Israel is in the middle of economic rankings
South Florida Sun-Sentinel
September 19, 2007

Israel has seen a slight improvement in its level of economic freedom over the past decade but is falling behind compared to the rest of the world, according to the Economic Freedom of the World: 2007 Annual Report, a new report released by the Jerusalem Institute for Market Studies, a non-profit economic policy think tank. Hong Kong once again tops international rankings for economic freedom, with Singapore a close second and New Zealand in the third spot. The United States is ranked seventh.

Israel ranked 44th this year, after ranking 39th in last year’s report. Despite the drop in ranking, however, Israel's cumulative score improved 0.1 points to 7.1 in 2005, the latest year in which data is available.

The annual peer-reviewed report uses 42 different measures to create an index ranking countries around the world based on policies that encourage economic freedom. The cornerstones of economic freedom are personal choice, voluntary exchange, freedom to compete, and security of private property.

Israel has seen drastic improvements over the past 25 years and become a freer society. This coincides with a global trend towards greater economic freedom. "While Israel has moved from a socialist to a post-socialist economy it is not moving fast enough to keep up with the rest of the world,” said Corinne Sauer, director of the Jerusalem Institute for Market Studies (JIMS). “While Israel has seen several positive changes such as the decline of socialism in and a burgeoning high-tech sector and tremendous entrepreneurship, Israelis are more divided then ever. While there is greater support for capitalism and a free economy than ever before, there are other segments of Israel's population that have become entrenched in their support for socialism and an unfree economy.”

Research shows that individuals living in countries with high levels of economic freedom enjoy higher levels of prosperity, greater individual freedoms, and longer life spans.

Five nations, including Israel, increased their score by more than three points since 1980: Hungary (3.0), Peru (3.0), Uganda (3.2), Ghana (3.6), and Israel (3.7).

These measures are part of a fundamental base needed to build a free and prosperous nation. A quick glance at the countries scoring lowest on the index shows that without protection of property rights and judicial independence, there is little individual freedom and little in the way of prosperity,” said Robert Sauer, president of JIMS and a professor of economics at the University of Southampton.

The report includes new research from Russell Sobel, economics professor at West Virginia University, and Peter Leeson, professor in the study of capitalism at George Mason University, showing how economic freedom spreads between countries.

They write that historically, many foreign policy decisions have been based on the notion that economic reforms in a few key nations would substantially improve the economies of other countries throughout the region – the so-called “domino effect.” They conclude that while economic freedom changes in one country have only a modest impact on neighboring countries, when multiple neighbors experience simultaneous changes in economic freedom, the impact is much greater.

This research indicates that free-trade agreements allowing a number of nations to simultaneously coordinate trade liberalization could have a sizeable influence on spreading economic freedom to economically repressed regions of the world, they said. But Israel's ranking in freedom to trade internationally has declined over the past few years. Its score in taxes on international trade is the lowest since 1980.

“By reducing freedom on international trade and raising taxes and tariffs the government has not only made goods more expensive for the average consumer – a regressive prohibition which especially harms the poor and middle class – but has also reduced the chances of promoting economic freedom among our neighbors, who truly live in an unfree environment,” said Avi Hein, Director of Programs at Jerusalem Institute for Market Studies. “In Milton Friedman's Capitalism and Freedom he made the case that economic freedom was required in order for their to be political freedom. The more economic freedom in Israel, the more likely that, over time, this domino effect could allow us to live in peace and security with our neighbors.”

The annual report is published in conjunction with the Economic Freedom Network, a group of independent research and educational institutes in more than 70 nations. For more information, visit www.freetheworld.com. For more about the Jerusalem Institute for Market Studies, visit www.jims-israel.org or contact Avi Hein at 02-561-1689 or avi.hein@jims-israel.org.