“Scandinavian economies are some of the most market-oriented on the planet” says economist Scott Sumner, who adds “Denmark is the most market-oriented country on earth.”
This peculiar claim is even more curious considering that it is based on the Heritage Foundation’s 2012 Index of Economic Freedom. On the Heritage Index, which ranks countries based on ten components of economic freedom, the United States comes in at #10, lumped in with the “mostly free” countries. All of the Scandinavian countries are lower on the list: Denmark (#11), the Netherlands (#15), Finland (#17), Sweden (#21), Iceland (#27), and Norway (#40).
Each of these countries are considered “less free” on Heritage’s Index than such nations as the U.S., Canada, and Chile, mostly because they have high levels of wealth redistribution. But Sumners thinks that the “size of government and degree of market freedom” are “two completely separate issues.”
The inimitable Bryan Caplan explains why Sumners is wrong and why size of government and economic freedom are inextricably connected:
To illustrate, consider the following hypothetical. The government of Ruritania allows consenting adults to sell one another anything on any mutually agreeable terms. Ruritania has no minimum wage restrictions, no hiring or firing restrictions, no licensing, no zoning, and no paternalism. It even – wonder of wonders – has totally open borders. Anyone can hire anyone regardless of their national origin.
Before you packs your bags, I should point out that the government of Ruritania does have one little function. Namely: It imposes a 100% tax rate on all income, and redistributes that income equally to all. To enforce this tax rate, Ruritania has an all-pervasive system of surveillance – and punishes tax evasion with torturous death. Leaving the country counts as tax evasion.
By Scott’s standards, Ruritania is a free-market utopia. But almost no one else – economists, non-economists, or its own citizens – would see it that way. Ruritania is functionally equivalent to North Korea. No one can earn an extra dime by his own efforts. Given these awful incentives, everyone would have to survive on an equal share of virtually zero output – or risk death by earning illegal income or fleeing the country.
The essence of a free market isn’t merely that people can buy and sell whatever they want on whatever terms they find mutually agreeable. Without the right to keep what you earn, freedom of contract is utterly hollow. A society that redistributes most of what you earn is economically unfree.
While I completely agree with Caplan that the level of redistribution affects economic freedom, I suspect we’d disagree about what it means for a market to be “free.” For instance, in his hypothetical Ruritaia would not truly be “free” even without the redistribution. A country in which everything can be commodified is a country that does not understand the purpose of liberty.
As Rev. Sirico recently wrote in his book, Defending the Free Market:
What is it about freedom that makes it so irresistible a goal—and yet still so complex an idea that we can become confused about what it is? Alexis de Tocqueville—perhaps the greatest observer of the uniqueness of America—can help us get a grasp on it. “Freedom is, in truth, a sacred thing,” he insists. “There is only one thing else that better deserves the name: that is virtue.” And then he asks, “What is virtue if not the free choice of what is good?”
Rev. Sirico then goes on to explain why property rights—which are invariably limited in nations with high rates of redistribution—are essential to freedom. The primary reason is that property is not a thing in itself but a relationship between a person and a thing or idea:
The relationship of human beings to things is not merely a relationship of consumption. It is also one of reason and creativity—and it is that relationship that makes the institution of private property possible. “The right to private property” is not merely control over a physical object, as my dog Theophilus might possess a bone. Rather the right to property is wrapped up in a person’s capacity to apply his intellect to matter and ideas, to look ahead, to plan and steward the use of that possession. Just as other fundamental human rights are not created by the state but are possessed by virtue of a person’s existence and nature, so also the right to private property is recognized rather than granted by the government.
Unlike in the dystopian land of Ruritania, property rights are not absolute. But they are sacred. As Rev. Sirico says, this right is “sacred because it has such a close connection to human beings as creatures made in the image of God, creatures placed in the context of scarcity and given a capacity to reason, create, and transcend. The best thing that politicians can do in regard to property is to enact and enforce just laws in accordance with natural law—to protect people from having their belongings unjustly confiscated.”