According to an annual index conducted by the Heritage Foundation—an American conservative think tank—Switzerland is currently the most economically free country in Europe. Their 2016 Index of Economic Freedom put Switzerland in fourth place in the overall rankings, just behind Hong Kong, Singapore, and New Zealand. It was also one of only five countries, along with Australia, to qualify for their economically “free” status (which required a score of 80+ out of 100.) Even more impressive, Switzerland was the only country in the top five not to decrease their overall score from last years ratings. In fact, Switzerland’s score improved by half a point, giving it a final score of 81 points this year.
About the Index
The Heritage Foundation has been measuring hundreds of countries for various principles of economic freedom for over twenty years, publishing their findings annually in The Wall Street Journal.
So what is economic freedom, exactly? According to The Heritage Foundation,
“Economic freedom is the fundamental right of every human to control his or her own labor and property. In an economically free society, individuals are free to work, produce, consume, and invest in any way they please. In economically free societies, governments allow labor, capital, and goods to move freely, and refrain from coercion or constraint of liberty beyond the extent necessary to protect and maintain liberty itself.”
The Heritage Foundation’s mission is “to formulate and promote conservative public policies based on the principles of free enterprise, limited government, individual freedom, traditional American values and a strong national defense.”
How the Index is Compiled
The Index looks at 10 quantitative and qualitative factors that fall under four categories they believe make up economic freedom:
- Rule of Law (property rights, freedom from corruption);
- Limited Government (fiscal freedom, government spending);
- Regulatory Efficiency (business freedom, labor freedom, monetary freedom); and
- Open Markets (trade freedom, investment freedom, financial freedom).
Each country is graded based on these ten factors on a scale of 0 to 100, with their overall score being derived as an average of these totals. Because the Heritage Foundation considers every component equally important in contributing to economic freedom, equal weight is given to each individual score when determining the averaged final score.
The 2016 Index measured data from 178 countries covering the second half of 2014 through the first half of 2015, with all information being current as of June 30, 2015.
The vast majority of Europe’s economies were found to be at least “moderately free” by Index standards, but Switzerland was the only European nation to be considered the top-most “free” status.
The Swiss economy did particularly well in the categories of Rule of Law, Open Markets, and Regulatory Efficiency, while their biggest area of concern was Control of Government Spending.
According to the Index’s authors, “The Swiss economy benefits from high levels of flexibility and institutional strengths that include strong protection of property rights and minimum tolerance for corruption. An independent and corruption-free judiciary enforces contracts effectively. Openness to global trade and investment has enabled Switzerland to become one the world’s most competitive and innovative economies.”
Economic freedom grew in 21 of Europe’s 44 graded countries and declined in 22. Five economies were found to be “mostly unfree” (Croatia, Bosnia and Herzegovina, Moldova, Greece, and Russia), and two fell under “repressed” economies (Ukraine and Belarus). Europes most-improved score went to Serbia, which rose by 2.1 points in the “moderately free” devision. Croatia saw the greatest decline, losing 2.4 points and falling into the “mostly unfree” devision. After losing 1.5 points from last year, Russia has become dangerously close to joining the ranks of the “repressed” economies.
The world average score was 60.7, which is the highest overall average ever recorded in the 22-year history of the Index. Thirty-two countries, including Germany, Lithuania, and Poland, achieved their highest scores to date. Among the 178 countries ranked, scores improved for 97 and declined for 74.
Countries found to be “Mostly free” included the United Kingdom (10th), the United States (11th), Germany (17th), United Arab Emerites (25th), and Israel (35th). “Moderately free” countries included France (75th), Italy (86th), and Turkey (79th). Croatia (103rd), Greece (138th), and Russia (153rd) were found to be “mostly unfree,” and the Ukraine (162nd), Argentina (169th), and Cuba (177th) fell into the lowest category, “repressed.”
Last place, by some distance, was North Korea, although eight mostly war-torn countries were not ranked, including Afghanistan, Somalia, Iraq, Sudan, Libya, Syria, Liechtenstein, and Yemen.
Utilizing the data within the index, the author’s have seen a positive relationship between economic freedom and a variety of positive social and economic goals including healthier societies, cleaner environments, greater per capita wealth, human development, democracy, and poverty elimination. They hope their annual analysis can serve an important tool for a variety of audiences, including academics, policy makers, journalists, students, teachers, and those in business and finance.
Below you will find a PDF fully exploring Switzerland’s individual scores and performance by category.
Etienne Kiss-Borlase is a financial expert in Geneva. To learn more about his life and career, please visit his main website.