The Right Coast

January 04, 2005
Economic Freedom Watch
By Mike Rappaport

Its that time of year again. The Wall Street Journal and the Heritage Foundation have issued their 11th edition of the Index of Economic Freedom. For those who have been following this annually, the changes are not all that significant. Hong Kong and Singapore are once again first and second. North Korea, Iran, and Cuba are again among the least free of countries.

Still, there is a strong warning to the United States. For the first time, the US has fallen from the top ten. The explanation:

But worrying developments like Sarbanes-Oxley in the category of regulation and aggressive use of antidumping law in trade policy have kept [the US] from keeping pace with the best performers in economic freedom. Most alarming is the U.S.'s fiscal burden, which imposes high marginal tax rates for individuals and very high marginal corporate tax rates. In terms of corporate taxation as an element of economic freedom, the U.S. ranks a lowly 112th out of the 155 countries scored, and its top individual tax rate ranks only slightly better at 82nd. U.S. government expenditures as a share of GDP increased less in 2003 than in 2002, but the rise since 2001 is what explains the U.S.'s decline in score over the period.
Other interesting results:

-- Estonia, the former Soviet Republic, has become even freer, moving from simply being in the top ten all the way to number three. More thought and study ought to be given to this country's experience. Russia, on the other hand, is a lowly 124 out of 155.

-- Denmark and Sweden are right around the US (at 8 and 14 respectively), suggesting that a social welfare state does not necessarily make a country economically unfree overall (even though such a welfare state does infringe on economic freedom).

-- Finally, the Journal notes the connection between economic freedom and prosperity:

Policy makers who pay lip service to fighting poverty would do well to grasp the link between economic freedom and prosperity. This year the Index finds that the freest economies have a per-capita income of $29,219, more than twice that of the "mostly free" at $12,839, and more than four times that of the "mostly unfree." Put simply, misery has a cure and its name is economic freedom.