1996 INDEX OF ECONOMIC FREEDOM [2] By LINDA CASHDAN/WASHINGTON (fwd)

[Victor O. Story]

Subject: 1996 INDEX OF ECONOMIC FREEDOM [2] By LINDA CASHDAN/WASHINGTON

DATE=1/26/96
TYPE=SPOTLIGHT ON BUSINESS AND FINANCE
NUMBER=4-08857
TITLE=1996 INDEX OF ECONOMIC FREEDOM
BYLINE=LINDA CASHDAN
TELEPHONE=619-2443
DATELINE=WASHINGTON
EDITOR=PHIL HAYNES

CONTENT=/// INSERTS AND VOICED VERSION IN TAPE LIBRARY ///

NARR: WELCOME TO SPOTLIGHT ON BUSINESS AND FINANCE ON THE
VOICE OF AMERICA.

TAPE: MUSIC THEME (ESTABLISH, THEN FADE OUT GRADUALLY)

NARR: IS FAMINE THE RESULT OF NATURAL FORCES BEYOND HUMAN
CONTROL? OR IS IT CAUSED BY UNWISE ECONOMIC POLICIES?

'UNWISE ECONOMIC POLICIES,' ANSWER THE AUTHORS OF A BOOK
RELEASED RECENTLY BY THE HERITAGE FOUNDATION HERE IN
WASHINGTON. ACCORDING TO "THE 1996 INDEX OF ECONOMIC
FREEDOM," FAMINE IS CAUSED PRIMARILY BY POLICES THAT
EITHER DIRECTLY DISCOURAGE AGRICULTURAL PRODUCTION OR
HAMPER THE CREATION OF WEALTH, WHICH COULD BE USED TO
PURCHASE FOOD.

THE BOOK RATES COUNTRIES ON THE BASIS OF TEN ECONOMIC
MEASURES -- THINGS LIKE TRADE, TAXATION AND MONETARY
POLICIES, FOREIGN INVESTMENT, AND PROPERTY RIGHTS -- AND
DEMONSTRATES THAT THE COUNTRIES WITH THE FREE-EST
ECONOMIES TEND TO BE THE RICHEST OR THE FASTEST GROWING.
THE BOOK'S CONCLUSION: THE MORE A GOVERNMENT INTERFERES
IN THE FREE MARKET, THE MORE IT HAMPERS ECONOMIC GROWTH
AND LOWERS THE STANDARD OF LIVING FOR ITS CITIZENS.

TAPE: MUSIC (BEGIN BRINGING UP UNDER)

I'M LINDA CASHDAN. TODAY ON SPOTLIGHT ON BUSINESS AND
FINANCE WE'RE GOING TO TAKE A LOOK AT THE PRINCIPLE OF
ECONOMIC FREEDOM.

TAPE: MUSIC: (RAISE TO CRESCENDO, FADE OUT)

NARR: THE HERITAGE FOUNDATION'S 1996 INDEX OF ECONOMIC FREEDOM
IS ONE OF SEVERAL STUDIES RELEASED RECENTLY THAT EQUATE
PROSPERITY WITH FREE MARKET ECONOMIC POLICIES. THOMAS
SHEEHAN, WHO WITH BRYAN JOHNSON AUTHORED THE 1996 INDEX
IS HERE IN OUR STUDIO TODAY TO EXPLAIN HIS RESEARCH AND
HIS FINDINGS. MR. SHEEHY, LETS START WITH YOUR
MEASUREMENTS. WHAT DO YOU CONSIDER THE CRITERIA FOR
"ECONOMIC FREEDOM?"

