Economic freedom, taxes and tariffs in Asia

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

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).

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.

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.

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.

Economic freedom in Asia: 2005, 2010 and 2013

* This is my article in BusinessWorld last November 25, 2015.

Humanity’s material progress and cultural development is made possible largely due to the freedom of people to initiate innovations that did not exist before and their freedom to buy and sell extra output and services produced by themselves and other people.

In short, economic freedom and freedom to trade are among the cornerstones of human progress. Remove this freedom and innovation and ingenuity will largely be curtailed and human misery and underdevelopment will result.

These are other related issues were tackled in the two-day Economic Freedom Network Asia (EFN Asia) Conferences 2015, here at Taj Tashi hotel in Thimpu, capital city of Bhutan. The event’s theme is “Economic freedom as a way to happiness” and the main sponsors are EFN Asia, QED Group, and the Friedrich Naumann Foundation for Freedom (FNF).

QED is a private, independent think tank and consulting firm based in Thimphu while FNF is a German political foundation tasked to help conduct economic and political education around the globe about the merits of classical liberalism, lean state, and increased market competition.

EFN Asia was born in 1998 during a conference in Manila discussing how more economic freedom and less government interventions could have anticipated and minimized the financial turmoil that occurred during the “Asian financial crisis” of 1997-1998. Since then, EFN Asia conferences are held yearly in different big cities in the region.

How is economic freedom measured and quantified? Which countries are the most free and least free in economic innovation? What are the implications of such scoring and ranking in economic freedom of countries and economies?

These and related questions are answered by the Economic Freedom of the World (EFW) annual reports, produced by Fraser Institute in Canada, in partnership with FNF (Germany).

The EFW is measured by getting the scores (0 to 10, zero is totally unfree and 10 is full economic freedom) of countries covered on five areas: (1) Size of government, (2) Legal system and property rights, (3) Sound money, (4) Freedom to trade internationally, and (5) Regulation.

As a result, countries with big governments and high taxes get low scores in area (1); countries with highly corrupt legal systems and unstable property rights protection will get low scores in area (2); countries that have high inflation rates and make it difficult for their citizens to own and use other currencies will get low scores in area (3); countries that have low import tariffs, have few non-tariff barriers will get high scores in area (4); and countries with less restrictions and regulations in credit, hiring of labor and few business permits and compliance costs will get high scores in area (5).

The composite score for the five areas covered is generated and countries are ranked from highest to lowest. For Asia, here are some results. (See table)

For many years now, Hong Kong and Singapore are recognized as the two freest economies in the world. They have small and few taxes, their governments enforce the rule of law, and protect property rights. Since they have low or zero import tariff, it is easy and less costly for their exporters and importers to buy and sell goods abroad, and so on. Taiwan, Japan, and South Korea try to follow these policies set by the two freest economies.

The Philippines has been ranking modestly in the 60th to 70th positions in the three years above. It gets high scores in area (1) as it does not have too many transfers and subsidies, have few government enterprises. But the Philippines gets low score in area (2) with scores of only 3 to 4 in sub-areas Judicial independence and impartial courts, other sub-areas.

That presents a big challenge for the Philippine government (and other Asian governments too) and civil society organizations — nongovernment organizations, media, academe, professional organizations, church groups, and so on: Control or minimize corruption and bribery by having rule of law: the law applies equally; no one is exempted and no one can grant an exemption to penalties set by the laws.

Bienvenido S. Oplas, Jr. is the head of Minimal Government Thinkers, Inc., and a Fellow of the South East Asia Network for Development (SEANET). Both think tanks are members of EFN Asia.

How to improve economic freedom in Asia

* This is my article for the January 2014 issue of Business 360, a monthly business magazine in Kathmandu, Nepal.
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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 75^th or better out of 152 countries covered worldwide. The other half ranked 80^th 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.