Economic Freedom and Property Rights

Profile of Steve Carlson

Today, the Fraser Institute released this year’s Economic Freedom of the World report. This report “measures the economic freedom (levels of personal choice, ability to enter markets, security of privately owned property, rule of law, etc.) by analyzing the policies and institutions of 157 countries and territories… using 42 distinct variables to create an index, ranking countries based on economic freedom, which is measured in five Areas: 1 Size of Government, 2 Legal Structure and Security of Property Rights, 3 Access to Sound Money, 4 Freedom to Trade Internationally, and 5 Regulation of Credit, Labour and Business.” The report uses 2013 statistics because that is the most current data year.

Property rights in Area 2 are our most fundamental and important rights. For many Canadians, property is their greatest asset and one they are placing considerable dependency on for a comfortable retirement. If a state doesn’t provide a strong legal structure and security of property rights, then it is seriously remiss, indeed. Canadians may think their economic property rights are secure, however, that is not exactly true.

For example, if you fail to pay your property taxes, government can place a tax lien on your property and even sell your property to acquire taxes owing. If you don’t maintain your property to government standards, they can have your property brought up to those standards and send you the bill. Your property can be expropriated, usually to build something badly needed by a community (such as a hospital) regardless as to whether or not your family has owned it for generations. When you sell certain properties, the proceeds may have to be shared with government in the form of capital gains. In other words, property assets are not all yours and our governments are always creative in tapping in for more. For such reasons and others (see page 5 of the report), Canada fails to get close to a perfect 10 in Area 2, that of Legal Structure and Security of Property Rights — our score in this year’s report is 7.99.

Americans fare worse in Area 2 with a score 6.97. But then they have the issue of Eminent Domain which can be more draconian than our expropriation. And, of course, there are multiple components in each Area of this report. Area 2 is comprised and calculated from the scores of nine components (also calculated on a scale with 10 as the highest, i.e. most free, score). Here are the nine components and the scores for Canada and the United States. Best score in each component is in italics:

A. Judicial independenceCanada 8.59, United States 6.84
B. Impartial courts — Canada 6.92, United States 6.09
C. Protection of property rights — Canada 8.32, United States 7.25
D. Military interference in rule of law and politics — Canada 10.00, United States 6.67
E. Integrity of the legal system — Canada 9.17, United States 8.33
F. Legal enforcement of contracts — Canada 4.81, United States 5.45
G. Regulatory costs of the sale of real property — Canada 8.60, United States 8.92
H. Reliability of police — Canada 8.55, United States 7.89
I. Business cost of crime — Canada 6.98, United States 5.33

We have focused here on one of five Areas, that of Legal Structure and Security of Property Rights with an emphasis on property rights. If we focus above only on component C. Protection of property rights, our score improves from 7.99 for Area 2 to 8.32. The U.S. score improves from 6.97 to 7.25. It’s interesting to note that the U.S. beats Canada in only F. Legal enforcement of contracts and G. Regulatory costs of the sale of real property. Hopefully, someone with influence will mention these two shortcomings to our politicians. Since the second one adds your money to the coffers of politicians, guess which defect is likely to have any hope of amendment.

Consideration must be given to the other four Areas and their components in this study, too. Canada’s overall economic freedom score when all Areas are included is 7.89 which puts us in 9th place among 157 countries and territories. The overall score for the U.S. is 7.73 which puts it in 16th place, not impressive for what this report called the “bastion of economic freedom.”

Copyright © by Marketing Options Inc. 2015.

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