Heritage Releases Economic Freedom Report

The Heritage Foundation has released its latest report on economic freedom. We provide the Executive Summary here.

The cumulative downward pressure on the world economy is the product of bad economic policy choices from the coronavirus pandemic period, higher inflation, Russia’s ongoing invasion of Ukraine, and a broader conflict in the Middle East, among other economic and geopolitical tensions.

The abrupt and shortsighted renunciation of the principles of economic freedom in many countries has further risked not only undercutting much-needed stronger economic recovery, but also sacrificing long-term economic resilience and prosperity. Many countries around the world, for example, are already mired in a greater debt burden that prolongs economic stagnation.

A return to business as usual will not suffice. In addition to the impacts of the pandemic on public finances, countries face many long-term structural challenges in the policy areas of transparency, efficiency, openness, and government effectiveness.

More than ever, it should be remembered that a nation’s true capacity for lasting growth and prosperity hinges on the quality of its institutions and economic system. Many nations around the globe are now at a crossroads. The question is whether they will recognize the paramount need to correct the current policy course and reinvigorate their commitment to preserving and advancing economic freedom, which has proven to be crucial to human flourishing and the achievement of real progress.

KEY FINDINGS OF THE 2024 INDEX OF ECONOMIC FREEDOM

The 2024 Index, which considers economic policies and conditions in 184 sovereign countries from July 1, 2022, through June 30, 2023, reveals a world economy that, taken as a whole, is “mostly unfree.” Regrettably, the global average score for economic freedom has fallen further from the previous year’s 59.3 and is now the lowest it has been since 2001: only 58.6.
Globally, fiscal soundness has deteriorated significantly. Rising deficits and mounting public debt in many countries have undermined and will likely further undercut their overall productivity growth and ultimately lead to economic sluggishness rather than vibrant growth.
Despite the notable downturn in global economic freedom, there continues to be a clear relationship between improved economic freedom and improved economic dynamism as well as greater overall well-being. No matter what their existing level of development may be, countries can measurably boost their economic growth by implementing policies that reduce taxes, rationalize the regulatory environment, open the economy to greater competition, and fight corruption, all of which will also help to advance their overall economic freedom.
The standard of living, measured by incomes per capita, is much higher in economically freer countries. Countries rated “free,” “mostly free,” or “moderately free” in the 2024 Index generate incomes that are more than double the average levels in other countries and more than three times higher than the incomes of people living in economically “repressed” countries.
As documented once again in the 2024 Index, economic freedom also correlates significantly with overall well-being, which includes such factors as health, education, the environment, innovation, societal progress, and democratic governance.
As shown in the ranking table below, only four countries (down from seven in the 2022 Index) recorded economic freedom scores of 80 or more, putting them in the ranks of the economically “free;” 22 countries earned a designation of “mostly free” by recording scores of 70.0 to 79.9; and an additional 55 countries were considered at least “moderately free” with scores of 60.0 to 69.9. Thus, a total of 81 countries, or slightly less than half of the 176 countries graded in the 2024 Index, have institutional environments in which individuals and private enterprises benefit from at least a moderate degree of economic freedom in the pursuit of greater economic development and prosperity.
On the opposite side of the spectrum, more than 50 percent of the countries graded in the 2024 Index (95 economies) have registered economic freedom scores below 60. Of those, 62 are considered “mostly unfree” (scores of 50.0 to 59.9), and 33, including China and Iran, are in the economically “repressed” category.
Within the top 10 rankings, a notable reshuffling has taken place. Singapore has maintained its status as the world’s freest economy, demonstrating a high level of economic resilience. Switzerland is the world’s second freest economy, followed by Ireland, and Taiwan has moved up to the fourth slot, the highest rank the country has ever achieved in the Index of Economic Freedom. Both New Zealand and Australia have lost their top-tier economic freedom status, with Australia no longer among the world’s 10 freest economies.
Especially notable is the continuing decline within the “mostly free” category of the United States, whose score plummeted to 70.1, its lowest level ever in the 30-year history of the Index. The U.S. is now the world’s 25th freest economy. The major causative factor in the erosion of America’s economic freedom is excessive government spending, which has resulted in mounting deficit and debt burdens.

All in all, the ongoing recovery remains uneven and uncertain with strikingly different outcomes across countries, sectors, and demographic groups. Output and employment gaps remain in many countries, particularly in emerging markets and developing economies, suggesting that countries face vastly different policy challenges during recovery and beyond.

