Heritage Foundation fellow James Roberts discusses local economic freedom

IN DEPTH

What is the Heritage Foundation?

The Heritage Foundation is a Washington-based think tank that promotes conservative public policies based on free enterprise, limited government, individual freedom, traditional American values and a strong national defence. Its annual Index of Economic Freedom is a conglomerate report measuring economic freedom in 183 countries around the world. Released in conjunction with The Wall Street Journal, it uses inputs from sources such as the World Bank, the International Monetary Fund, and Transparency International with the aim of being as objective of possible, according to project lead James Roberts. Hong Kong and Singapore have achieved first and second place since the report’s inception, according to project leader James Roberts. Cambodia finished as the 107th-freest economy in its 2010 report. Ratings are marked out of 100. This year the Kingdom scored: 39.9 for business freedom, 70 for trade freedom, 91 for fiscal freedom, 92.9 for government spending, 70.5 for monetary freedom, 60 for investment freedom, 50 for financial freedom, 30 for property rights, 18 for freedom from corruption and 43.6 for labour freedom. James Roberts visited Phnom Penh on Tuesday in order to speak to 30 undergraduate business students at the capital’s Pannasastra University. Roberts said: “As with any class, some students are interested and some are there because they have to be. I said to the students, it’s not exciting stuff, but it’s important stuff.”

How does the Index of Economic Freedom, of which you are the lead author, tie in to the Heritage Foundations’ operations?

The Heritage Foundation advocates conservative policy to anyone who will listen, especially to the US government and US congress. We are located right across the street from the US congress, and the congress has the power of the purse in America.

The Index of Economic Freedom has gotten quite well known, more outside the United States than inside. It’s used by government people, business people, potential investors. Each country, no matter how big or small, gets two pages and pretty much the same amount of narrative exploring each one.

Cambodia scored particularly poorly in the index’s corruption category, as well as in property protection. What does this mean?

One of the biggest international issues is investor confidence, but investor confidence rests on the confidence of the average citizen in the institutions that make up the government. For us, that is really the bottom line.

It doesn’t get much more fundamental, in terms of how to run an economy, than what incentive do people have to work.

Can people build up a better life for their children, and do the institutions encourage or discourage that?

So corruption and protection of private property are crucial.

Conversely, Cambodia scored well in its level of fiscal freedom and government spending in the report. How does this translate to economic freedom?

Government spending is probably the weakest part of index.

Extra taxation was a burden on the economy was the point trying to be made, but these high scores are not always good news for developing countries.

It indicates too many people work outside the formal economy who are not being taxed at all.

It means the government does not have the infrastructure needed to get to the critical mass point for economic takeoff.

We’re painfully aware of these shortcomings [of the Index]. What it can show is the trends over time.

Cambodia is heavily dependent on foreign aid at present. How does this situation tie in with Cambodia’s future development?

Foreign assistance is not going to solve the problem and is in fact going to make the problem worse at the end of the day.

Thousands of expat workers offer advice, and it’s all extremely important advice, but governments don’t often listen to it or implement the recommendations for the long haul, so the advice has to be reinvented and regiven.

Assistance tends to reward corrupt elites in countries who are just there getting whatever they can out of it.

We think foreign aid should be tied directly to American national security, for instance in places like Afghanistan, where direct defense needs can be helped by unified civilian and military approach using development assistance.

For the US taxpayer to indefinitely support improving the lives of everyone in the whole world, well, we can’t afford to do it. And we don’t think it’s that effective anyway.

By advocating withdraw of American foreign aid, will this diminish American influence in the world?

The whole genesis was in the Cold War when there was two superpowers competing all over the world.

That’s why we have embassies in places that nobody cares about, like Equatorial Guinea.

That competition ended, and at this point, the United States can’t really afford to keep up that competition.

Along with Europe, we’re facing the collapse of the welfare state model, and the political reaction to the deficit is pretty frightening.

Cambodia’s manufacturers say they have benefited from tariff reductions. In your opinion, is this a more effective approach than foreign aid?

In terms of the different development assistance programmes that may be on the table, we would take it over just an outright handout or an unfocused programme that tries to do too many little things and none of them well.

We would rather go with something that pushes a country in terms of private-sector investment because that’s where long-term job creation is, not government-paid jobs.

Just how important is removing trade barriers for least-developed countries such as Cambodia?

We’re heavily pro-free trade, to the point where we actively and robustly oppose our own government’s farm subsidies. We oppose the European agricultural policy for the same reason. It’s heartbreaking to see subsidies. Removing them would help the future prosperity of the world.

Developing countries should pursue agriculture, that’s a natural product and natural market for them, and we should be buying them. It’s a tough time for free traders any time, but especially when there is an economic downturn.