Why economic freedom is so important – and a new way to measure it

(The Heritage Foundation)

(The Heritage Foundation)

“The great danger to the consumer is the monopoly — whether private or governmental. His most effective protection is free competition at home and free trade throughout the world.”

These words by renowned economist Milton Friedman still ring true today, as many countries persist in denying economic freedom to their citizens and insist instead on centrally planning their economies.

The Heritage Foundation’s Index of Economic Freedom is an indispensable tool in measuring how countries are embracing freedom around the world. This year, an interactive heat map allows readers to see which countries have become more or less free since 1995.

Measuring four broad categories of economic freedom that encompass ten specific freedoms, the Index grades each country on a scale of 0 to 100, with 100 being the most free. The 2016 Index covers data from the second half of 2014 and the first half of 2015.

The 2016 Index marked a world average score of 60.7 (out of 100), the highest ever recorded on the Index. Last year marked the fourth straight increase in global economic freedom.

The United States, unfortunately, moved in the opposite direction.

Significant drops in business and labor freedom scores led to the United States matching its lowest economic freedom score in Index history (though we’re still ranked 11th overall). The United States has been unable to break out of the “mostly free” category to join more successful countries, such as Hong Kong, Switzerland, New Zealand and Singapore.

Transparent regulations and openness to free trade has allowed those other countries to hold the highest rankings on the Index. America, on the other hand, has struggled with increasing regulations and wasteful government spending.

“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,” the Index reports. In seven of the last eight years, America’s economic freedom score has fallen.

Unsurprisingly, North Korea and Cuba finished last on list with economies closed to innovation, freedom and free trade. But even some countries commonly thought as mainstream, such Argentina, also hover near the bottom of the list.

The United Kingdom, however, has been a shining example of success, which helps explain why British politicians are contemplating “Brexit” — that is, Britain’s exit from membership in the European Union. Even as Greece, France and Italy drag down the European Union with low economic freedom scores and poor fiscal management, the UK remains resilient. “Disciplined fiscal adjustments have helped to restore economic dynamism, steadily reducing the budget deficit,” the report notes. Unemployment in the UK is also at a six-year low.

Though there is a long way to go, the increases in economic freedom and government transparency have had real benefits for the poorest people in the world — and there is great potential for future gains.

“Economic development and the poverty reduction that goes with it have never been more possible for more countries,” wrote Marcelo M. Giugale, senior economic adviser for the World Bank’s Cluster of Global Practices for Equitable Growth, Finance and Institutions in a chapter of the Index.

As long as we remain committed to improving economic freedom around the world, positive change will continue to come to the people who need it most.

Originally published on Opportunity Lives