[corp-focus] Reclaiming Economic Freedom

[robert weissman]

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Reclaiming Economic Freedom
By Robert Weissman
January 24, 2008

Every year, the Heritage Foundation, in conjunction with the Wall Street 
Journal, dutifully churns out its annual Index of Economic Freedom, a 
ratings guide to countries' relative corporate hospitality.

The book-length report makes a quite modest global media splash every 
year. A Lexis search shows the 2008 report, issued last week, garnered 
(mostly quite short) stories in New Zealand, Australia, China, Russia, 
Thailand, Bahrain, the United Kingdom, India, Ireland, the Philippines, 
Poland, Singapore, Ukraine, Taiwan, Korea, the United States, Zimbabwe, 
and various wire services. If past years are any guide, over the course 
2008, the report will likely be referenced several times in the Wall 
Street Journal editorial pages, and in various other publications. Not 
bad, but not earth-shattering.

The Index of Economic Freedom is significantly more important than this 
news coverage suggests, however.

For the last several years, the report has been subtitled "The Link 
Between Economic Opportunity and Prosperity," and a central thesis of 
the report is that removing controls on corporations will create 
economic wealth. When apples are compared to apples -- that is, when 
countries of similar economic development are compared -- this claim is 
revealed to be nonsensical, as various studies from the Center for 
Economic and Policy Research and many others have shown.

But more important than the asserted connection between removing 
corporate restraints and prosperity is the report's definitional 
maneuver. It claims "economic freedom" -- and all of the justifiably 
positive connotations with freedom -- as part of the corporate agenda. 
It equates "economic freedom" with corporate superiority to popular 
control.

The Index of Economic Freedom is not the only tool to spread this 
propaganda, but it is among the most influential. The idea has seeped 
deep into the culture.

The Millennium Challenge Corporation (MCC), which was supposed to be the 
major Bush administration anti-global poverty innovation (but has in 
fact failed to distribute more than a tiny fraction of funds allocated 
to it) by statute selects recipient countries in large part based on 
measures of their "economic freedom." The MCC actually relies on the 
Heritage Foundation's Index of Economic Freedom for determining a 
component (countries' trade openness) of the MCC's economic freedom rating.

Members of Congress have introduced dozens of bills and resolutions 
referencing "economic freedom" over the last decade. One small example: 
Senator Barack Obama, along with Senators Chuck Hagel, R-Nebraska, and 
Maria Cantwell, D-Washington, in 2007 introduced the Global Poverty Act 
of 2007. (A version in the House of Representatives, introduced by Adam 
Smith, D-Washington, has 84 co-sponsors.) The bill would require the 
President to develop a strategy to meet the Millennium Development Goal 
of reducing the number of people in the world living in extreme poverty 
by one half. Although the bill is mainly aspirational -- operationally, 
it doesn't require anything than development of a strategy -- it 
embraces a noble goal, and the world would be a better place if the 
legislation became law. But it is noteworthy that a "finding" of the 
bill is that "Economic growth and poverty reduction are more successful 
in countries that invest in the people, rule justly, and promote 
economic freedom."

The Global Poverty Act does not specify what "economic freedom" means, 
and the sponsors of the bill would almost certainly disagree with some 
of the detailed definition supplied by the Heritage Foundation. But they 
have, at least in passing, adopted the framework.

Just what exactly does the Heritage Foundation mean when it says 
"economic freedom?" The Index of Economic Freedoms contains a 
preposterously precise formula for measuring and comparing so-called 
economic freedoms, based on the following 10 factors: business freedom, 
trade freedom, fiscal freedom, government size, monetary freedom, 
investment freedom, financial freedom, property rights, freedom from 
corruption and labor freedom.

OK, that's not much of an answer to the question. What do these grand 
phrases mean when Heritage translates them into concrete terms?

Here are some examples:

* "Trade freedom" measures not just how low tariff rates are, but the 
extent to which a country maintains "non-tariff trade barriers," such as 
"safety and industrial standards regulations" and "advertising and media 
regulations." Heritage considers national restrictions on biotechnology 
products -- which apply equally to domestic and foreign genetically 
modified foods -- as trade restrictions.

* "Fiscal freedom" is simply code for how low tax rates are. This 
includes corporate tax rates -- which the Heritage formula weighs as 
heavily as taxes on individuals.

* Countries are awarded more points the smaller the size of the 
government relative to national economic output. The most points are 
awarded for a government with zero size!

* "Investment freedom" actually has almost nothing to do with the 
ability of people in a country to make investments. Heritage defines 
investment freedom as whether there are restrictions on foreign 
investment, including whether any industrial sectors are off limits for 
security reasons, and whether expropriation is permitted -- even with 
compensation paid to investors.

* "Financial freedom" means whether banks and high finance are 
unregulated. The United States is apparently penalized for the various 
modest Sarbanes-Oxley rules passed after the Enron and related debacles.

* Heritage contorts "labor freedom" to mean the ability of corporations 
to fire workers without restraint and the absence of any minimum wage 
rules (with countries penalized the higher their minimum wage relative 
to average value added per worker).

The successful effort by the Heritage Foundation and its allies to 
capture the term "economic freedom" is not just a propaganda coup, it is 
a heist.

Heritage and its collaborators have stolen and debased the grand and 
noble vision of Franklin Roosevelt. They explicitly state that they are 
carrying out a project initiated by Milton Friedman (author in 1961 of 
Capitalism and Freedom, among many other works) to define economic 
freedom in terms of individual economic actors' -- typically 
corporations, though they often prefer to glorify individual 
entrepreneurs -- ability to escape public control. This ideal is held 
out against Roosevelt's idea of a caring and sharing society, where the 
crucial economic freedom is freedom from want.

In his famous 1941 "Four Freedoms" speech, Roosevelt offered a vision of 
a world defined by four freedoms (freedom of speech, freedom of 
religion, freedom from want, and freedom from fear).

"Translated into world terms," Roosevelt proclaimed, freedom from want 
"means economic understandings which will secure to every nation a 
healthy peacetime life for its inhabitants -- everywhere in the world."

His specific 1941 agenda, unfortunately, remains a suitable elaboration 
for the present day of this more appealing, democratic and humane 
concept of economic freedom.

"The basic things expected by our people of their political and economic 
systems are simple," Roosevelt declared.

"They are:

* Equality of opportunity for youth and for others.
* Jobs for those who can work.
* Security for those who need it.
* The ending of special privilege for the few.
* The preservation of civil liberties for all.
* The enjoyment of the fruits of scientific progress in a wider and 
constantly rising standard of living."

"These are the simple, the basic things that must never be lost sight of 
in the turmoil and unbelievable complexity of our modern world.  The 
inner and abiding strength of our economic and political systems is 
dependent upon the degree to which they fulfill these expectations."

"Many subjects connected with our social economy call for immediate 
improvement.  As examples:

* We should bring more citizens under the coverage of old-age pensions 
and unemployment insurance.
* We should widen the opportunities for adequate medical care.
* We should plan a better system by which persons deserving or needing 
gainful employment may obtain it."

Robert Weissman is editor of the Washington, D.C.-based Multinational 
Monitor, <http://www.multinationalmonitor.org> and director of Essential 
Action <http://www.essentialaction.org>.

(c) Robert Weissman

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