Sunday, November 26, 2006


According to World Economic Forum, Switzerland peaked as the most competitive economy in 2006. Switzerland recently officially decided to establish cooperation between itself and Eastern Europe. But it chose the wrong direction. Swiss policy-makers proposed a development aid budget, the aim of which is to subsidize new EU member states in order to help them creating sustainable economic development. This perception is clearly misguided. The most efficient way to creating a sustainable economic development is a strong protection of private property rights. This is a particular point at which Eastern tigers should start building their reputation. If we put ourselves into the position of a university professor, then only Estonia would receive an A+ from "property rights protection" exam. Inefficient, politically-influenced judicial staff in countries such as Poland, Czech Republic, Slovenia and partly Hungary implicitly imposes a heavy burden to the economy. Steve Pejovich, Friedrich August von Hayek and Milton Friedman wrote very large volumes on the importance of sufficient private property rights protection. In fact, Switzerland still retains some heavily burdensome controls and restrictions on international trade. The World Bank reports that Switzerland's weighted average tariff rate in 2001 (the most recent year for which World Bank data are available) was 1.5 percent. Nearly all agricultural products are subject to import duties and variable import quotas. After having graduated from the competitiveness, Switzerland is obviously heading in the wrong direction. Massive governmental outlays to new member states are an insane idea. It would be far more efficient if Switzerland abolished quotas and duties on agricultural products and finally opened-up itself to new member states and let the competition run the agricultural market. As far as I can see, there's no sense in contributing budget aid to any particular state or new comer. A continual addiction to such outlays would result in a series of lacks of economic performance while policy-makers in new members states and in the EU in general, focused on lobbying for more budget aid instead of the commitment to further privatization, market and price liberalization and on officially announced policy of inflation targeting in order to vitalize the stabilize the public finance and to let floating exchange rates run. Hungary suffers heavily from instability of public finance. More budget aid to Hungary would result in another deception, fraud and fatherly expanded government spending. Slovenia, for instance, needs to privatize the rest of the state-controlled economy. It has to liberalize its highly rigid labor market and it has to radically reform the "cradle-to-grave" pension system which is currently running toward the collapse. In this very position, Switzerland is acting like a socialist enterprise, an extensive central-planning board that is heading in the wrong direction. The result of this mismanaged policy, if enacted, will cause exactly opposite effects compared to the intention of the Swiss government itself.

If the leaders of new member states are smart and wise enough, then they should reject the latest proposition of the Switzerland as well as they should repeat the words of Mart Laar; "Give us no aid, but trade."

Saturday, November 25, 2006


In sometimes disgraciously flavored popular culture, we often hear how American "savage" individualism represents greed and selfishness and how Europe's devastating welfare models embody solidarity and the so called "social care". But in his new and astonishing volume, professor Arthur C. Brooks, finds first that family that works for its own income on a market basis, donated three times as much money as the family receiving exactly the same amount of income from welfare programs. In the previously written volume, professor Brooks found out that people who believe that they should take care of themselves accounted for 25 percent of the population but they gave 31 percent of America's blood. If the whole population gave blood like the opponents of social spending do, says Brooks, the blood supply would increase by more than a quarter. But if everyone in the population gave like government-aid advocates, the supply of the blood would drop by 30 percent. Another survey found that people who believe that government spends too much on welfare, are more likely to give directions to someone on the street, return extra change to cashier and give food or money to a homeless person.

Finally, how often we hear how generous Europe, namely the island of socialism, is compared to "merciless American individualism". Well, it's not like that, survey under the leadership of professor Brooks found. Here're some rough estimates. Americans gave vastly more charity per person. Twice as much as Spanish, three times as much as French, seven times as much as German and fourteen times as much as Italians. Despite working an average of 1 895 hours per year, Americans are 15 percent more likely to volunteer their time than Dutch, 21 points more likely than Swiss and 32 points more likely than Germans. In fact, 80 percent of Germans never volunteer their time.

USA - 1895
Portugal - 1804
Great Britain - 1787
Ireland - 1779
Sweden - 1775
Luxembourg - 1768
Italy - 1764
Spain - 1763
Greece - 1744
Netherlands - 1741
Belgium - 1722
Finland - 1714
Austria - 1696
Germany - 1674
Denmark - 1658
France - 1651

Source: IMD, 2004; Stanislav Kovac, Public Enemy: The Triumph of Workoholic Americans (Zmagoslavje deloholicnih Americanov), Finance, 2005

Tuesday, November 21, 2006


Gary Becker offers a deeply expressed tribute to professor Friedman who has recently passed away.

