For 15 years, The Wall Street Journal and The Heritage Foundation have been measuring countries’ commitment to free-market capitalism in the “Index of Economic Freedom.” The 2009 Index, published this week, provides strong evidence that the countries that maintain the freest economies do the best job of promoting prosperity for all citizens.
The positive correlation between economic freedom and national income is confirmed yet again by this year’s data. The freest countries enjoy per capita incomes over 10 times higher than those in countries ranked as “repressed.” This year, for the first time, the Index also correlates economic freedom with important societal values like poverty reduction, human development, political freedom and environmental protection. The linkages are robust, with economically freer countries performing significantly better on every indicator of well-being.
Those tempted to abandon the free market and capitalism in the current crisis need to look carefully at the record of countries moving down that path. In 2009, it is Zimbabwe that has lost the most economic freedom, dropping 6.7 points on the Index’s 0-100 scale and falling to next-to-last place. Deficit spending, the expropriation of land and resources, and government support of favored enterprises have destroyed the economy; hyperinflation and corruption have devastated the nation.
Hong Kong and Singapore are once again the freest economies in the world, followed in the rankings by Australia, Ireland and New Zealand. The U.S. slipped one spot to sixth place this year because of increases in both tax revenue and government spending as a percentage of GDP.
In a special chapter in this year’s Index, the Journal’s Stephen Moore chronicles the critical role that tax cuts, particularly cuts in corporate taxes, have played in economic growth in Eastern European countries and others like Ireland. The citizens of those countries lived for decades with state-directed economic planning and regulation, which many now advocate for the U.S. and other advanced economies. They remember the clumsiness of socialism and the government missteps that fostered economic disaster. To switch dance partners now that they have adapted to the quick step of capitalism and are enjoying its many benefits would be a tragic mistake.