Each year the Economic Freedom of the World report does something important: it measures whether ordinary people are allowed to make economic choices—work, save, start a business, trade, invest, and keep what they earn—without being pushed around by the government. The newest edition, published in 2025 by the Fraser Institute’s global network, compiles data through 2023 and ranks 165 jurisdictions.
The premise is simple. If you want a society in which people can pursue their own plans—especially people who do not have political connections—you need a framework that protects property, enforces contracts, keeps money reasonably sound, permits trade, and limits regulatory barriers. The report’s value is not that it settles every argument, but it does settle a good many. Among those many is the biggest issue in economic policy: free markets versus government. Which kind of economic policies make it easier for people, including the poor, to succeed? In each of the many reports done since 1996, the answer is clear. Economic freedom works well to generate well-being for pretty much everyone.
The good news is that economic freedom rose fairly steadily until 2019. The bad news is that it has fallen since then. For the United States, the good news is that we rank fifth out of 165 political jurisdictions. The bad news is that our absolute score is lower than it was in 2019.
What the report measures—and why those measures make sense
The index is built from five broad areas: (1) size of government, (2) legal system and property rights, (3) sound money, (4) freedom to trade internationally, and (5) regulation. Together, they incorporate dozens of components and subcomponents—45 in total—drawn largely from external sources (IMF, World Bank, Economist Intelligence Unit, and others).
These areas are not arbitrary. They are aimed at the institutional “plumbing” that determines whether people can act on opportunities they see.
- Size of government. This area measures how government spending, taxes, transfers, and state ownership narrow private choice. The report’s logic is clear: government spending must be financed—through current taxes, future taxes (debt), or inflation, which is a tax on holdings of money—and that necessarily limits what citizens can do with their own resources. Countries with lower government consumption, fewer transfers and subsidies, less state investment, lower marginal tax rates, and less state ownership score higher. This variable measures a specific reality—how much of society’s output is allocated by political decisions rather than individual decisions.
- Legal system and property tights. This area captures whether a country’s legal system secures property and contract—rule of law, an independent judiciary, unbiased courts, and effective enforcement. If your property is not secure, your choices are conditional on the whims of officials, cronies, or mobs. This variable is at the core of economic freedom. In places with weak rule of law, “markets” become performative; the real market, as Friedrich Hayek pointed out in The Road to Serfdom, is access to power. Hayek wrote, “[W]hoever controls all economic activity controls the means for all our ends and must therefore decide which are to be satisfied and which not.”
- Sound money. This requires a little more explanation than the other variables because the argument that it is indeed a measure of freedom is subtle. In 1999, I was at a conference of first-rate economists in Japan when that issue came up. They didn’t understand why sound money was a measure of economic freedom. The reason is that in a free society without a central bank, money is highly likely to be sound, as economist Lawrence H. White showed with a tour of the economic literature.
- Freedom to trade internationally. When governments impose taxes, import quotas, and regulations at the border, they reduce their residents’ ability to exchange with people elsewhere. High scores require low tariffs, efficient customs, a convertible currency, and relatively few restrictions on moving capital and people. Free international trade is not a favor that governments grant to corporations. It is an extension of the freedom to buy and sell, but across borders.
- Regulation. This area measures how regulation restricts entry and interferes with voluntary exchange in credit markets, labor markets, and product markets. Regulation can be protective; it can also be a barrier to entry that entrenches incumbents and punishes newcomers.
One methodological feature is worth highlighting because critics might miss it. The authors explicitly say the index is not a “net measure of good policy.” It measures economic freedom—one side of the ledger—and leaves it to others to weigh alleged benefits of restrictions against the costs in freedom. That is exactly right. If you bake “good outcomes” into the index, you rig the test before you run it.
We’re number 5! We’re number 5!
On the 2025 report’s overall rankings (using 2023 data), the United States is fifth, with a summary score of 8.10 out of 10. The top four are Hong Kong (8.55), Singapore (8.50), New Zealand (8.33), and Switzerland (8.28).
That places the United States ahead of many other large, high-income economies. The report lists Canada 11th, the United Kingdom 13th, Germany 15th, Japan 17th, France 44th, and Italy 46th.