"In considering his many contributions to economics I will pass over his major innovations in scientific economics. These include his emphasis on permanent income in explaining aggregate consumption and savings, his study of the monetary history of the United States, his explanation of the stagflation of the 1970's, his analysis of the value of a stable and predictable monetary framework to help stabilize the economy, his early contributions to the theory and measurement of human capital, his discussion of choice under uncertainty, and his famous essay on methodology in economics."
--Gary Becker


The Economist points out the general effects of trading with kidneys. Governmental regulation and huge restrictions on trading with kidneys has had a damaging impact on lives of thousands. Governmental restrictions imposed through vast and extensive legislation cause needless deaths. Trading with kidneys is banned in most of the countries so reasonably supply depends on donors and charity-givers. On the other side, the abolishment of trading with kidneys has produced long waiting lines. If just 0.06% of healthy Americans aged between 19 and 65 parted with one kidney, the country would have no waiting list. The only way to step towards the encouragement of this is to legislate trading with kidneys itself. Perhaps many people will take this idea as repugnant but the organ market in body parts already exists and companies make millions out of it. To an economist, it would be a bizzare approach to exclude individuals from one of their basic liberties - a freedom to enter a voluntary exchange when both parties benefit. Taking it literally, the legalisation of kidney and organ market for both, companies and especially individuals would be a big step ahead of instincts. Potential buyers would get better kidneys faster. The market would bring a bulk of improvements. However it seems strange that even the so-called "human rights servants" completely ignore this issue and deny one of the very basic freedoms - a freedom to enter into particulary exchanges. Instincts, in this particulary case, lead to more waiting lines, more harm and more deaths. It would be a disgraceful approach to let organs be traded by the bureaucrats. It sounds illogical to let individual decisions and trade choices into the hands of the government. However what governmental intervention has done is the increased level of black market penetration. Wouldn't be better if such sort of trade were legalized. Buyers and sellers would do the best of their ability. This is the only logical answer to the question of organ market. In this very case, free market initiative saves lives of individuals away from political abuses and bureaucratic decisions. This is the only way to avoid waiting lists, harms and deaths. When groups of individuals usually set themselves into long waiting lists, they logically complain about long procedures and numerous regulations. Well, the only one to be blamed is not the market, it's the government!

Monday, November 20, 2006



In their articles, Mico Mrkaic of the IMF, Thomas Sowell of the Hoover Institution, Mitja Steinbacher of the Free Society Institute, Arnold Kling of TCS, David Boaz of the CATO Institute and myself reflect the very remarkable legacy of professor Friedman.

"We can admire Friedman, not only as a thinker but also as a human. Equipped with the iron will of the classical liberal, he knew that fighting for freedom demands an entire dedication to achieve its objective. Alone, Friedman stood against Keynesian tendencies in economic theory which dominated in the post-war time in theory as well as in economic practice. Friedman bravely knocked out unflattered Keynesian thought schemes. He showed that Keynesianism itself leads towards the loss of freedom and welfare respectively. Only the best of the best can keep up against such a numerously fanatical opposition..."
- Mico Mrkaic

"As the central figure in the "Chicago School" of economists, and an outstanding teacher, Friedman over the years sent forth into the world--overseas as well as in the U.S.--a stream of economists who influenced the thinking, and in some cases the policies, of countries all around the world. These students, along with his writings, are part of his enduring legacy. His popular writings, speeches and television appearances spread his ideas through successively wider circles of people, who passed these ideas on to others, many of whom may never had known where these ideas originated..."
-- Thomas Sowell

"The world has lost a remarkable scientist and also a great thinker. It lost a visionary who firmly stood in defence of the principles of free society and individual liberty. There's nobody who could during the period of his life contributed more to the spread of the very essential values, as Milton Friedman did..."
-- Mitja Steinbacher

"Friedman was not against trying to help poor people. However, he always insisted on trying to give the poor as many choices as possible. Hence, he preferred vouchers for health care to having government take over the health care system. Similarly, he preferred vouchers for schools to a government-run school system. However, he preferred straight cash transfers, via a negative income tax, to specific vouchers. He trusted poor people to make the best choices for themselves in allocating money among health care, schooling, and other goods..."
-- Arnold Kling

"After that the brilliant academic economist became a public figure-probably the most important advocate of individual freedom in the United States for the next 40 years. He wrote a column for Newsweek, lectured around the world, and appeared on television, always arguing for the benefits of free markets and free societies. He was enlisted as an adviser to Republican presidents and candidates, yet rejected the label "conservative," insisting that he is a liberal like Thomas Jefferson and John Stuart Mill, or a libertarian in modern terms.
His advice was also sought around the world. Most famously, in the 1970s he advised the military government of Chile - for which he received years of abusive criticism - and the communist government of China - which no one seemed to mind. Happily, both governments listened, and both have become "economic miracles." Chile now has the most successful economy in Latin America, and China's path along the "capitalist road" has made it more prosperous than anyone could have dreamed in 1976, the year that Mao Zedong died and Friedman won the Nobel Prize..."

