On economic policy, Alabama finds itself suspended in bureaucratic purgatory – neither ascending to free-market idealism nor descending into regulatory torpor.
The state’s ranking in the new Economic Freedom of North America (EFNA) report remains stubbornly static at 24th, a numeric testament to the gap between rhetorical commitment to economic liberty and substantive policy implementation.
Canada’s Fraser Institute unveiled this latest EFNA report last week in conjunction with the Manuel H. Johnson Center for Political Economy at Troy University.
The rankings offer a disquieting symmetry for Alabama: 24th last year, 24th this year. Wisconsin, formerly just ahead of us, vaulted from 23rd to 18th, while Nevada, once nipping at Alabama’s heels, slid from 25th to 27th.
Although Alabama’s scores have improved incrementally since 2003, the state appears content with mediocrity, eschewing the bold reforms necessary to liberate our economy from the fetters of complacency and bureaucracy.
For all the paeans Alabama politicians offer to free markets and economic dynamism, their policies tell a subtler tale. They cast the state as less “red” (I daresay “crimson”) than campaign slogans suggest – a deep purple, perhaps.
Meanwhile, New Hampshire once again reigns supreme in the EFNA index as the freest state. Scoring 8.12 out of 10, the Granite State sets the gold standard for limited government, low taxation, and a labor market largely unencumbered by regulation.
South Dakota, Florida, Tennessee and Texas join New Hampshire in the top five, while Puerto Rico languishes at the bottom with a score of 2.13.
Among the 50 states, New York has the dubious distinction of being the least free, followed closely by California, Hawaii, New Mexico and Vermont.
Building on years of scholarship, the report’s all-government ranking integrates federal policies with state-level data from the United States, Puerto Rico, 32 Mexican states, and 10 Canadian provinces, offering a nuanced view of economic freedom across North America.
Economic freedom in North America has experienced rises, declines and stagnations. Peaking in 2004, it faltered and hit bottom in 2009, followed by a slow climb through 2017.
Since then, freedom has steadily eroded, with the average score across all 93 jurisdictions in the index now hovering just 0.02 points above its historic low. The United States remains slightly more economically free than Canada, but the margin is narrow, a faint consolation amid a broader decline.
Over the past decade, employment in the most economically free U.S. states expanded at three times the rate of those burdened by government-imposed constraints. The lesson is plain: liberty, properly understood and protected, remains an engine of human flourishing.
In an email exchange, Matthew Mitchell, senior fellow at the Fraser Institute and co-author of the report, offered insights into the fundamental characteristics of free economies and effective tax policy. He emphasized that the most dynamic economies are defined by individuals’ ability to make their own economic choices with minimal governmental interference.
“In the freest economies,” he explained, “government policies such as taxation, regulation, barriers to trade, and monetary manipulation do not obstruct individual economic decisions.” The rule of law, he maintained, is a protective mechanism, ensuring individuals can form and execute contracts free from coercion.
Mitchell advocated for a straightforward approach when discussing tax reforms most conducive to business growth and investment. He recommended “simple, low, and neutral” taxes that do not discriminate between different business types or activities. Recent economic research, he noted, suggests consumption taxes have the least impact on economic growth, while highly progressive taxes and capital taxes tend to depress economic development most significantly.
The key principle underlying Mitchell’s analysis is preserving individual economic agency. By minimizing governmental intervention and creating a transparent, predictable tax environment, economies can foster innovation, investment and sustainable growth.
Alabama’s latest economic freedom scores provide a portrait of contrasts. Government spending declined slightly to 7.84, while tax freedom fell more noticeably to 7.59, hinting at fiscal strains.
Yet labor market freedom jumped from 7.65 to 8.12, fueled by a more agile and adaptable workforce. These mixed results suggest our state is at a crossroads, achieving incremental progress in some areas while faltering in others.
“Alabama spends more (as a percentage of income) than most other states,” economist Dean Stansel, another co-author of the report, explained to me by email. He identified government spending as the state’s primary economic challenge. This spending “diverts money from private decision makers, who tend to spend their money carefully, and puts it into the hands of politicians, who are less careful since it’s other people’s money.”
To that point, Alabama ranks among the top six states in transfer and subsidy spending, with a state and local bureaucracy larger than all but seven states. “Reining in spending growth and shrinking the bureaucracy are the two most important ways Alabama could improve its rankings,” Stansel opined.
On taxation, he recommended a strategic approach. While Alabama has one of the nation’s highest sales tax rates, he suggested reducing income tax. “Alabama would benefit more from following the lead of the 26 states that have reduced income taxes in recent years,” he stated, counseling an ultimate goal of phasing out income tax to compete with states like Florida and Texas.
The potential rewards are significant. “The most-free quartile of states saw employment grow three times faster over the last ten years than the least-free states,” Stansel pointed out. Moreover, the “population grew ten times faster in those freest states,” driven by people “voting with their feet” against restrictive economic policies.
By addressing these key areas – reducing bureaucratic spending and strategically reforming tax policy – Alabama could transform its economic trajectory from middling to competitive.
The figures in the EFNA report aren’t merely isolated data but fragments of a larger narrative about aspiration and the balance between individual freedom and systemic inertia. We are watching, always watching, as our legislature drifts between what’s promised and what’s possible.
Yet drift isn’t destiny; it’s tough decisions yet to be made and courage yet to be shown.
Allen Mendenhall is Associate Dean and Grady Rosier Professor in the Sorrell College of Business at Troy University and Executive Director of the Manuel H. Johnson Center for Political Economy. Visit his website at AllenMendenhall.com.
