- The Washington Times - Wednesday, January 12, 2005

Here’s a shocker for those who track the winners and losers in the global economy: The United States no longer ranks among the 10 freest economies in the world, and has slipped to 12th place in a tie with Switzerland.

The U.S. is still one of the most dynamic economies on the planet, and still the biggest, according to the Index of Economic Freedom, published annually by the Heritage Foundation and the Wall Street Journal, which rates the world’s economies on a broad range of fiscal, regulatory and free enterprise measurements.

America’s score on these and other indexes have not changed. But several other countries — such as Chile, Australia and Iceland — have significantly improved their economies, which pushed them ahead of the United States in the scoring and knocked us out of the top 10 for the first time in the Index’s 11-year history.

“America has long been a global leader in the spread of economic and political freedom, but over the past several years, we have seen too many instances of the pupil passing the teacher,” writes Ed Feulner, Heritage Foundation president.

Four years ago, the United States ranked fourth as the freest economy in the world. But “the rest of the world has begun to catch on to the dividends that freedom pays,” Mr. Feulner said.

Thus, in the last four years, countries like Luxembourg, Ireland, Estonia, the United Kingdom and Denmark have moved ahead of us in the rankings.

In a stinging critique of administration policies in a separate report proposing an agenda for the next four years, Mr. Feulner said noncompetitive labor costs “pose the greatest threat to our economic growth.”

“The federal government continues to influence prices by purchasing excess production, overregulating the economy, restricting imports and providing subsidies to companies like Amtrak. Ronald Reagan’s summary of how the government thinks — ‘If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it’ — remains very much alive today,” Mr. Feulner said.

The Index of Economic Freedom rankings are calculated in a point index based on a country’s tax burden, foreign investment, trade policies and level of government intervention in the economy, among other things.

Pushing the United States back in the rankings was its dismal score on the fiscal burden of government, particularly taxation. “The U.S. corporate tax rate ranks 112th out of the 155 countries scored, and its top individual tax rate ranks only a somewhat better 82nd,” according to the Heritage Foundation. Both top rates are at 35 percent , down from nearly 40 percent in 2000.

“The fiscal burden rating also reflects the fact that federal spending has reached levels not seen since World War II, and now costs the average household more than $20,000 per year,” the Heritage Foundation said.

The massive farm subsidies enacted in 2002, followed by the Medicare prescription entitlements in 2003, a sharp increase in economic regulation in securities, increased anti-dumping trade barriers — all increase the fiscal and regulatory burdens holding back the U.S. economy from its optimum.

Looking at the global picture, however, the good news is many more countries are freeing, deregulating and privatizing their economies and becoming much more prosperous as a result.

In case after case, countries that reduced taxes, dropped trade barriers, eliminated regulations and took other steps to free their economies saw their standards of living and per capita incomes rise. Among the 155 countries analyzed by the Index, 86 turned in better scores this year than last.

Iceland, for example, now in the top 10 “most free” economies in the world, has been doing steadily better since cutting taxes and deregulating its banks, turning in a compound growth rate of 31/2 percent. Ukraine has experienced a dramatic improvement by cutting taxes, easing price controls and accelerating privatization. Lithuania, the second-freest country in the former Soviet bloc, now boasts a private sector producing about 80 percent of its economic growth.

The 10 freest economies: Hong Kong, Singapore, Luxembourg, Estonia, Ireland, New Zealand, the United Kingdom, Denmark, Iceland and Australia. The least free: Venezuela, Uzbekistan, Iran, Cuba, Laos, Turkmenistan, Zimbabwe, Libya, Burma and North Korea.

As for America, the Index of Economic Freedom says though the United States is still a very vibrant economy, it is now “at a crossroads: It will either continue to be a leader in economic freedom or idly watch other countries pass it by.”

In other words, the global competition will only get tougher. So we better get busy on a pro-growth agenda. There’s nothing wrong with the U.S. economy that a stronger dose of tax cuts, government spending restraints, deregulation and trade expansion wouldn’t cure.

Donald Lambro, chief political correspondent of The Washington Times, is a nationally syndicated columnist.

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