Do Economic Freedom Rankings Matter?
A reader wrote in recently to say that he was thinking about relocating from the United States but would consider only those countries with more economic freedom than the United States. This, he explained, meant that he wouldn’t be considering any of the countries I write about that aren’t ranked higher than the United States in the Heritage Foundation’s Index of Economic Freedom.
I responded to say that I thought this a narrow-sighted and severely and unnecessarily limiting approach. The only affordable options that rank better than the United States on the Heritage Foundation’s list are Canada, Chile, and Mauritius (the reader also wasn’t interested in Mauritius, he told me in the course of the conversation, as he didn’t know where it is).
Another reader wrote in recently with links to both the Heritage index and another economic freedom index. The rankings for the two are similar. The top quarter or so is mostly European countries plus Hong Kong, Singapore, Australia, New Zealand, Chile, Peru, and several Middle Eastern countries.
What are you, the global citizen and investor, to take away from all this? Beats me.
All indexes like these are inherently flawed, as they are compilations and rankings of available statistics. They are backward-looking and must push available data into slots as may or may not make sense.
If you’re looking to go abroad to start a business, certainly “economic freedom” isn’t to be ignored and it comes into play, too, of course, when considering an investment, including a real estate investment. You should factor in the country’s economic prospects as you conceive your eventual exit strategy.
However, I don’t know that I’d choose a place to live based on its ranking in an economic freedom survey.
Argentina and Ecuador are both at the bottoms of the surveys I reference above. Argentina is one of my favorite countries. I wouldn’t try to start a business there, but I’d jump at a chance to live here for a while and would invest in real estate in this country for personal use without hesitation.
Ecuador is one of the top retirement options for North Americans because it’s one of the least expensive places to live comfortably in this hemisphere. I also know several entrepreneurs who have done well for themselves in Ecuador, so, again, I wouldn’t cross it off your doing-business list on the basis of these surveys alone. It, like Argentina, has a great deal to offer for living and even for investing, depending on your perspective, your agendas, and your risk tolerance.
The sweet spot in these economic indexes, I’d say, is among the middle 50% of the rankings. That’s where you’ll find much of Latin America and Eastern Europe and some Asian hot spots like the Philippines, Malaysia, and Thailand. If you’re an entrepreneur looking for opportunity, focus on this section of the list. Despite being “less” economically free than the United States and other more developed countries, many of these places have expanding middle classes and/or growing foreign retiree markets to tap into.
Certainly, you don’t want to set up shop in a country where the government (or the organized crime team running the place, as the case may be) is not opposed to swooping in and taking your business away once you’ve made it successful. That said, I’d opt for operating in a country that is “less” economically free but that offers real economic opportunity over starting a business in an “economically free” country where the entrepreneur must spend a fortune on attorneys and permits just to get his new business off the ground.
As for the reader who refuses to move to a country that isn’t as economically free as the United States, his options are expanding. The United States has fallen in these charts over the last few years and likely will continue to do so.