Frequently Asked Questions
(FAQs)

This list includes the most popular questions and answers about the Index of Elite Quality (EQx).

If you have any questions remaining, or would like further details, we encourage you to submit any queries to the EQx team, who will endeavor to provide an answer to you.

Results and Interpretations

Countries scoring comparatively high have elites that create more value than they capture. Such countries can expect higher economic and human development levels in the future. 

Countries scoring comparatively low have elites that capture more value than they create (equivalently referred to as rent seeking or rentier elites). Such countries may develop more extractive institutions and see less human welfare.

No, not automatically. Rather, it means that elites are very dominant. Often, political power is a pre-condition for rent seeking. However, there are countries where dominant elites use their power to create value for the whole of society.

No. EQx does not consider specific individuals or groups in a particular country, nor has it developed any methodology in this direction. The EQx multi-level architecture allows to analyze the elite quality with respect to specific domains of the political economy, on aggregate.

EQx tells a story of elites at the national aggregate, built on evidence supplied by a variety of datasets (Indicators) which are normalized, aggregated and weighted according to the EQx methodology. Most countries have diverse narratives related to elites. For instance, there might be impressive value creating elites, but their stories diminished or downplayed; Below the aggregate national elite quality story, one might find a multitude of highly varied elite accounts related to leading families, companies, or industries. EQx does not tell these stories, or only does so to the degree that they impact national value creation by the elites on aggregate.

Key Concepts

The Index of Elite Quality (EQx for short) is a political economy index that measures and ranks countries on the basis of their elite quality. Elite Quality is understood as the aggregate impact of elite business models in the political and economic spheres of society. That impact might be Value Creation (positive) or Value Extraction/rent-seeking (negative). High quality elites give more to society than they take and thus maximize a country’s inclusive economic and human development in the long run.

Elites are groups which possess the strongest coordination capacity over a society’s key resources. As a network of powerful individuals, elites operate business models that generate wealth and allow its accumulation along with power. EQx understands the term elites broadly, as it includes economic interest groups – high-tech entrepreneurs of the Silicon Valley, oil cartels, monopolists, bankers of Wall Street, etc. – but also decisions makers of the political arena, which can be as diverse as politicians in a democratic system, religious leaders or members of the higher ranks of monarchic regimes.

The coordination capacity of elites develops and allocates society’s resources and human capital. . However, not all elites use their coordination capacity to enlarge the economic pie available to the whole of society. Instead, some enlarge their own slice at the expense of growing the rest of the pie, exploiting the non-elites and leaving them with an unfair allocation . In short, elites – on aggregate – in certain countries are better than elites in other countries, as measured by the extent to which they benefit and bring value to society at large.

EQx’s central premise is that elite quality can help explain discrepancies in general economic performance and human development between countries over time. EQx provides each surveyed country with a Country Score and a position in the derived comparative Global Ranking. We hope that our benchmark will lead globally to higher quality elites by providing references points across various measures of best elite practice.

As summarized by Hillman and Ursprung1 “in the rent seeking literature, a rent is an unearned reward sought through a quest for privilege. The seeking of rents is personally beneficial… but social loss is incurred because resources are used in non-productive distributive quests”. An article in Forbes2 describes “rents” as ownership of “someone else’s surplus”. An article in The Economist3 explains rent seeking as “grabbing a bigger slice of the pie rather than making the pie bigger.” In academia, Gordon Tullock in The Welfare Costs of Tariffs, Monopolies, and Theft (1967) and Anne Kruger in The Political Economy of Rent Seeking (1974) made the political connection between institutions and rent seeking explicit. EQx understands rent seeking as the opposite of Value Creation. Value Creation is ‘enlarging the pie’ to the benefit of elites and non-elites alike.

What we Measure

The EQx has a multi-level architecture that allows to quantify and analyse different aspects of elite quality. There are two main Sub-Indices: Power and Value. Each of the two Sub-Indices contains a political and economic dimension, yielding four Index Areas. Each Index Area in turn measures three aspects of elite quality, conceptualized as Pillars. Finally, each of these (in total twelve) Pillars contain a set of individual Indicators. Currently, the EQx is based on 72 Indicators, each measuring whether a country’s elites are committed to value creation or rather to value extraction.

