Economic freedom, taxes and tariffs in Asia

* This is my article in BusinessWorld last December 01, 2016.

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Human prosperity is not possible if there is no economic freedom, if people do not have the freedom to own private property and have freedom to trade. Misery is the result if people live under political dictatorships and bear the effects of the state’s economic central planning.

These, among others, were the topics discussed in the two-day Economic Freedom Network Asia (EFN Asia) Conference 2016 last Nov. 22-23, 2016 at Dusit Hotel, Makati City. The event’s theme was “Economic freedom and human rights in business,” primarily sponsored by EFN Asia and the Friedrich Naumann Foundation for Freedom (FNF).

The event also launched the results of the Economic Freedom of the World (EFW) 2016 Report by Fraser Institute in Canada. The EFW index is measured by getting the scores (0 to 10, zero is totally unfree and 10 is full economic freedom) of countries covering five criteria: (1) Size of government, (2) Legal system and property rights, (3) Sound money, (4) Freedom to trade internationally, and (5) Regulation.

Countries with big governments and high taxes get low scores in the first measure while nations with highly corrupt legal systems and unstable property rights protection will receive low ratings in the second, and so on. The composite score of the five criteria covered is generated and countries are ranked from highest to lowest (see table).

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The numbers on the right show the following.

One, for many years now, Hong Kong and Singapore are recognized as the two freest economies in the world. Their governments are strong in enforcing the rule of law and protecting property rights, have low income tax rates, zero or near-zero tariff rates. They may have many non-tariff barriers (NTBs) but that is for another paper.

Two, many ASEAN countries are in the middle tier in global ranks out of 157 countries covered. Outliers are Singapore which is high up there, and Vietnam and Myanmar which are among the bottom-ranking countries.

Three, the Philippines and other ASEAN countries’ score and global ranking do not significantly move up or down and I think there are flaws in the scoring made by Fraser. Here’s why.

In sub-area “Freedom to own foreign currency bank accounts,” the Philippines, Malaysia, Thailand, and Vietnam got 0 (out of 10). Similarly, these four countries also posted low scores in criteria 3, Sound Money. I think foreigners and foreign corporations can own forex bank accounts here in the Philippines, also in Malaysia, so why did Fraser give a score of 0?

In sub-area “Capital controls,” the Philippines, Malaysia, and Vietnam scored only 0.77 while Indonesia and Thailand scored 1.54 (again, out of 10) such that their scores under Area 4, Freedom to Trade Internationally, are again low.

Perhaps the capital control that Fraser refers here is the maximum amount of Pesos (about P10,000) and dollars ($10,000) that Filipinos and foreigners can bring in or out when they travel abroad. But many travelers hardly use big cash for their transactions, they use credit and debit cards. People can also send huge amounts of money anytime via banks or money couriers from abroad to the Philippines and vice versa, without capital control limits.

Since countries’ global ranks are separated only by one or two decimal places, significant low score in Areas 3 and 4 in this case would mean overall low score. As a result, the Philippines’ overall score of 7.01 made it rank 80th while Taiwan’s score of 7.65 made it ranked 23rd. A difference in score of 0.64 already spells a huge difference of 67 places in global ranking.

Fraser should either check its data properly or adjust the scoring.

Instead of 0 or 10 for “freedom to own forex account,” “capital control” and other sub-areas, it may adjust the score to 0 or 4 or 5. This will reduce the distortion in overall score and hence, in global ranking.

Nonetheless, Fraser is doing a good job in promoting the philosophy of economic freedom, free trade, rule of law, low taxes and limited government. Its annual EFW report is being cited in various international studies and helps guide civil society and corporate leaders, government and public policy makers in instituting reforms towards a freer, more prosperous world.

 

Bienvenido S. Oplas, Jr. is the head of Minimal Government Thinkers and a Fellow of SEANET. Both institutes are members of EFN Asia.

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Economic freedom and human rights

* This is my article in BusinessWorld last October 18, 2016.

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Economic freedom is the ability and privilege of people to engage in various social and economic activities without unnecessary restrictions and prohibitions. Such freedom is guided by voluntary exchange, open markets, personal choice and accountability, and clearly defined private property rights.

People are economically free if they can choose to buy or not buy certain goods and services from various sellers, when they are not forced and coerced to buy something expensive and/or poor quality. Freedom is not absolute though and free people have no freedom to harm other people nor destroy, burn or steal their private properties.

Human rights include the right to life, right to private property, and right to liberty and security of person. Thus, even a person who has committed a wrong act should be given due process to defend him/herself from false or exaggerated accusations. Murders of individuals based on flimsy or unsubstantiated accusations like what is happening in a number of instances in the on-going war on drugs are deprivations of those people’s human rights.

Combining these two concepts is very important for people to live with freedom and dignity.

