Last week the Wall Street Journal reported the 2016 Economic Freedom Index, which I found very interesting. The index was created in 1995 by the Heritage Foundation and the WSJ to “measure the degree of economic freedom in the world’s nations.” According to the report the United States is ranked 11th in the world, which is up one spot from the 2014 number.
When I saw the report I immediately looked at who was in front of us? Who would be considered more economically free than the United States? In the number one spot was Hong Kong. I found that very interesting because several years ago, 1997, Hong Kong, which was a part of the United Kingdom, was aligning with main land China. The debate involved whether Hong Kong would lose its economic freedoms, which according to this report Hong Kong is just as free as the past. In second place is Singapore, which is no surprise. In third place is New Zealand; fourth, Switzerland; fifth, Australia; 6th, Canada; 7th, Chile; 8th, Ireland; 9th Estonia; and 10th the United Kingdom. Following close behind the United States is Denmark at number 12.
The next thought I had was, what does this measure? “The creators of the index took an approach similar to Adam Smith’s in The Wealth of Nations,” in other words, it looked for nations that support “the liberty of individuals to pursue their own economic interests that result in greater prosperity for the larger society.” In 2008 the Heritage Foundation defined economic freedom as providing “an absolute right of property ownership, fully realized freedoms of movement for labor, capital, and goods, and an absolute absence of coercion or constraint of economic liberty beyond the extent necessary for citizens to protect and maintain liberty itself. The index itself measures business freedom, trade freedom, monetary freedom, government size and spending, fiscal freedom, property rights, investment freedom, financial freedom, freedom from corruption, and labor freedom.
The next thought I had was focused on Hong Kong, Ireland, Canada, and Denmark. Each of these has very different tax systems and social programs. Hong Kong has a flat income tax of 15 and 16 percent. All people who are employees are taxed 15%. All corporations of business owners are taxed 16%. However, the gap between those that have and those who have not is huge. The government provides health care, education and housing. “The health care system, which provides high-quality standard services, is accessible to the entire population.” The health care system is not free, but it is subsidized and low-cost. Probably the biggest reason they continue to be successful is their high quality education system free to children up to the age of 15. Then it must be paid for, but is subsidized by the government.
Ireland’s situation is a little different. Its per capita income is around $39,250. It has been said that Ireland’s economy is the fastest growing in the Euro zone. The top personal income tax rate in Ireland is 41%, and the corporate tax rate is 12.5%. One report I read about Ireland is that half of its population is on welfare. When my wife and I visited Ireland many people we talked to were receiving a child benefit that could equal $45,000 (US) per year. Business owners I talked to were struggling with government intrusion into how their businesses were run. Ireland has socialized medicine, but those who can afford it can jump to the head of the line.
Then there is our neighbor to the north. Canada is one of the wealthiest countries in the world. Canada has a very interesting combination of private and public enterprises. The public enterprises include strong social and welfare programs to deal with the economic inequities associated with Capitalism. Its economy is strongly aligned with the United States. Canada has a single-payer healthcare system, which the doctors I have talked to did not like. However, the government is trying to prevent an Irish system that allows those with more resources to jump to the front of the line. Canadian tax rates for 2016 are 15% on the first $45, 282, 20.5% up to $90,563, 26% between $90,563 and $140,388, 29% from $140,388 to $200,000, and 33% over $200,000.
Then there is Denmark, and I will lump all of the Nordic economies into this discussion. The Economist in 2013 reported that Nordic Countries are the next supermodel. They are saying this because Sweden, Denmark, Norway, and Finland “are doing rather well.” In fact, The Economist says we may want to become Vikings, and not the football team.
After reading this article, I must say I think the Scandinavians are just good managers. They stepped up to the plate and hit a homerun by creating a lean Nordic model. “The idea of lean Nordic government will come as a shock to both French leftists who dream of socialistic Scandinavia and to American conservatives who fear Barack Obama is bent on Swedenisation.” To accomplish this several steps were taken.
Government spending in Sweden was cut by 18% points; which demonstrates how serious the government was with improving the country’s economic situation. This spending level is now lower than France. The corporate tax rate in Sweden is 22%, which is lower than the United States. I guess what the Swedes have done is balanced the books. “While President Obama and Congress dither over entitlement reform, Sweden has reformed its pension system. Its budget deficit is .3% of GDP,” ours in 2013 was 7%. The article goes on and mentions other elements of the Nordic improvements, but the last paragraph sums up my point of this discussion.
“The main lesson to learn from the Nordics is not ideological but practical. The state is popular not because it is big but because it works. A Swede pays tax more willingly than a Californian because he gets decent schools and free health care. The Nordics have pushed far-reaching reforms past unions and business lobbies. The proof is there. You can inject market mechanisms into the welfare state to sharpen its performance. You can put entitlement programs on sound foundations to avoid beggaring future generations. But you need to be willing to root out corruption and vested interests. And you must be ready to abandon tired orthodoxies of the left and right and forage for good ideas across the political spectrum.”
Nothing demonstrates this reality in our country more than our Congress. Rather than finding solutions to our problems, they continue to dither and navel gaze. I agree with our English cousins when they say the Nordics get something out of their taxes and we don’t. I know that is a huge generalization, but think about our increasing gap between the wealthy and the working class. Think about how our educational performance continues to decline. We need our government to be better managers like the Nordics. I really like the balance they have struck in their economies. So when I say I like Nordic Capitalism I am embracing a system that works.
And that is my thought for the day!