Recession reforms limit economic freedom: study

By Eric Mathison

Canada’s economic freedom has decreased in the last year, according to a study published last week by the Fraser Institute, a Vancouver-based think-tank. Further, many countries around the world will see a drop in economic freedom because of measures enacted to minimize ill effects from the recession, the study found.

“Economic freedom is marked by an individual’s ability to make choices on one’s own,” said Fred McMahon, Centre for Trade and Globalization Studies director, who managed the report. “The freedom to work for whom you want, buy what you want and employ whom you want are all traits of economic freedom.”

By recognizing the leading countries in economic freedom, the report seeks to show trends in which countries are successful in other areas, and why.

According to McMahon, the study of economic freedom is important because it’s an indicator of other freedoms. McMahon argued the most freedom comes when government takes a hands-off approach to controlling the economy.

“Historically nations that develop a market economy provide the best result for citizens living there,” said McMahon.

Frank Atkins, an associate professor in the University of Calgary economics department, agrees.

“The more freedom you give individuals and the less regulation you put in, the better off you will be,” Atkins said, adding that if freedom is maintained, resources will be allocated more efficiently then in a top-down system.

The concern for both McMahon and Atkins centres on government involvement to help relieve the recession. The data for the Fraser Institute study were all taken from third-party sources to decrease potential bias, but 2007 was the most recent year for which complete statistics were available.

“We won’t know the effects of stimulus packages or bank bailouts for quite some time, and the results of these efforts, and how they affect economic freedom, can’t be known until the numbers come out,” said McMahon.

Atkins, however, is confident of the impact government efforts will have.
“What’s going to happen is it’s going to make a lot of countries look like they have a lot less economic freedom when the numbers come out for 2008 and 2009.”
Atkins worries that the U.S. government’s involvement in rescuing failing companies — in particular General Motors — is crossing the line of what government’s role should be.

The meeting last week between Harper and Obama was a chance for analysts to gain perspective about Canada-U.S. relations, particularly regarding policies such as “Buy American,” which guarantees money from the U.S. stimulus package will go to American companies, thereby hoping to promote U.S. employment.
Donald Barry of the U of C’s political science department thinks Canada has had a role to play in the isolationism practiced by the U.S.

“The problem is that Canada has its own restrictions, and our bargaining power would be far stronger if we eliminated our own restrictions on the ability of U.S. firms to bid on Canadian . . . contracts,” he said.

Barry isn’t alone in this view. The Fraser Institute’s McMahon said he feels that any ill effects for Canada because of the Buy American policy were brought on by a failure to respond to U.S. procurement policies offered to Canada over the last decade. Similarly, he noted that inter-provincial policies, if not set up to foster trade, will always have negative consequences for businesses and individuals.

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