Tuesday, July 31, 2007


An excellent column written by Stanislav Kovac appeared in today's edition of Slovenia's business daily Finance. In the economic view, the author analyzes the effects of corporate governance, takeovers and corporate management in a small economy (Slovenia) through political entrepreneurship and rent-seeking.

As every economist and student of economics (myself included) can tell, political entrepreneurship is one of the major sources of corruption and negatively affect the economic performance of a nation or country in the international perspective, through government intervention and strong ties between business community and political circles, and that political entrepreneurship causes risk aversion by impeding the output performance and establishing corporate oligarchies seeking rents and controlling the steps of economic policy.


I recently found a blog on the web called Le Mont De Sisyphe. The blog is worth reading as there're many interesting and striking facts to be read.

One particular article on the blog explains the advantages of the small country as a competitive tax jurisdiction on Swiss example. Aside from this post, there is also an excellent brief view on Switzerland's resistance to EU tax harmonization pressures through savings-tax directive.

Another one briefly outlines why the EU is, by its own fault, a threat to individual liberty and free media. The article wrote about the French member of the European parliament, Alain Lamassoure, which has expressed desires to tax SMS and emails.

In another article, we can read how the EU has been trying to curb the European wine market through centrally directed and government-driven production regulation.

Nevertheless, a lot of actions of the European Commission and the EU itself, seem to turn the EU into a Soviet-styled central-planning bureaucracy with the lack of respect for individual responsibility and liberty, changing the EU's very foundations into Soviet machine of regulation, rigidity and bureaucracy.

Monday, July 30, 2007


Wall Street Journal has recently highlighted the role of jurisdicutional tax competition in Eastern Europe, where Albania, once an economic laggard, adopted 10 percent flat-rated tax on individual and corporate income. By 2008, the corporate income tax will slate from 20 percent to officially set 10 percent rate. The pro-growth tax reform replaced the previous "five-rates" system on monthly personal income between 14,000-40,000 leks ($1=91.62 Albanian leks), 10% between 40,000-90,000 leks, 15% between 90,000-200,000 leks, 25% between 200,000-500,000 leks, and 30% over 500,000 leks. The flat tax code also scrapped the 20 percent dividend tax rate and replaced it with 10 percent tax rate on shareholder dividends. Previously entailed small business tax amounted to 30 percent as applied to individuals, while the new business and growth-friendly tax code scrapped the rate to record-low 10 percent.

As an economic laggard and one of sick men of the Balkan region, Albania swam in the pool of low growth, severe unemployment and rachitic capital formation. Recent regulatory reform has teared-down Albania's unfriendly and business-hostile legislation. Friendlier environment for doing business and investment, aims to boost international competitiveness, letting the foreign direct investment pour in, legalizing the shadow economy and making tax system more transparent and less evasive, friendly and pro-growth, low 10 percent flat tax on capital and labor supply is the right answers to the question how to pursue international competitiveness of a small, open and booming economy such as Albania. Also, flat taxes on labor and capital are one of the most efficient tools to fight legal corruption which is widespread in a post-communist country such as Albania.


According to Bulgarian news, the nation's government decided to implement a 10 percent flat tax rate on individual and corporate income by squeezing Bulgaria's current three-bracket system of individual income taxation.

Though some key actions regarding Bulgaria's fiscal stance may be overdue, such as 10 percent pension increase and postponing the reform of the state-run pension system, the Bulgarian government softened social security contribution rate by 3 percentage points, an important measure to accelerate the outcome of less fiscal burden, further benefiting capital creation, investment, entrepreneurship, wealth creation, labor supply and making much space to introduce vouchers in education and private retirement accounts and investment choice following Slovakia's transformation to private pension accounts based on income savings invested in private pension funds.

Despite the membership in the EU, Bulgaria is a post-communist economy, recovering from decades of socialist mismanagement. On its way to recovery, the rate of government spending is estimated to amount 42 percent of the GDP in the next fiscal year which is still high compared to the success of cutting the size of government spending in Estonia which is known as the Baltic tiger. Public spending and fiscal consumption are of course, an important indicator of macroeconomic performance. According to the stats provided by the Bulgarian National Bank, inflation pressures cause a high magnitude of GDP volatility affection resulted from a high growth of monetary aggregates fueling inflation and impeding Bulgaria's macroeconomic performance.

However, the introduction of Bulgaria as a flat tax jurisdiction is a giant leap ahead of crippled European welfare jurisdictions in terms of accelerating the inflow of foreign direct investment. It is quite realistic to expect lower rate in tax avoidance, which is one notable empirical reason for flat tax adopting as a way of cutting the fiscal burden. Bulgarian economy recently performed impressively well from a fivefold transitional collapse ended in 1996-1997, averaging a 4,9 percent five-year compound GDP growth. In 2008, the GDP growth rate is estimated at 6 percent annually.

One of the main inhibitors of post-communist countries on the road to economic transformation and free-market economy is the lack of sufficient protection of property rights as well as widespread corruption. Regarding the research on economic behavior, tax complexity hidden into the progressive system with loopholes, numerous exemptions and deductions; is the major source of bribes and corruption (as extra business cost) through which the economy loses confidence in the judicial system and corrupt government officials.

On the road to GDP convergence, the role of foreign direct investment and growth conditions is key factor in supporting the long-term growth performance through lower tax burden. Alongside, the measures to boost output magnitude of overall productivity, structural (smaller government), judicial reform (efficient and honest judiciary) and rules-based monetary management conducted by the central bank, should not be put neglected to move towards liberal democracy and free-market economy as ultimate goals to sustain individual liberty, free voluntary exchange, economic, political and civil freedom respectively.

Sunday, July 29, 2007


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The Art of Negotiation by Donald J. Trump

Marketing Secrets for Real Estate Success by Gary Eldred

Great Marketing: No Thinking Required! by Josef Katz

Saturday, July 28, 2007


It is often heared how designing a pro-growth tax policy scheme based on the principal assertion of the Laffer curve is a "bunch-of-free-lunch-crunch". The arguments entailed into such critical interpretations of the Laffer curve and pro-growth tax policy are weak and could be applied to the course of revenue-maximizing tax policies around the world. It would be misleading to believe that high and progressive tax rate on individual and corporate income lettingly maximize the revenue resulted from the taxation of income and capital. The higher the marginal taxation extends, taxable basis shrinks.

The consequence is wrongly understood as one may think that the loss may be compensated by pushing-up the tax rate on individual or/and corporate income through a complex system of deductions, loopholes and exemptions which, in turn, open-up a space to avoid paying taxes on work, saving and investment. In the age of dynamic capital mobility and greater openness to investment in jurisdictions around the world, a complex and anti-growth tax system may damage the economic growth, productivity growth, new investment, and savings nevertheless.

Recently, Wall Street Journal captured the attention of corporate tax competition in the world by showing that higher rates of corporate taxation lead to the loss of revenue measured as the percentage of the GDP. Also, Albania recently announced the adoption of the flat tax system to compete with neighboring Macedonia in attracting foreign direct investment to boost GDP growth through supply-side reforms and structural convergence.

The critics of the supply-side economics often claim that Laffer curve is an absurd notion whose theoretical design has either no virtual nor real connection to the course of economic and tax policy. If the assertion of the Laffer curve is entirely wrong why the World Bank reports the following:

"The design of the tax system can have significant economic impacts and can influence multinationals in deciding where to invest. Tax regimes with relatively high marginal rates and which include a number of exemptions and allowances tend to be less economically efficient in relation to encouraging employment, saving and investment. Such regimes generally also impose higher tax compliance and administration costs. Evidence suggests that simpler tax systems promote economic growth and can help achieve a win:win for governments and industry...high tax rates do not always lead to high tax revenues. Between 1982 and 1999 the average corporate income tax rate worldwide fell from 46% to 33%, while corporate income tax collection rose from 2.1% to 2.4% of national income. A better way to meet revenue targets is to encourage tax compliance by keeping rates moderate. "

See: Paying taxes, Global picture (link)

Further, if Laffer curve notes absurd conclusions, why has the European Commision (hardly a powerhouse of pro-growth policy) has then concluded exactly the same as what is the basic notion from Laffer curve:

"It is quite striking that the decline in the corporate income tax rates has not resulted, so far, in marked reductions in tax revenue, both the euro area and the EU-25 average actually increasing slightly from the 1995 level." (link)

The evidence of benefits from lower taxes on productive behaior were recently measured by Trabandt and Uhlig (2006), emphasizing the role of tax cuts on labor and capital as majorly self-financing, yielding higher revenue from lower marginal rates on labor and capital themselves:

"We show that the US and the EU-15 area are located on the left side of their labor and capital tax Laffer curves, but the EU-15 economy being much closer to the slippery slopes than the US. Our results indicate that since 1975 the EU-15 area has moved considerably closer to the peaks of their Laffer curves. We find that the slope of the Laffer curve in the EU-15 economy is much flatter than in the US which documents a much higher degree of distortions in the EU-15 area. A dynamic scoring analysis shows that more than one half of a labor tax cut and more than four fifth of a capital tax cut are self-financing in the EU-15 economy."

