Free Societies

‘Index of liberalization’ shows how European Union can foster thriving economies

Massimiliano trovato cato institute policy forum

When countries band together to facilitate increased trade and monetary stability, they have a vast potential for new forms of economic activity and growth. In a recent Cato Institute policy forum, Massimiliano Trovato, a research fellow with Italian Atlas Network partner Istituto Bruno Leoni, argued that although the European Union (EU) originally brought prosperity and stability to its member nations, recent years have instead brought EU’s increasingly centralized bureaucracy and regulatory overreach. His organization’s “Index of Liberalization” aims to help reverse this trend.

“For 15 years or so, since the early ’90s, the EU has been a force for economic freedom, promoting liberalization in crucial industries and calling for the dismantling of public monopolies,” Trovato said. “The job isn't done yet: liberalization requires more than the abolition of monopoly rights. And yet, the pace of liberalization in the EU has decreased significantly. IBL’s Index of Liberalization shows that those countries which eagerly embraced liberalization as soon as the EU started pushing for it (or even before that, like in the case of the U.K.) were able to achieve full-fledged competition, while those countries which reluctantly followed suit are still dealing with with markets dominated by legacy incumbents. At a time when Europe is struggling to return to a path for growth, a renewed political commitment to liberalization seems more necessary than ever.”

Istituto Bruno Leoni’s “Index of Liberalization” measures the degree of economic liberalization in each EU member country by identifying legal and regulatory barriers, fiscal competition, monopoly rights, regulatory barriers, price regulation, fiscal barriers, and tax privileges like specific VAT exemptions that are in place only for public players and not for private counterparts.

“The idea is to take data for each of these 28 state and 10 different economic sectors, and in each sector we try to determine what is the most liberalized country,” Trovato said in his Cato Institute address. “That country gets a score of 100, and then we scale all the other scores on the basis of that leading country — the best practice. After that, what we do is average all the scores for each country in the separate sectors, and we find out the average level of liberalization for each country.”

The “Index of Liberalization” explains that studying the degree of openness to competition in EU member states is important from an economic point of view because open markets and competition are “stimulus levers” for growth; from an institutional point of view because integration of member economies into a genuine single market has always been a strategic objective of the European Commission; and from a political point of view because it facilitates harmony between member countries based on their common understanding and sharing of market principles.

“Liberalization is urgent and necessary more than ever because again, as I said before, time is of the essence here, and you can't expect liberalization to pay off immediately,” Trovato concluded in his Cato Institute address. “So we need to get it done, but get it done soon if we expect results to show up in the future.”

On Feb. 22, Istituto Bruno Leoni launched its brand-new website design, making it “easier for people to search our work and make the most out of it,” said Alberto Mingardi, the organization's director general. "Our blog (leoniblog) and our Wikispesa initiative (a wiki for public spending in Italy) have likewise been renovated."