Fred McMahon Vice-President International Research The Fraser Institute Economic Freedom of the...
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Fred McMahonVice-President International Research
The Fraser Institute
Economic Freedom of the World: 2011 Annual Report
Part 1
Presentation for the Conference
“Competition: Engine for Prosperity”
10-13 October 2011Kuala Lumpur, Malaysia
What is Economic FreedomWhat is Economic Freedom
Individuals have economic freedom when property they acquire without the use of force, fraud, or theft is protected from physical invasions by others and they are free to use, exchange, or give their property as long as their actions do not violate the identical rights of others. An index of economic freedom should measure the extent to which rightly acquired property is protected and individuals are engaged in voluntary transactions.
James Gwartney et al. 1996
Components of the Economic Components of the Economic
Freedom of the World IndexFreedom of the World Index
• Size of government and taxation• Private property and the rule of law• Soundness of money• Trade regulation and tariffs• Regulation of business, labor and
capital markets
Overall Economic Freedom Index Overall Economic Freedom Index and the Top 10and the Top 10
Source: The Fraser Source: The Fraser Institute.Institute.
0 2 4 6 8 10
Score (out of 10)
Hong Kong
Singapore
New Zealand
Switzerland
Australia
Canada
Chile
United Kingdom
Mauritius
United States
Overall Economic Freedom Overall Economic Freedom Index and the Bottom TenIndex and the Bottom Ten
0 2 4 6 8 10
Score (out of 10)
Chad
Burundi
Congo, Rep. Of
Guinea-Bissau
Central Afr. Rep.
Congo, Dem. R.
Angola
Venezuela
Myanmar
Zimbabwe
Source: The Fraser Source: The Fraser Institute.Institute.
Asia scoresAsia scores
Source: The Fraser Source: The Fraser Institute.Institute.
4.165.5
6.036.46.436.466.486.56.686.716.876.91
7.297.327.377.44
7.988.2
8.689.01
0 2 4 6 8 10
Score (out of 10)
Hong KongSingapore
New ZealandAustralia
JapanTaiwan
Korea, SouthMongolia
Pap. New GuineaThailand
FijiMalaysia
IndonesiaVietnam
PhilippinesChinaIndia
PakistanNepal
Myanmar
Asia ranksAsia ranks
Source: The Fraser Source: The Fraser Institute.Institute.
140129
11494
928988
847877
6561
3630
2622
5321
0 20 40 60 80 100 120 140
Hong KongSingapore
New ZealandAustralia
JapanTaiwan
Korea, SouthMongolia
Pap. New GuineaThailand
FijiMalaysia
IndonesiaVietnam
PhilippinesChinaIndia
PakistanNepal
Myanmar
World Average World Average Economic Freedom Over TimeEconomic Freedom Over Time
6.10 5.50
5.53
5.56
5.87
6.25
6.58
6.69
6.73
6.74
6.67
6.66
0
2
4
6
8
10
Eco
no
mic
Fre
edo
m S
core
1970 1975 1980 1985 1990 1995 2000 2005 2006 2007 2008 2009
Source: The Fraser Source: The Fraser Institute.Institute.
Why is Economic Freedom Why is Economic Freedom Important?Important?
• Economic rights are fundamental rights in the sense that without them there can be no political freedom or civil freedoms
• They are a prerequisite for growth and development
• They are a prerequisite for broader human development
The impact on prosperityThe impact on prosperity and development and development
Per Capita Income and Economic Per Capita Income and Economic Freedom QuartileFreedom Quartile
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
GD
P P
er C
apit
a (p
pp
), 2
009
Least FreeQuartile
3rd Quartile2nd QuartileMost FreeQuartile
Sources: The Fraser Institute; The World Bank, World Development Sources: The Fraser Institute; The World Bank, World Development Indicators, Indicators, 2011.2011.
Most Free ……………. Least Free Most Free ……………. Least Free
Growth in Developing Nations Per Growth in Developing Nations Per Capita and Economic Freedom QuartileCapita and Economic Freedom Quartile
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
GD
P P
er
Ca
pit
a %
Gro
wth
,
19
90
-20
09
Least FreeQuartile
3rd Quartile2nd QuartileMost FreeQuartile
Sources: The Fraser Institute; The World Bank, World Development Indicators, Sources: The Fraser Institute; The World Bank, World Development Indicators, 2011.2011.
Most Free ……………. Least Free Most Free ……………. Least Free
Economic Freedom, the Poor, andEconomic Freedom, the Poor, andInequalityInequality
Income Share of the Poorest 10% and Income Share of the Poorest 10% and
Economic FreedomEconomic Freedom
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
Inco
me S
hare
Held
by
Lo
west
10%
, 1990-2
009
Least FreeQuartile
3rdQuartile
2ndQuartile
Most FreeQuartile
Sources: The Fraser Institute; The World Bank, World Development Indicators, Sources: The Fraser Institute; The World Bank, World Development Indicators, 2011.2011.
