Spreading economic freedom

Rebecca Hagelin

1/9/2006 11:59:00 PM - Rebecca Hagelin
Flip through the 2006 “Index of Economic Freedom,” and you’ll see numbers -- lots of them.

That’s hardly surprising. After all, the Index (published annually by The Heritage Foundation and The Wall Street Journal) provides a snapshot of how much economic freedom can be found in every nation. That takes numbers, and the Index provides them -- in abundance. From inflation to taxation, it’s all there in black and white.

But there’s a larger message behind the numbers -- a message that the casual observer can easily miss.

The Index is really about people and their struggle to overcome barriers. And not just any barriers, but the ones their own governments erect to limit how much money they can make and how much they can keep – barriers that limit what they can do with their money and how far it can go.

To see how people are affected by such barriers (or the lack thereof), consider the relationship between economic freedom and per capita income.

The Index editors grade each country on a numeric scale that places it in one of four categories: free, mostly free, mostly unfree or repressed. Not surprisingly, the freer a country is economically, the higher the per capita income its citizens enjoy. People in “repressed” and “mostly unfree” economies have a per capita income that averages about $4,000. But those in “mostly free” countries have a per capita income of about $13,000. And those in “free” countries? More than $30,000.

What does that tell you? That when governments constrain economies, real people and families suffer. Parents around the world have the same hopes dreams that you and I do. They have the same desire to work hard, play fair and benefit from their labor. They want to see their children have better lives. They want to see their communities thrive and their neighborhoods be safe and prosperous.

Yet these same people are thwarted -- their dreams crushed, their hopes dashed. Many factors can do it, as a trip through the Index shows. Inflation may be out of control in their country. Tariffs and other trade barriers may be so high that they can’t even begin to compete in the world market. Taxes, both on corporations and on individuals, may be so high that much of their income goes straight to government. Regulation may be so heavy that starting a business is unthinkable. Foreign investment in their economy (which helps many “free” economies thrive) may be all but prohibited.

The ways in which governments destroy economic freedom are endless.

Take property rights: think about how the legal protection of them makes a free economy possible. If there’s a high degree of corruption in your country and the courts are unwilling or unable to enforce legally binding contracts, how safe is your money, or anyone’s money, for that matter? Not very. Economic freedom depends on many factors, including an open court system that works to ensure everyone plays by the rules. If you aren’t reasonably confident that your property is safe, that it can’t be taken from you without due process of law, you can hardly conduct ordinary day-to-day business, can you?

As Ed Feulner, president of The Heritage Foundation, writes in his preface to the 2006 2006 Index:

“Economic freedom is necessary for people to prosper. By reducing obstacles, it creates a framework within which people can choose how to use their time, skills and resources: a framework in which innovation is welcomed and economic growth is enhanced. Simply put, around the world, countries with a higher degree of strong commitment to economic freedom enjoy a higher standard of living.”

With that in mind, it’s good to see that economic freedom is on the march. Of the 157 countries graded in this year’s Index, 99 saw their scores improve -- some, such as Pakistan and Romania, by wide margins. The editors note that the trend over the last decade has been toward economic freedom.

Still, much work remains, especially in the Middle East, Africa and Latin America, where many economies (read: people) languish under the grip of governments who miss the connection between freedom and prosperity. The Index has shown over the years that relatively simple changes can yield positive results. Yet too many governments look the other way, often completely unwilling to make things better for their citizens.

“Yes, government should do all that is necessary,” President Ronald Reagan once said, “but only that which is necessary.” Restrictions on economic freedom are not only unnecessary; they’re counterproductive to individuals, families, and nations. Let’s hope the trend toward freedom continues.