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Why has the United States struggled to exit this last recession? Why are many Arkansans struggling so much? Why does the U.S. labor force participation rate continue to shrink? One big reason is that economic freedom in the U.S. is declining.

Since 1996, scholars at the Fraser Institute have been measuring the economic freedom of people in 102 countries, with data going back to 1980. This Economic Freedom of the World Index (released this week) now includes 157 countries. The index measures five broad categories and scores (out of 10) range from Hong Kong's 8.97 to Venezuela's 3.23.

The good news is that the world remains significantly more economically free than three decades ago. As large countries like China and India have become more economically free, their people have seen increased wealth. China has become much freer than India and, in doing so, has become much wealthier, even as China struggles right now.

The bad news is that the U.S. has fallen in both absolute terms and in our ranking. In 2000 we were second only to Hong Kong (which is not a country but an autonomous economic zone). Back then, America held an economic freedom rating of 8.65 compared to Hong Kong's 8.95. Now the U.S. ranks 16th in the world and our score dropped to 7.73.

The U.S. economic freedom score declined most from the previous year in terms of Size of Government, Legal System and Property Rights, and Freedom to Trade Internationally. A smaller government, better property protection, and freer international trade would improve our score and our lives.

Over 2,000 published academic journal articles show the strong relationship between economic freedom and economic growth. Places that are more economically free are also wealthier.

People in countries with the most economic freedom earn more income than in places with less freedom. Economic freedom helps more than the rich; the poorest 10 percent of the population in economically free countries significantly out-earn the poorest 10 percent of the population in countries with little economic freedom. The higher incomes also lead to longer life expectancy. People in economically free countries outlive people in the least free countries by about 17 years.

Economic freedom is even more important for developed countries because developed nations need to find ways to innovate. Using others' technology and foreign capital, developing nations can grow quickly with even slight changes to economic freedom. This catch-up growth is possible with small changes to corruption, taxation, and regulation.

Developed nations, like the U.S., need to create new ways of doing things. We need innovation.

Those who favor big government try to think of different ways to divide the pie. With economic freedom, you don't create prosperity by dividing the pie; prosperity is created by increasing the size of the pie.

That's difficult for developed nations because it means coming up with new and better ways of doing things. We need to let entrepreneurs come up with new ways to cooperate with their customers and bring new products to market. Business is not a zero-sum game. Buyers and sellers can both gain.

Regulatory compliance cost is one of the worst burdens for businesses, both large and small. In order to innovate, we need to let individuals start, expand, manage, staff and restructure businesses relatively free of unnecessary burdens imposed by government.

Those who favor big government say they want to use regulations and taxes to help the disadvantaged; perhaps they do want that. In reality, taxes and regulations can harm everyone and some more than others. Cronyism is the art of using big government to help its friends. That doesn't help the disadvantaged.

The problem for Arkansans is that D.C. policies such as the rapid run-up in federal spending and an erosion of property rights are increasingly antagonistic to economic freedom. Those of us in Arkansas are forced to bear this burden even as we push against it.

Still, there are lessons Arkansans can learn. We can control what we do here in Arkansas. Keeping our own taxes and regulations low helps businesses stay here instead of leaving for competing states. Reducing the occupational licensing burden would help, as well.

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David Mitchell is an associate professor of economics at the University of Central Arkansas. He is also the director of the Arkansas Center for Research in Economics (ACRE).

Editorial on 09/19/2015

Print Headline: For more freedom

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Comments

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  • 23cal
    September 19, 2015 at 7:38 a.m.

    "Freedom" is such a buzzword. Kind of depends on how you define it, doesn't it?
    *
    The Canadian Libertarian think tank Fraser Institute, funded by the Koch brothers and ALEC, have an odd way of defining it, one facet of which is "small government".
    *
    Here is part of their list of countries with the most "freedom": "Hong Kong and Singapore, once again, occupy the top two positions. The
    other nations in the top 10 are New Zealand, Switzerland, United Arab Emirates,
    Mauritius, Jordan, Ireland, Canada, and the United Kingdom. The rankings of some
    other major countries are Australia (11th), the United States (16th), Japan (26th), Germany (29th), South Korea (tied for 39th), Italy (tied for 68th), France (tied for 70th), Mexico (93rd), Russia (99th), China (tied for 111th), India (114th), and Brazil (tied for118th).
    *
    So, if you prefer the economic "freedom" of Saudi Arabia, Jordan, Singapore, and Mauritius a whole lot more than the economic freedom of the U.S. Germany, France, Australia, Japan, and South Korea, then you should buy what this guy is selling in his article.
    *
    I'll take civilization over his brand of economic "freedom" any day of the week.

  • Nodmcm
    September 19, 2015 at 10:06 a.m.

    Listen, we've had economic growth in America. The pie has indeed gotten larger, mainly because working men and women have been more productive. But because of the way we pay (or don't pay) our working men and women, and the way we allow capitalists to take their money offshore to invest in China and Mexico, only a small handful of Americans have received larger slices of the pie. Who cares if growth in America is ten percent a year, if 99.99 percent of that ten percent goes to the one percent of the richest Americans? Well, I guess the one percent care and love it. It is also disingenuous to discuss "individuals" starting businesses, unless we are talking about billionaires. But it is interesting how some consider Exxon to be a "small business" and also consider "individuals" to be guys like David Koch. Why can't we take America back from the billionaires? Is it their country, or is it our country? If we don't take it back soon, we might not ever be able to do so.

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