“I am for free commerce with all nations.” So Thomas Jefferson wrote to Massachusetts Gov. Eldridge Gerry in 1799.
“World Peace Through World Trade.” So an old IBM motto rings out on behalf of free trade. The editor-authors of this eighth annual edition of an analysis of economic freedom country-by-country around the globe,156 countries in all, concur with such sentiment, and answer their own question what makes an economy grow? with a single word: freedom.
They include a chart that correlates real gross domestic product (GDP) per capita in 1999 purchasing power parity with national protection of private property rights and find a close correlation between the two variables namely, that the greater a nation’s protection of private property rights the greater is its per capita income. Even so, state intervention in the West is heavy. Sweden, for example, mandates its businesses to provide each year a five-week vacation to their employees.
Comparative intervention is revealing, bearing as it does on foreign investment flows, usually to the safest, most predictable economies. Another chart here then plots real GDP per capita in 1990 dollars in Argentina and Australia, from 1900 to1998. Both economies’ GDP per capita start out at roughly the same point in 1900, just under $5,000, with Argentina about $1,000 under Australia. But by 1998 Australia GDP per capita has climbed to around $21,000 while Argentina’s GDP per capita growth has grown to but around $9,000. Moral: Foreign capital loves Australia more.
The editor-authors also note that, since the 2001 edition, 73 countries have improved their scores while 53 country scores have worsened. Hong Kong and Singapore are the top of the 2002 Index, and Iraq and North Korea at the bottom. The United States ranks fourth but shares that spot with Estonia, Ireland, Luxembourg and the Netherlands.
Criteria of economic freedom are tenfold: trade policy, fiscal burden, government intervention, monetary policy, foreign investment, banking and finance, wages and prices, property rights, regulation, and black market activity. Each country gets about two pages of analysis plus a small map of its place in its local region or continent. Maps of big regions and continents are in color, with different colors for the Index’s four national categories of “Free,” “Mostly Free,” “Mostly Unfree” and “Repressed.”
Denmark and Finland both advanced in the 2002 Index from “mostly free” to “free,” with their Index ranks, respectively, at l2th and l4th in the world. By way of contrast, France, a much larger economy, ranks but 45th in the world, bearing out its greater degree of government intervention.
No wonder then that Mary Anastasia O’Grady of the Wall Street Journal says that, while democracy’s great attraction is the notion of self-government, she cites Frederic Bastiat: “Universal suffrage alone has not managed to produce what is truly needed: equality under the law.”
Her colleague, Journal editor Robert L. Bartley, notes in the foreword a curious twist to the word equality as the European Union tries to force “tax harmonization” on Ireland, its “Celtic tiger.” And he also observes rough policy problems for Japan, Argentina, and Turkey, but puts out the hope that the U.S. economy, a kind of economic engine of the world, “will amaze us again.” We’ll see. The 2002 Index went to press before the September 11 terrorist attacks.
Meanwhile, how interesting to note that the number one factor in measuring economic freedom in the Index is trade policy, the degree to which government hinders or eases the free flow of foreign commerce, with a direct bearing on a nation’s ability to improve its economic growth and an individual’s ability to pursue his economic goals.
Well, on Dec. 6 the U.S. House of Representatives passed an omnibus fast-track trade bill a bill of big import to America and the entire globe but by a single vote, 215 - 214. The lesson here: Protectionism is anything but dead; it’s alive and virulent. The further lesson is, in the face of today’s war on terrorism, economic freedom has to fight and refight to win its right to exist and advance in a fractious, dangerous world.
William H. Peterson is a contributing editor to the Foundation for Economic Education’s Ideas on Liberty.