For the first time in the 11 years that the Heritage Foundation and the Wall Street Journal have been publishing the Index of Economic Freedom, the United States has dropped out of the top 10 freest economies in the world.
In the 2005 Index, out of the 155 countries scored, America ranks as the 12th freest economy in the world, behind Hong Kong (most free), Singapore, Luxembourg, Estonia, Ireland, New Zealand, United Kingdom, Denmark, Iceland, Australia and Chile.
The reason why America has fallen in the rankings is two-fold: other countries are freeing their markets at a faster pace and the United States is burdening its economy with increasingly higher government expenditures and barriers to trade and investment:
Expansion of expensive government entitlement programmes has increased the fiscal burden; ranking countries from the lowest per capita fiscal burden to highest, America ranks 103rd.
In terms of corporate taxation (ranked from lowest to highest), the United States ranks 112th and its top individual tax rate ranks slightly better at 82nd.
Free trade is being hampered by aggressive use of anti-dumping claims and costly regulation such as Sarbanes-Oxley are restricting corporate risk-taking.
Notable gains in the rankings were made by China. Although the country is still considered "mostly unfree," China has moved up 16 places and is continuing a trend towards liberalisation. This year the index finds that the freest economies have a per-capita income of $29,219, more than twice that of the "mostly free" at $12,839, and more than four times that of the "mostly unfree.
Source: Mary Anastasia O'Grady, Hail Estonia! Wall Street Journal, January 4, 2005; and 2005 Index of Economic Freedom, Heritage Foundation, January 4, 2005.
For WSJ text (subscription required) http://online.wsj.com/article/0,,SB110480386646316139-search,00.html
For Heritage text http://www.heritage.org/research/features/index/downloads.cfm
For more on Economic Freedom and Growth http://www.ncpa.org/iss/int/
FMF Policy Bulletin/ 11 January 2005