Wednesday, April 6, 2011

The Bogus Freedom Index From Heritage

In defense of neoliberalism I've often seen conservatives put forward something from the Heritage Foundation, which is a Koch brother's financed conservative think tank. They have something they call an Index of Economic Freedom. Presumably the more free, the more neoliberal.

Before looking at it I think it's useful to first consider what you would expect from it. I think you expect two things. Number 1 you expect crappy countries to be ranked low regardless of the real economic freedom. Heritage is made up of ideologues. They advocate on behalf of neoliberalism, which means policies that are for the benefit of the Koch brothers. Putting forward a poor country as an example for others to emulate doesn't reflect well on neoliberalism. So there's pressure to pretend that a poor country is socialist rather than neoliberal no matter what it really is.

The second thing you expect is that states on the US enemies list would be ranked low. Iran is bad, so it's un-free. Same for Libya, N Korea, Venezuela, Cuba. On the other hand US client states would tend to be pushed higher. So Saudi Arabia, Bahrain, Egypt, etc.

So let's take a look. Of course I looked at it before offering these expectations, but you can see that it does follow those expectations to some degree. Do these rankings make any sense? I don't think so.

What is the opposite of neoliberalism, assuming neoliberalism is economic freedom? Socialism or communism. What states do you think of when you think of socialism? For me it's Western Europe. So Sweden, France, Norway, Belgium. It happens I was in Belgium a year and a half ago. The people I worked with complained that the welfare state is so extensive and taxes so high that there's no incentive to work.

Where is Belgium ranked? 32 out of 179. Pretty high. Sweden is 22, France 64, Norway 30. Socialist states have high economic freedom.

Really the United States is another case. Enormous regulations on trading, labor, product development. Half of our health care expenditures come via government. We have welfare. We have publicly subsidized high tech. An enormous defense sector. Starting a business isn't easy. My brother tried to start a used car business but quit after dealing with all the red tape. We're in the top 10 most economically free countries in the world supposedly.

I've argued that Haiti is a good example of the effects of neoliberalism. Unlike the United States where the Federal Minimum Wage is $7.25/hr, in Haiti it's closer to $5/day. Low tariffs, limited labor rights, non-existent government spending. Very free, right? Heritage puts them at 133. How is this possible?

Let's take a closer look at their analysis on Haiti. The first problem is "Business Freedom." Haiti has an "inadequate regulatory framework." Inadequate regulations? So the more regulated the more free? I thought Heritage hated all that red tape and regulations. Suddenly up is down. Regulation is freedom.

Next is trade freedom. They have inefficient state run administration at the sea ports, says Heritage. OK, so what would be the solution to that problem? Bigger government? Is that what Heritage regards as more economic freedom? Bigger government?

Heritage is close to right on taxes. Haiti's taxes are good and low. On government spending they rock. Crushing the world average. Way less government spending. Heritage says they are at the mean in terms of monetary freedom.

On financial freedom Heritage complains that regulations on banking remain poor. Huh? I thought limited regulation was a good thing. They complain of weak enforcement of property rights. Wouldn't we need bigger government for that? They talk of corruption and bribes. Are they suggesting more government involvement to prevent bribes?

I agree with the criticisms of Haiti's economic situation. Haitians elected a progressive President to resolve these issues. He was ousted by an American backed coup in order to impose neoliberalism. Heritage wants to pretend Haiti is not neoliberalism. You got what you want in Haiti Mr Koch and Heritage. Now you need to own up to it.

15 comments:

HispanicPundit said...

What is the opposite of neoliberalism, assuming neoliberalism is economic freedom? Socialism or communism. What states do you think of when you think of socialism? For me it's Western Europe. So Sweden, France, Norway, Belgium. It happens I was in Belgium a year and a half ago. The people I worked with complained that the welfare state is so extensive and taxes so high that there's no incentive to work.

What does taxes and even welfare have to do with capitalism? Capitalism vs socialism (the real definition, how it was used historically - not how many Americans currently define it) has to do with the means of production. Socialism has the means of production produced collectively, via the government, capitalism has it produced privately via individual citizens. This is the heart of the difference, everything else is just extra.

