Fred McMahon Vice-President International Research The Fraser Institute Economic Freedom of the World: 2011 Annual Report Part 1 Presentation for the Conference

Fred McMahonVice-President International Research

The Fraser Institute

Economic Freedom of the World: 2011 Annual Report

Part 1

Presentation for the Conference

“Competition: Engine for Prosperity”

10-13 October 2011Kuala Lumpur, Malaysia

What is Economic FreedomWhat is Economic Freedom

Individuals have economic freedom when property they acquire without the use of force, fraud, or theft is protected from physical invasions by others and they are free to use, exchange, or give their property as long as their actions do not violate the identical rights of others. An index of economic freedom should measure the extent to which rightly acquired property is protected and individuals are engaged in voluntary transactions.

James Gwartney et al. 1996

Components of the Economic Components of the Economic

Freedom of the World IndexFreedom of the World Index

• Size of government and taxation• Private property and the rule of law• Soundness of money• Trade regulation and tariffs• Regulation of business, labor and

capital markets

Overall Economic Freedom Index Overall Economic Freedom Index and the Top 10and the Top 10

Source: The Fraser Source: The Fraser Institute.Institute.

0 2 4 6 8 10

Score (out of 10)

Hong Kong

Singapore

New Zealand

Switzerland

Australia

Canada

Chile

United Kingdom

Mauritius

United States

Overall Economic Freedom Overall Economic Freedom Index and the Bottom TenIndex and the Bottom Ten

0 2 4 6 8 10

Score (out of 10)

Chad

Burundi

Congo, Rep. Of

Guinea-Bissau

Central Afr. Rep.

Congo, Dem. R.

Angola

Venezuela

Myanmar

Zimbabwe


Asia scoresAsia scores


4.165.5

6.036.46.436.466.486.56.686.716.876.91

7.297.327.377.44

7.988.2

8.689.01

0 2 4 6 8 10

Score (out of 10)

Hong KongSingapore

New ZealandAustralia

JapanTaiwan

Korea, SouthMongolia

Pap. New GuineaThailand

FijiMalaysia

IndonesiaVietnam

PhilippinesChinaIndia

PakistanNepal

Myanmar

Asia ranksAsia ranks


140129

11494

928988

847877

6561

3630

2622

5321

0 20 40 60 80 100 120 140

Hong KongSingapore

New ZealandAustralia

JapanTaiwan

Korea, SouthMongolia

Pap. New GuineaThailand

FijiMalaysia

IndonesiaVietnam

PhilippinesChinaIndia

PakistanNepal

Myanmar

World Average World Average Economic Freedom Over TimeEconomic Freedom Over Time

6.10 5.50

5.53

5.56

5.87

6.25

6.58

6.69

6.73

6.74

6.67

6.66

0

2

4

6

8

10

Eco

no

mic

Fre

edo

m S

core

1970 1975 1980 1985 1990 1995 2000 2005 2006 2007 2008 2009


Why is Economic Freedom Why is Economic Freedom Important?Important?

• Economic rights are fundamental rights in the sense that without them there can be no political freedom or civil freedoms

• They are a prerequisite for growth and development

• They are a prerequisite for broader human development

The impact on prosperityThe impact on prosperity and development and development

Per Capita Income and Economic Per Capita Income and Economic Freedom QuartileFreedom Quartile

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

GD

P P

er C

apit

a (p

pp

), 2

009

Least FreeQuartile

3rd Quartile2nd QuartileMost FreeQuartile

Sources: The Fraser Institute; The World Bank, World Development Sources: The Fraser Institute; The World Bank, World Development Indicators, Indicators, 2011.2011.

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

Growth in Developing Nations Per Growth in Developing Nations Per Capita and Economic Freedom QuartileCapita and Economic Freedom Quartile

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

GD

P P

er

Ca

pit

a %

Gro

wth

,

19

90

-20

09

Least FreeQuartile


Sources: The Fraser Institute; The World Bank, World Development Indicators, Sources: The Fraser Institute; The World Bank, World Development Indicators, 2011.2011.


