2 Economic Freedom of the World - The Role of Government in the Modern Growth Economy Economic Freedom of the World - The Role of Government in the Modern Growth Economy n Presentation to n Institute X n LOCATION n DATE n PRESENTER n PRESENTING Institute

3 n What causes Economic Success? n What are the practices of economically successful countries and regions? n How can countries and provinces achieve success and avoid failure n What are the implications of successful strategies? The crucial questions for economic management

Why do some countries succeed and others fail?

5 A Tale of Two Countries n Hong Kong and Venezuela n From poor to rich n From rich to poor

6 Hong Kong and Venezuela…1950

7 Hong Kong and Venezuela today

8 Hong Kong and Venezuela compared

9 Hong Kong and Venezuela population growth present

10 What differences caused Hong Kong to become Rich and Venezuela to become Poor? n Population - evidently not n Natural Resources - not likely n Ability to afford infrastructure - certainly not n Policy differences - a possible source of the difference

11 The Attitude of Success…economic freedom in Hong Kong and Venezuela

12 Hong Kongs Freedom Advantage over Venezuela

13 The story of Hong Kong and Venezuela is repeated around the globe n Motivated the creation of the Economic Freedom of the World Project to examine whether there were empirical regularities that could be found between economic freedom and other characteristics of societies including economic growth and development

14 Economic Freedom of the World Project n 15 year project examining policies of successful and unsuccessful regions n Led by Professor Milton Friedman, Rose Friedman and Michael Walker n Involved 60 of the worlds top economists, four of whom received the Nobel Prize n Objective: find a way to measure economic freedom and explore the connection between it and other attributes

15 What does Economic Freedom Mean? u The right to pursue voluntary acts of trade and exchange without interference by government or others via force or fraud v The ability to access an impartial judiciary for the enforcement of property rights v The right of citizens to keep the majority of the income they earn

16 What is the Index of Economic Freedom? u An attempt to identify the factors which make a country economically free v A compendium of 21 freedom factors based on objective data or independent surveys w A ranking of 123 countries according to the extent to which they are free w Now a collaboration of 55 Institutes in 55 different countries

17 The Index measures 21 factors which are practical indicators which are practical indicators of the extent to which consenting of the extent to which consenting adults can engage in adults can engage in Capitalist Acts. It is the broadest, most objective measure of economic freedom ever constructed.

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19 The components of The Economic Freedom Index ¬ Size of Government ­ Structure of the Economy ® Monetary and Price Stability ¯ Freedom to Use Alternative Currencies ° Legal Structure and Property Rights ± International Exchange ² Freedom of Exchange in Capital Markets

20 The Top Eleven

21 The Next Ten

22 How does Canadas level of Economic Freedom compare with the ten most free countries and with NAFTA trading partners?

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26 World Average: Economic Freedom World Average: Economic Freedom

27 World Average: Economic Freedom, adjusted for population World Average: Economic Freedom, adjusted for population Countries with ranks in 1970

28 World Average: Government Consumption as a Percentage of GDP

29 World Average: Transfers as a percentage of GDP

30 World Average: Publicly owned assets as a percentage of GDP

31 World Average: Existence of Price Controls

32 World Average: Right to own Foreign Currency

33 World Average: Right to Own Private Property

34 World Average: Tariff Rate

35 World Average: Private Ownership of Banks

36 World Average: Right to have Capital Transactions with Foreigners

37 Population of the world, by economic freedom rating

38 The top ten and how they got there

39 Some Asian Countries

40 Countries which have increased or decreased the level of Economic Freedom

41 Countries having significant improvement since 1970

42 Countries with significant deterioration since 1970

43 The Race Toward Capitalism in the Eastern and Former Soviet Transitional Economies

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45 Why is Economic Freedom Important? n Economic rights are fundamental rights in the sense that without them there can be no political freedom or civil freedoms n They are a prerequisite for growth and development n They are a prerequisite for broader human development

46 Least Free…………...Most Free Least Free…………...Most Free

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48 Least Free…………...Most Free Least Free…………...Most Free

49 Growth of Real Per Capita Output in the 1990s of Countries That Improved the Most Since 1980.

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52 Of course capitalism works to boost economic outcomes...…But What about Human Development? Do countries have to choose between economic development and community values and social development?

