Three Steps Forward, Two Steps Back...On the Path to Greater Wealth & Liberty?
The Asia-Pacific region became less economically free over the last year, reports the 2004 “Index of Economic Freedom”. The number of countries placing restriction on their economies outnumbered those that granted their citizens more liberty.
Sixteen Asia-Pacific countries lost ground, while 11 others improved, according to the editors of the Index, published annually by the US-based Heritage Foundation and the Wall Street Journal. Three saw their rankings remain the same. This represents an unwelcome reversal of the trend reported in the 2003 Index, which found economic freedom gaining in Asia.
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A country’s level of economic freedom is critical”, said Marc Miles, co-editor of the Index. “Countries with the highest levels of economic freedom also have the highest living standards”.
The Asia-Pacific remains a study in contrasts. Of the 155 countries measured it boasts the three free-est economies in the world: Hong Kong (No.1, score 1.34), Singapore (No.2, score 1.61) and New Zealand (No.3, score 1.70). Yet the region also contains three of the most repressed economies: Laos and Burma (tied No.151 with 4.45) and North Korea (No.155, scoring 5.00).
Secure property rights help explain why Hong Kong and Singapore enjoy annual per capita incomes of better than US$24,000 p.a. Hong Kong continues to be the world’s “poster child’ for economic freedom, the study noted. The former British colony has a low level of government intervention in the economy and a low cost of government. Singapore excels despite its relatively high level of government intervention in the economy, because it boasts a moderate cost of government and has exceedingly low, virtually zero percent tariffs. Thailand’s ranking in the Index at No.60 scoring 2.86 has been declining steadily from 40th place last year, 32nd in 2002 and 27th in 2001. Alas, Indonesia (No.136, score 3.76) is among the 10 nations globally where the score has worsened the most since 2003’s Index. Its citizens struggle with a heavy burden of government and excessive state intervention, and the government continues to wall off foreign investment and impose wage and price controls. “Indonesia continues to suffer from many of the problems that made it so vulnerable to the Asian financial crisis,” the study noted. North Korea comes last, both in Asia and worldwide, scoring poorly on every factor, a perfect 5 of awfulness in fact. “It has no place to go but up, if it should ever choose to do so,” the editors comment dryly. As it is, Pyongyang earns more from illegal drug dealing than from legitimate business.
As in previous years, the Index ratings reflect an analysis of 50 economic variables, grouped into 10 categories. Countries are rated one to five in each category, one being the best, five the worst. The ratings are then averaged to give the overall score. Of the 155 countries ranked in the 2004 Index, 16 are classified as “free” (#’s 1-16), 55 are “mostly free” (#’s 17-71), 72 as “mostly unfree” (#’s 73-143), and 12 are “repressed” (#’s 144-155).
In the Suharto era 10 years ago in 1995, when the Index was first published, Indonesia stood No.69 with a score of 3.58. Things even got better and by 1998 Indonesia stood No.57 with a score of 3.00. Since 1999 though it has all been downhill and the country now ranks 136th near the bottom of the “mostly unfree” sector in the company of Syria, Vietnam, Sierra Leone and Haiti. A mere 7 places and 0.24 points away from the “repressed” category.
Are things really as bad as that here? Yes and No..... Is Indonesia going the way of Burma? I don’t think so..... Does this Index tell the full story? In a way, yes. Aren’t things getting better in some ways? Well, yes and no.....
With the departure of the authoritarian Suharto regime certain things in the area of personal freedom have indeed got better here. The press for a start. Indonesia now enjoys a press just as free as that in Thailand and the Philippines. A good deal more so than in Singapore and Malaysia, and possibly Hong Kong. It does not necessarily mean the standards of journalism are high but by and large people are free to say and print what they want. The heavy hand of centralism has been lifted and there is now a degree of provincial autonomy. People can vote for their leaders in relatively clean elections and all kinds of laws have been passed designed to do all manner of good things and do away with all manner of evils. The trouble is so much of legislation is muddled and contradictory, and often ineffective. If the Institutions of State are debased and corrupted then you may simply be oppressed by more people. Without strong institutions or an autocratic elite, corruption simply becomes democratised or more equal opportunity. Perhaps that is the way it has to be on the way to things getting better. One has to hope so. The point is that if enough people can start a small business and survive the country will begin to prosper. If they cannot, then the future is bleak.
It should not escape anyone that the two” free-est” economies in the world are in no way the free-est in terms of personal freedom. Hong Kong has never been a democracy and Hong Kong people cannot elect their leaders. Under the British you could always say what you wanted, but you didn’t seriously expect anyone in government to listen. And that remains broadly true today under Chinese rule. In Singapore you can vote, but you might as well not bother, the PAP wins anyway and it would be a brave journalist or publisher who complained about that. France and Japan, are indeed democracies but in economic terms they come middle of the field of “Mostly Free” nations at No. 44 and 38 respectively.