Quick Analysis

Putin’s Saber Rattling

Earlier this week, President Biden reversed his 2022 decision, authorizing the provision of antipersonnel land mines to the Ukrainian government. It follows an earlier Administration authorization to allow the use of an advanced American missile system capable of striking as deep as 100 miles inside Russian territory. The US election season may be ending, but both Russia and the West show no indication of stepping down the conflict. Russian propaganda continues to swell as the Kremlin increases its threats to use nuclear weapons against the West. Last week Andrey Sushentsov, program director of the pro-Kremlin think tank Valdai Discussion Club (VDC), published an article on growing nuclear tensions in the region. Official Russian language in the last few years has been threatening. Since the US election, rhetoric like that in the Sushentsov article, has approached the level of nuclear blackmail. The VDC article’s main theme centers on Russia’s intent to directly confront the West militarily if the North Atlantic Treaty Organization (NATO) becomes involved in Russia’s conflict with Ukraine. “On the one hand, these threats are intended to frighten the West, but on the other, Russian propagandists themselves are starting to believe in the inevitability of escalation,” according to Ksenia Kirillova of the Jamestown Foundation. On November 11, Sushentsov wrote that “The conflict will reach a completely new level, with unpredictable consequences for Europe and the entire world.” Kirillova points out that Putin’s distorted image of the world is divorced from reality and is causing the Kremlin to issue demands that are impossible to fulfill. Financial and other Russian resources needed to support Putin’s war are growing scarcer at the same time. This week the Kremlin announced a reduction of payments to its soldiers. Recently North Korea acknowledged it was sending soldiers to fight in Ukraine as Putin is running out of bodies to use as cannon fire. The war is not going well for Russia. One question floating around the Washington intelligence community is whether Putin will act out of desperation before President-elect Trump assumes office. In recent months the Russian propaganda machine is spewing out materials from fairly reputable analytical platforms inside the country. Kirillova says that “Kremlin ‘experts’ do not conceal that such threats are only intended to break the West psychologically, as they themselves are not prepared for full-scale nuclear war.” Despite Russia’s lack of preparation for an all-out war with the West, the expanding nuclear rhetoric carries with it an increase in the threat of a full-scale war in multiple theaters of operation. In June 2023 a founder of the Russian Council on Foreign and Defense Policy, Sergey Karaganov, called for “delivering a pre-emptive strike of retaliation” on Poland to force the West to surrender. In the previous month, Dmitry Suslov, a direct of research programs at the policy center proposed organizing “a demonstration nuclear explosion” aimed at intimidating the West. In September, President Putin announced a reappraisal of Russian nuclear doctrine after speaking earlier in the year at the plenary session of the St. Petersburg International Economic Forum and jokingly calling Suslov a “scary person.” Pavel Baev, writing in the European Daily Monitor, says “Putin intends his announcement to mark an escalation of nuclear brinkmanship and influence the proceedings of future Ukrainian peace efforts.” Putin is expanding the list of environmental conditions that are acceptable for using a nuclear weapon and incorporating it into Russian military doctrine. Baev adds that “The ups and downs of Russian brinkmanship are disconnected from the kinetic battles of the war, correlating instead with Ukrainian peace offensives, such as Ukrainian President Volodymyr Zelenskyy’s first peace summit in Bürgenstock, Switzerland.” Despite the increase in vitriolic language, in a You Tube video published a week before the US presidential election, Karaganov openly assured the West the primary goal of the escalation is to break the American spirit and that of the West, not outright nuclear war. By Election Day in the US, with political prognosticators predicting a win for former president Trump, Karaganov changed his tune and called for an increased role in nuclear deterrence. Kirillova points out that Western concessions to Russia are unlikely to reduce the risk of nuclear escalation. The distorted reality inside the Kremlin continues to push that President-elect Trump is an adherent of “world government,” that Ukraine will create a nuclear weapon, and Russia must prepare for a nuclear conflagration to achieve its ambitions for a new world order. President-elect Trump has indicated he will not agree to concessions that destabilize Europe, the Middle East or other regions. Going forward a strong US foreign policy may be the most stabilizing course the West can count on to restrain Putin and his intent to rebuild the Russian empire. Daria Novak served in the U.S. State Dept. Illustration: Pixabay

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