Mathias Trabandt, Harald Uhlig: How Far Are We From the Slippery Slope? The Laffer Curve Revisited, CEPR Discussion Papers, 2006 (link)

What about the cases studies of Ireland and Iceland where capital tax reductions yielded a spinning revenue? In Ireland, 12,5 percent flat-rated tax on corporate income sizzled the revenue-maximizing rate from less than 2 percent of the GDP to more than 3 percent of the GDP, coinciding with rapid stunning GDP growth rates in 1990s. Iceland periodically imposed corporate tax reductions moving from 50 percent in 1985 to 33 percent in mid-1990s and 18 percent in 2002. Following the critics of Laffer Curve and pro-growth tax policy, corporate tax reduction should have resulted in the loss of revenue as the share of the GDP. Contrary to such assertions, tax revenue rate jumped from 0,9 percent of the GDP in 1985 to 1,5 percent in 2002, following a powerful increase in incentives to invest. Thus, corporate tax cut did not result in the loss of revenue but rapidly coincided with rapidly growing revenue from corporate tax.

In tax policy, it is possible to note poorly designed tax schemes such as Keynesian tax rebates and credits whereas it is illusionary to expect a growing revenue from a growing complexity of the tax system, producing disincentives to entrepreneurship, work, saving and investment. It is also an equally misunderstood assertion that tax reductions do not impact economic performance.

Static assumption are therefore empirically invalid because, as Ed Prescott showed, labor supply is highly sensitive to taxes, while revenues do not simply rise and fall when tax reductions are imposed, but change as the preference of the productive supply changes, whereas high taxes cause more incentives to avoid paying taxes levied on taxpayers. Also, macroeconomic performance is strongly affected by taxes as a numerous volume of empirical research has shown clearly.

Governments which failed to impose pro-growth tax policy, should learn a lesson for tax policy, undisputably a lesson saying that high taxes on labor and capital cause distortions and fewer incentives to boost GDP growth through productive power of value-adding process resulted from lower aggregate tax burden on individuals and companies.

Thursday, July 26, 2007


Fortune Small Business has scanned throughout the globe to uncover the question which countries are the most and least friendly to small business and entrepreneurship. From a starting standpoint, entrepreneurship counts as the capital formation and productive behavior on behalf of which investment, value-added and productivity measures are launched. Also, making it easier to setup a business is what makes economies dynamic, together with pro-growth economic and tax policy.

Principally, numerous measures regarding the state of entrepreneurship in each country in the world have been conducted by the World Bank's annual report Doing Business where investors can trace information about the ease of doing business, the complexity of tax code, bankruptcy laws, environmental regulations, the size of flexibility of the labor market and the scope of freedom and barriers to pursue international trade with foreign partners. Empirically, openness is one of the fundamental engines of GDP growth, extracting from Ricardo's theory of comparative advantage. Also, openness shows how anti-globalist movements act irrationally when they launch anti-globalisation strikes against freedom of you and me to trade goods and services internationally.

The results of the entrepreneurial scanning across the globe are not surprising as countries on top the scale imposed friendlier tax codes and business legislation relative to other countries. Not surprisingly, seven out of top ten countries are Anglo-Saxon ones, adding Hong Kong, Denmark and Iceland fulfilling the top 10 scale. The most admirable features of doing and starting business in these countries compose the list of most notable criteria, making it ease to boost the endogenous growth dynamics through productive behavior. Among these features are sound regulation, dynamic financial markets (access to venture capital funds), openness to international trade and globalisation, sound bankruptcy legislation, high degree of competitive mentality, efficient protection and enforcement of property rights, relatively easy enforcement of commercial countracts, flexible and non-barriered labor market, staunch protection of intellectual property and an enviable protection of investors against the expropriation of their entrepreneurial resources. Also, the role of human capital and knowledge transfer (co-partnerships) should not be neglected.

Out of 53 countries, Slovenia achieved 40th place, further establishing, confirming and reputing its business environment as unattractive, unfriendly, and one of the most hostile in developed world. I personally hope that international community will now finally realize that we (myself included) live in a hostile socialist country which has not distanced itself away from the socialist system which heavily punishes productive behavior such as labor supply and entrepreneurship and instead imposes high taxes on wealth creation and work.

Here is a factsheet on Slovenian business environment following the data compelled by World Bank.

It takes nearly 207 days to fulfil all procedures and time, to pass cost adjustment to build a plant, warehouse or business building and also to obtain all the neccessary licenses, permits, notifications, utility connections and inspection approvals to finally start running a business. According to Heritage Foundation, Slovenia's labor market is one of the least competitive in Europe as well as one of the least free in the advanced globe.

To secure property rights and complete all the neccessary steps time and costs, it takes more than 300 days, compared to the overall sum of only 2 days in New Zealand. Focusing on Slovenia further, information sharing in getting credit is widespread and efficient privacy laws virtually don't even exist as the government can intervene the financial data of the banks at any time. I experienced this personally (!).

Getting sufficient information about credit is minimal, as the index value calculated on the methodological basis of the World Bank is very low (3 out of 6). This enables both information sharing, the unavailibility of applied credit information and the violation of privacy laws on your bank account. In providing credit information, private bureau covers zero percent of adults compared to OECD's average of 60 percent.

The protection of investors is one of the fundamental and essential laws in securing financial assets and enforcing transparency of transactions. However, Slovenia's undefined legal code still allows the speculations over transactions approval and thus heating the space to benefit from payment delays which, in effect, seriously hamper the ability of businesses to focus on their primary activities instead of being forced to raise compliance costs to provide for the legal services able to resolve payment delays in front of the court.

Meanwhile, compliance cost is measured in relative firms. The overall compliance cost could distort the marginal revenue and thus the supply market mechanisms through which companies generate organic growth and performance.

And finally, the difficulty of enforcing commercial contracts is astronomic in Slovenia as it takes exactly 1 350 days to enforce the entire contract. According to the analysis, the difficulty of enforcing commercial contracts is usually connected to payment disputes, tracking of the time, procedures and costs. In the United States, it takes 300 days to enforce a typical commercial contract, at 7,7 percent debt cost and 17 procedures compared to double-digit debt cost rate in Slovenia, exceeding 15 percent of the debt as a cost of contract enforcement.

Link: Report on Slovenia's Business Environment

One of the working papers of Institute of Macroeconomic Analysis and Development has nicely compelled the evidence how unfriendly the entrepreneurial environment for doing business in Slovenia really is. Nevertheless, payment disputes, legally weakly protected investors, anti-growth tax policy, red-tape, weak access to venture capital funds, and inflexible labor market are among the very reasons why Slovenia is not one of investment and business haven in the globe (link)

To conclude this day, I shall repeat once again: Slovenia is one of the most hostile, the most socialist and least friendly entrepreneurial countries in the world.


Most Entrepreneurial Countries in the World, Innovative,

Who in the world is entrepreneurial, CNN Money, May 23

Tuesday, July 24, 2007


There has been much evidence on France's punitive tax regime containing a huge size of tax burden, outstripping and punishing the aggregate effects of productive behavior, putting France's economy at risk in the global economic perspective. Nevertheless, high rate of public spending, exceeding 50 percent of the annual GDP heats the volatility of output to external shocks as well as the sky-high government spending creates depedency tyranny at the expense of productivity of the labor supply. Only social security outlays present over 30 percent of the overall government spending. In addition, the overall productivity of labor supply is hampered by restrictive reductions in the length of the workweek.

Two days ago, International Herald Tribune published a vibrant article about the battle over tax cuts. I read the entire article. I found it both, amusing and inspiring. Its amusing flavor grasps over French tradition resting on "old glory", at the same time France as a "consumer choice-place"does not offer many attractive spotlights in nearly every field, varying from entertainment, literature and science. Needless to say, I still adore French tourist spots and sweet flavored French wines, but when selecting a place to live and work, I could hardly choose France to be the "winning destination"

After I read the article, I wrote a comment on France's prosposed economic reforms, focused mainly on tax cuts and reducing the aggregate tax burden which would inevitably boost France's economic performance on global markets as well as it would improve parameters such as GDP growth, job creation rate, and capital formation.