Most Free ……………. Least Free Most Free ……………. Least Free
Income of the Poorest 10% and Income of the Poorest 10% and
Economic FreedomEconomic Freedom
$0$1,000$2,000$3,000$4,000$5,000$6,000$7,000$8,000$9,000
Inco
me o
f th
e L
ow
est
10%
, 1990-2
009
Least FreeQuartile
3rdQuartile
2ndQuartile
Most FreeQuartile
Sources: The Fraser Institute; The World Bank, World Development Indicators, Sources: The Fraser Institute; The World Bank, World Development Indicators, 2011.2011.
Most Free ……………. Least Free Most Free ……………. Least Free
Economic Freedom, Governance, Economic Freedom, Governance, and Democracyand Democracy
Economic Freedom and Political RightsEconomic Freedom and Political RightsLow scores indicate high level of rights Low scores indicate high level of rights
0.0
1.0
2.0
3.0
4.0
5.0
Po
litic
al R
igh
ts (
ou
t o
f 7)
Least FreeQuartile
3rd Quartile2nd QuartileMost FreeQuartile
Sources: The Fraser Institute; Freedom House, Freedom in the World Country Ratings, Sources: The Fraser Institute; Freedom House, Freedom in the World Country Ratings, 2009, available at http://www.freedomhouse.org/.2009, available at http://www.freedomhouse.org/.
Most Free ……………. Least Free Most Free ……………. Least Free
Economic Freedom and Civil RightsEconomic Freedom and Civil RightsLow scores indicate high level of rights Low scores indicate high level of rights
0.0
1.0
2.0
3.0
4.0
5.0
Civ
il L
iber
ties
(
ou
t o
f 7)
Least FreeQuartile
3rd Quartile2nd QuartileMost FreeQuartile
Sources: The Fraser Institute; Freedom House, Freedom in the World Country Ratings, Sources: The Fraser Institute; Freedom House, Freedom in the World Country Ratings, 2009, available at http://www.freedomhouse.org/.2009, available at http://www.freedomhouse.org/.
Most Free ……………. Least Free Most Free ……………. Least Free
Economic Freedom and CorruptionEconomic Freedom and CorruptionHigh scores indicate low corruptionHigh scores indicate low corruption
0
2
4
6
8
10
Co
rru
pti
on
Ra
tin
g
(ou
t o
f 1
0)
Least FreeQuartile
3rd Quartile2nd QuartileMost FreeQuartile
Sources: The Fraser Institute; Transparency International, Corruption Perceptions Index, Sources: The Fraser Institute; Transparency International, Corruption Perceptions Index, 2010 available at http://www.transparency.org.2010 available at http://www.transparency.org.
Most Free ……………. Least Free Most Free ……………. Least Free
The impact of Economic Freedom on The impact of Economic Freedom on other indicators of well-beingother indicators of well-being
Economic Freedom and Economic Freedom and Life SatisfactionLife Satisfaction
0.01.02.03.04.05.06.07.08.0
Lif
e S
atis
fact
ion
(o
ut
of
10)
Least FreeQuartile
3rd Quartile2nd QuartileMost FreeQuartile
Sources: The Fraser Institute; (un)Happy Planet Index 2.0. Why good lives don't have Sources: The Fraser Institute; (un)Happy Planet Index 2.0. Why good lives don't have to cost the Earth. 2009.to cost the Earth. 2009.
Most Free ……………. Least Free Most Free ……………. Least Free
LiteracyLiteracyMale FemaleMale Female
0.5
20.5
40.5
60.5
80.5
100.5
Least FreeQuartile
3rd Quartile2nd QuartileMost Free Quartile
Most Free ……………. Least Free Most Free ……………. Least Free
Sources: The Fraser Institute; United Nations Development Programmme, Human Sources: The Fraser Institute; United Nations Development Programmme, Human Development Indicators 2011, available at http://hdr.undp.org/.Development Indicators 2011, available at http://hdr.undp.org/.
Life Expectancy at Birth and Life Expectancy at Birth and Economic Freedom QuartilesEconomic Freedom Quartiles
0
20
40
60
80
Yea
rs
Least FreeQuartile
3rd Quartile2nd QuartileMost FreeQuartile
Sources: The Fraser Institute; The World Bank, World Development Indicators, Sources: The Fraser Institute; The World Bank, World Development Indicators,
2011.2011.
Most Free ……………. Least Free Most Free ……………. Least Free
Malaysia comparisons
Malaysia and the worldMalaysia and the world
0.0
2.0
4.0
6.0
8.0
10.0
RegulationFreedom to TradeSound MoneyLegal SystemSize of GovernmentOverall
Malaysia
World Average
Top 10
Sources: The Fraser Institute; Sources: The Fraser Institute;
Per Capita Income and Economic Per Capita Income and Economic Freedom QuartileFreedom Quartile
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
GD
P P
er C
apit
a (p
pp
), 2
009
Least FreeQuartile
3rd QuartileMalaysia2nd QuartileMost FreeQuartile
Sources: The Fraser Institute; The World Bank, World Development Sources: The Fraser Institute; The World Bank, World Development Indicators, Indicators, 2011.2011.