Economic Freedom, the Poor, andEconomic Freedom, the Poor, andInequalityInequality

Income Share of the Poorest 10% and Income Share of the Poorest 10% and

Economic FreedomEconomic Freedom

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

Inco

me S

hare

Held

by

Lo

west

10%

, 1990-2

009

Least FreeQuartile

3rdQuartile

2ndQuartile

Most FreeQuartile



Income of the Poorest 10% and Income of the Poorest 10% and

Economic FreedomEconomic Freedom

$0$1,000$2,000$3,000$4,000$5,000$6,000$7,000$8,000$9,000

Inco

me o

f th

e L

ow

est

10%

, 1990-2

009

Least FreeQuartile

3rdQuartile

2ndQuartile

Most FreeQuartile



Economic Freedom, Governance, Economic Freedom, Governance, and Democracyand Democracy

Economic Freedom and Political RightsEconomic Freedom and Political RightsLow scores indicate high level of rights Low scores indicate high level of rights

0.0

1.0

2.0

3.0

4.0

5.0

Po

litic

al R

igh

ts (

ou

t o

f 7)

Least FreeQuartile


Sources: The Fraser Institute; Freedom House, Freedom in the World Country Ratings, Sources: The Fraser Institute; Freedom House, Freedom in the World Country Ratings, 2009, available at http://www.freedomhouse.org/.2009, available at http://www.freedomhouse.org/.


Economic Freedom and Civil RightsEconomic Freedom and Civil RightsLow scores indicate high level of rights Low scores indicate high level of rights

0.0

1.0

2.0

3.0

4.0

5.0

Civ

il L

iber

ties

(

ou

t o

f 7)

Least FreeQuartile


Sources: The Fraser Institute; Freedom House, Freedom in the World Country Ratings, Sources: The Fraser Institute; Freedom House, Freedom in the World Country Ratings, 2009, available at http://www.freedomhouse.org/.2009, available at http://www.freedomhouse.org/.


Economic Freedom and CorruptionEconomic Freedom and CorruptionHigh scores indicate low corruptionHigh scores indicate low corruption

0

2

4

6

8

10

Co

rru

pti

on

Ra

tin

g

(ou

t o

f 1

0)

Least FreeQuartile


Sources: The Fraser Institute; Transparency International, Corruption Perceptions Index, Sources: The Fraser Institute; Transparency International, Corruption Perceptions Index, 2010 available at http://www.transparency.org.2010 available at http://www.transparency.org.


The impact of Economic Freedom on The impact of Economic Freedom on other indicators of well-beingother indicators of well-being

Economic Freedom and Economic Freedom and Life SatisfactionLife Satisfaction

0.01.02.03.04.05.06.07.08.0

Lif

e S

atis

fact

ion

(o

ut

of

10)

Least FreeQuartile


Sources: The Fraser Institute; (un)Happy Planet Index 2.0. Why good lives don't have Sources: The Fraser Institute; (un)Happy Planet Index 2.0. Why good lives don't have to cost the Earth. 2009.to cost the Earth. 2009.


LiteracyLiteracyMale FemaleMale Female

0.5

20.5

40.5

60.5

80.5

100.5

Least FreeQuartile

3rd Quartile2nd QuartileMost Free Quartile


Sources: The Fraser Institute; United Nations Development Programmme, Human Sources: The Fraser Institute; United Nations Development Programmme, Human Development Indicators 2011, available at http://hdr.undp.org/.Development Indicators 2011, available at http://hdr.undp.org/.

Life Expectancy at Birth and Life Expectancy at Birth and Economic Freedom QuartilesEconomic Freedom Quartiles

0

20

40

60

80

Yea

rs

Least FreeQuartile


Sources: The Fraser Institute; The World Bank, World Development Indicators, Sources: The Fraser Institute; The World Bank, World Development Indicators,

2011.2011.


Malaysia comparisons

Malaysia and the worldMalaysia and the world

0.0

2.0

4.0

6.0

8.0

10.0

RegulationFreedom to TradeSound MoneyLegal SystemSize of GovernmentOverall

Malaysia

World Average

Top 10

Sources: The Fraser Institute; Sources: The Fraser Institute;

Per Capita Income and Economic Per Capita Income and Economic Freedom QuartileFreedom Quartile

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

GD

P P

er C

apit

a (p

pp

), 2

009

Least FreeQuartile

3rd QuartileMalaysia2nd QuartileMost FreeQuartile

Sources: The Fraser Institute; The World Bank, World Development Sources: The Fraser Institute; The World Bank, World Development Indicators, Indicators, 2011.2011.