TAPE: CUT #1 CASHDAN INTERVIEW WITH SHEEHAN:

TS FOR MANY YEARS, VARIOUS GROUPS HAVE LOOKED AT POLITICAL
FREEDOM THROUGHOUT THE WORLD AND THEY HAVE DEVELOPED
METHODS, SCALES FOR ASSESSING ANY GIVEN COUNTRY'S
POLITICAL FREEDOM. THE HERITAGE FOUNDATION, A FEW
YEARS AGO DECIDED WE WANTED TO LOOK AT ECONOMIC FACTORS
MUCH LIKE POLITICAL GROUPS LOOK AT FREEDOM OF THE
PRESS,FREEDOM OF RELIGION, AND SO FORTH. WE WANTED TO
LOOK AT VARIOUS COUNTRIES IN AN ATTEMPT TO QUANTIFY A
LEVEL OF ECONOMIC FREEDOM. SO WHAT WE DID IS WE LOOKED
AT VARIOUS COUNTRIES -- ACTUALLY 134 COUNTRIES IN THE
LAST REPORT -- WE LOOKED AT THEIR TAX RATES, THE
PROTECTION OF PRIVATE PROPERTY, THE LEVEL OF
BUREAUCRATIC IMPEDIMENTS TO BUSINESS, THEIR TRADE
POLICY, THE LEVEL OF TRADE PROTECTIONISM AND SO FORTH,
AND WE DEVISED A METHODOLOGY TO QUANTIFY, TO ACTUALLY
ASSIGN A SCORE TO EACH COUNTRY ASSESSING THEIR ECONOMIC
FREEDOM.

LC YOU SAY "BLACK MARKET." I BELIEVE THAT'S A NEGATIVE
FACTOR. WHAT IS A "BLACK MARKET" AND WHY DOES THAT ACT
AGAINST ECONOMIC PROSPERITY?

TS IN MANY COUNTRIES PEOPLE WHO WOULD BE ENTREPRENEURS ARE
FORCED TO RESORT TO THE BLACK MARKET. OUR DEFINITION OF
A BLACK MARKET IS ANY TYPE OF ECONOMIC ACTIVITY, WHERE,
BECAUSE OF REGULATION, TO OUR MIND, BURDENSOME,
EXCESSIVE REGULATION, PEOPLE ARE FORCED TO ACT
ILLEGALLY. NOW, IN MANY COUNTRIES DOING THINGS AS
SIMPLE AS SELLING FRUIT FROM A FRUIT STAND IN A MARKET
IS DEEMED ILLEGAL. OR IT COULD BE SELLING AGRICULTURAL
PRODUCE AT A PRICE AND FOR PERSONAL PROFIT BY A FARMER,
INSTEAD OF SELLING IT TO THE STATE THROUGH AGRICULTURAL
COOPERATIVES, AND SO FORTH. OUR MEASURE OF THE BLACK
MARKET IS, TO OUR MIND, WHEN LEGITIMATE ECONOMIC
ACTIVITY WHETHER IT BE SELLING AGRICULTURAL PRODUCE,
WHETHER IT BE OPENING A MARKET WITHOUT A LICENSE IS
IMPEDED FOR ESSENTIALLY POLITICAL REASONS.

LC CAN YOU GIVE ME AN EXAMPLE OF SOME COUNTRIES -- OR A
COUNTRY -- IN WHICH THE BLACK MARKET IS IMPEDING
ECONOMIC PROSPERITY?

