Singapore's flawed 'freedom'
By Muhammad Cohen
HONG KONG - What do you call a country that takes 35% of salaries to finance a state investment fund run by the prime minister's wife? Where the government controls companies responsible for 60% of gross domestic product and 85% of its citizens live in public housing? And a country with stringent restrictions on the media and public information, limits on freedom of expression and assembly, and courts that help perpetuate the domination of the only ruling party the country has ever known?
You call it the second-freest economy on Earth if you're the Heritage Foundation and Wall Street Journal. The country described above is Singapore, runner-up to Hong Kong for the
17th consecutive year in the US conservative icons' joint Index of Economic Freedom for 2011, released last week. Singapore's ranking may seem like something from Fantasyland - science fiction writer William Gibson famously called Singapore "Disneyland with a death penalty" - but the Heritage Foundation insists it's grounded in cold, hard facts.
According to the Heritage website, "Economic freedom is the fundamental right of every human to control his or her own labor and property. In an economically free society, individuals are free to work, produce, consume, and invest in any way they please, with that freedom both protected by the state and unconstrained by the state. In economically free societies, governments allow labor, capital and goods to move freely, and refrain from coercion or constraint of liberty beyond the extent necessary to protect and maintain liberty itself."
Size matters most
"That doesn't seem unreasonable, but how you translate that concept into an index is where the ambiguities come in," competition economist Gustavo Bamberger said. "In practice, it seems like the index, to a substantial extent, equates the size of government to the degree of economic freedom: that is, small government equals high degree of freedom. That implies that government intervention generally means less freedom, which isn't obvious. The idea that unregulated markets always result in more economic freedom is, in my view, ideology, not economics."
Anthony Kim, the Heritage Foundation's point man for compiling the index, disagreed. "Our index is strongly based on statistical data and facts from internationally recognized data sources. There is only very limited room for subjective judgments. Our index is distinctively different from many other indices that heavily rely on subjective or narrowly defined survey questions among the selected pool of experts."
The index is compiled by combining scores of 10 sub-indices in categories of Business Freedom, Trade Freedom, Fiscal Freedom, Government Spending, Monetary Freedom, Investment Freedom, Property Rights, Freedom from Corruption, Labor Freedom.
Scores for each category are derived using a variety of methods, in some cases taken directly from other indices - Freedom from Corruption uses Transparency International's Corruption Perceptions Index (one of those "other indices that heavily rely on subjective or narrowly defined survey questions among the selected pool of experts") - or are calculated based on data from governments or international institutions.
Other scores are based on Heritage evaluators' observations of policies and practices, from how long it takes to start a business to the government's role in the financial markets on a zero to 100 scale. Ratings in the 10 categories are averaged to the overall economic freedom rating. Singapore scores 87.2, despite its myriad examples of government control.
Balanced approach
Kim, a policy analyst in Heritage's Center for International Trade and Economics, said, "Due to the points you mentioned [above], Singapore's scores for financial freedom and investment freedom are the two lowest in the country's 10 economic freedoms. Compared to other top-freest economies in the 2011 index, indeed, Singapore receives relatively lower ratings in these two freedoms. However, in other areas such as trade, regulations, tax rates, rule of law, and monetary stability, Singapore is very competitive and well grounded for vibrant economic activity."
Bamberger, who testifies in the US and internationally on regulatory issues, sees a fundamental fallacy in the index. "It's far from obvious that each of the 'freedoms' are equally important."
Moreover, the index doesn't distinguish between limits on freedoms that apply equally to everyone in the market, such as inflation rates, and those that only impact certain segments, such as business freedom, which applies only to opening and closing a business. "Clearly, some categories are much more important from a firm's perspective than a consumer's," Bamberger said.
View from the top
There's no question that the index filters its findings through a particular lens. The Labor Freedom category rates the difficulty of hiring and firing workers, legally mandated notice period and mandatory severance pay, with less as more, and doesn't count the right to organize or bargain collectively. That's because it's looking at the issue from the perspective of employers, not employees, similar to assessing freedom of expression issues from a censor's viewpoint.
Rather than calling the rankings an index of economic freedom, "'Openness to rich outsiders' is more accurate", risk analyst Aaron Brown said. "Freedom for individuals within the country is another matter entirely, difficult to reconcile with freedom for outsiders. It's like the dilemma that encouraging tourism frequently inconveniences locals."
Brown, author of The Poker Face of Wall Street and the forthcoming Red-blooded Risk Management, said, "The United States clearly has the most economic freedom for its citizens of any large country in the world, where freedom means not only absence of restrictions but plentiful and flexible access to capital, labor and other inputs. But the US imposes all kinds of restrictions on non-resident foreigners and meddles with trade and all kinds of other things all over the world."
