Singapore is the freest economy in the world — second only to Hong Kong. But that is by standards that are beginning to look less attractive in the global downturn, admits the man who ranked the various countries.
Terry Miller of the Heritage Foundation writes in the Wall Street Journal:
Capitalism… is, by the accounts of political leftists, no longer the smartest looking companion on the dance floor. They like the looks of other systems like socialism much better.
Miller, who co-edited the 2009 Index of Economic Freedom published by the Heritage Foundation and the Wall Street Journal, defends capitalism. He writes: The positive correlation between economic freedom and national income is confirmed yet again. The freest countries enjoy per capita incomes over 10 times higher than those in countries ranked as "repressed."
But the Heritage Foundation is out of step with the times.
It worries about public spending programmes such as those being launched by governments now to fight the downturn. The US slipped one spot to sixth place in the rankings this year, it says, because of increases in both
tax revenue and government spending as a percentage of GDP.
The Heritage Foundation says its mission is "to formulate and promote conservative public policies based on the principles of free enterprise, limited government, individual freedom, traditional American values, and a strong national defence".
Why Singapore is second, not first
Singapore might have even beaten Hong Kong to the top spot if the government played a smaller role in the economy. Visit the Heritage Foundation and look at the scores of each country.
Singapore beats or runs a close second to Hong Kong on every count — business freedom, trade freedom, fiscal freedom, government size, monetary freedom, investment freedom, property rights, freedom from corruption and labour freedom — except one: financial freedom. The report explains:
Financial freedom is a measure of banking security as well as a measure of independence from government control. State ownership of banks and other financial institutions reduces competition and generally lowers the level of available services.
Singapore scores only 50 for financial freedom, ending up second to Hong Kong in the overall rankings.
Singapore's high "labour freedom" — easy to hire and fire
Hong Kong may be better for workers as well. They can be fired more easily in Singapore.
No country can match Singapore on labour freedom, which is based on how easy it is to hire and fire workers and how heavy or light are the labour regulations. No country except one: Denmark.
It's surprising that Denmark, the model welfare state, has even greater labour freedom than Singapore. But it also has a social safety net. Look at the scores again.
Denmark scores only 35.4 for fiscal freedom and 20 for government size — sure signs of a tax-and-spend government.
The report explains:
Fiscal freedom is a measure of the burden of government from the revenue side. It is based on
• The top tax rate on individual income,
• The top tax rate on corporate income, and
• Total tax revenue as a percentage of GDP.
Singapore scores a high 91.1 for fiscal freedom because of its low taxes.
Government size considers the level of government expenditures as a percentage of GDP, says the report.
Denmark's lavish social safety net gets it poor marks from the conservative Heritage Foundation, which gives high marks to Singapore — 93.8 — which has none.
Yes, the Heritage Foundation's economic freedom index is almost Grinchish in its calculations. It is a hardnosed look at countries from the investors' point of view. It deducts, does not award, points for public spending and social welfare.
It's true that except for Singapore and Hong Kong all the eight other countries in the top ten — Australia, Ireland, New Zealand, the US, Canada, Denmark, Switzerland and the UK — have social security. But they lose points for that. That they still make the top ten shows some nifty policymaking.
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