-- David Boaz

"On this day, an excellent economist as well as a great man left us, but the influential impact of his ideas is a great challenge to apply the thought of Milton Friedman to the course of free society, a society for which professor Friedman always fought and never got despaired. Those of us who have admired professor Friedman, continually believe in his powerful ideas and inspiriation. He left us a rich legacy of economic thinking, a legacy of excellence and a legacy of perfection."
-- Rok Spruk

Thursday, November 16, 2006


"I define Equality of Opportunity as the following : Equality before the Law. It is a career open to the talents. No arbitary obstacles should prevent people from achieving those positions for which their talents fit them and which their values lead them to seek. Not birth, nationality, colour, religion, sex, nor any other irrelevent characteristic should determine the opportunitiues that are open to a person - only his abilities. Equality of opportunity, like personal equality, is not inconsistent with liberty, on the contrary, it is an essential component of liberty. If some people are denied access to particular positions in life for which they are qualified simply because of their ethnic background, colour, or religion, that is an interference with their right to Life, Liberty, and the pursuit of Happiness."

- Milton Friedman

Milton Friedman, a great man, a prominent free market economist suddenly passed away today at the age of 94. Milton Friedman, the recipient of the Nobel Prize for Economics in 1976 was the leader of the Chicago School. He emphasized the importance of the quantitiy of money as an instrument by which governments create policy and as the main determinant of business cycles as well as inflation. Milton as well wrote extensively on public policy issues. His emphasis was focused on the preservation of individual freedom as well as of economic and political freedom. Milton wrote several masterpieces including Capitalism and Freedom, Free to Choose, Price Theory, A Program for Monetary Stability and A Theory of the Consumption Function as well as numerous other books where he wrote excellent theoretical pieces and scientific contributions. Milton was a great Chicagoen, an excellent monetarist, a great empiricist and an outstanding economic theoretician. What Milton believed was the preservation of human liberty, he enjoyed promoting the concept. Milton was a man who stepped up to the plate, who believed in liberty and who was willing to fight for it. Friedman's premises and ideas about economic policy and economic freedom hugely influenced Ronald Reagan and Margaret Thatcher. They tramsformed Friedman's ideas into the course of successful leadership as well as of impressive results. The economic thought of Milton Friedman simply spreaded across the globe. The establishment of economic policy of such thinking had, in many places, produced a "Chicago Miracle". In general, the ideas of Milton Friedman have been the most productive export in the 20th century. They flourished everywhere. Milton Friedman has been the pillar of inspiration to Mart Laar, a remarkable leader of a small country of Estonia, who acknowledged Friedman's book and used it as a guidline in making decisions about economic policy. Today Estonia is widely considered as the most successful European economy in terms of performance, progress and economic growth. On this day, an excellent economist as well as a great man left us, but his the influential impact of his ideas is a great challenge to apply the thought of Milton Friedman to the course of free society, a society for which professor Friedman always fought and never got despaired. Those of us who have admired professor Friedman, continually believe in his powerful ideas and inspiriation. He left us a rich legacy of economic thinking, a legacy of excellence and a legacy of perfection.

We will never forget.


Allister Heath reports that Macedonia will become the 10th Eastern country to adopt the flat tax. In fact, courageous Macedonian step ahead of the Western tax policies highlights increasingly high levels of taxation and government spending. The corporate tax will be set at 12 percent in 2007 while then the government furtherly plans to slash it down to 10 percent in 2008. Lowering tax rates on both personal and corporate income is one of the foremost steps to attract more foreign direct investment as well as to let the tax evasion go down. The newest tax agenda will replace 17 percent corporate tax rate on profits and personal income tax ranging from 15 to 24 percent. Another highly relevant characteristics is that the tax on reinvested profits will be scrapped. There will also be a zero-taxed personal allowance. Now Macedonia will join the bandwagon of the flat tax tigers, among them are Estonia, Slovakia, Latvia, Lithuania, Russia, Serbia, Ukraine and Georgia. Until now, Georgia has had the lowest rated flat tax at 12 percent. In 2008, Macedonia will took the wheel of the leading tax reformist in the region due to furtherly enacted more competitive flat tax rate.

