The findings of the just-released "2020 Index of Economic Freedom" may surprise Americans critical of our capitalist system—and serve as a warning to governments tempted to overreact to the coronavirus pandemic.
The Index shows that many countries, especially developing ones and many that were firmly committed to socialism in the past, are flocking to adopt policies that bring their economic systems more in line with the free-market principles of our own.
More than two-thirds of the countries rated in the Index (124 countries out of 180 total) registered gains in economic freedom this year. That means they have adopted policies that:
- Improve the fairness and efficiency of their legal and regulatory systems,
- Make it easier for private citizens to start or operate businesses,
- Reduce the size and intrusiveness of government, and/or
- Open their economies more fully to international flows of goods, services and capital.
Indeed, the overall level of economic freedom is the highest ever recorded in the 26-year history of the Index.
Those moving most rapidly towards economic freedom include countries like Equatorial Guinea, Djibouti, Ecuador, Vanuatu, Kazakhstan, Uzbekistan, the Gambia, Madagascar, Azerbaijan, Belarus and Togo. These are by no means paragons of economic virtue, freedom or even (in most cases) prosperity. But the policy reforms they are undertaking to make their systems more like ours reflect a clear understanding, based on decades of real-world experience, of the superior performance of freer economies.
The data clearly show that countries with higher levels of economic freedom are richer, healthier and more peaceful. They have cleaner environments. Their people live longer. Countries gaining freedom, even if starting from very low levels, have faster growth rates.
Many Americans are probably unaware that over the last three decades, as scores of countries have abandoned or greatly scaled back their commitment to socialism, free-market policies have contributed to a two-thirds decline in the rate of global poverty. People in other countries have certainly noticed. Hundreds of millions now have hope for better lives for themselves and their children.
The U.S., meanwhile, is no longer the leader in economic freedom it once was. It ranks only 17th in this year's Index. The mantle of freedom is now carried by countries like Australia and New Zealand, Singapore and Taiwan, Switzerland, Ireland and the UK. Even Canada outranks the U.S.
All of these countries have a strong heritage of economic freedom, but many of them flirted disastrously with socialism in the past, as the U.S. is doing today. They've come out the other side, recommitted to economic freedom and are enjoying the benefits.
To be sure, the U.S. still has one of the strongest and freest economies in the world, and the deregulation and tax reforms of recent years have contributed to positive growth. Government spending is unabated, however, and the protectionist policies currently in vogue take a toll on both incomes and jobs.
Most troubling is the loss of confidence in the system. Americans are deluged with competing statistics and claims of crisis for one population group or another. In a country as big and diverse as the United States, it is difficult to put real examples of people experiencing poverty or hunger in any kind of context. The temptation for national politicians is to propose national solutions, but problems, even those that garner major attention such as health care or hunger, may afflict only a small proportion of the population.
If the history of socialism teaches anything, it is that national, one-size-fits-all economic policies rarely fit anyone ideally, and that the regimentation and standardization that inevitably follow stifle innovation and growth.
As the editors of the Index note, economic freedom is not a single system. It is instead, a philosophy that rejects the idea of a single dominating system, embracing diverse and even competing strategies for economic advancement. That, of course, is the antithesis of socialism.
As for the coronavirus pandemic, the world is watching to see how countries across the economic freedom spectrum respond. If the Index teaches us anything, it's that responses to the pandemic should be targeted and temporary and not exploit the crisis to pursue pet policy priorities that needlessly expand the power of government.
As the Index shows, countries worldwide are embracing the idea of competing in freer and more open markets, an idea historically championed by the United States. At this difficult time, we can at least take heart that the principles of economic freedom are taking greater root around the globe—and the free-market system the U.S. was so instrumental in creating remains an engine of growth and prosperity for us all.
This piece originally appeared in Madison.com