National league tables make good journalistic copy,
which is devoured especially avidly in nations that happen to score
near the top of this or that list. But they can equally tell some
very tall tales that reflect better the biases of their assessment
criteria than facts on the ground.
One of the more widely
disseminated is the Index of Economic Freedom, published by the
Washington-based Heritage Foundation for the past 12 years. This
year, as in numerous past years, it has declared Hong Kong the
world's freest economy, closely followed by Singapore, with Iceland,
Ireland and Luxembourg close behind. (The United States is ninth.)
It is clear is that the
rankings of Hong Kong and Singapore are based to a significant
degree on ignorance of their domestic economies. In its 10-point
assessment, the Heritage Foundation puts a high premium on freedoms
for foreigners to trade and invest and enjoy low taxes, and
remarkably little on the freedoms of the local inhabitants.
Both places rightly
score highly on free trade. City states that owe their existence to
entrepot trade naturally avoid import tariffs or pesky currency
regulations. Equally, they both give a more or less free hand to
foreign investors in externally oriented industries.
A closer look at both
economies, however, calls into question the description of their
trading and ownership environments as "free."
In Hong Kong, a handful
of private groups operate domestic monopolies or oligopolies in
power, retailing and transport, all linked to a few major property
development companies, which also own media and other major domestic
enterprises. Foreigners who have tried to enter - as the French
group Carrefour did into retailing - have been squeezed out by
anti-competitive cartels. The government, meanwhile, in the name of
being business-friendly, resists competition or anti-trust laws that
might open up these markets.
In Singapore, it is the
government itself that stands in the way of the unfettered private
enterprise that the Heritage Foundation's criteria are supposed to
favor. The major real estate, banking, transport, manufacturing and
utility companies listed on the stock market are all
government-controlled entities. They may be efficient, but is this
an economy free of government intervention? The index also claims
that "the market sets almost all wages." But actually "wages are
based on annual recommendations made by the tripartite National
Tax rates and revenue as
a percentage of gross domestic product are low in both cities. But
governments control land supply and use it not just to raise money
but to redistribute income in an off-the-books manner through
publicly developed and managed housing provided with low-cost land,
in which 83 percent of Singaporeans and 40 percent of Hong Kong
citizens live. In Hong Kong, land prices for the rest are kept
especially high, with the result that living space per inhabitant
remains very low compared with countries with similar income levels.
Land in Hong Kong is sometimes used for subsidizing favored
industries and in Singapore tax subsidies - which by definition are
discriminatory - are common.
Tax levels in Singapore
look quite low. But how free of official imposts are its citizens
when compulsory contributions to its Central Provident Fund take 33
percent of wages and are invested largely as the government sees
fit, through nontransparent official vehicles such as the Government
Investment Corporation? Compulsory savings help toward the
accumulation of foreign-exchange reserves and a very high investment
ratio. But the rate of return on those assets has been low.
As a social security
system, the Central Provident Fund, with links to government housing
and medical care, may have many merits, but individual economic
freedom is not one of them.
There is no space here
to go into all 10 of the Heritage Foundation criteria. Hong Kong and
Singapore economies should rate quite well by most performance and
access measures. But the simplistic bases of these tables, devised
from afar, can be dangerously misleading: The Heritage Foundation
index also deems India less free than China, places Cambodia ahead
of Malaysia and Indonesia below Ethiopia.
Nor is this the only
baffling table. The Swiss business school IMD has a competitiveness
index which puts Hong Kong and Singapore just behind the United
States but just ahead of Iceland. IMD has South Korea inferior to
Belgium, Malaysia and New Zealand.
In the World Economic
Forum's version of competitiveness, meanwhile, Taiwan is the leading
Asian economy, at No. 5, in a world headed by Finland and the United
States, while Hong Kong is down at 28th. Choose your index according
to your prejudice.