Each story of the economic success began at two different and separate levels. The first level is the level of government. Many nations are now adopting pro-growth and free-market policies of low taxation, minimal regulations and flexible labor markets. Estonia is a recent example of a little country that could. Instead of active fiscal policies many governments relied on the monetary issues. The results were impressive. Post-war German economic miracle is a perfect example of pro-growth economic policies. Hong Kong is still a champion in economic freedom. The tiny tiger opened its economy and with the principle of low and fair taxation and non-government intervention embodied an economic story of success. Another level where the story of economic success is measured is the level of firms. In turn, macroeconomic policies largely determine microeconomic decisions of firms and individuals. Where macroeconomic policy is stable and productive, microeconomic results are rocketing up. By and large, incomplete financial markets and the failure of government to commit policy enable government to use active fiscal policy in order to consolidate its power. The outcome of an unstable macroeconomic policy was usually a catastrophic failure seen as (1) a large fiscal deficit or public debt, like in Croatia nowdays, or as (2) a high inflation which occurred because government had to print more and more money in order to finance its budget activities.
However, if firms want to increase their competition on a large market they deserve the highest quality of business environment without setting governmental myths. One of such myths is a myth of trade balance. Accordingly, governments are hardly willing to understand trade as a market. They rather use it as a political weapon. Their soundest and the most emotional appeal to the public is to underpinning “trade deficit” with other countries, striving on every way to come into surplus. But trade balance is largely a result of a market. How do we gain from exports as consumers in the country where export has taken place? In turn, we gain a lot from imports. We wear Italian shoes, drive German automobiles, eat Chocolate made in Belgium, buy large Japanese LCDs, talk to our friends with Finnish mobile phones, hike around with bikes made in Taiwan and prepare a dinner with first-class wine from California. In fact, free market gives us a choice to choose whatever we prefer. Consider a perfect example. You own a company and sell computers. Suddenly, there’s a signal on the market when your customers demand for the latest laptops. You find out that this laptops are produced in China and that it is only possible to import directly from China. So you order the latest 100 laptops and introduce them on the market. According to government officials you accounted a deficit in foreign trade with China. But where is the added value created? Here, in your company. The wholesale company got a cut and after you sold those laptops to your customers, you got a cut.
There is another question. Why some companies can’t compete? Business analysts may tell you reasons. One reason may be an inefficient management, unknowledgeable misinformed and inexperienced executive which could be the major source of uncompetitive company. Another, more actual reason why some companies can’t compete very well is the presence of government in certain areas. Strong and powerful presence of government in businesses usually serves as an instrument of price controls and political allocation in several areas of businesses makes them sister companies of the government. As an economist, I believe that government should be used for something more useful and practical.
Governmental function should take place in reforming business environments in terms of promoting and adopting free-market and pro-growth policies with the privatization of health and social security system on top. The governmental function in the reform process must therefore be applied to improve the quality of business environments. Another extremely important area urgently undertaken to be reformed is the tax policy. Progressive taxes are used to punish the most productive people and to allocate tax revenue according to the political measures in terms of large welfare programs. Charity is a lot better than social security. Social security is a way of keeping those on the bottom in poverty while charity is a way to help those people getting out of bottom in a decent and more productive way. Thus social security is a way of prolonging poverty and there is no more direct way to increase poverty and material decrease of well-being as putting social security programs into practice. Instead of promoting active fiscal policy, government should rather focus itself on monetary issues with inflation targeting policies as a basis of monetary policy including the control of the quantity of money and of the money supply.
Over the past ten years, the United States has seen corporations move job after job overseas in search of cheaper labor. An equally large problem has been the corporate tax rate. Five years ago, the U.S. corporate tax rate of 39% was the sixth highest among Organization for Economic Co-operation and Development countries, according to the Tax Foundation. While other countries have lowered taxes, the U.S. rate hasn't budged, and today it has the highest rate among OECD countries, eclipsing former tax gougers such as Germany and Canada.
And when you start factoring in litigation costs, $250 billion per year or 2% of gross domestic product, it's amazing that any companies stay in the U.S. So, what is a company to do in this high-cost, antibusiness environment? Maybe minimize the damage by moving to a more business-friendly state.
In the latest research conducted by Forbes 50 states were ranked from the bottom to the top according to their performance in six major categories:
Business costs
Economic climate
Growth prospects
The quality of life
Labor
Regulatory Environment
Business costs are essential to the firm. Economic climate often contributes its portion to the business costs. If banking system is inefficient, investors can hardly find a decent source of financial support for future joint-ventures. High and progressive income tax codes could do the unprecedented damage as well. Why should an investor build high-tech facilities in Slovenia where corporate tax rate equals 25% while he can choose Hungary with 16% corporate tax rate? Growth prospects can be decreased if the overwhelming regulation and tax system keep businesses away from putting their potential of growth into practice. If there is no productive labor supply that could ensure future growth of a company, companies will come and go. And if certain business environment is forecasted to grow, more and more fresh graduates will come there and try to give the best of their potential in an environment that grows. The quality of life is a very stimulating area which together with labor determines the mobility, capability and flexibility of workers in their performance. Rigid labor markets and state protection of the labor are the most damaging impacts that reduce the opportunity, choice and mobility as well. Good education score among students ensures companies a good supply of future labor force with highly sophisticated knowledge. Regulatory environment is a considerable area as well. Rigid regulatory codes could force investors to find the opportunities somewhere else. Extensive product market regulation decreases the ability of firms to focus on its market supply and innovation strategy. Instead, investors are often forced to go through thousands of pages of different rules, codes and acts. Inefficient, entrepreneurially hostile and enormously large state or local administration could additionally force investors to move into another place in order to find another place to invest. There would be no new jobs that would bring prosperity, choice and the opportunity for everyone for new graduates and consumers as well.
The outcome of the Forbes research “The Best States for Business” is a useful tool for investors, a sort of a guidebook that concerns where is the best location to do business, reflecting six main categories through which economists and analysts can find new and productive ways of specifying methodology that examines the question of measuring the quality of business environment.
So if you are an investor facing strongly rigid hindrances in the environment where you work I recommend you to come to Virginia where you can find the business environment of the first quality.
I remember how Allan H. Meltzer once perfectly captured the essence of difference between productive and unproductive people when he set the following statement: “The least productive people are those who are in favor of holding meetings.” I think he hit center of the target by telling this very vibrant truth.
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