Malaysia in world's top three for cronyism, study finds
5:13PM Mar 17, 2014
Malaysia has once again made world news for the wrong reasons, coming third in The Economist's crony capitalism index for 2014.
Topping the list was Hong Kong followed by Russia, United Kingdom business weekly said in a report last Saturday.
According to the report, all three have held the same positions since the last study in 2007.
Regionally, it noted that "most countries in Southeast Asia, including Indonesia, Thailand and the Philippines, saw their scores get worse between 2007 and 2014, as tycoons active in real estate and natural resources got richer".
Singapore, ranking fifth, follows hot on Malaysia's heels ahead of Philippines (six), Indonesia (10), Thailand (16).
Among the large economies, China (19) was noted bettering the US (17).
Uncontrolled rent-seeking this century was allowing politically well-connected billionaires worldwide to double their wealth, thereby posing a threat to the free market, The Economist said.
"To test the claim that rent-seekers are on the rampage, we have created a crony-capitalist index.
"We use data from Forbes to calculate the total wealth of those of the world’s billionaires who are active mainly in rent-heavy industries, and compare that total to world GDP to get a sense of its scale," it explained.
'State involvement prone to graft'
These rent-seeking industries include those easily monopolised, and that involve licensing or heavy state involvement, which it said was "prone to graft".
"When publicly-owned coal mines, land and telecommunications spectrum are handed to tycoons on favourable terms, the public suffers," noted The Economist.
It sampled 23 countries for the study - the five largest developed ones, the 10 largest developing ones for which reliable data are available, and a selection of eight smaller ones where cronyism is thought to be a big problem.
"Countries that do well on the crony index generally have better bureaucracies and institutions," it said.
However, the weekly qualified that the methodologies have weaknesses, but which do not bode well for Malaysia as it implies the actual situation on the ground may be far worse than predicted.
One is that not all cronies make their wealth public, and often disguise their property and assets records "by persuading friends and family to hold wealth on their behalf".
Second is the categories of prone industries are not always accurate, depending on local situations.
Thirdly, the study only counts the wealth of billionaires and many rent-seekers may not make the category.
"So our index is only a rough guide to the concentration of wealth in opaque industries, compared with more competitive ones," the report says.