And these two concepts will be tackled in a big international conference by the Economic Freedom Network (EFN) Asia on the theme, “Economic freedom and human rights in business” this coming Nov. 22-23 at Dusit Thani Manila Hotel, Makati City. The conference is jointly organized by EFN Asia Economic Freedom Network Asia (EFN Asia) and the Friedrich Naumann Foundation for Freedom (FNF), supported by four local organizations, the Philippine Commission on Human Rights (CHR), Philippine Economic Society (PES), Ateneo Human Rights Center (AHRC), and Bloomberg TV Philippines.

Among the key speakers and major resource persons in this event will be Siegfried Herzog, head of Regional Office, FNF South East and East Asia; Ms. Rosemarie Edillon, president of PES; Markus Loening, former German Federal Government Commissioner for Human Rights Policy and Humanitarian Aid, and Vice-President Leni Robredo.

Other speakers will be Wan Saiful Wan Jan, CEO of the Institute for Democracy and Economic Affairs (IDEAS), Malaysia; Chito Gascon, chairperson of CHR; Franz Jessen, ambassador and head of Delegation of the European Union to the Philippines; Nicholas Sallnow-Smith, chairman of the Lion Rock Institute, Hong Kong; and Peter Perfecto, executive director of the Makati Business Club (MBC).

So, how economically free are the people of the Philippines and big nations of the ASEAN? How free or unfree are they from heavy regulations that tend to restrict entry into markets and interfere with the freedom to engage in voluntary exchange?

The Economic Freedom of the World (EFW) 2016 report give scores to countries (0 most unfree, 10 most free) based on five criteria and areas: (1) Size of government, (2) Legal system and property rights, (3) Sound money, (4) Freedom to trade internationally, and (5) Regulations. Then they are ranked from the most free to the least free economies.

For this short paper, only the performance in Area 5 will be tackled and in particular, sub-areas on labor regulations and business regulations.

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The Philippines has a modest score in both labor and business regulations, meaning not yet choked by those multiple bureaucracies and permits. In particular, the country has a good score in labor hiring regulations and enforcement of the minimum wage, but it has a low score in hiring and firing of employees.

From some existing policy debates in the Philippines today, we can apply the principles of economic freedom and human rights on these issues.

(1) On labor contracting including endo, being hired for short-term labor contracting is a privilege, a human right for new job entrants and the unskilled. It is much better than being rejected and not hired by employers because of the high cost of hiring new additional workers and the threat of government harassment for firing the un- or less-experienced, less skilled people.

(2) On a nationwide minimum wage and abolition of regional wage disparities, this one-size-fits-all policy will make hiring people in the provinces become more expensive, and, as a result, there will be fewer hiring of lesser-skilled, lesser-experienced people. There are now more machines and robots available that can slowly replace more laborers.

(3) On entrepreneurship, it is a privilege and human right for the more hard-working, more ambitious people and they should not be deprived or discouraged to try that route because of heavy government regulations, bureaucratism, and taxation.

Increased market dynamism and fewer government regulations and taxation are the keys to ensuring economic freedom and protection of human rights.

Bienvenido S. Oplas, Jr. is the head of Minimal Government Thinkers and a SEANET Fellow. Both organizations are members of EFN Asia.

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The ASEAN Economic Community

* Originally posted on July 23, 2013.

The Economic Freedom Network (EFN) Asiahttp://efnasia.org/ posted today a new report on scooping of the ASEAN Economic Community (AEC) future, less than two years from now.

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I already like the current set up, especially the visa-free entry to visit any of the nine other members of the 10 member-countries of the Association of South East Asia Nations (ASEAN) for visits less than 30 days, or less than 15 days in some countries. Thus, it is very convenient for me and other Filipinos to visit Singapore, Kuala Lumpur, Jakarta, Hanoi, Bangkok and other cities in the region.

Once the AEC materializes, the flow of economic activities and movement of people among residents of the 10 countries will become even easier and simpler.

Economic freedom, people mobility across countries. To a certain extent, they are “ends” by themselves in terms of public policy. The challenge to advocates of free market and economic freedom is how to further expand this to cover not only our region but also to the whole Asian continent and later on, to the rest of the world.

Here are two new articles from EFN website.

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Asia Driving the World: How leading ASEAN CEOs see the future of the fastest-growing region and beyond

Tuesday, 23 July 2013 13:16
Bangkok, Thailand

The event is full with top ASEAN business leaders. They discussed broadly about the future of Asia, especially ASEAN, with the 2015 launch of the ASEAN Economic Community (AEC) expected to present huge economic opportunities for businesses both within the group’s 10 member countries and beyond.

