Institutions behind Competitive Global Rankings
Daniel Hinšt, Vice President of the Centre for Public Policy and Economic Analysis (CEA), Advanced Master of European Studies and Graduated Political Scientist
Abstract – Institutions behind Competitive Global Rankings
Institutional indicators from the relevant global rankings finds that two thirds of TOP 45 countries in terms of economic freedom, competitiveness and liberal democracy belong to all three categories of public policy. More than two thirds of TOP 20 globally the best performing countries are from Europe and belong or at least benefit from the EU single market, while the rest of them are predominantly Anglo-Saxon countries. More than three quarters are officially members of the NATO alliance or closely associated with NATO, while all the remaining countries are NATO allies. More than three quarters of TOP 20 countries belong to one of three political-economic models of democratic capitalism – Nordic, Continental European and Anglo-Saxon model. More than two thirds of TOP 20 countries have predominantly Protestant societal and historical background, while most of the other leading countries have such a background at least to some extent. Especially in the context of growing global political risks in relations between democratic and authoritarian countries, the data confirm the strong geopolitical connection of the best-ranked countries, that is, the connection between their foreign, security, economic and other policies. The main question is how to foster policy exchange and policy education among countries, so that less developed countries could work on improving their institutional indicators within the relevant global rankings. Such improvements can lead to positive migration trends and attract talented individuals. However, in order to achieve such positive policy outcomes and improvements of institutional indicators, it is important to have a deep understanding of the values in the background that stand behind such results within the global rankings.
Keywords: geopolitics, institutions, competitiveness, economic freedom, liberal democracy
- Introduction
Some countries constantly occupy the top positions in terms of overall competitiveness, freedom and democracy. The relevant global rankings show in which policy areas such countries have successful performance.
This article considers global methodologies and rankings for measuring competitiveness, freedom and democracy. They contain various policy indicators, institutions and values that stand behind many economic and societal outputs, and compare country-related policy performances with regard to specific institutional indicators.
Figure 1. Global rankings of competitiveness, freedom and democracy
| Global methodologies and rankings |
Organizations |
| Global Competitiveness Report |
World Economic Forum |
| World Competitiveness Ranking |
International Institute for Management Development |
| Economic Freedom of the World |
Fraser Institute |
| Index of Economic Freedom |
Heritage Foundation |
| Human Freedom |
Cato Institute & Fraser Institute |
| Democracy Index |
Economist Intelligence Unit |
Source: Author
The following chapters provide a literature review and a political science overview of public policy and institutional indicators that determine the levels of living standards in different countries, according to the relevant global methodologies and rankings. Since political science deals with issues of institutions and governance, public policy and public management, it has a crucial role in deep understanding of driving reasons of economic outcomes in terms of success and failure of nations across the globe.
With regard to institutions behind competitive global rankings, this article explains why such highly competitive market economies have strong geopolitical connections and which values stand behind their attractiveness for talented individuals.
- Institutions behind competitiveness
Beside many economically relevant factors of business sector performance, competitiveness directly or indirectly depends on many institutional and policy indicators.
Institutions are stable and valued patterns of behavior (Huntington, 1968), values, norms and (formal and informal) rules within (public) organizations and systems. They organize certain policies as courses of action within a decision-making process. In addition, public policy refers to decisions and actions governments choose to do or not to do, in order to address various societal problems.
The policy concept, with its liberal Western origin, puts focus on outcomes of government activities (Colebatch, 2008) and on structured interaction among people who make decisions (Colebatch, 2005). Policy concept is relevant for the new approach in governance, where governments use force to a lesser extent to implement decisions since they need to negotiate with different organizations and many actors. This means that policy is less interventionist and leaves more space for the market and civil society, while decreased control of government leads its return toward fundamental functions (Petak, 2008). Finally, the policy approach assumes a consistent and coherent coordination system within public administration (Petak, 2008), which is necessary for managing different indicators that influence competitiveness, which has been assessed through two major global reports and organizations from Switzerland.
2.1. World Economic Forum and International Institute for Management Development
The Global Competitiveness Report defines competitiveness as a set of policies, institutions and factors that determine productivity. Therefore, the competitiveness report provides an assessment of long-term drivers of growth by offering data-driven analysis for rational policymaking. Indeed, there is a need for a holistic approach to competitiveness, and far-sighted leadership, rather than focusing on particular factors alone (The World Economic Forum, 2018). In line with that, competitiveness requires a whole-of government and whole-of-society approach in solving problems and managing risks related to decision-making.
In the Global Competitiveness Report, Porter and Schwab (2008) emphasize that institutions exceed the legal framework, since government policies toward freedom and market are also important, to deal with red tape and excessive bureaucracy, politically dependent judiciary, lack of transparency and corruption. Moreover, content and predictability of rules and regulations depends on political institutions. Therefore, the quality of public institutions is among general conditions that create opportunities for productivity.
