Canada Widens Economic Freedom Lead Over U.S. (But Everybody Loses Ground)


herberger / Foter / CC BY-NC-SA

In December, Canada's Fraser Institute released the latest edition of its Economic Freedom of North America report. Last year's edition noted that Canada had gained an advantage over the United States, with the highest-ranked state coming in third after two of our neighbor's provinces. In this year's edition, which includes Mexican states for the first time (and they don't score especially well), the Great White North expands its lead. But there's little room here for anybody to get smug. It's a race to the bottom, with the arctic chill apparently slightly slowing a continent-wide slide in economic freedom.

Economic Freedom of North America uses definitions familiar to Reason readers. The report specifies that "the freest economies operate with minimal government interference, relying upon personal choice and markets." Unshockingly, the authors link economic freedom to prosperity.

Fraser actually uses two related measures of economic freedom—one that compares local policies, and an "all-governments" index that includes the impact of national polices and regulations. The first is useful for comparing jurisdictions within countries, the second for apples-to-apples comparisons across borders. It's on the all-governments index that Canadian provinces have been creeping ahead of states—or, more accurately, dropping less rapidly.

Because everybody is circling the drain. "Historically, economic freedom has been declining in all three countries," note the report authors. "Since 2000, the average score for Canadian provinces on the all-governments index has fallen from 7.8 to 7.6; the number for US states was 8.2 to 7.5. We do not have data for the Mexican states prior to 2003, but the average score has fallen from 7.1 to 6.9 since 2003."

Oh, swell. 

The highest ranked Mexican state, by the way, is Coahuila, which scores a hair higher than U.S. states Mississippi, Maine, Rhode Island, Vermont, Kentucky, New Mexico, Hawaii, and West Virginia. That any place doesn't rank higher than Rhode Island is, to me, mildly surprising.

On the separate subnational index for the U.S., comparing states to one another, Texas and South Dakota come out on top, followed closely by North Dakota. Maine, Vermont, and Mississippi bring up the rear.

The gap between Canada and the United States has been noted elsewhere. The Heritage Foundation's independently compiled 2014 Index of Economic Freedom (the 2015 edition is due soon) puts Canada in sixth place, with a slightly improved score over the previous year. Mexico ranks at 55, down a tick from 2013. The United States comes in at 12, "half a point lower than last year, primarily due to deteriorations in property rights, fiscal freedom, and business freedom."