Politicians can’t resist bragging about or denouncing New Zealand’s ranking in international surveys, depending on where we are placed. The government will regard high ranking as an assurance its economic management is working; the opposition will seize on low ranking as cause for change of government. Comparisons with Australia will reinforce the tone of the rhetoric.
On 30 May, for example, Finance Minister Michael Cullen welcomed “further proof from the World Bank that New Zealand remains top performing economy”. The previous December the bank had rated New Zealand the easiest country out of 155 in which to do business (Australia ranked sixth, Cullen pointedly noted).
Now five months later, the World Bank had released detailed breakdown of the 2005 survey results. “It is particularly pleasing to find that, compared with the most advanced economies in the world, which make up many of our competitors, New Zealand is consistently above the OECD average,” Cullen enthused. “This is the kind of reality check National Party leader Don Brash should be reading before he starts knocking New Zealand.”
Three weeks previously, the World Competitiveness Scoreboard for 2006 recorded New Zealand’s fall from 16th to 22nd (out of 61 countries) while Australia rose from ninth to sixth place. National’s John Key brandished the figures to complain that “we are slipping behind relative to dozens of other countries while our biggest competitor for skills and capital – Australia – charges further ahead. This is yet more proof of why the Labour Government is turning out to be slow-burning disaster for this country’s economy – and therefore our future.”
The debate occasioned by the publication of surveys like these typically is shallow and ill-informed.
A much more worthy attempt to draw lessons from slew of key surveys has been made by Julia Hall and Anthony Casey in Treasury working paper titled ‘International Comparative Surveys of Regulatory Impact’. They have studied the ‘Index of Economic Freedom’, from the Heritage Foundation and the Wall Street Journal; ‘The Doing Business Survey’, from the World Bank; ‘Economic Freedom of the World’, from the Fraser Institute; the ‘Global Competitiveness Report’, from the World Economic Forum; the ‘World Competitiveness Yearbook’, from the Institute of Management Development; and the OECD Regulatory Indicators.
There is good reason not to ignore the various indices measured. They have been used to study the relationship between regulation and range of key macroeconomic variables, such as productivity growth, innovation and entry and exit of firms, and the study findings generally confirm that regulatory settings do impact on economic growth.
‘International Comparative Surveys of Regulatory Impact’ does what the politicians and their publicists are disinclined to do when they use survey findings in the game of winning hearts, minds and votes. It looks at the strengths and weaknesses of each of the surveys and discusses the methods and results.
Methods drive results, it explains. The results can depend on where data come from and how they are built into the scoring and ranking.
The paper also points out there are two types of surveys – “subjective” surveys based on the opinions of business executives, and “objective” surveys based on collecting information from various sources, often published ones.
The surveys employ different weighting schemes to form overall indices of regulation from the underlying data. “But there is usually rough agreement between different survey results: countries occupy roughly the same position in different rankings when looking at particular impacts,” the paper says.
Overall, it is comforting to learn, New Zealand is rated highly in the surveys, which means businesses and the wider economy bear low regulatory cost relative to other countries. But on the negative side, the ‘Index of Economic Freedom’ ranked this country 101st out of 161, down in the worst-performing half (in Heritage Foundation terms) when it comes to “the fiscal burden of government” (a measure of the tax burden and government spending). In contrast, several surveys credit New Zealand with having low level of price controls.
But all of these surveys generally fail to measure the positive impacts of regulation, or how effective they are at achieving their stated policy goals, the working paper points out. The main focus is on the ease of doing business, as it affects starting business, business operations or the ease of trade.
There are no assessments, for example, on how consumer welfare is affected by consumer protection regulations, or on how distributional outcomes are being met through service obligations imposed on monopoly industries. M
Bob Edlin is regular contributor to Management.
