27/1/18: Human Freedom Index 2017: U.S. Exceptionalism vs Irish Example

Cato released their 2017 Human Freedom Index. The link is here: https://object.cato.org/sites/cato.org/files/human-freedom-index-files/2017-human-freedom-index-2.pdf and all data is available here: https://www.cato.org/human-freedom-index.

Two things worth noting:

Ireland: the country ranks in top 5 in the overall Index, in the 4th place overall, which is unchanged on 2016 report. This compares against 3rd place ranking in 2013-2014 index. One key area of strength - Economic Freedom sub-index. This is a problem area for the Index, which relies on GDP-based metrics and, thus, significantly overstates Irish economic performance. Aside from this, in many other areas, the index presents a correct picture of the country.

The U.S.: the index consistently debunks the myth of American exceptionalism. The country is ranked lowly 17th in 2017 overall, with Personal Freedom ranking of disastrous 24th and with a respectable 11th rank in Economic Freedom.

Here is what is going wrong the U.S. side of the Index:

• In the Rule of Law section, the U.S. scores below 7.0 (poor showing for an advanced economy) in both civil and criminal justice systems assessments;
• In Religious Freedom, the U.S. scores low 7.3 in Harassment and Physical Hostilities category;
• In Expression and Information, the country scores 7.5 in Political Pressure, Control Media;
• In Identity and Relationships, the U.S. score is 7.0 for Legal Gender
• The country scores below 9.0 in overall Rule of Law grouping, in Homicide category, in overall Religious Freedom grouping, and in Laws and Reg. That Influence Media category.
• Sadly, there are no rankings relating to the extent of personal lives control by the 'Deep State' or security forces. Neither do Cato folks measure access to healthcare, quality of public services, education etc - the key aspects of the functional society that are clearly sub-standard in the U.S. case. Nor does the Index address the extent of bureaucratic over-reach into the lives of the residents. Were these aspects to be considered, I doubt the U.S. would be ranked anywhere near top 30.

When it comes to Economic Freedom, in absolute terms, the U.S. is not exceptional by any measure, either. In fact, the country scores above 9 only in the following categories/groupings:

• Sound Money, a grouping that includes: Money Growth, Standard Deviation of Inflation, Inflation: Most Recent Year, Freedom to Own Foreign. Currency
• Black-Market Exchange Rates category, and
• Credit Market Regulations and Labor Market Regulations categories

This is hardly the stuff of legends. The U.S. ranking performance is mediocre for a nation that promotes itself as a bastion of personal and economic freedoms and the leading light for liberty. 

Just take this last number into consideration: when it comes to rating the U.S. on freedom of movement of capital and people, Cato gave the nation a miserly score of 3.7/10. And in Freedom to Trade Internationally, the nation that claims moral leadership across the WTO, TPP, TTIP, Nafta and beyond, the 'guardian of the seas' scores 7.5/10, with sub-8.5 scores in Tariffs and Regulatory Trade Barriers categories.

 Irony has it, the 2017 ranking for the U.S. (at #17) is vastly better than 2016 ranking (at #24).  Neither is, however, good enough. Data wrinkles aside, tiny Ireland offers more grounds for global leadership-by-example than the U.S. does.

18/2/15: A Tale of Two Capitalisms & Economics Education

A recent paper by Bennett, Daniel L., titled "A Tale of Two Capitalisms: Perilous Misperceptions About Capitalism, Entrepreneurship, Government, and Inequality" (December 11, 2014, http://ssrn.com/abstract=2537118) examined "two widely held perceptions about capitalism, challenging the popular view that capitalism is a villainous perpetuator and government a saintly corrector of cronyism and inequality".

Much of this erroneous view has been driven by the fallout from the Global Financial Crisis, the Great Recession and the Euro Debt Crisis, although those of us who lived through it face-to-face would note the obvious error in this paradigm when it comes to expectations about the Government role.

As authors note, "this characterization is largely driven by misperceptions. Capitalism is viewed as a system that favors the elite at the expense of everyone else (crony capitalism), rather than one that promotes economic liberty and opportunity for all (free market capitalism). The state is meanwhile viewed as a benevolent and omniscient corrector of market failures and provider of public goods (romantic view of politics), rather than a political system operated by agents whose actions may reflect their own self-interest and not the welfare of the general public (public choice view). These misperceptions result in not only a distorted understanding of the institutional structure that underlies capitalism and the mechanism in which income is distributed, but also lead to perilous reform prescriptions that undermine free market capitalism and generate unintended consequences that act to reduce individual and societal well-being."

