great to see you and to be here to speak on economic freedom. I
know of no other public policy institution that does more than
Heritage to promote the blessings of liberty. I spent many years at
Heritage, 17 in all, and I saw up close how much care and passion
goes into fulfilling this mission. [President] Ed Feulner and
[Executive Vice President] Phil Truluck have created a landmark
institution for America, and for that America should be
would like to congratulate you on reaching this milestone--the 10th
edition of the Index of Economic Freedom. It is a most impressive
book, and I know how much went into it because I spent many years
working on it myself. My hat is off to its editors, Marc Miles, Ed
Feulner, and Mary O'Grady.
only regret is that Robert Bartley is not here to see this edition
unveiled. He was a good friend at The Wall Street Journal, who had
much to do with the initial idea of publishing an index that
measured economic freedom. He would be most proud.
remember very well the first edition of the Index in 1995. There
were a lot of skeptics who said that it could not--indeed, should
not--be done. There were disagreements over methodology. There were
doubts about completing such a huge project. But Ed Feulner had
faith and persisted, and ended up producing not only the first
comprehensive economic freedom index, but one that has continued to
grow in importance ever since.
Since then, the Index has amassed quite a
track record. More than any other study on this issue, it
highlights the best path to development--"the one paved with
couldn't agree more. Economic freedom is not just a theory. It is a
practical program that produces results. If anything, I would say
that economic freedom is more than a path; it is a highway as
essential to economic growth as elections are to democracy.
is good to see that economic freedom continues to advance, if
slowly, around the world. It is good that economic freedom
continues to grow in spite of these difficult and dangerous times.
Half of all the countries measured for this edition improved in
economic freedom. We
worry about the other half. Clearly, most of the world wants
economic freedom and the benefits it brings. Countries in every
region are shedding their dependence on failed economic
philosophies that have ravaged the dignity and liberty of people
for far too long.
since the publication of Adam Smith's monumental book, The Wealth
of Nations, has the time been more ripe for putting economic
freedom principles into practice in every region. President Bush
says it best: "Freedom honors and unleashes human creativity--and
creativity determines the strength and wealth of nations."
like to talk to you today about how the Bush Administration is
making sure economic freedom figures in the development work of the
United Nations. The U.N. can be a testing ground for the viability
of economic freedom as a practical idea of economic development. It
is a difficult and sometimes frustrating ground, to be sure, but it
is one in which we Americans should and must engage.
Economic Freedom--A Highway to
first, a few statements of principle. It is important to be clear
about a few things before I describe our activities in the U.N. And
it is also important that you have some background on how this
Administration is promoting economic freedom broadly.
believe that the link between economic freedom and prosperity could
not be more clear. Countries with higher levels of economic freedom
generally have more vibrant economies, higher per capita income
levels, and better living standards. You cannot achieve these
without free trade, competitive markets, and the rule of law.
trade fosters competition, which spurs innovation, productivity,
and consumer choice. In rich and poor nations alike, competitive
markets make more efficient use of resources; and they enable the
global marketplace to make the best use of comparative
rule of law is critical for economic freedom. Corruption not only
scares away investment; it undermines respect for public
institutions and diverts resources away from development. But where
property rights are clear, contracts enforceable, and tax and
regulatory regimes transparent and not too burdensome, black
markets have little incentive to develop and even less opportunity
Unleashing the forces of economic freedom,
then, is the most effective antidote to economic stagnation. We
have only to compare the experiences of East and West Germany, or
North and South Korea, to understand how economic
freedom--buttressed by political freedoms and the rule of
law--leads to greater prosperity, peace, and higher living
standards for all.
Index offers many examples of what economic freedom can do. Take
Estonia: Just a dozen years out of Soviet control, and it has
already surpassed many of its European neighbors and the United
States on the Index. It did so by liberalizing its economy. And it
is not alone. In countries as far apart--and as different in
experience--as Jordan and the Slovak Republic, the evidence is in:
Reforming policies in favor of economic freedom unleashes forces
that enable economic growth and raise living standards.
Mozambique can provide lessons for the developing world. Though it
is ranked "mostly unfree" in this year's Index, its score is
improving. Though much remains to be done, Mozambique has a more
open investment climate, and its economy is growing at a fast
How We Promote Economic Freedom
Bush Administration firmly supports the principles of economic
freedom. These principles guide us in our everyday efforts to
expand to others the depth and breadth of the freedom that so
invigorates our own economy.
First, of course, is our active pursuit of
trade liberalization. Free trade helps spur economic growth. The
World Bank estimates that total developing country income, and the
welfare of their citizens, could increase by a stunning $532
billion per year by 2015 if all the nations of the world fully
trade agreements are not enough. Governments must also take bold
steps to reduce corruption, lessen the state burden on the economy,
and lower taxes.
simple truth--that economic development comes from economic
freedom--is the principle behind the Millennium Challenge Account
Act signed by the President on January 23. This innovative program
is designed to channel additional bilateral development assistance
to developing nations that govern justly, invest in their people,
and promote economic freedom. To Heritage's credit, one of the 16
indicators of eligibility to be used to identify priority countries
for this program is the Index's own trade policy factor.
