Politics & Policy

Our Halting Progress toward Maximum Economic Freedom

Shoppers at the Beverly Center Mall in Los Angeles, Calif., 2013 (Reuters photo: David McNew)
A new report suggests Americans enjoy greater economic liberty than they used to, but there’s still more work to be done.

The good news is that the bad news isn’t quite as bad.

Late last month, Canada’s Fraser Institute released the 2017 Economic Freedom of the World report. This year’s report covers the state of economic freedom as of 2015. It rates countries on a variety of policies from the size of government and the tax and regulatory burden to the soundness of the money supply and property rights. And, given the link between economic freedom and growth, it tells us a great deal about our ability to prosper.

Perennial free-market powerhouses Hong Kong and Singapore once again received the top scores, while Venezuela now holds the dubious title of the world’s least free economy. The United States is now tied with Canada for eleventh place.

As disappointing as it is to see the U.S., once the model for free-market capitalism, trailing not just countries such as New Zealand and Switzerland, which have long embraced free markets, but also more surprising competitors such as Ireland, the United Kingdom, and even Mauritius, this actually represents a big improvement. Last year we were 16th.

Still, before we get too excited, we should recall that as recently as 2000, we ranked second in the world when it came to how free we were to buy and sell, to hire and fire, to run our businesses and conduct other economic activities free of government interference. Clearly, we still have plenty of room for improvement.

Looking at the individual components that make up the overall rating, the U.S. continues to score well on the soundness of its money supply and scores surprisingly well on its regulatory burden.

It is true that American economic regulation is moderately heavy, and regulation of credit markets is even worse, but our regulation of the labor market is the world’s second least restrictive, trailing only Hong Kong. Overall, the only countries with a smaller total regulatory burden are Hong Kong, New Zealand, Singapore, and Fiji. And, significantly, the report considered only the final years of the Obama administration. Given President Trump’s expressed resistance to unnecessary regulation, we can hopefully look forward to even more improvement next year.

There is considerably less impressive news when it comes to the size, cost, and intrusiveness of government. We now rank 80th when it comes to the size of government. And despite Donald Trump’s bluster about unfair trade deals, we actually rank 63rd when it comes to the freedom to buy and sell goods internationally. If President Trump is successful in erecting more barriers to trade, we can expect to fall even farther behind in the future.

Perhaps most concerning is our poor score on the rule of law and respect for property rights. When the report was first issued in 1980, we led the world in that category. We stayed in the top ten through 2000, but today we’ve fallen to 22nd, squarely between Belgium and France.

One big caveat: This report measures only economic freedom. Some of the countries that outrank us on economic measures have serious issues when it comes to human rights. Still, even on these measures, the U.S. needs improvement. According to last year’s Human Freedom Index, which includes both personal and economic liberties, the United States ranked 23rd.

If we should have learned anything from history, it is that there is no better mechanism for reducing poverty and improving conditions for the middle class than sustained economic growth. And there is an inextricable link between economic growth and economic liberty. If you don’t agree, just look at the difference in living standards between, say, Chile (ranked 15th) and Venezuela (159th). Chile was once far poorer than Venezuela, but free-market reforms over the years have made it an economic powerhouse. Meanwhile, a decade of socialism has plunged Venezuelans into poverty and despair.

We should not get too excited over small year-to-year fluctuations in rankings like these, and there is always room to quibble with specific criteria. But this year’s report clearly shows that if the Trump administration hopes to return to an era of sustained economic growth, it has a lot of work to do.

Michael Tanner — Michael Tanner is a senior fellow at the Cato Institute and the author of Going for Broke: Deficits, Debt, and the Entitlement Crisis. You can follow him on his blog, TannerOnPolicy.com.

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