March 2, 2023 at 9:05 a.m.
USA ranking slides to lowest ever in economic freedom index
By By Richard Moore-
For 29 years, the conservative think tank has ranked 176 nations based on 12 freedoms, ranging from property rights to financial freedom, and the question it poses this year is, is the nation rebuilding and reloading, or will its also-ran status continue?
The claim to the top ranking this year went to Singapore, with Switzerland, Ireland, Taiwan, New Zealand, Estonia, Luxembourg, Netherlands, Denmark and Sweden rounding out the top 10.
Overall, the report struck a somber note, citing not only the COVID-19 pandemic and the Russian invasion of Ukraine as disruptive of economies and economic freedom but also a departure in response to such crises by many countries.
"Complicating this situation is the abrupt and shortsighted renunciation of the principles of economic freedom in too many countries, which risks not only undercutting much-needed economic recovery, but also sacrificing long-term economic resilience and prosperity as has happened after previous economic crises," the report states. "A return to business as usual will not suffice. In addition to the impacts of the pandemic on public finances, countries are facing many long-term structural challenges in the policy areas of transparency, efficiency, openness, and government effectiveness."
More than ever, the report stated, it should be remembered that a nation's true capacity for lasting growth and prosperity hinges on the quality of its institutions and economic system.
"Many nations around the globe are now at a crossroads," the report asserted. "The question is whether they will recognize the paramount need to preserve and enhance the conditions for robust, resilient, and broad economic growth."
The U.S. score
The U.S.'s ranking at No. 25 placed it behind such nations as Australia, Germany, Canada, South Korea, Chile, and Austria but ahead of the United Kingdom, Israel, Portugal, and Japan. According to the report, the U.S. is ranked third out of 32 countries in the Americas region, and its overall score remains above the world and regional averages.
"The U.S. economy faces enormous challenges," the report stated. "Big-government policies have eroded limits on government, public spending continues to rise, and the regulatory burden on business has increased. Restoring the U.S. economy to the status of 'free' will require significant changes to reduce the size and scope of government."
However, the report asserted, under President Joe Biden, the nation has been traveling in the other direction.
"The United States has one of the world's most dynamic economies but has been undergoing policy challenges that undermine its long-term economic competitiveness," the report stated. "Since assuming office in 2021, President Joseph Biden has pursued and implemented policies that have expanded the size and scope of the federal government. Unchecked deficit spending and government debt have accelerated, and inflation undercuts economic livelihood."
The combination of uncertainty and poor policy choices has left the U.S. economic outlook in flux, the report asserts.
In its review, the index found that the overall rule of law is well respected in the United States.
"The country's property rights score is above the world average; its judicial effectiveness score is above the world average; and its government integrity score is above the world average," the report stated.
But taxes and spending remain high, the index asserts.
"The top individual and corporate tax rates are, respectively, 37 percent and 21 percent," the report states. "The tax burden equals 25.5 percent of GDP. Three-year government spending and budget balance averages are, respectively, 41.1 percent and - 10.3 percent of GDP. Public debt equals 128.1 percent of GDP."
As for regulations, the index observes that the U.S. has a high level of business freedom, but regulations vary by state.
"Labor freedom is mostly high but varies from locality to locality," the report stated. "Massive government borrowing and the printing of money have aggravated inflation. Large deficits persist, and public debt is growing."
Finally, government intrusions into international trade and into corporate investments pose barriers to freedom.
"The trade-weighted average tariff rate is 2.3 percent, and layers of nontariff barriers add to the cost of trade," the report stated. "Investment freedom is hampered by ongoing interventionist, big-government policies. The financial sector, one of the world's most developed and competitive, continues to be resilient."
Misery loves company
The U.S. is not the only country where economic freedom is declining, according to Heritage.
"The 2023 Index, which considers economic policies and conditions in 184 sovereign countries from July 1, 2021, through June 30, 2022, reveals a world economy that, taken as a whole, is 'mostly unfree,'" the report states. "Regrettably, the global average economic freedom score has fallen from the previous year's 60.0 to 59.3 - the lowest it has been over the past two decades."
Globally, the index reveals, fiscal soundness has deteriorated significantly.
"Rising deficits and mounting public debt will likely further undercut their overall productivity growth and ultimately lead to economic sluggishness rather than vibrant growth," the report contends.
Overall, only four countries (down from seven in the previous year) recorded economic freedom scores of 80 or more, putting them in the ranks of the economically "free," the analysis found. Twenty-three countries, including the U.S., earned scores of 70.0 to 79.9, while an additional 56 countries were considered at least "moderately free" with scores of 60.0 to 69.9.
"Thus, a total of 83 countries, or slightly less than half of the 176 countries graded in the 2023 Index, have institutional environments in which individuals and private enterprises benefit from at least a moderate degree of economic freedom in the pursuit of greater economic development and prosperity," the report stated.
On the opposite side of the spectrum, the index observed that more than 50 percent of the countries graded in the 2023 Index (93 economies) registered economic freedom scores below 60. Of those, the index found, 65 economies are considered "mostly unfree" (scores of 50.0 to 59.9), and 28 countries, including China and Iran, are in the economically "repressed" category.
The U.S. ranking and score was its lowest in the history of the index.
"The major causative factor in the erosion of America's economic freedom is excessive government spending, which has resulted in mounting deficit and debt burdens," the index stated.
All in all, the report concluded, the ongoing recovery remains uneven and uncertain with strikingly different outcomes across countries, sectors, and demographic groups.
"Output and employment gaps remain in many countries, particularly in emerging markets and developing economies, suggesting that countries face vastly different policy challenges in recovery and beyond," the report stated.
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