You can read my brief comment here [comment no. 18].

Sunday, July 22, 2007


I recently noticed a report in Washington Post about the link between between foreign aid, poverty reduction and GDP growth respectively.

There has been much discussion about reducing global poverty and one of the most mistaken beliefs is that foreign financial aid moves poor nations onto accelerated growth path. Such foolish beliefs emerge from the lack of knowledge about dynamic behavior developed by the course of economic theory.

One of the most sufficient evidence about the zero link between foreign aid and economic growth is that there is no empirical and robust positive correlation between aid and growth. First, foreign aid transactions do not target the supposed goals but rather help to fight fiscal crisis by reducing budget deficits and intensifying the pace of public spending in poor countries.

Empirically, there is a huge negative correlation between high public spending and GDP growth performance. Simply, if policymakers in any poor country want to impose an expansionary fiscal code, they implicitly undermine economic performance of that country as there will be more tax wedge pressures as well as the output volatility to transitory shocks could possibly pop in.

Second, in a dynamic general equilibrium that is capable of generating large sustained income gaps between rich and poor countries, there are at least three sources of poverty, (1) the lack of access to international capital, (2) low value index of human capital and (3) a domestic fiscal policy based on anti-growth actions.

The lack of access to international capital is a sign that economic policy in a sample poor country prefers protectionism of domestic elites and therefore increases the cost of foreign investment penetration in the country which could in turn increase the productivity output. Another deadly consequence of the lack of accessing international capital is that domestic economy in a poor country is unable to sufficiently generate capital formation which is essential to GDP growth while there has been numerous empirical and practical evidence that foreign direct investment supports growth as it helps to boost and engine the industrial restructuring of the economy. After the collapse of central planning, Estonia significantly benefited from the access to international capital which transformed its financial sector into one of the most competitive in Eastern Europe with a high degree of foreign investment penetration.

Low value index of human capital means a decreased availibility of disposable resources which could generate economic growth and sizzle domestic economies in poor countries onto higher growth trajectory. Going through the data, we can see that there is a low share of educational participation on nearly every level, especially on tertiary level which tops the competitive needs in accelerating capital formation and growth resources. Therefore, the lack of access to education, is a key consequence of poverty as the separate human capital profiles can't sufficiently combat the challenges in global economy.

Anti-growth domestic fiscal policy emerges from wrongly set fiscal targets and high public spending and government consumption. It is not surprising, that poor countries face painful anti-growth tax codes nailed through high tax rates on capital and individual income. There is numerous empirical evidence that expansionary fiscal policy undermines GDP growth simply because positive correlations between low spending and high growth disappear as the incentives to work, save and invest are hampered by tax pressure, increased compliance costs and red-tape regulation. Also, anti-growth tax system set by fiscal policymakers, slashes the price of tax avoidance and abuses through complex deducations, exemptions and tax preferences set as fiscal incentives but because of the lack of information, fiscal policymakers can't sufficiently manage the information output simply because there is no such thing as "responsibility edge" through which the wrong assumption of risk management and allocation could be launched to meet pro-growth fiscal targets. In case of rigid and expansionary welfare and fiscal policy, its engine turns into anti-growth system which hampers both, investment and savings, whose multiplication is possibly downgraded by high and unstable inflation rate.

One of the very reasons why poor countries lack GDP growth performance, is also a very weak rule of law and the lack of property rights which is an essential fundamental framework in which the economic performance and society work.

Also, high tariff rates and staunch quotas push-up the price of imports which could reverse the anti-growth performance into pro-growth path by importing the investment products needed to converge the GDP towards growth. Empirically, there is also a sense of cautiousness in analyzing the effects of aid to poor nations, because immediate unusual situations such as hurricanes abd earthquakes can skew the data, as they nevertheless stunt economic growth.

Handling out more and more money to poor nations, will not reduce poverty. Foreign aid programs are not based on decision-making assumptions and thorough analysis and therefore cause more harm than good as there is no clear evidence between aid and growth. To reduce poverty, pro-growth policies and economic liberalization are the best possible tools to fight the spiral of poverty and the lack of economic development.

Friday, July 20, 2007


Coming across the site of the British Council in Slovenia, we can see that young director, screenwriter and producer Mitja Okorn won the prestigious award Young film entrepreneur of the year. In 2005, his first feature of the movie Tu pa tam (Here and there) was premiered in Slovenia and exceeded the popularity ratings, outperforming all state-funded Slovenian movies. By the way, Here and there is an excellent movie and I recommend you to watch it. I'm sure that nobody's going to regret that aftermath. I am also looking forward to watch his next movie The Member.

Here and there was a good-looking case study on how free-market initiatives work in reality. It has also a been a sort of proof how supply-side economics and effort is rewarded as it yields tremendous market success and big dividends. If you watch boring state-subsidized movies in Slovenian movie theaters, you see empty cinema halls and only a few people who watch such stupid government-backed movies. Here and there is different and was paid an attention from many of us, who have loved his movies.

Our blog editor congratulates Mitja Okorn for this prestigous reward and wishes him all the best of features, production and further effort and success in the future.

Wednesday, July 18, 2007


Here is an empirical investigation showing why open and outward-oriented economies grow faster than inward-oriented ones.


In Egypt, the privatization of state-owned banks has been launched.


The Economist makes a strong point on how and why should European economies embrace the need for structural and economic reforms to stay in tough with global competitiveness edge as well as to sustain an accelerated GDP growth which has currently swept across the continent.


*This article is written in Slovene. Due to hectic work I found no time to translate it. This article was not published in one of Slovenian newspapers. His name shall remain unidentified.

»Socialna pravičnost je trojanski konj katerega jezdijo totalitarne vladavine.«

Friedrich August von Hayek

Pred nedavnim je William H. Overhalt iz American Enterprise Institute v časniku Washington Post, napisal odličen članek o tem kako podjetja in posamezniki žanjejo koristi in doprinose od povečane stopnje globalizacije.

Nasprotniki globalizacije, med njimi anti-globalisti, eksponenti protekcionistične doktrine ter ekonomski nacionalisti, retorično izpostavljajo fiktivno prizadevanje za nerazvite, čeprav empirične študije in žlahtna ekonomska literatura dokazujejo, da protekcionistični ukrepi v ekonomski politiki pomnoženi z oholim uvajanjem strukturnih reform zmanjšajo potencial konkurenčnosti kot tudi ogrožajo delovna mesta ter vodijo gospodarstva v komaj da zaznavno gospodarsko rast.

Nedavna študija Mednarodnega denarnega sklada je pokazala, da bi se v Franciji, v primeru da bi izvedla vse strukturne reforme, osebni dohodki povečali za 10 odstotkov, če pa bi to storile vse države v evrskem območju, potem bi se osebni dohodki v Franciji povečali za 14 odstotkov.

Namen protekcionistov je omejiti svobodni pretok blaga in storitev. Kritika anti-globalistov predpostavlja, da povečana stopnja globalizacije povečuje neenakost na račun nizko plačanih delavcev medtem ko, po besedah anti-globalistov, poslovneži žanjejo koristi s tem, da izkoriščajo delovno silo v razvijajočih se državah kot sta na primer Indija in Kitajska. Tisti, ki to pravijo, bi se morali nemudoma vprašati kaj bi bilo s temi posamezniki, če bi bili vrženi na cesto in prisiljeni v visoko tvegano in negotovo delo za golo preživetje.

Tovrstno enoumje za seboj pušča velik psihološki učinek, kajti tovrstno propagando pospešujejo ideološki ekstremizem, ki na dolgi rok pomeni stagnacijo in pot v komandno ekonomijo. Vendar do sedaj levičarski in desničarski ideologi marksistične doktrine niso predložili niti ene empirične verifikacije, ki bi njihove ekstremistične nagibe in vizijo social(istič)ne države tudi potrdila. V okovih patetičnih in komičnih izjav v slogu levičarske in krščansko-socialistične retorike trdijo nesmisle, češ da je gospodarska rast škodljiva in kapitalizem uničujoč.

Poslovneži in podjetniki so posamezniki, ki z novo tehnologijo, novim znanjem in svežim naložbenim kapitalom pomagajo državam v razvoju k strukturni konvergenci. Nova delovna mesta, ki so jih prinesle sveže neposredne tuje naložbe, so prinesle priložnosti tisočim, da izboljšajo svoj dolgoročni dohodkovni profil in življenjski standard skozi proces rasti veščin, novega znanja in produktivnosti.

