William Watson: The bank will set you free?

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I live in a town in which, if you want to change the colour of your front door, you have to get the colour approved by the town. So when Canada comes fifth in the entire world in terms of economic freedom, as it does in the latest issue of Economic Freedom of the World, published this week by the Fraser Institute, my reaction is “poor world!” If we’re fifth freest, it can’t be a very free planet.

I do recognize that municipal renovation rules are just one aspect of freedom, however, and that our ranking of fifth is the result of a careful compilation of data on several dozen aspects of economic freedom, ranging from judicial independence to the costs of crime to the average tariff rate to controls on both capital and human movement to credit market regulations and so on. It’s also true that though we’re fifth we’re far from perfect.

Our score this year is 7.98 out of 10. Our best year was 2000—thank you, Jean Chrétien!—when we scored 8.37, though that was only good for seventh place. This year’s freest country, or actually administrative region, Hong Kong, scored 9.03 out of 10. (China, the country it’s a region of, scored only 6.05. How’s that for strangeness?) So the index clearly indicates we have work to do. Fifth is good. But there’s room for improvement.  

The 1-10 scale is set up with 1 and 10 being the endpoints of pro-rated scales bound by the worst performance in the world to the best for whichever aspect of freedom is being looked at. Several dozen indicators (with the detailed data available here) are grouped into five overall areas. In terms of Size of Government, we don’t do very well, just 6.32 out of 10 (though that’s a lot better than in 1970: 4.89). Having a low score on this indicator means your government is big. Countries with smaller governments get closer to 10. For us, the killer here is “Government consumption,” where we get just 3.68 out of 10. We’re also not very good on “Top marginal tax rate”—just 6.00. Overall, we rank 61st on size of government.

Freedom to Trade Internationally? Better, at 7.83, though also down from earlier years (8.97 in 2000). Good for 33rd. Regulation? 8.11, which puts us 8th, but down from 8.66 in 2005. Note that my town had its door-colour regulations in 2005, too, so we’re not to blame for that decline in freedom from regulation.

Where we do really well is “Sound Money.” Here we get 9.60—pretty close to 10. It’s not our best performance ever. We did better in 2005-6, 1990 and, strangely, 1970. But it’s right up there. We get 9.13 for money growth—which means we don’t have much money growth, compared to our GDP growth. We get 9.67 for the standard deviation of our inflation rate, which is an attempt to measure the uncertainty arising from monetary conditions and, perhaps, monetary policy. Evidently, we don’t have much uncertainty, at least not compared with the rest of the world. We get 9.62 for our latest inflation rate (the rate in 2014, the latest year available for this issue of Economic Freedom). Finally, we get a perfect 10 for “freedom to own foreign currency bank accounts.” We are free to do so.

If you say “Bank of Canada,” most Canadians probably don’t think: “Aha! The guarantor of our economic freedom!” The numbers suggest maybe we should.


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