Singapore’s High Ranking on the Heritage Foundation Index Has More to do with US Politics Than with How Free Singapore Actually Is
A few days ago the State Times published an article entitled “Singapore still 2nd freest economy in the world but gap with top-ranked Hong Kong widens“. The Heritage Foundation, a right-wing US think tank closely connected to the Republican Party, had just released its 2016 Index of Economic Freedom in which Singapore retained its second place ranking though the gap between it and HK widened.
Coming second in an index of economic freedom might surprise many Singaporeans. Have the people who compile the index visited an alternative universe by mistake? How could Singapore rank so highly when the Government owns 79% of the land and 89% of the people live in public housing where they do not actually own their apartments but hold them on a 99-year leasehold where they can be evicted if they break certain conditions. HDB has the right to force them to sell their property back to HDB at a market value it determines.
Apart from foreign multinational companies, the rest of the corporate sector is dominated by state-owned companies. Singapore also ranks highly on the Economist Crony Capitalism Index because its billionaires have largely made their fortunes not through innovation or starting new businesses but from property or other sectors where government support is essential. Most industries are controlled by only two or three companies in which usually at least one of the major players is substantially owned or controlled by Temasek. The mobile phone industry, to take one example, has three players but the two most important are owned by Temasek while the third, M1, has at least two controlling shareholders in which Temasek holds major stakes. Unlike the US, most technology start-ups are dependent on government funding which might partially explain the lack of dynamism of Singapore’s tech sector compared to, say, Israel or South Korea, both of which are ranked well below Singapore by the Heritage Foundation.
In an effort to understand how Singapore could get such a high ranking I looked at some of the categories in which it scores highly and the reasons given for those high scores.
Straight away I was struck by the phrase “Singapore is one of the world’s most prosperous nations”. The PAP often say this but at the same time say Singapore is a fragile developing nation that cannot afford Western-style safety nets or freedoms. The fact is Singapore is a city and on a ranking of global cities by UBS in 2011 the purchasing power of a median worker was ranked on the same level as one in KL and behind other major Asian and Western cities. After pressure from the PAP Singapore was quietly dropped from the survey. Our GDP per capita is one of the highest in the world but that is only because we have so many workers relative to dependents, a result of the huge foreign labour force, and because our workers work the longest hours just to earn a living wage. On a ranking by GDP per hour worked Singapore came in near the bottom of a group of advanced countries, and on a comparison of global cities such as New York or London it would be lower still.
Moving on to the breakdown of the results, the first category in which Singapore scores highly is Rule of Law. Here the Heritage Foundation says:
“Singapore is one of the world’s least corrupt countries. Legislators are allowed to and often do serve on the boards of private companies, including as chairpersons, creating potential conflicts of interest. Contracts are secure, there is no expropriation, and commercial courts function well. Singapore has one of Asia’s best intellectual property rights regimes.”
It is difficult to understand how the Heritage Foundation can call Singapore one of the least corrupt countries and at the same time acknowledge the rampant cronyism. The presence of MPs or Ministers on the boards of private companies is an actual conflict of interest not a potential one. The report makes no mention of the fact that the Prime Minister has appointed his wife as CEO of Temasek, something that would not be permitted in the US or indeed most other advanced democracies. The salaries of the PM and his ministers are the highest in the world but they may be modest compared to what Ho Ching earns at Temasek. Not only Ho Ching but many of the top positions at state-owned firms and leading private sector companies are taken by relatives of the leading political families and their children are frequently awarded the top Government scholarships, making a mockery of claims of meritocracy. It is also not true to say there is no expropriation as expropriation is why the Government owns so much of the land in the first place. The owners of the expropriated land received compensation well below market value.
The Heritage Foundation also ranks Singapore highly for Limited Government. This completely ignores the fact that so much of the economy is controlled by Government-owned corporations. While direct taxes are low indirect taxes and fees are high and the Government controls the majority of people’s savings in a way that would not be acceptable in a democracy.
Singapore ranks highly also for regulatory efficiency with the Heritage Foundation saying that Singapore has a transparent regulatory environment. Nothing could be further from the truth since many laws and areas of the Constitution are deliberately vague or a blind eye is turned to transgressions unless you should happen to oppose the Government or displease those in power. The fact that Lee Kuan Yew and so many members of his family could get large discounts from a property developer dependent on Government regulatory approvals and not be prosecuted shows how far we are from rule of law.
The fact is that the so-called Index of Economic Freedom seems to be more a way to attack a Democratic President in the White House. Despite the dynamism of the US economy and its enviable track record in creating new companies (look how Alphabet, Apple, Microsoft, Amazon and Facebook dominate the digital economy) the US is ranked in a relatively lowly 11th position with dire warnings about how it is on the verge of becoming a banana republic. Surprisingly Singapore is rated 10 points higher than the US for Freedom from Corruption despite all the evidence of lucrative cronyism and an oligarchic elite. The US also gets a lowly rating for Fiscal Freedom and Government Spending which are more to do with ideology than economic freedom. In contrast to Singapore the US Government stays out of private sector businesses and even when it has rescued companies like GM it has sold its stake as soon as it was able to do so.
The plaudits Singapore wins from global think tanks might have more to do with the use of state resources to win friends and influence people. I discovered that an award to Lee Kuan Yew by the Atlantic Council had been preceded by a substantial donation to the Council by Singapore immediately before the award was made (see “Singapore and LKY- Darlings of Western Think Tanks. (at a price)“). It would be interesting to see if any donations have been made by one of Singapore’s sovereign wealth funds to the Heritage Foundation in the last few years.