Economic freedom and prosperity are linked

By Steven Martinovich
web posted April 23, 2001

A report released April 19 by a group of more than 50 think tanks contained some bad news for Canada. When it comes to economic freedom, we're not much better than Chile. That fact shouldn't be considered a slight to Chile considering that they were the first nation in the western hemisphere to privatize their social security system, a move that Canadians steadfastly refuse to consider despite the fact that our system will be tottering soon, but against Canada which has slipped every year since 1990 in the rankings.

According to the Economic Freedom of the World 2001 annual report, Canada is now ranked thirteenth in the world in terms of economic freedom, down from seventh in the 2000 report and fourth in 1990. While our score hasn't really declined, other nations have taken it upon themselves to improve themselves to move past us. A case in point is Ireland, ranked sixth this year, compared to 22nd in 1990. At the top of the list, once again, is Hong Kong, which hasn't let integration with communist China greatly diminish its economic freedoms.

Other economic powerhouses ranking ahead of Canada are Argentina and Boliva while Finland, Austria and Denmark are close behind. If measures of economic freedom mean little to you, the authors have yet more bad news for Canadians. The authors tell us that the index "is shown to correlate positively with measures of income per capita and economic growth."

Simply put, the freer your economy is, the more prosperous you are as a nation. While we aren't in the same league as China (ranked 81st), Brazil (96th), and Russia (ranked 117th), the results show that other nations are becoming much more attractive investment opportunities then Canada. The "Irish Miracle", which is how economists termed Ireland's transformation from an economic dead zone to one of Europe's leading high tech centers was largely the result of tax cuts and the move to a friendlier businesses atmosphere. Now, instead of Irish youth fleeing that nation, they stay there and compete for high paying jobs with companies like Microsoft Corp. In Canada, we continue to fret about a brain drain to the United States (ranked 5th).

In 1985, Canada's per capita GDP was two-and-a-half times higher than Ireland's while today that nation's per capita GDP is now 10 to 15 per cent higher than ours. As we've slipped down the rankings, so has our rate of growth. In plain English, we may not be poorer, but we're not getting very much richer compared to other nations.

"Comparatively speaking, Canada continues to have damagingly high levels of government spending, transfers and subsidies, and tax rates," said Michael Walker, executive director of the Fraser Institute, who along with America's libertarian leaning Cato Institute was one of the groups behind the study.

Of course, it's not all bad news for this country, we aren't Sierra Leone or the Democratic Republic of Congo (ranked at the bottom of the 123 nations). The study has traditionally given Canada high marks on the quality of our legal system, the security of property rights, monetary policy, the freedom to exchange in international markets and the freedom to use alternate currencies - all essential ingredients for prosperous nations.

That aside, Canadians must realize that globalization is opening up other nations - and ours - for trade like never before. Previous free trade agreements with the United States and Mexico and a possible hemispheric trade agreement through the Summit of the Americas will only hasten this process. We must either undertake to further modernize our approach to investment and the resulting jobs or we will continue to fall further down the list. Do we really need El Salvador (ranked 20th) ranked higher than this country?

Steve Martinovich is a freelance writer in Sudbury, Ontario and the editor in chief of Enter Stage Right.

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