Flat tax boosts economic growth by improving incentives to live, work, save and invest. Lower and non-discriminatory tax rates embody no incentives and reasons for tax evasions. In fact, flat tax drops administrative costs since taxpayers fill their tax returns on a postcard-sized tax report. Flat tax, coupled with other sustainable and productive measures, improves the conditions on financial markets. Therefore, the market becomes more attractive and investors find it interestingly useful to invest and establish new financial centers in order to boost entrepreneurial efforts and ideas as well as to give them strong support in making their projects possible. On the other side, flat tax gives investors more incentives to turn their attention to increasing the human capital of the firm and of the economy as a whole. Since human capital is the main generator of the economic growth, only low taxes and more private universities and colleges can give very much needed incentives to attract more global human capital and let.

Despite being small, Macedonia showed how small tigers can roar loud.

Monday, November 13, 2006


Business Week reports that Asia's regional economy would be deprived by lower economic growth rate primarily due to higher oil prices, slower speed of the U.S. economic growth and quite volatile financial markets. APEC report estimated that the economic growth of Asia's regional economies would consolidate at 4,3 percent in 2007 compared to 5 percent in 2006. The economic growth would partly be lowered because of higher oil prices and higher interest rates. Political instability and major threats of terrorism could put up some damaging impact on the economic growth as well. APEC reported that after the U.S. economy chills out, China will be the alternate source of demand. Thus, it is estimated that Chinese economy will continute to grow at double-digit growth rate. Robustly boosted private consumption could energize Japanese economy, growing 2,2 percent in the next year.

Sunday, November 12, 2006


"The free market and the free price system make goods from around the world available to consumers. The free market also gives the largest possible scope to entrepreneurs, who risk capital to allocate resources so as to satisfy the future desires of the mass of consumers as efficiently as possible. Saving and investment can then develop capital goods and increase the productivity and wages of workers, thereby increasing their standard of living. The free competitive market also rewards and stimulates technological innovation that allows the innovator to get a head start in satisfying consumer wants in new and creative ways."

Murray Rothbard, Free Market, The Concise Encyclopedia of Economics


As an economist I have been paying a lot of attention to the process of transition in the framework of economic change in post-communist states in Central and Eastern Europe. There have been several success stories in this part of Europe. But shadows at Europe’s postulated area of economic transition are still persistent. A great amount of restraints remains as the opponent barrier to creating new opportunities. Privatization is still lacking behind the very much needed speed while entrepreneurs still suffer from high taxes, enormously explosive fiscal burden and insufficient protection of intellectual as well as of private property rights. And those three needed features are among the very first steps to demolish the repressive legacy of post-communist economic policy.

After nearly a decade of the collapse of communism, the entire picture of Eastern European economies is broadly different across those countries. Estonia, at the very beginning the economic slave, took a radical approach to economic policy. The country under the leadership of Europe’s most progressive reformist Mart Laar privatized more than 90 percent of all governmentally-owned enterprises. Inflation was dropped below 5 percent immediately after the Estonian government enacted monetary reform. The country opened itself to the rest of the world by eliminating tariffs and quotas on imports. The results were impressive. Perhaps the most striking surprise, criticized by many collectivists and falsified intellectuals from Western Europe, was the enactment of a single flat tax on both personal and corporate income. As a significant outcome of free-market reform a small tiger from the edge of Eastern Europe became the leading tiger in enacting economic reforms. On behalf of himself, Mart Laar emphasized that only free trade makes nations prosperous, not foreign aid. He told that, despite being a historian, he read only book from economics, namely Milton Friedman’s Free to Choose. This book, he said, gave him everything he needed to know to launch economic reforms that made Estonia an economic miracle among the sleeping lads in Central as well as Eastern Europe. Latvia and Lithuania quickly followed Estonia’s experiment and quickly graduated from the maturity of transitional reforming. Foreign investment started to grow greatly in those countries. Investors benefited from low taxation of corporate income. The protection of intellectual and property rights has been modest but definitely more sufficient than in other post-communist countries.

