The crony-capitalism index aims to indicate whether the livelihood of the people from certain country or city with a capitalist economy are easily affected by crony capitalism. It is not an internationally recognized index due to its limitations.
It is a new measurement of crony capitalism designed by The Economist newspaper based on the "work by Ruchir Sharma of Morgan Stanley Investment Management, Aditi Gandhi and Michael Walton oew Delhi's Centre for Policy Research, and others" in 2014.
The index aims to be a measuring trend in the number of economic rent-seekers. The assumption behind is because of the favorable political policies set by the government officials, the tycoons are increasing their wealth and interest. As a result, they get a larger part of people’s fruits of labor, instead of generating more wealth for the whole society. In some extreme cases, some favored suppliers are influential on the establishment and application of the business-impacting laws and citizens pay the tax for purchasing the overpriced products supplied by the favored corporations.
Ten of the industries that are susceptible to monopoly or require licensing or highly depend on the government have been selected: casinos; coal, palm oil and timber; defense; deposit-taking banking and investment banking; infrastructure and pipelines; ports; airports; real estate and construction; steel and other metals; mining and commodities; utilities and telecoms services. Then, the total wealth of world’s billionaires who actively involve in rent-heavy industries from the data of Forbes will be calculated. Results can be achieved from the ratio of billionaire wealth to GDP in their own countries; higher ratio of billionaire wealth to GDP indicates higher possibility of suffering from crony capitalism.
The 2016 index was published on May 7, 2016.
The results of the crony-capitalist Index of 23 countries were published in March 15, 2014. The five largest developed countries, ten largest developing countries and eight other countries where cronyism was thought to be a big problem being included. Developing countries in general having a relatively higher Crony-Capitalism index than developed countries.
The phenomenon of concealing fortunes is common for cronies, especially in China. It has been revealed that some of the powerful politicians have disguised their properties by transferring it under the names of their friends and family members. Unreliable property records are also believed to be the obstacles of determining an individual’s actual wealth. The fact that the cronies are not willing to announce their wealth publicly has affected the accuracy of the index.
The Economist roughly categorizes the industrial sectors with neglected critical instances of cronyism. Rent-seeking may take place in industries which are regarded as open even though they have competitive markets, such as high-tech, healthcare, and entertainment. There is still a possibility of crony capitalism in those industries, but the rough categorization of the index makes it less reliable. The index falls short of differentiation.
Limited Data of Crony
The index has only counted the wealth of billionaires which contributed to the omission of extensive data. Due to the lack of data, particular industries in a certain country cannot be exactly identified as “crony heavy”. A group of cronies can also possibly be enriched by plenty of rent-seeking while not wealthy enough to achieve the cut-off. Therefore, this group will not be examined in the index. The index is only a crude guide to the concentration of wealth in opaque industries compared with more competitive ones.
"Good Governance" Factor
Public opinion has been weighted heavily when determining which governments are better. Political consultant Nick Sorrentino wrote that The Economist “was afraid to go completely down the (anti) cronyism path because if one really examines cronyism it is tied in deeply with modern government”. Certain kinds of cronyism that involved fewer of the top social classes, such as the military-industrial complex in the United States, fail to be reflected in the index, which diminishes its accuracy.