These top business figures include Kyoichi Tanada, president of Toyota Motor Thailand, Chartsiri Sophonpanich, president of Bangkok Bank, Timothy Ong Teck Mong, chairman of Asia Inc Forum of Brunei, Ngo Thanh Tung, chairman of Vietnam International Law Firm, Paul Blanche-Horgan, chief executive officer at Ezecom Corp from Cambodia, U Zaw Zaw, chairman of Max Myanmar Group, and many others, with  Suthichai Yoon, Nation Multimedia Group chairman, the host of the event and also the moderator in the discussion.

“Business Visions 2020” was the main idea of the discussion. These high-profile executives from all over the region shared their ideas on business perspectives, trends and the opportunities that lie ahead once the AEC starts in 2015. Nevertheless, several issues still have to be addressed.  With so diverse cultures, rules and regulations, a number of obstacles will have to be overcome if the region’s economies are to be integrated into a single market. In particular, social inequality, local administration, governance and a number of other key issues will have to be tackled.
Timothy Ong Teck Mong from Brunei made several good arguments about the difference of ASEAN countries, yet the potential after better integration is huge.

For example, getting construction permits in Singapore took about 26 days; 110 days in Vietnam; and 652 days in Cambodia. In addition, applications for business start-ups in Singapore took three days; 47 days in Jakarta; and 101 days in Brunei and Indonesia.

More importantly, he said, the gap between Asean’s poorest and its wealthiest citizens, measured in terms of per-capita GDP, was huge – a factor of almost 16, compared to a factor of just two in the European Union.

Business leaders agreed that other key factors for continued growth include good governance in both the corporate and state sectors, and social responsibility among Asian entrepreneurs to ensure that all members of society benefit.

Asia’s Story of Growing Economic Freedom
Friday, 12 July 2013 14:05
By Razeen Sally
Policy Analysis No. 725 from Cato Institute

The global financial crisis reinforced a sense that the world is “shifting East”—to Asia. The essential story of modern Asia is its unprecedented expansion of economic freedom, enabled by market liberalization. Economic freedom, however, remains substantially repressed across the region.

There are three key policy challenges to expanding economic freedom in Asia today. The first is to open up financial markets, which remain backward and repressed by command economy controls. The second is to renew trade and foreign-investment liberalization, which has stalled since the Asian crisis of the late 1990s. And the third is to open up energy markets, which, even more than financial markets, are throttled by government interventions.

Increasing Asian consumption of fossil fuels will increase carbon emissions. Mainstream advocacy of carbon reduction in Asia should be met with skepticism, given its potential to lower growth substantially. A far better approach is one based on adaptation to global warming through market-based efficiency measures.

Asia’s poorer economies should concentrate on “getting the basics right” for “catch-up” growth. These are “first-generation” reforms of macroeconomic stabilization and market liberalization. Asia’s middle- and high-income economies need to focus also on “second-generation” reforms—more complex structural and institutional reforms to boost competition and innovation. Diverse political systems can deliver catch up growth. But autocracies are badly fitted to deliver second-generation reforms for productivity- led growth. The latter demands a tighter link between political and economic freedoms.

The Asian miracle is not the product of superior technocratic minds who concocted successful industrial policies. Rather, freedom and prosperity bloomed on Asian soil because government interventions were curtailed and markets unleashed. Classical liberalism, however partially implemented, has worked in Asia. It is a system to which Asians should aspire.

Original website for full analysis,
http://www.cato.org/publications/policy-analysis/asias-story-growing-economic-freedom

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Jeju Forum’s economic panels

* This is my guest post at the EFN Asia website last April 19, 2013.

1In less than six weeks, I will fly to Seoul, then Jeju, S. Korea, to attend the Jeju Forum for Peace and Prosperity, May 29-31, 2013. The Economic Freedom Network (EFN) Asia will participate in one of the panel discussions on Day 2, and I will be the rapporteur for that panel.

There will be plenty of panel discussions on those 2 1/2 days forum. To accommodate them all, there will be about five simultaneous discussions on each time block. See the list of topics here.

Day 1, May 29, I plan to attend session 1-D, “Cultural Exchange and Tourism Promotion in Asia Pacific Region”. To achieve more peace and prosperity in the region and the world in general, mobility of goods and  services/people should be made as free as possible. People will think less of war and conflict provocation if they see the beauty of other places and countries, if they understand the cultural practices in other places and hence, realize the need for more tolerance, to respect diversity among people. Human rights are respected in the process as people learn to be more tolerant of other people’s cultural belief and practices, their social and economic aspirations.

Then on the next panel, I plan to listen to session 2-A, Making Ideas Work: Challenges and Opportunities for Think Tanks in Asia. Many of the co-sponsors and partners of the Jeju Forum are think tanks, government and private. For me, the main purpose of think tanks, Minimal Government Thinkers included, is to explore new ways, more efficient and less costly ways, to attain a particular vision for the country, for the region, and the world. And that vision is a society where people have freedom and a peaceful environment so they can pursue more social and economic prosperity, both for the present and future generations.

