Singapore 2nd freest economy, 1st in labour freedom

Singapore remains the second freest economy in the world but ranks first in labour freedom in the 2010 Index of Economic Freedom compiled by the conservative Heritage Foundation and the Wall Street Journal. Labour freedom is used by the index to mean freedom to hire and fire workers. Singapore, described as "a nominally democratic state" in the report, scored 98.9 out of 100 for labour freedom and got an overall score of 86.1.

Hong Kong remained the world's freest economy with an overall score of 89.7 but only 87.4 for labour freedom. Australia is ranked third followed by New Zealand, Ireland, Switzerland, Canada, America, Denmark and Chile. You can download the full report here.

Singapore was ranked the second least corrupt country in the world, with a score of 92 out of 100, just one place behind New Zealand, which scored 93.

Singapore got its lowest marks for financial freedom, scoring only 50 out of 100, as "the government seeks to maintain the domestic bank share of deposits above 50 percent".

What the Index of Economic Freedom stands for is freedom for companies and investors to do business as they please — within the rule of law. The less the government regulation, the greater the economic freedom, according to the index, which supports limited government and freedom from corruption. It does not support heavy government spending. That is one reason why America dropped from sixth to eighth place — because of the economic bailouts by the Obama administration. The report says:

The U.S. government’s interventionist responses to the financial and economic crisis that began in 2008 have significantly undermined economic freedom and long-term prospects for economic growth.
Total government expenditures… are relatively high and rising rapidly. In the most recent year, government spending equalled 37.4 percent of GDP.

That is why America got a low score of 58 out of 100 for government spending.

Singapore, in contrast, with government spending equalling just 12.5 percent of the GDP, according to the report, got 95.3 out of 100.

The index gives each country a score of 0 to 100 on 10 counts — business freedom, trade freedom, fiscal freedom, government size, monetary freedom, investment freedom, financial freedom, property rights, freedom from corruption and labour freedom. The 10 component scores are then averaged to give an overall economic freedom score for each country.

Here is the full report on Singapore:

Singapore’s economic freedom score is 86.1, making its economy the 2nd freest in the 2010 Index. Its score has declined by one point over the past year, due primarily to lower ratings in monetary freedom and investment freedom. Singapore is ranked 2nd out of 41 countries in the Asia–Pacific region, and its overall score remains significantly higher than the world average.

As a result of the global financial and economic turmoil, Singapore’s economic growth has slowed significantly, achieving a rate of only about 1 percent in 2008 compared to an average of around 6 percent annually over the past five years. However, with strong fundamentals in place, the economy is likely to rebound quickly. The financial sector has shown considerable resilience, weathering the financial turmoil relatively well.

Flexibility and openness have been the foundation of Singapore’s transformation into one of the most competitive and prosperous economies in the world. An efficient regulatory environment encourages vibrant entrepreneurial activity. Commercial operations are handled with transparency and speed, and corruption is perceived to be almost nonexistent. Singapore’s very competitive tax regime and highly flexible labour market encourage investment, attracting global companies and enhancing innovation. Foreign and domestic investors are treated equally, and Singapore’s legal system is efficient and highly protective of private property.

Background:

Singapore is a nominally democratic state that has been ruled by the People’s Action Party (PAP) since 1965, when the country became independent. Certain rights, such as freedom of assembly and freedom of speech, remain restricted, but the PAP has also embraced economic liberalization and international trade. Singapore is one of the world’s most prosperous nations. Its economy is dominated by services, but the country is also a major manufacturer of electronics and chemicals.

Business Freedom (Score 98.2)

The overall freedom to conduct a business is well protected under Singapore’s regulatory environment. Starting a business takes only three days, compared to the world average of 35 days. Obtaining a business license takes much less than the world average of 18 procedures and 218 days. Bankruptcy is straightforward.

Trade Freedom (Score 90)

Singapore’s weighted average tariff rate was 0 percent in 2008, but import and export restrictions, services market barriers, import taxes, import and export licensing, burdensome sanitary and phytosanitary rules, problematic enforcement of intellectual property rights, and export incentive programs add to the cost of trade. Ten points were deducted from Singapore’s trade freedom score to account for non-tariff barriers.

Fiscal freedom (Score 90.7)

Singapore has relatively low tax rates. The top income tax rate is 20 percent, and the top corporate tax rate is 18 percent. Other taxes include a value-added tax (VAT) and a property tax. In the most recent year, overall tax revenue as a percentage of GDP was 14.3 percent.

Government spending (Score 95.3)

Total government expenditures, including consumption and transfer payments, are low. In the most recent year, government spending equalled 12.5 percent of GDP. The state remains involved in the economy through Singapore’s many government-linked companies. Plans to open state-owned energy and telecommunications enterprises to private investment have stalled.

Monetary freedom (Score 80.9)

Inflation has been low, averaging 4.9 percent between 2006 and 2008. The government influences prices through regulation and state-supported enterprises and can impose controls as it deems necessary. Five points were deducted from Singapore’s monetary freedom score to account for policies that distort domestic prices.

Investment freedom (Score 75)

Foreign and domestic businesses are treated equally, and nearly all sectors are open to 100 percent foreign ownership. Exceptions to the general openness to foreign investment are telecommunications, broadcasting, domestic news media, financial services, legal and other professional services, and property ownership. The government screens investments for incentive eligibility. Government-linked corporations play a dominant role in the economy. Residents and non-residents may hold foreign exchange accounts. There are no controls or requirements on current transfers, payments, or repatriation of profits. Foreign ownership of certain landed properties is subject to approval, but there are no restrictions on foreign ownership of industrial and commercial real estate.

Financial freedom (Score 50)

Singapore’s modern financial sector is competitive. Bank consolidations have left three dominant banking groups. The largest is the government-controlled Development Bank of Singapore, which is publicly listed. The other two also have significant government-held minority shares. All three have remained relatively profitable throughout the global financial crisis but suffered write-downs of collateralized debt obligations linked to the U.S. sub-prime mortgage market. There were 116 commercial banks as of mid-2009; 110 were foreign. Barriers to foreign banks have been lowered, but the government seeks to maintain the domestic bank share of deposits above 50 percent, and the majority of domestic bank board members must be Singapore citizens and residents. Foreign banks are allocated to three categories: full-service, wholesale, and offshore. Foreign firms compete aggressively in insurance, fund management, and venture capital. With increasing ties with other Asian markets, Singapore’s capital markets are well developed. In light of the recent global financial turmoil, the government has stepped in to guarantee all Singapore-dollar and foreign-currency deposits of individuals and non-bank customers in licensed banking institutions. The government has also implemented new programs such as the Bridging Loan Program and has extended existing programs to ensure liquidity in the markets.

Property rights (Score 90)

The court system is efficient and protects private property. There is no expropriation, and contracts are secure. Singapore has one of Asia’s strongest intellectual property rights regimes, and foreign and local entities may establish, operate, and dispose of their own enterprises.

Freedom from corruption (Score 92)

Corruption is perceived as almost nonexistent. Singapore ranks 4th out of 179 countries in Transparency International’s Corruption Perceptions Index for 2008. The government enforces strong anti-corruption laws. It is a crime for a citizen to bribe a foreign official or any other person, within or outside of Singapore.

Labour freedom (Score 98.9)

Singapore’s labour market is highly flexible. The non-salary cost of employing a worker is low, and dismissing an employee is not burdensome. Regulations related to work hours are very flexible.