Economic freedom is on the wane in the United States, or at least so indicates the 2021 Index of Economic Freedom estimated by The Heritage Foundation. Also notable this year is the absence of Hong Kong from the index, as the authors believe that the once bastion of freedom on Chinese soil is now completely controlled by Beijing.
The Index of Economic Freedom ranks economies around the world with a score of 0-100 and the criteria taken into account to estimate the degree of freedom of each country are the rule of law, the size of government, regulatory efficiency and the openness of their markets.
Among the top 10 countries with the most economic freedom are the Asian tigers Singapore and Taiwan, in first and sixth place respectively. Five European countries, with Switzerland and Ireland in fourth and fifth place, while the United Kingdom, Estonia and Denmark rank seventh, eighth and tenth. The index ranks Oceania as the most liberal continent in the world, with New Zealand and Australia in second and third place.
For the first time, the United States is ranked 20th in the Index of Economic Freedom, having dropped three places compared to the 2020 report. Among the reasons for the decline are measures taken to contain the pandemic, racial tensions and the growing government deficits the USA is incurring to stimulate the economy.
The study also lowered the U.S. rule of law rating due to the increasing environmental regulations and building restrictions the country has experienced over the years. The authors of the index view with concern how some judicial processes are being politicized.
With respect to the size of government, the index has determined that while the tax burden has decreased, in part due to increased transfers from the state, with two major stimulus plans and a third in sight, when subtracting taxes paid on transfers made, the net of taxes paid is negative. This has affected the fiscal health of the country with the growing deficit the government is incurring, coupled with an expansive monetary policy.
The fiscal health of the United States took a massive downturn, from a rating of 53.3 to 34.9. Excessive government spending, financed by increased monetary issuance, has caused the U.S. public debt to total 109% of gross domestic product and its annual servicing cost can exceed 5% of GDP.
The nation’s regulatory efficiency has also been affected. With a possible minimum wage increase in sight for this year, the Economic Freedom Index fears that if passed in Congress, costs for small businesses will rise, as will barriers to entry for less skilled workers. According to the Congressional Budget Office, an increase in the minimum wage to $15 could cost more than 1.4 million jobs.
Why did Hong Kong disappear?
In 2020 Singapore dethroned Hong Kong as the world’s freest economy, by 2021 the Index of Economic Freedom does not even include Hong Kong within its list, as it, like Macau, has become considered part of China, which ranks 107th in the ranking, placing it as an economy with little freedom.
The authors of the study explained that the decision to remove Hong Kong from the ranking was due to the fact that “developments in recent years have shown that policies are undoubtedly being controlled from Beijing”.
Although Hong Kong was free, China has been present since 1997. Unlike Taiwan, for example, there was already a Chinese military base in Hong Kong and there was never any real democracy. China never honored the agreement with the UK to allow Hong Kongers to choose their politicians.
In 2013 and 2014 there was a series of protests in Hong Kong where China tried to implement a compulsory subject in Hong Kong universities on Chinese values (values not of Chinese culture, but of Chinese communism). At that time, students, activists and the community at large rose up against issues such as national education and in search of real democracy.
Prior to 2019, Hong Kong’s judicial system was independent, even from the local government. The legal system was similar to the Anglo-Saxon one. But China tried to open the door to extradition after a case occurred in Taiwan. Such extradition would allow China to break with the independent order, which again sparked protests.
To contain the protests, China began to interfere in Hong Kong in many ways, making use of politicians, the military, the mafia and diplomacy, among other resources, to gain power over the Hong Kong system.
The final blow to Hong Kong’s sovereignty came in 2020, when the island lost its judicial independence with the enactment of the security law, pushed from Beijing. More than 100 people have been arrested by police, including 47 democratic leaders, charged with crimes such as sedition.
The Hong Kong Parliament lost its powers, since it now depends on the National Assembly, allowing Beijing, for example, to dismiss and prosecute not only citizens, but also parliamentarians who exercise their seat “incorrectly”, i.e., who go against the provisions of the Chinese Communist Party. In addition, the Executive, headed by Carrie Lam, is loyal to Xi Jinping.