Beware the rathole

When the Heritage Foundation, a conservative, Washington-based think tank, released its first Index of Economic Freedom in 1994, it hoisted an arcane set of data onto an acrimonious debate.

Sen. Jesse Helms, re-installed as chairman of the Senate Foreign Relations Committee in 1995, promptly equated U.S. foreign aid with sending dollars "down a rathole." Words flew from the State Department to the senator's chambers and back again, but not until last year did some of Mr. Helms's reforms come to pass. The U.S. Agency for International Development was brought under the State Department's wing and its funding sharply curtailed.

During that time the Index has performed an unusual feat in Washington: letting the numbers do the talking. With an abundance of data on economic growth, government expenditures, and gross domestic product, the report has steadily shown that, even in the world of numbers, worldview matters. Its perennial conclusion: "Countries with the most economic freedom are more likely to have higher rates of economic growth and enjoy greater prosperity than those with less economic freedom."

A careful track record won the Index sponsorship from The Wall Street Journal two years ago and increased use by overseas investors, as well as politicians on the lookout for ratholes.

Analyst Bryan Johnson, who co-edits the annual report with Kim Holmes of Heritage and Melanie Kirkpatrick of the Journal, says the report has taken on new meaning during Asia's financial crisis. "The Index is not an analysis; we state the facts. Therefore, we've made no projections. However, looking back over the years that the Index has been published, it's possible to see that for countries that are in this financial crisis now-Thailand and Indonesia, for example-we have highlighted the problems in banking and corruption. Reforms have been uneven; they have not reduced barriers to trade in financial services. Economies that have scored well-Hong Kong, Singapore, Taiwan-are not affected to the extent of the others. They have open borders, competitive policies, and near complete lack of corruption."