What are the EQx Sub-Indices

This Sub-Index measures elites’ capacity to project influence and enforce preferences on the political economy. Equivalently, it is the ability to shape the economic and political business models of the future. The Power Sub-Index I consists of the two Index Areas ‘Political Power’ (i) and ‘Economic Power’ (ii).

This Sub-Index is anchored in the ideas of Value Creation developed in management and in rent seeking theories of economics. Value Creation and rent seeking Value Extraction are on opposite sides of the same continuum. Elite business models are somewhere in the range between Value Creation, at one extreme, and Value Extraction on the other. The Value Sub-Index II consists of the two Index Areas ‘Economic Value’ and ‘Political Value’.

What are the 4 EQx Index Areas?

Political Power measures the capture of 3 kinds of rules: the rules of the state, the rules of business regulations, and the rules of labor markets and civil service jobs. The terminology is borrowed from Stigler’s Capture theory4. Consequently, this Index Area consists of the three Pillars ‘State Capture’, ‘Regulatory Capture’, and ‘Human Capture’.

Economic Power measures elite dominance in the economy at the firm level, at the industry level, and in terms of creative destruction. Economic Power represents future potential Value Extraction, since it gives elites the ability to modify business models to their own benefit. This Index Area consists of the 3 Pillars ‘Industry Dominance’, ‘Firm Dominance’, and ‘Creative Destruction’.

Political Value measures the extent of Value Creation vs. Extraction in the political dimension. This is conceptualized as the state’s unearned income, as well as both its taking and giving of income (e.g. in the form of taxes, subsidies and regional transfers).

Economic Value measures elites’ current Value Creation and Extraction activities in the economic realm, more precisely in the economy’s 3 markets: the products and services market, the capital market and the labor market. This Index Area therefore consists of the three Pillars ‘Producer Rent’, ‘Capital Rent’ and ‘Labor Rent’.

What are the 12 EQx Pillars?

State Capture is a Pillar of the Political Power Index Area (i) of EQx. 

Pillar i.1, State Capture focuses on the direct capture by distributional coalitions of the state and its government branches. This Pillar measures diverse manifestations of elite power ranging from political centralization to gender parity at the state’s top echelons. Specific Indicators measure Social Mobility (MOB, i.1) and any evidence that the state has been captured, as for instance evidenced by Political corruption (COR, i.1).​

Regulatory Capture is a Pillar of the Political Power Index Area (i) of EQx. Pillar i.2, Regulatory Capture measures the extent to which rules and regulation, or the making thereof, have been captured by special interests. The Pillar includes Administrative decentralization (AED, i.2) and Crony capitalism (CRO, i.2), derived from an index proposed by The Economist5, which measures wealth derived by billionaires from rent-heavy industries as a signal of the successful capture of regulators or legislators. It also incorporates the World Bank’s widely-recognized Ease of Doing Business Index which measures the quality of a country’s institutions and regulatory environment.​

Human Capture is a Pillar of the Political Power Index Area (i) of EQx.

Pillar i.3, Human Capture attempts to measure the power of labor and civil service coalitions, including their privileges in the political system. This might be reflected by their ability to influence their own wages and working conditions. In this Pillar, evidence of their Political Power is measured by Unionization rates (UNI, i.3), or Public sector employees as % of total employment (PSE, i.3). Other areas of human capture are operationalized by the Women, Business and the Law (WBL, i.3) Indicator, or the extreme phenomena of modern slavery by the Global Slavery Index (GSI, i.3).​

Industry Dominance is a Pillar of the Economic Power Index Area (ii) of EQx.

Pillar ii.4, Industry Dominance measures a national economy’s diversity. Influence of a country’s dominant industries in the political economy is assessed by Indicators measuring, for instance, the relative export volumes, revenues, or profits of leading industries as percentage of GDP. The Pillar also includes Indicators like the Economic Complexity Index (ECI, ii.4) measuring the “amount of productive knowledge”5 implied in a country’s export structures.

Industry Dominance is a Pillar of the Economic Power Index Area (ii) of EQx.

