According to the Heritage Foundation/The Wall Street Journal 2007 Index of Economic Freedom, economic freedom is increasing worldwide, and so are incomes. The index’s average freedom score is the second highest in its 13 years of existence, only slightly behind last year’s, and every global region has expanded freedom in the last decade. The report finds that the higher GDP rates that come with economic freedom "seem to create a virtuous cycle, triggering further improvements in economic freedom. . .[C]ountries that increase their levels of freedom experience faster growth rates."Two reports accompanying the findings make the case for expanded freedoms. Columbia University professor of economics Xavier Sala-i-Martin destroys the myth that the income gap is widening:
when population weights are factored into the equation, the evidence shows that "individual income inequality declined substantially during the past two decades. The main reason is that incomes of some of the world's poorest and most populated countries (most notably China and India. . .) converged rapidly with the incomes of OECD citizens."
And Swedish economist Johnny Munkhammar notes that while Europe’s more advanced economies restrict labor freedom at the cost of low growth and high unemployment,
"many Eastern and Middle European countries experiment successfully with freedom." Contrary to socialist views, labor freedom and improving social conditions actually go together. . . "If the world wants to achieve both more jobs and better living standards, [labor] freedom is essential."
2 comments:
From Dick Baker:
Galen,
Do the data in these articles say anything about the frequent point (or at least assertion) that income equality has increased in the U.S. in recent years? And how does whatever change there has been in the U.S. compare with the global rates/level of change? And finally, if part of the dynamic of the reduced inequality in the (developing) world is due to the impacts of globalization, does this interrelationship indicate that the U.S. is actually contributing directly to equalizing living standards around the world (not a bad thing, and a very different point from the obscenely high remuneration of some U.S. executives.
Dick Baker
Honolulu
For a look at U.S. income inequality, check out my earlier post on the U.S. income inequality myth.
As for the developing world, i.e. China and India, both countries’ rising income stems from their access to developed nations’ markets, especially the U.S. market. Both are gaining on us—closing the overall gap—because of their faster growth. So yes, we are helping to close the gap.
“The Economist” recently argued that CEOs earn their obscenely high salaries because they really do yield high returns for their shareholders—returns well beyond what they make. What we all object to are obscene “golden parachutes” for corporate failures.
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