- The Washington Times - Tuesday, February 26, 2008

ANALYSIS/OPINION:

In his 1776 “The Wealth of Nations,” Adam Smith saw self-interest as an enlightened Invisible Hand advancing public good. Wrote Smith: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard for their own interest.”

In the “2008 Index of Economic Freedom: The Link Between Economic Opportunity and Prosperity,” edited by Kim R. Holmes, Edwin J. Feulner, Mary Anastasia O’Grady, the editors at the Heritage Foundation and Wall Street Journal show anew the Invisible Hand in action. As Mr. Feulner writes in the preface, they see economic freedom giving birth to “a virtuous cycle of entrepreneurship, innovation, and sustained economic growth.”

This indexed edition, the 14th, clicks again. It shows, by a deemed perfect score of economic freedom of 100 percent, the five top countries are Hong Kong at 90.3 percent, Singapore at 87.4 percent, Ireland at 82.4 percent, Australia at 82.0 percent and the United States at 80.6 percent.

In contrast, the five lowest countries are Burma at 39.5 percent, Libya at 38.7 percent, Zimbabwe at 29.8 percent, Cuba at 27.5 percent and North Korea, the 157th nation covered, at 3 percent.

These percentages come via meticulous annual nation-by-nation measurement of 10 economic freedoms:

Business freedom — Measures how freely entrepreneurs can open and close a business, including getting licenses and declaring bankruptcy. The world averages 62.8 percent, the United States a much healthier 91.7 percent.

Trade freedom — Tariffs and import quotas constrict free trade, block imports, constrain exports, impede globalization and reduce national economic growth. The worldwide weighted tariff rate, for instance, averaged 11.1 percent, the U.S. equivalent 1.6 percent.

Fiscal freedom — Top world rate on individual income averages 31 percent globally, top rate on corporate income averages 26 percent, so limiting the private sector. Equivalent U.S. taxes are higher and “burdensome,” say the editors as other countries such as Ireland, Estonia and Russia cut rates, spur business, often gaining jobs and even government revenue. (Arthur Laffer, take a bow.)

Government size — Ideally, the state furnishes only true public goods at minimum outlay. Government size limits private sector size via total government spending, with the U.S. bipartisan push for more welfare hit here. Globally, government size averages 67.7 percent, the United States 59.8 percent.

Monetary freedom — World average of weighted national inflation rates from 2004 to 2006 is 10.6 percent, up from 2007’s weighted average of 7.9 per cent, partly via Zimbabwe’s multithousand percent hyperinflation.

Investment freedom —17 nations enjoy high investment freedom rates of 80 percent or higher, with few or no restrictions on foreign investment, so boosting national economic growth. Globally the world averages 50.3 percent, the United States 80 percent, a bigger welcome Invisible Hand.

Financial freedom — The more banks are regulated by government, the more politics and the less are banks able to use financial activities boosting economic growth. Editors average the world’s banks at 51.7 percent, the United States’ at 80 percent.

Property rights — Headway toward firmer property rights is slow, with the world averaging 45.6 percent, the United States 90 percent.

Freedom from corruption — Corruption is big in many lands, the world averaging 41.1 percent, the United States 73 percent. I blame the U.S. war on drugs — illegal drug-import rings and high imprisonment rates (2 million Americans behind bars mainly on drug charges). Recall the Prohibition-era fiasco.

Labor freedom — Lack of labor market ease hurts overall job and productivity gain. Rigidity in hiring and firing a worker means investment risk aversion — less growth. The world averages 62.1 percent, the United States a stunning 92.3 percent.

There are two possibilities for these fine annual stats on the Invisible Hand at work: First, show how globalization cuts international friction-tension by what Thomas J. Watson, IBM founder-thinker, promoted as “World Peace Through World Trade.”

Second, scour Ludwig von Mises’ insight of consumer rule in the daily democracy of the marketplace. Entrepreneurs may think they are the captain steering the ship. But consumers daily vote entrepreneurs up or down buying or rejecting their wares. Said Mises (“Human Action” 1949): “The captain is the consumer.”

William H. Peterson is an adjunct scholar at the Ludwig von Mises Institute.


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