Economic freedom in the world is doing relatively well. Although one senses a growing mood of geopolitical confrontation and instability, for the time being, this translates into the economy only to a limited extent. The just-published Index of Economic Freedom confirms that the world economy remains relatively open. The global average economic freedom score has fallen from 60 points in 2022 to 59.3 points in 2023.
On the one hand, this result is the lowest over the past two decades. On the other, the world had not previously experienced such dramatic situations as it did in the last few years. First, there was the pandemic which practically paralyzed the entire globe. Then came a war involving a permanent member of the UN Security Council. But the global economy is proving to be quite resilient to these shocks. This is due to, among other things, the countries of Central Europe. The region directly borders the war arena, yet its economy functions stably and predictably. What is the reason for its resilience?
Government does not solve problems
The Index of Economic Freedom has a long tradition of measuring the connection between entrepreneurship and the constraints imposed on the economy by governments. “Since its inception in 1995, the index – an annual global study – has measured a nation’s commitment to limited government and free enterprise by evaluating four critical policy pillars, including the rule of law, fiscal health, and regulatory efficiency,” as explained on the website of the creator of this ranking, the Heritage Foundation. The spirit of economic freedom, which Ronald Reagan instilled in the US, hovers over this juxtaposition. “Government does not solve problems. It subsidizes them,” he used to say. The authors of this index assess the economical situation in individual countries around the world in this spirit.
A total of 176 states have been assessed in this survey. They were divided into five categories: Free, Mostly Free, Moderately Free, Mostly Unfree, and Repressed. Only four countries achieved to find in the first category. The first place in the index went to Singapore. This tiny Asian country has maintained its position as the world’s freest economy for three years in a row. The second place in the ranking took Switzerland and Ireland third. Taiwan was in the fourth position, jumping two places up in the last year.
Taiwan achieved its best result in the history of this survey. On the other hand, the United States and the United Kingdom, which are considered the cradle of economic freedom (the famous tandem of Ronald Reagan and Margaret Thatcher introducing “Reaganomics” and “Thatcherism” respectively in their countries), have hit their new lows. This year America has fallen to the position of the world’s 25th-freest economy. The major factor in the erosion of America’s economic freedom is excessive government spending, which has resulted in mounting deficits and debt burdens. The United Kingdom has also recorded a significant retreat in its economic freedom, becoming only a “moderately free” economy. Britain recorded its lowest rating ever, being placed in 28th position on the index.
Central Europe fares better than France and China
Five countries, which are part of The Three Seas Initiative, found themselves higher than Great Britain in the economic freedom index. Estonia achieved a spectacular result, jumping to sixth place in the global ranking. Only Switzerland and Ireland had better results in Europe. Tallinn was praised for doing well in all categories assessed by the ranking authors. “The debt burden remains quite low and has not undermined long-term economic competitiveness. Flexibility and openness have equipped the economy with an impressive ability to adjust to external shocks,” wrote the creators of the index.
Apart from Estonia, four countries from Central Europe were placed in the category “mostly free.” Others are Latvia (17th place), Lithuania (20th), Czechia (21st), and Austria (23rd). The first four of these countries are praised for “market openness and business regulations.” A strong advantage of Austria is its institutional strength. Together, these countries are an integral part of the economic freedom zone formed primarily by European and North American countries coupled with Australia and New Zealand.
The Three Seas Initiative countries, being classified as either a “mostly free” or “moderately free” economy in the 2023 Index of Economic Freedom, have demonstrated a notable level of resilience despite the challenging economic and political environments. Particularly considering the ongoing barbaric war in the region inflicted by Russia – explains in the interview with “3 Seas Europe” Anthony Kim, a research fellow in Economic Freedom and editor of the Index of Economic Freedom.
Economic freedom unleashed
There are seven Central European countries in the “moderately free” category: Bulgaria (32nd place), Slovakia (33rd), Slovenia (37th), Poland (40th), Croatia (46th), Romania (53rd), Hungary (54th). All these countries were praised for “stable business climate,” dynamic entrepreneurial environment,” and “a vibrant private sector.” All The Seas Initiative countries were placed in this ranking above such economic powerhouses as France, Mexico, Italy, Brazil, and China.
What should Central European countries do to advance in the next edition of this index? – Nonetheless, they need to be further encouraged to pursue and adopt policies that will lure private investment and spur market-led economic growth and development – suggests Anthony Kim. – Greater economic freedom means freeing untapped entrepreneurs and unleashing the 3SI countries’ economic potentials, which are necessary for sustained growth and development. They should be encouraged to adopt more pro-markets, pro-growth policies that facilitate development that is led by the private sector because the real long-term transformative investments in the critical region will come ultimately from the private sector – adds Kim, the main author of the Index of Economic Freedom.
Looking at the pace at which Central European countries are developing, one can guess that it is only a matter of time before they manage to catch up in those areas where they are now lagging behind. “There are no great limits to growth because there are no limits to human intelligence, imagination, and wonder,” Ronald Reagan used to say. CEE countries show that the sky is the limit. They know that it is only up to them how high they manage to fly. And they make clearly determined enough to take the chance to fly as high as possible.