TS MANY AFRICAN COUNTRIES IN THE AGRICULTURAL SECTOR WE
SEE SITUATIONS -- AND FORTUNATELY THIS IS IMPROVING OVER
THE LAST FIVE YEARS OR SO -- WHERE FARMERS WILL BE
FORCED TO SELL THEIR PRODUCE TO THE STATE AT A GIVEN
PRICE. THEY WILL BE FORCED TO BUY THEIR INPUTS AT A
GIVEN PRICE, AGAIN FROM THE STATE. SEEDS, EVEN SECURING
CREDIT, THE TRANSPORTATION WOULD BE CONTROLLED BY THE
STATE, AND UNFORTUNATELY THIS WAS FAIRLY PERVASIVE IN
MOST AFRICAN COUNTRIES. TANZANIA IS A COUNTRY THAT
COMES TO MY MIND. FORTUNATELY TANZANIA HAS BEEN
UNDERGOING SOME ECONOMIC REFORMS. RIGHT NOW ETHIOPIA IS
A COUNTRY THAT STILL HAS A FAIRLY LARGE BLACK MARKET
BECAUSE MANY ACTIVITIES IN THE AGRICULTURAL SECTOR ARE
VERY TIGHTLY CONTROLLED. IN ETHIOPIA, FOR EXAMPLE,
TAXIS ARE VERY HEAVILY REGULATED -- AND AGAIN THIS IS
SOMETHING WE SEE IN MANY AFRICAN COUNTRIES, MANY LATIN
AMERICAN COUNTRIES AS WELL -- WHERE ITS ILLEGAL, THERE
ARE VERY STRICT LIMIT ON THE NUMBER OF TAXI FARES. SO
ANY LIMIT ON, IN OUR MIND, LEGITIMATE ECONOMIC ACTIVITY
WHERE THERE IS A DEMAND FOR THINGS, WHERE THAT'S BEING
REPRESSED BY THE STATE, WE PUT THAT INTO THE BLACK
MARKET CATEGORY.

LC WHAT EVIDENCE CAN YOU POINT TO THAT INDICATES A PROVABLE
LINK BETWEEN PROSPERITY AND ECONOMIC FREEDOM OR THE
CRITERIA YOU'VE BEEN TALKING ABOUT.

TS WE'VE RECENTLY RELEASED OUR SECOND EDITION OF THE INDEX,
AND WE THINK THE EVIDENCE THAT IS FAIRLY STUNNING WHEN
YOU LOOK AT THE COUNTRIES THAT ARE MOST FREE. THERE'S A
VERY STRONG CORRELATION BETWEEN ECONOMIC FREEDOM AND
PROSPERITY AND WEALTH. THE TOP COUNTRIES THIS YEAR IN
TERMS OF ECONOMIC FREEDOM WERE HONG KONG SINGAPORE. THE
UNITED STATES CAME IN IN SEVENTH PLACE. MOST OF THE
INDUSTRIALIZED COUNTRIES HAD THE GREATEST AMOUNT OF
FREEDOM. WE DON'T BELIEVE THAT IT'S A COINCIDENCE THAT
THESE ARE THE COUNTRIES THAT HAVE PRODUCED THE GREATEST
AMOUNT OF WEALTH OVER THE YEARS. I WOULD ALSO POINT TO
MANY COUNTRIES .... THIS YEAR WE HAVE THE BENEFIT OF
LOOKING AT WHICH COUNTRIES ARE MOVING IN THE RIGHT
DIRECTION, INCREASING THEIR ECONOMIC FREEDOM. IN
AFRICA, FOR EXAMPLE, TWO OF THE COUNTRIES THAT ARE DOING
THE BEST ECONOMICALLY ARE ALSO MOVING FORWARD WITH
ECONOMIC FREEDOM IN TERMS OF REDUCING TAXES REDUCING
TRADE BARRIERS, PROTECTING PRIVATE PROPERTY RIGHTS.
YOU'VE GOT UGANDA AND GHANA, TWO COUNTRIES THAT ARE
DOING FAIRLY WELL ECONOMICALLY, ALSO ARE BY OUR STUDY
COME UP AS COUNTRIES THAT HAVE A FAIR AMOUNT OF ECONOMIC
FREEDOM BY AFRICAN STANDARDS, BUT ARE ALSO MOVING
FORWARD WITH INCREASED LIBERALIZATION.

LC WHERE DOES JAPAN COME IN?

