Capitalism Wins Again


March 9, 2016 10:24AM

When it comes to the economy, issues involving government spending and taxation receive most of the attention. Regulation is a vastly underrated component of economic policy, and according to the Heritage Foundation’s annual Index of Economic Freedom, Denmark and Sweden both score significantly higher than the US in Business Freedom. The Business Freedom component quantifies the burden of regulations on businesses by measuring the ease of opening and closing firms, and obtaining various licenses. The vast majority of business regulations are entirely unnecessary and create significant barriers to entry that new companies must overcome. In fact, many of these regulations are lobbied for by existing firms in an attempt to quell competition within their industry.

The fact that Denmark and Sweden have fewer and less onerous regulations on businesses is no small consideration. Additionally, socialists would be horrified to learn that their beloved countries score higher than the US in Trade Freedom, Investment Freedom, Financial Freedom, and Monetary Freedom. Knowing all this, one might expect the average Swede or Dane to enjoy a higher standard of living than the average American. On the other hand, Sweden and Denmark have some of the highest income tax rates in the world. Empirical studies show that high taxes on income are extremely harmful to economic growth. In this case it appears that the high taxes trump low regulation. The average income per person in the United States is $52,118. Sweden has an average income of $44,029 and Denmark is even more devoid of material goods with an average income of $42,777.

It is Singapore, not Sweden or Denmark, who should be the model for the United States to aspire toward where economic policy is concerned. Overall, Singapore ranks as the second freest economy in the world behind only Hong Kong. Singapore’s free market policies have clearly paid off, as the average income there is $78,958 (over 50% higher than the US). Yet when Singapore freed up its economy back in 1965, the United States was 4 times wealthier on a per person basis. It’s incredible how quickly capitalism works to generate prosperity when markets are allowed to operate freely.

While Denmark and Sweden are far more free market than the United States in several important areas, high taxes and large scale wealth redistribution have kept these economies from realizing their full potential. Denmark, Sweden and the United States could all learn important lessons from the freest economies in the world, such as Singapore.