rated "most free" and only two in Asia: Israel and Japan. Oceania remains a treasure trove of democracy, with ten states still top-ranked: Australia, New Zealand, and eight small island-states. The Americas went up to thirteen "most free" states with the induction of Bolivia.

Civil Liberties

Freedom House uses a thirteen-point checklist for civil liberties, including such items as: free speech and press; freedom of assembly; equality before the law; an impartial judiciary; and a strong civil society that is independent of government.

In light of today's emphasis on democracy, it is no wonder that fewer countries get top marks for civil liberties. Of the 191 countries surveyed, Freedom House rates only 28 (15 percent) "most free" in this field, less than half of the number that are "most free" with regard to political rights.

That figure of 28 represents a loss of one country over last year, as Micronesia was stripped of its top-ranked status. The cause was the deportation of Sherry O'Sullivan, a Canadian expatriate who had been editor of the country's only independent newspaper. She was accused of "disregard for the local culture" in her reporting, the local culture being (apparently) tax evasion and election fraud.

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, six (Belgium, France, Germany, Great Britain, Italy, and Spain) drop to 2's in civil liberties, while Greece is a 3. All seven of the East European countries top-ranked politically fall to 2's on civil liberties. In Africa and Asia, no country is rated "most free" for civil liberties: The four African nations given 1's for political rights are all 2's for civil liberties; so is Japan ; Israel is a 3. However, Oceania continues to do well. Australia and New Zealand both retain top honors, as do three of the small island-states. Of the thirteen American countries top-rated for political liberty, seven fall to the second rank for civil liberty. But St. Vincent and the Grenadines, a 2 for political liberty, is a 1 in civil liberties, the only independent country besides Monaco with that combination. (The combination is chiefly seen among British dependencies, such as the Channel Islands.)

Interestingly, when one turns from political freedom to civil liberties, the number of countries rating an abysmal 7 declines from 30 to 17. Apparently, more dictators want to be absolute rulers than want to be absolute savages.

Economic Liberty

In an effort to improve their measurement of economic freedom, James Gwartney of Florida State University and Robert Lawson of Capital University now use twenty-five components (up from seventeen), and group them into seven broad categories (up from four). The broad categories are: (1) size of government; (2) economic structure 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 table on page 13 shows that there is some correlation between political liberty and economic liberty, although it is not as strong as the correlation between political and civil liberty. Moreover, it appears that the correlation becomes stronger as political liberty increases. That is, democracies tend to be quite free economically. But countries that lack democracy may also be quite free economically. Hong Kong is a special case, as always, but Singapore and Bahrain illustrate the point.

Interestingly, the smallness of government -which is one part of economic liberty-might at first glance appear to be inversely proportional to democracy. (See the chart below. Largeness of government is what Gwartney and Lawson measure, but since economic freedom is their concern they calculate an inverse rating.) At second glance, however, one sees small government holds up well in countries just below the "most democratic" tier. The full rot does not set in until one gets to the European continent. So a more accurate reading of the data may be that a combination of wealth and collectivism, such as one finds in Europe, produces big government.

Tracking Change

How has economic liberty fared since Navigator's last survey, according to Gwartney and Lawson?

That is not an easy question to answer. The interim report on economic freedom shows the ratings of many countries moving sharply upward. In 1995, only Hong Kong was in the 9 range and only two countries were in the 8 range. In 1997, five countries are in the 9 range and eighteen are in the 8 range. Surely, the economic freedom of the world is not improving on that scale.

According to Lawson, some of the change does represent real improvement and some is an artifact of the data. To be specific, he says, improvements have definitely occurred in the areas of international trade, capital markets, and the use of alternative currencies. At the same time, the study does not measure certain areas where things are getting worse, such as labor-market controls and regulatory regimes (governing the environment and land use, among other things). As a result, the authors' reporting is picking up gains but not losses, pushing results higher overall.

A second major cause of the apparent improvement, Lawson believes, is that their source for rating "the rule of law" has suddenly started giving countries much higher numbers, to a degree that is implausible in certain cases. (The rule of law in Haiti is as strong as the rule of law in France? Freedom House calls Haiti's judiciary" corrupt, inefficient, and essentially dysfunctional.") That is a problem they will definitely be looking into. But another difficulty with "the rule of law" criterion, and one they do not plan to address, is that focusing principally on the judiciary's independence from the executive, ignoring the discriminatory applications of law in affirmative-action regulations.

In of these real and artificial changes in the data, year-to-year comparisons are not simple. Look at Mauritius. Last year, it was ranked fifth, just behind the United States; now it is solidly second-class, being ranked twenty-fourth, in a tie with Italy. Thailand, previously eighth, is also in that tie for twenty-fourth place. Argentina (previously ranked twenty-fifth) is now seventh. Some of these shifts may result from changing government policies (Argentina is finally getting credit for a policy of currency stability that began years ago), but some of the shifts result from the "rule of law" muddle.

Another question that might come up with reference to economic freedom can be seen in the chart on page 13. It resembles Lake Woebegone, where everybody is above average. Where are all the losers?

As the authors explained in their last printed version of the study, they have employed a base year (1985) that allows their ratings to show widespread improvement, such as the world has seen in the areas of international trade, currency markets, and the use of alternative currencies. If countries were simply given 1 to 10 ratings each year, in each area, with no recognition of where they had stood in the previous year, actual improvements might show up as apparent declines.

Of course, another criticism can be lodged from the perspective of those libertarians would like to hand out 10's only for perfect economic freedom and work backward from that standard. An argument can certainly be made for such an approach. But it would likely mean a chart on which all change takes place between 00 and 0.1, and one would need to break that distance down into ten units.

