Malaysia has been ranked third behind Russia and the Czech Republic in the latest instalment of The Economist magazine’s crony-capitalism index. The index estimates how much plutocrats profit from rent-seeking industries.
In the latest edition published on 2 May 2023, The Economist said crony capitalists’ wealth had risen from US$315 billion, or 1% of global gross domestic product (GDP), 25 years ago to US$3 trillion (RM13.37 trillion) or nearly 3% of global GDP now. It said some 65% of the increase came from America, China, India and Russia.
Overall, 40% of crony-capitalist wealth was derived from autocratic countries, and amounted to 9% of their GDP. There are some 311 billionaires around the world whose riches are largely believed to be derived from sectors which often feature “chummy” dealings with the state.
The Economist said that to calculate all this, it started with data from Forbes. The magazine had published an annual stock-take of the world’s wealthy for nearly four decades.
In 1998, it estimated that there were 209 billionaires with a total worth of US$1 trillion, equivalent to 3% of global GDP. In 2023, the publication detailed 2,640 billionaires worth US$12 trillion or 12% of GDP. Adjusting for rising prices — US$1 billion in 1998 is now equivalent to US$3.3 billion — there are 877 billionaires (at 1998 prices) with collective worth of US$9 trillion.
The Economist has classified the sources of each billionaire’s listed wealth into rent-seeking and non-rent-seeking sectors. The index suffers from a host of limitations, a few of which the Economist acknowledges, that may explain why some of the results seem so strange.
- First, the index is likely to be biased against countries in which a large share of the economy is in the Economist‘s “rent-heavy industries,” regardless of how much rent-seeking is actually going on in those industries.
- Second, the Economist study only looks at billionaires (a point it acknowledges).
- Third, again as the Economist also acknowledges, the wealth of crony capitalists is sometimes hidden or dispersed.
- Fourth, there’s the focus on personal wealth itself, as opposed to corporate wealth. The Economist notes that America does relatively well in the study because unlike other countries its “energy billionaires” barely register in the overall economy. But that is partly an accident of history: The U.S. energy industry was dominated by extremely wealthy individuals for much of its early development.
Crony capitalism suggests someone gets a contract or concession not on merit but on connections. Thereafter, they (the crony) sells or works out a deal with the “real” deliverer of the task/transaction involved. He or she may no longer be in the project but may lend his/her name for purposes of the concession. That’s a crony who is not involved in delivery but secures a financial benefit for securing the concession/contract. Otherwise, Exxon or Mobil are also cronies. The best example of a crony and crony capitalism is the British East India Company. The large number of lobbyists (over 12,000 in Washington) testifies to corruption, cronyism and rent-seeking in the U.S.
Rent seeking does not include those persons that may have invested substantial capital improvements to a project/land. These are developers not rent seekers. Sometimes the lines get fused but a “crony” who develops the project after securing a concession or contract is not truly a crony!
The bottom line is that although lists and rankings always generate buzz, this so-called “crony-capitalism index” probably doesn’t tell us much about relative rates of crony capitalism in these countries. Perhaps rather than using some easily accessible data like the number of billionaires, it might be more fruitful to look at data that measure the actual relationships between these companies and their governments. For example, levels of state support through government-backed loans or subsidies, or the number and kind of political connections between successful firms and governments. In any event, we need to examine our own crony capitalism/rent-seeking image with more objectivity and less emotion.
References:
Malaysia ranked third on the Economist’s 2023 crony-capitalism index, Surin Murugiah, theedgemarkets.com, 3 May 2023
The Economist’s Crony Capitalism Index does not measure crony capitalism, Eden Shiffmann, www.globalanticorruptionblog.com, 31 March 2014
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