Brez novih delovnih mest, ki jih prinašajo neposredne naložbe, bi mladi prebivalci in otroci v teh državah še naprej živeli v bedi in revščini. Protekcionisti, antiglobalisti in protikapitalistično nastrojeni posamezniki predlagajo, da bi morali biti tisti, ki v državah z relativno nizkim stroškovnim bremenom dela odpirajo nova delovna mesta in priložnosti tisočim, nemudoma kaznovani. Vendar se le malokdo zaveda škodljivosti in posledic teh predlogov. Zamislimo si, da kot vplivna organizirana skupina pri zakonodajalcu z lobiranjem dosežejo, da zakonodajalec poseže v zakonodajo in uvede škodljive ukrepe za podjetja, ki investirajo v tujini kjer je strošek na enoto delovne sile primerjalno nizek.

Pomislimo kakšne posledice bi bile, ko bi ti ukrepi prisilili Wal-Mart, da zapusti indijsko tržišče in s tem zapre delovna mesta, ki so prebivalstvu ponudili blagostanje in priložnost za izboljšanje dohodkovnega položaja. Na tisoče mladostnikov bi bilo porinjenih na rob revščine. Bodo ti eksponenti proti-kapitalistične mentalitete prevzeli odgovornost za svoja dejanja? Bodo potovali v Indijo in mladostnikom plačevali izobraževanje? Se bodo opravičili posameznikom, ki so zaradi njihovih idej izgubili delovno mesto? Gre za ekstremno nevarno početje ideoloških virov kontaminacije, ki jih v Sloveniji ne manjka.

Kljub temu, da eksponenti ideologije nacionalnega (šovinističnega) interesa poudarjajo pomen »človečnosti« za revni sloj, so njihove ideje nehumane. Antiglobalisti so pred leti v ameriškem Kongresu lobirali in dosegli, da je bil Wal-Mart prisiljen zapustiti Bangladeš, otroci, ki so bili v Wal-Martu zaposleni, pa so bili prisiljeni prodajati se na ulicah, mnoga dekleta pa je izguba delovnega mesta prisilila v prostitucijo. V obdobju globalizacije je bilo na milijone posameznikov dvignjenih izpod praga revščine. Rast osebnih dohodkov je poskočila v nebo.

V Sloveniji in v ostalih državah EU pogosto slišimo kako globalizacija zaposlenim v neperspektivnih dejavnosti z nično, rahitično ali padajočo krivuljo dodane vrednosti povzroča izgubo delovnih mest s tem, ko managerji selijo proizvodne kapacitete v poslovna okolja z nizkimi stroški dela. Negativni učinki globalizacije nikakor ne morejo biti pripisani selitvi delovnih mest v države kot so Indija, Kitajska in Filipini. Raziskovalne študije zadnjih let potrjujejo, da je razlog za izgubo delovnih mest v neperspektivnih dejavnostih, povečanje domače produktivnosti.

Dvig produktivnosti v menjalnem sektorju je privedel do prestrukturiranja. Pospešen tehnološki napredek, ki temelji na »know-how« tehnologiji je zmanjšal potrebe po primarnih delovnih mestih v proizvodnji. Danes sofisticiran, tekmovalen in produktiven tehnološki sektor potrebuje visoko izobražene posameznike, ki s svojim znanjem pospešujejo konvergenco produktivnosti. Rezultat je konkurenčnejša ponudba tehnoloških izdelkov na globalnem trgu, podjetja pa temu primerno stremijo k konkurenčnejšim cenam svojih izdelkov. Včasih je bilo potrebno 2 dni za proizvodnjo enega avtomobila, danes pa je celoten avtomobil proizveden v precej manj kot 24 urah.

Argument braniteljev ekonomskega patriotizma, da globalizacija povzroča beg delovnih mest v tujino in izgubo delovnih mest doma, je pogosto izpostavljen. Statistični podatki pa nam postrežejo s popolnoma drugačno sliko. Tako ZDA in Kitajska sta v zadnjih letih izgubili precej delovnih mest v proizvodnem sektorju, ker se je letna stopnja delovne produktivnosti močno povečala. Kitajska je v samo v enem letu izgubila desetkrat več delovnih mest v proizvodnem sektorju kot pa ZDA. Življenjski standard se načeloma povečuje skozi večje plače, ki so rezultat večje produktivnosti, inovativnosti in fleksibilnosti. Minimalna plača povečuje rigidnost zaposlovanja in odvrača delodajalca od hitrejšega zaposlovanja, po drugi strani pa močno omejuje priložnosti posameznikom na trgu dela, poleg tega pa je uvajanje minimalnih plač najslabši način poskusa povečanja življenjskega standarda.

Verjetno najboljši in stroškovno najbolj ugodni način dviganja življenjskega standarda je spodbujanje cenovne konkurence na trgu. Protekcionisti in ekonomski nacionalisti težijo k uvedbi kvot in carin na uvoženo blago z držav, kjer so povprečni proizvodni stroški na enoto proizvoda nizki. Pa vendar, ali ni ravno priložnost kupiti nizkocenovne in primerjalno kakovostne izdelke recimo iz Indonezije in Filipinov najboljša opcija, da potrošniki precenijo kaj jim bolj koristi in s tem sami najbolje vplivajo na cenovno optimizacijo svojih izdatkov za potrošne dobrine? Nizkocenovni proizvodi verjetno najbolj koristijo posameznikom iz nižjih dohodkovnih razredov bodisi v Sloveniji, bodisi si v naši severni sosedi Avstriji.

Če posameznik iz nižjega dohodkovnega razreda kupi čevlje, ki stanejo 50 € namesto čevljev, ki stanejo 350 €, mu to, upoštevajoč dolgoročni dohodkovni profil, koristi veliko. Empirične študije so v zadnjih letih pokazale, da so se, v ZDA, dohodki prebivalcev iz nižjih dohodkovnih skupin, upoštevajoč nizkocenovne proizvode iz Indije in Kitajske, povečali za okoli 5 do 10 odstotkov. Močna cenovna konkurenca in liberalizacija mednarodnih trgovinskih tokov sta najboljša načina za doseganje večje blaginje.

Noben mehanizem redistribucije (prerazdeljevanja) dohodkov ni posameznikom dal večje priložnosti za izboljšanje življenjskega standarda kot sta to storili svobodna trgovina in večja cenovna konkurenca. Nikakršen pro-levičarski in krščansko-socialistični politični pamflet se po učinkovitosti ne more primerjati z napredkom in svobodno izbiro, ki ju omogoča globalna konkurenca in sproščeni mednarodni trgovinski tokovi. Sicer pa je marksizmu zelo težko verjeti, ko vidimo kaj se dogaja v okoljih s kolektivistično ureditvijo. Protekcionisti pozabljajo omenjati, da je bil ravno rezultat globalizacije večje število novih delovnih mest. Lažji dostop do tujih neposrednih naložb omogoča podjetjem po svetu, da razširjajo svoje poslovne aktivnosti v hitro razvijajoče se azijske države.

S tem se odpira kopica novih delovnih mest tako doma kot v tujini. Ameriški Levi's je pred leti zaprl še svoj zadnji proizvodni obrat v ZDA. S tem se število delovnih mest ni zmanjšalo, temveč ravno nasprotno število delovnih mest se je povečalo ravno na področjih, kjer se pobere največ dodane vrednosti, konkretno v razvoju blagovne znamke in v marketingu.Glavna značilnost globalizacije je, da se odprta gospodarstva hitreje prilagajajo realnim konkurenčnim prednostim, kar pomeni manjše tveganje dolgoročne strukturne brezposelnosti.

V ZDA trenutna brezposelnost znaša 4,4 odstotka, medtem ko brezposelnost v Franciji kot enem izmed najbolj zaprtih gospodarstev pa že leta lebdi v dvojnih številkah. Temu pripomorejo predvsem togost trga dela, primerjalno visoka davčna obremenitev gospodarstva ter uvajanje protekcionističnih ukrepov, kot je npr. uvedba kvot na uvoženo blago iz različnih držav. V najbolj zaprtih gospodarstvih v Afriki in Latinski Ameriki, zaprtost gospodarstva ter ščitenje domačih podjetij povzroča najvišje stopnje brezposelnosti na svetu, ki se raztezajo vse do 30 odstotkov.