Czech Republic and Slovakia split-up in 1993. Slovakia came under the leadership of Vladimir Meciar, whose government ruled Slovakia with an iron fist, so that Madleine Albright remarked Slovakia as “a black hole in the heart of Europe”. Immediately after Mikulas Dzurinda and Ivan Miklos took the leadership of a structurally demolished country in their own hands, Slovakia became a part of success story. The reforms included the enactment of the flat tax, the removal of restrictions on foreign investors and a privatization at an accelerated speed. Economic growth boomed. Investors in automobile industry such as Peugeot and Volkswagen chose Slovakia for the location of production facilities partly because of the comparatively cheap labor force but primarily because of highly stimulating tax regime. KIA has recently chosen a small Slovakian town of Zilina where it will launch an automobile production facility and process. Slovakia already rates at the top according to produced cars per capita. IBM’s business report on global investment location placed Slovakia among the top five in the world according to the number of new investment projects brought to Slovakia. Hungary relatively successfully transformed its collectivist economy into a free-market oasis in the very central part of Europe. The primary reason why Hungary was poured by foreign investment has been the corporate tax rate of 16 percent which is the second lowest rate on corporate income in Europe.

But a bunch of structural problems remain high. Macroeconomic stability is very far from being mature. Hungary has prolonged its policy of constant annual budget deficit which temporarily equals 9 percent of the entire GDP. At the very beginning of the transition Hungarian central bank directly fixed the exchange rate after the inflation peaked at the rate over one hundred percent. But the vastness of problems, coming out as a result of an unreformed government remained broadly increased. Today, one quarter of the labor force is employed in the public administration. Despite its enormousness and explosive expansion, the administration does very little. The protection of private property rights, seen in the profile of the judicial maturity is still very weak and very far from being mature enough to be modestly satisfied with. Above all, the situation of public finance needs to be reformed because Hungary expects to enter the European Monetary Union in 2011. On the other side, the EU has loaded Hungary with seriously threatening impositions of tax harmonization. Thus, Hungarian policy-makers and inefficient decision-makers employed in the public sector responded immediately by raising and imposing new taxes. The corporate tax rate was lifted above the previous rate of 16 percent. On the other side, solidarity tax was imposed as well. And according to recently announced statistics, tax burden measured in the percentage of the GDP is growing also.

Government spending is rising while those outlays are primarily contributed to financing welfare-based programs such as social security and health-care schemes. In the survey explored by Tanzi, Schuknecht and Alfonso, the authors showed the Hungary, as well as Slovenia, suffers from a very low efficiency of government spending in health-care industry despite one of the highest rates of health-care spending. The level of Hungarian competitiveness is going deeply down after Hungarian socialist policy-makers decided not to impose very much needed reforms. There are some featured demographic problems persistent as well. The birth rate remains low and many youthful and enthusiastic Hungarians find new employment perspectives therein. And there’s an empirically verified fact that brain-drain effects coupled low capital formation could be the beginning of an economic and structural downturn. But Hungary is not the sole problem. There’s Poland as well whose structural performance is lagging strongly behind the very much-needed pace.

The unemployment rate s 15 percent and country’s competitive shift on the lower level continues to be strong. According to annually announced Index of Economic Freedom, Poland reaches the lowest score on competitiveness itself. Gradually determined approach to transition resulted in a series of crises. The inefficiency of the public administration remained unreformed. The education system is very far from giving youth a proper knowledge to create added value in the business sector and to solve the problems successfully. Financial sectors, one of the key determinants of economic prosperity in the future, have been continually weak and mostly deficient since banks were not able to offer enterprises a strong financial support to their business projects. But the reason for this drip is hidden somewhere else. After the beginning of transition many Polish enterprises remain structurally as well as technologically depressed. Political influence over the economy came out as a general problem of entrepreneurial future development. Because politically appointed managers practice bureaucratic administering rather than risk-taking, they were strongly irresponsible when seriously condemned problems came up. In the nature of protectionism, including unimaginably high tariffs and quotas on imports, Poland avoided making gains from international trade. Wage policies were done highly unmarketable. Public sector’s outcome remained low while new taxes and welfare-supported governmental programs started growing like mushrooms after the rainfall.

