2008 Index of Economic Freedom - 2008

Our confidence in freedom as a liberating
moral force and the foundation of true
democracy has never been stronger. The
victory of political freedom as a universal ideal
advances and continues to drive revolution-
ary change throughout the world. Now, as we
progress into the 21st century, more countries
understand the importance of adopting insti-
tutional frameworks to enhance their citizens’
economic freedom. The link between economic
freedom and prosperity has never been clear-
er. People around the world are demanding
that their governments support and maintain
economic environments that provide the best
chance for economic growth and the creation
of wealth.
A country’s level of economic freedom
reflects the ability of ordinary citizens to make
economic decisions on their own. It includes the
freedom to choose a job, start a business, work
where one chooses, borrow money, and use a
credit card. It ranges from buying a house to
having a choice in health care, from being fairly
taxed to being treated justly by the courts. The
higher the economic freedom in a country, the
easier it is for its people to work, save, invest,
and consume.
Yet the struggle for economic freedom
faces determined opposition. Tariffs are just
one example of protectionism that never lacks
champions, and those who want special privi-
leges will always pressure societies to expand
the size and weight of government interven-
tion. Special privileges for the few mean less
prosperity for the many.
The Index of Economic Freedom has document-
ed the link between economic opportunity and
prosperity with research and analysis for 14
years. Published jointly by The Heritage Foun-
dation and The Wall Street Journal, the Index has
painted a global portrait of economic freedom
and established a benchmark by which to gauge
a country’s prospects for economic success.
It follows a simple tenet: Something cannot
be improved if it is not measured. Tracing the
path to economic prosperity, the annual Index
continues to serve as a critical tool for students,
teachers, policymakers, business leaders, inves-
tors, and the media. The findings of the Index
are clear and straightforward: Countries with
an enduring commitment to economic freedom
enjoy greater prosperity than do those with less
economic freedom.
The 2008 Index, covering 162 countries,
shows that economic freedom worldwide con-
tinues to advance steadily, albeit at a slower
rate than one might hope. In this 14th edition,
most of the 20 freest countries from last year
are still ranked among the freest, while others
in the middle of the pack have experienced
some shuffling as a result of varying efforts at
reform.
Europe, Asia, and the Americas are the three
freest regions. Asia has both the world’s freest
economy and its least free economy. More than
half of the top 20 freest countries are found in
Europe, and the Americas are home to some of
the richest and most dynamic countries in the
world.
For countries pursuing sustainable prosper-
ity, the Index reveals that both policy direction
and commitment to economic freedom matter.
For example, the erosion of economic freedom
in the Americas reflects some countries’ rever-
sals of free-market policies and stalled pursuit
of economic freedom. Venezuela, in particular,
is risking long-run economic failure as Presi-
dent Hugo Chávez takes the country further
down an anti–free market path.
The 2008 Index contains three notable guest
chapters written by outside scholars. A chapter
by Carl Schramm, President and CEO of the
Ewing Marion Kauffman Foundation, high-
lights the importance of economic fluidity and
how it fosters innovation and entrepreneur-
ship as a crucial element of economic freedom.
Professor Stephen Parente of the University of
Illinois at Urbana–Champaign documents the
necessity of dismantling barriers to economic
catching-up so that all economies can have the
chance to flourish in the 21st century. Guy Sor-
man, a French journalist and author, reminds
us of six major characteristics of the globaliza-
tion that we enjoy today and of the potential
threats to it.
This edition also contains a chapter ana-
lyzing each of the five geographic regions—a
focus that matters for local competition. And,
of course, this edition includes our traditional
country pages with new charts highlighting the
changes in each economy’s economic freedom
and detailed explanations analyzing each of
the freedoms.
As our Index has demonstrated again in this
edition, economic freedom is the key to creat-
ing an environment that allows a virtuous cycle
of entrepreneurship, innovation, and sustained
economic growth to flourish. Leaders who
commit to expanding economic freedom will
realize the fruits of their labor. For citizens
living in such a country, increased economic
freedom will improve their standard of living,
make their daily lives more stable, and help to
ensure a bright future for their families.
Edwin J. Feulner, Ph.D., President
The Heritage Foundation
November 2007

T
his is the 14th edition of The Heritage
Foundation/Wall Street Journal Index of
Economic Freedom. Over the past years,
the Index has documented the link between eco-
nomic opportunity and prosperity, researching
and analyzing economic policies in countries
around the world. That trend continues in the
2008 Index, which paints a portrait of econom-
ic freedom around the world and establishes
a benchmark by which to gauge a country’s
chances of economic success.
The idea of producing a user-friendly “index
of economic freedom” as a tool for policymak-
ers and investors was first discussed at The
Heritage Foundation in the late 1980s. The goal
then, as it is today, was to develop a system-
atic, empirical measurement of economic free-
dom in countries throughout the world. To this
end, the decision was made to establish a set of
objective economic criteria that, since the inau-
gural edition in 1995, have been used to study
and grade various countries for the annual
publication of the Index of Economic Freedom.
Economic theory dating back to the publi-
cation of Adam Smith’s The Wealth of Nations
in 1776 emphasizes the lesson that basic insti-
tutions that protect the liberty of individu-
als to pursue their own economic interests
result in greater prosperity for the larger
society. Perhaps the idea of freedom is too
sophisticated, as popular support for it seems
constantly to erode before the onslaught of
populism, whether democratic or autocratic.
Yet modern scholars of political economy
are rediscovering the central fact that “free
institutions” are essential to rapid long-term
growth. In other words, the techniques may
be new, but they reaffirm classic truths. The
objective of the Index is to catalogue those
economic institutions in a quantitative and
rigorous manner.
Yet the Index is more than a simple ranking
based on economic theory and empirical study.
It also identifies the variables that comprise
economic freedom and analyzes the interaction
of freedom with wealth.