Globalizacija ter liberalizirana mednarodna trgovina pa sta brezposelnost neverjetno znižali. Globalizacija je milijone ljudi popeljala v blagostanje srednjega razreda. Še več, prinesla jim je dostojno življenje, primerjalno visoke ravni življenjskega standarda. Leta 1950 je na Kitajskem povprečna življenjska doba znašala 40 let, danes pa znaša 72,5 let. Hitra gospodarska rast v vzhodni Aziji prinaša največje zmanjševanje neenakosti v njihovi zgodovini. Skokovit tehnološki napredek je državam z srednjimi in nizkimi dohodki omogočil, da rastejo mnogo hitreje kot pa že razvite države. V primerjavi z gospodarskimi bolniki, Francijo in Italijo, je povprečna gospodarska rast Indije, Kitajske, Vietnama in Indonezije, trikrat, štirikrat, do petkrat hitrejša. Neresni posamezniki nam ekonomistom pogosto očitajo, da učbeniška ekonomska politika še zdaleč ne deluje ter, da je bolečina prilagoditve na reformne ukrepe prevelika cena za uvedbo strukturnih reform.

Brezposelnost res povzroča kopico psihološko neprijetnih stvari, ki jih ne gre spregledati. Vendar, če bi sledili logiki protekcionistične doktrine, potem bi se agonija brezposelnosti močno povečala, njeni učinki pa bi se potrojili. Nobena država namreč ne more uspeti v globalnem reformnem prodoru, če ekonomska politika sledi smernicam zmanjševanja neenakosti na račun dolgoročne gospodarske rasti in odsotnosti podjetniškega prestrukturiranja.

Diskrecijska uporaba prisile skozi državni inženiring še zdaleč ne bo zmanjšala ne neenakosti, ne brezposelnosti. Najkoristnejša pot do zmanjševanja neenakosti je obsežna privatizacija različnih javnih programov, odprtost v svobodni trgovini, ukinitev progresivne obdavčitve, svobodno podjetništvo, tržna konkurenca ter izobraževanje za tiste, ki so zaradi nekonkurenčnosti na globalnem trgu potencialne tarče globalizacije. Tako so večja dodana vrednost izobraževalnega sektorja ter podjetniške priložnosti najboljša metoda za zmanjševanje brezposelnosti in neenakosti. Ni obsežno državno financiranje posameznikov iz različnih dohodkovnih skupin tisto kar zmanjšuje neenakost temveč to delo opravijo nove priložnosti in produktivno vedenje ter predvsem mednarodno konkurenčen podjetniški sektor.

Slovenija bo potegnila koristi od globalizacije le z sprostitvijo tržnih potencialov, deregulacijo, liberalizacijo trga dela in privatizacijo. Ti pogoji so potrebni zato, da konkurenčen in svobodni trg izpelje svojo magično formulo rasti in uspeha. Noben model komandne ekonomije do sedaj ni dosegel toliko uspehov kot jih je posredovala dinamična in odprta tržna konkurenca. Napačna in usodna pot je podpora interesnih skupin ter njihova kolektivna, politično podprta zaščita. To ni nič drugega kot politično podeljen monopol, ki svojo moč izkazuje z izsiljevanjem in nadaljevanjem statusa quo in ki si nemudoma zasluži vojno napoved. Državna dobrodelnost je pogosto zelo čustveno interpretirana in v očeh mnogih se zdi, da je to rešitev, ki bo nemudoma rešila problem.

Vendar tovrstna politična kampanja, s katero si mogočni oblastniki pridno nabirajo politične glasove, v vsej svoji naglosti ne bo rešila problema. Prej bo pripeljala do podkupovanja in neupravičenega bogatenja državnih uradnikov. Enak primer je tuja državna pomoč. V prvem koraku se zdi smiselna vendar so rezultati ravno obratni začrtanim ciljem. Namreč takšni programi, ki uničujejo ekonomije v razvoju, spodbujajo korupcijo in iskanje rent mimo tržne poti do zaslužka. Države, ki konstantno prejemajo tujo pomoč, imajo ponavadi rahitične stopnje gospodarske rasti, neproduktiven podjetniški sektor, velik delež komandne ekonomije ter osupljivo stopnjo sive ekonomije.

Ukrepi s katerimi bi spodbudili podjetniško iniciativo v zasebnem sektorju se nagibajo k intervenciji, zelo malo pa je storjenega na področju zmanjšanja regulacijske obremenitve poslovnega sektorja. Socialisti vseh barv in z vseh vetrov rigorozno nasprotujejo kakršnimkoli ukrepom liberalizacije, privatizacije za povečanje konkurenčnosti. Ne zato, ker se z njimi morda ne bi ravno strinjali temveč zato, ker bi ti ukrepi popolnoma izničili vrednost njihovih idej, ki ne vodijo v raj na zemlji temveč v relativno stagnacijo na dolgi rok, ko bo potrebno poplačati grehe protekcionizma, s katerimi se opravičuje »socialno pravičnost«.

Tuesday, July 17, 2007


Here's what the greatest economist of the 20th century and intellectual hero Milton Friedman said about new economy.

Q: Is the economic future that we see taking shape around us, the new information economy, so discontinuous with the past that it does indeed represent a new economy?

Answer from Milton: I think not. If you go back to the 1920s, when you had essentially the same phenomenon. What are the things that people say about the new economy now? It's a big technological development.

Q: But the bubble--now you'd better actually define what you mean by a bubble?

Answer from Milton: I don't know that I want to talk about a bubble. I want to talk about a bull market that gets very high and then is reversed and comes down again.
We've had three comparable bull markets since the '20s. We've had the '20s in the United States, we've had the '80s in Japan, and the '90s in the United States. And if you pluck them one on top of the other they almost coincide, they have exactly the same pattern.
So if this is new, the '80s was new, if that was new, the '20s are new.


Earlier this day, I came across the article published in Wall Street Journal entitled French Tax Proposal Tests Appetite For Overhaul Sarkozy Promised written by David Gauthier Villars and Marcus Walker. The core issue of the tax reform debate in France is whether to raise sales-tax to compensate for tax cuts in pension and health-care contributions which French companies pay.

Nevertheless, France has one of the broadest social-welfare programs in the world. Also, public spending on health-care and pension schemes in terms of GDP percentage, is one of the highest in the world.

There is a broad empirical evidence that exogenous government spending shocks hurt the competitiveness of the private sector as well as there is a negative correlation between high public spending rate and the rate of seasonlized GDP growth. The private sector also heavily controls exogenous shocks which affect the supply-side of the economy.

The latest proposal of French government is to reduce the contribution rates and raise the VAT. Professor Greg Mankiw gave four tentative answers with predictable scenarios of French tax reform proposals, or rather correction because the real tax reform is when the aggregate tax burden stimulates the economic activity through productivity effects.

One of the particular weaknesses of the France is a tight, lopsided, minimum-waged and heavily rigid labor market while generous pension schemes encourage the adjustment in labor supply to seek benefits such as early retirement which further hampers the overall productivity performance relative to claims and demands from interest groups. Tax cuts to unburden labor assets, of course, trigger greater elasticity of labor supply due to greater benefits from incentives to work and create value-added.

If young had greater incentives to save for the future, this could boost aggregate saving after taking the effects of consumption tax into account. However, there is also an income tax beside the value-added tax rate, which creates an additional bubble to foster the distribution on the revenue side.

One of the possible scenarios coming from tax measures in France could be the short-run macroeconomic disequilibrium in case if nominal wages grew too slow to adjust to their higher level, which could disequil the real wages and temporarily stimulate employment. Distributional effect of tax increase in value-added also varies when it comes to pension fund investment conducted by labor supply.

Cutting contribution rates on health-care and pension system, could foster the investment of the part of the residual income in various pension and investment funds which could possibly yield high returns and contribute a lot to aggregate savings.

Above all, inflexible labor market in France deserve an ambitious tax reform which will eventually realize if the aggregate tax burden is reduced.

Monday, July 16, 2007


Here is the demonstration of the Laffer Curve in the case of corporate tax and business taxation. The international evidence shows a negative empirical correlation between corporate tax revenues and corporate tax rates, meaning that higher the rate, lower the revenue and vice versa. High corporate tax rate stimulates tax avoidance while lower corporate tax rate means more transparency and much lower costs of hiding company revenue away from the government. Nevertheless, international tax competition has forced policymakers to slash the corporate tax rates throughout the globe. The U.S., by contrast, with its near 40% rate has been averaging less than 2.5% of GDP in corporate receipts. Ireland which seems to be on the correct side of the curve, has a 12.5% corporate rate, nearly the lowest in the world, and yet collects 3.6% of GDP in corporate revenues, well above the international average. In Iceland, Laffer curve has worked incredibly well. Lower corporate tax rate also yielded higher revenue, showing how lower rates lead to more revenue from taxes.

