Cheers to Crony-Capitalism, HK.

Why Hong Kong’s latest No 1 ranking was greeted with silence
You know how it is when Hong Kong tops a world comparison table: first comes a flurry of self-congratulatory articles, and then there will be a smug government statement to the effect that this confirms whatever it is supposed to confirm. However, total silence followed the publication of a recent international survey by The Economist, drawing on material from the IMF, World Economic Forum and Forbes magazine. Hong Kong has not only topped a world comparison league but did so by a mile. The simple reason for the silence that followed this news is explained by the table's title: the crony-capitalism index. Hong Kong ranks No1 by a long shot, followed by Russia and Malaysia. Even Indonesia, much criticised for excessive crony capitalism, is ranked in 10th place, making Hong's Kong's reigning position that bit more "impressive". The Economist league table is designed to identify economies that are dominated by "rent seekers". In other words, it looks at the fortunes of business leaders who have been able to secure a larger share of the business pie not by helping to expand the size of their local economies but by grabbing a larger share of the pie itself. The Economist defines economic rent as being "the difference between what people are paid and what they would have to be paid for their labour, capital, land [or any other inputs into production] to remain in current use". As ever, an index of this kind is open to challenges, because there are lapses in data, especially from places such as China. Also, economic rent often emerges from the existence of cartels that both create wealth and distort the market in which this wealth is being produced. Thirdly, the index focuses solely on the wealth of billionaires, while a great deal of economic rent is extracted below the billionaire watermark. However, none of these caveats need apply to Hong Kong where the complex of government-abetted cartels and monopolistic practices are not hard to identify. Thus everyone doing business in Hong Kong knows they tend to pay extortionate amounts in rent because the property market is so dominated by a small clutch of players that make the market more or less whatever they determine it to be. Moreover, the concentration of power is aided and abetted by the government's monopoly over land ownership and the way it distributes land at auctions that - because of the size of the lots on offer - effectively ensure that only the very largest companies, alone or in combination, have any chance of securing land for development. Other sectors in which Hong Kong's small clutch of tycoons have made their fortunes demonstrate that government regulation and control not only produced the tight system of cartel domination but allowed it to flourish. The examples that come readily to mind, aside from property development, are: banking, ports, energy supply, transportation and, as Ricky Wong is finding out much to his cost, communications. The common thread running through all these sectors is government regulation. Look at the same question from another angle, and it becomes equally clear why Hong Kong reigns supreme in the crony capitalism league. Not one of Hong Kong's biggest companies has developed substantial businesses outside its cartel comfort zone. In the United States, which now ranks 17th in the league, much of the new wealth creation comes from corporations that have developed world-beating products in the technology sphere. Meanwhile, Japan, despite its exquisite network of crony-type business arrangements, still manages to find itself at the bottom of the league table (in 21st place) because so many of its richest people are making world-beating products that are sold in a truly competitive marketplace. Companies and consumers shoulder real costs arising from this web of monopolies The disquiet over cartel operations in Hong Kong led to the enacting of a competition law two years ago, but it has proved to be so toothless as to have had more or less zero impact. If this were merely a matter of abstract ideology, it really would not matter where Hong Kong stood in this iniquitous league, but companies and consumers shoulder real costs arising from this web of monopolies, and it adds considerably to the price of doing business here. Moreover, Hong Kong's cartel-dominated economy runs contrary to the international trend, where this kind of dominance is being reduced. According to The Economist, the proportion of billionaire wealth derived from rent-seeking industries declined from 76 per cent in 2008 to 58 per cent this year. As for the people at the lower end of the economic tree, in case anyone cares, this is very bad news indeed, because there is a direct correlation between the poverty gap and the degree of crony capitalism. Every global survey of the gap between rich and poor has Hong Kong, infamously, near the top of the league. None of this is new information, but seeing it starkly reported in the way that it has been should, at the very least, stir some feeling of discomfort and demonstrates why "the world's freest economy" remains firmly headed in the wrong direction.