Wednesday, January 22, 2014

Business 360 15: How to Improve Economic Freedom in Asia

* This is my article for Business 360, a monthly magazine in Kathmandu, January 2014 issue.

Economic freedom essentially means individual liberty, the freedom of an individual to voluntarily exchange various goods and services in various markets, as a seller or buyer, as a producer or consumer, the individual has various choices whom to buy and sell and to whom not to buy or sell. The individual is also protected from aggression and coercion by bullies who will rob them the fruit of their hard work.

Sadly, this kind of economic freedom is deprived to many people in Asia. Their freedom to put up a business is often restricted by various government regulations and bureaucracies. For those who manage to officially put up legitimate businesses, they have to pass to the consumers the cost of various regulations, taxes and mandatory fees.

The Fraser Institute, a free market think tank in Canada, produces the Economic Freedom of the World (EFW) annual reports. These reports are presented in various countries around the world, including the Economic Freedom Network (EFN) Asia annual conferences.

The EFW is composed of five main areas: (1) Size of government (its annual consumption, state enterprises, income tax rates), (2) Legal system and property rights (judicial independence, impartial courts, legal enforcement of contracts, reliability of the police, etc.), (3) Sound money (money growth, inflation, freedom to own foreign currency account), (4) Freedom to trade internationally (tariff rates, trade regulations, black market exchange rate, control of people and goods movement), and (5) Regulations (credit, labor, business incl. cost of tax compliance).

A score is given in each area and sub-areas for each country to indicate degree of economic freedom. Thus, high government spending and taxes means low score in area one, weak enforcement of private property rights means low score in area two, and so on.

Table 1 shows Below is a summary table of the scores of selected countries in Asia over the last 15 years. Has economic freedom in our continent improved or regressed over these years?

As of the EFW 2013 Report, half of the 21 Asian countries ranked 75th or better out of 152 countries covered worldwide. The other half ranked 80th or lower.

In what areas do many Asian countries score low, meaning in what areas their governments need to improve to give their citizens more economic freedom?

The next table will show this. Not included in this list are outliers Hong Kong, Singapore and Myanmar. The first two scored high in all areas while the latter scored low in all areas.

Many countries in Asia need to improve the enforcement of the rule of law, they need to relax the various restrictions in sound money, international trade, and business regulations.

Economic freedom and individual liberty are ends by themselves. They are not means to certain other objectives like national sovereignty or forced equality in society. Governments, politicians, business and civil society leaders in Asia should learn to appreciate more the value of individual freedom and individual responsibility.

See also:
Business 360 11: Avoiding Middle Income Trap, September 19, 2013 
Business 360 12: Optimum Size of Government, October 13, 2013 

Business 360 13: US Government Shutdown and Lessons for Asia, November 28, 2013 

Business 360 14: Middle Income Trap and Economic Freedom, January 02, 2014

1 comment:

Nina Athena said...

Sometimes, owning a business or not, we still need to manage our income, especially when it comes to taxes and that’s the hardest part. Hiring a tax advisor will be a good step to start when you have to deal with small business tax but it is also effective whether your purpose is to manage personal income or manage a business. Thank you for sharing your thoughts! Would love to see more updates from you.