LESSONS FROM CHILE

Hernan Buchi, former minister of finance in Chile, recently published a new book The Economic Transformation of Chile (link) where he outlined comprehensive economic reforms that boosted economic growth, lowered unemployment, reduced poverty and set the stage for more than two decades of robust growth and an economic turnaround which has been unprecendent in Latin America.

The books serves the reader with a menu of intriguing facts, curious statistics and precise analysis of how macroeconomic stability was achieved. Chile has been the leading nation in Latin America with the most stable and predictable inflation rate. Country's decent fiscal management and solid macroeconomic outlook were important cornerstones behind the invitation to the OECD.

According to Jose Pinera (link), Chile is expected to enter the club of developed nations in 2018, the first Latin American country ever. Chile pioneered the privatization of the pension system in early 1980s. Today, country's fully-funded pension system based on individual savings accounts is a model for the rest of the world (link) in overhauling unfunded pay-as-you-go social security systems.

HOW MILTON FRIEDMAN SAVED CHILE?

Here (link) is the story of how decades of economic freedom prevent the unthinkable consequences of an earthquake which recently damaged Chile.

INTERVIEW WITH JOSE PINERA

IS ASIA THE NEW CENTER OF WORLD ECONOMY?

Gary Becker (link) and Richard Posner (link) discuss whether the gravity of world economy is moving from the US and the EU to emerging Asian economies.

Rapid economic growth and steady institutional transformation are the key drivers of Asia's economic rise in the global economy. While the United States and the EU will likely suffer from this year's recession and pursue a U-shaped recovery, India, China, Indonesia and Vietnam will continue to grow in 2009 with favorable midterm growth projections. Even minor short-run differences in economic growth can lead to a profound impact on long-run income per capita. For example, if China and India's long-run economic growth rate is about 5 percent, it would take 14 years to double its income per capita.

If the growth rate were 6 percent, which is more likely after taking the productivity shocks into account, it would take 12 years for income per capita to double. The medium-term forecasts by the IMF suggest that the U.S and Europe will grow between 2.5 and 3 percent. Similarly, that would take 29 years and 24 years to double the income per capita. The gap can be further estimated by the empirics of real convergence.

Rapid economic growth in Asian tigers will also induce their bargaining power in institutions such as WTO, IMF and World Bank. In particular, Asia's fast growing economies play a stronger role in world trade. Thus, the bargaining power of India and China in negotiating regional and multilateral trade agreements is growing. The central challenge, however, is whether Asian tigers will recognize that free trade promotes economic growth, welfare and peace. The rise of trade protectionism in the U.S (link) and Europe is a significant concern from a countervailing perspective. Even the area of climate change policy is a potential source of conflict between the US and the EU on one side and China and India on the other side.

Of course, I disagree with pessimistic arguments that the U.S will lose its leadership in innovation, technology and human capital. Indeed, top U.S universities will still remain world's top-notch sources of human capital and the U.S high-tech firms are unlikely to lose their world leadership. However, rapid economic growth in Asia will induce China, India, Indonesia and Vietnam to pursue free-market policies alongside economic, civil and political liberties to give up the authoritarian political climate. In fact, the transformation to free-market economy with independent economic and political institutions will, in the long run, determine the scope of Asia's economic rise in the world.

ECONOMIC FREEDOM IN 2009

WSJ and Heritage Foundation have released the annual 2009 Index of economic freedom (link). This year, countries with high score on economic freedom are Hong Kong, Singapore, Australia, Ireland, New Zealand, U.S and Canada. Out of the most developed transition countries, only Poland lacks behind Slovenia which improved this year's score by 2.7 basis points mostly due to marginal tax cuts, improved business conditions, reduction in corporate tax rate and a moderate improvement in the area of property rights protection. The overall standing (68th in the world and 30th out of 43 countries regionally) reflects Slovenia's high tax burden (top income tax rate is 41 percent which is more than 35 percent world average), high government spending (45.3 percent in 2008), stalled privatization and underdeveloped financial sector and inflexible labor market (link).