Promoting Economic Freedom Through the
believe so strongly that economic freedom is essential to economic
growth that we instruct our delegations, ambassadors, and diplomats
at the United Nations to carry the idea into their formal and
informal discussions. We do not want the international community to
take a step backward when it comes to development--because a step
back will mean more people mired in poverty, for longer periods of
time. And it will mean less hope, less creativity, less
entrepreneurship, and less truly sustainable development
despite these efforts, and despite what many countries are doing at
home to strengthen their own economies, some members and
organizations of the United Nations send out mixed signals when it
comes to economic development.
Since the launching of the World Trade
Organization's Doha Development Round in 2001, it seemed that the
international community had figured out the right way to foster
development. In 2002, world leaders came to a new and balanced
consensus at the high-level Financing for Development conference in
Monterrey, Mexico. They agreed that the formula for economic growth
and development was good governance, trade liberalization, and
mobilizing resources from both within countries and abroad. Donors
and trade partners can play a supportive role, but developing
countries bear the greatest responsibility for their own
the World Summit on Sustainable Development in Johannesburg in
2002, the international community underscored the need for good
governance and also private-public partnerships to meet the world's
economic, environmental, and social challenges. These steps were
promising. The international community understood that, to enjoy
the benefits of economic freedom, to lift societies out of poverty
and economic stagnation, governments needed to show a fundamental
commitment to economic freedom.
A Step Back for Economic Development?
since then, we have seen a disappointing retreat from this
understanding, particularly in the United Nations General Assembly.
Just this past session, for example, a proposed resolution on
financing for development started out calling for new resources for
aid and new mechanisms to deal with commodity price fluctuations.
Yet there was no explicit mention of the responsibilities of
developing countries themselves or of measures to reduce corruption
or increase property rights. Nor did it focus on how best to
mobilize domestic resources or implement the commitments made at
Another example involves the U.N.
Millennium Development Goals, which include seven broad objectives,
such as reducing poverty, relieving hunger, and providing universal
primary education, and all by 2015. These seven objectives, agreed
upon by governments at the highest levels since 2000, have become
the organizing principles for U.N. agencies involved in
development. Their results-oriented focus is a good idea.
Unfortunately, the U.N. Secretariat and
the U.N. Development Program, all on their own, came up with an
eighth goal targeting financial resources for development
assistance. And it is on goal eight that they focus most of their
times, indeed, the U.N. seems less a forum for hope-generating
discussions and pro-growth economic policies than it is a stage for
stale debates about transfers of wealth. In the U.N.'s economic
fora, debates often have little to do with the real business of
promoting development. Rather than good governance and
investment-attracting policies, you hear instead:
- Talk of an international tax to finance
- Calls for measures to stabilize commodity
prices at artificially high levels,
- New mechanisms to forgive countries'
- Control of the Bretton Woods institutions
for borrowing countries and unconditional new lending programs,
- Proposals for a near doubling of foreign
diplomats and negotiators spend huge amounts of time trying to
prevent such ideas from gaining international legitimacy through
U.N. resolutions or decisions. Added to this is a tangible
antipathy, if you will, against the private sector. We hear this in
calls for greater regulation, or the extortion of profits thinly
disguised as proposals for greater "corporate social
did such ideas come to gain credibility in the United Nations? I
think there are two main
first is that there are many non-democratic nations in the U.N.
Decisions in most U.N. bodies are made on the basis of one
country/one vote, with all nations--regardless of size or type of
political system--casting a vote equal to that of the United States
and other free nations. Non-democratic nations, therefore, get the
same vote as democratic ones. All too often, these countries vote
together to block not only sensible ideas of economic development,
but also proposals for U.N. reform that would loosen their hold on
U.N. decision-making in areas of budget and economic
Second, many in the U.N. Secretariat and
U.N. specialized agencies seem biased in favor of the ideology of
an aid-focused development strategy. The U.N.'s funds and programs
are, after all, development funds. Foreign assistance is what they
do, so it is not too surprising that they focus their attention
there. Many seem truly to believe that aid is a principal
determinant of development, and they work (often with international
NGOs) to help others to believe the same.
the only way policymakers at the U.N. think we can promote
development is through foreign aid, then obviously, only the donor
countries will be held accountable for whether the developing world
achieves the Millennium Development Goals by 2015. This blame game,
unfortunately, seems to be the main goal of the developing
countries' group known as the Group of 77.
the facts point us in a different direction.
Development aid from all sources to the
developing world amounted to $57 billion in 2002. By contrast,
remittances from immigrant workers reached nearly $80 billion,
foreign direct investment was $115 billion, and developing world
trade surpassed $2 trillion. Resources now lost to corruption could
provide additional billions.