Various forms of political risks, such as wars, ethnic violence, nationalism, terrorism, social unrest, cyber threats and espionage, regulatory capture and burden, expropriations, discriminatory taxes and foreign ownership rules, can affect businesses (Rice & Zegart, 2018), foreign investments and economic development. These institutional and political risks can affect competitiveness of countries and businesses.
The Global Investment Competitiveness Report emphasizes that governments can reduce risks to investors through an institutional framework that enables business climate and good governance, including reliable regulations and institutions. The enabling policy environment should include proper coordination mechanisms across institutions and strong engagement of stakeholders. Moreover, reforms that improve transparency, rule-based decision-making, and investment protection can reduce political risks for investors (World Bank Group, 2018). Reforms require an institutional framework that will encourage investments in development.
The Pillar 1 (‘Institutions’) within the global competitiveness report consists of six sub-pillars and 20 indicators, including security from terrorism, reliability on police, social capital, transparency, policy stability, government regulations, property rights, checks and balances, public-sector performance, and future orientation of government (World Economic Forum, 2018). All these political and institutional factors represent essential roles of public management and governance.
However, institutional factors of competitiveness go beyond the Pillar 1, such as infrastructure (due to its dependence on government decisions); critical thinking in teaching (since civic education and media literacy are necessary for democratic development and for deterring disinformation); pro-competition policies (directed against politically protected vested interests); or starting business (which is a matter of administrative/regulatory conditions).
These examples show that certain indicators of competitiveness contain strong connections between political science and economics, while other expertise should also be included within a multidisciplinary approach to good governance and public management.
TOP 20 competitiveness ranking consists of strong liberal democracies, market economies and open societies with high social trust, led by the Singapore, United States, Germany, Switzerland, Netherlands, United Kingdom, Nordic countries (Sweden, Denmark, Finland, and Norway), Australia, New Zealand, Canada, Japan, Taiwan, South Korea, Israel.
Similarly, the World Competitiveness Ranking within the International Institute for Management Development analyzes (IMD) shows how countries achieve long-term value creation, wherein economic competitiveness is not just about productivity and GDP, since enterprises cope with social, cultural, and political dimensions. Therefore, the government needs to provide a sound environment for efficient institutions, policies and infrastructures.
The World Competitiveness Ranking contains indicators that are directly relevant for issues of governance and institutions. Therefore, the area of ‘Government Efficiency’ measures institutional and regulatory framework (how governments regulate businesses and competition), bureaucracy, country credit rating (including political risks), policy adaptability, political instability, transparency, corruption, democracy index, as well as public finance (which depends on many governmental decisions and political interests).
For example, Denmark is at the top of the world competitiveness ranking, especially with regard to government efficiency in delivering a competitive institutional and societal framework, business legislation and efficiency, management and productivity practices (IMD, 2022).
In addition to these governance indicators, there are certain societal indicators, such as issues of homicide, social cohesion, income distribution, equal opportunities and freedom of press. Other indicators are mainly economic in their nature, although a large majority of them depends on political and institutional decision-making processes.
This means that primary sources of different factors of a country’s competitiveness go beyond superficial understanding of their exclusive economic relevance, and usually contain deep political and institutional background, as well as broad societal relevance. Instead of this scientific silo approach, multidisciplinary scientific approach offers a broader perspective of understanding complex societal issues and factors.
IMD’s competitiveness ranking shows that 50% of the TOP 20 rankings consists of the European Economic Area (EEA) states (Nordic countries, Netherlands, Ireland, and Germany, as well as Switzerland) and additional 10% are the Anglo-Saxon countries (United States, Canada, and New Zealand). Among other TOP 20 countries are Singapore, Hong Kong, Taiwan and the United Arab Emirates. Results close to TOP 20 include Australia, South Korea, and Israel (key political allies of Western countries), while Estonia is a leader among the countries of Central and Eastern Europe.
- Institutions behind freedom and democracy
Institutions determine the levels of economic and overall human freedom, including personal and civil freedom. Different policies and institutions can have different outcomes concerning their relationship toward freedom, as the fundamental idea of the Western civilization. Two North American think tanks analyze the relationship between governance and individual liberty, which is crucial for political science, including political philosophy and public policy.
3.1. Fraser Institute and Heritage Foundation
Canadian based Fraser Institute publishes annual reports Economic Freedom of the World. The Cox School of Business of the Southern Methodist University (SMU) from Texas is among institutions that provide support for these reports.
Gwartney et al. (2020) provide an overview of the Economic Freedom of the World, which measures the degree of political and institutional support to economic freedom, which includes the concepts of self-ownership, personal choice, voluntary exchange, free market entry and competition, enforced property rights, as well as personal security from violence and fraud. In addition, the methodology measures the degree to which market choices allocate resources, and how close institutions and policies are to the ideal of the limited government. The index consists of 24 components in five policy areas; 1. Size of Government, 2. Legal System and Property Rights, 3. Sound Money, 4. Freedom to Trade Internationally, and 5. Regulation of credit, labor and business.
