The latest Index on Crony Capitalism produced by The Economist, shows Russia in top spot, with the Philippines in third place.
Singapore and Ukraine take fourth and fifth spots respectively in the list of 22 nations. Germany is at 22, the best of the nations surveyed.
The Economist said the index of crony capitalism was constructed two years ago to test whether the world was experiencing a new era of “robber barons”. The report appears in the latest issue of The Economist.
“Depressingly, the exercise suggested that since globalisation had taken off in the 1990s, there had been a surge in billionaire wealth in industries that often involve cosy relations with the government, such as casinos, oil and construction. Over two decades, crony fortunes had leapt relative to global GDP and as a share of total billionaire wealth.”
Talking about Malaysia, the report said: “Ukraine and Malaysia continue to score badly on the index. In both cases cronyism has led to political instability.
“Developing economies account for 43% of global GDP but 65% of crony wealth. Of the big countries Russia still scores worst, reflecting its corruption and dependence on natural resources. Both its crony wealth and GDP have fallen in dollar terms in the past two years, reflecting the rouble’s collapse. Their ratio is not much changed since 2014.”
However, The Economist noted that all was not as rosy for the crony capitalists today.
“Our newly updated index shows a steady shrinking of crony billionaire wealth to US$1.75 trillion, a fall of 16% since 2014.
“In rich countries, crony wealth remains steadyish, at about 1.5% of GDP. In the emerging world it has fallen to 4% of GDP, from a peak of 7% in 2008. And the mix of wealth has been shifting away from crony industries and towards cleaner sectors, such as consumer goods.”
It gave examples of companies or individuals – in countries such as Brazil, India and the Philippines – seen as cronies who have fallen into bad times in recent years or months. For Malaysia, it gave 1MDB, which was answerable to the prime minister, and which is the subject of a global fraud probe, as one such case.
The report said: “The economic climate has been tough on cronies, too. Commodity prices have tanked, cutting the value of mines, steel mills and oilfield concessions. Emerging-market currencies and shares have fallen. Asia’s long property boom has sputtered.”
But, it pointed out, despite this slowdown, it was too soon to say that the era of cronyism was over.
Behind the crony index, it said, is the idea that some industries are prone to “rent seeking”. This is the term economists use when the owners of an input of production – land, labour, machines, capital – extract more profit than they would get in a competitive market.
The index uses data on billionaires’ fortunes from rankings by Forbes. It labels each billionaire as a crony or not, based on the industry in which he is most active. The Economist compare countries’ total crony wealth to their GDP.
The index does not attempt to capture petty graft, for example bribes for expediting forms or avoiding traffic penalties, which is endemic in many countries.