The Heritage/WSJ analysis doesn't mention Singapore's requirement that 35% of wages - generally 20% from workers, 15% from employers - be deposited into the Central Provident Fund for retirement and medical needs. Those deposits go to Singapore government investment funds that buy shares in domestic and overseas businesses; the funds include Temasek Holdings, whose chief executive is Ho Ching, the wife of Prime Minister Lee Hsien Loong and daughter-in-law of Singapore's founding father, Lee Kuan Yew.
Elephant in the data
More bizarrely, the index doesn't explicitly measure state ownership of businesses, except in the financial sector. Government ownership gets mentioned in Singapore's ratings on Investment Freedom, Financial Freedom and Government Spending, where Singapore scores a stellar 91.3. Yet government ownership is a crucial factor in any economy, often with far-reaching effects. "Why does a government control companies unless it wants them to behave differently than private companies?" economist Bamberger said.
"I probably would not invest in a company that the Singapore government controlled," said Michel Levin, founder of shareholder rights advocate The Activist Investor. "The government portfolio manager - really some sort of minister somewhere - determines who sits on the company's board of directors and therefore who the key executives are. The key is that they make those decisions based on what's best for the Singapore government, not necessarily what's best for independent investors."
Economic freedom in Singapore is "as good or better than the US by the customary measures", according to Levin, who lived in Singapore while working for an international consulting firm.
"But Singapore suffers from a sort of caste system, where it's difficult to advance very far up the economic ladder if you don't have the right connections. It's somewhat worse than Western economies, specifically the US - here [in the US] you can become wealthy just through having and working a good business idea, but there you'll need to know someone. Probably a vestige of their colonial past, colored by East Asian business practices that value relationships over ideas."
It may be that the index smiles on Singapore because the institutions behind it favor places that are all about business, not politics. Levin offers an alternative explanation. "Heritage and WSJ get all wistful when they look at how Singapore has become an economic powerhouse, a giant among pygmies, really, in the region, but don't really see how the local politics may have in fact limited what Singapore can achieve. Their authoritarian style helped them emerge from the poverty of World War II, but may limit them now in attracting creative types that drive future economic growth.
"Friends ask me what Singapore is like and I call it 'Cuba with money': same politics and climate, with very different economies," Levin said. They also have surprisingly similar levels of freedom, depending on how you choose to measure it.
Former broadcast news producer Muhammad Cohen told America's story to the world as a US diplomat and is author of Hong Kong On Air
, a novel set during the 1997 handover about television news, love, betrayal, financial crisis, and cheap lingerie. Follow Muhammad Cohen's blog for more on the media and Asia, his adopted home.
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By Muhammad Cohen
HONG KONG - What do you call a country that takes 35% of salaries to finance a state investment fund run by the prime minister's wife? Where the government controls companies responsible for 60% of gross domestic product and 85% of its citizens live in public housing? And a country with stringent restrictions on the media and public information, limits on freedom of expression and assembly, and courts that help perpetuate the domination of the only ruling party the country has ever known?
You call it the second-freest economy on Earth if you're the Heritage Foundation and Wall Street Journal. The country described above is Singapore, runner-up to Hong Kong for the
17th consecutive year in the US conservative icons' joint Index of Economic Freedom for 2011, released last week. Singapore's ranking may seem like something from Fantasyland - science fiction writer William Gibson famously called Singapore "Disneyland with a death penalty" - but the Heritage Foundation insists it's grounded in cold, hard facts.
According to the Heritage website, "Economic freedom is the fundamental right of every human to control his or her own labor and property. In an economically free society, individuals are free to work, produce, consume, and invest in any way they please, with that freedom both protected by the state and unconstrained by the state. In economically free societies, governments allow labor, capital and goods to move freely, and refrain from coercion or constraint of liberty beyond the extent necessary to protect and maintain liberty itself."
Size matters most
"That doesn't seem unreasonable, but how you translate that concept into an index is where the ambiguities come in," competition economist Gustavo Bamberger said. "In practice, it seems like the index, to a substantial extent, equates the size of government to the degree of economic freedom: that is, small government equals high degree of freedom. That implies that government intervention generally means less freedom, which isn't obvious. The idea that unregulated markets always result in more economic freedom is, in my view, ideology, not economics."
Anthony Kim, the Heritage Foundation's point man for compiling the index, disagreed. "Our index is strongly based on statistical data and facts from internationally recognized data sources. There is only very limited room for subjective judgments. Our index is distinctively different from many other indices that heavily rely on subjective or narrowly defined survey questions among the selected pool of experts."
The index is compiled by combining scores of 10 sub-indices in categories of Business Freedom, Trade Freedom, Fiscal Freedom, Government Spending, Monetary Freedom, Investment Freedom, Property Rights, Freedom from Corruption, Labor Freedom.
Scores for each category are derived using a variety of methods, in some cases taken directly from other indices - Freedom from Corruption uses Transparency International's Corruption Perceptions Index (one of those "other indices that heavily rely on subjective or narrowly defined survey questions among the selected pool of experts") - or are calculated based on data from governments or international institutions.
