2.  An Overview of the International Surveys

The international surveys discussed in this paper are:

1. The Index of Economic Freedom by the Heritage Foundation and the Wall Street Journal.

2. The Doing Business Survey by the World Bank.

3. Economic Freedom of the World by the Fraser Institute.

4. The Global Competitiveness Report by the World Economic Forum (WEF).

5. The World Competitiveness Yearbook by the IMD.

6. The OECD Regulatory Indicators.

WEF’s Global Competitiveness Report

The Global Competitiveness Report produced by the World Economic Forum (henceforth referred to as the WEF survey) samples 117 countries every year from 1979 until 2004. While the overall indicators presented in this survey are aimed at measuring the broader concept of competitiveness[3] rather than regulation specifically, various sub-indices are relevant to the impact of regulation on competition.

The survey has three overall indicators: the Growth Competitiveness Index (GCI), the Business Competitiveness Index (BCI), and the Global Competitiveness Index. The GCI is of no relevance to this discussion as it contains no information on regulatory policies. The BCI focuses on the underlying microeconomic factors which determine economies’ current sustainable levels of productivity and competitiveness. It specifically measures two areas that are critical to the microeconomic business environment: the sophistication of company operations and strategy, and the quality of the overarching national business environment in which they operate. It is this second aspect of the BCI which is of relevance to the discussion here, as it includes various aspects of the regulatory stance within an economy. For example, under the ‘Administrative Infrastructure’ sub-index (see Figure 1 below), the ‘extent of bureaucratic red tape’ is included as one component of this measure (New Zealand ranks 26^th on this component).[4] Another example is the ‘Competition’ sub-index, which includes the component ‘prevalence of trade barriers’ on which New Zealand ranked^{2nd (that is, it had the second lowest trade barriers) in 2004. New Zealand ranked 16th for the overall ‘Quality of the National Business Environment’ in 2004.}

The Global Competitiveness Index takes a more macroeconomic approach and is built around nine pillars, each of which is critical, according to the authors, to driving productivity and competitiveness in national economies. Two of these nine pillars contain sub-categories relating to regulation. The ‘Institutions’ pillar contains a sub-index labelled ‘The Burden of Government Regulation’, which is obtained through responses to the statement, “Complying with administrative requirements (permits, regulations, reporting) issued by the government in your country is 1=burdensome, 7=not burdensome”. New Zealand was ranked 39^th on this question.

The other pillar which is important when comparing regulatory stances across countries is the ‘Market Efficiency’ pillar. According to the authors, the efficiency with which the various factor markets in an economy function is critical for its underlying productivity and competitiveness, as it ensures the proper allocation of economic factors to their best use. Three types of market efficiency are measured in this pillar: goods markets, labour markets, and financial markets.

It is important to remember that these “pillars” and what are included in them, have been chosen by the authors. To understand particular aspects of regulatory performance for policy purposes, it is necessary to look at the disaggregate results. For example, some components which are included in the ‘Market Efficiency’ pillar are more relevant than others when assessing regulation and its associated impact on competition. Therefore while New Zealand ranks 10^th for Market Efficiency, overall, it may also be useful to know that New Zealand ranks 54^th in terms of hiring and firing practices.[5] It might also say something about the impact of regulating hiring and firing: despite its impact on some business decisions, what impact do these regulations have on overall market efficiency?

Also, the WEF asks respondents questions on the environment, but only one question on this is included in the BCI and none are included in the Global Competitiveness Index. New Zealand ranked the 10^th most stringent on environmental regulations, and 15^th for the clarity and stability of environmental regulations. When asked if complying with environmental standards reduced competitiveness, New Zealand ranked 25^th.

Respondents were also asked to select the five (out of a possible 14) most problematic factors for doing business in their country. In New Zealand, approximately 18 per cent of respondents listed the ”inadequate supply of infrastructure” as the most problematic factor, 17 per cent listed ”restrictive labour regulations” as the most problematic factor, and 10 per cent listed tax regulations.

A key message to be taken from this discussion is that it is less informative to study the overall or even the sub-indices of competition published by the WEF—and more informative to drill down to the various components that are likely to be more specific and therefore illuminating. Data at this level are easily accessible for most of the surveys considered here.[6] The advantages and disadvantages of how they have obtained these various components are discussed in the next section.

Figure 1 - Breakdown of the WEF's Business Competitiveness Index.