The Fraser Institute has issued Economic Freedom of North America 2012, its eighth annual report on how North American states and provinces (minus Mexico) are doing in economic freedom.

Wisconsin doesn’t fare well. In fact, by the Fraser Institute’s standards, there is less economic freedom south of the U.S.–Canada border than in the Great White North: “Canadian provinces now lead US states in average economic freedom, with the provincial average at 6.8 compared to 6.7 out of 10 for US states.”

To quote Canadian singer Alanis Morrisette, isn’t it ironic? Canada’s politics have always been assumed to be farther left than American politics. Canada has single-payer health care, which has resulted in thousands of Canadians fleeing to the U.S. for health care. Canada has a value-added tax; the U.S. does not.

But, as a comment points out:

Canada’s healthcare system from day one had means of lowering cost, or controlling costs. That is why Canadian prescription drugs cost less. Canada has looked at ways to profit off their resources. They cut business taxes to invite businesses to come there and to boost small business growth. Canada moved more to the right economically. And if you look at the countries showing growth at this time they have all moved towards the right economically. Countries you would not think as conservative countries, China, Russia.

Another adds:

If you count the respective influence of the federal and Canadian governments, based on 2010 statistics Wisconsin ranks 40th out of the 50 states and 10 Canadian provinces. Based only on state and local governments here and provincial and municipal governments north of the border, Wisconsin ranks 43rd.

The index measures economic freedom in four areas:

1. Size of government: government spending beyond the “protective” and “productive” functions of government, transfers and subsidies, and social security payments, all as a percentage of gross domestic product.
2. “Takings and discriminatory taxation”: tax revenue, indirect tax revenue and sales taxes, all collected as a percentage of GDP, plus the top marginal tax rate and the threshold where it takes effect.
3. Regulation: labor market freedom (including government employment and “union density”), regulation of credit markets, and business regulations.
4. The legal system’s protection of property rights.

Wisconsin ranked 31st in size of government, 43rd in size of state and local government (since we rank fifth in state and local taxation by another measure, that’s not ironic at all, is it?), 45th in “takings and discriminatory taxation,” 47th in that category measured at the state/provincial and local level (see previous parenthetical phrase), 30th in labor market freedom, and 39th in labor market freedom at the state/provincial and local level. At best, Wisconsin is in the middle of the North American pack; at worst, Wisconsin is a bottom-quarter state; and in each of those categories if you take the federal role out, Wisconsin’s ranking drops.

Why is this important?

Not only is economic freedom important for the level of prosperity; growth in economic freedom spurs economic growth. …

The econometric testing shows that a one-point improvement in economic freedom at the all-government level increases per-capita GDP by US$13,276 for US states and by US$7,584 (CA$7,963 using a conversion rate of 1.05) for Canadian provinces. At the subnational level, a one-point improvement in economic freedom increases per-capita GDP by US$7,641 for US states and by US$7,679 (CA$8,063) for Canadian provinces.

A 1.00% increase in the growth rate of economic freedom at the all-government level (e.g., from 4.00% per year to 4.04% per year) will induce an increase of 0.97% in the growth rate of per-capita GDP for US states and an increase of 0.65% in the growth rate of per-capita GDP for Canadian provinces. A 1.00% increase in the growth rate of economic freedom at the subnational level will induce an increase of 0.74% in the growth rate of per-capita GDP for US states and 0.64% increase in the growth rate for Canadian provinces. …

Consumers who are free to choose will only be attracted by superior quality and price. Producers must constantly improve the price and quality of their products to meet customers’ demands or customers will not freely enter into transactions with them. Many billions of mutually beneficial transactions occur every day, powering the dynamic that spurs increased productivity and wealth throughout the economy.

Restrictions on freedom prevent people from making mutually beneficial transactions. Such free transactions are replaced by government action. This is marked by coercion in collecting taxes and lack of choice in accepting services: instead of gains for both parties arising from each transaction, citizens must pay whatever bill is demanded in taxes and accept whatever service is offered in return. Moreover, while the incentives of producers in a competitive market revolve around providing superior goods and services in order to attract consumers, the public sector faces no such incentives. Instead, as public-choice theory reveals, incentives in the public sector often focus on rewarding interest groups, seeking political advantage, or even penalizing unpopular groups. This is far different from mutually beneficial exchange although, as noted earlier, government does have essential protective and productive functions.

What does this all mean?

The 10 states at the bottom of the all-government index [including the federal government] were West Virginia, New Mexico, Mississippi, Vermont, Montana, Hawaii, Maine, Kentucky, Arkansas, and Alabama. Their average per-capita GDP in 2010 was $38,017 (in constant 2010 dollars) compared to an average of $48,319 for the other 40 states. The top 10 states were Delaware, Texas, Nevada, Wyoming, Colorado, South Dakota, Georgia, Nebraska, Illinois, and North Carolina. Their average per-capita GDP in 2010 was $51,737 compared to $44,889 for the lowest 40 states. …

The average per-capita GDP in 2010 of the top three provinces on the all-government index, Alberta, Saskatchewan, and Newfoundland & Labrador, is $57,298 (CA$60,163) compared to $34,901 (CA$36,646) for the three lowest provinces, Prince Edward Island, Nova Scotia, and Quebec, with the Canadian average at $43,688 (CA$45,872) (Statistics Canada, 2011).

Wisconsin, remember, has trailed the national average in per capital personal income growth since the late 1970s. That is through Republican and Democratic governors, and through Republican- and Democratic-controlled Legislatures as well as Legislatures with split party control. Wisconsin would have done better with smaller government, lower taxes, and less regulation than we presently have. The data demonstrates the ties between more, or less, economic freedom, and more, or less, economic growth. As one of the comments points out:

Label these states as “blue” or “red.” No discernible pattern. Both sides are irresponsible and wealth-choking.

That has historically applied to this state, which has never had an equivalent to Ronald Reagan (as president,  not as California governor) with an equivalent interest in killing Govzilla. The cultural reasons may include the dominant ethnic groups that settled the state (Germans and Scandinavians, neither home countries of which have ever been known for small government), and in part because of the people that came to Wisconsin from other states, none, again, known for small government or libertarian leanings, except, of course, with alcohol.

There are implications for the next session of the Legislature. Gov. Scott Walker promises “massive” tax reform. Through the 2010 election, the 2011 and 2012 editions of Recallarama, and the Nov. 6 election, Republicans have control of both houses of the Legislature. So Walker and the GOP need to do things that improve, not take away from, economic freedom — cut taxes, reduce the size and scope of government (as in a 2013–15 budget smaller than the 2011–13 budget), and permanently (that is, through constitutional amendment) restrict state and local government growth.