Monday, January 09, 2006

Singapore is world's 2nd freest economy. Really?

Read the 2 articles and decide for yourself how much economic freedom do you, as a Singaporean, really have.

Time is GMT + 8 hours
Posted: 04 January 2006 1719 hrs

Singapore retains spot as world's second-freest economy
By Channel NewsAsia's Hong Kong Correspondent Roland Lim

HONG KONG : Singapore has retained its position as the world's second-freest economy, behind first-placed Hong Kong, according to the latest index of Economic Freedom released by US think-tank, The Heritage Foundation.

For the 12th year running, Singapore has been praised for its efforts to cut taxes and attract foreign investment into the country.

The Lion City has been scoring high on recent international ratings.

Last year, Hong Kong-based Political and Economic Risk Consultancy, or PERC, said Singapore had the best judicial system in the world.

That is helping Singapore keep its place as the second-freest economy in the world.

The Heritage Foundation notes that Singapore has done better over the previous year.

Said Edwin Feulner, CEO of The Heritage Foundation, "Singapore is doing some of the right things as it privatises some of its non-strategic government holdings down there. So there are some things government can do but we don't usually encourage more government activity."

The foundation highlighted the cut in corporate tax rate in Singapore to 20 percent from 22 percent.

It also noted efforts to divest non-strategic government-linked companies and cut the percentage of government spending as a share of GDP.

Danny Gittings, deputy editor of The Wall Street Journal, said, "Singapore has made a number of progress this year, including cutting taxes and so on, and these are now feeding through this year's results; but not as fast as Hong Kong. We now see that the gap between Hong Kong and Singapore is wider than it has been for quite a number of years."

Singapore scored 1.56 out of a possible 1 -- the lower the score, the better the ranking -- while Hong Kong kept its top spot with a score of 1.28.

And while Hong Kong managed to keep its title this year, Singapore may be in for a tough time next year, chased by closely-ranked Ireland and Luxembourg.

Both are busy replicating Hong Kong and Singapore's successes with low taxes and a strong legal system. - CNA /ct

Economic freedom? It depends where you stand

Philip Bowring, IHT


HONG KONG 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 Wages Council."

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.


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