China, the U.S., and Economic Freedom

The Heritage Foundation and Wall Street Journal just released their 2010 Index of Economic Freedom and most of the media has focused on the decline in standings for the U.S. We have fallen from the sixth most economically free country to eighth, falling out of a coveted spot among freest economies based on the objective benchmark of their index. Canada is now the most free economy in North America.

China, on the other hand, remained far behind at 140th, just ahead of Haiti. Regulation and government control of investment and the banking system remain huge negatives.

Yet, one category jumps out where China is ahead of the U.S. (and many other wealthy nations): National government government spending was 19.9 percent of the national gross domestic product (GDP). In the U.S. Federal outlays as a percentage of GDP are estimated at 28.1 percent. In some ways, China has reliquinshed more control over the economy than countries considered much more free. Reports from some on the ground suggest China has been doing a lot more privatization of publicly owned companies than these indices may capture in their numbers.

While China has a long way to go before it reaches comparable levels of economic freedom with the U.S., this nation’s economic reforms are highly dynamic and should not be under-estimated.