To Minsk (Минск) and Beyond!

The Impacts of Comparative Economic Freedom in Belarus

Today I wanted to explore the idea of economic freedom as it relates to the complex geopolitical, economic, and sociocultural circumstances that have wide sweeping impacts on the workplace and the experience of workers, particularly with regards to Belarusian organizations effectively competing in an increasingly global marketplace (both global consumer and labor markets, though most of these impacts will need to be hashed out in future posts).  

One useful definition of economic freedom is as follows: "The freedom to prosper within a country without intervention from a government or economic authority. Individuals are free to secure and protect his/her human resources, labor and private property. Economic freedom is common in capitalist economies and must incorporate other civil liberties to be deemed as truly free" (www.businessdictionary.com).

The most commonly used and arguably the most quantitatively robust measure of economic freedom to date is the Index of Economic Freedom (a series of 10 economic measurements created by The Heritage Foundation and The Wall Street Journal, which purports to measure the degree of economic freedom in the world's nations).  The index scores nations on 10 broad factors of economic freedom using statistics from organizations like the World Bank, the International Monetary Fund and the Economist Intelligence Unit (for full list of data sources see: http://www.heritage.org/index/book/major-works), including the following:

• Business Freedom: Business freedom is a quantitative measure of the ability to start, operate, and close a business that represents the overall burden of regulation as well as the efficiency of government in the regulatory process.
• Trade Freedom: Trade freedom is a composite measure of the absence of tariff and non-tariff barriers that affect imports and exports of goods and services. Different imports entering a country can, and often do, face different tariffs.
• Monetary Freedom: Monetary freedom combines a measure of price stability with an assessment of price controls. Both inflation and price controls distort market activity. Price stability without microeconomic intervention is the ideal state for the free market.
• Government Size/Spending: This component considers the level of government expenditures as a percentage of GDP. Government expenditures, including consumption and transfers, account for the entire score.
• Fiscal Freedom: Fiscal freedom is a measure of the tax burden imposed by government.
• Property Rights: The property rights component is an assessment of the ability of individuals to accumulate private property, secured by clear laws that are fully enforced by the state.
• Investment Freedom: In an economically free country, there would be no constraints on the flow of investment capital. Individuals and firms would be allowed to move their resources into and out of specific activities internally and across the country’s borders without restriction.
• Financial Freedom: Financial freedom is a measure of banking efficiency as well as a measure of independence from government control and interference in the financial sector.
• Freedom from Corruption: Corruption erodes economic freedom by introducing insecurity and uncertainty into economic relationships. The higher the level of corruption, the lower the level of overall economic freedom and the lower a country’s score.
• Labor Freedom: The labor freedom component is a quantitative measure that looks into aspects of the legal and regulatory framework of a country’s labor market.

The 10 factors are averaged equally into a total score. Each one of the 10 freedoms is graded using a scale from 0 to 100, where 100 represents the maximum freedom. A score of 100 signifies an economic environment or set of policies that is most conducive to economic freedom (for full methodological description, see: http://www.heritage.org/index/book/methodology).  

Figure 1 below shows a color-coated categorization of economic freedom around the world in 2012, along with world averages of each of the 10 factors listed above.  A score of 100-80 (dark green) is considered "free"; a score of 79.9-70 (light green) is considered "mostly free"; a score of 69.9-60 (yellow) is considered "moderately free"; a score of 59.9-50 (orange) is considered "mostly unfree"; and a score of 49.9 and below (red) is considered "repressed." 
 

Figure 1: 2012 Economic Freedom World Heat Map

"2012 Index of Economic Freedom," The Heritage Foundation and the Wall Street Journal (www.heritage.org/index/heatmap)

Figure 2 below shows a little more detail for Belarus specifically, over the past few years and in comparison to world and region averages for 2012.  In 2012, Belarus was ranked 153 out of 163 countries around the world, and 42 out of 43 countries in the region.  With an overall index score of 49, it is considered a "repressed" society in terms of economic freedom. 

Figure 2: 2012 Belarus Index of Economic Freedom

Figure 3 and Table 1 below (in case you want to see specific data points) shows 18 years of Belarus economic freedom scores for not only overall economic freedom, but also each of the 10 factors defined above.

Figure 3: Belarus Index of Economic Freedom, 1995-2012

Data Source: "2012 Index of Economic Freedom," The Heritage Foundation and the Wall Street Journal.

First, it is important to note the overall slight positive upward trend of the overall economic freedom index score over the past 18 years, driven primarily by sustained and dramatic increases in its "fiscal freedom", "monetary freedom", and "trade freedom" factor scores.  "Business freedom" has also experienced a steady increase since 2006, but that has only raised it back to the levels it was at from 1995-1997, before the big dip.  The "labor freedom" factor started being used in 2005 and has had an overall increase since then, though it has dropped the last two years.  "Government spending", "freedom from corruption", "property rights", and "financial freedom" are the lagging factors that continue to hold down the overall economic freedom index score for the country.

Table 1: Belarus Index of Economic Freedom, 1995-2012

Data Source: "2012 Index of Economic Freedom," The Heritage Foundation and the Wall Street Journal.

So why is all of this important/relevant?  First, some evidence has shown that higher economic freedom correlates strongly with higher self-reported happiness, higher average personal income, higher income of the poorest 10%, higher life expectancy, higher literacy, lower infant mortality, higher access to water sources, and lower corruption (The Cato Institute, 2007; Heritage Foundation, 2012). Secondly, many of these 10 factors of the economic freedom index are related to the comparative international structural theories I posted about at the end of last week, while each clearly directly contributes to the overall country-contextual conditions in which organizations operate and labor and daily living occurs within Belarus.  Therefore, I believe that the role of global comparative economic freedom levels (and Belarus' specific placement therein) may ultimately play an important role in helping to explain why Belarus has such comparatively low life/work satisfaction and labor characteristics attitudes, and thus deserves additional examination.