2009 Index of Economic Freedom

Quick Facts

Population:

• 299.4 million

GDP (PPP):

• $13.2 trillion
• 2.9% growth
• 2.7% 5-year compound annual growth
• $43968 per capita

Unemployment:

• 4.6%

Inflation (CPI):

• 2.9%

FDI Inflow:

• $175.4 billion

The United States' economic freedom score is 80.7, making its economy the 6th freest in the 2009 Index. Its score is 0.3 point lower than last year, reflecting declines in five of the 10 economic freedoms. The United States is ranked 1st out of three countries in the North America region, and its overall score is much higher than the world average.

The U.S. scores above the world average in business freedom, investment freedom, financial freedom, property rights, freedom from corruption, and labor freedom. The regulatory and legal framework supports entrepreneurial activity. Foreign investment and domestic capital are subject to the same rules. Financial markets remain open to foreign competition and are among the world's most dynamic and modern. The judiciary is independent and of high quality.

Weaknesses remain in fiscal freedom and government size. Total government spending equals more than a third of GDP. Corporate and personal taxes are high and increasingly uncompetitive. In 2008, the sub-prime mortgage crisis had far-reaching effects, and the government's unprecedented interventionist measures could severely undermine economic freedom in the future.

Background Back to the top

The U.S. economy is the world's largest. Services account for more than 70 percent of economic activity, but the U.S. is also the world's largest producer of manufactured goods and fourth-largest producer of agricultural products. The United States is the world's oldest constitutional democracy, and its size, culturally and ethnically diverse population, and republican form of government that reserves significant powers to the state and local levels all promote a competitive atmosphere in which a variety of economic policies and strategies can be pursued. Economic growth slowed somewhat in 2007–2008, though unemployment remained low by historical standards. Presidential and congressional elections in 2008 raised serious questions about the overall direction of future economic policies, particularly with respect to trade liberalization, regulation of greenhouse gas emissions, taxes, and the role of government.

Business Freedom 91.9 Back to the top

The overall freedom to conduct a business is strongly protected under the U.S. regulatory environment. Starting a business takes six days, compared to the world average of 38 days. Obtaining a business license takes much less than the world average of 18 procedures and 225 days. Bankruptcy proceedings are very easy and straightforward.

Trade Freedom 86.8 Back to the top

The weighted average U.S. tariff rate was 1.6 percent in 2006. High out-of-quota tariffs, some import and export bans and restrictions, some import fees, some services market access restrictions, regular use of anti-dumping and countervailing duties, and export-promotion programs and subsidies add to the cost of trade. Ten points were deducted from the U.S. trade freedom score to account for non-tariff barriers.

Fiscal Freedom 67.5 Back to the top

U.S. tax rates are burdensome. Both the top income tax rate and the top corporate tax rate are 35 percent. Other taxes include a property tax, an estate tax, and excise taxes, and additional income and sales taxes are assessed at the state and local levels. In the most recent year, overall tax revenue as a percentage of GDP was 28.2 percent.

Government Size 59.6 Back to the top

Total government expenditures, including consumption and transfer payments, are high. Government spending has been rising and in the most recent year equaled 36.7 percent of GDP. Stimulus measures passed in the second half of 2008 promised to push government spending significantly higher.

Monetary Freedom84.0 Back to the top

Inflation is relatively low, averaging 3.0 percent between 2005 and 2007. Price controls apply to some regulated monopolies; certain states and localities control residential rents; and the government influences prices through subsidies, particularly for the agricultural sector, dairy products, and some forms of transportation. Five points were deducted from the U.S. monetary freedom score to account for policies that distort domestic prices. Government interventions in late 2008 in housing and financial markets pointed to substantially increased price distortions in the future.

Investment Freedom80.0 Back to the top

Foreign and domestic enterprises are legally equal, and foreign investors are not required to register with or seek approval from the federal government. Foreign investment in banking, mining, defense contracting, certain energy-related industries, fishing, shipping, communications, and aviation is restricted. There are no controls or requirements on currency transfers, access to foreign exchange, or repatriation of profits. Significant new restrictions implemented in late 2008, including government bans on short-selling and government seizure of equity positions in some firms, pose severe challenges to investment freedom.

Financial Freedom80.0 Back to the top

The U.S. has one of the world’s most dynamic and developed financial markets. Regulations are generally straightforward and consistent with international standards, although concerns have been raised about the intrusive nature and cost of the 2002 Sarbanes–Oxley Act. Foreign financial institutions and domestic banks are subject to the same restrictions. Foreign participation in equities and insurance is substantial. Government interventions in financial markets in the second half of 2008, including purchase of assets and measures affecting the allocation of credit, if not rapidly undone, indicate a serious loss of financial freedom that will lower future U.S. economic freedom scores.

Property Rights90.0 Back to the top

Property rights are guaranteed. Contracts are very secure, and the judiciary is independent and of high quality. The courts recognize foreign arbitration and court rulings. Individual states' land-ownership limitations do not normally affect foreigners seeking property for commercial or manufacturing purposes. A well-developed licensing system protects patents, trademarks, and copyrights, and laws protecting intellectual property rights are strictly enforced. Legal analysts expressed concern in late 2008 that government interventions in financial markets included unconstitutional takings of property and violations of contractual rights that threatened economic freedom.

Freedom From Corruption72.0 Back to the top

Corruption is perceived as minimal. The U.S. ranks 20th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. The U.S. is a leader in fighting corruption, both domestically and overseas. In 1977, it became the first country to pass a law making bribery of foreign officials a crime. The United States has the strongest record of any OECD Anti-Bribery Convention signatory, with 103 prosecutions, a broad scope of coverage, and severe penalties.

Labor Freedom95.1 Back to the top

The United States' highly flexible labor regulations enhance overall employment and productivity growth. The non-salary cost of employing a worker is low, and dismissing a redundant employee is not burdensome.