US Slips to 9th-Freest Economy

Friday, 21 Jan 2011 03:06 PM

By Deroy Murdock

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We're No. 9!

America has slipped one spot since last year — from earth's eighth-freest economy in 2010, according to 2011's Index of Economic Freedom.

This 17th annual report, jointly published by the Heritage Foundation and The Wall Street Journal, sifts through the wreckage caused by government's turbocharged acceleration during the Bush-Obama years.

America's slumping score (down from No. 5 in 2008) confirms the urgent need for Washington, D.C., to revitalize free markets and restrain government intervention.

Among the Index's 179 countries, Hong Kong is rated first, followed by Singapore, Australia, New Zealand, Switzerland, Canada, Ireland, and Denmark.

These nations all outscored the United States across 10 categories, including taxes, free trade, regulation, monetary policy, and corruption.

America barely made the Top 10. Bahrain was 10th, with 77.7 points, one decimal point behind America's 77.8 rating. Chile reached No. 11 with 77.4, just 0.4 points behind the United States.

Even worse, with a score below 80, the United States is spending its second year as a "mostly free" economy. As it departed the family of "free" nations in 2010, it led the "mostly free" category. Even within this less-than-illustrious group, America now lags behind Ireland and Denmark.

How did our once-unassailable country wind up so winded?

"The national government's role in the economy has expanded sharply in the past two years, and the federal budget deficit is extremely large, with gross public debt approaching 100 percent of GDP," explain the Index's authors, Terry Miller and Kim R. Holmes.

"Interventionist responses to the economic slowdown have eroded economic freedom and long-term competitiveness. Drastic legislative changes in healthcare and financial regulations have retarded job creation and injected substantial uncertainty into business investment planning," the authors add.

Miller and Holmes also criticize Washington for abandoning the free-trade posture of earlier years, an area where former Democratic President Bill Clinton boldly guided his party, starting with the NAFTA trade pact. Washington Democrats these days scorn Clinton's successful example.

As Miller and Holmes write: "Leadership and credibility in trade also have been undercut by protectionist policy stances and inaction on previously agreed free trade agreements with South Korea, Panama, and Colombia."

On fiscal freedom, the Index marks the United States below average. The top American federal income tax rate is 35 percent, versus a worldwide average of 28.7 percent. At 35 percent, America's federal corporate tax outpaces the world's 24.8 percent average and increases U.S. exports . . . of jobs. America's overall average tax burden was 26.9 percent of GDP, compared to 24.4 percent globally.

America also suffers a below-average score for government spending. Worldwide, such expenditures average 33.5 percent of GDP; in the United States: 38.9 percent.

Compare America to Rwanda, the Index's most-improved nation. This landlocked African nation leapfrogged 18 spots, from No. 93 in 2010 to No. 75 today. How?

"Rwanda scores relatively high in business freedom, fiscal freedom, and labor freedom," Miller and Holmes observe. "Personal and corporate tax rates are moderate. With a sound regulatory framework that is conducive to private-sector development, Rwanda has achieved annual economic growth of around 7 percent over the past five years."

As I noted on my visit there last month, Rwanda remains poor, with a long list of challenges. Yet there is no denying its self-confidence and unflagging commitment to pro-market modernization, Rwanda is moving on up.

America remains blessed with wealth, durable institutions, and creative, clever, industrious citizens. Yet its self-doubt is fueled by an insatiable state that constantly devours more of the nation's output, and with little to show for its gobbling. Depleted, America stumbles downhill.

Miller and Holmes surveyed the globe and reached this conclusion: Rather than multibillion-dollar stimuli and 2,000-page regulatory behemoths, "The best results are likely to be achieved instead through policy reforms that improve incentives that drive entrepreneurial activity, creating greater opportunities for investment and job growth."

The path back to American prosperity and pre-eminence lies in Washington's bipartisan leadership abiding by the previous paragraph.

Deroy Murdock is a columnist with Scripps Howard News Service and a media fellow with the Hoover Institution on War, Revolution and Peace at Stanford University. E-mail him at Deroy.Murdock@gmail.com.



© Scripps Howard News Service

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