The Heritage Foundation, in conjunction with the Wall Street Journal, released its annual “Index of Economic Freedom” this week. The index ranks countries based on how free “individuals are to work, produce, consume, and invest in any way they please,” and how well those freedoms are “both protected by the state and unconstrained by the state.”
Where did “the land of the free” rank? Believe it or not, we barely cracked the top ten, the U.S.’s worst ranking in more than 15 years of the index’s history.
Within the study, ten measures are used to rank different countries and regions, such as the regulatory environment, how open the markets are, the level of corruption, and property rights, among others.
The measurements used are strongly correlated to successful economies and future economic growth. Basic economic principle dictates that, ceteris paribus, the greater the level of economic freedom, the higher a country’s standard of living and GDP growth, along with generally lower levels of poverty. Because citizens in economically free systems of governance are free to research, exchange, and invest in ideas and resources, it would follow that entrepreneurship and economic growth generally ensue.
Despite being located in one of the least free countries in the world, Hong Kong ranks at the top of the index, as it has for the past 15 years. Former English colonies maintained five of the next six positions, with Singapore, Australia, New Zealand, Switzerland, and Canada rounding out the top six. These countries were ranked higher due to their lower taxes, fewer regulations with regards to business operation and expansion, lower government spending, and greater freedom within the labor market.
The bottom of the list was dominated by the socialist regimes of Venezuela, Zimbabwe, Cuba, and North Korea. All of these countries have suffered severe financial crises in recent years and have poor living conditions, few freedoms, and even fewer opportunities for their impoverished to improve its standard of living.
When the index began in 1995, the U.S. ranked about where one might expect a “free country” to stand, near the top at number four. However, after every major financial hiccup, our government has tended towards increased regulation, taxes, uncertainty, economic manipulation, and corruption, along with a decrease in property rights and overall entrepreneurial growth, which have incurred precipitous drops in our ranking: #8 after the tech bubble in the late 90s, then, after improving to #5 again by 2008, we again began a slow decent, losing our “free” designation in 2010 after the 2008 financial crisis.
Since 2008, the Index now ranks the U.S. as a “mostly free” (category just below “free”) country due to the increases in economic manipulation, our massive increases in debt, increasing uncertainty in the regulatory environment, and an increase in taxes.
Perhaps one of the most surprising categories in which we’ve seen a significant increase is in our level of corruption. However, with increased regulations, comes increased bureaucratic involvement, opening the window to administrative officials who can be swayed by cronyism or other corrupt behaviors.
In both the 2012 and 2013 rankings, the U.S. is listed at its all-time lowest at #10 in the world.
Even a brief study of economic history proves that the best way to help impoverished communities is to allow them the freedom to pursue their own economic dreams, provide access to entrepreneurial activities equal to that of their peers, and allow for a stake in their own success. However, recently reduced levels in these areas have coincided with increased poverty and the government’s perceived need for greater social welfare to help support these communities.
For Latinos, Blacks, and other minorities, reduced economic and entrepreneurial opportunities are especially harmful. As these communities tend to see disproportionate levels of poverty and have, more recently, seen disproportionate decreases in wealth and increases in unemployment, decreasing economic opportunities tends to hurt minorities the most. The disparities are widening, as the incentives and opportunities for improvement are decreasing.
The U.S. is still the largest, most dynamic economy in the world and is expected to be so for some time into the future. If trends in the Index of Economic Freedom are any indication, however, we just might have to change our unofficial motto from the “land of the free” to the “land of the kinda’ free, but not always, it depends…”
JUSTIN VELEZ-HAGAN is Senior Contributing Writer and Commentator for Politic365.com. He is also an Adjunct Instructor of Economics at the University of Maryland-University College and the National Executive Director of The National Puerto Rican Chamber of Commerce. He can be reached at Justin@Politic365.com.