Money and freedom

delfeldTo the distraction of friends and family, I do a lot of thinking about why some countries are so much more successful than others and what America needs to do to get back on track.

One conclusion I have come to is that prosperity and economic freedom are highly correlated.

This is not a hunch. For many years, I have been following the Index of Economic Freedom produced by the Heritage Foundation in partnership with the Wall Street Journal.  It ranks countries based on a grading system that covers four areas of economic freedom: rule of law, limited government, regulatory efficiency, and open markets.

Here is the just released top ranked countries for 2014 and, if available, their corresponding country exchange-traded funds.

1) Hong Kong (EWH)

2) Singapore (EWS)

3) Australia (EWU)

4) Switzerland (EWL)

5) New Zealand (ENZL)

6) Canada (EWC)

7) Chile (ECH)

8) Mauritius

9) Ireland (IRL)

10) Denmark (EDEN)

11) Estonia

12) United States (SPY)

Looking through the numbers in this report, six things jumped out at me.

First, it is telling that America’s ranking has fallen sharply seven years in a row from #5 in 2008 to #12 this year largely due to higher regulations, taxes and debt.

Second, the BRIC countries (Brazil, Russia, India & China) rank surprising low and with have dropped in the rankings over the last three years. Brazil is at #114, India at #120, China at #137 and Russia an abysmal #140. All of these countries are in the basket labeled “mostly unfree”.

Third, there is some good news. Governments in 114 countries have taken steps in the past year to increase the economic freedom of their citizens. Forty-three countries, from every part of the world, have now reached their highest economic freedom ranking in the index’s history.

Fourth, the same six countries, Hong Kong, Singapore, Australia, Switzerland, New Zealand and Canada dominate the list.  Mauritius earned top honors among African countries and Chile starred in Latin America.

Fifth, Europe is a mixed bag. While 18 European nations, such as Germany, Sweden, and Poland, have reached new highs in economic freedom, five other countries -Greece, Italy, France, Cyprus and the United Kingdom are below where they were 20 years ago. Interestingly, countries that have a history of soft forms of socialism, such as Sweden, Denmark and Canada, also have made great gains toward greater economic freedom. Sweden has rocketed from #34 in 1996 to #20 today.

Finally, and most importantly, I noticed that the top 20% of countries ranked have per capita incomes twice that of the next 20% and a stunning five times that of the bottom 20%.

It is essential that we get our own house in order by unleashing economic freedom at home and then spreading the message abroad. This was the theme of my last book: Red, White & Bold: The New American Century.

And for 2014, why not put new capital to work with the freest economies in the world? I will search for the best ideas in all of these countries. You could also execute a simple and low cost economic freedom portfolio today by equally weighting these top ten countries in a freedom portfolio.

You will reap the rewards.

Opportunity awaits,

Carl Delfeld.

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