Economic Freedom Network discussed the Rule of Law in Asia

The conference was the 7th Meeting of the Economic Freedom Network Asia, a loose affiliation of economic research institutes and think tanks, which meets on an annual basis to exchange ideas and discuss the measurability of economic freedom. This is usually done on the basis of the “Economic Freedom of the World Index” (EFW), a comparative study which measures economic freedom across 127 economies. The EFW is published by the Fraser Institute in Canada, while some of the network member institutes, like the Friedrich Naumann Foundation in Germany, also publish local editions in their countries. In the case of China and India, the institutes have also compiled national sub-indices of the differences between the respective provinces.

This conference saw representatives from almost all Asian economies (China, Hong Kong SAR, Taiwan, Japan, South Korea, and Mongolia in North Asia, Cambodia, Indonesia, Malaysia, Philippines, Thailand and Vietnam in South-east Asia, and Bangladesh, India, Nepal, Pakistan and Sri Lanka in South Asia). Japan was represented for the first time, and there were observers from as far a field as Georgia, Iraq and Turkey in Western Asia. It was also notable that the few countries not represented, i.e. North Korea, Laos and Burma, also happen to be the poorest and least free economies in the region.

That poverty is linked to a lack of economic freedom comes at no surprise to any of the participants. But as Michael Walker, Senior Fellow of the Fraser Institute, pointed out in his speech with statistical evidence, there is an even stronger link between economic growth and the “Rule of Law”. People will only be productive if they are free to enjoy and retain the fruits of their labour, but for this to occur certain legal conditions must be met. The question of what these legal conditions entail and how they can be brought about was, of course, one of the principal elements of the conference, which generated a great deal of debate and a fair amount of controversy.

This came soon enough as Leon Louw, the President of the Free Market Foundation in South Africa, lamented the fact that there is no clear definition of the “Rule of Law” (let alone a “Rule of Law” index). Mr Louw therefore made an attempt at providing an objective definition of the “Rule of Law” for which he unceremoniously threw out many popularly-held criteria. He rejected, for example, the notion that the rule of law can only be brought about under a particular political system (the rule of law can exist in a monarchy or dictatorship), or through particular provisions in the law, such as the right to private property, and instead narrowed his definition down to focus on “Due Process”, which he defined as having 26 different aspects.

As in previous years, there was also a session on the methodology of the Economic Freedom of the World Index, and Professor Robert Lawson, one of the co-authors, was there to explain how the “Rule of Law” is measured in 5 sub-components that constitute the legal part of the Economic Freedom Index. As this part heavily relies on data from the “International Country Risk Guide” of the Political Risks Services consultancy (PRS) in Syracuse/USA, and the “Global Competitiveness Report” of the World Economic Forum (WEF) in Geneva/Switzerland, representatives from these organizations were also asked to introduce the methodology behind their respective studies.

Aside from these, Desmond Dodd from the International Finance Corporation of the World Bank presented his agency’s “Doing Business Report”, a publication which is only in its third year, but which has already become a useful tool for promoting a better business environment. Although this study is also written in the spirit of economic freedom, the results are not always identical with those of the EFW, because it relies on an entirely different methodology, using survey questionnaires rather than statistical macro-economic data.

After many hours exchanging views on definitions and methodology, there was a bit of relief, as the theme shifted from the abstract to the practical. Government advisors, lawyers and investors spoke of the practical concerns they and their clients face, and it became clear that there still is a great deal of demand for practical experiences. Researchers and advisors were baffled by the speech of Chris Lossin, Director of Insight Consulting Group Singapore, who gave some valuable views from his long experience in multinational enterprises in Asia. He pointed out that he personally uses 144 different indicators to define risks, taking all types of environmental, economic, societal and cultural factors into account (good for him that he doesn’t have to find comparative data for 128 countries!). Moreover, he reiterated that from an entrepreneurial perspective, the importance of the indices and research shouldn’t be understated, and he expressed his hopes that the institutes would become more active at publicizing their findings, especially to the business community.