TS JAPAN IS ONE OF THE HIGHER COUNTRIES, I BELIEVE IT'S IN
THE TOP TEN. JAPAN DID FALL THIS YEAR, LARGELY DUE TO
INCREASED REGULATION IN THEIR BANKING SECTOR. AS YOU
WELL KNOW JAPAN'S EXPERIENCING A FAIRLY SEVERE BANKING
AND FINANCIAL CRISIS AND THEY'VE IMPOSED ADDITIONAL
REGULATION ON THE BANKING SECTOR. SOME MIGHT ARGUE THAT
THAT REGULATION IS NEEDED. WE FEEL THAT, MUCH LIKE THE
S & L CRISIS IN THE UNITED STATES, THAT INCREASED
REGULATION ACTUALLY WILL HARM THE BANKING SECTOR. SO
JAPAN FELL, THOUGH A RELATIVELY AMOUNT, AND AGAIN IT WAS
ONLY IN THE BANKING SECTOR, BUT ON THE WHOLE, JAPAN HAS
A FAIRLY FREE ECONOMY. ONE OF THE INTERESTING FINDINGS
WE'VE MADE, AND IT'S GOTTEN A FAIR AMOUNT OF ATTENTION,
IS THAT PEOPLE ARE CRITICAL OF US SAYING THAT WE'RE MUCH
TOO LENIENT ON THE JAPANESE IN T TERMS OF GRADING THEIR
TRADE POLICIES. WE FEEL THAT ON AN INTERNATIONAL
STANDARD, THE JAPANESE MARKET IS A FAIRLY OPEN MARKET.
NOW THE U-S AND JAPAN ARE CONSTANTLY HAVING BATTLES OVER
TRADE POLICY. I THINK ONE OF THE STRENGTHS OF OUR
SURVEY IS THAT IT LOOKS AT ECONOMIC POLICIES ON A GLOBAL
SCALE, AND SO, WITHOUT A DOUBT THERE IS ROOM FOR
LIBERALIZING JAPAN'S TRADE REGIME, TRADE POLICIES, BUT
ON A GLOBAL SCALE THE JAPANESE MARKET IS FAIRLY OPEN.

LC YOU SAY IN YOUR PREFACE THAT OFTEN OTHER CAUSES ARE
BLAMED FOR WHAT ARE ECONOMIC CAUSAL FACTORS. FOR
EXAMPLE, YOU SAY THAT NATURAL CONDITIONS IN AFRICA HAVE
LESS TO DO WITH SOME OF THE POVERTY IN AFRICA THAN
ECONOMIC POLICIES. HOW DO YOU ACCOUNT FOR THINGS LIKE
DROUGHTS AND MONSOONS? I MEAN, IS FAMINE....ARE THERE
NO NATURAL CAUSES?