Many private think tanks though are constrained by funding. That is why among the biggest think tanks in Asia and the world are government-owned ones, their funding are assured yearly from taxes. One problem here though is that their research agenda and content is subject to explicit or implicit pressure from the politicians and officials of the national government.

On Day 2 morning, I hope to attend session 3-C, Asia-Pacific Development and the Future of Korean ODA.  I do not believe in the overall effectivity of Official Development Assistance (ODA) as it is a government to government (G2G) transfer of money and resources. If one or both is/are corrupt, then its effectivity in uplifting the lives of poor people in the less-developed country is immediately compromised if not negated. So the main beneficiaries of this G2G transfer are the politicians and officials, employees of the recipient governments.

I think the best people to people (P2P) transfer of resources is via free trade (goods and services), more foreign investments and tourism. Nonetheless, I have to hear what the speakers have to say on the subject. There could be new things and development in this area.

Disclosure: I was a former Korea International Cooperation Agency (KOICA) scholar, a two-weeks seminar on “Technology and Policy” in 1996 when I was still working at CPBO, House of Representatives. I enjoyed that seminar, I learned many things, aside from the many trips, hotel transfers, nice food, mountain resort tour, and warm, friendly Korean hosts and tour guides.

Or I might skip this session and attend the session on 3-A, Coping with North Korean Nuclear Quagmire – What Options are Available? I like a quip from a friend in Korea who said, “A dog that barks loud does not bite”. Exactly my sentiment, that the war mongering pronouncements by the North Korean leader Kim Jung-Un was more addressed to his countrymen, sort of saying, “My people, we will take on the mighty US and S. Korea militarily, so prepare for more hardships in life.” The military confrontation is highly uncertain but economic hardships of the ordinary North Koreans will be a certainty.

A “World Leader’s Session” will follow these sessions, before lunch. I think this is where past Prime Ministers or Presidents of some Asian countries will speak in a big plenary hall.

After lunch, I want to hear session 4-A, East Asian Regional Integration with ASEAN as the Driving Force. I think this is a good formulation. East Asia is actually dominated economically by the “big 3” — China, Japan and S. Korea. But problem is that there are several lingering conflict among them. Like the on-going territorial dispute over small islands between China and Japan, which affects trade and investments on both countries. And the China “big brother” assistance to North Korea, which irritates the people in South Korea. I do not know if previous Japanese colonization of S. Korea is still a bitter memory for ordinary Koreans until now or not.

2ASEAN member countries though, have few conflicting issues and have more issues and interests in common. In particular, the ASEAN Free Trade Area (AFTA) that will fully materialize just two years from now, in 2015. ASEAN is about 650 million consumers: About 250 M Indonesians + nearly 100 M Filipinos + nearly 90 M Vietnamese + 68 M Thais + 62 M Myanmars + 30 M Malaysians , these six  countries alone have a combined population of almost 600 M people already. I heard one Malaysian diplomat who defined AFTA as “Agree First, Talk After”.

Then, OUR session, the EFN Asia time, from 3:40 – 5:00 pm, session 5-A, Economic Prosperity in Asia: Dealing with Economic Nationalism. The line up of speakers may not have been finalized yet, but a friend from Kuala Lumpur, the President of Institute for Democracy and Economic Affairs (IDEAS), a free market think tank in Malaysia,  Wan Saiful Wan Jan, will be the moderator and I will be the rapporteur.

Wait, is there no inconsistency between session 4-A and 5-A? The former focuses on economic integration while the latter talks about economic nationalism and protectionism? Well, both are realities and happening at the same time. For instance, the Philippine economy will have free trade with its neighbors in the ASEAN but will retain its generally protectionist policy to other countries.

In a period of global economic uncertainties and financial turmoil, the tendency of many governments is to become more protectionist, restrict imports to “protect local jobs”. But what if local jobs and businesses will be more productive if they use cheaper raw materials, machines and capital goods from abroad? And by turning to protectionism, an economy loses the goodwill of other countries that have been its trade partner for many years? These are among the questions and issues that our panel speakers will tackle, directly or indirectly.

In the next round of sessions, I will most likely attend session 6-A, Unraveling the Dynamism of the Asian Economy: Patterns of Cooperation and Conflict in Trade, Finance, and FDI. This will be an appropriate follow up to sessions 4-A and 5-A. Identifying sources of cooperation and conflict — in trade, finance and foreign direct investments. I would like to believe that in either cases of conflict or cooperation among Asian neighboring economies, the prospect of competition among themselves to attract more foreign trade, more foreign capital and investments, should be in the minds of Asian government officials. This way, they cannot be too rigid and inflexible in their policies to please local players and even local oligarchs.

Lots of exciting panels to attend and listen to. I am getting more excited to attend the Jeju Forum.

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