The Canadian Fraser Institute published the latest Index of Economic Freedoms – Serbia is ranked 74th out of a total of 162 places on the world ranking list. At the very top of the list of the freest parts of the world are Hong Kong and Singapore, followed by New Zealand, Switzerland, Australia, USA, Mauritius, Georgia, Canada, Ireland, Denmark, Lithuania, United Kingdom, Chile, Estonia, Taiwan, Malta, Armenia, Latvia and Japan.
The Index of Economic Freedoms is published on an annual basis using the latest available and comprehensive data – so in the report for 2020, we are actually looking at the situation from 2018.
Fred McMann, an economist and senior associate at the Fraser Institute, spoke for Talas about the champions of economic freedoms in the world, the greatest threats to freedom, and its importance for the everyday life of all of us.
What should Serbia do to liberate the economy?
Ranked 74th out of 162 countries, Serbia received a total score of 7.05 on a scale of 1 to 10. Although the methodology used to calculate the index has changed in the meantime, so we cannot reliably compare the results with last year’s, it is clear that we have not made much progress.
How can we reach a freer economy and, therefore, a richer society?
“The easiest area in which Serbia can progress quickly is the size of the public sector, which was assessed very poorly, having in mind the level of development. The large public sector contributes to corruption, as has been the case in Hong Kong and Singapore, and the easiest reform is to reduce the size of the public sector,” Fred McMann, an economist and senior associate at the Fraser Institute, told Talas. He further cites international trade and adds that progress is also possible in this area. However, the most important thing to deal with is the rule of law. According to that indicator, Serbia is on the 64th place in the world, which is still too low. But it is also the most difficult area for reform because it includes the judiciary, judges, the prosecutor’s office and so on, our interlocutor points out.
McMann also says that it is not enough just to reach a high level of the rule of law, but that it should be preserved and fought every day – “we see challenges in Georgia, which has risen, but is now going through problems again. It is often thought that the rule of law is not an economic issue, but it is the biggest obstacle to the development of the Serbian economy,” he concluded.
The highest degree of economic freedom in history, but a decline is expected due to the pandemic
As the Index of Economic Freedoms for 2020 registers the situation from 2018, McMann emphasizes that economic freedoms at the global level are the highest so far, but that we can expect significant changes in the coming period, as data on the situation in 2020 arrived has recovered globally from losses during the global financial crisis and in this year’s report we have, on average, the highest level of economic freedoms we have seen so far, he said.
He goes on to say that there are two major reasons for concern – the first relates to the corona virus pandemic.
“Because of the covid crisis, governments around the world have increased consumption and strengthened their role in the economy, which has reduced the space for free exchange and this will have long-term consequences for economic freedoms. Of course, many economists, including me, think that some kind of state involvement was necessary, but we have had a huge increase in government spending. If this continues, governments will be under great pressure to continue with the financial support that many are already accustomed to, which will reduce the space for free exchange. It will also have a great impact on the property of citizens, since the states will collect money for that through taxes,” McMann explains. With all that in mind, he expects that the crisis will mark the end of the global growth of economic freedoms, at least in the coming years.
McMann sees another challenge in Hong Kong, which is at the top of the global top list of economic freedoms in this year’s and previous reports – as he points out, it is obvious that the Chinese Communist Party “put its paw” on Hong Kong and endangered essential for economic freedoms. It seems that China wants to import its “brotherly capitalism” to Hong Kong, which is otherwise an incredible success story. It was destroyed after the Second World War, and received tens of thousands of refugees from China, Vietnam and other Asian countries. Despite that, it became one of the freest cities in history, prosperous and free. Unfortunately, China will set back that success, warns our interlocutor. After years of growth of economic freedoms in the world, he concludes that, apparently, a global decline awaits us.
Economic freedoms in all parts of the world – proof that it is possible
Fred McMann estimates that it is exceptional that we do not see only developed western countries at the top, but it is a truly global list: “It shows us that something like this is possible anywhere in the world. Growing countries, such as Georgia, are advancing very fast. Those with a long history of economic freedoms have already achieved a high level of wealth. On the other hand, some claim that the Nordic countries are examples of some kind of modern socialism, and yet we see that Denmark is quite high on this list. Yes, the Nordic governments may have more public spending than they should, but they are rich enough to be able to afford it. In all other areas, such as the rule of law, openness to trade, regulations or the economic environment, these countries have very high results on the Index,” explains our interlocutor.
When it comes to the importance of these indicators in the daily lives of citizens, McMann points out that there are clear differences between economically free and non-free countries: “If we look at countries with a higher level of freedom, we will see more prosperous societies with lower poverty rates. It’s no mystery, we can all understand the importance of a free economy if we look at Switzerland, Taiwan, Singapore or Chile,” he said.
He singles out Venezuela as a particularly interesting case: “In 1970, Venezuela was the 10th most economically free country in the world and arguably the richest country in South America, and that happened before the price of oil skyrocketed, so it was not the result of economic freedom. In a way, it was the price of oil that killed the Venezuelan economy because politicians wanted to get rich, they set back their freedoms and paved the way for socialism and Hugo Chavez.”
In short, McMann adds, economic freedoms improve different outcomes – “they lead to better education, health, longer life expectancy, but also a greater degree of satisfaction and happiness because people want control over their own lives, we know best what we want and we should not let politicians decide,” he says, Talas reports.
