The CATO Institute is a Libertarian think-tank. This "index" is nothing but an attempt to reinforce Reagan's failed "voodoo economics".
http://thecrossingball.blogspot.com/p/economic-freedom-and-conservative.html
Economic Freedom and Conservative Propaganda: The Lies of the Cato Institute
By Peter Gynt
In an article by Robert A. Lawson of the Cato Institute titled “Economic Freedom Needed to Alleviate Poverty around the World,” we find another example of Conservative propaganda presented to the public. The article tries to make the case that those countries where businesses and corporations have ‘freer’ legislative regulations and restrictions have less poverty among the citizens of that nation. Furthermore, the article, basing its statistics on the Index of Economic Freedom, concludes that free market capitalism therefore is good for a nation. What I would like to do here is demonstrate the faulty foundations of this claim, illustrate biases by these ‘independent’ studies and suggest that it is counterintuitive in suggesting economic control be kept in the hands of greedy multinational corporations.
PROBLEMS WITH DETERMINING ECONOMIC FREEDOM
Firstly, the highest economically free nation, according to the study, is Hong Kong. The determination of ‘economic freedom’ is based on an index created by the Heritage Foundation and the Wall Street journal, both conservative think tanks and publications. However, determining this index is problematic to say the least, as some authors such as Jeffrey Sachs, John Miller, Stefan Karlsson and others who criticize the basis of these findings. For instance, the Government of the United Arab of Emirates, in the 2008 index, argued that in other indicators, such as in Transparency International and Moody’s, the UAE was at the top of the list whereas in the Heritage Foundation’s and Wall Street Journal’s index were in the middle.
Also, ‘fuzziness’ of the rankings was suggested by Stefan Karlsson of the Ludwig von Mises Institute. This fuzziness he cited as stemming from several categories that were used to determine economic freedom. He says that, “Clearly there is a great difference between the degree of economic freedom in the traditional capitalist bastion of Hong Kong and in Stalinist North Korea. But beyond such clear-cut cases how do we determine which countries are the most free and the least free?” He goes on to illustrate this point by using the model of Sweden and China and determining ‘economic freedom’ between the two. He states that, “For example, take Sweden and China. Which of these are the most free? On the one hand, Sweden has an enormous welfare state spending more than 55% of GDP and also has extremely powerful unions which have been given the power by the state to force companies operating in Sweden to obey their command, while China has public spending of only about 20% of GDP and has no unions with any real power. Moreover, labor and environmental laws are far more intrusive in Sweden than in China.”
What troubles Karlsson the most is the category of ‘fiscal burden.’ Karlsson expresses this by rightly observing that, “The second category, "Fiscal Burden," is perhaps the one that is most misleading. Again, it has the absurd result that Sweden and Denmark have a lower fiscal burden than the United States and China. The reason it comes up with such absurd results is its absurd methodology. Danes would undoubtedly be very surprised if they found out from this index that they only have to pay 26.5% in income tax.” Lastly, Karlsson points sums up his research with his suggestions toward fixing the problems with this index. He says that, “So, how would my proposed changes affect rankings in The Economic Freedom Index? In general the increased weight on taxing and spending and union power as well as the elimination of the informal sector category and revision of the regulation category will probably lower the rank of Sweden, Denmark, and other welfare-state Western European countries.” Furthermore, concerning the findings of the Heritage Foundation and the Wall Street Journal, these are hardly objective. For, as John Miller points out in “Free, Free At Last,” he states that, “the index does not even pretend that its definition of economic freedom has anything to do with political freedom.” Hong Kong is hardly any more ‘free’ as a result of corporate anarchy. It has no direct elections for legislators and top officials. And in Singapore, another ‘economically free’ nation has limitations on its press and media, while large multinational corporations influence its government far more than its citizenry. And so, here we see a distinction between political and economic freedom. This partial freedom as observed in these two examples, are hardly examples of economic freedom, since the ordinary citizen is banned from public protests, reading certain materials and the like. This discourages any potential rise from poverty. With such bans, one is hardly able to acquire the tools necessary for financial success afforded those that are influencing local government with their already amassed wealth. As to the necessity of political freedom for those seeking a successful career, they will have to play by the rules set forth by government controls influenced by large corporations.