Notice that this does not imply the United States has small government. It doesn’t. It does not imply that our regulatory state is light. It isn’t. It implies that, on balance, America still scores as a relatively free place to act economically compared with most of the world.
The report also includes area-level scores and ranks for the United States in 2023. In the table on area ratings, the United States is very strong in regulation (we rank second) and comparatively weaker on size of government (53rd) and trade-related measures (56th).
The report also points out one tragic fact: “The 10 lowest-ranked countries were Chad, Libya, Syria, Argentina, Myanmar, Iran, Algeria, Sudan, Zimbabwe, and Venezuela.” Venezuela was the lowest, with a score of 3.11, and the highest of the ten was Chad, with a score of 4.84. Where were Cuba and North Korea? There were not enough reliable data available for the authors to assign a score.
Has economic freedom risen or fallen worldwide?
Here is the uncomfortable headline: global economic freedom peaked in 2019 and has declined each year for four years afterward. The report ties the post-2019 drop to the policy response to the coronavirus pandemic and notes that all five areas declined after 2019, with “sound money” experiencing the largest drop.
Since 2019, therefore, the direction is clearly down. That matters because many people—especially in rich countries—talk as if freedom is the default setting and only dictatorships threaten it. The data say otherwise: freedom can shrink by “temporary” emergency measures, and the shrinkage can linger. Adam Smith famously said, “There is much ruin in a nation,” but that doesn’t mean that declines in freedom are to be ignored.
In short, the world moved toward more economic freedom for a long stretch and then gave a chunk of it back.
Where is it best to live?
Whether you are poor or anywhere else on the income scale, where is it best to live? For the poor, the EFW gives a clear answer. The economic lot of the poor and of everyone else is much better in a country with a high rating on economic freedom.
Start with income. Comparing the freest quartile of countries to the least free quartile, the report finds that average incomes are 6.2 times as great in the freest countries as in the least free. And the income of people in the bottom 10 percent is 7.8 times as high in the freest quartile as in the least free. Those are ratios. The report also provides concrete dollar levels in purchasing power parity dollars. The average income threshold for the poorest decile is about $9,771 in the freest quartile versus about $1,255 in the least-free quartile. If you care about poverty in a serious way—meaning you care about what poor people can actually buy—those numbers should end a lot of fashionable conversation.
How about for people in general and not just the poor? People in the least-free quartile work about 20 percent more hours than those in the freest. Life expectancy in the freest quartile is about 17 years longer than in the least-free quartile. Infant mortality in the least-free quartile is about 10 times the rate in the freest quartile.
Is this causal? The report is cautious; these are correlations. But they are correlations that line up with economic understanding. If property is insecure, investment is risky and short-term. If contracts are hard to enforce, trade shrinks to family and clan. If inflation is high, it’s difficult to save. If tariffs and capital controls are heavy, domestic producers face less competition and consumers pay more. If regulation is a maze, the maze becomes a business model—one that rewards insiders and punishes those without lawyers and connections.
In short: economic freedom is not a luxury for the rich. It is a set of rules that make it possible for the vast majority of people to do well.
But don’t free economies increase inequality?
The report contains a point that is often misunderstood and deserves to be repeated. The share of income earned by the poorest 10 percent is not strongly related to economic freedom—but the level of income earned by the poorest 10 percent is.
That distinction matters. If I tell you the poorest decile’s share is about the same in freer and less-free countries, you might shrug. If I tell you the poorest decile’s income is many times higher in freer countries, you should not shrug—unless you care more about relative standings than about whether poor families can afford food, shelter, medicine, and schooling. A politics that obsesses over “shares” can become indifferent to levels. The Economic Freedom of the World report, at its best, corrects that serious error.
Conclusion
We Americans should take a little satisfaction—tempered by realism—that the United States still ranks fifth overall, nestled among the world’s relatively free economies. But we should be concerned about the direction: four straight years of decline.
Economic Freedom of the World is an empirically grounded description of institutions that, over time, make it possible for almost everyone to do better economically. And, as a bonus, we get freedom.