Other scores are based on Heritage evaluators' observations of policies and practices, from how long it takes to start a business to the government's role in the financial markets on a zero to 100 scale. Ratings in the 10 categories are averaged to the overall economic freedom rating. Singapore scores 87.2, despite its myriad examples of government control.
Balanced approach
Kim, a policy analyst in Heritage's Center for International Trade and Economics, said, "Due to the points you mentioned [above], Singapore's scores for financial freedom and investment freedom are the two lowest in the country's 10 economic freedoms. Compared to other top-freest economies in the 2011 index, indeed, Singapore receives relatively lower ratings in these two freedoms. However, in other areas such as trade, regulations, tax rates, rule of law, and monetary stability, Singapore is very competitive and well grounded for vibrant economic activity."
Bamberger, who testifies in the US and internationally on regulatory issues, sees a fundamental fallacy in the index. "It's far from obvious that each of the 'freedoms' are equally important."
Moreover, the index doesn't distinguish between limits on freedoms that apply equally to everyone in the market, such as inflation rates, and those that only impact certain segments, such as business freedom, which applies only to opening and closing a business. "Clearly, some categories are much more important from a firm's perspective than a consumer's," Bamberger said.
View from the top
There's no question that the index filters its findings through a particular lens. The Labor Freedom category rates the difficulty of hiring and firing workers, legally mandated notice period and mandatory severance pay, with less as more, and doesn't count the right to organize or bargain collectively. That's because it's looking at the issue from the perspective of employers, not employees, similar to assessing freedom of expression issues from a censor's viewpoint.
Rather than calling the rankings an index of economic freedom, "'Openness to rich outsiders' is more accurate", risk analyst Aaron Brown said. "Freedom for individuals within the country is another matter entirely, difficult to reconcile with freedom for outsiders. It's like the dilemma that encouraging tourism frequently inconveniences locals."
Brown, author of The Poker Face of Wall Street and the forthcoming Red-blooded Risk Management, said, "The United States clearly has the most economic freedom for its citizens of any large country in the world, where freedom means not only absence of restrictions but plentiful and flexible access to capital, labor and other inputs. But the US imposes all kinds of restrictions on non-resident foreigners and meddles with trade and all kinds of other things all over the world."
The Heritage/WSJ analysis doesn't mention Singapore's requirement that 35% of wages - generally 20% from workers, 15% from employers - be deposited into the Central Provident Fund for retirement and medical needs. Those deposits go to Singapore government investment funds that buy shares in domestic and overseas businesses; the funds include Temasek Holdings, whose chief executive is Ho Ching, the wife of Prime Minister Lee Hsien Loong and daughter-in-law of Singapore's founding father, Lee Kuan Yew.
Elephant in the data
More bizarrely, the index doesn't explicitly measure state ownership of businesses, except in the financial sector. Government ownership gets mentioned in Singapore's ratings on Investment Freedom, Financial Freedom and Government Spending, where Singapore scores a stellar 91.3. Yet government ownership is a crucial factor in any economy, often with far-reaching effects. "Why does a government control companies unless it wants them to behave differently than private companies?" economist Bamberger said.
"I probably would not invest in a company that the Singapore government controlled," said Michel Levin, founder of shareholder rights advocate The Activist Investor. "The government portfolio manager - really some sort of minister somewhere - determines who sits on the company's board of directors and therefore who the key executives are. The key is that they make those decisions based on what's best for the Singapore government, not necessarily what's best for independent investors."
Economic freedom in Singapore is "as good or better than the US by the customary measures", according to Levin, who lived in Singapore while working for an international consulting firm.
"But Singapore suffers from a sort of caste system, where it's difficult to advance very far up the economic ladder if you don't have the right connections. It's somewhat worse than Western economies, specifically the US - here [in the US] you can become wealthy just through having and working a good business idea, but there you'll need to know someone. Probably a vestige of their colonial past, colored by East Asian business practices that value relationships over ideas."
It may be that the index smiles on Singapore because the institutions behind it favor places that are all about business, not politics. Levin offers an alternative explanation. "Heritage and WSJ get all wistful when they look at how Singapore has become an economic powerhouse, a giant among pygmies, really, in the region, but don't really see how the local politics may have in fact limited what Singapore can achieve. Their authoritarian style helped them emerge from the poverty of World War II, but may limit them now in attracting creative types that drive future economic growth.
"Friends ask me what Singapore is like and I call it 'Cuba with money': same politics and climate, with very different economies," Levin said. They also have surprisingly similar levels of freedom, depending on how you choose to measure it.
Former broadcast news producer Muhammad Cohen told America's story to the world as a US diplomat and is author of Hong Kong On Air
(Copyright 2011 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.) <input id="gwProxy" type="hidden"><!--Session data--><input onclick="if(typeof(jsCall)=='function'){jsCall();}else{setTimeout('jsCall()',500);}" id="jsProxy" type="hidden">