While the term ‘economic freedom’ suggests that all components are economic in their nature, essential understanding of this methodology is necessary since certain components primarily depends on political and institutional actions, and public policy. Therefore, their inputs derive from political science.
First, components and indicators within the area ‘Size of Government’ seem to be economic only. However, government institutions and public administrations make numerous public policy decisions to provide inputs for public finance and macroeconomic results (such as ratio of government spending, taxation and debt in GDP).
Second, ‘State ownership of assets’ is the area with potential structural problems that lie in political risks associated with control of assets, financial flows and market competition. Moreover, societal resistances may also be a factor that hinders potential privatizations.
Third, in areas ‘Sound money’ and ‘ Freedom to Trade Internationally’, components related to inflation and tariffs can be associated with political risks, if certain actors put pressure on independence of central banks, demand currency devaluation or protectionist policies.
Fourth, business ‘Regulation’, and regulatory policy are strongly associated with issues of institutions and governance, as well as market framework. While labor market regulations directly affect economic competitiveness, the decision-making process behind these regulations, as well as other business regulations, includes many interactions between different actors and stakeholders with different political agendas and ideas. If a certain government is more left leaning or right-wing populist, the political risk of labor market flexibilization will usually be higher than in cases of center-right or centrist governments. The same is with business regulations since government institutions can create political risks or opportunities when regulating business and investment environments.
Finally, ‘Impartial public administration’ is a matter of how institutions function and deliver their purpose toward citizens and businesses. The position of this indicator within the area of ‘Regulation’ emphasizes the important link between public administration and business environment, since regulations depend on bureaucratic culture, as well as regulatory reforms that popularly aim to reduce bureaucracy.
There is a positive relationship between economic freedom and equality of income (Berggren, 1999), growth and equity, and there is a positive and relatively small trade-off between growth and inequality (Scully, 2002). Although economic freedom does not lead to equalized outcomes, it contributes to greater equality, especially with regard to equal opportunities.
Institutional framework helps or hinders markets and growth depending on the degree of economic freedom (Powell, 2003). Hereby, political liberalization enhances economic liberalization, which stimulates growth (De Haan, et al., 2006). Moreover, economic freedom has a positive effect on the level of tolerance since the rule of law, property rights and contracts assure that people do not fear interacting with others. In that respect, openness and generosity improve well-being and reduce group pressure (Berggren and Nilsson (2012). Such positive societal outcomes confirm that economic freedom has a strong connection with other freedoms.
Different areas of economic freedom can have different effects on growth (Berggren & Jordahl (2005). Each component of the index contributes differently to the economic freedom and income per capita, and the strongest influence on overall economic freedom depends on the levels of fiscal and monetary freedom (Kešeljević & Spruk, 2013). Furthermore, foreign aid does not increase economic freedom in aid receiving countries, while IMF credits can lead to less economic freedom if they support conditions of fiscal consolidation by increasing taxes without reducing expenditure (Knedlik & Kronthaler, 2006).
Certain ideological extremes can appear regarding the methodology of measuring economic freedom. In particular, two ideological dilemmas create simplified black and white views. The first sees a completely unregulated market without state intervention and any role of government is ‘socialist’. The second dilemma sees downsizing government spending and deregulation as signs of a disintegration of the welfare state, as well as corruptive favoring to the private sector, as opposed to the public interest. In contrast to this, methodology of measuring economic freedom creates a framework for concrete structural reforms. Therefore, the methodology indicates that measurement is important, as well as structural adjustments in public management and institutional governance. Therefore, the role of government will remain to be important in creating an institutional framework for the free market (Hinšt, 2021).
Hereby, it is important to notice that even if a government reduces political control over the economy, this does not mean that any (increased) level of economic freedom excludes the political and policy making process. In fact, any reform directed toward economic freedom is a part of this process and even the freest country has a certain level of government. This is important to note since populists usually tend to see economic freedom and government as the opposite things. In the context of this false dilemma, Hill (2010) points out that many popular recipes essentially do not understand the public policy process, in cases of initiatives to throw out politics from this process.
TOP 20 economic freedom ranking consists of the Anglo-Saxon, Nordic, and Continental European countries. Many of them belong to the EU and/or NATO or represent key Western geopolitical allies (such as Georgia, Australia, New Zealand, Singapore, Japan, South Korea, Jordan, and Israel). Furthermore, at least 75% of the TOP 40 countries concerning economic freedom belong to or have ties with the Western system of political institutions and values, where freedom is among the central forces (Hinšt, 2021).