The paper shows how "institutions that constrain the discretionary authority of government incentivize productive entrepreneurship and facilitate free market capitalism, giving rise to a natural or market determined income distribution and opportunity for economic mobility." In other words, markets do work, when markets are allowed to work. On the other hand, "institutions that do not sufficiently constrain the authority of government incentivize unproductive entrepreneurship and facilitate the development of crony capitalism, resulting in structural inequality and little opportunity for economic mobility." In other words, markets don't work when they are prevented from working.

As per empirical evidence, the author concludes that:

"This tale of two capitalisms provides insights about the connection between institutions, entrepreneurship, and the desirability of income inequality. Empirical evidence suggests that sound monetary institutions and legal institutions that protect private property rights and enforce the rule of law provide an environment favorable for free market capitalism and productive entrepreneurship, as well as promote greater economic development and less income inequality. This tends to support
Milton Friedman’s (1980) famous proclamation: ““A society that puts equality before freedom will get neither. A society that puts freedom before equality will get a high degree of both.”"

"A growing body of evidence and the theory advanced here suggests that the development and preservation of institutions supportive of free market capitalism is the best way to facilitate productive entrepreneurship, economic development, economic mobility, and a distribution of income that, while unequal, is determined by merit rather than political ties, and is lower than that which exists in less capitalistic economies."

As per sources of the public misconceptions about capitalism in its various forms, "The scarcity of public choice and institutional analysis in mainstream economics education has contributes to widely held misperceptions about capitalism, entrepreneurship, government, and inequality. An analysis by FIke and Gwartney (2014) finds that only half of the 23 most common economic principles textbooks provide any coverage of public choice topics and that the coverage of market failure is sextuple that of government failure. The economics profession must do a better job of educating students and the public about the nuanced but vital distinction between the varieties of capitalism, and the important role of institutions in constraining the Hobbesian propensity of man to “rape, pillage, and plunder” and enabling the Smithian proclivity of man to “truck, barter, and exchange”
(Boettke, 2013)."

8/12/2013: Forbes Claims v Reality

I wrote about Forbes' ludicrous 'rankings' relating to Ireland last week (here: http://trueeconomics.blogspot.ie/2013/12/5122013-that-forbes-folly-of-global.html). But there is more to it than what I covered in the first post.

Forbes makes an assertion that Irish labour costs have declined over time. Have they? Really?

Here's CSO latest data (through Q2 2013) based on occupation and sector of employment. Not perfect, but tells us two things:

1. Have earnings declined?
2. If yes, have they declined in areas that are of relevance to investors?

Here are some charts:

Key occupational level of skills, traditionally associated with foreign investment in Ireland (we are not a cheap manufacturing location, after all, and make a claim that we compete on high skills) are Managers, Professionals and Associated Professionals. Chart above shows that for all sectors in the economy, average weekly wages in this occupational category rose between Q2 2010 and Q2 2013. The rate of increase ranges from 11.1% for Business & Services, to 10.9% for Industry, to 10.4% for all sectors. Public Sector posted weakest increase of 5.2%.

So, Forbes: no, there was no relevant decrease in wages that investors can be concerned with in deciding that Ireland is Numero Uno...

But, may be investors reading Forbes are into lower skilled occupational categories? Call centres and generic sales? So, take a look at the Clerical, Sales and Service Employees category next:

 
Things are a bit volatile here, but trends are all up, with exception for Public Sector. Industry - up 7.6%, Business & Services up 1.7%, all economy: up 0.4%, as Public Sector is down 9.9%.

So, Forbes: no, there was no relevant decrease in wages that investors can be concerned with in deciding that Ireland is Numero Uno...

However, of course Forbes investors might look toward Ireland as a manual workers paradise? While I have no idea why they would do so, let's just entertain this possibility:

Forbes' investors won't be looking at employing Production, Transport, Craft and Other Manual Workers in Ireland in Industry were they concerned with wages inflation. In this category, Irish weekly wages rose, on average, 1.5% in Q2 2013 compared to Q2 2010. Across Business and Services sector, wages for this category of least-skilled workers fell over the last 36 months, but by only 0.6%. Not exactly spectacular 'gains in competitiveness'. And across all economy - these were down just 0.7%. In Public Sector we registered a significant decrease of 6.6% in this employment category, but it is unlikely to be a point worthy of consideration for Forbes' investors...

So can anyone from Forbes, perhaps, explain, how on earth can these trends suggest massive competitiveness gains?

Lastly, there is the actual claim made by Forbes: "Nominal wages fell 17% between 2008 and 2011, which helped keep labor costs in check." In Q1-Q3 2013, average weekly wage in Ireland stood at EUR687.87 against same for Q1-Q3 2008 of EUR702.34. In other words, average wages have declined (based on Q1-Q3 averages) only 2.06%. In Q3 2013 average weekly earnings were 3.04% lower than in Q3 2008. Where do 17% come from, one wonders?..