Pillar ii.5, Firm Dominance measures the degree of power concentration in the hands of a nation’s leading firms. To that effect, the Pillar examines, for instance, the Top 10 firms market capitalization as % of GDP (FKG, ii.5), as well as the number of Small and medium sized enterprises per 1,000 people (SME, ii.5). Indicators further considered will be measurements of policies designed to maintain healthy levels of competition and limits to Economic Power.

Creative Destruction is a Pillar of the Economic Power Index Area (ii) of EQx. Pillar ii.6, Creative Destruction estimates the pressures for renewal and disruption in an economy. Borrowing Schumpeter’s concept6, one focus is entrepreneurs whose role is to challenge incumbents and drive economic growth. The  Pillar first considers the“destruction” part of the process for instance by measuring the Listed firms turnover, long run 15 years / short run 3 years (TUL/TUS, ii.6) and the Firm entry/exit ratio (ENR/EXR, ii.6). Then, it considers the forces fostering “creation” in the economy, such as the all-important level Entrepreneurship (ENT, ii.6) or VC (venture capital) finance (VCK, ii.6).​
Giving Income is a Pillar of the Political Value Index Area (iii) of EQx. Pillar iii.7, Giving Income focuses on how the government uses and manages public finances. Redistribution of state income in the form of Subsidies and transfers as % of expenses (SNT, iii.7) is an important Indicator of this Pillar; many of these processes often divert resources away from most efficient uses and create hidden cost 7. The Pillar also evaluates Indicators conducive to Value Creation, like public education provision or health including Covid-19 safety (COV, iii.7), that increase competition in many markets and act to curb rent seeking behaviors.​

Taking Income is a Pillar of the Political Value Index Area (iii) of EQx.

Pillar iii.8, Taking Income measures rent extraction occurring as the state collects income from productive citizens and other wealth generators, fails to protect these, or endorses wealth transfers carried out by powerful coalitions. The Pillar includes tax system properties such as the Corporate tax rate deviation from optimum (DCT, iii.8). Other Indicators reflect external peace and internal security levels, such as in Homicide Rate (HOM, iii.8). Plans for future Indicators include a Housing affordability survey (HAS, iii.8) since land prices are often determined by the government on behalf of narrow coalitions with pernicious effects on the young and working classes.​

Unearned Income is a Pillar of the Political Value Index Area (iii) of EQx.

Pillar iii.9, Unearned Income mainly focuses on the exploitation or Value Extraction of natural and various resources, including the future. For instance, environmental footprints are conceptualized as wealth provided by nature – i.e. wealth that is not earned in full. In addition, low Environmental Performance Index (EPI, iii.9) represents intergenerational wealth transfers, as does Government debt as % of GDP (DBT, iii.9). State ownership, control and involvement in business (SOE, iii.9) is another Indicator here – the license to operate is self – issued rather than earned.

Producer Rent is a Pillar of the Economic Value Index Area (iv) of EQx.

Pillar iv.10, Producer Rent identifies rents extracted by producers and suppliers in the market for goods and services. Rents are extracted, for example, through barriers as implied in Trade Freedom (TRF, iv.10), Barriers to entry (BTE, iv.10) or Foreign direct investment as % of GDP (FDI, iv.10). Protectionist measures against entry enable Value transferring business models to be established, usually to the benefit of domestic producers and investors, inducing welfare losses well-documented in economics.​

Capital Rent is a Pillar of the Economic Rent Index Area (iv) of EQx.

Pillar iv.11, Capital Rent focuses on rents extracted though direct or indirect financial market participation. Data from markets, including Neutral interest rate (DNI, iv.11), M&A as % of GDP (DMA, iv.11), Gold demand as % of GDP (GOL, iv.11) or Currency appreciation (CUA, iv.11), are assessed to determine Value Extraction. More complex forms of rent seeking in capital markets will also be considered in the future, like the difference between return on assets (ROA) and total factor productivity (TFP).​

Labor Rent is a Pillar of the Economic Rent Index Area (iv) of EQx.

