Economic indices

2006 INDEX OF ECONOMIC FREEDOM

By Marc A. Miles, Kim R. Holmes, Mary Anastasia O'Grady

The Heritage Foundation and the Wall Street Journal

$24.95, 439 pages

"Mr.Gorbachev, tear downthis wall."So dared President Reagan in 1987 at the Berlin Wall to the Soviet Union head of state. The Reagan dare seems to have worked, for down went the wall in 1989 and out went a tsunami of economic liberalizaton that engulfed much of the globe, especially from Eastern Europe eastward to the Far East.

There, two vast economies, China and India, today accounting for almost two-fifths of the world's population, if both are still graded "mostly unfree" in the Heritage Foundation's "2006 Index of Economic Freedom." Yet both are bestirring themselves into becoming economic giants. The authors' idea for China and India: Keep up the good work, liberalize more, tear down your remaining economic walls.

So, this major think tank and major newspaper push on to annually examine and grade 157 countries across the globe as "free," "mostly free," "mostly unfree" and "repressed." The result is to show anew their telling point that the greater a nation's economic opportunity, the higher its living standards. Thus put into play in any country, say, freer trade and greater private property rights -- to take just two kinds of economic freedom of the 10 listed below -- and its citizens likely will win richer economic rewards.

Such is the poster-boy story told here of Ireland (pop. 4 million), well ahead of Western Europe in percapita wealth and in fact the world's largest exporter on a per capita basis. Ireland ranks third (behind Hong Kong and Singapore), while the United States ranks but ninth in the world in terms of economic freedom. Ireland keeps enterprising: cutting its corporate income tax to 12.5 percent from 16 percent in 2003, for example, or well below the European Unions's average of 30 percent. The cut apparently helped spark still more growth in Ireland's gross domestic product: 4.9 percent in 2004. Not bad.

So again editors Marc Miles, Kim Holmesand Mary Anastasia O'Grady, backed up by statisticians and specialists in their respective enterprises, offer an empirical competitive depiction of each nation's level of economic freedom by covering and analyzing 50 independent variables spread over the following 10 areas:

• Trade policy,

• Fiscal burden of government,

• Government intervention in the economy,

• Monetary policy,

• Capital flows and foreign investment,

• Banking and finance,

• Wages and prices,

• Property rights,

• Regulations

• Informal market activity.

Mr. Miles in his introduction tells the good news: There are now 20 economically "free" countries in the world -- an increase of three. Too, for the first time in 12 annual editions, the average economic freedom score in the world has improved from "mostly unfree" to "mostly free." Given that link between economic opportunity and prosperity, the trend bodes well for rising markets and living standards over the globe.

Also boding well for the global economic outlook is the portent of Chapter Two here, "The Failures of State Schooling in Developing Countries and the People's Response." What the authors find in places like Lagos and Calcutta is that most parents lack the supposed need for patience while governments and international development agencies get public education working. So, unfancy private schools in the developingworldare "mushrooming" -- the authors' word -- with student attendance in the Lagos private schools, for example, far beyond that in government schools, with typically superior results. So more talent or human capital lies ahead.

Yes, economic improvement is uneven across the world. South America, as a whole, seems to be losing zeal for freedom and free enterprise. And even the United States gets hit here for its Kelo v. New London decision sapping private property rights, and for its "anti-dumping"Byrd Amendment and anti-China rhetoric betraying an ongoing protectionist mind set. Too, the authors fret that "the U.S. may be drifting toward bigger government." Can't win 'em all.

William H. Peterson is the 2005 Schlarbaum Award winner for Lifetime Achievment in the Study of Liberty given by the Ludwig von Mises Institute, Auburn, Ala.