Canada rises to Top Five in world economic freedom ranking as U.S. plummets to 18th

Canada really started moving up in economic freedom under a prime minister that was supposedly from the left side

By Sarah Boesveld

Canada has taken its place among the Top 5 countries with the most economic freedom, according to a new Fraser Institute report — now leaps and bounds ahead of the United States thanks to the gradual shrinking of the Canadian government since the mid-1990s as America’s just got bigger.

The annual Economic Freedom of the World report, released Tuesday, has Canada tied in fifth place with Australia — up one spot from last year. Hong Kong remains at the top, Singapore’s next, then New Zealand.

Meanwhile, the United States, once a “standard bearer” of economic liberty among industrial nations, spiralled 10 spots from the 2011 rankings to 18th place — its lowest position ever, and a huge drop from its second place spot in 2000.

And as the size of Canada’s government continues to slightly shrink due to slowed growth in government spending post-recession and America’s continues to expand, this indicator could eventually make us the industrialized world’s new leader on economic freedom, said Fraser Institute president Niels Veldhuis.

“What we have in front of us is a marked opportunity,” he said. “We can significantly exceed the U.S. in economic freedom over the course of, I would say, the next five to 10 years. The question for Canadians is are we going to seize the opportunity or are we going to let the opportunity go by?’’

The study’s authors point to research that shows nations with high levels of economic freedom — plenty of personal choice, voluntary exchange, freedom to compete and security of private property — do better in terms of well-being.

They tend to have higher GDPs, less poverty, longer life-expectancy and more political and civil liberties.

The report, which judges 144 countries on 42 separate measures of policies that promote economic freedom, ranks a country higher for having a smaller government and also considers its legal system and record on property rights, “sound money” or financial growth, freedom to trade internationally and levels of regulation. It relies on data from 2010 in this ranking, because that’s the most comprehensive data available, study authors said.

The Fraser Institute uses numerous surveys and data from the World Bank, which does wide comparative analysis of countries all over the world, to aid in their rankings.

The bad news for North America is that the United States — once the country that symbolized capitalism, entrepreneurialism and free markets supporting a free society — is increasingly unable to claim any of those things. It used to rank in third, consistently, just behind Singapore and Hong Kong. That was then. The U.S. tumbled in 2012 down to the 18th spot for most economically free country in the world. It can console itself, however, in only being a teeny-tiny bit behind Qatar. Way to go, America!

“The key driver of our success versus the U.S.’s success is really size of government,” said Fred McMahon, the Fraser Institute’s vice-president of international policy research. “That’s where Canada, since 1995 has gone up significantly [in ranking] and where the United States has gone down even more significantly.”

Canada’s economic freedom began to rise under former prime minister Jean Chrétien, who reined in the budget and reduced government spending dramatically — more than Ronald Reagan or Margaret Thatcher, Mr. McMahon said.

Meanwhile, George W. Bush began to spend — U.S. government consumption went from 17.6% of GDP to 19.5% in 2000, transfers of subsidies went from 13.2% to 16.3% and the government enterprises and investments went from 17.6% of GDP to 22.5%.

“Canada really started moving up in economic freedom under a prime minister that was supposedly from the left side … and the United States started moving down in economic freedom under someone who was supposedly from the right wing, Republican party,” said Mr. McMahon, emphasizing the ideological irony.

But for all its advances compared to the U.S., Canada’s rankings rose because other nations fared worse, he said.

Canada really started moving up in economic freedom under a prime minister that was supposedly from the left side

“We’ve done well, but there’s still areas for improvement,” he said.

Canada was behind just slightly on rankings on size of government (a 0.02% drop), its legal system and property rights — a place the U.S. also lagged more significantly because of court cases there that may have ruled in favour of more government oversight and less individual liberty, Mr. McMahon said.

Stephen Harper’s Conservatives expanded the size of government since taking office in 2006, said Mr. Veldhuis, which pulls the ranking down a bit.

“There’s no question that the Conservative government has significantly increased the size of government since [it] got into office, but the size of government — both when you look at federal spending as a percentage of GDP and then all government spending as a percentage of GDP — that peaked in 2009,” he said.