Canada, one of the freest (markets) at last

Posted on January 28, 2011 in Policy Context

Source: — Authors: – ROB/commentary
Published Jan 26, 2011.   Neil Reynolds

The end of capitalism? Not quite. Not yet. Not here.

Indeed, the Heritage Foundation-Wall Street Journal’s Index of Economic Freedom 2011 says Canada has edged upward in capitalist sentiment and free-market rights in the past couple of years, thereby earning an elite ranking as a “free economy.” In the entire world, only six economies qualify (by scoring 80 points or more on a scale of 1-to-100) for this distinction: Hong Kong (89.7), Singapore (87.20), Australia (82.5), New Zealand 82.3), Switzerland (81.9) and Canada (80.8). Free at last.

Although no other countries except these are designated as truly “free,” Index 2011 notes that capitalism bounced back around the globe last year, reversing two years of decline amid the wrenching market meltdown of 2008-09. Index 2011 reports higher scores in Eastern Europe, Asia and, perhaps most remarkably, Africa. On the same 1-to-100 scale (with one measuring economic freedom in North Korea), three sub-Saharan countries now place higher than China (score: 52.0; rank 135th) and Russia (score: 50.5; rank 143rd) in this 183-country assessment. The sub-Saharan trend setters: the 10-island country of Cape Verde (score: 64.6, up 2.8 points in the past year; rank: 65th), Rwanda (score: 62.7, up 3.6 points; rank: 75th) and Djibouti (score: 54.5, up 3.4 points; rank: 125th). By way of comparison, France ranks 64th (score: 64.6), one slot ahead of Cape Verde; Italy trails in 87th place (score: 60.3).

Index 2011 distributes points on the basis of 10 components of economic freedom, including such things as government spending, competitiveness, openness, property rights and the rule of law. In Index 1995, the inaugural year, the global average score was 57.1. By Index 2007, the global average had risen to 60.2 – the highest score ever. By Index 2008, it had slipped to 59.4. By Index 2011, it had risen back to 59.7 – only 0.5 points from the pinnacle of pre-crash free-market enthusiasm.

Canada has done well in the Heritage Foundation-Wall Street Journal survey and Canada’s successive scores appear to reflect accurately our actual economic ascent. We hit bottom – 25th place – in 1999. Since then, we’ve ranked consistently as an upward-bound country. By 2006, we were 10th; by 2008, seventh. And now we’re sixth – with further corporate tax cuts (noted by Index 2011) directly ahead. As Canada has ascended, the United States has fallen (though not precipitously): from fourth place in 1995 to ninth in Index 2011. With a score of 77.8, the U.S. gets ranked as a “mostly free” economy.

Equally discouraging, though equally predictable in recent years, Britain fell from a 3rd-place ranking in 1995 to a 16th-place finish in Index 2011. In 2000, for example, Britain’s government spending accounted for 36.4 per cent of GDP. By 2007, it accounted for 41 per cent. By 2010, it accounted for 47.5 per cent – an economic mutation that Wall Street Journal editorial page editor Paul Gigot describes as a prolonged Keynesian “spending binge.” The Labour government’s reckless spending, Mr. Gigot says, took the country back to “a pre-Thatcher economy.” It left the country with an enormous drag on economic growth – and all for naught. “Index 2011,” he says, “shows no positive co-relation between stimulus spending and the pace of recovery.” Anywhere.

In both the U.S. and Britain, he says, misguided government intervention – “the largest expansion of government in two generations” – produced recessions of exceptional depth and duration, turning these two great countries, momentarily at least, into antagonists of economic freedom. Yet the countries that didn’t “binge,” and especially the freest of them, emerged from the recession in relatively good shape. “Economic prosperity is not a national birthright,” Mr. Gigot says. “Rich countries can fall quickly in stagnation. Long-suffering countries can ascend from poverty to powerhouse in a matter of years.”

From the perspective of the Index 2011 scoreboard, free economies are amply rewarded for recognizing the limits to government. In Europe, the top-five freest countries have GDP per capita of $47,570 (U.S.); the bottom five, $10,430. In Asia, the top-five freest economies have GDP per capita of $44,310; the bottom five, $3,042. In the Middle East, the top-five freest economies have GDP per capita of $34,848; the bottom five, $8,513. In sub-Saharan Africa, the top-five freest economies have GDP per capita of $9,338; the bottom five, $1,485. Economic freedom, it appears, is a good investment.

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