U.S. Markets closed

How Estonia’s economy beats the U.S.

Rick Newman
·Senior Columnist
How Estonia’s economy beats the U.S.
How Estonia’s economy beats the U.S.

In case you haven’t heard, America is going down the drain. There’s even data to prove it.

Several surveys that measure prosperity and business conditions have shown the United States slipping during the past few years. The latest is the Heritage Foundation’s “index of economic freedom” in 186 countries, which is grim reading for anybody who believes the old slogan and still thinks We’re No. 1!

We’re actually No. 12, if you believe the Heritage rankings, which define economic freedom as “the fundamental right of every human to control his or her own labor and property” in plain English, the ability of ordinary people to get ahead. Hong Kong, Singapore and Australia top the list of economically free nations, followed by Switzerland, New Zealand and Canada. Those nations often rank near the top on economic surveys, largely because they’re successful capitalist democracies not weighed down by costly militaries, regional conflict or complicated politics.

At No. 12, the United States ranks behind those countries and also Chile, Mauritius, Ireland, Denmark and Estonia. That’s down from 10th place last year. The best U.S. showing came in 2007 and 2008, when it ranked 5th.

Areas of underperformance

According to the Heritage methodology, the United States has underperformed in five areas during the past few years: fiscal freedom, government spending, monetary freedom, financial freedom and property freedom. In general, that reflects a government that spends too much, overregulates businesses and consumers, and gets too involved in the private-sector economy (in the opinion of Heritage analysts).

Estonia, which ranks No. 11, bests the United States on government spending as well as fiscal, investment, financial and property freedom. But it seems unlikely hordes of disaffected Americans will be decamping to Estonia anytime soon. Per-capita GDP in the former Soviet republic is less than half what it is in the United States, and its economic freedom score is high partly because the government puts few regulations on how or where people can invest their money.

The Heritage rankings obviously have a libertarian bent, since the methodology rewards limited government and free-market economies with blind-eye regulation. In that regard, the United States ranks high for labor freedom, because union protections have been diminishing and companies can fire workers much more easily than in, say, most European countries. Some workers, however, might consider that exploitation rather than freedom, since you can hardly argue the plight of U.S. workers has improved during the past several years.

Still, the Heritage rankings echo the findings of other surveys. In the World Economic Forum’s annual competitiveness rankings of 148 nations, the United States fell from 1st in 2008 to 7th in 2012, while bouncing back last year to 5th. The biggest factors behind the slippage have been shaky, unpredictable government and the poor use of public resources. In the Legatum Institute’s annual prosperity index, the United States ranks 11th out of 142 nations, down from 4th in 2008. The weakest marks in that survey: the U.S. economy ranks 24 th, while safety and security in America rank 31st.

It’s always possible that, as the United States claws its way out of a jobless recovery and begins to address its $17 trillion national debt, America’s standing in the world will rise once again. Until then, Americans can take solace in the fact that in North America, at least, the United States ranks 2d in economic freedom, according to Heritage.

Try not to remember there are only three countries on that continent.

Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success . Follow him on Twitter: @rickjnewman .