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Canadian Provinces Put US States to Shame for Economic Freedom

By: Rachel Rodriguez - Dec 16, 2013, 8:44 am

EspañolFor those who continue to believe that the United States is the most laissez faire economy one can live in, here is a reality check. Two Canadian provinces, Alberta and Saskatchewan, score the highest for economic freedom in North America, outperforming all US states, according to most recent report by the Fraser Institute of Vancouver, Canada.

The ninth annual report, “Economic Freedom of North America 2013,” an offshoot of the Fraser Institute’s widely cited “Economic Freedom of the World” report, came out on Thursday. It includes all 50 states and 10 Canadian provinces, but not Mexico and none of the territories.

Both Fraser reports provide an index and ranking based on size of government, tax burden, regulation, rule of law, sound money, freedom to trade internationally, and property rights. The authors use data from 2011, the most recent year available across all categories, and seek to measure “the extent to which rightly acquired property is protected and individuals are engaged in voluntary transactions.”

In the final, combined outcome — 10 being the best possible score with the most economic freedom and zero being the poorest  — Canada takes the top two spots, and four of its provinces made the top 10: Alberta (8.3) in first, Saskatchewan (8.0) in second, Newfoundland (7.7) in sixth, and British Columbia (7.6) in seventh. Delaware (7.8) is the highest ranked US state in third place; Texas (7.7) is next in fourth; and Nevada (7.7) is fifth.

Canada also, however, has the two provinces that occupy the bottom of the list. Nova Scotia (6.8) comes in at 59th, and Price Edward Island (6.7) is the 60th and worst policy performer. (See the full ranking in the embedded PDF below this article.)

fraser-ranking

To give people a sense for why these policies matter, the authors refer to average per capita values of economic activity (gross domestic product) in 2011. In the top three provinces and states, it was CAN$72,177, compared to CAN$40,106 for the lowest three — implying that economic freedom supports economic growth and prosperity.

Peter McCaffrey, a policy analyst for the Frontier Center for Public Policy — a think tank that focuses on the prairie provinces of Canada — believes the most interesting finding to take note of is the remarkable variability in the scores of the Canadian provinces.

“I think what this reveals is the significantly more decentralized structure of the Canadian political system compared with the United States,” said McCaffrey. “While the US federal government continues to concentrate more and more power in Washington, D.C., Canada leaves more decisions to be made at the local level.”

The report also reveals that Canadian provinces are not necessarily gaining in economic freedom, but that their freedom is declining less rapidly than that of the US states, which has managed to put them ahead. In 2000, the average economic freedom score for the United States was 8.2, while Canada’s average score was 7.7. In 2011, by comparison, the US states had declined .9 points to 7.3, while Canadian provinces had declined .3 points, for an average a score of 7.4.

This finding is consistent with the trends of the Fraser Institute’s world ranking: Canada, as a nation, is the eighth most economically free in the world, while the United States now stands at 17th. While both have regressed in recent years, the US decline has been more dramatic, plummeting from second place (p. 172) in the year 2000.

Peter Jaworski, a visiting assistant professor at Georgetown University and a director with the Canadian Institute for Liberal Studies, is not at all surprised by Canada’s higher average score.

“Canadians have, ever since the Liberal government of Jean Chretien, taken a global lead in terms of balancing budgets, lowering the debt-to-GDP ratio, pushing for an expansion of freer trade with the world, and generally making the climate for business more friendly.”

Rachel Rodriguez Rachel Rodriguez

Rachel Rodriguez is an intern at the PanAm Post. She has a fiery passion for economics and hopes to inspire every reader to take a closer look at the outcomes of government policy. Follow @freedomf0x.