Increasing trade and investment would have
a far greater effect than increasing foreign aid ever could. That's
why increasing such resources was one of the agreed objectives of
the Monterrey Consensus and why it is the idea behind the
Millennium Challenge Account. Where countries demonstrate they have
the will to open markets, reduce corruption, regulation, and taxes,
and invest in their people wisely, foreign aid can help. Otherwise,
it is of little help.
is much easier and politically more satisfying to blame poverty on
insufficient aid than it is to muster the will to change, to do
what's right. But regulatory reform, transparency, the rule of law,
trade, and foreign direct investment cannot be ignored in the
development equation if economic growth is the goal.
Tough Road Ahead
United Nations is the right forum to send out this strong message
to governments around the world, but it will not be an easy road.
There are, in fact, three reasons why it will be difficult to steer
the U.N. development agenda back to the sound economic freedom
principles agreed upon in Monterrey and Johannesburg.
first is that a majority of the members of the U.N. are on the
receiving end of the aid process. They find it far easier to lobby
for more aid funding than to make the hard choices of reform at
second reason is that these countries organize themselves into
highly disciplined voting blocs. Inside these blocs, the emphasis
is far greater on group solidarity and consensus than on discussing
openly and pragmatically what works and what does not work in
economic development. The G-77 can easily mobilize majority
victories on aid issues in the General Assembly and other U.N.
can see this dynamic at work often. Last year, our proposal for
organizing the work of the U.N. committee responsible for economic
issues around the goals and commitments articulated at Monterrey
and Johannesburg was rejected outright by the G-77. Our challenge
is to find a way to get the G-77 to reflect the views of its own
moderate center rather than the extreme views of ideologues so
opposed to freedom, reform, economic growth, and individual
third reason why it so difficult to effect change is,
unfortunately, found among some of our European partners. Many of
the countries in the European Union are doing the right things on
economic policy at home and enjoy top ranking in the Index. Yet, at
the U.N., they espouse widely different positions on foreign aid.
Some think, or at least pronounce in New York, that only more
foreign aid is the key to development. Others that agree with us
about the need for a more market-oriented view often remain silent
when our ideas are criticized. Europeans certainly could be more
proactive, and some could be more intellectually honest, on
economic freedom matters at the U.N.
Another challenge we face is bringing the
entire U.N. system, including the Secretariat, to a more favorable
view of the private sector's role in economic development. U.N.
activities to implement the Monterrey Consensus include
private-sector participation, but that effort needs to be extended
to other U.N. development work.
this respect, I think the Secretary-General's decision last year to
convene a Commission on Private Sector Development was a positive
step. It is encouraging that the commission's mandate is to look at
regulatory environments that spur business growth. We look forward
to its report next month in hope that its conclusions will talk
more about market solutions than market shortcomings.
we are to help alleviate poverty and starvation, and lead countries
out of economic malaise, then we must bring market principles into
U.N. deliberations in a vivid way. We need to build consensus for
progress, not for the status quo. It's time to end confusing
double-talk about development.
Building Partnerships for Prosperity
Clearly, we have our work cut out for us.
My staff and I believe that to do this--to advance the proven
principles of economic freedom at the U.N.--we need a new strategy.
We want to engage countries that believe economic freedom is the
best path to development.
one glance at this year's Index makes clear the many possibilities
for close collaboration on these principles with countries from
every region, countries such as Singapore, Estonia, Spain, Costa
Rica, Norway, Botswana, and Japan, to name just a few. We want to
work with countries like Chile and Jordan with whom we have free
trade agreements, and others with whom we are pursuing them. Such
countries already understand that economic freedom policies and the
rule of law reinforce each other and create better lives for their
would also work with countries that qualify for the Millennium
Challenge Account. If they have met its criteria for increased U.S.
aid, then they already are taking the necessary steps to increase
a partnering could give developed and developing countries alike a
new avenue to promote economic freedom more effectively in the U.N.
system. This "economic freedom alliance," if you will, could help
developing countries shore up the courage of their convictions so
that they aren't always cowed by the Cubas of the world.
this way, we could ensure that economic freedom is at the forefront
of every development debate. We could work together more
effectively to focus on programs that put opportunity and
prosperity within every person's reach. At meetings like the U.N.
trade and development ministerial in June, we could collaborate to
focus discussions on the practical steps that open economies and
unblock the creative energies of entrepreneurship. We can and will
do the same in the U.N. Economic and Social Council, in the U.N.
Development Program, and at the General Assembly.
matter the agency or forum, we will consider every resolution,
every plan of action, every statement a vehicle for making our case
that economic freedom is essential for economic growth. We will
encourage every country to bring policies that work and those that
don't to the light of day. We will encourage developing countries
to shed strategies that failed and to take bold steps that could
make them the Index poster children of promise next year.
U.N.'s standing, credibility, and effectiveness in reducing poverty
and promoting economic development are at stake. That, of course,
is a key concern of mine and of our staff.
what really matters are the lives of millions around the world who
live in poverty, for whom economic freedom offers the best hope for
a healthier, safer, more productive life and the human dignity of
self-reliance. An alliance that promotes that agenda would make the
U.N.'s development work much more effective.
Kim R. Holmes,
Ph.D., is Vice President of Foreign and Defense Policy
Studies and Director of the Kathryn and Shelby Cullom Davis
Institute for International Studies at The Heritage