Malaysia recently ranked 3rd in the crony-capitalism index released by The Economist. But what is this index about?

The index shows the countries where politically connected businessmen are most likely to prosper. In other words, it’s where where contracts are awarded on kawan-kawan terms.

Hmm. So how do you measure something like that?

The Economist used data from Forbes to calculate the total wealth of the world’s billionaires who are active in rent-heavy industries. They compared that wealth total to world GDP. The higher the ratio, the more likely it is that the country suffers from sever crony-capitalism.

Hang on. What are “rent-heavy” industries?

These are industries which are often associated with rent-seeking.

Rent-seeking is when people exploit political connections to create more wealth for themselves. For example, when businesses lobby for favourable terms or create a monopoly with the government’s backing, this is a kind of rent-seeking.

Rent-seeking is often found in industries such as energy, defence, the building of ports and airports and telecom services. It’s worth noting that not all rent-seeking is illegal.

So Malaysia ranked highly in this index. What about other countries?

Hong Kong came top of the list, followed Russia. Malaysia, in third place, is followed by Ukraine and Singapore.

The Economist reckons that crony-capitalism is booming in the developing world, while it’s (usually, but not always) lower in countries with more bureaucracy and better governance. Developing countries contribute 42% of world output but 65% of crony wealth.

But people help out their “friends” all the time. Not just billionaires, right?

The Economist admits that their index is only an estimate. Many people who have benefited from rent-seeking may not be billionaires. Also, not all cronies will make their wealth publicly known. That’s what offshore accounts are for!

Ling Low

Read more here.