The President asserted during a major speech in January: “One of the greatest contributions the United States can make to the world is to promote freedom,” he said. “A creative, competitive America is the answer to a changing world, not trade wars that would close doors, create greater barriers and destroy millions of jobs. We should always remember: Protectionism is destructionism.”
But the President who spoke those words was Ronald Reagan, in his very last State of the Union Address about 20 years ago.
How would President Reagan respond to today’s cynicism and doubts about the benefits of international trade and globalization? Some policymakers and politicians have increasingly argued that free trade primarily benefits low-wage countries, with outsourcing to their shores coming at the expense of our workers. But can we really protect jobs by erecting more barriers and by playing to people’s fears?
President Reagan likely would disagree, gently saying “no.”
The surest way to adapt to today’s rapidly-changing global economy is to remain creative and flexible – and therefore competitive – by enhancing economic freedom, rather than eroding it through protectionist measures and lingering government intervention. Economic freedom fosters the spirit of entrepreneurship and innovation that creates new products and jobs. It has sustained America’s strength and the creation of wealth.
America has proved time and again that the right policies – those that enhance economic freedom – can create an enduring link between economic opportunity and prosperity. For example, more open trade policies over the past decades have enabled our economy to expand by more than 40 percent and boosted job growth.
It should also be remembered that America’s trade and economic policy has persistently supported an integrated global economy, stimulating our strength as well as economic development in many parts of the world. Today’s cynicism and doubts about the benefits of capitalism should not abruptly bring to a halt America’s long-standing commitment to openness and economic freedom.
However, our leadership in advancing economic freedom is losing ground, undermining our economy. According to the 16th edition of the Index of Economic Freedom, released last Wednesday, our economy is no longer a member of the world’s “free” economies.
Other economies such as Switzerland and Canada are freeing their markets and advancing their economic freedom at a faster pace than the United States. The United States is, in many respects, moving in the opposite direction, simultaneously burdening its economy with increasing government spending, onerous regulations, uncompetitive tax rates, and barriers to trade and investment that stifle entrepreneurship and job creation.
By burdening our economy with bigger government, we are dangerously creating an economic environment where opportunity and mobility get obstructed. The traditional American faith in upward economic mobility – widely understood to be the American Dream – seems more elusive now than ever.
The results of the 2010 Index are plain to see. Detailing quite a slide in our economic freedom, the Index makes clear why our economy is failing to generate jobs. It should be a wake-up call for the White House and Congress, just as people surprised Washington with their strong voice in last Tuesday’s special election.
Perhaps, in preparing for his second State of the Union Address that is scheduled on January 27th, President Obama should be reminded of other words of President Reagan, whom he admires for “for changing decades of political discourse and streamlining the government.”
As President Reagan reminded us, “government can and must provide opportunity, not smother it; foster productivity, not stifle it.” This wisdom is the key to sustaining a healthy, growing economy that expands the circle of prosperity for our coming generations.
Just one year after President Barack Obama took office, we released the 16th edition of the Index of Economic Freedom in both Hong Kong and Washington. Once again, it provides empirical evidence that economic freedom is the pathway to prosperity.
The good news is that despite the global economic crisis, the overall level of global economic freedom remained about the same. Some countries improved while others declined.
The bad news is that the United States is one of the economies that declined. For the first time since we began measuring economic freedom, the United States fell out of the top tier of free economies into a lower “mostly free” tier, now ranked with countries like Belgium, Botswana and Sweden. The United States came in dead last among the 20 major economies of the world.
Why? The bailouts, massive stimulus spending, and other dangerous interventionist decisions in Washington since 2008 are hamstringing our economy and costing jobs—85,000 jobs in December alone, and 3.4 million since this time last year.
We’ve heard a lot of talk about the need for still more regulation and greater government spending, even about abandoning the free enterprise/capitalist system. The data in the Index and other studies clearly do not support that route. Thankfully, other countries are not buying it. Around the world, countries are still cutting taxes, strengthening property rights, deregulating, and reducing government spending, and they’re reaping the benefits, including an cushion that helped them survive the economic crisis.
Americans have been in this situation before, and we were able to turn things around. There’s no reason we can’t do it again. That’s the compelling story in the pages of the Index: if you improve economic freedom and let the markets work, rising prosperity will follow. The choices Washington makes in the next few years will matter. They will determine whether we continue to decline in economic freedom or are able to continue calling America the land of opportunity and the land of the free.