ECONOMIC FREEDOM OF THE WORLD 2008

Cato Institute has just published recent report on the state of Economic Freedom in the World, measuring the level of economic liberty in each country (link). The freest economies in the world are: Singapore, Hong Kong and New Zealand. Slovenia, ranked 88th, performed poorly, scoring significantly low on the size of government, freedom of labor market and the security of property rights.

CLASSICAL LIBERALISM, PUBLIC CHOICE AND ECONOMIC DEVELOPMENT: THE CASE OF SLOVENIA

I recently listened the serie called "Intelekta" (link) on Radio Slovenia. The topics of the talk was classical liberalism and its direct and indirect effects on economic growth and development. Nobel laureate fromm 1973 and an imminent philosophical and economic thinker, Friedrich August von Hayek once famoulsy noted that society's course will be changed only by the change in ideas. Once ideas meet the minds of the individual initiative, the politico-economic measures will follow. Slovenia, still the wealthiest post-communist economy, enjoys moderately high standard of living while the future prospects of economic development are hampering the growth of output and productivity. My research (link) has shown an alarming evidence of Slovenia's score on economic growth and development: back in 1991, the relative gap in terms of standard of living between Slovenia and Estonia stood at 35-41 years, taking purchasing power parity and current prices into account. In 2007, the gap between Slovenia and Estonia reduced to 13 years. In simple terms, this implies that in 13 years, the level of living standard in Estonia will surpass the standard of living in Slovenia. In this briefing paper, I intend to draw a perspective on Slovenia's economic development and empirically alternatives to statist economic policy and Bismarckian welfare state.


The Empirical Side of Economic Policy

Back in early 1970s, David Nolan of the MIT, composed a chart, showing how each political ideology is derived from the mathematical treatment of marginal changes in two variables - personal and economic freedom. Today, this matrix is called Nolan chart (link). The usefulness of this matrix is of the high purpose since it can show revealed preferences of political parties as vote-maximizing agents in an oligopolistic political market. Kenneth Arrow, a Nobel-winning economist, devised an impossibility theorem, the assertion of which is that it is impossible to devise a constitution or voting system which offers more than two reasonable choices to the individual, or that will guarantee to produce a constant set of preferences for a group which correspond to the preferences of the individuals making up that group. Hence, the paradox of voting is that it is impossible to have rational and at the same time egalitarian choice. Assume a two-agent utility-maximizing model in the political market where both agents strive to maximize election output. Because both groups face a monotonic utility function, which means practically the same preferences under different set of policy measures, the empirical intuition is under what rules the agents will react. In Social Choice and Individual Values, Kenneth Arrow, proposed the rules of social choice (link). Unless clear rules are given in the game of economic policy, limiting the scope of government action, the use of discretion would always arise and be made permanent. This simple theorem referes to Arrow's general impossibility theorem and to the rules determining social choice. The behavior of utility-maximizing political agents is shown in the graph. The utility function y = u(x) is downward sloping. This movement reflects the fact that the first choice done by a political agent will inherently reduce the utility his competitor. It means that the support for one measure, say tax reform, will not be strong enough to pass it through. Each utility-maximizer in the political market will inevitably seek to maximize the utility sum of each square by reducing the utility of the competing agent per se. What determines the voting outcome is the rule of the margin - meaning that higher majority rule of one group will entail greater feasibility of social choice. From an empirical point of view, that could be the reason why political system with smaller number of utility-maximizing political agents tend to score higher on the scale of political freedom and quality of governance. In theoretical terms, the paradox of voting is that higher majority rule implies the full-scale fluidity of individual preferences transmitted into the machine of collective choice. Notably because individual preferences of choice can be fully processed only by the market mechanism, the collective choice always entails a contradiction in terms. Instead, it should be noted that transitivity and non-coercion are the main determinants of the welfare choice, not the aggregation of preferences.

