The current global market has led to increased competition among countries. Although business is an individual affair, governments play an integral role in ensuring that the business environments in their respective countries are conducive and encourage prosperity. Sadly, government participation has not been uniform throughout the world. Some governments have done more than others in ensuring economic freedom.
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This paper aims at identifying Singapore as one of the countries that have greatly improved the status of its people as a result of liberalized economic freedom. In definition, economic freedom is the aspect of every individual managing his or her labor and material possessions (Carter, 2007). Hence one becomes free to work, trade, use and invest in anything and anywhere you like having the protection of the state. In this, we get to find out that countries with free economies promote prosperity for their people.
With that in mind, we need to find out how economic freedom is measured thereafter describing its variation and the effects on wealth among countries. Business freedom is the ability to start, operating and closing a business having in mind the necessary regulations put by the government. According to the Heritage Foundation (2002), a country with 100 represents the freest business environment and 0 representing a very harsh environment to do business.
Hong Kong leads with 98.7 meaning there is freedom in doing business and so in terms of wealth, the citizens are well off. North Korea has 0 thus no freedom of doing business. For this reason, wealth in the freest countries is amassed by the citizens and those countries with restrictions subject citizens to adverse poverty (The Wall Street Journal, 2011). Trade freedom, on the other hand, is a measure of the unavailability of duty and non-duty impediment that manipulate imports and exports of goods and services.
Trade freedom is founded on the standard measure of trade tax pace and the non-levied barricades.
Considering these two factors, The Heritage Foundation (2002) notes that a country will have good trade freedom if it has a non-barrier tariff of 5 points, unlike the one that will have 20 points. This is so because the higher the non-tariff barrier the more it is difficult to do a trade or rather it impedes significantly international trade. Hong Kong has trade freedom of 90.0, unlike North Korea that has 0. This in terms of wealth implies that a country with greater trade freedom will enjoy doing business without restriction thereby gaining more wealth. On the other hand, the one with no trade freedom cannot access business internationally and so wealth is limited to them (The Wall Street Journal, 2011). Fiscal freedom is a measure of the tax load forced by the government on individual and corporate organizations’ income.
From fiscal freedom, a hierarchy of issues is obtained. First, the highest levy pace on people followed by the highest tariff pace on the company’s capital then lastly the summit duty proceeds taken as a proportion of the GDP.
If the first two factors are low with the third even being higher, a country experiences low taxation. Government spending is also used as a measure of economic freedom. A government that has its spending close to zero has good economic freedom, while government spending that goes beyond 30 percent of GDP is highly penalized by having less economic freedom. This means that wealth is not equitably distributed in such a country with big-spending from the government.
Monetary freedom incorporates a measure of firm prices with consideration to price controls. Hence price increase and price controls alter constancy in the market. Hence a good free market is where stability in prices is not tampered by microeconomic intercessions. Therefore countries with wealth enjoy firm prices that are not in any way interfered with (The Heritage Foundation, 2002).
Investment freedom is the aspect of setting up a business anywhere you like without restrictions. In any economically free country, individuals and firms are allowed to engage in activities and pullout from them in and out of the countries borders. However, restrictions must be there and so the countries with few restrictions are good for doing business making wealth accessible evidence supported by Tan (2007). Financial freedom is the aspect of competence in baking and how low there are government interference and control in the finances.
The hand of the government should to just ensure that no frauds occur and be in charge of the legal tender. Such a country accepts foreign currency, gives credit and generally allows trading smoothly. Moreover, the property rights component ensures that a person can acquire wealth/property and will be protected by laws governing the state. Thus, a state with protective laws of private property will attract many people to invest and create wealth. The one with no such laws does not attract any investment subjecting it to poverty.
