Tuesday, December 17, 2002

Down went the Berlin Wall in 1989, notes Robert L. Bartley, editor of the Wall Street Journal, in the foreword of the “2003 Index of Economic Freedom.” Mr. Bartley sees how the world has changed with the fall of the wall in terms of personal freedom, military power and public policy. Change for the better, by his lights, notwithstanding September 11, which seems to have contributed to a synchronized world downturn. Yet, Russia and China, for example, have dropped communism for, increasingly, capitalism, if both have a way to go.
The “Index” is an empirical study of 161 countries measuring how well they score on 50 statistical variables in the following categories bearing on economic growth: 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, regulation, and black market activity.
Gerald O’Driscoll and Edwin Feulner at Heritage and Mary Anastasia O’Grady at the Journal numerically grade 156 countries (a few are too tiny and one, Iraq, has no reliable economic statistics). Of the 156, 15 are classified as “free,” 56 as “mostly free,” 74, including Russia and China, as “mostly unfree,” and 11 as “repressed.” But one of the 11, Cuba, saw its overall score improve by 0.30 point this year over last. Not a bad sign.
In fact, while the “2002 Index” showed economic freedom of 73 countries improving and 53 declining, the “2003 Index” shows the ratings of 74 countries improving with 49 declining. So, some upward momentum on world freedom and free enterprise seems to continue. And, while Latin America as a whole is not doing too well most notably Argentina, Brazil and Venezuela a bright spot is Mexico with its population of nearly 100 million.
Mexico’s economic ties to America and Canada in the North American Free Trade Agreement and its first peaceful inter-party transfer of power with the election of Vincente Fox as president in 2000 are paying off a payoff, which if it continues, should ease pressure on Mexican illegals trying to crash El Norte.
Another success story is Russia. It seems to have caught supply-side fever, enacting a flat personal-income tax rate of 13 percent and cutting its corporate-income tax rate to 24 percent, both moves sparking higher government revenue. But, again, much remains to be done. Russia gets low grades in property rights, regulation and, no surprise, black market activity. Also, the authors quote the Economist Intelligence Unit that “foreign investors uniformly complain about haphazard tariff rates, unfair classification of goods to higher categories, and customs clearance rules so complicated they have to be circumvented.”
One more success story is that of Estonia, told in a chapter by Mart Laar, former Estonian prime minister. Mr. Laar describes how his Baltic state, with a population of 1.4 million, shook off its 50-year-old Soviet satellite legacy to stake its future on capitalism and limited government. Now it ranks as the sixth freest economy in the world the same rank as the United States, with both behind Hong Kong, Singapore, Luxembourg, New Zealand and Ireland but with a flat personal income tax whose only losers are “the tax lawyers.”
He also boasts of abolishing taxes on corporate income that is reinvested domestically. He holds that that money “goes to the creation of value added in our economy something Estonia really needs.”
Mr. Feulner sets the tone of this remarkable country-by-country look at the world economy by noting the close tie between free markets and high living standards. So, he quotes prescient Adam Smith from the 18th century: “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice all the rest being brought about by the natural course of things.”

William H. Peterson is a contributing editor to the Foundation for Economic Education’s “Ideas on Liberty.”

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