Freedom increases in the world while falling in Brazil

02/02/2018


Lucas G. Freire

The 2018 Economic Freedom Index, the result of robust research sponsored by the US Heritage Foundation, has just been published. The variables of the index translate into numbers the qualities of institutions considered necessary for the operation of a market economy, such as the strength of the national monetary system or a regulatory environment where the government's hand is not an obstacle to entrepreneurship, trade and the labor market.

In general terms, it can be said that world economic freedom has increased if we compare the current situation with that of previous years. This is celebrated by the authors of the report that discloses the index, as there is a fundamental relationship between economic freedom and development.

What may surprise many is that the United States, which is generally viewed as popular capitalism as the bulwark of modern capitalism, has fallen from the index position, occupying only the eighteenth place behind the Netherlands and ahead of Lithuania.

The only countries considered economically "free" according to the index criteria are Hong Kong, Singapore, New Zealand, Switzerland, Australia and Ireland - a still small number of free countries, however, higher than in 2017.

Brazil's position in the Index of Economic Freedom has only fallen since 2012. The country is classified as "mostly non-free." The fact that the Dilma period was worse than the previous one for economic freedom according to the index is curious information, but care must be taken in these comparisons because the Foundation methodology that measures the index has been adjusted to include other variables along years. It is more useful, for example, to compare Brazil to other countries in the same time period, especially countries in the same region.

The most economically free country in Latin America is Chile, practically tied with the US in the world index. The report highlights the progress of Argentina, which despite being in the "mostly non-free" category, has been improving due to some changes implemented by the current government of that country.

Brazil, on the other hand, has worsened in its results. It currently occupies position 153, just below Sierra Leone and Uzbekistan and just ahead of Afghanistan.

According to the report, the fall in Brazil's performance in terms of economic freedom is mainly due to the "unsustainable growth of government spending", which ended up bringing public debt to 78% of GDP in 2016. The report further points out that because of this , President Michel Temer's biggest challenge is to "consolidate public finances."

Compared to 2017, the country also worsened in the areas of "labor freedom", "business freedom" and "integrity of government" rather than the improvements it achieved in "judicial effectiveness" and "property rights". Brazil's overall rating on this index is worse than the regional average in the Americas and the overall average in the world.

It should be remembered that the index uses lagged data in relation to the time of its publication. One can foresee a reversal in some variables for the next year, such as "labor liberty" that seems to have increased slightly with the legislative changes already proposed in the Temer government.

However, for a real shift towards a more economically free environment, a more substantive change in several other variables, particularly "integrity of government" and "business freedom", must be promoted. These issues will undoubtedly be part of the debates and electoral platforms in 2018.

Lucas G. Freire is professor of the Mackenzie Center of Economic Freedom and collaborator of the Monte Castelo Institute