Both the World Economic Forum and the Heritage Foundation come up with rankings for more than 180 countries. The countries are ranked according to their economic competitiveness within the global market. The Heritage Foundation publishes The Index of Economic Freedom, an annual guide that helps readers analyze, track, and verify the advancement of economic freedom in different countries across the world. The Index covers 186 countries, and breaks down the economic freedoms in each of them and ranks the countries accordingly. Similarly, the World Economic Forum also comes up with a comprehensive list of countries ranked by their competitive scores. The WEF utilizes the Global Competitiveness Index to compare and rank countries based on its different components.
An analysis of the lists delivered by the two institutions reveals that the results of both lists are inherently different. For instance, in The Index of Economic Freedom, the top 10 nations are Hong Kong, Singapore, New Zealand, Switzerland, Australia, Canada, Chile, Ireland, Estonia, and the United Kingdom.
The United States is ranked eleventh in the report from the Heritage Foundation while she is ranked third according to the list published by the World Economic Forum. Countries such as Japan, Finland, Germany, and Sweden have made it to the top ten of the World Economic Forum but do not make an appearance in the top ten of The Index. In addition, Hong Kong is number seven in the list from the World Economic Forum while it is number one in The Index.
Another glaring disparity between the two lists is the placement of the United Arab Emirates. The World Economic Forum places the country in twelfth position while The Index places the United Arab Emirates in the twenty-fifth position. North Korea ranks last in The Index while Guinea is the last country in the World Economic Forum report.
The lists reach different conclusions mainly because they are investigating different economic indicators. The Index by the Heritage Foundation is ranking countries according to the economic freedoms gained or observed in each. Economic freedom is the metric used for the comparative analysis of the different countries in the list. The list scores countries based on their performance on four basic pillars of economic freedom, namely rule of law, limited government, regulatory efficiency, and open markets.
Each pillar of economic freedom is further subdivided into quantitative and qualitative factors. For instance, the first pillar, the rule of law is divided into freedom from corruption and property rights. Limited government is divided into government spending and fiscal freedom. Regulatory efficiency is divided into monetary, labor, and business freedom while the segment on open markets is divided into financial, investment, and trade freedom.
On the other hand, the World Economic Forum ranks countries based on the 12 pillars of competitiveness. The organization defines competitiveness as the set of factors, legislative actions, and institutions that define the level of productivity of any given country. The higher the productivity of a particular country, the more prosperous it becomes. The WEF also asserts that countries that are highly competitive are likely to grow faster.
The components used in the ranking system developed by the WEF are grouped into twelve pillars. The pillars include institutions, infrastructure, macroeconomic environment, health and basic education, access to and quality of higher education; goods market efficiency, labor market efficiency, financial market development, and technological progressiveness. The remaining pillars include business sophistication, market size, and innovation. According to the WEF, all these components are interrelated and often reinforce each other.
From the above, it is clear to see that the difference in metrics is what causes the significant disparity in results between the two lists offered. One list focuses on the freedoms afforded in each country while the other list uses measures of competitiveness to determine the countries with the economic progress.
The WEF’s ranking is best suited to describe the state of the world economy as it is today. Its ranking criterion encompasses more countries across the globe because data based on the metrics described above are more readily available. Furthermore, the focus on productivity makes it easier to quantitatively measure each country’s progress against different criteria.