TS OUR THESIS IS THAT THE ECONOMIC POLICIES ARE THE MOST
IMPORTANT FACTORS. CERTAINLY A GIVEN COUNTRY IN AFRICA,
WHETHER IT BE RWANDA OR ZAIRE OR ETHIOPIA HAVE SUFFERED
A LONG HISTORY OF CIVIL WAR AND ITS VERY DIFFICULT TO
DEVELOP YOUR ECONOMY WHEN YOU'RE IN THE MIDST OF CIVIL
WAR. I WOULD SUGGEST MANY OF THE CAUSES OF THE
CONFLICTS IN AFRICA AND ELSEWHERE DERIVE FROM ECONOMIC
REPRESSION. HAVING SAID THAT, WITHOUT A DOUBT THERE ARE
OTHER FACTORS THAT DO CONTRIBUTE TO DEVELOPMENT. MANY
AFRICAN COUNTRIES DO SUFFER FROM ADVERSE CLIMATE. WE
FEEL THAT WE BRING ATTENTION TO THESE FACTORS BECAUSE
THESE ARE FACTORS THAT PEOPLE CAN CONTROL. GOVERNMENTS
CAN CONTROL THEIR ECONOMIC POLICIES. IT DOESN'T COST A
LOT OF MONEY TO PROTECT PRIVATE PROPERTY RIGHTS. IT
DOESN'T COST A LOT OF MONEY TO IMPOSE SOME OF THE
REFORMS THAT WE TALK ABOUT IN THE BOOK. AND HAVING
RECOGNIZED THAT THERE ARE SEVERAL FACTORS THAT
CONTRIBUTE TO DEVELOPMENT, I WOULD POINT OUT THE BOOK
HIGHLIGHTS A FEW COUNTRIES THAT 30 OR 40 YEARS AGO
DEVELOPMENT EXPERTS GAVE VIRTUALLY NO HOPE TO IN TERMS
OF DEVELOPING: HONG KONG, SINGAPORE, THE ASIAN TIGERS,
THESE ARE COUNTRIES THAT THE INTERNATIONAL DEVELOPMENT
COMMUNITY WAS VERY VERY PESSIMISTIC ABOUT IN THE SIXTIES
AND FIFTIES. IN FACT, ONE OF THE FEATURES OF OUR BOOK,
WE LOOK AT DEVELOPMENT STAGES OF FORTY YEARS AGO AND WE
SEE THAT DEVELOPMENT STAGES IN WEST AFRICA WERE ON A PAR
WITH INDONESIA AND HONG KONG AND SINGAPORE AT THAT TIME.
WE'VE SEEN MIRACULOUS DISPARITIES OVER THE LAST 40
YEARS, UNFORTUNATELY TO THE DISPARITY OF AFRICA. BUT
OUR BELIEF IS WITH THE RIGHT ECONOMIC POLICIES,
DEVELOPMENT CAN HAPPEN IN ANY PLACE. IT'S IMPORTANT TO
REMEMBER THAT 40 YEARS AGO HONG KONG WAS LAUGHED AT AS A
ROCK WITH VIRTUALLY NO NATURAL RESOURCES AND WE OFTEN
HEAR OF AFRICAN COUNTRIES HAVING A WEALTH OF NATURAL
RESOURCES -- OIL, GOLD, MINERAL RESOURCES. AND INDEED
THEY DO. WE CERTAINLY ENCOURAGE THE AFRICAN COUNTRIES
TO ADOPT MORE MARKET FRIENDLY ECONOMIC POLICIES. AND IN
FACT I THINK THAT'S A TREND THAT SOME OF THEM HAVE BEEN
UNDERTAKING IN THE LAST FIVE YEARS.

LC YOU POINT OUT THAT THE BOOK ITSELF IS AN EARLY WARNING
SYSTEM FOR INVESTORS WHO ARE CONSIDERING RISKING THEIR
MONEY IN GLOBAL MARKETS. TELL US ABOUT SOME OF THE
WARNING SIGNS YOU SAW AND NO ONE ELSE SAW IN MEXICO LAST
YEAR.... BEFORE THE PESO'S DEMISE.

TS LAST YEAR WE RATED THE MEXICAN ECONOMY AND WE GOT A FAIR
AMOUNT OF CRITICISM. IT'S IMPORTANT TO REMEMBER THAT
THIS IS A TIME THAT THE NAFTA -- THE NORTH AMERICAN FREE
TRADE AGREEMENT -- HAD JUST BEEN PASSED, AND THERE WAS
DEFINITELY AN IMAGE THAT MEXICO WAS MOVING RAPIDLY WITH
FREE MARKET REFORM, THERE WOULD BE INTEGRATION WITH THE
AMERICAN ECONOMY. IN GENERAL MOST EXPERTS INCLUDING
PEOPLE ON WALL STREET HAD A VERY BULLISH TAKE ON THE
MEXICAN ECONOMY. IN OUR STUDY, WE LOOKED AT THE BANKING
SECTOR AND WE SAW A FAIR AMOUNT OF CORRUPTION, OR
POLITICAL MANIPULATION ON THE BANKING SECTOR. OUR STUDY
CAME OUT IN DECEMBER. AGAIN, PEOPLE WERE VERY CRITICAL:
"HOW CAN YOU LOOK AT MEXICO AND CRITIQUE THEIR BANKING
SECTOR?" WELL, LOW AND BEHOLD A MONTH LATER WE SAW THE
MASSIVE DEVALUATION OF THE MEXICAN PESO, BROUGHT ABOUT
LARGELY BY POLITICAL MANIPULATION. AND ALL OF A SUDDEN,
PEOPLE ARE EXTREMELY PESSIMISTIC ON THE MEXICAN ECONOMY.
WE TEND TO THINK THE TRUTH IS SOMEWHERE BETWEEN, BUT AS
YOU KNOW POPULAR PERCEPTIONS CAN SWING A GREAT DEAL ONE
WAY OR THE OTHER. WITHOUT A DOUBT MEXICO NEEDS
ADDITIONAL ECONOMIC LIBERALIZATION. I THINK THAT'S A
STRENGTH OF OUR STUDY. WE LOOK AT THE ENTIRETY OF THE
MEXICAN ECONOMY, AND POINT OUT WHERE IT NEEDS REFORM, AT
LEAST TO OUR MIND. IT'S IMPORTANT TO REMEMBER, OFTEN A
FOREIGN INVESTOR IS LOOKING AT A VERY NARROW SEGMENT OF
AN INDIVIDUAL ECONOMY AND THEY'RE ALSO LOOKING AT NOT A
BROAD SPECTRUM OF FACTORS. SO I THINK ONE OF THE
STRENGTHS OF OUR BOOK IS IT GIVES A GOOD PICTURE OF THE
OVERALL ECONOMY, ITS STRENGTHS, AND SOME SENSE OF ITS
DIRECTION -- WHERE IT MAY BE GOING.