Even Hayek and Friedman allowed for a welfare state in his view of capitalism. I don't know any economist who would call the Western European countries "socialist". They usually use terms like "welfare capitalism", because it really is capitalism - just with more safety nets. This is econ 101 Jon, really.

Socialism is the USSR. North Korea. China before the reforms. Thats real socialist.Its a misnomer to call western Europe socialist.

With regard to the index, it's not just how easy it is start a business but how official and realistic that is (and even many other factors - this is just one example). In Haiti, for example, it's one thing to get the right paperwork, it's a very different thing how that paperwork affects your neighbors. Is it respected? Does it really give you property rights? Can the government later take it away?

In the United States, that paper, while can be more cumbersome to get, means a lot more. It's real.

Also, remember that this scale is not made in a vacuum, its a comparison.

Lastly, the index compares overall favorably to other indexes. For example, I could look at the Fraser Institute (see here), or I could look at the "Ease Of Doing Business Index" created by the World Bank that shows roughly the same thing (see here). Don't like that either? How about I use the "Global Competitive Report" made by the World Economic Forum, which, again, shows the same thing (see here)? Overall the same conclusions.

Then I could also point out that you don't find economists arguing otherwise. Sure, you might have an economists here and there claim that the Heritage foundations index is biased, or excludes certain things (like environmental impact, or leisure etc) but no real widespread disagreement. These are economists from various political spectrum's. They have visited these countries. Some are even from various countries on the list. Yet no widespread disagreement. Doesn't that tell you something?

Sure, these indexes disagree strongly with what you read from your favorite linguist, or your favorite movie - but then, what does that really tell you? Who is more likely to be the wrong one here? I'll believe the economists over the linguists any day.

Jon said...

What does taxes and even welfare have to do with capitalism?

Not much. I didn't even use the word "capitalism". You're in some other world arguing with I don't know who, explaining Econ 101 terms that weren't even raised.

You want to bring up Chomsky as usual. Why not try dealing with my arguments rather than going with fallacies? Look at the Heritage criticisms of Haiti which supposedly show that it lacks economic freedom. Not enough regulation. Not enough state run administration. Government that is not big enough. That's not neoliberalism. Heritage is put forward in defense of neoliberalism. Address my arguments if you like. Criticizing me for watching documentaries doesn't really add much to the discussion.

And I don't trust your assessment of what most economists think. You're long on assertions and short on arguments. Saying it doesn't make it believable. If you want to try and show it go ahead.

Jon said...

Fraser is another Koch brothers front group. Global Competitiveness looks OK. But it's not a defense of neoliberalism. Here's a quote from your Wiki source.

The report "assesses the ability of countries to provide high levels of prosperity to their citizens. This in turn depends on how productively a country uses available resources.

Yeah, in that regard Haiti sucks. In that regard the US is really good. Large government investments in high tech, infrastructure, and regulation have created prosperity here and excellent productivity. We should be ranked high. Haiti should be ranked low. But on economic freedom Haiti should be ranked high if economic freedom means neoliberalism.

But then maybe that's not what economic freedom means to you. But you put Heritage forward as if it's a defense of neoliberalism.

HispanicPundit said...

How could I show you that economists dont fundamentally argue that Heritage is offbase?

HispanicPundit said...

Heritage Economic Index, I mean.

HispanicPundit said...

Not much. I didn't even use the word "capitalism". You're in some other world arguing with I don't know who, explaining Econ 101 terms that weren't even raised.

I had quoted you saying this:

What is the opposite of neoliberalism, assuming neoliberalism is economic freedom? Socialism or communism. What states do you think of when you think of socialism? For me it's Western Europe. So Sweden, France, Norway, Belgium. It happens I was in Belgium a year and a half ago. The people I worked with complained that the welfare state is so extensive and taxes so high that there's no incentive to work.(emphasis added)

This tells me that you are arguing that the welfare state and taxes add to a "socialist" definition - and therefore, take away from a neoliberal, or capitalist definition. Neoliberalism is synonomous with capitalism.