Picture No.1: Political Competition and the Public Choice

Economic Theory and Policy: The Failure of Statism in Slovenia

After 17 years of transition from state-controlled to market-oriented economy, Slovenia is still the strongest economy in Central and Eastern Europe. A detailed view on the scoreboard of economic growth shows that throughtout 1990s, the overall growth of real productivity per head stagged compared to other countries in Central and Eastern Europe. The real reason for rachitic growth of factor productivity is not the insufficient amount of working hours in the market but the size of tax burden. Until the latest minor change in tax rate structure, top marginal income tax rate was 50 percent. Even now, when the top rate on earned income is 41 percent, the rate structure is not inclined towards the growth of productive behavior such as investment, entrepreneurship and labor supply. Additional tax burden levied on workers and entrepreneurs, such as employee social security contribution and mandatory employer social security contribuion, has downsized the potential growth of overall productivity - which is, in all empirical and theoretical aspects, the main determinant of wage level. The unparalelled growth of the corporate state triangle of government, employer associations and trade unions - initiated a collective bargaining which still attempts to determine wages via central-planning mechanism that is not based upon market-clearing price system. The overall consequence of collective determination of wages is that the relative price of labor services is mis-allocated, causing labor shortages and surpluses. At the same time, that is the reason why real private-sector economy in Slovenia is facing labor shortages of skilled labor supply. True, brain-drain is another consequence of labor shortages because of high tax rates that hinder productivity growth and human capital utilization in the real sector. The lack of privatization is reflected in the fact that state control in the Slovenian economy is at the same share as Soviet Union under Lenin when the latter launched New Economic Policy (link). Considering the data, the share of private sector activities in the GDP is, in Slovenia, the smallest in the region. When the last comparison was published, public sector activities composed 35 percent of the GDP compared to the regional average of 20 percent. The most alarming threat to Slovenia's macroeconomic stability is the expected increase in net financial liabilities and transfers into inter-generational accounts through pension and health-care system. From a rational and sustainable perspective, capital market is the best guarantee of savings utilization for the old-age as the long-run sustainability of the rate of return on portfolio investments determines the level of old-age income, not transfers such as "pay-as-you-go" or income distribution that skews the productivity of the labor supply. When all aspects of statism are taken into the empirical and methodological account, it does not seem surprising why Slovenia's comparative economic performance stalled while other economies in the region, such as Slovakia and Estonia, faced significant rates of output growth. If Slovenia's long run output growth rate increased from 3,0 percent to 4 percent in the long run, the gap in the standard of living between Austria and Slovenia would shrink from 58 years to 22 years, ceteris paribus. Perhaps that is the best possible evidence that stable and free institutions, pro-growth economic and tax policy, limited government spending, free world trade, the absence of government intervention is superior to cradle-to-grave welfare state and economic policy based on government intervention. Adam Smith once wrote that "...the highest level of prosperity occurs when there is a free-market economy and a minimum of government regulation." So true.

Rok SPRUK is an economist.

HAYEK'S THOUGHT ON ECONOMIC DEVELOPMENT

THE REAL FACE OF PUTINOMICS

Aleh Tsvynski and Sergei Guriev wrote a brief article on Russia's state of the economy and political stability. Here's a slice of the article:

"The other major barrier to growth is corruption. In another World Bank-EBRD survey, 40% of firms in Russia reported making frequent unofficial payments, and roughly the same percentage indicated that corruption is a serious problem in doing business. Unlike in other emerging markets, corruption has not declined with economic growth; it remains as high as in countries with one-quarter the per capita income of Russia."

ECONOMICS AND THE RULE OF LAW

Last week, The Economist posted an article (link) describing the relationship between economics and the rule of law. Until recently, the rule of law has been regarded as a matter of political and moral philosophy while neoclassical economists paid little or no attention to the rule of law in the course of economic analysis. Thanks to the contributors of Austrian school of economic thought and institutional economists, the rule of law was shown as an influential motherhood in economic development. Douglass C. North, a distinguished recipient of the Nobel prize in economics back in 1993, demonstrated the significance of the rule of law in his book "Institutions, Institutional Change and Economic Performance" where he wrote that the inability of societies to develop low-cost effective institutions being able to reduce transaction costs is the very reason of economic stagnation in both, historical and current perspective.

