American economic freedom declines

The United States is becoming less free economically, according to Canada’s Fraser Institute for Economic Freedom. The information was released in the organization’s 2015 Annual Report, which measures the degree to which the policies and institutions of countries are supportive of economic freedom.

According to the recently released study,

“Throughout the period from 1970 to 2000, the United States ranked as the world’s freest OECD [Organization for Economic Cooperation & Development] nation (generally the third freest economy overall behind only Hong Kong and Singapore). The chain-linked summary rating of the United States in 2000 was 8.65. By 2005, the US rating had slipped to 8.22. The slide has continued. The 7.73 chain-linked rating of the United States in 2013 was more than 0.9 of a unit lower than the 2000 rating. While other nations have also declined since 2000, the decline in economic freedom in the United States has been more than three times greater than the average.”

The problems presented by America’s economic freedom decline are more than just temporary.

According to the report, “…a one-point decline in the… rating is associated with a reduction in the long-term growth of GDP of between 1.0 and 1.5 percentage points …This implies that, unless policies undermining economic freedom are reversed, the future annual growth of the US economy will be only about half its historic average of 3%.”

The Fraser report notes that the most significant reversals in U.S. economic freedom have been in the areas of legal system and protection of property rights, freedom to trade internationally, and regulation. The increased use of eminent domain was particularly cited. “…it is clear that the increased use of eminent domain to transfer property to powerful political interests, the ramifications of the wars on terrorism and drugs, and the violation of the property rights of bondholders in the auto-bailout case have weakened the US tradition of rule of law. These factors surely contributed to the sharp decline in the legal system area.”

While the United States’ reversal is particularly glaring, the rest of the world has not progressed as hoped. “While economic freedom has generally risen globally since 1980, there has been a modest reversal of the trend since 2000. …the average rating for the original OECD nations has fallen by 0.26 of a point since 2000.”

Fraser notes that the cornerstones of economic freedom are personal choice, voluntary exchange, freedom to enter markets and compete, and security of the person and privately owned property. The report used 42 “data points” to construct a summary index and to measure the degree of economic freedom in five broad areas:

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Hong Kong and Singapore were found to have the most open economies. New Zealand, Switzerland, United Arab Emirates, Mauritius, Jordan, Ireland, Canada, and the United Kingdom round out the top 10. The United States came in 16th, Japan 26, Germany 29, South Korea 39, Italy 68, France 70, Mexico 93, Russia 99, China 111, India 114, and Brazil 118. The 10 lowest-rated countries are countries are: Angola, Central African Republic, Zimbabwe, Algeria, Argentina, Syria, Chad, Libya, the Republic of Congo, and, in last place, Venezuela.

Fraser’s research indicates that Economic freedom plays a large role both in the prosperity of a nation’s population and in other areas of “well-being.”

“Nations in the top quartile of economic freedom had an average per-capita GDP of $38,601 in 2013, compared to $6,986 for bottom quartile nations. In the top quartile, the average income of the poorest 10% was $9,881, compared to $1,629 in the bottom quartile in 2013. Interestingly, the average income of the poorest 10% in the most economically free nations is about 50% greater than the overall average income in the least free nations. Life expectancy is 80.1 years in the top quartile compared to 63.1 years in the bottom quartile. Political and civil liberties are considerably higher in economically free nations than in unfree nations.”

Quick Analysis

China’s Tech Targets

Chinese technology is changing and its leadership is using it, along with espionage, to challenge the West in a number of critical areas. The United States is only one of its targets. Previously, Beijing’s spies primarily sought Western technologies as a way to skip generations of develop cost and time to modernize its economy. Today, its acquisition of advanced technologies, and now also its indigenous development, makes the communist giant a threat to freedom-loving people everywhere. This week Nan Mulchandani, the CIA’s chief technology officer, said Director William Burns is preparing for an “infinite race” with Beijing for artificial intelligence and advanced technologies. He argues the US must pivot toward providing American spies with the latest transformative technologies to outcompete China. Mulchandani says this means updating everything the agency does “from operations to the analytic function, support functions and other piece there.” America, he suggests, needs to alter its thinking toward viewing this not as a race with a finite end point, but as an ongoing competition. Mr. Mulchandani predicted that the next area of competition would “be primarily a software war that is powered by something like AI” rather than hardware fueled by software. That competition, however, is not confined to simply acquiring critical technologies for use in the future. China is also challenging the US in space. China announced today it launched a groundbreaking mission to retrieve samples from the far side of the moon. The space capsule will arrive in four days and collect 4.4 pounds of moon rocks and regolith, or moon dirt. Beijing’s desire to one day become a space power and scientific force is for pragmatic purposes in 2024 a fait accompli. Rep. Frank Lucas (R-Okla.), chairman of the House Science, Space and Technology Committee, said during a NASA budget hearing this week, that “while the US remains the global leader in space exploration, we face increasing challenges internationally.” Referring to China’s space station, Lucas said: “We cannot allow China to become the front-runner in space exploration… There are too many consequences for our competitiveness, our national security, and our continued ability to explore space.” A new report released this week by the Center for Strategic and International Studies (CSIS) says that the United States, to further its geopolitical interests and maintain a strong domestic economy, must approach every aspect of economic and trade policy through the lens of global technology competition. The Biden Administration’s approach, it says, discounts the landscape of competition between China and the US and may “jeopardize US advancements in emerging technologies… which could cede the advantage to China….” In particular, the report recommends that the US take action now because quantum and artificial intelligence (AI) need a federal policy to ensure the country can spur the entrepreneurship and R&D efforts foundational to the strength of the technology sector. As China’s Communist Party (CCP) becomes more hostile to the United States and other Western nations, its aggressive activities abroad expand and intensify. Chinese spy cases far outnumber those of Russia and every other nation. CSIS reports that since President Xi took over in 2012 there have been 224 incidents of spying. Estimates of the long -term economic, scientific, and national security cost to the US run into the billions and have “created immeasurable damage to national security with the theft of weapons technology, including nuclear weapons test data… China has added the theft of massive quantities of personal information, political coercion, and influence operations, to its espionage activities.” The CSIS reports says that 49% of incidents of spying in the US directly involved Chinese military or government employees, with private Chinese citizens accounted for 41%. In 29% of the espionage cases the person involved was attempting to acquire military technology, while in 54% of the incidents it was related to commercial technologies. Almost half of the cases involved cyber espionage, usually by state—affiliated actors. No matter where one turns today China is challenging the West, from the depths of our oceans to outer space. The United States cannot count on China to be a good global citizen and refrain from attempting to enforce its vision of world order with Beijing at the apex. The time is growing short for the West to take action. Daria Novak served in the U.S. State Dept.