Small businesses are canaries in economic mine

A delegation of small-business owners came to the office the other day, about the same time the Heritage Foundation released its annual Index of Economic Freedom. Neither brought good news.

The business owners wanted to complain about credit-card transaction fees. Well, who doesn't?

As most of you know, credit cards come with ridiculously high interest rates, fees and penalties. Washington just passed new rules aimed at curbing some of those complaints. But that wasn't what the small-business folks wanted to talk about. They hate the credit cards for a different reason. Every time you use one at their stores, they have to pay processing fees. As they told me, the monthly cost of these fees ranks right up there with leasing a building and paying employees.

And yet they feel they don't have the option to refuse the cards, even if they cut into airtight profit margins.

That's because credit and debit cards are quickly replacing the dollar as the nation's currency. Salt Lake City Council member JT Martin, who also runs a small market, said the number of his customers who use cards has gone from about 30 percent 12 years ago to 90 percent today.

"I have to take credit cards," he said. "But it's like I have Guido out front of the store making sure I pay protection money."

The Heritage Foundation report ranks 179 nations using formulas that measure economic freedom, emphasizing "individual empowerment, equitable treatment and the promotion of competition." The bad news there is that the United States slipped to eighth place. It was fourth as recently as 2007. Now, it isn't even first in its region. Canada was ranked seventh.

The authors blamed Washington's "interventionist responses to the financial and economic crisis" for the fall. They wrote: "Uncertainties caused by ongoing regulatory changes and politically influenced stimulus spending have discouraged entrepreneurship and job creation, slowing recovery. Leadership in free trade has been undercut by 'Buy American' provisions in stimulus legislation and failure to pursue previously agreed free trade agreements."

Also, "Tax rates are increasingly uncompetitive, and massive stimulus spending is creating unprecedented deficits. Bailouts of financial and automotive firms have generated concerns about property rights."

It's pretty much bad news all around. Even under the heading "Freedom from corruption," the United States scored 73, which was well behind Canada's 87.

While some may take issue with this annual report for its assumptions about economic freedom, a quick glance at the rankings leaves little doubt whether citizens are better off living under free economies or those that are tightly controlled. The bottom five on the list are North Korea, Zimbabwe, Cuba, Eritrea and Burma.