Similar to the Fraser Institute, the U.S. think Tank Heritage Foundation publishes an annual index of economic freedom, which emphasizes several institutional factors within its methodology, such as government integrity, property rights and regulatory efficiency. For example, government integrity indicates a level of transparency in government policymaking and civil service, absence of corruption, including irregular payments, bribery, extortion, nepotism, cronyism, patronage, embezzlement, and graft. Corruption is the political risk that could introduce coercion and insecurity into economic relations, reduce public trust, and increase economic costs.
TOP 20 ranking in economic freedom consists of Singapore as the frontrunner, the Anglo-Saxon countries (New Zealand, Australia, United Kingdom, Canada, and the United States), Switzerland, Ireland, and Estonia (as European leaders with TOP 10), Taiwan, Lithuania, Nordic countries (Denmark, Iceland, and Finland), etc. Moreover, TOP 30 includes Norway, Israel, Japan, South Korea, Austria, Germany, Czech Republic, and Latvia.
That means that all Nordic, Baltic and many Continental countries are within TOP 30, as well as all three East Asia liberal democracies.
3.2. Cato Institute and Fraser Institute
According to the methodology of Cato Institute and Fraser Institute, measuring the level of human freedom consists of personal and economic freedom. The economic freedom measurement follows the Fraser Institutes’ methodology. Personal freedom consists of components that have direct and even primary link with the political science perspective: conflicts and terrorism, freedom of religion, association, assembly, and civil society (including barriers to parties and opposition’s autonomy), expression and information (including media freedom and state control over Internet).
TOP 20 ranking in human freedom predominantly includes countries with liberal democratic institutions and policies (Anglo-Saxon, Nordic and Continental European), the Baltic States (due to their complete geopolitically liberal distance to authoritarian Russia), as well as Hong Kong and Taiwan (due to their different policies comparing with communist China). For example, Estonia has improved its score, and stands among the best in the world, mostly due to high personal freedom.
This example clearly shows that economic freedom is not enough and that in most cases the frontrunners in economic freedom aim to increase personal freedom as well. Politically, it would not be the same if Estonia and other Baltic States stayed in some form of ties with Russia.
3.3. Economist Intelligence Unit
Democratic political culture represents a set of sentiments, knowledge and values, substantially influencing the political process based on a strong civic culture and social capital that enable effectiveness of democracy, trust and cooperation. Furthermore, developed states have governmental respect for market mechanisms, equal distributions of benefits of growth, stable rule, public-private cooperation and mass education (Hague et al., 1998).
A relationship between freedom and democracy is complex. While freedom is crucial and necessary for democracy, freedom alone is not sufficient. The author also argues that not every electoral democracy is a liberal democracy, since the last demands standards such as substantial presence of civil liberties and human rights, political system, and performance of non-political dimensions (Campbell, 2008).
Purely electoral democracy obscures challenges that democracies face. Therefore, the index of democracy can show deficiencies even under electoral regimes. Moreover, it shows that individual freedom and choices count in collective matters, which grant rights of political participation. Since the law defines democratic rights, the quality of democracy depends on the enforcement of the rule of law (Alexander, et al., 2011).
Democracy Index 2020 of the Economist Intelligence Unit measures countries based on electoral process and pluralism, functioning government, political participation, political culture and civil liberties. The overall score is an average of these five policy components and creates four categories of governance system.
Full democracies are nations where civil liberties are respected even by political culture, while problems in democratic governance are only limited. Countries that belong to this category are the Anglo-Saxon, Nordic, and Central European countries, as well as East Asian countries (Taiwan, South Korea and Japan, which moved from flawed to full democracies). Hereby, all Nordic countries and the Netherlands occupy the TOP 10 ranking of best performing democracies, which shows the dominance of Northern European countries.
Flawed democracies are nations with free elections and respect for basic civil liberties, but have certain issues concerning respect for some liberties, democratic governance and underdeveloped political culture. Some countries within this category have a potential to reach the first category, such as France, United States, Portugal, Estonia, Israel, Italy, Malta and the Czech Republic. On the other hand, some EU Member States have stable positions in this category, such as Slovenia, Slovakia, Poland, Hungary and Croatia.
Hybrid regimes are nations with electoral frauds, government repression against opposition, widespread corruption, non-independent judiciary, as well as low levels of rule of law, political culture and participation. For example, countries of the Western Balkans mostly belong to this category, as well as Hong Kong, Turkey and Ukraine. These countries have blocked their political development, due to their capture between the Western liberal and the authoritarian foreign influence (from Russia or China).
Authoritarian regimes are nations without or with very limited political pluralism, while some conventional democratic institutions stand beside high abuses of civil liberties, suppression of criticism and state-controlled media. Countries in this category include Russia, China, Zimbabwe, Syria, Iran, Yemen, North Korea, Cuba, Venezuela and Arab States. Most of these countries are geopolitically anti-Western in their foreign policies, with serious geopolitical risks for pro-democratic functioning of the United Nations.
