As Ronald Reagan so eloquently put it, “Freedom is never more than one generation away from extinction.” And while the latest edition of the Fraser Institute’s annual “Economic Freedom of the World Report” does not predict the end of the American economy, it does paint an alarming picture of the loss of our economic freedom during the last decade. From 1980 to 2000, we were the world’s leader among large industrialized nations, only outranked by small economic powerhouses Hong Kong and Singapore. Since the year 2000 we have been in a downward spiral, falling from 3rd, to 7th, and then to 10th last year. With the release of this week’s report, for the first time the United States has fallen out of the top ten — dropping all the way to 18th.
While this new ranking places us behind some familiar names such as Australia, the United Kingdom, and our friendly Canadian neighbors to the north, the U.S. is now also ranked behind European welfare states like Finland and Denmark. This reinforces the opinions of scholars, such as the American Enterprise Institute’s Arthur Brooks, who argue that we’re not in danger of becoming Europe; we’re already there.
The report found that we lost ground in four of the index’s five major categories, including size of government, protection of property rights and rule of law, regulation, and international trade. The only area where the U.S. did not fall behind is the soundness of our money. The 2012 index examines data from two years earlier in 2010, since it takes that long to collect and report all the necessary data. The lagging data suggest that, if these trends are continuing, our current global standing could be considerably worse than the report indicates.
The Fraser Institute’s report is not alone in tracing America’s decline in international economic competitiveness. The Heritage Foundation’s annual “Index of Economic Freedom” shows a similar decline in the past decade. In addition, a new report from the independent World Economic Forum released this month shows the United States slipping from the No. 1 position in “global competitiveness” in 2008 to No 7. That particular report also notes that we dropped 26 spots from 50th to 76th in government regulatory burden, and rank 140 out of 144 in government deficit as a percentage of GDP.
The authors of the Fraser report admit that it’s difficult to point to the specific causal factors of the decline, but they do offer a few possibilities, such as abuse of eminent domain, government bailouts, and restrictions brought about by the war on terror. Whichever particular drivers are responsible, it’s clear that our dramatic descent was triggered by a combination of our own misguided public policies and the ability of our foreign competitors to adapt to a globally competitive world. In other words, as the rest of the world begins to embrace the advantages of economic freedom, we are abandoning the very thing that made our county great.
This loss in economic freedom is not just a threat to the pocketbooks of American households. While it’s true that countries with higher economic liberty enjoy higher incomes, they also have a higher average life expectancy, lower infant mortality, higher rates of reported life satisfaction, and even more political rights and civil liberties. Furthermore, research has indicated that our reduction in economic freedom could slow our long-term growth rates to half our historic average of 3%, making it extremely difficult to regain the losses from our current recession. This slowed growth will also impact government revenues, reducing our ability to rein in the federal deficit and making it considerably more difficult to ever pay off the enormous national debt.