To achieve economic freedom, a country has to be free from corruption. This is one of the menaces that cause others to be rich especially those in power and leave the poor person poorer. And finally, there is the labor freedom that looks at the legal framework for a person to operate and work in any state. Many governments have their labor laws and guidelines for one to work and operate in their countries. If the requirements are not demanding, then a country attracts many to come and establish their firms and seek for the job opportunity. This enhances economic freedom bringing with it wealth acquisition. For those with strict measures, no one can seek opportunities, and so the wealth to be amassed is not a lot (Tan 2007).
With that in mind let me take you to a country called Singapore and see its ranking and how it has changed over the last 5-10 years. According to The Heritage Foundation (2002), it was ranked second in the world. This implies that it has one of the freest economies in the world. In 2005, its economic freedom was at 88.8. Its business freedom came to 100 since there were no restrictions that hindered starting up a business. In 2006 and 2007, the World Bank ranked it with an index of 89 regarding ease of doing business. In 2008, it got economic freedom of 87.3 with the business freedom standing at 97.8.
In 2009 it had 87.1economic freedom with the business one at 98.3 and in 2010 it emerged with 86.1 economic freedom and business freedom of 98.2. Currently, the economic freedom stands at 87.2 with business freedom of 98.2 points. A view supported by the Heritage Foundation. Singapore has a good manpower force that deals in manufacturing, transportation, business, and other services. With these, it has attracted many multinational companies who have set up firms and industries. Carter (2007) argues that the factor that makes Singapore a good economic country to do business is the low rate of taxes. At 91.1 points now no one will want to refuse to do business with Singapore or in Singapore. In 2005, fiscal freedom stood at 88.5 points. It means the taxation was a little bit high but favorable for economic freedom.
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Research by Kane and O’Grady (2007) shows how government spending in the last five to ten years has been low. In early 2001 the government had 90.3 points meaning that they spent less from the revenue collected. In 2011 the situation is still good since their spending is at 91.3 points. With this kind of trend, a good economic ground must just fall into place. With inflation being low, Singapore attracts many investors. Though there were points deducted from them, the pricing and control of prices have maintained to be among the best in the world. They are consistent and only change when it must change accordingly.
Investment freedom in Singapore is among the best in the world. As The Heritage Foundation (2002) puts it, in 2001, it stood at 90.0 points meaning that there were good laws that protected all businesses equally whether foreign or home-based. Though in 2011 it has dropped to 75.0, it means that all property and investment must be screened but not with harsh measures compared to other states. Also, foreign ownership is not restricted and one is eligible to invest in any company of choice.
This has made it possible for foreigners to get their hands in the local companies (Kane and O’Grady, 2007). The financial freedom of Singapore has been at a constant of 50 till recently when it shot to 60. Generally, Singapore has had three major banks but as time has gone by, foreign banks have put up creating over 113 banks. During the financial crisis, the government guaranteed all the local and foreign currencies (Tan, 2007).
Protection of property is among the best in the world with the courts put in place to secure. In Singapore, it is a crime to bribe anyone for favors. Thus there are strong laws that have been put in place to end the menace of corruption. To that, it is ranked 3rd from 180 countries by transparency international. And finally, Singapore’s work labor is good. The cost of paying a worker is low and laying them off not a burden since no restrictions are there. In conclusion, this paper wishes to state that Singapore, as the trends show, is still doing much to bring economic freedom to where it is supposed to be. Thus, the countries with many restrictions need to emulate Singapore and bring a world where the business will be favorable to all.
Carter, J. (2007). An Empirical Note on Economic Freedom and Income Inequality. Public Choice, Springer, 130(1),163-177.
Kane, T. H, & O’Grady, M. A. (2007). 2007 Index of Economic Freedom Washington, DC and New York: Web.
Tan, K. P. (2007). Renaissance Singapore. Economy, Culture, and Politics. Singapore: NUS Press.
The Heritage Foundation. (2002). Capital University Economic Freedom of The World Annual Report. Washington, D. C. :Cato Institute.
The Wall Street Journal. (2011). Index of Economic Freedom. Washington, D.C.: The Heritage Foundation.