As noted, for 2015 the Indices of Leftness (Rightness) of Economy are calculated with no Social Expenditures Sub-Index. The higher weight is given to Public Finance Sub-Index.
IL(R)Ei = 0.30*PFi + 0.14*PRi + 0.14*FTi + 0.14*Li + 0.14*ERi + 0.14*MWi
If the tables are interpreted from top to down the economies are ranked from right to left and if from bottom to up – then from left to right. Higher place of a country in the Table means that its economy contains more rightness (self-regulation) and less leftness (government regulation). The countries with GDP per capita over 35 thousand international dollars are in colored boxes.
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Table 1. Indices of Leftness (Rightness) of Economy – 2015
Scale 1. Index of Leftness (Rightness) of Economy (2015)
The countries are almost equally scattered on the left and right sides from the relative center and located mirror-like on an identical distance from it.
By the integral index the economies are more centripetal than by the individual sub-indices. The reason is that the rankings of an economy on various criteria of the leftness-rightness somewhat balance each other. For example, by Public Finance Sub-Index Swedish economy is the left-wing (0.504), while by Minimum Wage Sub-Index it is right-wing (0.050). Being one of rightest economies regarding MW Sub-Index (0,080), economy of Cyprus takes the leftest position among the 62 countries as it comes to the Licensing Sub-Index (0.345). As a result, by the integral index both economies gravitate to the relative center (Sweden – 0.272, Cyprus – 0.271).
With almost doubled number of covered economies their "density" on the scale – in comparison with the year 2014 – increased significantly, and with that, the “amplitude” of deviations from the relative center decreased. In 2014 the IL(R)Es of 37 explored countries were in the range of 0.145-0.656, and now the indices of same countries are in the range of 0.107-0.416. It derives from the modification of indexing technique: unlike 2014, in the estimates for 2015 for each of indices that sub-indices are based on, the lowest possible value is taken as Vmin, while their highest possible value – as the Vmax.
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The rightest economy among the 62 is Singapore's (0.107), where the government intervention in economy is at a minimum. Economies of the United Arab Emirates (0,160), Georgia (0.163), Switzerland (0,188) and Denmark (0.190) also belong to the right-wing. French economy is the leftest (0,416), followed by the Islamic Republic of Iran (0.412), Ukraine (0,399), India (0,394) and Serbia (0.389).
In the ranking of 62 economies from right to left Azerbaijan (0,273) occupies 26th place and from left to right – 37th, and is located to the right from the relative center (0.292). In other words, compared to the most of observed countries, Azerbaijan's economy is less exposed to government interference.
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To evaluate the changes that have occurred over the past two years, the Indices of Leftness (Rightness) of Economy of the 37 countries analyzed in 2014, have been restated on the basis of statistical sources and methods of indexing used in this Report, and the results for 2014 and 2015 have been reduced to a single dimension.
Table 2. Indices of Leftness (Rightness) of Economy (Eastern Europe and Central Asia, and selected developed countries, 2014-2015)
Quite naturally, in such a short period of time there have not been big changes in general level of the government intervention in compared economies. The relative center of the leftness-rightness scales remained virtually unchanged (2014 – 0,283, 2015 – 0,284). In 2015 too, the economies of Singapore, Georgia, Denmark and Macedonia represent the maximum rightness, and of France, Ukraine and Serbia – the maximum leftness.
Nevertheless, in all countries certain changes in the degree of government regulation of economy still occurred. Australian economy has moved to the left more than any other – mainly due to the sharp increase in the Employment Regulation Sub-Index (+0.247) as a result of changes in the labor legislation (The Fair Work Act). In Germany, despite the Employment Regulation, Price Regulation and Public Finance sub-indices have moved to the right (respectively, -0.175, -0.003 and -0.005), the economy as a whole has moved to the left (+0.030). The reason is a sharp rise in the Minimum Wage Sub-Index (+0.397) due to the introduction of a legally approved minimum wage.
Cyprus economy is the one that has moved to the right more than any other, due to two significant changes. First, the share of budget expenditures in GDP decreased from 47% to 40%. Second, there were introduced some changes in legislation to improve the operation of Private-Sector Employment Agencies. As a result, Public Finance and Employment Regulation sub-indices declined. In Spain and Latvia economy has also shifted to the right – the employment regulations became more favorable for businesses because of reforms of the labor legislation.
