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Comparing crony capitalism around the world

The Economist's crony-capitalism index

By The DATA TEAM

POLITICAL connections have always greased the wheels of commerce. But for the past 20 years, from Malaysia to Mexico, crony capitalists—individuals who earn their riches thanks to their chumminess with government—have had a golden era. Worldwide, the worth of billionaires in crony industries soared by 385% between 2004 and 2014, to $2 trillion. The Economist's crony-capitalism index tries to measure the extent of this graft for a number of important countries.

Using data from a list of the world's billionaires and their worth published by Forbes we label each individual as crony or not based on the source of their wealth. Industries that have a lot of interaction with the state are vulnerable to crony capitalism (a full list of industries is provided in the table below). These activities are often legal but always unfair (Donald Trump, a casino and property tycoon, earns the 104th spot in our individual crony ranking). We aggregate the billionaires by their home country and express the total wealth as percentage of GDP. The results are presented above for 22 economies: the five largest rich ones, the ten biggest for which reliable data are available and a selection of other countries where cronyism is a problem.

Germany is cleanest, where just a sliver of the country’s billionaires derives their wealth from crony sectors. Russia fares worst in our index: wealth from the country’s crony sectors amounts to 18% of its GDP. Thanks to tumbling energy and commodity prices politically connected tycoons have been feeling the squeeze in recent years. Among the 22 economies in our index crony wealth has fallen by $116 billion since 2014.

But as things stand, if commodity prices rebound, crony capitalists’ wealth is sure to rise again. As our leader article argues, there are a number steps that governments can take to reduce this graft. This is not without precedent. The robber barons of America’s Gilded Age in the late 19th century gave way to the Progressive Era at the turn of the 20th century, when tough antitrust laws were passed. After years of rampant crony capitalism, emerging economies now face a similar moment. They should not waste it.

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