January 28, 2015 | Commentary on Index of Economic Freedom, Budget and Spending

A Modest Uptick in American Economic Freedom

A steep, seven-year decline in U.S. economic freedom has come to an end, according to the 2015 Index of Economic Freedom, published Tuesday by the Heritage Foundation and The Wall Street Journal. The U.S. score in the index experienced a particularly large drop in 2009-10, pushing this country out of the “free” category and into the “mostly free” category. A slight 0.7-point uptick this year has allowed the U.S. to retain its 12th-place ranking.

The index measures commitment to free enterprise on a scale of 0 to 100 by evaluating policies related to the rule of law, government size, regulatory efficiency and market openness. Restraint in the growth of government spending drove the modest improvement in the U.S. score.

Since changes in index scores are highly correlated with economic growth rates, the modest rebound for the U.S. raises hopes that the economy can regain some of the momentum lost through the excessive spending, taxes and regulations of the Obama era. The 2010 elections, which returned control of the House of Representatives to Republicans, brought some restraint in government excess, a fact reflected in the U.S. economic freedom trend and the recent uptick in U.S. economic activity. The 2014 election promises even greater restraint in the growth of government spending and regulation.

Conservatives and libertarians should be happy that divided government in Washington has slowed the growth of government spending. But political change has yet to reduce government favoritism and cronyism, or the costs and uncertainty generated by ObamaCare and Dodd-Frank regulations, all of which retard investment and job growth.

Economic freedom has proven to be an important predictor of economic and social success around the world. Countries with higher levels of economic freedom are much richer than lower-scoring countries. Per capita incomes in the freest countries are six to seven times higher than incomes in the least free countries. Better-scoring countries in the index enjoy lower rates of poverty, better health care, and do a better job of protecting the environment.

Overall, the Index of Economic Freedom provides ample evidence of the power of free markets to contribute to increased prosperity and human well-being. It is clear that some policy makers, both in the U.S. and abroad, have been listening. Others have not, and the world remains divided between those who have economic freedom and those who do not.

Globally, economic freedom continues to advance. This year’s world-wide average score of 60.4 is the highest ever. Over 100 countries recorded advances in economic freedom; 37, including Taiwan, Lithuania, Georgia, Colombia and Israel, achieved their highest scores ever.

Competition at the top of the rankings is as close as it has ever been, with top-ranked Hong Kong edging out Singapore by only two-tenths of a point. New Zealand, Australia and Switzerland also gained the coveted “free” ranking. North Korea, Cuba, Venezuela, Zimbabwe and Eritrea remain stuck at the other end of the scale as the five least-free economies in the world.

At the heart of the free-market system is the idea of maximizing opportunities for individuals to organize and compete in the production of goods and services to increase efficiency and productivity. The Index of Economic Freedom provides one measure of how well governments are doing in providing an environment in which such entrepreneurship can flourish.

This year’s results give cause for hope, both in the U.S. and elsewhere, but show that the task is far from complete.

 - Mr. Miller is director of the Center for Trade and Economics at the Heritage Foundation.

About the Author

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)

Originally appeared in The Wall Street Journal