Seriously, is there a thing such as market failure?

In the course of economic thought, the rule of law emerged as an issue together with the collapse of the socialist economies of the Eastern block. After the fall of the Soviet empire, Eastern Europe had become a laboratory of testing economic macro and micro theories. Nevertheless, many curious conclusions were made. Among them, the rule of law and the ability of institutional flexibility were recognized as a driving vehicle in the process of economic growth and development. The essence of the rule of law could hardly be defined from a utilitarian perspective. In fact, former communist countries grew tremendously after the ideas of Karl Marx and Vladimir I. Lenin were put into practice. The industrial production and overall output grew several-fold but in the end, the economic growth in the socialist world failed because market incentives to work, save and invest were a deadlight line and the economies from the former socialistic empire were likely to be a balloon, virtually inflated by illusion waiting to explode.

Learning from Hayek and Locke

In economics, the idea of the rule of law was initiated by two distinguished economists. In his book, The Constitution of Liberty, Friedrich August von Hayek wrote that the aim of the rule of law is to set a basic framework of general rules perceived without coercive action. Simply, the more specific the law becomes, higher the magnitude of coercion. In 1690, enlightenment philosopher John Locke captured the essence of the rule in a brilliant sentence: "Wherever law ends, tyranny begins."

Current economic issues confirm that Hayek and Locke were right. When Asian crisis (1997-1998) deflated the expectations of the right policies, the essence of the rule of became obvious. Without a low-cost institutional setting of policymaking based on the rules rather than discretionary action, no macroeconomic reasoning (whether it is intuitive or analytical) may give desirable results.

Effort in the short run, 300 percent dividend in the long run

The first lesson I met when I opened my first economics textbook was that resources are scarce and therefore the optimal allocation of resources together with a given budget constraint is the precise mechanism that solves the basic economic problem displaying the limits of allocation for particular desires. However, it seems that modern postulates of political reasoning seem to neglect the first and very basic principle of economics. Thus, without a high-quality governance and the rule of law, the great divide between different countries is about to start. Economists Daniel Kaufmann and Aart Kray published a challenging working paper called "Growth without Governance" (link). What they showed is a 300 percent dividend, meaning that in the long run, country's income per head rises by about 300 percent, if its governance is improved by one standard deviation point.

Discretion returns discretion

The indices of the unruly law are the object of discretion settled deeply into the institutional framework. By itself, executing discretion among economic agents is more fatal than obviously perceived. In a more technical economic terminology, discretion leads to suboptimal allocation of scarce resources and into a more rigid institutional framework. Thus, discretion is the first step to the point where the law ends. There has been a lot of discussion about discretion (link) but honestly what discretion really means. Three economists, Vishny, Schleifer and Murphy (link) showed how rent-seeking negatively affects economic growth. The outcome of the institutional chaos when private agents seek anticipated benefits via public means. For example, using Nash Equilibrium, the outcome of the bargaining between two agents depends on the type of strategies. A dominant strategy undertaken by one agent is based on the setting of infinite utility given the information, status and unique preferences derived from the lack of the rule of law.

Rent-seeking and infinite demand for private wants by public means

In a rent-seeking model, the demand for public goods in mostly infinite while the supply is limited as shown by a fixed supply curve in a given space and time. The infinite demand is derived from incentives and preferences of the interest groups targeting the maximization of benefits at any price, given the monopoly status that enables the control and access to information needed to bargain a desirable slice. The comparative difference between market outcome and bargaining outcome is the rent, and the interest groups hindering the quality of the rule tend to change their behavioral responses to maximize the differential between market rate and bargaining outcome.

The long run consequences of the lack of the rule of law, meaning rigid and unchangeable institutions, are lower economic growth and structural defects such as corruption and rent-seeking incentives to abuse the rule of law and attain the outcome unavailable in the market with an unchanged productivity performance.