5/12/2013: That Forbes Folly of Global Rankings...

So Forbes Magazine ranked Ireland 1st in the world as location for doing business (http://www.forbes.com/best-countries-for-business/list/#page:1_sort:0_direction:asc_search:). This is a bit of confidence builder for us as a nation looking out at the world, and a comical relief for everyone involved across the board.

Forbes does not release actual data, models and/or full methodologies, but their rationale can be glimpsed from here: http://www.forbes.com/sites/kurtbadenhausen/2013/12/04/ireland-heads-forbes-list-of-the-best-countries-for-business/

Basically, Forbes repackages other sources data and analysis to produce its own rankings.

What do these original (and other, occasionally more reputable) sources tell us about Ireland's position in global league tables?

World Bank Doing Business (2014) report ranks Ireland as follows (http://www.doingbusiness.org/Custom-Query/ireland and http://www.doingbusiness.org/data/exploreeconomies/~/media/giawb/doing%20business/documents/profiles/country/IRL.pdf?ver=2)

• Overall Rank = 15th, unchanged on 2013 report.
• Starting a Business: 12th in 2014, a deterioration on 2013 rank of 9th.
• Dealing with Construction Permits: 115th, a deterioration on 2013 rank of 108th.
• Getting Electricity: 100th, an improvement on 2013 rank of 101st.
• Registering Property: 57th, a deterioration on 2013 rank of 51st.
• Getting Credit (do not laugh): 13th, a deterioration on 2013 rank of 11th. Note: WB references here strength of legal rights, depth of credit information, public registry coverage and private bureau coverage, so these rankings are not reflective of whether the banks actually provide credit or whether the country has a banking system to speak of.
• Protecting Investors: 6th, same as in 2013. Private pensions are not factored in, so expropriation / bail-in of pensions funds is not reflected.
• Paying Taxes: 6th, unchanged on 2013. Note: these refer solely to corporate and labour taxes by employers, so our income tax 'competitiveness' is not reflected here, nor are rates and indirect taxes are factored in.
• Trading Across Borders: 20th, same as in 2013. These relate to business transactions only, and do not reflect on-line trading & shipping to consumers.
• Enforcing Contracts: ranked 62nd, same as in 2013.
• Resolving Insolvency: ranked 8th in 2014, improvement on rank of 9th in 2013. This references solely business insolvency, neglecting to reflect the connection between personal insolvency (dysfunctional and outdated, even post-reforms) and business insolvency, and failing to reflect archaic professional fitness restrictions in the case of insolvency.

Summary: World Bank DB 2014 is nowhere near identifying Ireland as top country in the world for doing business. By DB rankings we are not in top-10 worldwide.


World Economic Forum (WEF) publishes a series of rankings for countries in terms of various aspects of doing business. Top of the line is The Global Competitiveness Report (GCR) http://www.weforum.org/reports/global-competitiveness-report-2013-2014

WEF's GCR 2013-2014 rankings for Ireland are:

• Overall rank = 28th in 2013-2014, which reflects deterioration in our position from 27th in 2012-2013 report.
• We rank 33rd in Basic Requirements for competitiveness;
• The above include: Institutions (rank 16), Infrastructure (26), Macroeconomic Environment (134) and Health and Primary Education (6)
• We rank 24th in Efficiency Enhancers; 
• The above include: Higher Education & Training (rank 18), Goods Market efficiency (11), Labor Market Efficiency (16), Financial Market Development (85), Technological Readiness (13) and Market Size (57).
• We rank 21st in Innovation and Sophistication Factors
• The above include: Business sophistication (rank 18) and Innovation (20)

Full report is linked here: http://www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2013-14.pdf

Snapshot on Ireland from the above: "Ireland is ranked 28th this year with a relatively stable performance. The country continues to benefit from its excellent health and primary education system (6th) and strong higher education and training (18th), along with its well-functioning goods and labor markets, ranked 11th and 16th, respectively. These attributes have fostered a sophisticated and innovative business culture (ranked 18th for business sophistication and 20th for innovation), buttressed by excellent technological adoption in the country (13th). Yet the country’s macroeconomic environment continues to raise significant concern (134th), showing little improvement since last year. Of related and continuing concern is also Ireland’s financial market (85th), although this seems to be tentatively recovering since the trauma faced in recent years, and confidence is slowly being restored."

Summary: by WEF GCR we are not in top-10.


