Freedom, investment freedom, and property rights.Visit the Countries or See the Top Ten
For over a decade, The Wall Street Journal and The Heritage Foundation, Washington’s preeminent think tank, have tracked the march of economic freedom around the world with the influential Index of Economic Freedom.
What is economic freedom?
Economic freedom is the fundamental right of every human to control his or her own labor and property. In an economically free society, individuals are free to work, produce, consume, and invest in any way they please, with that freedom both protected by the state and unconstrained by the state. In economically free societies, governments allow labor, capital and goods to move freely, and refrain from coercion or constraint of liberty beyond the extent necessary to protect and maintain liberty itself.
How do you measure economic freedom?
We measure ten components of economic freedom, assigning a grade in each using a scale from 0 to 100, where 100 represents the maximum freedom. The ten component scores are then averaged to give an overall economic freedom score for each country. The ten components of economic freedom are:
Business Freedom | Trade Freedom | Fiscal Freedom | Government Spending| Monetary Freedom | Investment Freedom | Financial Freedom | Property rights | Freedom from Corruption | Labor Freedom
2010 Index of Economic Freedom: Malaysia ranked 59 in the world and 9 in the Asia-Pacific Region
http://www.heritage.org/index/Country/Malaysia
Malaysia’s economic freedom score is 64.8, making its economy the 59th freest in the 2010 Index. Its score is 0.2 point better than last year, reflecting improvements in four of the 10 economic freedoms.Malaysia is ranked 9th out of 41 countries in the Asia–Pacific region, and its overall score is above the world and regional averages.
Malaysia’s ongoing reform measures have enhanced the overall entrepreneurial environment. The economy scores above the world average in eight of the 10 economic freedoms. The labor sector is relatively flexible, with simple employment procedures and no mandated minimum wage. The top income and corporate tax rates are moderate and have been reduced, and the overall tax burden is low as a percentage of GDP.
The financial sector has weathered the global financial crisis relatively well. Limits on foreign ownership in financial sub-sectors were eased, improving financial freedom, and numerous domestic equity requirements that restricted foreign investment were eliminated. Corruption and a judicial system that remains vulnerable to political influence remain significant challenges to economic freedom in Malaysia.
Background
Malaysia, an ethnically and religiously diverse constitutional monarchy, became independent in 1957 and has been
ruled since then by the United Malays National Organization. Huge electoral inroads made by the opposition coalition, led by the People’s Justice Party, in March 2008 were due largely to popular dissatisfaction with pro-Malay affirmative action programs and widespread corruption. Malaysia has slowly liberalized its economy, but government ownership in such key sectors as banking, automobiles, and airlines remains high. Malaysia is a leading exporter of electronics and information technology products, and its industries range from agricultural goods to automobiles.
Business Freedom69.9
The overall freedom to start, operate, and close a business is somewhat limited by Malaysia’s regulatory environment. Starting a business takes an average of 11 days, compared to the world average of 35 days. Obtaining a business license takes more than the world average of 18 procedures and 218 days. Bankruptcy proceedings are relatively straightforward.
Trade Freedom78.7
Malaysia’s weighted average tariff rate was 3.1 percent in 2007. Some high tariffs, import and export taxes, import restrictions, high services market access barriers, import and export licensing, non-transparent regulations and standards, non-transparent government procurement, export subsidies, and weak protection of intellectual property rights add to the cost of trade. Fifteen points were deducted from Malaysia’s trade freedom score to account for non-tariff barriers.
Fiscal Freedom84.3
Malaysia has moderate tax rates. The top individual income tax rate is 27 percent (non-residents are subject to a flat 28 percent tax). The corporate tax rate has been reduced to 25 percent from 26 percent. Other taxes include a capital gains tax and a vehicle tax. Under a single-tier tax system that became effective on January 1, 2008, dividend income is exempt from income tax. In the most recent year, overall tax revenue as a percentage of GDP was 14.8 percent.
Government Spending81.3
Total government expenditures, including consumption and transfer payments, are relatively low. In the most recent year, government spending equaled 25.0 percent of GDP.
Monetary Freedom76.7
Inflation has been moderate, averaging 4.4 percent between 2006 and 2008. Most prices are determined in the market, but the government influences certain prices through state-owned enterprises; controls the prices of petroleum products, steel, cement, wheat flour, sugar, milk, bread, and chicken; and usually sets ceiling prices for a list of essential foods during major holidays. Ten points were deducted from Malaysia’s monetary freedom score to account for policies that distort domestic prices.
Investment Freedom30.0
Foreign investment is welcome in certain sectors, and some domestic equity requirements have been eliminated. Certain kinds of investment are screened, though commercial operations can begin before approval. Resolving commercial disputes can be complex and time-consuming. Regulations are burdensome and non-transparent, and skilled labor is in short supply. Residents and non-residents may hold foreign exchange accounts, subject in many cases to government approval. Nearly all capital transactions are subject to restrictions or require government approval. Ownership of agricultural land is restricted to Malaysians.
Financial Freedom50.0
Supervision of banking has been strengthened, and non-performing loans have decreased to less than 5 percent. Mergers among local banks have been encouraged to increase overall competitiveness. There are 38 commercial banks, 20 of which are domestically owned. The central bank licenses and regulates banks. Islamic banking based on Sharia law accounted for around 17 percent of total banking assets in 2008. Foreign firms’ overall participation in the financial sector remains restricted. Equity participation is limited to 30 percent for commercial banks, but in 2009, the central bank raised the foreign ownership limit concerning Islamic banks, investment banks, and insurance companies to 70 percent from the previous 49 percent. The financial system has withstood the global financial crisis relatively well, and banks remain generally well capitalized and liquid.
Property Rights55.0
Private property is protected, but the judiciary is subject to political influence. Corporate lawsuits take over a year to file, and many contracts include a mandatory arbitration clause. Despite plans to ratify the World Intellectual Property Organization (WIPO) Copyright Treaty and the WIPO Performances and Phonograms Treaty, complaints about lax enforcement of intellectual property rights persist, and the manufacture and sale of counterfeit products have led to serious losses for producers of consumer products and pharmaceuticals.
Freedom From Corruption51.0
Corruption is perceived as present. Malaysia ranks 47th out of 179 countries in Transparency International’s Corruption Perceptions Index for 2008. The law provides criminal penalties for official corruption, but it has not been implemented effectively, and officials engage in corrupt practices with impunity. The media have reported numerous cases of alleged official corruption.
Labor Freedom71.4
Labor regulations are relatively flexible. The non-salary cost of employing a worker is low, but dismissing an employee remains difficult and costly. There is no national minimum wage, and restrictions on work hours are flexible.
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