Source: We're Number One, Alas, Wall Street Journal, July 13, 2007; Page A12


Here is a striking story from Norwegian newspaper Aftenposten, telling how Norwegian government contradicts its investment strategies with aggresive attacks on tax havens - offshore destinations such as Cyprus, Bermuda and Caymans. Norway runs a $300 billion pension fund which consists of oil revenues. Despite the aggressive attack on tax-friendly environments, Norwegian fund managers robustly invest billions in companies situated on abovementioned offshore locations. Financially, the pension fund investment strategy is a good solution to combat demographic crisis, especially because investment strategy is based on the avoidance of macroeconomic risk which could raise its probability if investment strategy of the pension fund focused strongly locally without the diversification of investment and risk internationally.

If Norwegian socialist government really did what it says, then pension fund couldn't generate big returns from billions invested in high-growing and prosperous companies and funds situated offshore, which could endanger the sustainability of the Norwegian pension system.


Here is that striking fact.

Thursday, July 12, 2007


Stockholm is a beautiful city. It offers a pure variety of northern flame and vibrant events throughout the whole year. For example, the city's enriched summer evenings offer a high-class nightlife such as clubbing and a truly excellent choice of entertainment. Live concerts, all-tempted music concerts and of course, cute, hot, beautiful, hot and all-time-charming Swedish girls. Nevertheless, artsy design and astuting galleries attract the spot of your eye very quickly while staying in Stockholm and adoring the city which once presented a country whose growth and prosperity went from rags-to-riches, becoming the third richest Western country with a vibrant economy and strong growth, and vice versa in socialist Swedish times from late 1960s onwards until the recession slashed Sweden's GDP in early 1990s. Also, dining and restaurants offer delicious meals in Sweden's capital. Recently, Johan Norberg recommended where to go if you're visiting Stockholm:

"If you´re visiting Stockholm this summer, be sure to stop by En annan salladsbar on Birger Jarlsgatan 22, close to Stureplan. One reason is that the food is delicious (the sausage salad is an unexpected favourite),..."

And here comes the essence of En annan salladsbar associated with the title of this post:

"...another reason is that it has been started as a protest against ruthless trade unions that destroyed a salad bar in Gothenburg because its workers wanted individual working agreements and didn´t accept the union´s demands." (link)

Who could think that humble asipirations of trade unions quickly turned into the expropriation of private property in Swedish city of Gothenburg? Perhaps this is the most striking evidence that trade unions in a collective bargaining, actually pledge on marxist origins whose founders and ideological creators had sworn to demolish private property, economic freedom and individual liberty. Unfortunately, terrible consequences following the legacy of central planning and socialism still impair and inhibit Slovenia's economic performance and the respect of human rights emerging from personal liberty to live, choose and pursue desired objectives in your own life.

Wednesday, July 11, 2007


Faced with long-term age-dependency crisis and with the falling labor supply, Finnish policymakers recently decided to endorse a substantial reform of the pension system which, in Finland, consists of two main parts - earnings-based system and the national pension system. The contribution rate for social security currently stands at 21,5 percent for the employers and 12,4 percent for employees. As we can see from the picture below, in Finland, age dependency will dramatically increase over the next 50 years, with age ratio getting closer to 0,5.

Lassila and Valkonen (2006) thoroughly examined the effects of the recent pension reform in Finland. They applied Auerbach-Kotlikoff's FOG model - a numerical overlapping generations model with perfect foresight, dividing the sectors into five different snaps (households, enterprises, government, pension fund and foreign sector) and predicting the rational behavior of households and firms whose decision concept is based on forward-looking decision making. How much macroeconomic implications will the endorsement of the reform have on macroeconomic variables, namely output, investment and inflation? A the predicting behavior of the households is not myopic, as Keynesian economic theory has predicted, the households adjust their preferences for leisure, labor supply and consumption, nevertheless taking the effects of inflation forecast into their consumption function and thus carefully choosing the optimal allocation of the resources which they offer on labor market.

In Finnish case, as well as in any other case of the reform, adjustment costs beared by the individual agents cannot simply be neglected. For example, the increase in the contribution rate could rampantly change the consumption preference and it can also seriously affect the unsustainability of the generous public schemes, driving the overall pension system to breakdown and thus fueling the bubble of the fiscal crisis. Pension crisis can also shuttle the investment as a part of the firm's foremost decisions. Investment behavior could be much less rigorous if an unusually high contribution rate to pension scheme could deteriorate both, the capital formation and stocks of capital, further bubbling the baloon of firm's decision over allocation of the resources, causing shareholder's stock price blows and discounting the sums of dividends.

Contemporary economic theory has shown several times how utility-maximising agents decrease the utility-type consumption in case if government increases its share in providing utility services. Pension crisis goes further as it creates a vastly generous scheme which accelerates the dependency crisis as well as the spiral of out-blowing net financial liabilities emerging from the mistakenly undertaken welfare approach which, in case of a sample public pension scheme, does actually not take the multiplied decision-making and cost-benefit analysis effect into account. In that case, the macroeconomic consequences could stretch beyond the very possible imagination, causing inflation pressures and fiscal crisis, thus further hampering the stability of the public finance.

As we can see, Finnish pension reform has rewarded longer working longevity, shifted from rigid to more flexible accural rates, and discounted the benefits celings of early retirement which is a good sign of ensuring the long-term risk over which demographic implications reveal the true cause for the pension reform. It is a very positive sign, that the reform simplified private pension accounts and made them more attractive to invest in line with the increasing overall labor supply dynamics. Also, the reform postponed early retirement and curbed the contribution rate increase pressure by introducing a new model insurance rights, which reward the long stay in the workplace. Empirically, there are many arguments showing the real benefits of the pension reform on shining output performance. But there is some doubt about the contribution rate which is forecasted to increase slightly over periods, resulted from still much generous public retirement schemes. It is also glad to see how a typical Scandinavian welfare state faced the problems of ageing population and tackled them immediately, an endorsement from which Finns will definitely benefit in the future.

Monday, July 09, 2007


Confederation of Swedish Enterprise (Svenskt Näringsliv) issued a "Focus on Enterprise in Advantage Sweden". As we can see, Advantage Sweden includes the list of proposals to raise the competitive mentality and business conditions in Sweden in the age of new global economy.

First, globalisation empirically benefits trade sector as well as non-trade sector as it enables the latter to gear-up the speed of price convergence which is an important factor in controlling inflation shocks in the long run. Likely, there is no long-run trade-off between inflation and unemployment as Keynesian aggregate demand management mistakenly assumed. Also, together with sufficient and responsible monetary policy management, globalisation benefits consumers through lower prices in the retail sector as there is no greater welfare service to the poor than retail price competition and liberalized labor market. After facing a falling GDP for two years back in early 1990s, Swedish economy sufficiently climbed back on track in line with responsible monetary policy of controlling inflation in search of a nominal anchor guided by Riskbank, the Swedish central bank.

Second, Swedish economy currently generates an internationally low level of investment into domestic economy, probably the outcome of risky and rigid business environment hampered by staunch compliance costs (the price of administrative barriers) and high tax burden. Capital formation is huge but most of its stock is headlined abroad where a majority of capital formation of Swedish multinationals is placed. Swedish example is also a nice case study of capital flight behavior which aggregates the key-note from New Laffer Curve - invest only in low-tax countries.

Third, disability pay, sickness leave and generous job-absence schemes present a huge barrier to investment dynamics and capital formation respectively. Generous, womb-to-tomb or cradle-to-grave welfare schemes, of course, need to be financed to cover-up the amount of expenditure spent by public sector. Welfare dependency is of course an external shock levied on private sector through higher taxes and welfare contribution rate. In other case, there is a possibility of getting deeper into public debt and higher fiscal expenditure which, again, penalizes and deteriorates investment, entrepreneurship and labor supply.

Fourth, the age pyramid in Sweden is lopside which means that age dependency will rapidly increase relative to the growth of labor supply. In real terms, higher welfare contribution rates could rampantly hamper the productive behavior as a source of growth. In 2000, Swedish policymakers successfully reformed and partly privatized the pension system, allowing personal retirement accounts and thus helping to cut the fiscal burden caused by the exponentially growing age dependency rate.

Fifth, according to Global Entrepreneurship Monitor, Sweden faces a severely low entrepreneurial formation, resulted from a lack of trust and external risk caused by deteriorating administrative compliance and high tax wedge which means the lack of incentives to produce entrepreneurial dynamism. Swedish policymakers should know that international competitiveness depends on competitive strategies and performance endorsed by the entrepreneurial sector and thus its performance also depends on macroeconomic conditions for doing business.

