Editorial: Populism squeezing economic freedom


The Heritage Foundation, a conservative think tank, and the Wall Street Journal have released their annual Index of Economic Freedom, which ranks 185 nations on the basis of rule of law, limited government, regulatory efficiency and open markets.

According to one author of the survey, "[t]he foundations of economic freedom are weakening around the world."

"Particularly concerning," writes Terry Miller, Heritage's director of the Center for International Trade and Economics, "are the rise of populist 'democratic' movements that use the coercive power of government to redistribute income and control economic activity."

As Winston Churchill said, democracies are the worst form of government – except for all the others. But freedom to choose leaders is no guarantee of wise leadership. As Heritage's study explains, there are no guarantees.

Just as corrupt political systems keep poorer countries poor, democracies, too, can undermine wealth and prosperity.

"In the post-Arab Spring Middle East, some democratically elected governments are adopting totalitarian practices reminiscent of revolutionary Iran or the Taliban," Mr. Miller wrote in a Wall Street Journal column. "Economic freedom can't flourish under the arbitrary rule of authoritarians and despots, and it has declined significantly in Egypt, Tunisia, Algeria and Saudi Arabia, among other countries."

Over-reaching governments have debilitating economic effects. Economic favoritism and cronyism in advanced democracies also are economically stifling. The Heritage report catalogs a dozen ways government privileges for special interests hurt productivity and reduce efficiency. Resultant harm from what Mr. Miller terms "the pathology of privilege" also erodes political integrity by favoring the rich and powerful.

Whether government wealth redistribution is engineered by unelected despots or by representatives elected in advanced democracies, the tendency can resemble the axiom that democracy should be more than two wolves and a sheep, voting on what to have for dinner.

Top-down income and wealth transfers compromise property rights and reduce incentives to work and invest, Heritage finds. By contrast, promoting the rule of law and protection from arbitrary government regulation ensure fairness, which, "as documented in years of empirical data, promotes higher incomes and faster growth."

The United States increasingly is moving toward redistributive economic solutions. It ranked 10th-most free this year. Like Ireland, the U.S. has lost economic freedom, as judged by Heritage, five years in a row. Indeed, almost all most-advanced countries lost ground this year. Even top-ranked Hong Kong's score declined because of government spending increases and higher inflation.

Heritage blames the worldwide slowdown in economic liberalization on lack of U.S. leadership, noting that trade flows declined with the stagnated U.S. economy, and protectionism threatens consumers and businesses with higher costs and restricted supply.

"Ill-conceived banking regulations such as the Dodd-Frank law generate uncertainty and anxiety," Heritage said. "[I]nvestment freedom declines in the face of higher costs and new legal and tax liabilities such as those introduced by Obamacare."

U.S. policy-makers should take note, and would be well-advised to reverse government's detrimental trends, which not only resemble those of despots stifling prosperity elsewhere, but also affect other nations' well-being.


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