Crony statism: Countries where politically connected businessmen are most likely to prosper

AMERICA’S Gilded Age, in the late 19th century, saw tycoons such as John D. Rockefeller industrialise the country—and accumulate vast fortunes, build palatial mansions and bribe politicians. Then came the backlash. Between 1900 and 1945 America began to regulate big business and build a social safety net. In her book “Plutocrats”, Chrystia Freeland argues that emerging markets are now experiencing their first gilded age, and rich countries their second, with the world’s wealthiest 1%, who benefited disproportionately from 20 years of globalisation, forming a “new virtual nation of Mammon”.

Crony statism: Countries where politically connected businessmen are most likely to prosper 20140315_IRD001_0

Crony statism: Countries where politically connected businessmen are most likely to prosper 20140315_IRD001_0

Inventing a better widget, tastier snack or snazzier computer program is one thing. But many of today’s tycoons are accused of making fortunes by “rent-seeking”: grabbing a bigger slice of the pie rather than making the pie bigger. In technical terms, an economic rent is 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 their current use. In a world of perfect competition, rent would not exist. Common examples of rent-seeking (which may or may not be illegal) include forming cartels and lobbying for rules that benefit a firm at the expense of competitors and customers.

Class warriors and free-market devotees alike are worrying about rent-seeking. American libertarians fear an elite has rigged their country’s economy; plenty of ordinary Joes reckon the government and Federal Reserve care more about Wall Street than Main Street. Many hedge-fund managers sniff that China is a house of cards built by indebted cronies.

To test the claim that rent-seekers are on the rampage, we have created a crony-capitalist index. Our approach builds on work by Ruchir Sharma of Morgan Stanley Investment Management, Aditi Gandhi and Michael Walton of New Delhi’s Centre for Policy Research, and others. We use data from Forbes to calculate the total wealth of those of the world’s billionaires who are active mainly in rent-heavy industries, and compare that total to world GDP to get a sense of its scale. We show results for 23 countries—the five largest developed ones, the ten largest developing ones for which reliable data are available, and a selection of eight smaller ones where cronyism is thought to be a big problem. The higher the ratio, the more likely the economy suffers from a severe case of crony-capitalism.

Crony statism: Countries where politically connected businessmen are most likely to prosper 20140315_IRC363

Crony statism: Countries where politically connected businessmen are most likely to prosper 20140315_IRC363

More: http://www.economist.com/news/international/21599041-countries-where-politically-connected-businessmen-are-most-likely-prosper-planet

You were right... Hong Kong doesn't qualify as the capitalist gold-standard.

Crony statism: Countries where politically connected businessmen are most likely to prosper

Crony statism: Countries where politically connected businessmen are most likely to prosper

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