Recently I read the publication The Globalisation of Swedish Economy written by Ulf Jakobsson, shedding the light over the main features of structural global change in Swedish economy. Without dynamic entrepreneurship and competitive mentality neither Sweden nor Slovenia or any other country's economy and society can't survive the global economic turmoil.

Sunday, July 08, 2007


There is a new-coming political party in Slovenia called Liberals (Liberal Party) with a very ambitious and ground-breaking program created on the very principles of classical liberalism. Here we can check further details about the party itself, including support.

As we can see, the program's emphasis is the absence of government intervention, the pursuit of lower taxes to stress the competitive potentials and the economic growth soar in a small and open economy such as Slovenia. It's glad to read and hear that there is a party which has not created its agenda on the basis of fiscal pressures, rent seeking or expansionary fiscal spiral such as the favorization of particular interest groups, which is the foremost threat to the sustainability of public finance and individual liberty nevertheless.

The program also includes the aim to pursue free choice in mostly government-funded education sector. Above all, the real party whose program agenda is based on the very principles of free market, individual liberty and economic freedom, has finally took place also in Slovenia which remains the most socialist of ex-socialist countries in Europe. Free-market ideas such as proposed in the program of Liberals are strongly welcome and needed as well, to create a sufficient public management based on government non-intervention to let Slovenia become a global success story.

Friday, July 06, 2007


Yesterday, my colleagues Mićo Mrkaić and Rado Pezdir, on behalf of INERHC (Institute for Economic Reforms in Health Care), organized a 'roundtable' discussion on the problem of general inefficiency of public spending in Slovenian health care sector. The given arguments have been thoroughly supported by the examination of the entire health care system in a publication called Health Economics, including the proposals to escape the financial and structural collapse of the currently highly inefficient sector of health care services in Slovenia which is based mainly on public funding.

Slovenian health care sector inherited a bulk of post-communist organizational and structural symptoms varying from a several lack of market mechanisms to failures of supply determination on nearly all levels of decision making and corporate governance. In 1973, Mark Pauly and Michael Redisched showed that non-profit public hospitals whose service and supply is determined out of the market mechanism framework, function, act and perform as socialist cooperatives.

In Slovenia, health care expenditures are not small-scaled, accounting for 6,4 percent of the GDP. Netherlands contributes 4 percent of the GDP expenditure to health care sector, Finland's expenditure rate is 6 percent, but the numbers turn differently when we rank the (in)efficiency of the allocation of resources and spending indicators and parameters in a multimple outcome health sector efficiency model. Using the estimates conducted by the IMF, Slovenia is ranked 18th (among 22 countries) in terms of efficiency score despite having a relatively high health care expenditure rate. Where is then the hidden trap which produces such low and uncompetitive efficiency rate? A part of the answer to this particular question lies in the cost structure of Slovenian health care sector. Mrkaić (2007) shows that labor costs present 57 percent of total sectoral costs which is a recording-breaking indicator in an international perspective.

On the other side, the indicators of capacity and productivity in Slovenian health care sector vary significantly among hospitals and physicians. The real deficiency of the incentive system in Slovenian health care sector is that annual salaries of physicians are determined through fixed collective agreements which do not reward the most productive physicians but fix their salary on the basis of collective bargaining compared to other employees in public sector which is (in Slovenia) the second biggest in the world (Fraser, 2006). It is thus quite unreasonable why the government and trade unions in the public sector preferably exclude the market mechanism of productivity measures of wage determination among public sector employees such as physicians.

According to European Observatory on Health Care Systems (2002), nearly 90 percent of the financial resources in health care sector are contributed from public funds, which is far more than in other transition countries such as Estonia and Hungary. Besides, in Slovenian system, we can find many annoying faults such as subsidies to generic industry, emerging from the absence of cost-benefit analysis in prescribing drugs to patients. In this case, generic industry receives a hidden rent at the expense of patients who pay the rent through a 22 percent employee contribution rate under the system designed by Bismarck which still remains rooted in many national health care systems around the globe.

One of the significant threats endangering the sustainability of mostly public funded Slovenian health care system is a demographic threat. As already known, Slovenia recently imposed one of the most generous retirement schemes in the world. The largest consumers of health care services are thus elderly whose treatment costs 4-5 times more than the treatment of youth and middle-aged population.

In addition, the growth of monthly pensions of Slovenian retirees is moving along the line of productivity growth twice a year and has been made permanent without the possible undertaking of the effects of long run pressures and volatility of public finance which remains the only source of financing the basic health insurance scheme.

The long-run effect of such a generous scheme is a severe outlift of the employer-employee contribution rate to cover the amount of expenditure flows into health care sector.

In addition, new and emerging technologies in health sector present a strong cost-push shock which spreads further possibility of unsustainable public finances in the middle run.

Above all, the proposals and solutions to avoid the breakdown of the health care system in Slovenia presented in INERHC's publication Health Economics go in the right direction suggesting a fundamental reform of the entire corporate and internal structure of the public-funded health care sector in Slovenia.

Thursday, July 05, 2007


Professor Greg Mankiw soundly describes why bilateral trade deficits between trading partners are irrelevant. The overall balance of trade links nation's saving and investment but bilaterally, this is not true. For example, Slovenia can have huge deficits with some of its trading partners, say Austria, despite possibly having a balanced trade overall, which is the one that matters. Bilateral deficits between trading partners frequently occur in foreign policy issues as much of the attention is drawn to statistics when economic transactions between two trading partners are calculated on the permanent basis.

From an everyday point of you, we have many deficits. For instance, my own trade balance is the difference between my income and my spending, but why should I be concerned if I'm in a huge trade deficit with a particular firm? If I buy a laptop worth $950 from Dell, the transaction is made voluntarily as both sides benefited. I got a laptop I paid for, and Dell increased the market sales.

For example, I can go to H&M where I buy clothes and I'm a deep and chronic deficit with the firm, since H&M does not buy a darned thing from me. But I live with my own means and I get casual clothes I paid for.


Ireland is the world's most profitable country for US corporations. In 2002, US companies reported $149 billion of profits in 18 tax-haven countries, up 68 percent from $88 billion in 1999. This compares with a 23 percent increase in total offshore profits earned by US multinationals during the same period-total profits of US multinationals’ foreign subsidiaries around the world stood at $255 billion in 2002.

Source: Ireland top location for US Multinational Profits, FinFacts

Wednesday, July 04, 2007


4th of July
The unanimous Declaration of the thirteen united States of America
hen in the Course of human events it becomes necessary for one people to dissolve the political bands which have connected them with another and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature's God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. — That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, — That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shewn that mankind are more disposed to suffer, while evils are sufferable than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security. — Such has been the patient sufferance of these Colonies; and such is now the necessity which constrains them to alter their former Systems of Government. The history of the present King of Great Britain is a history of repeated injuries and usurpations, all having in direct object the establishment of an absolute Tyranny over these States. To prove this, let Facts be submitted to a candid world.

He has refused his Assent to Laws, the most wholesome and necessary for the public good.
He has forbidden his Governors to pass Laws of immediate and pressing importance, unless suspended in their operation till his Assent should be obtained; and when so suspended, he has utterly neglected to attend to them.

He has refused to pass other Laws for the accommodation of large districts of people, unless those people would relinquish the right of Representation in the Legislature, a right inestimable to them and formidable to tyrants only.

He has called together legislative bodies at places unusual, uncomfortable, and distant from the depository of their Public Records, for the sole purpose of fatiguing them into compliance with his measures.

He has dissolved Representative Houses repeatedly, for opposing with manly firmness his invasions on the rights of the people.

He has refused for a long time, after such dissolutions, to cause others to be elected, whereby the Legislative Powers, incapable of Annihilation, have returned to the People at large for their exercise; the State remaining in the mean time exposed to all the dangers of invasion from without, and convulsions within.

He has endeavoured to prevent the population of these States; for that purpose obstructing the Laws for Naturalization of Foreigners; refusing to pass others to encourage their migrations hither, and raising the conditions of new Appropriations of Lands.

He has obstructed the Administration of Justice by refusing his Assent to Laws for establishing Judiciary Powers.

He has made Judges dependent on his Will alone for the tenure of their offices, and the amount and payment of their salaries.

He has erected a multitude of New Offices, and sent hither swarms of Officers to harass our people and eat out their substance.

He has kept among us, in times of peace, Standing Armies without the Consent of our legislatures.

