In a welcome turnaround, economic freedom is “once again on the rise,” according to the editors of the 20th annual Index of Economic Freedom, released by The Heritage Foundation and The Wall Street Journal. “Much of the momentum lost during the past five years has been regained.”

The world average score of 60.3—seven-tenths of a point above the 2013 average—is the highest average in the two-decade history of the Index, the editors note. Forty-three countries, including Singapore and Sweden, achieved their highest scores yet in the 2014 Index. Among the 178 countries ranked, scores improved for 114 countries and declined for 59. Four recorded no score change.

But the news was not all positive. The United States fell out of the top 10, its score declining enough to leave it in the 12th slot overall. The 2014 Index finds notable declines for the U.S. in fiscal freedom, business freedom and property rights, placing it again behind its neighbour to the north, Canada.

Moreover, the number of people living in economically “unfree” countries remains high: 4.5 billion, or about 65 percent of the world’s population. Twenty-seven countries have “repressed” economies with scores below 50, while only six have earned the Index’s designation of “free” with scores above 80.

“The strongly positive relationship between economic freedom and prosperity is apparent throughout the world,” the editors write. “In every region, per capita incomes are much higher in countries that are economically free.”

Hong Kong and Singapore finished first and second in the rankings for the 20th straight year. Australia, despite a drop in its score, held on to third place, while Switzerland improved enough to leap-frog fifth-place New Zealand and nab the number-four slot. Canada finished sixth again, with nearly full-point gain in its score that put it just behind New Zealand. Chile’s score declined slightly, but it took seventh place. Mauritius, the only Sub-Saharan country to rank among the top 10, was eighth with an overall score of 76.5. Ireland reentered the top 10 to finish ninth, just ahead of Denmark.

The Most Free

•     Hong Kong (1st)
•     Singapore (2nd)
•     Australia (3rd)
•     Switzerland (4th)
•     New Zealand (5th)
•     Canada (6th)
•     Chile (7th)
•     Mauritius (8th)
•     Ireland (9th)
•     Denmark (10th)
•  

The Least Free

•     North Korea (178th)
•     Cuba (177th)
•     Zimbabwe (176th)
•     Venezuela (175th)
•     Eritrea (174th)
•     Iran (173th)
•     D.R. of Congo (172rd)
•     Turkmenistan (171nd)
•     Timor-Leste (170th)
•     Rep. of Congo (169th)

Launched in 1995, the Index evaluates countries in four broad areas of economic freedom: rule of law; regulatory efficiency; limited government; and open markets. Based on an aggregate score, each of 178 countries graded in the 2014 Index is classified as “free” (i.e. combined scores of 80 or higher); “mostly free” (70-79.9); “moderately free” (60-69.9); “mostly unfree” (50-59.9); or “repressed” (under 50).

There are 10 specific categories: property rights, freedom from corruption, fiscal freedom, government spending, business freedom, labor freedom, monetary freedom, trade freedom, investment freedom, and financial freedom. Scores in these categories are averaged to create an overall score.

The world’s most-improved country is Burma, which saw its score rise 7.3 points, thanks to improvements in its investment, business, and labor freedom scores. But it remains a repressed economy with an overall score of 46.5. The Central African Republic’s Index score declined the most worldwide, plunging 3.7 points to 46.7.

The Index also studies economic freedom on a regional basis. In the 2014 Index, economic freedom levels rose in all but two regions, North America and Middle-East/North Africa. South and Central America/Caribbean, Europe, and Sub-Saharan Africa charted regional improvements, with Burma, Malaysia and Samoa helping Asia-Pacific post the biggest gain.

The Asia-Pacific region dominates both the top and the bottom of the 2014 Index rankings. Hong Kong, Singapore, Australia and New Zealand took four of the top five slots worldwide. North Korea is ranked last in the world, and Burma, the Solomon Islands, Uzbekistan, Turkmenistan and Timor-Leste all rank 162nd or worse.

Hong Kong maintained its status as the world’s freest economy, but Singapore, the second-freest, has closed the gap between itself and Hong Kong to only 0.7 points, the second narrowest difference in Index history. Australia and New Zealand “continue to set the standard for clean, corruption-free government and benefit significantly from their transparent and efficient business environments and open-market policies,” the editors write.

Long-established free-market institutions in many European countries help the region score above the world averages in most categories of economic freedom. Ten of the world’s 20 freest economies, led by Switzerland, are in Europe. However, the editors note that the region is hampered by “tumultuous and uncertain times epitomized by the ongoing sovereign debt crisis affecting the eurozone.”

On balance, though, Europe is doing well, according to the 2014 Index. Eighteen countries recorded their highest economic freedom scores ever. Only nine – out of 43 – lost economic freedom. Switzerland remains the only “free” economy in Europe, which has only one “repressed” economy: Ukraine. Still, it managed to post the largest gain of any European country (three points).

North America continues to be the world’s freest region, though Canada was the only economy that improved its Index score over the last year. It’s also the region’s only “free” economy. The United States is “mostly free” economy and Mexico is “moderately free.” The “substantial growth in the size and scope of government” in the U.S., according to the editors, contributed heavily to it losing its spot among the 10 freest economies, as well as its second-lowest score in the 20-year history of the Index.

The 29 countries of the South and Central America/Caribbean region show “mixed progress,” according to the editors. Overall, 17 countries recorded gains in economic freedom, while 12 declined. Despite a small drop in its score, Chile easily retained the top spot, joined by Saint Lucia and Colombia (which logged a 1.1-point gain and left the ranks of the “moderately free”) as the region’s only “mostly free” economies. Argentina continued to drop in the rankings, edging it closer to the region’s worst economy, Cuba.

Most of the 15 countries graded in the Middle East/North Africa region are mired in the “moderately free” or “mostly unfree” categories, with one repressed (Iran, whose score declined by nearly three points) and three (Bahrain, United Arab Emirates and Qatar) listed as “mostly free.” Bahrain remained the region’s top performer in the Index at No. 13, despite a 0.4 point loss, and an overall score of 75.1 points. Saudi Arabia and Israel recorded two of the largest score gains.

Sub-Saharan Africa’s overall level of economic freedom remains weak, yet no other region has made greater strides toward economic freedom over the past two years, according to the Index editors. A majority of its economies are either “mostly unfree” or “repressed, yet all but 12 of the 46 economies scored in the Index posted improved scores. Swaziland’s 4-point gain lifted it into the “moderately free” category, as did Zambia’s 1.7-point rise. Mauritius, despite a small decline in its Index score, is still the region’s leader, followed by Botswana, the only other “mostly free” country in the region.

Written by Ambassador Terry Miller, Anthony B Kim, Kim R Holmes (PhD), with James M Roberts, Bryan Riley, and Ryan Olson.

Download the full report above.

Please note that this is a large file and may take some time to download.

Alternatively click here to be taken directly to the Heritage Foundation website.