Slovenia was traditionally reputed as the most developed post-communist state. Country has indeed made some significant progress in the period of past ten years. In fact, Slovenia will be the very first post-communist country to enter the EMU and adopt Euro in 2007 but the whole story is not like goofy fairytale. Slovenian labor market is one of the worst problems. Significant institutional protection of trade unions made them behave not in compliance with market rules but in the seeking of governmental protection. Politicians never decided to gain very much needed power to beat the unions. Even worse, they promoted them as key-partners in the process of collective bargaining. Macroeconomic discipline varied strongly. Inflation-targeting has been predominantly unattained. Inflation was not reduced immediately but it took numerous years to put it below the required rate of Maastricht criteria. Gradualism has truly been the inhibitor of transition which is seen in the behavior of the central bank, its willingness to start creating new monetary aggregates postulated in higher rate of inflation. The problem of inflation is primarily connected with catastrophically attained trade policy. Central Bank, instead of focusing on inflation, put its attention to exchange rate configuration. Thus it controlled the value of Slovenian tolar and implicitly forged industrial policy since exporters were given a preferred position in the international trade of one of the smallest countries in Europe. Previously underpinned problems of the labor market reflected in a very deficient business environment with barriers and obstacles. Foreign investment participation remained very low, perhaps at the lowest rate in Central Europe. Even domestically unreformed industrial enterprises resulted in more than 25 percent of “dependent employment”.

Strong institutional status of trade unions colored with threats to businessmen and entrepreneurs prevented enterprises from being structurally sophisticatedly reformed. Thus, a quarter of the labor force was decidedly put in a risky position. Economically, the behavior of the labor force remained chained in the socialistically flavored culture of denying itself to reeducate and become competitive on the labor market. In 1999, only 5 percent of Slovenian exports were natured as high-technological. In Hungary, the rate of high-tech exports peaked at the rate above 10 percent. In Ireland, for example, 53 percent of exports were high-tech based. But the main core of the problem does not lie solely in the business sector. Slovenia is comparably very weak at producing innovations. Old-fashioned innovation structure established itself on the basic research. Slovenian state-based universities offer very poor knowledge as well as they, in cooperation with business sector, remain unwilling to remunerate the fruits of knowledge in applications and device mechanisms. Private sector has a minimal role in the structure of educational institution. In fact, there’s none Slovenian university among the top five-hundred in the world. Increasingly growing role of the government in education resulted in a very slow technological progress that could be accelerated if private sector took the leadership in technological innovations produced at the university. If Slovenia continued registering patents at international patent institutions at the current rate, then it would get in touch with the average European level of knowledge development in three hundred years (!).

According to Eurostat, there are only 65 percent of private activities in the structure of the GDP compared to 80 percent rate in Czech Republic. The role of the government is still very strong. Here we can open the chapter of privatization. When privatization was launched, the structure of the ownership remained very rigid and not perspective for the future development of products and services. Many government officials have been actively engaged in decision-making in big companies. KAD and SOD, the main para-governmental funds, have been insufficient owners and their role resulted in less effective and less productive decisions of the companies itself. The entire management of the biggest companies was occupied with government officials. Their intention was not to let the business and developments grow greatly but to control the development of enterprises. The role of those funds was strongly persistent in financial sector which limited the potentials of the private sector itself. Financial sector was largely uncompetitive due to non-dynamic behavior on the market. Venture capital funds rarely occurred and there were hardly found new products on the financial markets.

To demolish post-communism in Central and Eastern Europe, entrepreneurship, capital formation, productive behavior and reforms of the government are the only effective means to achieve that. Lower tax rates, on both personal and corporate income (flat tax), institutional transparency and efficiency, reduced government spending, accelerated privatization of public sector, health-care and social security, eliminating the restrictions on capital and financial markets, small but efficient administration, respectful protection of private and intellectual property rights, the abolishment of the minimum wage and further enactment of free-market institutions upon pro-growth orientation of economic policy are likely to be the most prosperous path to create new opportunities in Central and Eastern Europe and therefore let its economies grow. In fact, there is in a competitive society nobody who could posses only a fraction of power which a socialist planning board and explosive governmental role can exercise.

Tuesday, November 07, 2006


UN-sponsored leftist interventionists self-considered as "experts" proposed a deal to give governments more power to determine the language on the web. The aim of the suggested intervention is to promote the so-called "language diversity." However, this clearly seems to be a leftist proposal due to their willingness to remove the spontaneous perfection of the market and replace it with explicit governmental use of forces. Free market should set the course of language diversity on the internet , not governmental powers to use coercion and force.

Monday, November 06, 2006


IBM's annual survey of countries receiving investment from multinational companies in the areas of manufacturing, R&D and services revealed Europe regained from Asia its top position in 2005. Europe, as a no.1 position for inward investment attracted 39 percent of all investment projects. Asia's share of inward investment peaked at comparatively competitive level of 31 percent. In 2004, for instance, both countries tied up at 35 percent. The survey, involving global location strategy, reported a rebound by established economies due to strong economic growth while some leading emerging markets, including Eastern Europe, cooled after years of extremely strong investment. The outline of the entire analytical content can be reached here. If you're enthusiastic and want to see more from the survey then you can click here and view the whole powerpoint presentation of the survey.