LC CAN YOU POINT TO SOME LITTLE WARNING SIGNALS YOU MIGHT
HAVE DETECTED IN SOME OF THE GLOBAL INVESTORS FAVORITE
SOURCES OF INVESTMENT THIS YEAR? SOME LITTLE THINGS TO
LOOK OUT FOR?

TS SURE. ONE OF THE COUNTRIES WE LOOKED AT WHICH RIGHT NOW
IS GETTING A FAIR AMOUNT OF ATTENTION BY FOREIGN
INVESTORS IS VIETNAM. MANY AMERICAN AND MANY
MULTINATIONAL CORPORATIONS FOR THAT MATTER -- COCA COLA
AND MANY OF THE BIG AUTO MAKERS, BOTH IN THE U-S AND
JAPAN -- ARE LOOKING AT THE VIETNAMESE MARKET. WELL,
OUR ANALYSIS SHOWS THE VIETNAMESE MARKET ISN'T AS
HOSPITABLE AS FOREIGN INVESTORS MIGHT LIKE. IT'S STILL
HEAVILY REGULATED ECONOMY. TAXES ARE QUITE HIGH.
THERE'S VIRTUALLY NO PROTECTION OF PRIVATE PROPERTY. I
THINK EVENTUALLY INVESTORS WILL FIND THAT UNLESS VIETNAM
MOVES AHEAD WITH SOME FUNDAMENTAL REFORM THEY'RE REALLY
NOT GOING TO MAKE MUCH MONEY THERE.

CUBA IS ANOTHER THAT FOREIGN INVESTORS ARE LOOKING AT.
OUR ASSESSMENT IS VERY DOUR ON THE CUBAN ECONOMY - AGAIN
-- UNLESS FUNDAMENTAL REFORMS ARE TAKEN, I DON'T BELIEVE
THE CUBAN ECONOMY WILL BE A PROFITABLE PLACE TO INVEST.
NOW, A FOREIGN INVESTOR CAN ALWAYS CUT A NICE SWEETHEART
DEAL WITH THE HEADS OF GOVERNMENT AND WE'VE SEEN THAT IN
THE PAST WITH THE OIL INDUSTRY. THAT'S AN INDUSTRY
WHERE AN INVESTOR CAN GO IN, MAKE A FAIR AMOUNT OF
DECENT PROFIT, AND THEN THE COUNTRY CAN BE FALLING APART
ECONOMICALLY. BUT OUR BOOK I THINK IS A GOOD GAUGE FOR
THE INVESTOR WHO'S INTERESTED IN THE OVERALL HEALTH OF
THE ECONOMY, OF INVESTING IN A COUNTRY THAT IS MOVING
FORWARD WITH ECONOMIC LIBERALIZATION, AND IS LAYING THE
GROUNDWORK FOR ECONOMIC GROWTH.

