Writes Mike Brownfield at the Heritage ‘Morning Bell’ Blog
Economic freedom — the ability of individuals to control the fruits of their labor and pursue their dreams — is central to prosperity around the world. Heritage and The Wall Street Journal measure economic freedom by studying its pillars: the rule of law, limited government, regulatory efficiency, and open markets. Things like property rights, freedom from corruption, government spending, free trade, labor policies, and one’s ability to invest in and create businesses all factor in to a country’s economic freedom.
Sadly, economic freedom declined worldwide in 2011 as many countries attempted — without success — to spend their way out of recession. The editors of the Index explain what has led to this troubling decline:
“Rapid expansion of government, more than any market factor, appears to be responsible for flagging economic dynamism. Government spending has not only failed to arrest the economic crisis, but also–in many countries–seems to be prolonging it. The big-government approach has led to bloated public debt, turning an economic slowdown into a fiscal crisis with economic stagnation fueling long-term unemployment.”
Though some might think that the United States — the land of the free, the home of the brave — is of course a leader in economic freedom, they would be wrong. The United States fell to 10th place in the world for economic freedom, and its score continues to drop. The U.S. ranked 6th in 2009, 8th in 2010 and 9th in 2011.
The Keynesian (kick the can) approach in resolving crises via government (deficit) spending has been experiencing rapidly diminishing returns. So the developed crisis afflicted world now utilizes more of central bank actions to supplement or buttress fiscal policies.
Yet with far more debt and accreted imbalances from inflationism, such implies temporary fixes and that we should expect another crisis down the road (perhaps at a far larger bigger scale)
Not all is bad news though. The little crisis scathed regions of Asia and Africa appears headed in the opposite direction, again from Heritage…
The United States isn’t alone in the trend away from increased economic freedom. Canada and Mexico lost ground in the Index, and 31 of the 43 countries in Europe saw reduced freedom, as well. Given Europe’s huge welfare programs and out-of-control social spending, that’s unfortunately not surprising. As the world suffers the economic repercussions of Europe’s debt crisis, the price of pursuing policies that constrict economic freedom should be clear.
For all the bad news that the Index uncovered, there is some good news for economic freedom around the world. Four Asia-Pacific economies–Hong Kong, Singapore, Australia and New Zealand–lead the Index with top scores this year, Taiwan has seen increased gains in economic freedom, and eleven of the 46 economies in sub-Saharan Africa gained at least a full point on the Index’s economic freedom scale. And Mauritius eighth place score is the highest ever achieved by an African country.
Much of the world, though, isn’t so lucky. While some countries have seen their economic freedoms increase, others such as India and China are constrained by government control and bureaucracy.
This only means that the wealth convergence dynamic will continue to intensify and that the wealth gap between the West and Asia, Africa and other emerging markets, who continue to embrace economic freedom, will persist to narrow.
Despite my cynicism, I still put some hope into meaningful reforms that can be made in the Philippines. This signifies a mixed opinion of mine, which can be called as the endowment effect or the home bias. The Philippines has shown some progress which means kudos the current administration (if true).
Yet our deepening linkage with the world will represent as the ultimate driver that would pressure the domestic political economic policies to align with the underlying trend, globalization, which drives the rest of the world.
As proof, if Cuba has been opening up her economy, which is not just statistics, (chart from Heritage Foundation), then so should the Philippines.
No comments:
Post a Comment