Fraser Institute’s latest annual report has ranked Iran among the 10 lowest-rated countries in terms of economic freedom.
The new set of released data, which date back to 2020, show Iran at 159th place among 165 jurisdictions.
The new Economic Freedom of the World (EFW) ranking is down one place compared to the previous round of the report (2019 data).
Hong Kong remains in the top position, though its rating fell an additional 0.28 points. Singapore, once again, comes in second. The next highest-scoring nations are Switzerland, New Zealand, Denmark, Australia, United States, Estonia, Mauritius and Ireland.
The rankings of some other major countries are Japan (12th), Canada (14th), Germany (25th), Italy (44th), France (54th), Mexico (64th), India (89th), Russia (94th), Brazil (114th) and China (116th).
The 10 lowest-rated countries are: Democratic Republic of Congo, Algeria, Republic of Congo, Iran, Libya, Argentina, Syria, Zimbabwe, Sudan and lastly, Venezuela.
Iran’s 4.96 rating in the new EFW report marks the lowest in 20 years, according to Tehran Chamber of Commerce.
The global average rating fell to 6.84 in 2020 from 7 in 2019, erasing about a decade’s worth of improvement in economic freedom in the world. The policy responses to the coronavirus pandemic undoubtedly contributed to an erosion of economic freedom for most people in 2020. Even after the recent decline of between 2000 and 2020, the average economic-freedom rating increased to 6.84 from 6.59.
Nations in the top quartile of economic freedom had an average per-capita GDP of $48,251 in 2020, compared to $6,542 for nations in the bottom quartile (PPP constant 2017, international $).
In the top quartile, the average income of the poorest 10% was $14,204, compared to $1,736 in the bottom quartile. Interestingly, the average income of the poorest 10% in the most economically free nations is more than twice the average per-capita income in the least free nations.
In the top quartile, 2.02% of the population experience extreme poverty ($1.90 a day) compared to 31.45% in the lowest quartile.
Life expectancy is 80.4 years in the top quartile compared to 66 years in the bottom quartile.
The Fraser Institute is a Canadian public policy think tank headquartered in Vancouver, with additional offices in Calgary, Toronto and Montreal, and ties to a global network of 80 think tanks through the Economic Freedom Network.
Economic Freedom Defined
Economic freedom is based on the concept of self-ownership. Because of this self-ownership, individuals have a right to choose — to decide how to use their time and talents to shape their lives.
On the other hand, they do not have a right to the time, talents and resources of others. Thus, they have no right to take things from others or demand that others provide things to them.
The cornerstones of economic freedom are personal choice, voluntary exchange, open markets and clearly defined and enforced property rights. Individuals are economically free when they are permitted to choose for themselves and engage in voluntary transactions as long as they do not harm the person or property of others. When economic freedom is present, the choices of individuals will decide what and how goods and services are produced. Put another way, economically free individuals will be permitted to decide for themselves rather than having options imposed on them by the political process, or the use of violence, theft or fraud by others.
The EFW index is designed to measure the degree to which the institutions and policies of countries are consistent with economic freedom. In order to achieve a high EFW rating, a country must do some things, but refrain from others.
Governments enhance economic freedom when they provide an infrastructure for voluntary exchange and protect individuals and their property from aggressors using violence, coercion and fraud to seize things that do not belong to them. To this end, the legal system is particularly important.
The country’s legal institutions must protect the person and property of all individuals from the aggressive acts of others and enforce contracts in an even-handed manner. It must also refrain from actions that restrict personal choice, interfere with voluntary exchange and limit entry into markets.
Economic freedom is reduced when taxes, government expenditures and regulations are substituted for personal choice, voluntary exchange and market coordination.
The EFW measure might be thought of as a measure of the degree to which scarce resources are allocated by personal choices coordinated by markets rather than centralized planning directed by the political process. It might also be thought of as an effort to identify how closely the institutions and policies of a country correspond with the classical liberal ideal of a limited government, where the government protects property rights and arranges for the provision of a limited set of “public goods” such as national defense and access to money of sound value, but little beyond these core functions.
Five Areas
The degree of economic freedom is measured in five broad areas:
Size of Government: As government spending, taxation and government-controlled enterprises increase, government decision-making is substituted for individual choice and economic freedom is reduced. Iran’s rating in this area in the new report stood at 6.99, placing it at the 62nd spot.
Legal System and Property Rights: Protection of persons and their rightfully acquired property is a central element of both economic freedom and civil society. Indeed, it is the most important function of government. Iran’s rating in this area in the new report stood at 3.6, placing it at the 145th spot.
Sound Money: Inflation erodes the value of rightfully earned wages and savings. Sound money is thus essential to protect property rights. When inflation is not only high but also volatile, it becomes difficult for individuals to plan for the future and thus use economic freedom effectively. Iran’s rating in this area in the new report stood at 6.2, placing it at the 154th spot.
Freedom to Trade Internationally: Freedom to exchange — in its broadest sense, buying, selling, making contracts — is essential to economic freedom, which is reduced when freedom to exchange does not include businesses and individuals in other nations. Iran’s rating in this area in the new report stood at 2.6, placing it at the 164th spot.
Regulation: Governments not only use a number of tools to limit the right to exchange internationally; they may also impose onerous regulations that limit the right to exchange, gain credit, hire or work for whom you wish, or freely operate your business.
Iran’s rating in this area stood at 5.5, placing it at the 150th spot.
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