According to Heritage Foundation, Bhutan is one of the “mostly un-free economy”
Ranking: Three months after the Economic Freedom Network (EFN) declared Bhutan as the 87th freest economy among 157 countries, Heritage Foundation, a conservative research think tank based in Washington, labeled the country as ‘mostly un-free’ nation placed at 97th among 178 countries.
Economic freedom is the individual right to control their own labour and property. In other words, economic freedom is present when individuals enjoy right to choose their trade, market, transactions and resources, without use of violence, theft and fraud. The index basically measures the degree to which the policies and institutions of countries are supportive of economic freedom.
While the two ranking of the country is creating confusion among those following the economy closely, Bhutanese counterparts of the EFN said the two reports are different.
One said the EFN index is ‘economic freedom of the world’ and the one published by Heritage Foundation is simply ‘economic freedom index.’ The parameters and methodology of the two indices, he said is different.
However, one common finding of both the reports is that government spending and consumption dominate the country’s GDP, resulting in lesser degree of freedom.
“Government spending amounts to 32.9 percent of total domestic output, and public debt equals more than 100 percent of GDP,” the Heritage Foundation pointed out.
Similarly, the EFW report stated that when government consumption oppresses private and household consumptions, it is indicative of preference on political choice over personal choice and hence lesser degree of freedom.
It is because the government own most of the big companies which enjoy safe market conditions and not dependent on investors for capital. In addition, government has major stake in the entire hydropower sector, making government’s contribution to GDP very high.
Practitioners of economic freedom believe that freedom is reduced as government produces a large share of total output from the economy.
The Fraser Institute fellow who manages the World Economic Freedom Network, Fred McMahon earlier said; “Bhutan is never going to be manufacturer of cars, refrigerators and electronics but you need resources to buy them,” he said.
But economists are of the view that most of the major resources are state owned too. The emphasis, an economist said, should be on free market because it drives growth and economically free nations acquire prosperity that improves living condition of poor. Stable democracy, as in the case of Bhutan is also important for economic freedom
Heritage Foundation also stated that government transparency and accountability are limited. “But in 2015, Bhutan’s Anti-Corruption Commission stepped up efforts to crack down on corruption. Civil and criminal codes include many modern provisions based on English common law. Property rights are generally better protected than in other South Asian countries, but it is difficult to register property and enforce contracts.
It was also mentioned that reforms on the front of ease of doing business have reduced the cost of starting a business by eliminating the minimum capital requirement.
Despite some improvement, both the reports indicate that the labor market’s supply-and-demand imbalance persists. “The state maintains significant financial and commercial controls.”