January 26, 2004,
We're Number 10!
According to the 2004 Index of Economic Freedom, just published by the Heritage Foundation and the Wall Street Journal, the U.S. is Earth's 10th most open market. Alas, on a ten-car train of the world's freest economies, the caboose would be America. This lackluster performance follows a number-five ranking in 2001 and a ninth-place showing last year.
"There are nine countries where doing business is easier than in the U.S.," warns Heritage scholar Ana Eiras. "If the U.S. keeps dropping in the ranking, it would most likely also lose investment and growth opportunities."
How did the Land of the Free become less economically fetching than Number One Hong Kong and (in order), Singapore, New Zealand, Luxembourg, Ireland, Estonia, Great Britain, Denmark, and Switzerland? And, most important, now that we've fallen, how can we get up?
America succeeds in monetary policy, property-rights protection, and banking and finance, scoring 1s on a 1 to 5, best-to-worst scale. The $180 billion 2002 farm bill, creeping red tape and import restrictions secured the U.S. 2s for price controls, regulation and trade. (The Index rates economic, not political, freedom. Thus, for instance, laissez-faire Hong Kong fares spectacularly even though its Chief Executive, Tung Chee Hwa, is Beijing's unelected stooge.)
But the U.S. needs to correct its high cost of government, having earned an embarrassing 4. Compare America's 35-percent corporate tax with Ireland's 12.5-percent levy on companies or the zero percent Estonian firms pay on reinvested profits. While top filers still face 35-percent individual income taxes, down from 39.1 percent in 2002, Singapore's highest rate is 22 percent, while Switzerland's is 11.5 percent.
Meanwhile, Washington's checkbook rarely has been busier. As Heritage budget analyst Brian Riedl wrote December 16):
"Altogether, total federal spending in 2003 topped $20,000 per household for the first time since World War II, and is set to grow another $1,000 per household in 2004."
Federal discretionary outlays swelled by 6 percent in fiscal year 2001 (Bill Clinton's last budget), by 13 percent in FY 2002, 12 percent in FY2003 and an estimated 9 percent this fiscal year. Riedl estimates that 55 percent of this spending concerns neither defense nor terrorism. The 24-percent increase in federal Medicaid payments between 2001 and 2003 did nothing to crush al Qaeda, nor did the 43-percent hike in Community and Regional Development expenditures. Amid a projected $480 billion deficit, there is no excuse for President Bush's anticipated $1.5 billion marriage-promotion program, as important as happy, loving couples are. Has Bush heard of clergymen, psychologists and marriage counselors?
The Index also irrefutably demonstrates that economic freedom fuels prosperity. The authors divide Earth's nations into quintiles. Those ranked in the lowest fifth on improved economic liberty saw their output advance 2.53 percent between 1995 and 2000. That's when those in the top quintile enjoyed 4.89-percent growth. People in between saw their economies accelerate as they adopted pro-market policies.
Better yet, these gains are not limited to the aristocrats who populate Earth's yacht basins, ski slopes, and mahogany-paneled private clubs. Among countries dubbed "Repressed," the Index found average per-capita income in 2001 at $3,316. For "Mostly Unfree" states, the equivalent figure was $3,535. Per-capita incomes rocketed to $13,027 for "Mostly Free" nations, then nearly doubled to $26,036 for the 16 countries the Index calls "Free."
Politicians worldwide also can see very clearly what not to do. In increasing order of repression, the countries that compose the bottom 10 are: Tajikistan, Venezuela, Iran, Uzbekistan, Turkmenistan, Burma, Laos, Zimbabwe, Libya, and that old standby, North Korea. Not only are most of these places dungeons with borders, they also are countries that lock up capital as swiftly as they will their own citizens.
As for the U.S., "We should strive to be number one," Heritage's Ana Eiras tells me. "Being number one means that the entire world will want to do business here. That is a very good thing for America."
The Index should be studied from Washington to Warsaw. The moral of this story is that the surest way to boost the well being of a nation and its people is to make its economy freer by the day.