Corruption Keeping Economy ‘Mostly Unfree’

Cambodia Daily | 3 February 2016

Cambodia’s “Economic Free­dom”—a broad measure of how well individuals and businesses can create and protect their wealth —was classed as “mostly unfree” in a new report released by the Washington-based Heritage Foun­dation, which identified corruption and bureaucracy as impediments to free markets.

With a score of 57.9 out of 100—largely unchanged in five years and just below global and regional averages—Cambodia ranked 112 out of 178 countries surveyed in the conservative think tank’s “2016 Index Of Economic Free­dom,” released on Monday.

It joins 62 other countries, in­clud­ing Vietnam, categorized as “mostly unfree”—one step above the “repressed” group, which includes Laos and Burma.

Higher degrees of economic freedom fundamentally reflect a nation’s ability to use free-market systems—including labor, financial and goods markets—to generate and reinforce growth, and The Her­itage Foundation measures this freedom using indicators of rule of law, government size, regulatory efficiency and market openness.

The foundation says the economic opportunities of Cambodia’s growing openness to trade and foreign direct investment are being undermined by the absence of ba­sic economic liberties.

“Cambodia continues to integrate more fully into the system of global trade and investment,” the report says. “[But] weak property rights, pervasive corruption, and burdensome bureaucracy, exacerbated by lingering government interference and regulatory controls, continue to reduce the dynamism of investment flows and overall economic efficiency.”

Cambodia received its lowest scores in the rule of law and business freedom categories, reflecting poor protection of property rights and corruption.

“Increased foreign investment has brought notable economic growth but frequently involves land grabs by powerful politicians, bureaucrats and military officers,” the report says. “The judiciary is marred by inefficiency, corruption and a lack of independence.”

“If growth is impressive right now, it would be even more im­pressive without the dead weight loss of government corruption,” So­­phal Ear, author of “Aid Depend­ence in Cambodia,” said in an email on Tuesday.

“Economic freedom is important for a developing country like Cambodia because governments… act as gatekeepers and middlemen, extracting from the economy and the people,” he said.

David Van, managing director in Cambodia for the consultancy firm Bower Group Asia, warned that an uncertain business and investment environment, a consequence of weak rule of law, was limiting the country’s competitiveness.

“The fact that Cambodia has kept a ‘consistent’ very low score for the last few years testifies to no meaningful action and deep structural reform,” Mr. Van said in an email.

“Having just a handful of ministries engaging in some isolated reform action does not suffice to provide a comprehensive improved business environment,” he said.

And while the report highlights trade freedom as a notable success for Cambodia—thanks to lowered trade tariffs and reduced investment restrictions—Jayant Menon, lead economist at the Asian De­vel­opment Bank’s regional integration office, said free markets should not necessarily be the overriding goal.

“Countries can be too open as well. Overall openness needs to consider a regulatory regime and risk mitigation,” Mr. Menon said. “The index is very pro-market; few countries would embrace all policy prescriptions.”

Mr. Ear, an associate professor at Occidental College in Los An­ge­les, agreed that a balance must be struck between reducing im­pediments to the free market and offering a guiding hand.

“Rule #1: Stay out of the way, and by this I mean, stop squeezing bribes out of people and businesses,” he said.

“Rule #2: Act as a referee, not a player, in the economy. Rule #3: repeat rules #1 and #2.”