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UK No Longer Has Economic Freedom 2008-05-15

Posted by clype in Articles of Interest, Money, Statistics.
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Britain has slipped out of the ranks of fully “free” countries in this year’s Heritage Index of Economic Freedom, reflecting the sharp rise in the tax burden and ballooning state sector.

The country has continued to slide down the league under Gordon Brown’s economic management, falling from fifth to tenth place over the last two years.

Britain has now been overtaken by Canada, Chile, Switzerland, Australia, and the United States of America.

  • Britain now scores below 80 points on a range of key indicators, dropping into the ‘mostly free’ camp with Germany, Japan, Bahrain, Armenia and Trinidad.

Two eurozone shockers are Italy (64), and Greece (80), now ranked lower than most of the old Communist bloc!

The ever harsher verdict on Britain comes as Mr Brown’s tax and spend policies begin to reshape the basic structure of the UK plc, transforming it from one of Europe’s leanest fiscal states to one of the most bloated.

‘Total government expenditures, including consumption and transfer payments, are very high.

‘Government spending has been rising since the 1990s and in the most recent year equaled 44.7 percent of GDP,’ said the UK country report.

Whenever the state sector rises above 40 per cent or so in any country it tends to start dampening economic dynamism, although Europe’s close-knit Nordic cultures have been able to prosper at levels over 50 per cent.

The index is complied by ‘The Heritage Foundation‘, a free market think tank that once served as the brain-trust of the Reagan Administration. It defines economic freedom as:

‘the absence of constraint on the production, distribution or consumption of goods and services beyond the extent necessary for citizens to protect and maintain liberty itself’.

Most of Europe has been trimming the state share steadily over the last decade. In 2008 the German public sector will fall below that of Britain for the first time since the Thatcher revolution.

Chancellor Angela Merkel’s government has balanced the German budget, a feat last achieved in 1970.

It racked up a tiny surplus of 70 million EUR in 2007. Moreover the country enjoyed a colossal trade surplus of 330 000 million EUR in 2007, retaining its slot as the world’s number one exporter ahead of China.

The turn-around in German fortunes contrasts starkly with Britain’s dire performance, led by a budget deficit of 3 per cent of GDP and an alarming current deficit nearing 5.7 per cent of GDP in the last quarter.

  • Both sets of figures are now the worst of any major OECD economy. Even Japan’s fiscal deficit is better using comparable forms of measurement.

    The report said the freedom index had more or less held steady for another year, which is better than might be expected at a time of simmering populist revolt and creeping protectionism in parts of the North Atlantic bloc.

    The improvement seen over the twelve years has halted.

    The winners as always are the island states of Hong Kong and Singapore, the poster economies offering open ports, minimal capital controls, and the rule of law.

    Ireland (3) has held its place as Europe’s beacon of freedom. Now the playground of hedge funds, private equity, and billionaires, it is unrecognizable from the super-tax backwater of the 1980s.

    China has slid backwards to 121 from 111 two years ago, which may come as a surprise.

    ‘China severely restricts many areas of its economy.

    ‘The financial sector is largely opaque and state-controlled, raising concerns about lending practices. Property rights are very weak.

    ‘Foreign investment is highly controlled and regulated, and the judicial system is highly politicized.

    ‘The state maintains tight control of the financial sector and directly or indirectly owns all banks,’ said the report.

    Russia (134) is deemed even worse.

    ‘State involvement in the economy is increasing through large state-controlled enterprises in energy, shipping, shipbuilding, and aerospace known as “national champions”. Corruption engenders a weak rule of law, which in turn reinforces the transience of property rights and arbitrary law enforcement.’

    Bolshevism and Maoism die hard, it seems.

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