Where did I misread you?

Darf Ferrara said...

Possibly the problem with these types of surveys is that they try to dress up something that cannot be summarized simply by numbers, into a numerical form in an attempt to appear scientific. Presenting a ranking also allows for a press release that can offer a headline that reporters can use, but it isn't science.

Of course even though it isn't science, it is true that culture is important. I've never been anywhere but the US and Canada, but there are common stories about the huge amount of corruption in certain countries, India and third world countries, e.g.. Other countries, like the scandinavian countries, have large buearocracies, but the people that work as so-called public servants take pride in their jobs and do it to the best of their abilities. In addition, the entire society tends to take the rules seriously. This reduces the uncertainty about ownership rights and resposibilities. Sometimes a poor rule, clearly enforced will be better than no rule at all. These aren't things that you can put numbers on, but they are important.

The assignment of property rights can be accomplised by having a government that makes rules that clearly define the extent of property rights. The fact that taxes are confiscated from the population in order to fund enforcement mechanisms is anti-freedom, but the clarity that those laws bring to property right can significantly outweigh that. Government isn't the only way to accomplish property rights, and I have my doubts that it is ever the best way, but is better than having no mechanism.

Jon said...

You ask what taxes and welfare have to do with capitalism. Maybe nothing. But they have a lot to do with neoliberalism. So neoliberalism is not capitalism.

How could you show that the economists don't disagree with Heritage? I don't know. That's your burden, not mine. If you can't support a claim then you shouldn't make it.

HispanicPundit said...

Jon,

Kinda giving me an impossible burden there, dont you think? Especially coming from an "atheist". ;-)

Darf,

Here is an attempt to put your intuition into numbers.

Darf Ferrara said...

HP, that graph is exactly the type of pseudo-science that I'm talking about. What is the unit of trust that is used? Putting it on a graph and using three decimal digits accuracy doesn't make it science, even if it is true that the Japanese trust their goverment more than Haitians trust theirs.

The reason the Freedom Index is important and not denounced by leftist economists is because the report gives stories and reasons behind the rankings. Jon may not put much faith in it, but the publicly owned ports are a huge problem. After the hurricane, goods just rotted on the docks because proper bribes weren't paid, and dockworkers didn't care. One solution would be to privatize the docks. That may not be possible, so other solutions would involve making the dockworkers more trustworthy. The Chinese sometimes execute publicly bureaucrats convicted of bribery, raising the cost of corruption. The Indians are discussing making paying bribes legal, while taking bribes illegal in order to change the incentives for turning in officials who take bribes.
None of these solutions involve democracy, or the raising of minimum wage, or the limiting the imports by adding tariffs, and very few problems can be addressed with those tools.

Jon said...

Darf making some sense. Great.

Still room for improvement though. Haiti has the highest density NGO's in world. Non-Governmental Organizations for disaster relief. It's not going well. As the article explains Haiti is the canary in the neoliberal coal mine. These policies have been carried out to such perfection that the only thing good that comes of it is that we can see what not to do.

Darf Ferrara said...

I didn't understand the article, other than the fact that things are pretty terrible over there. What they seem to say is that what was tried in Haiti didn't work. That doesn't mean that something else would have worked well, or that some other country with a different culture would have had more or less success following the same principles. I fail to see how that translates into a canary in a coal mine.

HispanicPundit said...

Here is a stab at why Haiti is poor. From an economics perspective, of course.

Jon said...

NGO's are the closest thing to for profit disaster relief you will find. They are at their highest concentration in Haiti and it doesn't seem to be working.

Jon said...

HP, like the author at your link I agree with some of that but not all. I guess what do you expect when the French come in and export all the resources? When they earned independence the French demanded compensation. They had to pay for their own bodies, which the French were deprived of. That's pretty sick. Aristide actually demanded reparations for that, which was part of his ultimate downfall. Duvalier was really bad. A US backed dictator and blocker of communism supposedly. Standard bull crap.

I'd summarize the root of their problems as follows, which is the same for most of Western Europe's colonies. Lack of independence.