Just How Economically Free is Ecuador?

Foundations, think-tanks, governments, academics, the US News and World Reports and others are constantly searching for ways to quantify things that seem inherently qualifiable. They do this in order to compare or rank different things (like colleges in the case of US News and World Reports). While it may seem that some things are simply too subjective to measure, it doesn't stop people from searching for clever ways to do so. While all these rankings should be taken with a grain of salt (or more) they are often interesting and will at least tell you something about the issue at hand.

That is why I found the Heritage Foundation's Index of Economic Freedom interesting. It defines Economic Freedom a state in which "individuals are free to work, produce, consume, and invest in any way they please, and that freedom is both protected by the state and unconstrained by the state." It rates countries on a score of 0-100 with 80-100 being "Free" and 0-49.9 being "Repressed".

Where does Ecuador fall on their rating? It actually scores a 55.4 putting it in the category of "Mostly Unfree" (just 5.5 points above "repressed"). It sits just below Nigeria and above Azerbaijan (106/157 ranked).

Of course, this simple ranking tells us very little. However, the people at the Heritage foundation went through the work of explaining their results for each country ranked, including Ecuador. This breakdown of rankings makes the index much more compelling and tells us more about the individual cases. Ecuador scores very high in 'Fiscal Freedom' and 'Freedom from Government' (both are explained in the link above). The obvious low points are 'Freedom from Corruption' and 'Property Rights' (23% and 30% respectively).

While this all should not be too surprising (especially if you consistently read this blog), it should be emphasized that, again, these rankings require critical examination. First we need to look at the Heritage Foundation's view point. The stated mission of the foundation 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." This gives us a good idea about their approach and how they weigh different factors in their rankings (or even why they did the ranking in the first place).

A very telling comment that seems to underline their mission above actually comes in the background section, where the second half reads:

In November 2006, U.S.-trained economist Rafael Correa was elected president on a platform of tighter government control of banking and oil production, default on debt owed to international lenders, and opposition to a free trade agreement with the United States. As a result, capital flight has soared and foreign direct investment has fallen. Correa, who is an ally of Venezuela's hard-left President Hugo Chávez, has also begun the process of rewriting Ecuador's constitution and has impinged on press freedom.

Interestingly enough, the Heritage Foundation does not mention that Correa actually made the payment on the debt owed to international lenders or that the tighter control on oil production is the result of the US oil company, Occidental, actually violating its contract with the country of Ecuador. Of course, it does parenthetically mention Correa's allegiance with Chavez although, as long-time readers of this blog should know, the relationship is much more complicated than that.

So, just how economically free is Ecuador? Not very, according to the Heritage Foundation. The ranking tells us much about the country (although the break-downs and explanations tell us more, which is why you should always read them!) but we do need to approach the ranking critically. Of course Ecuador's rampant corruption is no secret, but the hard-line, leftist, Chavez-esque tendencies are not as pervasive as the foundation may suggest.

I still think it is worthwhile reading what the Heritage Foundation has to say, they do have many well respected researchers and academics working for them, but it is also important to always question rankings like this regardless of where they come from. Whenever a group tries to quantify something that seems inherently qualifiable, there is always a level of subjectivity.