Anticompetitive Regulations Highlighted in the 2016 Heritage Index of Economic Freedom (Also, the U.S. Continues to Slip)

Alden Abbott —  5 February 2016

The Heritage Foundation’s Index of Economic Freedom is an annual data compilation that provides an ordinal ranking of economic freedom in nations throughout the world, based on such country-specific measures of economic liberty as commitment to limited government, strong protection of private property, openness to global trade and financial flows, and sensible regulation.

The 2016 edition, released on February 1, found that the “United States continues to be mired in the ranks of the ‘mostly free,’ the second-tier economic freedom category into which the U.S. dropped in 2010.  Worse, with scores in labor freedom, business freedom, and fiscal freedom notably declining, the economic freedom of the United States plunged 0.8 point to 75.4, matching its lowest score ever.”  In addition to a detailed statistical breakdown of country scores, this edition included six essays on various topics related to the nature of economic freedom and its assessment (see here, here, here, here, here, and here).

Those readers who are interested in the economic effects of anticompetitive regulatory distortions around the world may wish to turn to the essay entitled “Anticompetitive Policies Reduce Economic Freedom and Hurt Prosperity,” co-authored by Shanker Singham (Director of Economic Policy at the Legatum Institute) and me, whose key points are as follows:

Excessive government regulation interferes with individual economic freedom. It also imposes a substantial burden on national economies, reducing national wealth and slowing economic growth. Over the past decade, The Heritage Foundation has documented the large and rising cost to the United States economy stemming from overregulation. Regrettably, however, sizable regulatory burdens continue to characterize many (if not all) economies, as documented by the Organisation for Economic Co-operation and Development (OECD) and the World Bank.

One regulatory category that has garnered increased attention in recent years is government rules that distort and harm the competitive process. Competition everywhere faces restraints imposed by governments, either through laws, regulations, and practices or through hybrid public–private restrictions by which government sanctions or encourages private anticompetitive activity. Government-imposed restrictions on competition, which we term anticompetitive market distortions (or anticompetitive regulations), are especially pernicious because they are backed by the power of the state and may be largely impervious to attenuation through market processes. Often, these restrictions—for example, onerous licensing requirements—benefit powerful incumbents and stymie entry by innovative new competitors.

In recent years, recognizing the harm caused by anticompetitive regulations, international institutions have attempted to identify and categorize various types of harmful regulations and to estimate the consumer welfare costs that they impose. The intent of these efforts is to help governments move away from anticompetitive regulations. Such efforts, however, are often stymied by producer lobbies that tend to underplay the harmful effects of such regulations on consumers.

Ferreting out and publicizing the economic impact of these regulatory abuses should be given a higher priority in order to promote economic freedom and prosperity. In this chapter, we first outline the concept of anticompetitive regulations and the arguments for combatting them more vigorously, suggesting the importance of developing a neutral measure (a metric) to estimate their harmful impact. We then describe efforts by two major international organizations, the OECD and the International Competition Network (ICN), to develop methodologies for identifying anticompetitive regulations and to provide justifications for elimination of those restrictions. We then briefly summarize research (much of it supported in recent years by the World Bank) that estimates the nature and size of the economic welfare costs of anticompetitive regulations. Finally, we turn to ongoing research that focuses on a broad metric to measure the economic impact of these regulations on property rights, international trade, and domestic competition.

Alden Abbott

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I am a Senior Legal Fellow at the Heritage Foundation. I write on antitrust, domestic and international regulatory policy, and law and economics. I am an Adjunct Faculty Member at George Mason Law School.