The data of the Economic Intelligence Unit show that out of 167 covered countries, only 23 countries are full democracies, which is less than 15% of countries and less than 10% of world population. The relative majority of the world population lives in flawed democracies (41%), while more than a third of the population lives under authoritarian regimes, with an additional 15% under hybrid regimes.
- Joint results of the best-ranked countries
Based on the relevant global rankings of economic freedom, competitiveness and liberal democracy, countries with best performing joint results show strong policy interlinkage between these three categories.
The analysis considers TOP 45 from each of these three categories and calculates the average ranking result for all countries within TOP 45 that belong to all three categories based on the global rankings from the latest relevant three reports.
Figure 2. Three categories and reports: economic freedom, competitiveness and liberal democracy
| Global methodologies and rankings |
Organizations |
| Global Competitiveness Report |
World Economic Forum, 2019 |
| Economic Freedom of the World |
Fraser Institute, 2021 |
| Democracy Index |
Economist Intelligence Unit, 2020 |
Source: Author
The analysis shows that two thirds of countries that belong to TOP 45 in terms of economic freedom, competitiveness and liberal democracy belong to all three categories of public policy.
Figure 3. Global rankings of TOP 45 in three categories: economic freedom, competitiveness and liberal democracy
| Global ranking |
Economic freedom |
Competitiveness |
Democracy |
| 1 |
Hong Kong |
Singapore |
Norway |
| 2 |
Singapore |
United States |
Iceland |
| 3 |
New Zealand |
Hong Kong |
Sweden |
| 4 |
Switzerland |
Netherlands |
New Zealand |
| 5 |
Georgia |
Switzerland |
Canada |
| 6 |
United States |
Japan |
Finland |
| 7 |
Ireland |
Germany |
Denmark |
| 8 |
Lithuania |
Sweden |
Ireland |
| 9 |
Australia |
United Kingdom |
Australia |
| 10 |
Denmark |
Denmark |
Netherlands |
| 11 |
Mauritius |
Finland |
Taiwan |
| 12 |
United Kingdom |
Taiwan |
Switzerland |
| 13 |
Estonia |
South Korea |
Luxembourg |
| 14 |
Canada |
Canada |
Germany |
| 15 |
Armenia |
France |
Uruguay |
| 16 |
Malta |
Australia |
United Kingdom |
| 17 |
Taiwan |
Norway |
Chile |
| 18 |
Japan |
Luxembourg |
Austria |
| 19 |
Netherlands |
New Zealand |
Costa Rica |
| 20 |
Latvia |
Israel |
Mauritius |
| 21 |
Finland |
Austria |
Japan |
| 22 |
Germany |
Belgium |
Spain |
| 23 |
Iceland |
Spain |
South Korea |
| 24 |
Cyprus |
Ireland |
France |
| 25 |
Spain |
United Arab Emirates |
United States |
| 26 |
Romania |
Iceland |
Portugal |
| 27 |
Czech Republic |
Malaysia |
Estonia |
| 28 |
Austria |
China |
Israel |
| 29 |
Chile |
Qatar |
Italy |
| 30 |
Luxembourg |
Italy |
Malta |
| 31 |
Albania |
Estonia |
Czech Republic |
| 32 |
Guatemala |
Czech Republic |
Cape Verde |
| 33 |
Panama |
Chile |
Botswana |
| 34 |
Portugal |
Portugal |
Cyprus |
| 35 |
Peru |
Slovenia |
Slovenia |
| 36 |
Bulgaria |
Saudi Arabia |
Belgium |
| 37 |
Norway |
Poland |
Greece |
| 38 |
Sweden |
Malta |
Latvia |
| 39 |
Jamaica |
Lithuania |
Malaysia |
| 40 |
Costa Rica |
Thailand |
Panama |
| 41 |
Cabo Verde |
Latvia |
Trinidad and Tobago |
| 42 |
Montenegro |
Slovakia |
Jamaica |
| 43 |
Israel |
Russia |
Lithuania |
| 44 |
Seychelles |
Cyprus |
Timor-Leste |
| 45 |
Belgium |
Bahrain |
South Africa |
|
|
|
|
| Sources: |
EFW, 2021 |
WEF, 2019 |
EIU, 2020 |
Based on the three global methodologies and rankings from figure 2, this figure show the average ranking of TOP 20 countries.
