The United States and China, the two nations with the largest gross domestic product, experienced dramatic declines in economic freedom last year.
That’s a key finding of the “Index of Economic Freedom 2022.” The Index has been published by the Heritage Foundation every year since 1995. It reports on how economically free or unfree any given country is and can also be regarded as the “capitalism scale.”
The study states: “Quite notable is the continuing decline in the ‘mostly free’ category of the United States, which plummeted to 25th place, its lowest ranking ever in the 28-year history of the Index. The major causative factor in the erosion of America’s economic freedom is excessive government spending, which has resulted in mounting deficit and debt burdens.” The study’s authors also criticize President Joe Biden’s policies, which they say are “aimed at fundamentally transforming both the country and the economy.”
The decline is even more dramatic in China, where the index fell from 58.4 the previous year to just 48 points in this year’s ranking. Such substantial declines are rare in the history of the index. The index for China has not been this low since 1995, when China scored 52.0 points.
The fact that economic freedom is declining in the world’s two leading economies is also bad news for the rest of the world. In the medium term, a deterioration in economic freedom always leads to economic losses and slower growth, or even a decline in prosperity.
China’s rise over the past 40 years was entirely a result of the introduction of capitalist reforms pushing back the influence of the state. In recent years, however, the trend has started to reverse. The renowned Chinese economist Weiying Zhang recently warned that Beijing has focused more heavily on government interventions. Zhang’s thesis: “If China attempts to achieve common prosperity through de-marketization and government-dominated redistribution policy instead of continuing marketization, the result can only be the return to common poverty.”
The “Index of Economic Freedom” clearly proves the link between capitalism and prosperity. The GDP per capita in countries rated as economically “free” is $73,973. In countries that are “mostly free,” it is $45,519. In “moderately free” countries, it is $21,803. In “mostly unfree” countries, it is $9,917, and in “repressed” countries, it is $7,096.
Why not bet more on freedom, then?
Rainer Zitelmann is a historian, sociologist, and author of the book The Power of Capitalism. https://the-power-of-capitalism.com/