Most Free ……………. Least Free Most Free ……………. Least Free
Size of governmentSize of government
0.0
2.0
4.0
6.0
8.0
10.0
1A General gov'tconsumption
spending
1B Transfersand subsidies
1C Gov'tenterprises and
investment
1Di Top MarginalIncome Tax Rate
1Dii Top MarginalIncome and
Payroll Tax Rate
1D Top marginaltax rate
1 Size ofGovernment
Malaysia
World Average
Top 10
Sources: The Fraser Institute; Sources: The Fraser Institute;
Legal and property rights: 1Legal and property rights: 1
0.0
2.0
4.0
6.0
8.0
10.0
2A Judicialindependence
2B Impartial courts2C Protection ofproperty rights
2D Militaryinterference in rule of
law and politicalprocess
2 Legal System &Property Rights
Malaysia
World Average
Top 10
Sources: The Fraser Institute; Sources: The Fraser Institute;
Legal and property rights: 2Legal and property rights: 2
0.0
2.0
4.0
6.0
8.0
10.0
2E Integrity of the legalsystem
2F Legal enforcement ofcontracts
2G Regulatory restrictions onthe sale of real property
2 Legal System & PropertyRights
Malaysia
World Average
Top 10
Sources: The Fraser Institute; Sources: The Fraser Institute;
Sound MoneySound Money
0.0
2.0
4.0
6.0
8.0
10.0
3A Money growth3B Standard deviationof inflation
3C Inflation: Mostrecent year
3D Freedom of citizensto own foreigncurrency bank
accounts
3 Sound Money
Malaysia
World Average
Top 10
Sources: The Fraser Institute; Sources: The Fraser Institute;
Freedom to Trade: 1Freedom to Trade: 1
0.0
2.0
4.0
6.0
8.0
10.0
4Ai I
nter
natio
nal
trade
tax
reve
nues
(% o
f tra
de s
ecto
r)
4Aii
Mea
n ta
riff r
ate
4Aiii
Sta
ndar
dde
viat
ion
of ta
riff
rate
s
4A T
arrif
s
4Bi N
onta
riff t
rade
barr
iers
4Bii
Com
plia
nce
cost
s of
impo
rting
/exp
ortin
g
4B R
egul
ator
yTr
ade
Barr
iers
4 F
reed
om to
Tra
deIn
tern
atio
nally
Malaysia
World Average
Top 10
Sources: The Fraser Institute; Sources: The Fraser Institute;
Freedom to trade: 2Freedom to trade: 2
0.0
2.0
4.0
6.0
8.0
10.0
4C S
ize o
f tra
de s
ecto
rre
lativ
e to
exp
ecte
d
4D B
lack
mar
ket
exch
ange
rate
s
4Ei F
orei
gnow
ners
hip/
inve
stm
ent
rest
rictio
ns
4Eii
Capi
tal C
ontro
ls
4E In
tern
atio
nal
Capi
tal M
arke
tCo
ntro
ls
4 F
reed
om to
Tra
deIn
tern
atio
nally
Malaysia
World Average
Top 10
Sources: The Fraser Institute; Sources: The Fraser Institute;
Credit market regulationsCredit market regulations
0.0
2.0
4.0
6.0
8.0
10.0
5Ai Ownership ofbanks
5Aii Foreign bankcompetition
5Aiii Private sectorcredit
5Aiv Interest ratecontrols/Negative real
interest rates)
5A Credit MarketRegulation
Malaysia
World Average
Top 10
Sources: The Fraser Institute; Sources: The Fraser Institute;
Labor market regulationsLabor market regulations
0.0
2.0
4.0
6.0
8.0
10.0
5Bi Hiring Regulations andMinimum WageMinimum wage
5Bii Hiring andfiring
regulations
5Biii Centralizedcollectivebargaining
5Biv HoursRegulations
Unemploymentinsurance
Mandated hiringcosts
5Bv Mandateddismissal costs
5Bvi Conscription
5B LaborMarket
Regulations
Malaysia
World Average
Top 10
Sources: The Fraser Institute; Sources: The Fraser Institute;
Business regulationsBusiness regulations
0.0
2.0
4.0
6.0
8.0
10.0
5Ci Price controls
5Cii Admrequirem
ents
5Ciii Burcry Costs
5Civ Startingbusiness
5Cv Extrapaym
ents
5Cvi Licensingrestrictions
5Cvii Taxcom
pliance
5C BusinessRegulations
Malaysia
World Average
Top 10
Sources: The Fraser Institute; Sources: The Fraser Institute;
ConclusionsConclusions
Economic Freedom
• Increases prosperity for all
• Reduces poverty
• Increases other freedoms
• Improves quality of life
• To achieve these gains, Malaysia needs to increase economic freedom
www.freetheworld.comwww.freetheworld.com
www.fraserinstitute.orgwww.fraserinstitute.org