Economic Freedom Index: U.S. dropped to 17th in 2016

metzlerBy John J. Metzler

UNITED NATIONS — The American economy slipped yet again to a lower ranking in 2016 as a result of a combination of regulatory burdens, large public debt and business taxes according to a watchdog survey of global economic freedoms.

The annual Heritage Index of Economic Freedom saw the U.S. economy slip to number #17 worldwide among 186 comparator countries.

Hong Kong skyline.
Hong Kong skyline.

This has been America’s lowest ranking yet in a complex survey of countries in which rates issues such as rule of law, regulatory efficiency, open markets and government size. For the first time the U.S. economy no longer ranks among the world’s top fifteen economies.

The USA stands just behind Lithuania and ahead of Denmark and Sweden in economic competitiveness rankings. This is expected to change soon.

The Heritage report states, “Large budget deficits and a high level of public debt” have contributed to the continuing decline in America’s economic freedom.

“The anemic economic recovery since the great recession has been characterized by a lack of labor market dynamism and depressed levels of investment.”

The ongoing undertow of the recession as well as lackluster economic growth were a key factor in the election of Donald Trump who has promised to cut the maze of regulations, high business taxes and offer incentives for American business investments.

As a case in point, U.S. public debt stands at a dangerous 106 percent of GDP, double that of Mexico!

So who’s prospering? Hong Kong, Singapore and New Zealand are the world’s top performing free economies.

And they are followed by Switzerland, Australia, Estonia, Canada, United Arab Emirates and Ireland. Chile, Taiwan and the United Kingdom round out the dynamic dozen.

It’s highly ironic that the former British Crown Colony of Hong Kong, now a Special Autonomous Region of the Peoples’s Republic of China since 1997, shines as a global entrepreneurial beacon.

As the Report states, “The high quality legal framework, which provides effective protection of property rights and strong support for the rule of law, continues to be a cornerstone of strength for this dynamic city.” Equally, “there is little tolerance for corruption.”

New Zealand is another success story, ranking third. “New Zealand is a parliamentary democracy and one of the Asia – Pacific region’s most prosperous countries. After 10 years of Labor Party-dominated governments, the center-right National Party, led by Prime Minister John Key, returned to power in November 2008,” the Report states. “Far-reaching deregulation and privatization in the 1980s and 1990s largely liberated the economy,” the survey adds.

Having met Prime Minister Key, it’s obvious that both his personal dynamism and entrepreneurial vision turned the economy around from what was a lackluster Labor party morass to a booming entrepreneurial success story.

Taiwan and South Korea, long Dragons of the Far East merit attention too. The survey states, “Taiwan is a dynamic multi-party democracy, and its economy is one of the richest in Asia.”

Indeed the island’s private sector benefits from a “relatively well-developed commercial code and open-market policies.” Taiwan which ranks #11, profits from “Small and medium size enterprises have been the backbone of Taiwan’s dynamic economic expansion.”

In South Korea’s case, with an “economy at the crossroads” being ranked #23, illustrated what Heritage says “the economy has been flagging, with momentum for growth increasing subdued in the absence of decisive policy reforms to improve overall efficiency and flexibility.”

The Index warns, “Ongoing political instability and uncertainty have made structural economic reform almost impossible.” South Korea, despite moderate GDP growth and impressive per capita income, faces serious structural and political hurdles.

Let’s look at Mainland China and India, two of the world’s high gear economies China ranks #111. Despite high GDP growth of 6.6 percent last year, Beijing scores dismal low ratings for corruption, lack of transparency and government regulatory bureaucracy.

The Report states, “China’s economy remains ‘mostly unfree,’ and there is little momentum for reform.” It adds poignantly, “The State owns all land, and protection of foreign intellectual property continues to erode.”

India too, ranking at #143, whose impressive economic growth has reached 7 percent annually over the past few years, nonetheless faces what the survey calls, “Corruption, underdeveloped infrastructure and poor management of public finance continue to undermine overall development.”

As would be expected, economies in authoritarian socialist regimes such as Cuba, Venezuela, and Zimbabwe rank predictably poorly.

Thankfully the American economy is reawakening and will hopefully see the rising economic tide which will help lift all boats for the USA as well as America’s trading partners.

John J. Metzler is a United Nations correspondent covering diplomatic and defense issues. He is the author of Divided Dynamism the Diplomacy of Separated Nations: Germany, Korea, China (2014). [See pre-2011 Archives]

You must be logged in to post a comment Login