Economic Freedom, not Ideology, is the Key to Asian Wealth

By Ronald Meinardus

More than a decade ago, the global confrontation between the West and the East ended with a convincing victory of the liberal paradigm. That ideological triumph of the Western political and economic concept was so pervasive then that some argued mankind had reached the "end of history."

By now, we know this was a rash assumption, as new clashes have replaced the old lines of conflict. Here, I am not referring to the "clash of civilizations" and the US-inspired confrontation between the coalition of the willing and the various rogues assembled in the "axis of evil," but the widening row between the foes and supporters of globalization.

While technological and economic developments make it appear unlikely that globalization could be halted altogether, political intervention by governments and other actors may well curtail the speed and the extent to which the economies of the world merge. How and when this will happen has basically become a political question, and in recent years has also increasingly become ideological.

Listening to debates between supporters and opponents of globalization, one notices a clear dividing line. The pro-side says that the market and free trade are beneficial for all and the key to the solution of many problems besetting the world. Contrary to this optimism, the anti-globalization camp sees the market as the cause of many problems besetting the world and the source of much injustice.

Interestingly, the anti-globalization activists have won the contest for the minds and hearts of many people in most countries.

Ironically, their global publicity and networking campaigns rely on communication tools that are a by-product of the very world-order they are trying to get rid of.

In spite of public perceptions, a growing body of empirical data indicates that the basic assumptions of the anti-globalization camp are false. The numbers are published in the Economic Freedom Index, an annual compilation of statistics representing factors which make a country economically free.

The report ranks 123 nations representing 91 percent of the world population and clearly supports the assertion that there exists a correlation between the degree of economic freedom and development.

"The more economic freedom a country has, the more economic growth is recorded," says Michael Walker of the Canada-based Fraser Institute, who developed the Index together with other liberal economists, among them Nobel laureate Milton Friedman.

The index measures the degree of economic freedom in five distinct areas: size of government, legal structure and property rights, access to sound money, freedom of exchange with foreigners and lastly regulation of credit, labor and business.

The countries at the top of the index are also the richest nations, while the poorest countries in the world find themselves listed at the bottom of the ratings. In this year's report, two East Asian economies once more topped the list, Hong Kong and Singapore -- followed by the US, the UK, New Zealand, Switzerland and Ireland.

The rankings of other Asian countries are as follows: Japan, South Korea and Taiwan jointly ranked 26th, Thailand (ranked 44), the Philippines (51), Malaysia (60), Sri Lanka (64), India (73), Bangladesh and Indonesia (91), China (100) and Myanmar ranked 123, the last place in the table.

According to the authors of the report, North Korea would take up the lowest rating in the Index. But as there are hardly any reliable economic data from Pyongyang, the North Koreans are left out of the ranking.

Recently, economists and free-market advocates from over a dozen Asian countries assembled in Jaipur, India, for the Fifth Workshop of the Economic Freedom Network Asia. At the conference, delegates discussed the methodology, the application and also the political relevance of the Economic Freedom Index in the Asian context. One discussion centered on the fundamental issue of the definition of economic freedom.

Not all economists agreed with the notion that the smaller the role of the state in the economy the freer the economy is.

"We are talking about the freedom to have the means to lead a decent life," said Ernest Leung, president of the Philippine Stock Exchange and representative of the Foundation for Economic Freedom in Manila.

Leung added that "we are not interested in the freedom to starve."

A delegate from India supported the idea of an active role for government in promoting economic development in underdeveloped nations, arguing that "it might be good to have the freedom to purchase a refrigerator. But if I don't have electricity, that freedom means nothing."

Confronted with the argument that their program is unreceptive to the problems of the poor and marginalized sectors of society, the authors of the Index argue that their data provides ample empirical evidence that economic liberalization is the best social policy. As economic freedom generates growth, it creates the basis for welfare.

"When the income of a country grows, so do the incomes of the poor," argues Walker, referring to statistics that show that an increase in economic freedom sooner or later also leads to an increase in life expectancy, a reduction in poverty, infant mortality, child malnutrition and child labor.

According to Walker, economic liberalization is also a very potent weapon in the battle against graft and corruption.

"If you get rid of state regulations, you also get rid of those in power asking for kick-backs," he pointed out.

While free-market supporters maintain that liberalization and the reduction of the state's role in the economy is ultimately the best strategy against poverty, they do not advocate a total withdrawal of government from all sectors of the economy.

"We are not trying to promote a world where there is no government," Walker says, "Our dream is a world in which the government guarantees a system of laws that protect the economic freedoms of all members of society."

Dr. Ronald Meinardus was the former Resident Representative of the Friedrich Naumann Foundation in the Philippines and will leave Manila late September for a new posting in the Middle East. He writes a blog at www.myliberaltimes.com