U.S. drops on economic index

The United States has dropped for the first time from the top 10 nations in an annual “index of economic freedom” issued jointly by the Heritage Foundation and the Wall Street Journal.

In the new rankings, released yesterday, Hong Kong remained in first place, where it has been for years in spite of the handing over of the former British colony to Chinese rule in 1997. Singapore, Luxembourg and Estonia — the latter, a former Soviet republic — held the next three spots.

The United States’ score in the Heritage Foundation index was unchanged from last year, when it ranked 8th, but it slipped to 12th place because of reforms in Chile, Australia and Iceland, all of which moved up.

Ana Eiras, one of the report’s authors, cited lower corporate tax rates and increased free trade as factors in raising those countries’ scores. Chile, for example, has a top corporate tax rate of 17 percent, half that of the United States.

In addition, she said, the United States’ score was held down by anti-dumping laws that are seen as barriers to free trade.

The economic-freedom scores were compiled by analyzing 50 economic variables grouped into categories such as banking and finance, monetary policy, trade policy and property rights.

Each nation was given a score from one to five in each category, reflecting the level of government “interference.”

The report defines economic freedom as an absence of government “coercion or constraint” on citizens’ ability to “work, produce, consume and invest in ways they feel are most productive,” the authors say.

But Miss Eiras cautioned against equating high scores with a complete lack of government involvement.

“We need some rules of the game,” she said. However, “it is true that whenever a rule is imposed, a greater burden is placed on economic activity.”

She named Hong Kong as an example of an economy that has rules, but enough flexibility to allow its residents a high degree of economic liberty.

Miss Eiras said growing government spending had also contributed to the drop in the U.S. ranking, but said that mainly “we are the victims of our own inaction.”

If the United States wants to improve its ranking next year, she said, policy-makers should slash tax rates for corporations and individuals, cut government expenditures and deregulate.