CANADA, THE PACE-SETTING ECONOMY
NEIL REYNOLDS
The Telegraph-Journal (New Brunswick)
June 4, 2009 Thursday
Canada
The Wall Street Journal and the Washington-based Heritage Foundation
think-tank publish an Index of Economic Freedom based on 10
benchmarks – business freedom, financial freedom, trade freedom,
fiscal freedom, investment freedom, monetary freedom, labor freedom,
size of government, property rights and freedom from corruption.
This year, using 2007 data, the index calculates a comprehensive
score for 183 countries. The highest possible score is 100. North
Korea, to cite the lowest grade, scores two – mostly getting on the
scoreboard at all for accommodating the odd foreign investor. India,
the democracy, finishes in 123rd place with a score of 54.4. China,
the dictatorship, finishes in 132nd place with 53.2. Russia, the
kleptocracy, finishes in 146th place with 50.8.
In the top 10, Hong Kong finishes first, for the 15th consecutive
year, with a score of 90.0. Singapore finishes in second place with
87.1. The next eight countries are tightly bunched: Australia (82.6),
Ireland (82.2), New Zealand (82.0); U.S., 80.7, Canada (80.5), Denmark
(79.6), Switzerland (79.4) and the United Kingdom (79.0). Canada and
the U.S. thus finish close to a tie – though U.S. momentum is downward
(fiscal excess) and Canadian momentum upward (a trade agreement
with Peru).
In the 2009 index, the U.S. declined fractionally below its 2008
score, by 0. 3 points. Canada gained fractionally, by 0.3 points. This
divergence will increase. The 2010 Index will capture data from the
beginning of the global meltdown; the 2011 Index will capture the
radical interventions of U.S. President Barack Obama. The economists
and editors of the index warn that the turbulent events of these
years "could severely undermine economic freedoms [in the U.S.] in
the future."
In another international ranking of the same kind, the Washington-based
Cato Institute’s Economic Freedom of the World 2009 report used
different benchmarks: personal choice, voluntary exchange, freedom to
compete, security of property and sound money. (Seventy think-tanks
from around the world participate in Cato’s annual exercise, among
them the Vancouver-based Fraser Institute.) In this ranking, the
highest possible score is 10. In 1980, the global average for 141
countries was 5.1; in 2009, 6.6 – a 30 per cent improvement.
The top 10 countries rankings here come with two notable
differences. Hong Kong (8.94), Singapore (8.8) and New Zealand
(8.5) take the three top places. Switzerland (8.3) finishes fourth
and the United Kingdom finishes fifth. Chile, however, takes sixth,
becoming the first South American country ever to finish in the top
10. And Canada finishes seventh – the first time that Canada (8.05)
has finished ahead of the U.S., which tied with Australia (8.04)
for eighth. Ireland (7.92) finishes 10th.
In 2000, the Cato index put the U.S. in second place, trailing
only Hong Kong. In 2008, it placed the U.S. toward the bottom of
the pack. The authoritarian American approach to the global economic
crisis will almost certainly knock the U.S. from the top 10 countries
that have the best record of protecting economic freedoms.
In placing Canada ahead of the U.S., the Cato index anticipated the
downward slide of the U.S. – memorably noted last month by three
economists who compared the performance of the two economies against
six benchmarks.
In their commentary, published in The Washington Post, Fraser Institute
senior economists Jason Clemens and Niels Veldhuis and Cato Institute
economist Chris Edwards noted that Canada – long dismissed by American
conservatives as Banana Republic socialists – has "cast off the
stereotypes." In essence, these economists suggested, Canada has
already replaced the U.S. as the pace-setting North American economy.
Spending: Government spending in Canada hit its highest level, at 53
per cent of GDP, in the early 1990s. It has since fallen to 40 per
cent. In the U.S. , on the other hand, government spending has risen,
reaching 39 per cent in 2008 – a number, the three economist say,
which is now likely to jump higher.
Debt: Canada cut its debt from 71 per cent of GDP in 1995 to 32 per
cent in 2008. U.S. federal debt will rise from 41 per cent of GDP in
2008 to 60 per cent in 2010.
Social Security: The Canadian Pension Plan is solvent. The U.S. program
is vastly underfunded.
Federalism: Canada has ceded power to the provinces. The U.S. is
getting more centralized.
Corporate taxes: Canada has cuts its corporate tax rate from 28 per
cent to 15 per cent and the provinces are moving to cut theirs. The
U.S. is increasing corporate taxes.
Individual taxes: Canadian personal rates have moved down. U.S. rates
will move higher (when the George W. Bush tax cuts expire in 2010).
Clemens, Veldhuis and Edwards suggest that the Democrats, who
now control Congress, would do well to copy the "socialists" to
the north. If so, they might avert the embarrassment (among other
consequences) that goes with a Banana Republic economy.
In the 2009 Index of Economic Freedom, the U.S. runs 10 points behind
the leader (Hong Kong). If the U.S. fell a further 10 points, it would
tie with Armenia in 30th place. This is no proper place for the United
States, for so long – however imperfect – the land of the free.