Figure 4. Average ranking of TOP 20: economic freedom, competitiveness and liberal democracy
| TRIO ranking |
Countries |
Average ranking |
| 1 |
Switzerland |
7 |
| 2 |
Denmark |
9 |
| 3 |
New Zealand |
9 |
| 4 |
Netherlands |
10 |
| 5 |
United States |
11 |
| 6 |
Canada |
11 |
| 7 |
Australia |
11 |
| 8 |
United Kingdom |
12 |
| 9 |
Finland |
13 |
| 10 |
Taiwan |
13 |
| 11 |
Ireland |
13 |
| 12 |
Germany |
14 |
| 13 |
Japan |
15 |
| 14 |
Sweden |
16 |
| 15 |
Iceland |
17 |
| 16 |
Norway |
18 |
| 17 |
Luxembourg |
20 |
| 18 |
Austria |
22 |
| 19 |
Spain |
23 |
| 20 |
Estonia |
24 |
Source: Author (based on the global rankings from the following reports: Fraser Institute, 2020; World Economic Forum, 2019; Economist Intelligence Unit, 2020)
The do called “TRIO ranking” shows that TOP 20 best performing countries concerning average result in economic freedom, competitiveness and liberal democracy are Switzerland, Denmark, New Zealand, Netherlands, United States, Canada, Australia, United Kingdom, Finland, Taiwan, Ireland, Germany, Japan, Sweden, Iceland, Norway, Luxembourg, Austria, Spain and Estonia.
Figure 5. Integration pattern and societal background behind TOP 20 best-ranked countries
| TRIO ranking |
Countries |
Average ranking |
EU/EEA
associated |
NATO associated |
OECD members |
Predominantly Protestant background |
| 1 |
Switzerland |
7 |
1 |
1 |
1 |
1 |
| 2 |
Denmark |
9 |
1 |
1 |
1 |
1 |
| 3 |
New Zealand |
9 |
0 |
0 |
1 |
1 |
| 4 |
Netherlands |
10 |
1 |
1 |
1 |
1 |
| 5 |
United States |
11 |
0 |
1 |
1 |
1 |
| 6 |
Canada |
11 |
0 |
1 |
1 |
1 |
| 7 |
Australia |
11 |
0 |
0 |
1 |
1 |
| 8 |
United Kingdom |
12 |
1 |
1 |
1 |
1 |
| 9 |
Finland |
13 |
1 |
1 |
1 |
1 |
| 10 |
Taiwan |
13 |
0 |
0 |
0 |
0 |
| 11 |
Ireland |
13 |
1 |
1 |
1 |
0 |
| 12 |
Germany |
14 |
1 |
1 |
1 |
1 |
| 13 |
Japan |
15 |
0 |
0 |
1 |
0 |
| 14 |
Sweden |
16 |
1 |
1 |
1 |
1 |
| 15 |
Iceland |
17 |
1 |
1 |
1 |
1 |
| 16 |
Norway |
18 |
1 |
1 |
1 |
1 |
| 17 |
Luxembourg |
20 |
1 |
1 |
1 |
0 |
| 18 |
Austria |
22 |
1 |
1 |
1 |
0 |
| 19 |
Spain |
23 |
1 |
1 |
1 |
0 |
| 20 |
Estonia |
24 |
1 |
1 |
1 |
1 |
|
|
Ratio: |
70% |
80% |
95% |
70% |
Source: Author
Among the TOP 20 globally best performing countries, more than two thirds are from Europe. They predominantly and officially belong to the European Economic Area (EEA), which consists of the European Union (EU) and the European Free Trade Association (EFTA), and together make up the single market. Although the UK is out of the EU, its long-term results arise from the membership in the EU and its single market. Although Switzerland is not officially in the EU/EEA, it strongly benefits from its single market. The rest of the TOP 20 countries are the Anglo-Saxon countries and two East-Asian countries.
Among the TOP 20 globally best performing countries, more than three quarters are officially members of the NATO alliance or closely associated with NATO[1], while all the remaining countries are NATO allies. Accordingly, all TOP 20 countries share liberal democratic values in their foreign and security policies, led by the United States.
Among the TOP 20 countries, 85% belong to one of three political-economic models: Nordic, Continental European or Anglo-Saxon. In addition to this, two countries are East Asian democratic capitalisms.
A part of TOP 20 countries, especially the Anglo-Saxon countries, and certain Nordic and Continental European countries, have applied the New Public Management model, at least to some policy extent, to support market-driven institutional reforms (Hinšt, 2021).
Among the TOP 20 countries, 70% have predominantly Protestant societal and historical background, in terms of main values and their influence on institutions. A part of them have predominantly Protestant demographics (Nordic countries), while the other part are mixed due to historical reasons (Netherlands, Switzerland and Germany), or mixed due to subsequent immigration waves (Anglo-Saxon countries). Ireland, Luxembourg and Austria stand as the most competitive predominantly Catholic countries with historically significant Protestant minorities. In addition, Taiwan is a country with a strong Protestant influence. If these countries were to be categorized according to their predominant cultural backgrounds, the Inglehart-Welzel [2] World Cultural Map (2020), created by two political scientists, would place (the majority of) them among countries with more rational values.