Even if IL(R)E of a country remained unchanged, it does not necessarily mean invariability of specific forms of the state intervention in economy. For example, in 2014 and 2015 Indices of Leftness (Rightness) of Azerbaijan's economy have the same value of 0.273. However, the level of all forms of the government intervention in economy has undergone some changes. Certain shift to the right (liberalization) was observed on the Public Finance, Price Regulation, Foreign Trade Regulation and Licensing sub-indices, but on the contrary, the Employment Regulation and Minimum Wage sub-indices have moved to the left (tightening of regulatory standards). Reverse direction changes have balanced each other, and IL(R)E remained unchanged.
In 2014 in the right-to-left ranking of 37 economies Azerbaijan was 17th, and in 2015 shared 18-19 places with Latvia; in both cases its economy was located close to the relative center.
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If on any particular indicator – in this case on the IL(R)E – countries rank "logically", i.e. countries with different level of economic development (say, countries with GDP per capita above and below a certain value, in this study – 35 thou. Int. dollars), are arranged in separate groups, this means that comparisons on this indicator should be carried out within groups: developed countries should be compared with each other and developing countries with each other. But if the countries rank stochastically, i.e. countries with different level of economic development are arranged mixed, it means that the comparison of any pair of countries with one another is permissible.
In 2015 in all countries with GDP per capita above 35 thou. Int. dollars (except France), the government intervention in economy was below a certain level (IL(R)E ≤ 0,324). Nevertheless, the ranking of countries on IL(R)E is, in fact, of the stochastic nature: both economically developed and developing countries are located on either side of the relative center. Therefore, this is incorrect to suppose that successful economic development is assured if the government intervention in economy is above or below a certain level. Singapore and the United Arab Emirates, located on the right pole, France that occupies the leftmost position, Finland and Japan, that are placed close to the relative center, are the countries successful both in the economic development, and in improving of public welfare. That is to say, some countries attain better socio-economic results due to the rightness of their economy, others through the leftness.
Collation of Indices of Leftness (Rightness) of 62 economies with a cumulative GDP growth achieved by them over the last 5 years shows that a single value of the IL(R)E, which could be considered optimal for all countries, does not exist. Diagram below shows that relation between IL(R)E and economic growth is weak both in countries with GDP per capita above 30 thou. Int. dollars (broken polynomial curve), and in all others (solid polynomial curve).
Theoretically, if other conditions of economic development are constant, in any particular country as the level of the government intervention in economy is approaching its optimal value, economic growth should accelerate, and as is distancing from it, growth should slow down. Or vice versa: if economic growth rates of a country are getting higher, it means that the IL(R)E is getting closer to its optimal value for this country at this time framework.
Poland, Slovenia and Spain are on approximately similar level of economic development (GDP per capita is, respectively, 26.5 thou., 31.0 thou. and 34.8 thou. Int. dollars). These countries’ IL(P)Es also are almost equal (respectively, 0.346, 0.345 and 0.344). Meanwhile, the cumulative growth of real GDP achieved in these countries in 2011-2015, varies significantly – respectively, 15.7%, 2.7% and -0.8%. It may be stated that in Poland this IL(R)E is closer to its optimum for the country and for the time being.
Azerbaijan, Romania and Slovakia (GDP p/c, respectively, 18.0 thou., 20.8 thou. and 29.7 thou. Int. dollars) in 2011-2015 achieved approximately the same cumulative growth of real GDP (respectively, 12.4%, 12.5% and 12.5%), although the level of the government intervention in economy in these countries was significantly different – IL(R)Es were respectively 0.273, 0.317 and 0.334. It may be interpreted in a way that these countries’ IL(R)Es were at roughly equal distance from their optimal values.
Therefore, in some countries accelerated development appears as a result of stricter regulation, while in others – due to liberal reforms. To judge what level of the government intervention in economy is more effective for a country, it is needed to find out the IL(R)E’s optimal value interval for that particular country in a given time. Corresponding studies are underway.
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Index of Leftness (Rightness) of Economy reveals one of the fundamental changes that have occurred in the global economy over the past 20 years. During this period some new states that came out of “socialism” have created economies that are righter than the well-established market economies of rich countries. Azerbaijan, whose economy just only 25 years ago was characterized by extreme leftness, now has a more liberal economy than France, Germany, Italy, the Netherlands and many other developed countries.
The economic reforms that were implemented by former "socialist" countries with far left economies differ in content and intensity. IL(R)E allows to evaluate and compare the result of these reforms. For example, it becomes clear that Azerbaijan has built the righter economy than Serbia, but kept government intervention in the economy at the higher level than Georgia – although all these countries attributed the liberal reforms to the main priorities of economic policy for many years ahead.