The Free World

Given that we have to hand evaluations of freedom in three major areas, how can we integrate them to say what countries are free across the board?

Freedom House gives a composite rating for countries by averaging their scores in the fields of political liberty and civil liberty. Let us say that a country is (comparatively) free, if it has a 7.0 or a 6.5 average; that is, it must have a 7.0 in one of the categories and no worse than a 6.0 in the other. Fifty-six countries make the cut, up one from last year owing to improvements in Latvia.

In economic liberty, the standards must be changed from last year. Previously, Gwartney and Lawson dispensed letter grades, and Navigator used those letter grades to award its medals. In the interim report, letter grades have not been used and that means new lines must be drawn for economic liberty. Let us say that a country must receive a ranking between 8.0 and 10.0 to be considered economically free. Twenty-three countries surmount that hurdle.

What are the results of combining these two measures? Six economically free countries are eliminated for being below 6.5 in the combined political-civil rating, leaving seventeen countries that may designated part of the (comparatively) "free world." Of these seventeen, two are in the Americas, two in Oceania, thirteen in Western Europe, and one (Japan) in Asia.

Who's the Freest of Them All?

Now comes Navigator's controversial award of bronze, silver, and gold medals.

Of the seventeen nations in the free world, twelve garner a perfect 7.0 in their combined rating for political-civil liberty. Economic liberty, then, will decide the top three.

There is a new winner this year for the bronze medal. Switzerland, which took the prize last year when it ranked sixth in economic freedom, is now ranked thirteenth, with an 8.5.

The United Kingdom is a strong candidate for third place, having a 9.0 in economic freedom. But without a written constitution, the U.K. has been able to pass some laws restricting civil liberty. Suspects can be detained without charges for a week, and people can be searched without grounds for suspicion. These laws may be justifiable, given the civil war in Northern Ireland, but they do restrict civil liberty and thus the U.K. gets only a 6.0 in that area.

The Netherlands and Luxembourg are also strong candidates; both have a perfect 7.0 in political-civil liberty and an 8.6 in economic freedom. But there is one country with a 7.0 in political-civil liberty and an 8.8 in economic freedom. That country is Canada, and Canada thus takes the bronze.

"Canada?!" Canadian Objectivists will cry. "It's a welfare state!" True enough. The smallness of government is not the be-all and end-all of economic liberty. Hong Kong gets a 9.4 for smallness of government and is in a tie for fourth place, which makes sense. But it is in a tie with Indonesia, which simply does not do much for its people. And Guatemala gets a perfect 10 for smallness of government. At the other end of the scale are the developed welfare states. Canada gets a 5.9 for smallness of government and is in a tie for ninety-fifth place-with the kleptocracy of Nigeria. The reason for Canada's low ranking is the fact so evident to Canadian libertarians: The government is big. Government consumption as a percentage of total consumption is 25 percent and government transfers and subsides are 17.7 percent of GDP.

But when one looks beyond welfare-to price and interest rate controls, freedom to hold foreign bank accounts, mean tariff rates-Canada receives mostly 9's.

Who, then, gets the silver and who gets the gold? Once again, it comes down to Washington and Wellington, the eagle and the kiwi, America and New Zealand. Once again, the victor is decided by the narrowest possible margin: 0.1. And, once again, America takes the silver, while New Zealand wins the gold medal as the freest country on earth.

What Makes the Difference?

Both the U.S. and New Zealand are rated perfect 10's in the freedom to use alternative currencies (Area IV of the survey) and both are rated perfect 10's in the rule of law (Area V). This year, as last, the United States can thank Alan Greenspan for putting it ahead of New Zealand on monetary policy and price stability (Area III): 9.7 versus 9.5. The United States is also ahead of New Zealand when it comes to the freedom to trade with foreigners (Area VI): 8.4 versus 8.3. And it is also ahead of New Zealand in the freedom of exchange offered by its capital and financial markets (Area VII): 9.7 versus 9.4.

So how did New Zealand win?

Well, neither country has much to boast about when it comes to the smallness of government (Area I). New Zealand is below Albania with a 7.3. But the United States is below Romania with a 6.8. The actual figures are that transfers and subsidies take 12 percent of GDP in New Zealand but 14.1 percent in the United States. Government consumption as a percentage of total consumption is 18.8 percent in New Zealand, but 20.9 percent in America. (Interestingly, the authors find that the core functions of government, "defined very liberally," take only about 10 percent of GDP in most developed countries.)

Where New Zealand comes storming back is in the area called "Structure of the Economy and Use of Markets" (Area II). This includes government enterprises and investments as a share of the economy; price controls; top marginal tax rates; and the use of conscripts. In this area New Zealand's scores were 10, 10, 7, 10; it is marked down only for the top marginal tax rate of 1997, which the authors put at 33 percent.

The authors' scores for the United States in the component categories of Area II are 8, 9, 7, 10. America's top marginal tax rate was higher than New Zealand's in 1997, ranging between 40 and 47. But that was not sufficiently higher for the U.S. to receive a lower rating. The extent of price controls in the United States was also marginally greater than in New Zealand, and consequently America received a 9 to New Zealand's 10. But the greatest difference was in the first component category: Government investment as a percentage of total investment. Here New Zealand pulled ahead 10 to 8.

In sum, though the size of government is not the totality of economic freedom, it is the reason America's economic freedom is ranked below New Zealand's. The U.S. government absorbs 2 percent more of the GDP than New Zealand's government does and uses 2 percent more of GDP for transfers and subsidies. Worse still, government investment as a percentage of total investment is four percentage points greater in America.