Pillar iv.12, Labor Rent seeks to determine all rents arising from interventions in or related to labor markets by participants on both supply and demand sides. For this purpose, the Pillar will include the Unemployment rate (UEM, iv.12) and other measures which often are the result of intra-labor rent seeking. Value Extraction phenomena in which rent seeking can a priori occur on either the employers or employee side are also measured, like the Delta real wage vs labor productivity (WLP, iv.12). More clear-cut Value Extraction models considered are the Gender wage gap (GWG, iv.12) and the planned Cost of Thriving Index (CTI, iv.12).​

How we Measure

The weights of each Indicator, Pillar, Index Area and Sub-Index are determined by a panel of experts. The EQx’ participatory expert panel approach implies that established weights are reviewed and updated as necessary. For more details on the weighting, including the underlying theoretical reflections, please download our Methodology Paper.

A variety of data sources are used for EQx. These include public sources and renowned international organisations such as the World Bank, IMF, OECD, as well as other leading indices. Selected Indicators are constructed by the EQx team of researchers and collaborators. The underlying data source(s) for each Indicator are documented and listed in the EQx Indicators Table.

The methodology used for the EQx2020 undergoes a continuous peer review process, as it aims at validation and further development. If you are a scholar or researcher interested in participating in the EQx methodology review process or in making contributions to the EQx methodology, please contact us at research@elitequality.org.

Other

The EQx2020 represents the starting point for the development of a longitudinal study with annual results and their qualitative interpretation. As a proof of concept, it is limited to a reduced number of countries to enable the EQx team to test the index methodology and validate various concepts and frameworks. . We selected 32 countries on the basis of economic significance and geographical diversification criteria. The included countries are, alphabetically: Argentina, Australia, Botswana, Brazil, Canada, China, Egypt, France, Germany, India, Indonesia, Israel, Italy, Japan, Kazakhstan, Korea, Mexico, Nigeria, Norway, Pakistan, Poland, Portugal, Russian Federation, Sadia Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, United Kingdom, United States.

The EQx2021 Report plans to rank over 120 countries: all countries (and, in the future, regions) that can generate enough Indicator datasets to produce a meaningful and comparable Country Score.

Casas, T. & Cozzi, G. (2020). Elite Quality Report 2020: 32 Country Scores and Global Rank. Zurich: Seismo. doi: 10.33058/seismo.30750 

Sources:

1) Hillman, A. L. & Ursprung, H.W. (2015). Rent seeking: The idea, the reality, and the ideological resistance.
Retrieved from https://www.econ.pitt.edu/sites/default/files/Hillman.Rent%20 seeking.2015.pdf
2) Marotta, D. (2013, February 24). What is Rent-Seeking Behavior? FORBES.
Retrieved from https://www.forbes.com/sites/davidmarotta/2013/02/24/what-is-rent-seekingbehavior/#24c0d822658a
3) Planet Plutocrat. (2014, March 15). The Economist.
Retrieved from https://www.economist.com/news/international/21599041-coun¬tries-where-politically-connected-businessmen-are-most-likely-prosper-planet
4) Stigler, G. (1971). The Theory of Economic Regulation. The Bell Journal of Economics and Management Science, II(1), 3-21. doi: 10.2307/30031605) Comparing crony capitalism around the world. (2016, May 5). The Economist.
Retrieved from https://www.economist.com/graphic-detail/2016/05/05/comparing-crony-capitalism-around-the-world
5) Hausmann, R., Hidalgo, C., Bustos, S., Coscia, M., Chung, S., Jimenez, J., Yildirim, M. (2011). The Atlas of Economic Complexi­ty: Mapping Paths to Prosperity.
Retrieved from the Obervatory of Economic Complexity (OEC) https://oec.world/static/pdf/atlas/ AtlasOfEconomicComplexity.pdf

6) Schumpeter, J. (1942). Capitalism, Socialism and Democracy. New York: Harper & Brothers
7) Clements, B. & Parry, I. (2018, September). Subsidies: Some Work, Others Don’t. Finance & Development, pp.56-57.
Retrieved from https://www.imf.org/external/pubs/ft/fandd/2018/09/ pdf/what-are-subsidies-basics.pdf
8) Porter, M. (1990). The Competitive Advantage of Nations. New York: Free Press
9) Wendling, Z. A., Emerson, J. W., Esty, D. C., Levy, M. A., de Sherbinin, A., et al. (2018). 2018 Environmental Performance Index. New Haven, CT: Yale Center for Environmental Law & Policy.
Retrieved from https://epi.yale.edu/