January 23, 2008

January 23, 2008 | Commentary on Smart Growth

Encouraging a more creative, competitive America

America has a duty to further the cause of freedom, the president asserted during a major speech in the waning months of his second term.

"One of the greatest contributions the United States can make to the world is to promote freedom," he said. "A creative, competitive America is the answer to a changing world, not trade wars that would close doors, create greater barriers and destroy millions of jobs. We should always remember: Protectionism is destructionism."

These are the words of President Reagan, spoken 20 years ago in his last State of the Union address.

How would Ronald Reagan respond to today's cynicism and doubts about the benefits of international trade and globalization? Some policy-makers and politicians argue that free trade benefits mainly low-wage countries such as China and India, taking away jobs here. Some vow to stop that flow.

But can we really protect jobs by erecting trade barriers, by playing to people's fears?

Reagan likely would disagree, gently saying "no."

As he reminded us in that final State of the Union speech, the best way to adapt to today's rapidly changing global economy is to remain creative and flexible -- and therefore competitive -- by enhancing economic freedom, rather than eroding it through protectionist measures.

The late economist Milton Friedman once said that "most economic fallacies derive from the tendency to assume that there is a fixed pie, that one can gain only at the expense of another."

America has proved time and again that the right policies, those that enhance economic freedom, can make the pie much bigger. And its benefits can be widely shared.

For example, more open trade policies in the last 10 years helped raise the gross domestic product of the United States by nearly 40 percent and boosted job growth by over 13 percent.

Free trade delivers a greater choice of goods in all 50 states -- from food to furniture and cars to computers -- at lower prices.

Economic freedom fosters the spirit of entrepreneurship and innovation that creates new products and jobs. It sustains America's strength and the creation of wealth.

By lowering barriers to the business activities of ordinary people, the forces of economic freedom create a framework of opportunity for anyone to fulfill his or her dreams of success. The freer a nation's economy, then, the more likely its people will be able to work, save, consume, and live happier, healthier lives.

This relationship between economic freedom and prosperity is well documented in the Index of Economic Freedom, which measures and rates the economies of nations around the globe.

Published annually by The Heritage Foundation and The Wall Street Journal, the index assesses each country by examining 10 key ingredients, including openness to the world, limited government, property rights and the strong rule of law.

The U.S. economy scores 80.6 out of a possible 100 in the 2008 Index of Economic Freedom. Ours ranks as the fifth-freest economy -- behind Hong Kong, Singapore, Ireland and Australia -- among 157 countries graded along a line from "repressed" to "free."

However, America's economy would score higher with more fiscal freedom and less big government.

Total government spending equals more than a third of GDP. And as other nations with advanced economies cut taxes to spur growth, our individual and corporate tax rates are increasingly uncompetitive.

This election year, the presidential candidates are holding forth on everything from free trade to fairer taxes to income redistribution. But voters deserve a more lively, honest debate.

The next president will need to ensure continued growth through commitment to a freer economy that is the envy of the world.

True believers in free markets hold that government, in President Reagan's words, "can and must provide opportunity, not smother it ... foster productivity, not stifle it."

This wisdom is the key to sustaining a healthy, growing economy that expands the circle of prosperity.

Terry Miller, a former ambassador to the U.N. Economic and Social Council, is director of the Center for International Trade and Economics at The Heritage Foundation, where Anthony B. Kim is a policy analyst.

About the Author

Anthony B. Kim Research Manager, Index of Economic Freedom, and Senior Policy Analyst
Center for Trade and Economics (CTE)

Ambassador Terry Miller Director, Center for Data Analysis and the Center for Trade and Economics and Mark A. Kolokotrones Fellow in Economic Freedom
Center for Trade and Economics (CTE)

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First appeared in Kansas City Star