Johan Norberg offers us a highly realistic view on how socially popular Swedish models devastated Swedish economy and splitted its economy towards falling off the cliff and how "cradle-to-grave" welfare state damaged Swedish economic potentials.

"Sweden retained the world's highest taxes, generous social security systems and a heavily regulated labor market, which split the economy: Sweden is very good at producing goods, but not at producing jobs. According to a recent study of 35 developed countries, only two had jobless growth: Sweden and Finland. Economic growth in Sweden in the last 25 years has had no correlation at all with labor-market participation. (In contrast, 1 percent of growth increases the number of jobs by 0.25 percent in Denmark, 0.5 percent in the United States and 0.6 percent in Spain.) Amazingly, not a single net job has been created in the private sector in Sweden since 1950."

Click here to view the article of the author.


In their recent articles, Pierre Fortin and Helen O'Neill characterize the Irish economic transformation in the following way: "Forty years ago Ireland could be described as relatively poor, stagnant and strongly protected economy based on agriculture. The country was faced with massive immigration outflows and was dependent on Great Britain in terms of exports and imports as well ... Today Irish income per capita is above the European average, the share of agriculture in GDP fell below 5 percent, the demographic trends are favorable, while the performance of Irish economy is among the top in the world." Irish dynamically boosted economic transition to one of the most open and best-performed economies in the world was characterized by several strategically important factors. Among them, three prevail in the following order, (a) an accelerated role of foreign investment and ownership in the economic transition, (b) the liberalization of international trade and (c) an incredible degree of openness in foreign trade while the restructuring of the economy played an increasingly important role on a lark as well. In this respect, a dominant promotion of private ownership took contributed very much to the success of Ireland's significant economic transformation. The government sold its shares of monopoly enterprises to private competitors quickly and transparently. The remaining shares of Irish public enterprises are being successfully put into the context of privatization. The sum of serious economic reforms imposed by Irish policy decision-makers has triggered the productivity of the real sector and tripled the expectations of economic growth far above the average of the European Union. All the way through the 90's Irish economy grew robustly by nearly 80 percent per year. Today, Ireland embodies the spot of opportunities for investors from all around the world. The corporate tax rate was slashed from previous 16 percent to current 12,5 percent. With this spectacular rate, Ireland's corporate tax rate is among the lowest in the world. Coupled with favorable geostrategic position, Irish business environment opened-up its place to numerous multinational companies from overseas. Foreign investors enjoy the same level of legal protection as domestic companies while there are practically no persistent restrictions for incoming foreign investors. After the corporate tax rate was lowered and some remaining restrictions slashed, Ireland has become the top destinations for U.S. multinationals. One third of the entire U.S. foreign investment worldwide is operating in Ireland while the U.S. is Ireland's top export destinations. Roughly 30 percent of all Irish goods and services are exported to the U.S. In 2004, the real GDP grew by 4,9 percent, the highest rate among the members of the European Monetary Union. On the other hand, sound financial institutions indeed stood there as one of the foremost components in the advancement of small country on the edge of Europe (See: Index of Economic Freedom 2006) where the legal establishment of private property rights has been strong and intellectual property very well protected against abuses (CATO, 2003) and where the barriers to foreign investment participation have been minimal (IMD, 2006). Series of other drastically relevant studies fatherly confirm the soundness of Irish business-friendly environment. Thus, if Irish, as well as foreign investors want to setup an enterprise then he's obliged to go through only four procedures, most of them can be done online and Irish new investors also don't need a minimal deposit in registering for his number of the bank account (World Bank, 2006). Another successful page of Irish economic transition presents the transparency of institutional framework. Its role has been primarily focused on the following chapters of major problems, (1) a huge public debt, (2) a deep deficit in the balance of payments, and (3) constantly high level of inflation. From 1980 to 1985, the unemployment instantly peaked at 13 percent of the entire active labor force. Throughout the restricted approach to public finance and fiscal correction, the annual budget was no longer caved in deficit. It moved to the surplus for the very first time. The ratio between public debt and Gross National Product downsized from 108, 5 percent in 1993 to 55,1 percent in 1999. The entire role of the institutions succeeded primarily because of sound establishment in managing institutions as whole. Committed to rules instead of discretion, Irish central bank stabilized the monetary framework of the country until euro was adopted as a single currency. The economic policy of choice equipped policy-makers with lessons from the latest results of economic policy. Largely unfavorable measures were banished and persistently decreasing trends impaired. Those developmentally-friendly measures included an anticipated further liberalization of labor market, reduced regulation and an accelerated involvement in European integration processes (Baker, 1999). In 1973, Irish GDP equaled exactly 60 percent of the GDP of the average of the European Union. It grew by 6 percent until 1980 while at rapidly accelerated economic growth in 1992 Irish GDP raised up to 88 percent and fatherly to 104 percent in 1994 and 107 percent of the European average in 1997. The 'so-called' social partnership despite having been moderately institutionally protected acted decently so they didn't disturb further economic growth. Trade unions didn't cluster the developmental progress with collective bargaining as they do in Slovenia. Even more, throughout the period of economic transition, Irish trade unions promoted a greater participation of foreign investors. On the other side, Irish trade unions strongly supported price competition and the liberalization of labor market also. The supporters of statism take Ireland as an example of how subsidies from structural funds work and how European Union successfully financed Irish development. Their misinterpreted arguments, however, are very far from being relevant. Previously mentioned promotion of direct inflows of foreign investment was side-by-side characterized by the remission of capital gains and dividends to foreign and domestic investors, fatherly supported by tax incentives aiming to boost productive behavior at continually minimized administrative barriers. There was also a highly sophisticated approach of so-called developmental agencies. Their primary role was not concentrated on acting in terms of intervention but it was focused strictly on reforming rigid an persistent macrostructures. In a detailed panel paper, Patrick Honohan and Brendan Walsh estimate that the total amount of FDI flows measure relative to GDP already exceeded the entire amount of subsidies financed from the European structural funds.

