It’s official: America has taken a nose dive in the economic freedom index. The Fraser Institute recently released their annual Economic Freedom of the World report, and the US dropped from 6th to 10th.
This small island is now more economically free than the US
When I saw the news start popping up in my Facebook newsfeed the other day, I reacted like any good patriot should by angrily lamenting how the US has fallen behind Mauritius. Mauritius, really? I was offended on a very gut level. From the sound of it, I suspected it must be some tiny country with a small economy, not much sway, and a dysfunctional government. This was my shot in the dark guess about the mysterious country that was so boldly outranking mine. However, the CIA World Factbook and Wikipedia informed me that I was right only on several accounts. Mauritius is in fact a small country. An island off of Madagascar in the Indian Ocean, the population is only around one million. However, their government functions fairly well according to the Ibrahim Index of African Governance, and they have a growing and dynamic economy powered by tourism. The phrases “tourist paradise” and “tax haven” are thrown around on the Wikipedia page. Apparently they are a duty free zone, which accounts for a lot of the tourist draw from people cruising the Indian Ocean. They also have very low corporate tax rates to entice foreign investment. It looks like it’s working so far, as their economy has been growing steadily for some time now. Feeling slightly less enraged, I now wanted to be happy for Mauritius. Good for them, I hoped the Mauritians (fellow human beings after all) were enjoying their economic freedom.
These happy thoughts were soon also dashed. Upon closer inspection, I noticed that while Mauritius has outranked the US, overall economic freedom on the island nation has dropped from 2010 from a score of 7.82 to 7.67. In fact, when you compare this year’s report to last year’s, some very unsettling trends become clear. Almost the entire world has become less economically free, not just the US. Even Hong Kong saw a drop! Canada (7.95 to 7.81) and UK (7.81 in 2010 to 7.71) have fallen as well, though they are still doing better than the US. The only good news seems to be Australia which rose from 7.90 to 7.98. There were also slight rises in places like Finland and Bahrain, but none of this did much to make me feel better.
This unsettling development is of course not much of a surprise. In the wake of the financial disasters that have wreaked havoc on the world’s economies over the past few years, it makes sense that the nations of our planet would start their fiscal fiddling. The do-something mentality has once again overtaken the industrialized nations of the world, and the scrambling has only led to further regulation, restriction, and thus an underlying trend of less economic freedom.
However, I certainly don’t think that all is lost. To be fair, a dip like this may be unsettling, but the world today is far more economically free than in past eras. Also, this sort of guide doesn’t always give the full picture. We have no idea where things will be headed in the coming year. Personally, I am hopeful. It has always been apparent that a major driver of policy change is competition between nations. As the US falls in comparison to places like Hong Kong, I think the healthy competition between the two will pressure both toward economic freedom. One of the more beneficial side effects of the more globally linked modern economy has been the ways in which unilateral economic hampering is much more difficult to pull off. When investors can simply hop over to Mauritius, the US, UK, Canada, every country has an incentive to pay attention to indices like this embrace economic freedom. In fact, this sort of effect was seen recently with capital gains taxes, which were reduced in most major industrial nations including the US, partially due to competition amongst the nations in question. Funnily enough, it looks like competition may help the world yet again. So, here’s to hoping that all the nations get very, very jealous!