53 Least Free…………...Most Free Least Free…………...Most Free

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55 Least Free…………...Most Free Least Free…………...Most Free

56 Least Free…………...Most Free Least Free…………...Most Free

57 Least Free…………...Most Free Least Free…………...Most Free

58 Least Free…………...Most Free Least Free…………...Most Free

59 Least Free…………...Most Free Least Free…………...Most Free

60 Least Free…………...Most Free Least Free…………...Most Free

61 Least Free…………...Most Free Least Free…………...Most Free Percent of income accruing to the

62 Underground Economy % of GDP Bolivia Guatemala Honduras Panama Peru Outlier Countries : Bigger Underground Economy Least Free…………...Most Free Least Free…………...Most Free

63 Least Free…………...Most Free Least Free…………...Most Free More Intellectual Property Rights

64 Least Free…………...Most Free Least Free…………...Most Free

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66

67 Least Free…………...Most Free Least Free…………...Most Free

68 Least Free…………...Most Free Least Free…………...Most Free

69 Least Free…………...Most Free Least Free…………...Most Free

70 Least Free…………...Most Free Least Free…………...Most Free

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72 Ingredients in the growth recipe: evidence from 123 Countries Ingredients in the growth recipe: evidence from 123 Countries

73 Size of Government and Growth US Can Spain Hong Kong Mexico

74 Private Ownership and Growth Can US Hong Kong China

75 Government Transfers and Subsidies and Growth US Can Hong Kong Mexico

76 Growth and the Friendliness of the Tax System (tax rates and brackets) CanUS China Hong KongMexico

77 Growth and Taxes on Trade Growth and Taxes on Trade Can Hong Kong China Mexico US

78 Some extensions of the Economic Freedom of the World Project n Marketization indices for sub-national jurisdictions n The Fraser Institute Index for North America n The National Institute for Economic Research (Beijing) Marketization index for the 31 Chinese Provinces

Freetheworld.com Economic Freedom of the Provinces n Learning from international experience with the Economic Freedom index n Growth and affluence are options and are not predetermined n Recognize that the provinces have very different selections from the range of policy options n Policy settings generally determine the perimeters for wealth creation activity

Freetheworld.com Economic Freedom of the Provinces ¬ Government Operations ­ Takings ® Interprovincial sector ¯ Labour Market Regulation

Freetheworld.com Government Operations

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Freetheworld.com

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Freetheworld.com Takings

Labour Market Regulations

Freetheworld.com

Economic Freedom of the Provinces Overall Provincial Ranking

Freetheworld.com

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95 Conclusions n Growth and development are choices rather than predetermined n The ingredients of the growth recipe can be determined by observing the policies of successful jurisdictions n The key to high economic performance is providing economic freedom to citizens n The key to progressive social and human development is economic freedom

96 The End……phew!

Other Slides of Interest

98 Least Free…………...Most Free Least Free…………...Most Free

99 Least Free…………...Most Free Least Free…………...Most Free

Next – Scores in Each Area Adjusted by Population

101 World Average: Economic Freedom, adjusted for population World Average: Economic Freedom, adjusted for population Countries with ranks in 1970

102 World Average: Government Consumption as a Percentage of GDP, adjusted for population Countries with ranks in 1970

103 World Average: Transfers as a percentage of GDP, adjusted for population Countries with ranks in 1970

104 World Average: Publicly owned assets as a percentage of GDP, adjusted for population Countries with ranks in 1970

105 World Average: Existence of Price Controls, adjusted for population

106 World Average: Right to own Foreign Currency, adjusted for population Countries with ranks in 1970

107 World Average: Tariff Rate, adjusted for population Countries with ranks in 1980

108 World Average: Right to have Capital Transactions with Foreigners, adjusted for population Countries with ranks in 1980

109 World Average: Government Consumption as a Percentage of GDP, adjusted for population

110 World Average: Transfers as a percentage of GDP, adjusted for population

111 World Average: Publicly owned assets as a percentage of GDP, adjusted for population

112 World Average: Existence of Price Controls, adjusted for population

113 World Average: Right to own Foreign Currency, adjusted for population

114 World Average: Tariff Rate, adjusted for population

115 World Average: Right to have Capital Transactions with Foreigners, adjusted for population