From Adam Smith onward, demographic trends play a highly relevant role in the process of growth, productivity and labor market structures as well. According to the data available, Irish demographic picture had been continually catastrophic. From 1841 to 1961 the entire population decreased from 6,5 million to 2 million. The main reason for this was the desire of many Irishmen to pursue better standard of living so by and large they immigrated mostly to the U.S., Australia and Canada. After the series of measure had been undertaken, in 35 years the population grew robustly by 35 percent while the participation rate on the labor market increased by 42 percent.

Irish economic growth was, aside from the demographic turnover, supplied with one of the friendliest environments for foreign investors as well as with export-oriented economy. Ireland also enjoys the biggest share of high-tech products in its export structure (OECD, 2001). The biggest threat to Irish continually stable economic growth is the potential recession in the U.S. market (OECD 2004, Baker, 2003). The majority of international investors in Ireland are U.S. companies while the U.S. is Ireland's top export destination.

Another important factor underlying Irish economic growth was the convergence of total factor productivity which externally helped Irish companies to boost exports and helped to increase Irish international competitiveness after taking a larger role in the international trade. Sufficiently flexible labor market helped increase female labor market participation rate. It equaled 65 percent in 1993. The creation of new jobs absorbed large inflows of foreign labor force. Friendly legislation has thankfully not imposed barriers and restrictions to employing foreign workers, mostly from Eastern Europe. Flexible and efficiently non-patched labor market coupled with laws which minimized the administrative obstacles for business start-ups, has given a huge basis for future economic growth (O'Gorman, 2005).

Ireland could be graded with A on the level of macroeconomic policy also. Tax burden measured in GDP percentage currently stands at 30, 2 percent of the GDP which is one of the lowest among OECD countries. GDP (PPP) ranks among the highest eight ones in the world according to CIA World Factbook. Irish level of economic freedom has been triggered up to the third-highest level of economic freedom in the world (Heritage, 2006).

Swedish think-thank Timbro estimated that if American economy were frozen in 2010, only Ireland would catch it up in five years. For example, if Sweden wanted to catch up the U.S. GDP and if American economy were frozen, then it would reach the U.S. level of GDP no sooner than in 2027.

Irish challenge was from the beginning handicapped and continually hurdled with series of civil wars and damaging devastations. Its further developmental policies were all based on non-governmental intervention. Further steps were taken through series of measures including business-friendly tax legislation, openness in international trade, increased role of foreign investment and "baby boom" generation ((Fitz Gerald, Kearney, Morgenroth, Smyth 1999). Currently accelerated pace of total factor productivity growth in the real sector is putting a small bite-roaring Celtic tiger closer in the battlefield with the growth and structure of total factor productivity in the U.S.