South Africa has slipped down the rankings of the Economic Freedom of the World: 2021 Annual Report, coming in at 84th out of 165 countries and territories.
In 2000, South Africa ranked 58th on the list of countries analysed. Since then it has been overtaken by 15 former communist countries and has seven African countries ahead of it on the economic freedom list.
The report was released today by the Free Market Foundation in conjunction with Canada’s Fraser Institute.
Hong Kong and Singapore again top the index, continuing their streak as first and second respectively. New Zealand, Switzerland, Georgia, the US, Ireland, Lithuania, Australia, and Denmark round out the top 10.
The report, based on 2019 data (the most recent comparable data), warns that recent events in Hong Kong will likely cause its score to fall as data become available for 2020 and 2021.
“Beijing’s intrusion on the rule of law, the foundation of economic freedom, will negatively affect economic freedom in Hong Kong,” says Fred McMahon, Dr Michael Walker research chair in economic freedom with the Fraser Institute. “For the sake of the people of Hong Kong, we’ll continue to monitor the situation and report any decline in freedom.”
The report was prepared by James Gwartney of Florida State University; Robert Lawson and Ryan Murphy of Southern Methodist University; and Joshua Hall of West Virginia University. It measures the economic freedom (levels of personal choice, ability to enter markets, security of privately owned property, rule of law, etc) by analysing the policies and institutions of 165 countries and territories.
Economic freedom is the difference between poverty and prosperity; between first and third world living standards and lifestyle; between good and deficient healthcare; between quality and inferior education; between living to a good age and dying prematurely; between gender equality and downtrodden women; between employment opportunities and a life without work; between the rule of law and despots.
The 10 lowest-rated countries are Central African Republic, Democratic Republic of Congo, Syria, Republic of Congo, Iran, Zimbabwe, Algeria, Libya, Sudan, and Venezuela. Despotic countries such as North Korea and Cuba can’t be ranked due to lack of data.
Other notable rankings include Japan (18th), Germany (22nd), Italy (47th), France (53rd), Mexico (75th), Russia (100th), India (108th), Brazil (109th) and China (116th).
According to research in top peer-reviewed academic journals, people living in countries with high levels of economic freedom enjoy greater prosperity, more political and civil liberties, and longer lives.
For example, countries in the top quartile of economic freedom had an average per-capita GDP of $50 619 in 2019, compared to $5 911 for bottom quartile countries. And poverty rates are lower: in the top quartile, 0,9% of the population experienced extreme poverty ($1.90 a day) compared to 34,1% in the lowest quartile.
Life expectancy is 81,1 years in the top quartile of countries compared to 65,9 years in the bottom quartile.
“Where people are free to pursue their own opportunities and make their own choices, they lead more prosperous, happier and healthier lives,” McMahon says.
South Africa’s scores in key components of economic freedom (from 1 to 10 where a higher value indicates a higher level of economic freedom) are:
* Size of government: changed to 7.00 from 5.59 in the last year’s report.
* Legal system and property rights: changed to 5.95 from 6.36.
* Access to sound money: changed to 8.25 from 8.10.
* Freedom to trade internationally: changed to 6.50 from 6.47.
* Regulation of credit, labour, and business: changed to 7.16 from 7.54.
“No one in political office who seriously wishes to improve conditions for their fellow citizens can afford to ignore the lessons to be learned from the annually produced Economic Freedom of the World Report,” says Eustace Davie, a director of the Free Market Foundation. “All they need do, is page through a report and see what other countries are doing right or doing wrong, to establish the best economic policies to follow to improve the lives of their own citizens.
“For instance, Bulgaria improved its rank on the index from 103rd to 36th between 2000 and 2019. They kept taxes low, reduced inflation from 409,7% to 1,20% per annum, and improved foreign trade conditions. The result was that the average income per capita increased in constant 2017 dollars from $10 201 to $16 914 during that period.
“By contrast, South Africa has adopted laws and regulations such as minimum wage laws and hiring and firing laws that have caused the country to have one of the highest unemployment rates in the world, with 75% of young people between the ages of 15 and 24 unable to find jobs according to the ILO.
“Applying a good dose of economic freedom to the problem would be the quickest and best way to resolve the matter and allow the unfortunate victims to get jobs,” says Davie.
The study shows that economic freedom enhances income mobility while the poor in unfree nations have fewer opportunities to escape poverty and build prosperity.
Many factors contribute to economic freedom but the most important for income mobility are rule of law and restrictive regulations. In uneconomically free nations, domineering government and crony elites use the rule of law, not to protect the freedom of all but entrench the privilege of their cliques while undermining the rights of everyone else.
Similarly, regulations are too often used to exclude people from work and opportunity, even in nations with a relatively robust rule of law. Government regulation may require workers to purchase occupational licenses or train to acquire credentials before they can work.
“Government regulations impede the ability of workers to make themselves better off by slowing the upward mobility of workers,” says Vincent Geloso, an assistant professor of economics at George Mason University, senior fellow at the Fraser Institute and co-author of Economic Freedom Promotes Upward Income Mobility.
The study shows that labour regulations across industries slow wage growth for low-income workers. And, particularly, inappropriate minimum wages and occupational licencing tends to hurt income growth among the poor more than among higher-income workers.
The same effect is also observed for would-be entrepreneurs who face barriers to entering certain industries because of regulatory costs and fees.
“South Africa’s labour laws, which include a minimum wage, have particularly tragic consequences,” says Davie. “They have resulted in an unemployment rate of close on 50% for all potential members of the workforce, and in the case of young people aged from 15 to 24, the ILO reports that the unemployment rate is 75%.”
The Fraser Institute produces the annual Economic Freedom of the World report in co-operation with the Economic Freedom Network, a group of independent research and educational institutes in nearly 100 countries and territories. It’s the world’s premier measurement of economic freedom, measuring and ranking countries in five areas: size of government, legal structure and security of property rights, access to sound money, freedom to trade internationally and regulation of credit, labour and business.
See the full report at www.fraserinstitute.org/economic-freedom.