January 6, 2005 | Commentary on International Organizations

The Cost of Treading Water

All too often, bad news accompanies good news. And people usually want the good news first, so here it is: Economic freedom is expanding around the globe.

Now, the bad news: It's not expanding here in the United States.

This isn't mere conjecture. For the last 11 years, The Heritage Foundation and The Wall Street Journal have joined to publish our annual "Index of Economic Freedom." We look at 10 key ingredients of free economies, from reasonable levels of taxation, tariffs and regulation to government spending, property rights and monetary stability.

In our 2005 edition, we again found that improving economic freedom is the only reliable way to generate economic growth and expand prosperity in an era of increasing globalization. And freedom is on the march, with more people than ever enjoying the benefits of that expansion.

This year, the scores of 86 countries improved, while 57 declined. Seventeen countries are categorized as having "free" economies, and 56 more are rated "mostly free." In fact, over the last decade the number of people living in "free" economies has shot up by 32 percent, to 478 million. Meanwhile, the number of people in "repressed" economies is down 38 percent, to 242 million.

Again, that's the good news.

Unfortunately, the 2005 Index also marks a watershed for the United States. For the first time, our nation doesn't make the list of the top 10 freest economies. This isn't exactly unexpected, though. The U.S. has been treading water for a decade, as our competitors around the world improved steadily. Our government is conceding leadership on the very thing that has been the foundation of American strength: economic freedom.

In recent years, the U.S. has allowed higher government spending and protectionist measures to drag our economy into a trap. We're now choosing to do what is easy and shortsighted, rather than doing the hard work needed to expand economic freedom. But, as the Index shows year after year, without persistent commitment, economic freedom fades.

Luckily, it hasn't come to that here. Yet.

Our economic freedom isn't fading, it's merely holding steady as other nations improve. That's why we've been sliding down the list of economically free countries. This year, Iceland, Australia and Chile all forged past us.

High tax rates -- especially high corporate-tax levels -- are a major drag on the U.S. economy. Increasing government spending, now at 35.9 percent of GDP, is also a problem.

Another factor is the abuse of "antidumping" measures.

Such measures are supposed to be used to prevent other countries from selling their goods here at below-market prices, and that makes sense. But as Index co-editor Mary Anastasia O'Grady points out, America now overuses this tool. In fact, since 1995, the United States has trailed only India in the number of antidumping cases it has filed.

Many of those came as a result of the Byrd Amendment, named for Sen. Robert Byrd of West Virginia. This amendment encourages producers to file complaints with the government, because if any "dumping" is found, they get to share in the penalties collected.

The World Trade Organization ruled two years ago that the Byrd Amendment violates international trade policies, and the U.S. has promised to comply with the WTO. But we haven't done so yet, which means that eight American trading partners soon could retaliate against our unfair trade practices -- a move that could start a trade war.

There's no need for that. After all, trade wars are expensive and end up hurting everybody, while, as the Index proves year in and year out, free trade builds economies and ends up helping everybody.

If more of our politicians will recognize the benefits of economic freedom and go back to promoting it, next year we can return to the top 10 worldwide. And that would be good news -- for everybody.

Ed Feulner, president of the Heritage Foundation (heritage.org), a conservative think tank based in Washington.

About the Author

Edwin J. Feulner, Ph.D. Founder, Chairman of the Asian Studies Center, and Chung Ju-yung Fellow
Founder's Office

Related Issues: International Organizations