2 February 2016

Economic freedom is rising in Britain, but falling in America


There is good news this week for supporters of free markets and limited government. The latest Heritage Foundation/ Wall Street Journal Index of Economic Freedom, released in Washington on Monday, shows that overall global economic freedom has increased again this year, for the fourth year in row. As the report’s authors note, “the free market system continues to flourish, accepted by governments around the world as the system most likely to improve the well-being of their populations and eliminate poverty.” The Index surveys 10 economic freedoms, ranging from property rights to investment freedom, covering the rule of law, size of government, regulatory efficiency, and open markets. This year’s Index shows economic freedom on the rise in 97 of the 178 economies surveyed, most of which were in less developed countries. 32 nations achieved their highest ever scores since the Index was launched in 1995, including 12 countries in sub-Saharan Africa. In contrast, 74 nations experienced a decline in economic freedom.

English-speaking nations continued to demonstrate their dominance in the annual economic freedom rankings. Seven of the top ten freest economies are in the English speaking world: Hong Kong, Singapore, New Zealand, Australia, Canada, Ireland and the United Kingdom. This should come as no surprise. It was Winston Churchill who spoke of “the great principles of freedom and the rights of man which are the joint inheritance of the English-speaking world” in his ‘Iron Curtain’ speech in Fulton, Missouri in 1946. And as another great Prime Minister Margaret Thatcher noted in a speech in Asia 50 years later, “over the last five hundred years, it has been the English speaking peoples who have been at the forefront of extending democratic ideals around the world.”

The largest economy in the top 10, Great Britain, rose in the rankings this year, and Chancellor George Osborne and his Conservative government deserve credit for steering Britain away from the disastrous path taken by Gordon Brown’s Labour administration. In fact since 2010, when the Socialists relinquished the reins of power, Britain has been the fastest growing nation in the G20, no mean feat for an economy that was being run into the ground after more than a decade of reckless big government policies. Britain has benefited from sound fiscal management in recent years, and a reduction in the corporate tax rate to 20 percent, nearly 20 percentage points lower than that of the United States, which currently stands at a staggering 39.1 percent. Government spending in the UK has fallen to 45 percent of GDP, but its sizeable public debt, at about 90 percent of GDP, is still far too high, and further cuts in public spending are needed.

Significantly, not one country in the Index top five is based in the European Union. The only European nation in that elite category is Switzerland, a non-EU member, but part of the European Free Trade Association (EFTA). Switzerland’s economy is the 4th freest in the world, and its people are among the globe’s wealthiest, thriving outside of both the Eurozone and the EU. In contrast, some of the EU’s biggest economies, including Spain, France and Italy are classified as “moderately free nations.” Under Socialist President Francois Hollande, France ranks 75th in the world in terms of economic freedom, and 32nd in Europe, submerged by a bloated state sector that accounts for over half of the country’s GDP. As the Index notes, in France “government spending equals 57.5 percent of total domestic output.” It is little wonder that France has seen an exodus of high wealth individuals and entrepreneurs in recent years, many of them fleeing across the channel to England, with London now qualifying as France’s “sixth largest city,” home to up to 400,000 French citizens.

France’s continuing economic decline is to be expected, with a deeply left-wing government in place that is widely seen as hostile to the spirit of free enterprise. But the most dispiriting news in this year’s Index is the continuing assault on economic freedom in the United States. The US remains embedded in the “mostly free category,” where it has been since 2010. As the Index points out, the big government approach of the Obama administration has been hugely damaging to economic freedom in the nation that was the shining beacon of economic liberty for most of the 20th Century: “America’s historically vibrant entrepreneurial growth is significantly hampered by intrusive, expensive, and often ineffective government policies in areas ranging from health care to energy to education.”

President Obama’s war on economic freedom has been the biggest factor limiting economic growth in the world’s superpower, preventing a sustained economic recovery. The past seven years have seen the relentless rise of burdensome regulations which have suffocated businesses, and have acted as a break on job creation. Hugely expensive government programmes have fueled a dramatic rise in America’s national debt, which now stands at nearly $19 trillion. America’s next president will have to rein in out of control government spending, cut taxes, reduce welfare dependency, and take a hammer to over 180 new federal regulations imposed on American businesses since Barack Obama took office in 2009. He or she will also have to resist the growing calls in some quarters in America for the raising of tariff barriers and a dangerous path to isolationism.

The United States needs to lead the world once again in economic freedom, but it can only do so if it is freed of the destructive big government mentality that has become pervasive in Washington. Even across the Atlantic, where statism is deeply entrenched in many European capitals, some governments have succeeded in rolling back the frontiers of the State – in Ireland, Estonia and Britain for example. Economic freedom matters. From India to Latvia and Botswana, leaders have shown that less government intervention will lead to greater levels of prosperity. And free trade is vital to ensuring that prosperity at home and abroad. As one of history’s biggest champions of economic liberty, Ronald Reagan, declared in his final State of the Union address to the American people:

“One of the greatest contributions the United States can make to the world is to promote freedom as the key to economic growth. A creative, competitive America is the answer to a changing world, not trade wars that would close doors, create greater barriers and destroy millions of jobs. We should always remember: Protectionism is destructionism.”


Nile Gardiner is the Director of the Margaret Thatcher Center for Freedom at the Heritage Foundation in Washington, DC