Furthermore, some countries are not far from TOP 25 in all three categories. In particular, if all Nordic countries were in TOP 25 by all three categories, Sweden and Norway should moderately reduce their government spending, to reach TOP 25 in terms of economic freedom, like Denmark and Iceland. The similar cases are with Austria and Luxembourg. Moreover, Iceland needs just one place to enter TOP 25 in competitiveness. The most economically free countries can keep their welfare states, but need to control their government spending, although they are much more transparent and efficient than in some other countries with lower size of government. The solution for this problem could be to measure government spending in GDP per capita, instead of just in GDP.
The Baltic States (Estonia, Lithuania and Latvia) and Czech Republic are the only post-communist transition countries of Central Europe that belong to TOP 45 in all three categories. Slovenia is relatively close to them, but lags in economic freedom, together with Poland and Hungary, which show democratic deficits.
Some countries may have a high ranking in one or two categories, but they do not fall under all three categories. Singapore occupies high rankings in economic freedom and competitiveness, but does not have a functioning democratic system, at least concerning the electoral process and political participation. France and Slovenia lag behind many European countries concerning economic freedom, while they show relatively functional democracies and competitive economies.
TOP 20 best performing democratic capitalist countries stand in contrast to their geographical neighborhoods. Borders between different countries represent different political-economic and societal models of governance, institutions and policy-making, and have a geopolitical relevance. For example, Taiwan, Japan (and South Korea) are in strong contrast to authoritarian communist China. Nordic countries (and Baltic countries) are in a strong cross-border contrast to the authoritarian ex-communist Russia. The United States is in a large contrast to Mexico and the whole Latin America. Finally, within the European Union, German-speaking continental European countries (Germany, Switzerland and Austria), like the Nordic countries, are in a relative contrast to Southern and Southeast Europe, i.e., the Mediterranean and the Balkans, and to a lesser extent toward Central and Eastern Europe.
- Legacy and values behind best-ranked countries
The mentioned best-ranked countries have been comprehensively working on many factors that improve their living standards. Migrants and talented individuals have higher opportunities to succeed in tolerant and open societies that encourage and reward hard work on self-improvement. Such societies have high levels of social trust, transparency, individual freedom, as well as inclusive political and economic institutions (Hinšt, 2022). In addition, talent competitiveness has been directly horizontally associated with migration and demographic policy since countries that continuously lead the global rankings have been working hard on many improvements to attract talented people (Hinšt, 2022).
Based on that, the question is which policy legacy has driven developed countries toward prosperity, including their best ranking positions in terms of freedom, democracy and competitiveness. In that respect, it is important to consider the background reasons behind competitive institutions and societies of some Western countries.
Institutions forge the success or failure of nations, and influence behavior, including individual talents in society. Furthermore, the political process determines the economic institutions, and different institutions, policies and social arrangements affect economic incentives and behavior. Moreover, social norms support institutional differences. Hereby, inclusive institutions support a market economy based on property rights, law and order, broad economic opportunities, level playing field and low entry barriers, freedom of exchange, contract and innovation. On the other hand, extractive institutions include the old tsarist Russia, communist Soviet Union and China (Acemoglu & Robinson, 2012), as well as other authoritarian system that highly restrict freedom.
Economic growth can emerge when political institutions allocate power based on broad property rights, while political power is effectively constrained, with relatively few rents captured by those who hold power. In that context, institutions of property rights and limited power derive from the seventeenth century, especially after the Glorious Revolution and the Dutch Revolt. These events also led to financial and commercial expansion. Finally, the authors emphasize that culture determines economic performance, i.e., values, beliefs, and preferences within the society and among individuals, and therefore refer to Max Weber’s link between Protestant ethics and the spirit of capitalism (Robinson et al., 2005). Pure economic laws cannot explain this Weber’s idea (Dermange, 2015). In this respect, institutional and religious factors have a strong structural influence on competitiveness and prosperity. In particular, the Reformation brought modern institutions, democracy, education, horizontal power relations and rational attitude toward authority (Portilla, 2019) as important inputs for economic growth and development.
While strong institutions create paths of prosperity and competitiveness, weak institutions have broad societal consequences. For that reason, it is important to consider how social capital influences institutions since it is one of indicators within the competitiveness methodology.
Social capital means a level of quality of personal and social relations, social norms, and social trust (World Economic Forum, 2018). Social trust improves economic efficiency and correlates with health, education, and income. The author emphasizes a problem of particularistic societies, where levels of trust are low since progress depends on personal links rather than on merit and law. Accordingly, lower social trust leads to reduced cooperation and increased corruption, which affects perceptions of institutional impartiality and undermines trust in democratic political institutions (Radin, 2018). In addition, social trust reduces transaction costs in the economy, which is associated with fulfilling a certain agreement. In Nordic countries, social trust derives from cultural factors, such as well-functioning and fair institutions with respect for laws and low levels of corruption, the breakdown of social hierarchies encouraged by Protestantism (Nordic Council of Ministers, 2017) and Lutheranism (Gehrmann, 2007 & Makkola, 2011). For example, Denmark is the European leader in terms of interpersonal trust (Ortiz-Ospina & Roser, 2016) and has the lowest corruption perception index in the globe (Transparency International, 2022), which shows an example of such legacy.