LC CONVERSELY, WHAT COUNTRIES THIS YEAR HAVE RELATIVELY NEW
ECONOMIC POLICIES THAT MAKE THEM BETTER INVESTMENT
OPPORTUNITIES?

TS ONE OF THE FEATURES OF OUR BOOK IS WE LOOKED AT THE 24
COUNTRIES THAT IMPROVED IN SCORE FROM LAST YEAR TO THIS
YEAR, COUNTRIES THAT ARE LIBERALIZING THEIR ECONOMY,
LAYING THE GROUND WORK FOR ECONOMIC FREEDOM. IT WAS
INTERESTING WE FOUND A FAIRLY GEOGRAPHICALLY
REPRESENTATIVE DISTRIBUTION -- A FEW COUNTRIES IN
AFRICA, A FEW COUNTRIES IN LATIN AMERICA, A FEW
COUNTRIES IN ASIA. A COUPLE OF COUNTRIES THAT REALLY
STUCK OUT AS COUNTRIES THAT REALLY ARE TAKING DRAMATIC
REFORM ARE INDONESIA, BOTSWANA IN SOUTHERN AFRICA AND
PANAMA IN LATIN AMERICA. BOTSWANA IS A COUNTRY THAT HAS
RECENTLY REDUCED TAXES, THAT HAS A VERY STRONG
PROTECTION FOR PRIVATE PROPERTY RIGHTS. INDONESIA IS
ANOTHER COUNTRY THAT IS UNDERGOING SOME FAIRLY DRAMATIC
FREE MARKET REFORM, WELCOMING FOREIGN INVESTMENT TO AN
EXTENT THAT IT HASN'T IN THE PAST. PANAMA IS A COUNTRY
WITH VERY SOLID CURRENCY. IT'S ALSO SELLING OFF SOME
STATE ENTERPRISES. SO, FROM AN INVESTOR'S STANDPOINT,
OFTEN THE BEST INVESTMENT OPPORTUNITIES ARE IN THOSE
COUNTRIES WHERE PEOPLE AREN'T PARTICULARLY LOOKING AT
TODAY. I THINK THE BOOK CAN BE HELPFUL IN IDENTIFYING
COUNTRIES MOVING AHEAD WITH REFORM AND MAYBE AN EARLY
WARNING. OUR BOOK IS GIVES A PRETTY GOOD SENSE OF
WHERE COUNTRIES ARE GOING BEFORE THE PUBLIC PERCEPTION
IS OUT THERE.

LC WHICH OF THE FORMER SOVIET REPUBLICS OR THE COUNTRIES OF
EASTERN EUROPE, IN OTHER WORDS WHICH OF THE FORMER
COMMUNIST COUNTRIES ARE SHOWING THE QUICKEST MOVE TOWARD
WHAT YOU CALL "ECONOMIC FREEDOM?"

TS WITHOUT A DOUBT I THINK THE CZECH REPUBLIC IS THE REAL
STAR IN TERMS OF LIBERALIZING ITS ECONOMY. IN FACT THE
CZECH REPUBLIC IS ATTRACTING MORE FOREIGN INVESTMENT
THAN THEY KNOW WHAT TO DO WITH. IT'S A VERY NICE
PROBLEM TO HAVE. THEY HAVE MOVED VERY AGGRESSIVELY WITH
DENATIONALIZING INDUSTRIES, LOWERING TAXES, LOWERING
FOREIGN INVESTMENT, PROTECTING PRIVATE PROPERTY, A
FAIRLY DRAMATIC TRANSITION, GIVEN THAT THE BERLIN WALL
ONLY FELL IN 1989. I THINK CLEARLY WE'VE SEEN THE MOST
PROGRESS THERE, AND, TO MY MIND, ITS NO COINCIDENCE THAT
THE CZECH ECONOMY IS PERFORMING QUITE WELL. SOME OF THE
OTHER FORMER REPUBLICS AND SOME OF THE FORMER EAST
EUROPEAN COUNTRIES AREN'T DOING QUITE SO WELL, BUT AGAIN
IT'S REALLY EARLY AND WE CERTAINLY HOPE THEY WOULD MAKE
THIS PROGRESS IN THE NEAR FUTURE.