Size of governmentSize of government

0.0

2.0

4.0

6.0

8.0

10.0

1A General gov'tconsumption

spending

1B Transfersand subsidies

1C Gov'tenterprises and

investment

1Di Top MarginalIncome Tax Rate

1Dii Top MarginalIncome and

Payroll Tax Rate

1D Top marginaltax rate

1 Size ofGovernment

Malaysia

World Average

Top 10


Legal and property rights: 1Legal and property rights: 1

0.0

2.0

4.0

6.0

8.0

10.0

2A Judicialindependence

2B Impartial courts2C Protection ofproperty rights

2D Militaryinterference in rule of

law and politicalprocess

2 Legal System &Property Rights

Malaysia

World Average

Top 10


Legal and property rights: 2Legal and property rights: 2

0.0

2.0

4.0

6.0

8.0

10.0

2E Integrity of the legalsystem

2F Legal enforcement ofcontracts

2G Regulatory restrictions onthe sale of real property

2 Legal System & PropertyRights

Malaysia

World Average

Top 10


Sound MoneySound Money

0.0

2.0

4.0

6.0

8.0

10.0

3A Money growth3B Standard deviationof inflation

3C Inflation: Mostrecent year

3D Freedom of citizensto own foreigncurrency bank

accounts

3 Sound Money

Malaysia

World Average

Top 10


Freedom to Trade: 1Freedom to Trade: 1

0.0

2.0

4.0

6.0

8.0

10.0

4Ai I

nter

natio

nal

trade

tax

reve

nues

(% o

f tra

de s

ecto

r)

4Aii

Mea

n ta

riff r

ate

4Aiii

Sta

ndar

dde

viat

ion

of ta

riff

rate

s

4A T

arrif

s

4Bi N

onta

riff t

rade

barr

iers

4Bii

Com

plia

nce

cost

s of

impo

rting

/exp

ortin

g

4B R

egul

ator

yTr

ade

Barr

iers

4 F

reed

om to

Tra

deIn

tern

atio

nally

Malaysia

World Average

Top 10


Freedom to trade: 2Freedom to trade: 2

0.0

2.0

4.0

6.0

8.0

10.0

4C S

ize o

f tra

de s

ecto

rre

lativ

e to

exp

ecte

d

4D B

lack

mar

ket

exch

ange

rate

s

4Ei F

orei

gnow

ners

hip/

inve

stm

ent

rest

rictio

ns

4Eii

Capi

tal C

ontro

ls

4E In

tern

atio

nal

Capi

tal M

arke

tCo

ntro

ls

4 F

reed

om to

Tra

deIn

tern

atio

nally

Malaysia

World Average

Top 10


Credit market regulationsCredit market regulations

0.0

2.0

4.0

6.0

8.0

10.0

5Ai Ownership ofbanks

5Aii Foreign bankcompetition

5Aiii Private sectorcredit

5Aiv Interest ratecontrols/Negative real

interest rates)

5A Credit MarketRegulation

Malaysia

World Average

Top 10


Labor market regulationsLabor market regulations

0.0

2.0

4.0

6.0

8.0

10.0

5Bi Hiring Regulations andMinimum WageMinimum wage

5Bii Hiring andfiring

regulations

5Biii Centralizedcollectivebargaining

5Biv HoursRegulations

Unemploymentinsurance

Mandated hiringcosts

5Bv Mandateddismissal costs

5Bvi Conscription

5B LaborMarket

Regulations

Malaysia

World Average

Top 10


Business regulationsBusiness regulations

0.0

2.0

4.0

6.0

8.0

10.0

5Ci Price controls

5Cii Admrequirem

ents

5Ciii Burcry Costs

5Civ Startingbusiness

5Cv Extrapaym

ents

5Cvi Licensingrestrictions

5Cvii Taxcom

pliance

5C BusinessRegulations

Malaysia

World Average

Top 10


ConclusionsConclusions

Economic Freedom

• Increases prosperity for all

• Reduces poverty

• Increases other freedoms

• Improves quality of life

• To achieve these gains, Malaysia needs to increase economic freedom

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Documents

Fred McMahon Vice-President International Research The Fraser Institute Economic Freedom of the World: 2011 Annual Report Part 1 Presentation for the Conference