NCPA - National Center for Policy Analysis

A Step Backward for Economic Freedom in 2012

January 13, 2012

The 2012 Index of Economic Freedom, published Thursday by the Heritage Foundation and The Wall Street Journal, documents a world in which economic freedom is contracting, hammered by excessive government regulations and stimulus spending that seems only to line the pockets of the politically well-connected, says Edwin J. Feulner, president of the Heritage Foundation.

Most of the decline in economic freedom was in countries in North America and Europe.

  • Canada, the United States and Mexico all lost ground in the index, and 31 of the 43 countries in Europe suffered contractions.
  • Government spending rose on average to 35.2 percent of gross domestic product (GDP) from 33.5 percent last year as measured by the 2012 index.
  • The United States' economic freedom score dropped to 76.3 in 2012 from 81.2 in 2007 (on a scale of 0-100).
  • U.S. government expenditures have grown to a level equivalent to over 40 percent of GDP, and total public debt exceeds the size of the economy.

There are some bright spots.

  • Economic freedom has continued to increase in Asia and Africa.
  • In fact, four Asia-Pacific economies -- Hong Kong, Singapore, Australia and New Zealand -- top the Index of Economic Freedom this year.
  • Taiwan showed impressive gains, moving into the index's top 20.
  • Eleven of the 46 economies in sub-Saharan Africa gained at least a full point on the index's economic freedom scale, and Mauritius jumped into the top 10 with the highest ranking -- 8th place -- ever achieved by an African country.

The 2012 index results confirm again the vital linkage between advancing economic freedom and eradicating poverty.  Countries that rank "mostly unfree" or "repressed" in the index have levels of poverty intensity, as measured by the United Nations' new Multidimensional Poverty Index, that are three times higher than those of countries with more economic freedom.

Positive measures of human development in areas such as health and education are highly correlated with high levels of economic freedom, and economically free countries do a much better job of protecting the environment than their more regulated competitors.

Source: Edwin J. Feulner, "A Step Backward for Economic Freedom in 2012," Wall Street Journal, January 12, 2012.

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