Govt. Spending, High Taxes Restrain Growth in North America

Jan 11, 2011, 23:00 ET from The Heritage Foundation

United States no longer region's leader in economic freedom

WASHINGTON, Jan. 11, 2011 /PRNewswire-USNewswire/ -- North America continues to enjoy greater economic freedom than any other region in the world, but two of the three economies on the continent are moving backward, not forward, according to the 2011 Index of Economic Freedom released today by The Heritage Foundation and The Wall Street Journal.

Canada, which surpassed the U.S. in 2010, solidified its lead over its southern neighbor this year. Canada's rating of 80.8 points on the Index scale of 100 moves it up one slot in the world rankings, to 6th place overall. But while Canada's score improved, the scores and rankings of both the United States and Mexico fell.

The U.S., which fell from the ranks of "free" economies to the "mostly free" category in 2010, continued to lose ground. Its score slipped by 0.2 points to 77.8, dropping its world ranking to 9th place, one slot behind an improving Denmark.

The U.S. lost ground in four of the 10 economic freedoms measured by the Index, with the greatest decline resulting from the explosive growth of government spending. Monetary freedom also declined. "Government interventions in housing, automotive, health and financial markets have substantially increased price distortions," the authors note. "Drastic legislative changes in health care and financial regulations have retarded job creation and injected substantial uncertainty into business investment planning."

Mexico, which logged a significant advance in economic freedom in 2009, reversed course last year. Its score fell a half-point, to 67.8, due largely to increases in tax rates and government spending.

Overall, North America scores above the world average – in many cases, well above the world average – in eight of the Index's 10 categories of economic freedom. It boasts the highest levels of any region in business freedom, trade freedom, monetary freedom and labor freedom. Were it not for Mexico, which lags in property rights protection and freedom from corruption, the region would post dominant scores in those categories as well.

But the region has slipped below the world averages on fiscal freedom and government spending, mostly because of interventions by U.S. policymakers to address the financial crisis. Intrusive and burdensome regulations, government bailouts of private firms, loose monetary policy and increasingly protectionist trade policies all contributed to the U.S. decline.

The Index, compiled as a joint project of The Heritage Foundation and The Wall Street Journal, ranks countries on a 1-100 scale on the basis of 10 measures that evaluate openness, the rule of law and competitiveness. The 10 scores are averaged to produce the overall score.

Countries that score well demonstrate a commitment to individual empowerment, non-discrimination and the promotion of competition. Their economies tend to perform better, and their populations tend to enjoy more prosperity, better health and more positive measures on a variety of quality-of-life indices. A score of 80 or higher merits the designation of "free economy." Those who score in the 70s are considered "mostly free," those in the 60s "moderately free," those in the 50s "mostly unfree" and those that score less than 50 "repressed."

The 2011 Index was edited by Ambassador Terry Miller, Director of Heritage's Center for International Trade and Economics, and Dr. Kim Holmes, Heritage's vice president for foreign affairs. A complete online version of the Index is available free at Copies of the 2011 Index (474 pp., $24.95) can be ordered at or by calling (800) 975-8625.

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SOURCE The Heritage Foundation