LC WHAT ARE THE POTENTIAL PITFALLS OF THE LACK OF ECONOMIC
FREEDOM FOR AN INVESTOR?

TS IF AN ECONOMY DOESN'T HAVE PRIVATE PROPERTY -- IF THE
STATE CONTROLS PROPERTY -- IT'S VERY DIFFICULT FOR AN
INVESTOR, FOR SOMEONE WHO WOULD LIKE TO EXPAND A
BUSINESS TO GET COLLATERAL, TO GO TO THE BANK AND SECURE
A LOAN. THAT SOUNDS LIKE A VERY SIMPLE FACT. IT IS,
AND OFTEN THAT REALLY IMPEDES ECONOMIC GROWTH. IN
ETHIOPIA, FOR EXAMPLE, A FARMER CANNOT OWN LAND. THE
ETHIOPIAN GOVERNMENT JUSTIFIES THAT BY SUGGESTING THE
COUNTRY SUFFERS FROM UNIQUE FOOD SHORTAGES. WE ALL
REMEMBER THE ETHIOPIAN FAMINES IN THE MID 80S. AND
SOMEHOW THE STATE HAS TO CONTROL THE FOOD SUPPLY, THE
LAND AND SO FORTH. BUT THE BOTTOM LINE IS: UNLESS
PEOPLE ARE EMPOWERED, UNLESS THEY HAVE TITLE TO LAND,
IT'S VERY DIFFICULT TO GROW THEIR BUSINESS, TO GAIN
LOANS, AND SO FORTH. LIKEWISE, A FOREIGN INVESTOR IS
VERY HESITANT TO GO INTO A COUNTRY AND MAKE AN
INVESTMENT UNLESS HE FEELS HE CAN CONTROL HIS
INVESTMENT, AND IT'S VERY DIFFICULT TO HAVE THAT
SECURITY IF A COUNTRY DOES NOT ALLOW FOR THE OWNERSHIP
OF PRIVATE PROPERTY. I WOULD ALSO SUGGEST THERE'S A
STRONG CORRELATION BETWEEN THE WILLINGNESS OF A COUNTRY
TO ALLOW PRIVATE PROPERTY OWNERSHIP WHETHER IT BE
FOREIGN OR BY ITS OWN PEOPLE, AND THE PROTECTION OF
CONTRACTS AND THE STRENGTH OF THE LEGAL SYSTEM. WHEN
THERE ISN'T A STRONG SENSE OF PRIVATE PROPERTY, USUALLY
THERE'S POOR LEGAL SYSTEM, A POOR ENFORCEMENT OF
CONTRACTS, AND SO FORTH. SO THOSE TWO FACTORS WORK IN
TANDEM VERY STRONGLY.

NARR: THOMAS SHEEHY, CO-AUTHOR, ALONG WITH BRYAN T. JOHNSON OF
THE HERITAGE FOUNDATION'S 1996 INDEX OF ECONOMIC
FREEDOM.... THANK YOU FOR JOINING US TODAY.

TAPE: MUSIC (UP, THEN FADE BEHIND)

NARR: TODAY'S PROGRAM ON ECONOMIC FREEDOM WAS EDITED BY PHIL
HAYNES, AND PRODUCED AND DIRECTED BY JOE VALENTINE.

I'M LINDA CASHDAN. JOIN US AGAIN NEXT WEEK AT THIS TIME
FOR ANOTHER EDITION OF SPOTLIGHT ON BUSINESS AND
FINANCE.

*

26-Jan-96 5:01 PM EST (2201 UTC)
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Source: Voice of America