League tables

inSight

02 Mar 2000

League tables

League tables may work well enough for football competitions. But how useful are they as measures of economic well-being?

If Manchester United tops the Champions League, we know precisely why (best results on the field), and even opposition supporters would, albeit grudgingly, acknowledge them as best team. It would be nice if other types of ranking were so clear-cut. Unfortunately they are not.

I recall some years ago seeing a table of international cost-of-living comparisons, which showed a small African state way out in front. If you went there, however, you would have discovered that few of the essentials of life cost more than a few cents. On closer inspection it transpired that the table was designed for expatriates from richer parts of the world and included a significant weighting for imported luxuries - notably whisky, which happened to be subject to an exorbitant duty. (In practice most of the expatriates anyway managed to avoid the high price by being friendly with the diplomatic community, which enjoyed tax exemption.)

Let's take another example: those ever-popular "quality of life" tables. Quite frankly, I resent some so-called researcher telling me that I'd feel better if only I happened to be somewhere else. How can one sensibly measure and then aggregate the respective states of the economy, society, culture, politics, climate, scenery, etc? For instance, Hong Kong might score badly because of high density of population, but at least every single citizen lives within reasonable proximity of one of our fine country parks. Could the same be said for the mass of urban dwellers in other places, no matter how many square kilometres of forest, desert or mountain may occupy remoter parts of their countries?

I wouldn't deny that it's extremely flattering to read that some prestigious research institute has placed you at the top of their list. But what happens when another one places you at the bottom? The instinctive reaction is to seek out faults in the methodology in an effort to ridicule the entire exercise.

It is for reasons of this sort that I'm personally extremely reluctant (though I can't vouch for my colleagues!) to assert that Hong Kong is the leading international financial centre of the region. Instinct tells me that it is, but I'd live in terror of someone challenging me to "prove it". I could foresee lengthy but inconclusive bickering, throwing statistics back and forth. Much as with the quality of life, you either feel it or you don't.

Another example. The HKMA publishes the top positions, which include Hong Kong, in the international league table of foreign exchange reserves. We do this only in response to popular demand. But what do these measure? It is gross foreign financial assets (i.e. liabilities are not netted off – not that our government has any, but most others do) of the official sector (i.e. not a measure of overall national wealth held overseas). And how should these be interpreted? In short, "with caution". The optimum level of reserves depends on many factors. One is the exchange rate regime. With a fixed rate, more may be needed than under floating. And there is perhaps greater justification for amassing official holdings of foreign assets when the counterpart is an accumulated surplus in the public sector than in some other circumstances. But it's worth noting that the authorities in some countries deliberately eschew opportunities to add to official reserves, because they feel that government should remain neutral and allow the private sector and the markets to manage and allocate wealth: the USA and UK may fall into this category.

That said, I believe, that our reserve position is both very satisfactory and appropriate to our circumstances, but that does not mean that I would wish to use the figures as some summary measure of economic virility.

I shall continue to treat all league tables with a healthy scepticism - except of course in sports.

 

Tony Latter
Deputy Chief Executive
2 March 2000

 

More information on Reserves Management can be found here.

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