Economic Freedom: China Up, U.S. Down

Since 1995 the Heritage Foundation, a conservative think tank in Washington, D.C., has put together the Index of Economic Freedom to "track the march of economic freedom around the world." In January, Editor in Chief Matt Welch sat down with economist Jim Roberts, who co-authored the 2012 edition of the survey. They discussed reasons for optimism about China, reasons to worry about the United States, and the general state of economic liberty around the world. For video of the interview, go to reason.tv.

Q: Why did Heritage start putting out the Index of Economic Freedom?

A: Conservatives felt the American public and the world at large didn't have a good grasp on the fundamentals that underlie the great prosperity we've enjoyed in the United States. So to remind people and to advocate for those policies—limited government, low taxes, strong rule of law, light regulation, and open markets—Heritage started the Index.

Q: Have the last few years been bad for economic freedom?

A: They haven't been great, although we had a little bit of an uptick last year. This year again it's gone down for the world. There are some bright spots in sub-Saharan Africa and Asia. But the bad news for America is that for the third year in a row, there's been a precipitous drop in economic freedom in the United States. Economic freedom peaked about seven or eight years ago in the U.S. and has been dropping since then.

Q: What are you measuring in the United States that is dropping?

A: Government spending's score has just gone through the roof. The Keynesian stimulus has failed but has left us heavily indebted, and this administration ([like] the prior one) [is] spending too much money and not getting enough as a result, taking money out of the economy that could be better used for private-sector investment. And too much regulation. It's strangling business. It's making business overly cautious. People don't know what to do, especially with ObamaCare coming on the horizon. These have been the main things, but also property rights, where you had the abuse of the rule of law in the United States with the takeover of General Motors and Chrysler, for example, [and] the too-big-to-fail bank bailouts. These all counted against the United States' score.

Q: How is China doing in terms of economic freedom?

A: They're sure not doing nearly as well as Hong Kong, which has been No. 1 for the last 18 years. Meanwhile, the mainland is stuck below the middle of the stack. Think about how well [China] could be doing if they opened up their political sector as they have their economy. If they had stronger property rights, strong rule of law, and genuine open markets, and didn't play games with currency, how much better could they be doing? Quite a bit. 

Q: Your background is in property rights, and you worked for the State Department for a quarter century. Tell us a little about China and property rights. Do they have any?

A: They do in practice, but not in law, and that's the problem. If you have major investors, they're going to want to see not only property rights enshrined in law but actually a track record of the government responsibly handling that, where you don't have to buy off judges protecting those property rights. China's going to take time to do that, but they've got to start, and they haven't yet. 

At least they opened it up to have leases for property, but they need to go and finish that and have real property rights with real ownership. Share the power. Diffuse the money, and you diffuse the political power along with it, and you have more participation, more democracy.