Unexpectedly Intriguing!
October 7, 2005

Political Calculations(TM) thought it might be interesting to go back into the Economic Freedom of the World 2005 Annual Report (available as a 1.96MB PDF document) to highlight the biggest movers in the index over the past twenty years, or at least from 1985 through 2003. First, here are the countries with the biggest overall changes in their Economic Freedom Index (EFI) scores:

Economic Freedom of the World Index's Biggest Movers
Country EFI 1985 Score EFI 2003 Score Change
Brazil 3.2 5.9 2.7
El Salvador 4.0 7.2 3.2
Ghana 2.5 6.2 3.7
Iceland 5.1 7.7 2.6
Jamaica 4.3 6.9 2.6
Myanmar 4.1 3.1 -1.0
Nicaragua 1.7 6.3 4.6
Peru 2.9 6.9 4.0
Poland 3.4 6.1 2.7
Tanzania 3.4 6.3 2.9
Uganda 2.5 6.5 4.0
Venezuela 6.3 4.3 -2.0
Zambia 3.4 6.7 3.3
Zimbabwe 4.6 3.3 -1.3

Now, let's go into the report's appendices to find where they've really changed! The countries with the greatest changes in their scores the overall index have been highlighted in green (for the greatest positive change) and in red (for the greatest negative change):

Changes in Major EFI Components for the Big Movers
Country Size of Government Legal Structure Sound Money International Trade Regulation
Brazil +1.2 +1.2 +7.0 +3.7 +0.5
El Salvador +2.3 +2.3 +4.1 +3.7 +0.6
Ghana +0.7 +2.3 +5.0 +5.3 +1.5
Iceland +0.1 +1.3 +7.3 +1.1 +2.4
Jamaica +2.3 +1.6 +5.0 +0.7 +0.4
Myanmar +3.5 -1.8 -4.6 +0.2 +0.2
Nicaragua +2.7 +0.3 +9.0 +5.1 +2.8
Peru +2.1 +1.8 +9.7 +3.9 +2.4
Poland +2.0 +0.4 +3.7 +3.2 +2.2
Tanzania +1.4 -0.5 +4.3 +3.0 +3.5
Uganda +3.1 +1.6 +9.0 +3.1 +1.4
Venezuela -1.0 -3.9 -2.6 -0.7 -1.3
Zambia +4.3 +1.5 +3.9 +2.1 +1.8
Zimbabwe +1.1 -0.3 -4.8 -1.3 -0.9

What the Changes Mean

Size of Government

Size of Government takes into account such factors as the amount of government spending, taxation and consumption of resources made by goverment entities relative to the overall size of a nation's economy. By and large, the greater the ratio of goverment spending to overall economic activity in a nation's economy, the more political choice is being substituted for individual and market choice in the decisions of how scarce resources will be allocated. A positive change indicates that government is playing a smaller role in these decisions, while a negative change indicates increasing government intrusion into economic decisions.

Legal Structure

Legal Structure examines the degree to which independent, impartial institutions exist for resolving disputes, particularly those between government entities and individuals or private businesses. Another important aspect of Legal Structure centers on the security of the property rights of individuals, households and businesses, including intellectual property. A positive change indicates the country is strengthening its support for developing these institutions and rights, while a negative change indicates that these institutions and rights are under increasing attack.

Sound Money

Sound Money measures to what degree individuals and businesses are able to trust the currency in which they trade, and whether they are able to access more stable currencies. Here, factors such as the nation's rate of inflation and its corresponding volatility, the growth rate of its money supply with respect to its real economic growth, and whether individuals and business are free to own foreign currency bank accounts both in and out of the country. A positive change in this category indicates that individuals and businesses are increasingly able to enjoy low inflation with relatively stable prices, and are able to access sound money in the international market. A negative change indicates that individuals, households and businesses are increasingly unable to access sound money.

International Trade

International Trade looks at the barriers to being able to freely trade across national borders. Factors that produce a positive change in this category include lowering tariffs (or taxes on international trade), increasingingly efficient processing of traded items through customs, an easily convertible currency and fewer restrictions on the movement of capital. A negative change in this category suggests that the nation is raising barriers to free trade.

Regulation

Regulation considers the effects of how the rules governing credit, labor and business practices restrict the ability of new participants to enter into a market or otherwise interfere with voluntary exchanges between parties. A positive change indicates that the country is reducing its regulatory barriers, while a negative change suggest that the countriy is increasingly using regulatory barriers to limit the entry into markets by potential competitors or to substantially increase the cost of individuals and businesses in conducting economic activity.

The Biggest Movers

Of the biggest movers, Nicaragua has improved the most since 1985, while Venezuela has fallen the furthest. It would seem that the presence of Marxist-inspired leaders in power (Nicaragua in 1985, Venezuela today) presents what may be the greatest barrier to promoting the economic freedom of a country's people.

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