Many values, actors, institutions and policies have provided important inputs for the prosperity and competitiveness of Western civilization, and results of the best-ranked countries in terms of competitiveness, as well as economic freedom and democracy.
Among them are publishing, religious toleration and freedom, the Protestant work ethic, devotion to work as purpose of life and accumulation of capital, rational organization, Enlightenment versus superstition and Eurocentric scientific revolution. In addition, European colonization of America was important for individual freedom, property rights, democracy and representative constitutional government, parliamentary approved taxation, independent courts, upward mobility, freedom of worship and free religious market (Ferguson, 2012). More specifically, the printing revolution that led to the Reformation, which had consequences in terms of greater economic dynamism. Networks of merchants and settlers created by transatlantic trade and migration. Finally, there was a big role of Enlightenment networks of intellectuals, freethinkers and Freemasonry (Ferguson, 2017), which represents an integral part of democratic capitalist nation-states (Dickey, 2020).
In that enlightened context, individualism is the “central distinguishing mark of the West” (Huntington, 1996: 95). In particular, western values emphasize the dignity of individual liberty and inherent rights deriving from natural order. Hereby, primarily American policymakers, think tanks and intellectuals support that legacy of liberal democracy (Srinivasan et al., 2019). In addition, career professionals, including the CIA, support the American foreign policy based on the belief in democratic capitalism, open trade, human rights and interventionism (Antholis, 2019).
Finally, considering the background of American competitive success that includes civic education, West (2017) describes the political ideas behind building the American government, such as protecting the natural rights to life, liberty and property, rule of law, market freedom and public education. The author refers to the Founding Fathers who emphasized the necessity of civic virtues to protect the constitution and secure liberty. In particular, he mentions Benjamin Franklin’s idea that only virtuous people are capable of freedom, and James Madison’s idea that government will fail without virtue. West adds that the Founding Fathers saw the need for rational and moral education about natural rights in order to support good governance of institutions. Finally, West emphasizes the importance of certain civic virtues, such as industry, liberality, temperance, frugality, moderation, prudence, courage and justice.
- Conclusion
The best-ranked countries in terms of economic freedom, competitiveness and liberal democracy have a strong geopolitical background, which drives their foreign and security policies. Therefore, it would be insufficient to analyze their developmental outcomes from their economic perspectives only, which is often the case with superficial approaches to complex and less known problems.
The analysis confirms strong connections between political, economic, societal and personal freedoms, as well as broader geopolitical relevance of freedom. In particular, two thirds of TOP 45 countries in terms of economic freedom, competitiveness and liberal democracy belong to all three categories of public policy. More than two thirds of TOP 20 globally the best performing countries are from Europe and belong or at least benefit from the EU single market, while the rest of them are the Anglo-Saxon countries or two East-Asian countries. More than three quarters are officially members of the NATO alliance or closely associated with NATO, while all the remaining countries are NATO allies. Accordingly, all TOP 20 countries share liberal democratic values in their foreign and security policies. More than three quarters of TOP 20 countries belong to one of three political-economic models of democratic capitalism; Nordic, Continental European or Anglo-Saxon, while two countries are from East Asia. More than two thirds of TOP 20 countries have predominantly Protestant societal and historical background.
The main question is which countries are willing to learn from the best performers. Accordingly, the challenge for the most competitive and most free countries is to provide policy export of their best practices to countries that are lagging behind and are ready for policy import to learn about quality of organizational management, political institutions, public policies, and social capital. That way, countries that lag behind the best-ranked ones can work on their policy improvements and become better versions of themselves, freely built by strong individuals and talented migrants.
There are deeply rooted reasons why political institutions and cultural values, mostly in the Anglo-Saxon, Nordic, and Continental European countries, as well as some minor additional examples, produce the best performance long-term policy results. Therefore, in order to understand such results, it is important to consider values shared by Western and other developed liberal democracies. In fact, commitment to freedom is essential for country’s improvement. Essentially, such a commitment starts with free and morally responsible individuals that work hard to improve the political and economic institutions of democratic capitalism. Therefore, institutions behind competitive global rankings are a matter of long term policy commitment.
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Endnotes
[1] In 2022, Sweden and Finland applied to join NATO. They are practically a part of NATO cluster since they participate in NATO policies and share its geopolitical values. Similarly, Switzerland, Austria and Ireland are also closely associated with NATO and share Western values, although they remain neutral countries.
[2] https://www.wikiwand.com/en/Inglehart%E2%80%93Welzel_cultural_map_of_the_world This scatter plot was created by political scientists Ronald Inglehart and Christian Welzel, while the data is based on the World Values Survey and European Values Survey.
Institutions behind Competitive Global Rankings, 1st edition
