June 22, 2006

June 22, 2006 | Commentary on Political Thought

In 'economic World Cup,' America has big lead on Europe

Here are two pieces of news. Can you tell which is good and which is bad?

1. Economic growth in the coming months is expected to range between 3 percent and 4 percent.

2. Economic growth in the coming months is expected to be 0.7 percent.

The answers might surprise you. The first sentence is actually bad news, because we're talking about the white-hot American economy. GDP grew 5.3 percent in the first quarter, so a drop back to 3 percent would represent a slowdown.

The second sentence is good news, because we're talking about the moribund French economy. France's central bank had predicted 0.6 percent growth in the second quarter, so anything above that is reason for Paris to pop champagne corks.

It's a tale of two economies. America's continues to expand rapidly, sparking growth and jobs. Meanwhile, in the countries of the European Union, a unified monetary policy hasn't helped individual nations improve their stagnant growth rates.

If France, Italy and Germany were American states, they'd be among the poorest in the union. The French economy would lead only Arkansas, Montana, West Virginia and Mississippi in per capita GDP. Germany would trail all 50 states. German companies are rushing to build cars here (in South Carolina and Alabama) instead of at home. The United States creates more jobs in a month than France or Germany creates in a year.

There's a lesson here. European soccer teams can more than compete with the American squad at this month's World Cup, because the French, Germans, Italians and others expect their soccer teams to excel. If they'd demand that their governments deliver the same level of economic growth as our government does, perhaps Europe's economies could compete with the United States.

U.N. Secretary-General Kofi Annan almost made this point in a June 12 article in the British newspaper the Guardian. He wrote that he'd like to see "citizens consumed by the topic of how their country could do better on the Human Development index, or exercised about how to reduce carbon emissions or HIV infections."

Annan's right to express such concerns. But does he realize that such improvements would follow automatically if the countries in question increased economic freedom -- which in turn would generate economic growth?

In recent decades, the United States has excelled at human development. In 1959, 22 percent of Americans lived below the poverty line. Today, only 12 percent do. That's the power of a growing economy -- it lifts its citizens and improves lives. And as economies grow, people have more money to spend to make their country cleaner and healthier.

Europeans could kick-start their economies by doing what we've done: cut tax rates, limit government intervention and encourage entrepreneurship.

The Heritage Foundation's Index of Economic Freedom provides a handy roadmap. It ranks 161 countries based on 10 critical factors. Some of these include the amount of government intervention in the economy (which tends to slow growth), levels of taxation (higher taxes limit growth), regulation, property rights and trade policy (the Europeans are dragging their feet on agriculture subsidies).

While the United States is ranked the ninth freest economy in the world, "old Europe" struggles. Germany comes in at number 19, Italy at 42 and France at 44. All three score especially poorly in the "fiscal burden of government." That's an extreme drag on their economies. Just because richer nations can afford bigger governments doesn't mean they should have them -- unless they want to stagnate.

What the world needs is an economic World Cup, a competition to trim government intervention and taxation so we can improve the global economy. Such a race to the top would generate good news worldwide. And it would give us all a chance to be winners.

Edwin Feulner is president of The Heritage Foundation (heritage.org), a Washington-based public policy research institute and co-author of the new book Getting America Right.

About the Author

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

First Appeared in the Chicago Sun-Times