Does this mean that the citizens of non-democratic states prosper if they are economically free? It seems it does, but only to the degree that freedom is genuine and broadly based as measured against the 10 criteria of the Index.
What then is economic freedom and what are these criteria, since they are so fundamental?
Economic freedom is the absence of government coercion or constraint on the production, distribution, or consumption of goods and services beyond the extent necessary to protect citizens and maintain liberty itself. They are: Trade Policy: that is restrictive tariffs and import quotas; Fiscal Burden of Government: the level of government taxes and expenditures; Monetary Policy: market pricing enhancing economic freedom; Functioning Legal System: the rule of law and respect for private property; Capital Flow & Foreign Investment: government restrictions hampering economic growth; Banking: the provision of credit without high levels of government control vital for growth; Wages & Price Controls: a market economy allocating resources efficiently, state mandates restrict growth; Property Rights: high crime rates, high taxation and state expropriation cause people to work and invest less; Regulation: undue burdens on business, licensing and excessive labour regulations hampering economic growth; Informal (Black) Markets: black markets indicate excessive state control and stunt economic growth.
It may not have escaped many of you that the Heritage Foundation is a right wing American institution and the Wall Street Journal is the total creature and servant of the US stock markets and Capitalism itself. They would say all these things are good for you wouldn’t they? It’s in their interests to say so, isn’t it? Let’s forget about all that democracy stuff and let’s get on with business, shall we? That’s what they’re saying in effect, isn’t it?
In essence, yes. And they are absolutely right.
You don’t have to go very far back in history to see that all the personal freedoms we enjoy today are based on economic freedom. The freedom for any man or woman to seek to feed and clothe themselves and earn a living doing what they choose without undue interference from the state or anyone else is the first step to national wellbeing. The right to utter and print what you want is worth little if no one listens. The right to vote for whomsoever you like is worth little if the entire system is bankrupt and compromised. And all the rights in the world won’t do you any good if they are simply ignored by your neighbour or the state. What hope have you got to get your little business off the ground if everyone from government ministers down to the lowliest bureaucrat has their hand in the nation’s till, if not your pocket?
No, the Hertitage Foundation and the Wall Street Journal may have their own agendas down the pike, but at this level they are spot on. It is the entrenched vested interests who wrap themselves in spurious democratic, socialistic, nationalistic and religious dogma that keep the mass of people in poverty. The silly thing is they don’t need to. Nobody said it works fairly.... if the poor get rich, the rich just get richer. That’s GOOD! Unless of course the rich want all the power too, and that usually means trouble.
It doesn’t take very long for things to start looking up. As soon as the state lifts its heavy hand and all those would be “fathers and guardians of the nation” get the hell out the way , economic life sprouts like little seeds and in not so many years you’ve got a small business culture and a burgeoning middle class. Political freedoms inevitably follow.
How else in a few years could ex-communist Estonia (No.6) now be economically more free than Britain (No.7) and the US (No.10)? Not to mention Lithuania, Latvia, the Czech and Slovak republics, Trinidad, Bolivia and Armenia all being more economically free than France?
All it needs is some grocer’s daughter at the top. Britain in the early 70’s was anti-business and becoming more and more like an Eastern European failed state. Thatcher may have been hated at the time by the majority of Britons but nonetheless they are richer today because of her. Quite who I wonder will be Indonesia’s Maggie?
Index of Economic Freedom
2004 Rankings - OECD & Asia-Pacific countries
Free
1. Hong Kong (1.44)
2. Singapore (1.61)
3. New Zealand (1.68)
7. U.K (1.79)
10. USA (1.85)
11. Australia (1.90)
16. Canada (1.98)
Mostly Free
18. Germany (2.03)
19. Nederlands (2.08)
26. Italy (2.26)
34. Taiwan (2.43)
38. Japan (2.53)
44. France (2.63)
46. S. Korea (2.69)
60. Thailand (2.86)
63. Cambodia (2.90)
Mongolia ((2.90)
Mostly Unfree
74. Philippines (3.05)
76. Sri Lanka (3.06)
87. Malaysia (3.16)
109. Pakistan (3.40)
114. Russia (3.46)
121. India (3.53)
128. China (3.64)
131. Bangladesh (3.70)
136. Indonesia (3.76)
141. Vietnam (3.93)
Repressed
151. Burma (4.45)
Laos (4.45)
155. N. Korea (5.0)