He has affected to render the Military independent of and superior to the Civil Power.

He has combined with others to subject us to a jurisdiction foreign to our constitution, and unacknowledged by our laws; giving his Assent to their Acts of pretended Legislation:

For quartering large bodies of armed troops among us:

For protecting them, by a mock Trial from punishment for any Murders which they should commit on the Inhabitants of these States:

For cutting off our Trade with all parts of the world:

For imposing Taxes on us without our Consent:

For depriving us in many cases, of the benefit of Trial by Jury:

For transporting us beyond Seas to be tried for pretended offences:

For abolishing the free System of English Laws in a neighbouring Province, establishing therein an Arbitrary government, and enlarging its Boundaries so as to render it at once an example and fit instrument for introducing the same absolute rule into these Colonies

For taking away our Charters, abolishing our most valuable Laws and altering fundamentally the Forms of our Governments:

For suspending our own Legislatures, and declaring themselves invested with power to legislate for us in all cases whatsoever.

He has abdicated Government here, by declaring us out of his Protection and waging War against us.

He has plundered our seas, ravaged our coasts, burnt our towns, and destroyed the lives of our people.

He is at this time transporting large Armies of foreign Mercenaries to compleat the works of death, desolation, and tyranny, already begun with circumstances of Cruelty & Perfidy scarcely paralleled in the most barbarous ages, and totally unworthy the Head of a civilized nation.
He has constrained our fellow Citizens taken Captive on the high Seas to bear Arms against their Country, to become the executioners of their friends and Brethren, or to fall themselves by their Hands.

He has excited domestic insurrections amongst us, and has endeavoured to bring on the inhabitants of our frontiers, the merciless Indian Savages whose known rule of warfare, is an undistinguished destruction of all ages, sexes and conditions.

In every stage of these Oppressions We have Petitioned for Redress in the most humble terms: Our repeated Petitions have been answered only by repeated injury. A Prince, whose character is thus marked by every act which may define a Tyrant, is unfit to be the ruler of a free people.

Nor have We been wanting in attentions to our British brethren. We have warned them from time to time of attempts by their legislature to extend an unwarrantable jurisdiction over us. We have reminded them of the circumstances of our emigration and settlement here. We have appealed to their native justice and magnanimity, and we have conjured them by the ties of our common kindred to disavow these usurpations, which would inevitably interrupt our connections and correspondence. They too have been deaf to the voice of justice and of consanguinity. We must, therefore, acquiesce in the necessity, which denounces our Separation, and hold them, as we hold the rest of mankind, Enemies in War, in Peace Friends.

We, therefore, the Representatives of the united States of America, in General Congress, Assembled, appealing to the Supreme Judge of the world for the rectitude of our intentions, do, in the Name, and by Authority of the good People of these Colonies, solemnly publish and declare, That these united Colonies are, and of Right ought to be Free and Independent States, that they are Absolved from all Allegiance to the British Crown, and that all political connection between them and the State of Great Britain, is and ought to be totally dissolved; and that as Free and Independent States, they have full Power to levy War, conclude Peace contract Alliances, establish Commerce, and to do all other Acts and Things which Independent States may of right do. — And for the support of this Declaration, with a firm reliance on the protection of Divine Providence, we mutually pledge to each other our Lives, our Fortunes and our sacred Honor.

New Hampshire
Massachusetts Bay
Rhode Island
New York
New Jersey
North Carolina
South Carolina
Link: here


In Alberta, Canada, following the provincial flat rate on personal income, the overall budgetary contributions from top 15 percent of earners increased from 62 percent in 2000 to 67 percent in 2004. Importantly, low-income workers enjoyed a significant relief. in 2000 the bottom 50 percent of wage earners paid 3 percent of the provincial tax burden while by 2004 this figure fell to 1.5 percent accountably.

Source: Alberta Finance


Writing for Business & Finance Magazine, Constantin Gurdgiev of Trinity College makes a strong point why Ireland should move from current two-fold progressive income tax code toward a single, zero-tax deduction flat rate on personal income. Ireland already has a single 12,5 percent tax rate on corporate income. Consequently, supply-side tax reduction enormously enhanced the inflow of foreign direct investment into Ireland and benefited the overall Irish economy respectively.

One of the essential standpoints in adopting the flat rate on productive behavior such as labor supply in this particular case, is the point of compliance costs which occur as a consequence of complicated tax code which penalizes the productive engine of the firm by forcing it to accept cost-push drifts to comply and pass annual tax liabilities. In almost all case of adopting the flat rate on labor income, compliance costs were reduced by 75-95 percent. And since these costs run on average between 5-10 percent of the payroll costs, these savings amount to € 1390-2780 per working Irish person per annum.

Since a single and supposedly low rate on labor income no longer produces cost-push shock such as increasing incentives to favor tax evasion but, instead, broadly strenghtens the tax base and tax liabilities no longer end in adding burden to productive behavior such as investment, risk-taking, labor supply and entrepreneurship. Supply-side reductions of tax burden are based on the correct assumption extracting from the Laffer Curve which states that, the higher the tax rate, the lower the amount of taxable income as tax basis is tightly decreased accordingly and there is also a common empirical evidence that high tax burden levied by taxpayers, ends in the spiral of disincentives to work, save and invest. In the age of global economy, competitive fiscal stance is a crucial issue, since revenue-neutral taxation of labor income no longer wedges addition unit of earned income.

Also by removing the negative side-off of the progressive tax creeps, flat tax stimulates productivity-adjusted increases in market labor supply as well as the single rate removes the incentives to shift the labor supply to informal economy. Ventura (1999) showed that, in the U.S case, due to highly positive effects on individual incentives to supply and invest, in human capital and labor supply productivity, a revenue-neutral system of the flat rate adds a 9 percent increase to aggregate efficiency of labor force.

However, there remains much opposition to revenue-neutral flat rate on individual income, emerging from egalitarian myths among which Slovenian socialists are the staunchest supporters of the progressive income tax. It is not difficult to disapprove these myths. Zero-tax deduction significantly benefits the poor by leaving them into the space of zero-tax liabilities in accordance with the size of personal deduction. Disregarding the ratio between zero-tax deduction and the flat rate on individual income, the higher the income the individual earns, the higher the income tax liability which an individual has to bear and the same effect is achieved without negative side-effects, such as disincentives to labor supply, complex tax code, loopholes, preferred deductions, exemptions, and tax evasion, all of which generate the enormous size of compliance costs.

There are estimated three possible scenarios in Irish case for tax reform:
- 25 percent flat rate and € 20 000 standard personal deduction
- 25 percent flat rate and € 25 000 standard personal deduction
- 20 percent flat rate and € 20 000 standard personal deduction

Irish 'status quo' currently stands at two different progressive rates on personal income; 20 and 42 percent where the standard deduction is € 2870.

It is important to note that even before factoring the effects of growth, saving and greater investment in knowledge-intensive areas, the poor would significantly benefit and gain respectively under the expectations of the flat tax reform. Every economist admits that capital formation is a key to economic growth. Existent tax codes pose severe risk to invest in human capital, to save and take risk and to boost the engine of productive behavior. Progressive taxation, which was originally proposed by Karl Marx, penalizes additional units of value-added and thus implicitly create disincentives to invest in human capital and assets to further spread the entrepreneurship and social mobility.

Small and open economies vastly depend on innovation and investment in knowledge-intensive source of supply and that's why the question of tax burden is evenly crucial as it situates them whether competitively or uncompetitively on the global competitiveness map. Thus, flat tax is not a pundit of luxury but a neccessity which Irish economy deserves to stay in line with greater international competitiveness and competitive fiscal management.

Further reading:
David Madden: An analysis of indirect tax reform in Ireland in the 1980s, Fiscal Studies (1995) vol. 16, no. 2, pp. 18-37;

Ken Griffin: British tax reform plans could affect Ireland, Sunday Tribune;

Luc Van Braekel: Analyzing the Irish tax model. Celtic Tiger ready to meet the Challenges of Globalization and Ageing, Work for All;

EU: Causes of Growth differentials in EuropeTowards a Tax Policy for Growth and Jobs;

Benjamin Powell: Markets created a pot of gold in Ireland, Cato Institute/Fox News Online;

Low-tax policies created the tiger, Sunday Independent;

Sean Dorgan: How Ireland Became the Celtic Tiger, Heritage Foundation;

Proinnsias Breathnach: Dublin Calling, Globalisation of a Metropolis on the European Periphery;

The National debt and the Irish Economy, Business 2000, National Management Treasury Agency