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Wednesday, January 04, 2006

Why Little Estonia is a Big Beacon of Freedom for the World

Who could have guessed when the old Soviet empire was falling apart that one of the smallest chunks of it would within little more than a decade become Exhibit A in the case for the belief that expanding freedom is the key to prosperity?

The Wall Street Journal's Mary Anastasia O'Grady knows why it happened - Estonia's post-c0mmunist leadership and people held nothing back in reforming their nation's economy on the free market model. They refused to settle for half-hearted liberalization, with a result that their nation's per capita Gross Domestic Product doubled between 2001 and 2004.

In Chile by contrast, the South American nation that was not so long ago a world leader by virtue of such measures as privatizing its Social Security program has been virtually dead in the water. Why? A series of governments during the past decade who talked about freedom even as they retarded their nation's progress up the road of liberalization.

Notes O'Grady:

"The results may explain why political support for economic liberalism continues in Estonia, while in Chile free markets are under assault even by center-right politicians. The difference is the rate of change of progress for citizens.
"In 2004, with reforms kicking in, Estonia's per capita GDP was almost $7,500, nearly double what it was in 2001 - $3,951, when the country ranked 14th in the Index of Economic Freedom. In Chile, after 30 years of "reform," per capita GDP remains below $5,900, edging up only slightly from $4,784 in 2001, when Chile ranked 13th."

Those data and the rankings that produced them are found in the "2006 Index of Economic Freedom" out this week. Jointly published by the Journal and The Heritage Foundation, the Index ranks the world's 161 nations according to data for 50 independent variables that measure the economic freedom each permits.

O'Grady has much more to say in today's Journal. You can read her wise observations here. You can find out more about the Index on The Heritage Foundation web site here. Among the many great features of the Index web site is that it allows you to download the raw data in an Excel spreadsheet.

There are also downloads for the executive summary, as well as chapters on "The Failures of State Schooling in Developing Countries and the Peoples' Response," "Grassroots Capitalism Thrives in India" and "Informal Finance: Encouraging the Entrepreneurial Spirit in Post-Mao China."

The Index is truly a world tour of the state of freedom around the globe. By the way, in case you are wondering how the U.S. does in the Index, it ranks in a tie with Australia and New Zealand for ninth.