Freer Is Better
The 2010 Index of Economic Freedom lowers the ranking of the United States to eighth out of 179 nations -- behind Canada! A year ago, it ranked sixth, ahead of Canada.
Don't say it's Barack Obama's fault. Half the data used in the index is from George W. Bush's final six months in office. This is a bipartisan problem.
For the past 16 years, the index has ranked the world's countries on the basis of their economic freedom -- or lack thereof. Ten criteria are used: freedoms related to business, trade, fiscal matters, monetary matters, investment, finance, labor, government spending, property rights and freedom from corruption.
The top 10 countries are: Hong Kong, Singapore, Australia, New Zealand, Ireland, Switzerland, Canada, the United States, Denmark and Chile.
The bottom 10: Republic of Congo, Solomon Islands, Turkmenistan, Democratic Republic of Congo, Libya, Venezuela, Burma, Eritrea, Cuba, Zimbabwe and North Korea.
The index demonstrates what we libertarians have long said: Economic freedom leads to prosperity. Also, the best places to live and fastest-growing economies are among the freest, and vice versa. A society will be materially well off to the extent its people have the liberty to acquire property, start businesses, and trade in a secure legal and political environment.
Bill Beach, director of the Heritage Foundation's Center for Data Analysis, which compiles the index with The Wall Street Journal, says the index defines "economic freedom" to mean: "You can follow your dreams, express yourself, create a business, do whatever job you want. Government doesn't run labor markets, or plan what business you can open, or over-regulate you."
We asked Beech about the U.S. ranking. "For first time in 16 years, the United States fell from the 'totally free' to 'mostly free' group. That's a terrible development," he said. He fears that if this continues, productive people will leave the United States for freer pastures.
"The United States has been this magnet for three centuries. But today money and people can move quickly, and in less than a lifetime a great country can go by the wayside."
Why is the United States falling behind? "Our spending has been excessive. ... We have the highest corporate tax rate in the world. (Government) takeovers of industries, subsidizing industries ... these are the kinds of moves that happen in Third World countries. ..."
Beach adds that the rule of law declined when the Obama administration declared some contracts to be null and void. For example, bondholders in the auto industry were forced to the back of the creditor line during bankruptcy. And there's more regulation of business, such as the Dodd-Frank law for the financial industry and the new credit-card law. But how could the United States place behind Canada? Isn't Canada practically a socialist country?
"Canada might do health care the wrong way," Beach said, "but by and large they do things the right way." Lately, Canada has lowered tax rates and reduced spending.
China is an interesting case. It ranks 140th out of 179, but its economy is on fire. How can this be?
"They have a complex economy," Beach says. "Around the edges of the mainland are rapidly growing city-states, like Hong Kong, which are pockets of enormous prosperity (and) economic freedom. But within the mainland is a very different economy. It's heavily controlled by the state. If you look at the growth rates of these two regions, you'll see one hardly growing."
And look at France. It ranks 64th, behind Mexico, Peru and Latvia! Yet France is a much wealthier country.
"France is doing their best to fall out of the index," Beach explained. "That's a country that says, 'We'd rather not be economically free if we can be economically secure.'"
Which countries should we keep an eye on in the future? Beach says parts of Central and South America are awakening. "Brazil has pretty much broken through after years of doing the right thing and is on the verge of serious sustained economic growth."
And Mexico is improving: "If Mexico could fix its drug war problem, we'd see the good things happening there."
If we want to reverse America's decline, we'd better get to work. There's a lot of government to cut.