Home to only one-fifth of 1 percent of the American population, North Dakota isn’t often the subject of big national news stories. The Bakken shale oil boom, though, has brought widespread attention to the Peace Garden State. In many ways, it has overshadowed a broader story: the payoff North Dakotans are enjoying from their remarkable level of economic and personal freedom.
In fact, we find North Dakota to be the freest state in the entire country. In our book “Freedom in the 50 States,” we evaluate each state’s respect for individual freedom and how that affects its economy. We consider a number of economic and personal freedoms and weigh each based on its value to the average citizen.
North Dakota vaulted from 16th to first in the rankings between January 2001 and January 2011 (the latest date for which each state has released all of the comparative data). Only Oklahoma experienced a larger gain in relative freedom during this period. North Dakota’s GDP, meanwhile, grew by more than 110 percent from 2001 to 2011, the largest gain of any state in the nation.
More than oil
Resource extraction has obviously played a major role in the state’s success, but its economy was doing well between 2000 and 2007 – before the oil boom was in full swing. During that time, the average North Dakotan’s personal income, adjusted for cost of living, grew by 2.6 percent annually, the seventh-fastest mark in the country.
So what is the “North Dakota advantage” that has allowed the state to emerge as the freest in the land of the free?
North Dakota has consistently been one of the best states at protecting the economic freedom of its people. In both the fiscal policy and regulatory policy realms, it ranks fourth. When combined, that gives the state an overall economic freedom ranking of second in the nation – just behind South Dakota.
Both taxes and government debt are very low. On the regulatory front, North Dakota benefits from an excellent liability system and a healthy respect for property rights. It is also a right-to-work state and allows professionals like nurse practitioners and physician assistants a greater scope of practice than in many other places. This combination of economic policies makes North Dakota a great place to do business.
Nowhere is this more evident than in its thriving energy sector. Instead of stifling it with confiscatory taxes and excessive regulation, policymakers allow North Dakotans to prosper from their natural advantage.
Our research shows that people gravitate not just to economically freer states but also to those that afford them more personal freedoms. This is an advantage North Dakota has over many “red” states that perform well in the former but not the latter. While its southern neighbor, for example, ranks 46th in personal freedom, the Peace Garden State ranks a respectable 20th. The incarceration rate (controlling for violent and property crime rates) and drug arrest rates are below average. It has relatively light gun control and alcohol regulations, spirits and cigarette taxes are low, and there are no helmet laws or cellphone bans.
Can do better
Of course there is still room for improvement, which will help North Dakota keep its No. 1 ranking, improve the lives of its residents and maintain its advantage over other states when competing for tax dollars, businesses and people seeking new opportunities.
First, North Dakota’s government payroll is bloated, leading to relatively high state spending as a percentage of income. True, federal grants and mineral revenues make this possible despite a low tax burden. But this spending isn’t some kind of “free lunch,” because economists have consistently found that public-sector spending and employment crowd out productive private jobs. There is always a danger that politicians will use newfound oil and gas revenue to grow government, rather than provide essential services and reduce the taxes that stifle wealth creation.
Occupational licensing is excessive, and bipartisan reform of these laws is certainly achievable – if leadership would stand up to the special interests that profit from these labor market restrictions. And asset forfeiture rules should be changed to put the burden of proof on the government and strengthen the standard of proof required for forfeiture. Moreover, private and home-schoolers are excessively regulated by the state, and these laws could be relaxed without harm to children.
Yet despite these issues, North Dakotans – and the politicians who have occupied their positions of public trust over the past decade – have much to be proud of and should celebrate their status as the freest state in the Union.