Economic Freedom: Where We Rank

Everybody: "We’re number 9! We’re number 9!"

The Heritage Foundation released a list of the best and worst countries on the economic freedom scale. For more on the actual criteria, see the full post. But here are the top 10 lists:

Most Free

  1. Hong Kong (1st)
  2. Singapore (2nd)
  3. Australia (3rd)
  4. New Zealand (4th)
  5. Switzerland (5th)
  6. Canada (6th)
  7. Ireland (7th)
  8. Denmark (8th)
  9. United States (9th)
  10. Bahrain (10th)

Least Free

  1. Timor-Leste (170th)
  2. Iran (171st)
  3. D.R. of Congo (172nd)
  4. Libya (173rd)
  5. Burma (174th)
  6. Venezuela (175th)
  7. Eritrea (176th)
  8. Cuba (177th)
  9. Zimbabwe (178th)
  10. North Korea (179th)

Freedom Takes a Hit

The good news is that the United States ranks eighth out of 179 countries in the 2010 Index of Economic Freedom. The bad news, according to John Stossel (via Reason Magazine), is that the U.S. ranks behind Canada and that policies (both past and current) are threatening that freedom even more.

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.

Out of the ‘Slums’: Economic Lessons from an Oscar Winner

Did you watch the Oscars last night? Well, if you haven’t heard, the awards confirmed the fact that "Slumdog Millionaire" is not a bad picture. (It also confirmed that "Wolverine" is surprisingly deft at singing show tunes. Take that, Magneto.)

But according to Reason magazine’s blog, "Slumdog" is much more than an interesting tale of gameshow prowess. It also serves as an illumination on the plight of India, begging discussion about the progress the country has made by freeing up its markets and ultimately its people, and the steps it still needs to take to help its poor rise above poverty:

For decades would-be entrepreneurs staggered under the weight of corruption and bureaucracy. Want to import a computer for your business? You’d have to get permission from a bureaucrat. Want to sell food from a small cart? You’d need all kinds of licenses. 

But in the 1990s, India emerged as a high-tech powerhouse. What changed?

"In the 1990s India started liberalizing its economy," says (Shikha Dalmia, Reason Foundation senior analyst), "and it did three things: cut taxes, liberalized trade, and deregulated business." Although they failed to cut the kind of red tape that entangled Slumdog‘s orphans, the reforms did make it easier for more Indians to start businesses and hire employees.

"One IT company doesn’t just employ computer professionals," says Dalmia. "It also needs landscaping services, cleaning services, and restaurants. There was this tremendous spillover effect that allowed people to lift themselves out of poverty."

Since the early 1990s, India has cut its poverty rate in half. About 300 million Indians—equivalent to the population of the entire United States—escaped the hunger and deprivation of extreme poverty thanks to pro-market reforms that increased economic activity.

Yet here in America we’re turning away from market reform. Says Dalmia, "It’s just this great conundrum that at the same time that deregulation and markets have produced such dramatic results in India, they are falling into suspicion in America." Dalmia’s prescription for India is at odds with what politicians have chosen to "stimulate" the United States. "What India needs to do is continue apace with its liberalization effort, but expand it to include the poor. Release them from the shackles of government corruption and government bureaucracy."