WEF also publishes The Global Enabling Trade Report (latest is for 2012). Here are Ireland's ranks in that assessment (see Table 1 http://www3.weforum.org/docs/GETR/2012/GlobalEnablingTrade_Report.pdf):

• Overall rank of 22 in 2012, down from 21 in 2010.
• Market Access sun-index rank: 67th in 2012;
• Border Administration sub-index rank 10th in 2012;
• Transport and communications infrastructure sub-index rank 29th;
• Business environment sub-index rank 25th

Summary: by WEF GETR we are not in top-10.


WEF publishes The Global Information Technology Report (GITR), here are ranks for 2013 for Ireland:

• Networked Readiness Index rank of 27th, deterioration from 25th place in 2012.
• Environment sub-index rank 15th in 2013, composed of Political and regulatory environment (rank 16th) and Business & Innovation environment (rank 24th).
• Readiness sub-index rank 16th in 2013, composed of Infrastructure and digital content (rank 16th), Affordability (rank 61st) and Skills (rank 12th).
• Usage sub-index rank 28th, composed of Individual Usage (rank 21st), Business Usage (rank 22nd) and Government Usage (rank 43rd).
• Impact sub-index rank 33rd, composed of Economic Impacts (rank 18th) and Social Impacts (rank 56th).

You can see the detailed results here: http://www3.weforum.org/docs/WEF_GITR_Report_2013.pdf

Summary: by WEF GITR we are not in top-10.


Forbes survey cites WSJ/Heritage Foundation Index of Economic Freedom as another source. This is linked here: http://www.heritage.org/index/country/ireland

WSJ/H 2013 Index of Economic Freedom ranks Ireland as 11th (not in top-10) and the index shows deterioration year/year in all sub-indices save one: Monetary Freedom (something that Ireland has no control over). There is a handy chart on the right on the linked page to show that Irish scores have declined in every year from 2009 through 2013.

But WSJ/H index is not the state-of-the-art index measuring economic freedom.

Instead, much stronger, methodologically and data-wise is the Economic Freedom of the World index published by Fraser Institute. Here's the link: http://www.freetheworld.com/release.html

Per EFN 2013,

• Ireland's overall rank is 15th in the world, which on a comparable basis represents the worst year since 1990. In 2012 report (2010 data) we were ranked 14th.

Summary: no, per Economic Freedom rankings we are not in top-10.


And so on…

I recently wrote in the Sunday Times that Ireland ranks 7th in the OECD in terms of start-ups actually being registered in the country. And that this data might be skewed by the fact that some start-ups registered here during the crisis period are really re-launches of businesses shut down due to pressures of the costs of 'upward-only' rent contracts. Other start-ups are various tax shells created by the MNCs and IFSC etc.

There are many reasons to treat all of the above rankings with a grain of salt. But the key point is: we are a good location for doing business and we are a good destination for FDI. But we are not top 1, nor even top 5. Which means that instead of glowing the bizarre lights of Forbes-like PR, we should be getting down to the painful and dirty business of real reforms.


PS: As Jamie Smyth of FT pointed out, the first time Forbes had Ireland as Number 1 country in its rankings was in 2007 - the same year when Oliver Wyman had Anglo Irish Bank as its World's Best Bank. I must also add, that whilst Forbes today says that Ireland is number 1 country because of lower labor costs and business costs, plus excellent monetary environment, back in 2007 we had sky-high labor costs and business costs, and rotten monetary and fiscal environments. So, apparently, Forbes' 'methodology' delivers identical outcomes on foot of diametrically contradictory data... hmm... 

23/10/2011: Economic Freedom of the World 2011

Couple of weeks ago, Ireland's Open Republic Institute and Canada's Fraser Institute published annual Economic Freedom of the World Index - the most comprehensive and academically credible index of institutional quality of economic environments around the world. Unlike other similar indices, EFW uses latest comprable available data for all countries in the index and undertakes detailed assessment of the largest number of criteria in arriving at its final rankings.

The results for Ireland are not good. As well as for Europe overall.

No EU countries in top 5 ranks, only one EU country in top 10 and no Euro area country in top 10. In top 20 ranked countries group, there are only 3 Euro area core EU countries, with 3 more Central and Eastern European states. Ireland ranks only 25th in the world - an extremely poor performance, given that last year we were ranked 11th and in 2009 index we were ranked 9th.

Overall, chart below shows historical trend for Ireland:

We are now ranked back in the position that is consistent with economic environment-determining institutions quality that is worse than the entire 1980s!

Charts below summarize the sources of our underperformance:

The data above refers to performance parameters for 2009. Since then, Irish economic conditions and policies have deteriorated substantially so we can expect further downgrades in the index.