PROBLEMS WITH THE RESULTS OF CATO’s FINDINGS
Now that we have shown that the Economic Freedom Index is unsatisfactory for determining an objective example of laissez-faire capitalism and ‘free markets’ unregulated, let us look at some of the other claims of the Cato Institute concerning their studies. Going back to Hong Kong, we are told that “the most economically free nation in the world remains Hong Kong followed by Singapore and the United States. The rankings of other major economies are the United Kingdom (4th), Canada (8th), Germany (15th), Japan (24th) Taiwan (30th), France (38th), Mexico (66th), and India (73rd).” But as we have shown, these numbers are not objective nor are they reliable based on the criteria for determining economic freedom and contradictions with other indexes.
However, in spite of concerns with the index used, some of the other claims by the Cato Institute and this recent study are equally problematic. Lawson goes on to argue that, “the study also shows that economic freedom is strongly linked with both higher levels of income and faster rates of economic growth.”
A significant problem with this claim that countries with more economic freedom-assuming their index is correct which we have seen there is no reason to believe it is-alleviate poverty or ultimately increase the average wage of workers in that country or increase the wealth of its citizens is the distribution of this material wealth. For, obviously one would expect higher numbers of material wealth in a nation that was experiencing economic success. But the concentration of this wealth is what is not addressed. For the numbers cited by the Cato Institute only present an average. But what is this average based off of? A mode, a median, etc.? Is it the case that the average is based on the overall GDP of the country divided by the number of citizens? If so, then there is no way to argue that this alleviates impoverished conditions. Only that some are getting wealthier while others remain the same; or even decrease. The point is, there is no way to determine the overall distribution of material wealth in these nations based on these findings.
CRITICISMS OF THE CATO INSTITUTE
Furthermore, it should be noted that the Cato Institute is by no means an objective, non-biased organization. However, receiving funding from the Republican party for as long as it has been in existence, it has every reason to show bias towards a conservative perspective. There are far too many examples to cite here. I would encourage anyone reading this article to read for themselves the contributors to the Cato Institute’s affiliation with Republican Party pundits as well as numerous conservative groups listed among the sources here in the endnotes.
CONCLUSION
The findings of the Cato Institute on the correlation between economic freedom and material wealth is so riddled with problems it hardly stands up to scrutiny. Firstly, the Economic Freedom Index itself is by any stretch of the imagination non-biased and is clearly based on ‘fuzzy’ and ambiguous categories that can hardly be expected to track these conditions objectively. Also, in light of the distribution of wealth in these supposedly economically free nations, the numbers provided do not reflect either a.) The distribution of that wealth-but rather a statistical average of individual wealth and b.) The cost of living per wealth increase of citizens. Lastly, the Cato Institute has come under fire in recent years over its association and funding by political parties with every reason to distort facts and promote an ideological spin on studies.
Therefore, one cannot take the findings of the Cato Institute as proof that libertarian, and free market laissez-faire, principles work. On the contrary, what one finds is that when multinational corporations and large businesses decide the fate of the masses, everyone loses; except of course the 1% and their staggering profits of hoarded wealth gleaned from the backs of ordinary everyday workers. In conclusion, a well regulated economic system where the economy is in the hands of the people functions better than a reckless, avarice and materialistic -driven unregulated one.
"UAE challenges its economic freedom ranking in paper by Heritage Foundation". Business Intelligence Middle East. 31 January 2008. Retrieved August 18 2013.
Karlsson, Stefan (2005). The Failings of Economic Freedom Index. Ludwig Von Mises Institute. Friday January 21, 2005. Retrieved August 18, 2013. http://www.mises.org/daily/1724.
Ibid.
Ibid.
Ibid.
Miller, John (2005). Free, Free at Last: Economic freedom for corporations has little to do with political freedom or economic growth. Dollars and Sense Magazine. March/April, 2005.
Lawson, Robert. Economic Freedom Needed to Alleviate Poverty around the World. The Cato Institute. Retrieved August 18, 2013. http://www.cato.org/publications/commentary/economic-freedom-needed-alleviate-poverty-around-world.
Ibid.
Retrieved August 18, 2013. http://www.thenation.com/article/167500/independent-and-principled-behind-cato-myth#.
Home
