Canada’s trend toward greater restrictions on economic freedom could lead to a weakened economy in the future, a new report warns.
In the annual North American rankings report released by the Fraser Institute on Nov. 9, every province ranks in the bottom half of North American jurisdictions for the first time.
“Since 2014, all Canadian provinces have suffered significant declines in economic freedom at the all-government level, while a majority of provinces also suffered declines at the subnational level,” Fred McMahon, the Dr. Michael A. Walker Chair in Economic Freedom at the public policy think tank, said in a press release.
“The trajectory of economic freedom in Canada could lead to weakness in economic growth and prosperity in the years ahead.”
Mr. McMahon is a co-author of the Fraser Institute’s “Economic Freedom of North America 2023“ report, which draws on data from 2021.
Economic freedom, as defined in the report, refers to “the ability of individuals to make their own economic decisions about what to buy, where to work, and whether to start a business.” This autonomy is considered fundamental to economic prosperity, the report says.
The report ranks economic freedom using two indexes: a sub-national index, which measures restrictions on freedom at the provincial/state and local levels across 92 jurisdictions in Canada, the United States, and Mexico; and an all-government index that includes federal restrictions.
In the all-government index, Alberta is once again the highest-ranking Canadian province, tied for 31st place with the U.S. state of Connecticut. But this represents a substantial decline for the province. According to the report, Alberta ranked at the top of the index for seven years before falling out of that top spot in the Fraser Institute’s 2018 report, which reflected 2016 data. Since then, the province has slipped further to outside the top 20.
The 2018 report noted that starting in 2015, “both Canada and Alberta elected new political leaders who have been making changes in taxation, spending, and regulation that are already having a significant negative effect on their economic freedom.”
Following Alberta, British Columbia is the second-highest-ranked province (45th), followed by Ontario (50th) and Manitoba (54th). The four Atlantic provinces—Nova Scotia (57th), Prince Edward Island and New Brunswick (tied for 58th), and Newfoundland and Labrador (60th)—have the lowest levels of economic freedom among all provinces and U.S. states, only outranking the Mexican states and Puerto Rico.
Seven of Canada’s provinces rank below all 50 U.S. states. They include Manitoba and the four Atlantic provinces along with Saskatchewan (55th) and Quebec (56th).
The top spot in this year’s rankings went to the state of New Hampshire, followed by Florida and then South Carolina. Idaho and Indiana tied for fourth place.
“Higher levels of economic freedom lead to more opportunity and more prosperity, so as economic freedom wanes the prospects also diminish for Canadians and their families,” Mr. McMahon said in the news release.
The report highlights that average economic freedom in all three North American countries peaked in 2004, with a score of 7.75, and then steadily declined to 7.27 in 2011. Canadian provinces saw the smallest decline, at just 0.24, while the United States and Mexico declined by 0.45 and 0.59 respectively.
By 2017, average economic freedom in North America had slightly improved to 7.46, but still remained below the 2004 peak. However, the report called Canada “an outlier” in that period, as the country has seen a steady decline since 2014.
Since 2017, the average economic freedom has further dropped to 7.32, with the vast majority of that decline occurring in 2020, due to government response to the COVID-19 pandemic.
The Fraser Institute has created a set of interactive maps showing how economic freedom has changed over time from 1981 to 2021 in the three countries based on the all-government index. Jurisdictions in the least free quartile are shown in red, those in the third quartile in yellow, those in the second quartile in green, and those in the most free quartile in blue.
Other co-authors of the 2023 report are Dean Stansel, research associate professor at the Cox School of Business at Southern Methodist University; José Torra, head of research at the Caminos de la Libertad; and Ángel Carrión-Tavárez, director of research and policy at the Instituto de Libertad Económica.
