The Istituto Bruno Leoni 2016 Index of Liberalisations: a summary

Giovanni Caccavello // 26 January 2017

Last month, EPICENTER’s Italian partner, the Istituto Bruno Leoni (IBL), published the 10th edition of its ‘Index of Liberalisations’ report.

 

The study, led by Dr. Carlo Stagnaro, takes into account a wide range of economic sectors, which include petrol and diesel, electricity and natural gas, labour markets, postal services, telecommunications, broadcasting, air transport, rail transport and insurance.

 

The IBL study ranks the 28 EU Member States according to the degree of openness that they experience in each of these sectors. In each category, a country’s performance is assessed against a number of benchmarks. The top-performing country, then, receives a score of 100 (the maximum score possible), whilst all the other 27 Member States are compared against each sector’s best performer. At the end, a country’s overall score is calculated by averaging its sectoral results.

 

As in the 2015 Index of Liberalisations report, the three top-performers in 2016 were the UK, Spain and The Netherlands, which scored 94, 80 and 79 points, respectively. Note, however, that the IBL index is an index of relative liberalisation. The UK comes out on top, but this does not mean that the UK is a free-market paradise – only that it is less illiberal than the rest of Europe. Note, also, that a country’s rank will be affected by the choice of sectors. The IBL index does not, for example, look at the housing market or the healthcare sector, and if it did, the UK would almost certainly drop several places.

 

At the opposite end, the three greatest stragglers were, Greece, Cyprus and Croatia which collected 54, 54 and 55 points.

 

Graph 1: 2015 and 2016 Index of Liberalisation overall scores

 

First published in 2007, the IBL Index of Liberalisations has greatly evolved over the years. In 2013, the index methodology was revolutionised and amplified, whilst in 2015 the Index began classifying all of the 28 EU Member States, thus effectively providing economists, politicians and university students with a clear picture of current Europe-wide liberalisations trends.

 

Despite the several methodological changes, the Index has now established itself as a valuable policy tool by offering national and European policymakers a new and comprehensive way to investigate the benefits – still too often underrated –  of pro-market reforms.

 

Despite the progress made over the last decade, the path towards liberalisation has differed widely across European countries. While on the one hand, it is true that the double 2009/2012 recession and the slow economic recovery that followed have reduced the pace of structural reforms in several Member States, mainly due to protracted political instability; on the other hand, it should also be underlined that many countries had never properly reformed their economies prior to the recent European debt crisis.

 

By highlighting the distance of every single Member State from every sector’s top performer, the IBL study suggests that there is still a large divide between the fifteen old EU Member States and the thirteen southern and eastern European countries that joined the Union in 2004, 2007 and 2013.

Among these latter, only the Czech Republic and Poland make it into the top ten in 2016. By contrast, all of the fifteen old Member States but Greece escaped the bottom ten positions. However, with only 63, 64 and 66 points respectively, the relatively poor performances of France, Austria and Belgium demonstrate how politically difficult it is for national policymakers to embrace pro-market reforms that bring down domestic barriers, stimulate greater competition and in the medium- to longer-run lead to higher economic growth.

 

Thus, as it appears from the 2016 Index, the large majority of EU countries position themselves in the 60 to 70 points range, demonstrating the fact that – with the exception of a few virtuous countries – the initial positive deregulatory impulse promoted by Brussels has muffled over the years.

 

Finally, another interesting aspect to take into account is the degree of correlation between the 2016 IBL Index of Liberalisations and other well-known Indices, such the Heritage Foundation’s Index of Economic Freedom; the World Bank’s Ease of Doing Business Report; and the World Economic Forum’s Global Competitiveness Index.

 

It should be noted, first of all, that the correlation coefficients between these various indices is relatively high, but not very high.

This is primarily due to that fact that the economic aspects investigated by the Indices are only partially related to each other. In fact, whilst, on the one hand, a country with a weak rule of law (or which is not open enough to international trade) tends to be less competitive and is usually also associated with a lower degree of economic freedom and liberalisation; on the other hand, these comparative studies consider different factors of a nation’s economic life. For example, the Global Competitiveness index looks primarily at the quality of infrastructure, the Index of Economic Freedom puts much more emphasis on taxation, and the IBL index takes into account liberalisation policies.

 

 

Table 1: Degree of correlation between different indices

 

 

 

While for the time being, an English translation of the 2016 IBL Index of Liberalisations is not yet available, you can explore the full report in Italian here.

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