There is no such thing as growth without economic freedom

The question is why economic growth soared in places without changeable institutions and quality governance. The answer can partly be explained by the fundamental laws of macroeconomics such as the law of diminishing return or/and catch-up effects. A country Y with low per capita GDP attains higher growth rate than a country X with higher GDP per capita. In the long run, growth differential gradually disappears. The quality of governance and institutions cannot be neglected. The answer to the question why Ireland is richer than Mozambique is that institutional change and non-discretionary rule of law in Ireland enabled an economic performance that resulted in a decade of stunning growth and an unparalleled prosperity.

Paying the price of the status-quo

As the first former communist economy which recently adopted Euro as a single currency, Slovenia is often praised for its achievements. One side of the coin is certainly true but the other side of the coin shows a completely different picture. In 1990, the GDP per capita of Slovenia and Ireland was merely the same, measured in USD and adjusted for inflation. Today, Ireland's GDP per capita is 1,77 times (PPP) and 2,66 times (in current USD) higher than Slovenia's GDP per capita. Today, it would take between 50 and 60 years for Slovenia to "catch-up" Ireland's GDP per capita, adjusting it for inflation. Surely, Irish economy enjoyed the benefits of stable and non-discretionary institutions that helped sustained an incredible economic performance. On the other side, Slovenia's envious economic performance is mostly a continuous leap with little change in innovation and productivity performance. In fact, according to Eurostat, Slovenia is among those transition economies that have sustained a slow-motion productivity growth compared to Baltic tigers. Gimmick and backbone perspectives and shadows wavering over Slovenia's economy will sooner or later deliver a menu of price - a price of the absence of the rule of law and the price of the status quo. Period.

Rok SPRUK is an economist.

Copyright 2008 by Rok SPRUK

THE MIRAGE OF SWEDEN'S WELFARE STATE

Today's edition of the Wall Street Journal includes an opinion (link) where the author describes how the costs of social engineering are strongly underestimated in Sweden which is considered a paradise and haven of the welfare state. Throughout the content of the article, several examples are cited to show how immigration benefits the well-being and how welfare state eroded wealth creation and stimulated the decline of entrepreneurship and growth.

The set of arguments for the welfare state often includes egalitarian reasoning that has hardly anything to do with economics except for the famous Lorenz curve, showing the size of the distribution of income and wealth across population quantiles whereby the empirical outcome represents the Gini index of inequality. However, there could hardly be found sufficient arguments in favor of welfare egalitarianism exercised by high tax rates on personal and corporate income and other notable sources of productive behavior.

TIME TO RECOGNIZE THE BENEFITS OF GLOBALIZATION

The reality could hardly agree with growing anti-globalist tenstions in Western Europe (link) that globalisation boosts unemployment and the loss of net economic welfare. In fact, outsourcing, increased trade, offshoring and enhenced economic integration create now jobs that hardly anyone could ignore.

For years, economists have questioned whether a growing inequality of wages is an acceptable consequence of globalization. Such normative attributes are among the central pieces of economic analysis since economists usually have quite different political judgements and values. But the inequality of wages is actually the benefit of globalization. It is nothing else but an outcome of millions of decisions that reward the smartest and most productive individuals. It should be noted that inequality emerging from varying degrees of productive behavior is actually good since individuals and businesses boost their comparative advantage and thus reduce their opportunity costs.

Barack Obama's economic agenda endorses various protectionist measures that appeal soundly into the ears of the voters but have disastrous economic consequences. No serious and productive economist would be eager to defend anti-trade and anti-market rethoric against Wal-Mart and North American Free Trade Agreement. It's absurd to claim, as Barack Obama does, that NAFTA didn't give jobs to American people. It simply changed the strategy of specialization and comparative advantage. NAFTA was not a harm levied on the U.S economy but a gain that benefited U.S, Canada and Mexico together. Hardly anyone would wish high tariffs and burdensome obstacles to trade and investment. As Benjamin Franklin said, no nation has ever been ruined by trade and contemporary economic theory is much about Franklin's early wisdom. Trade doesn't create inequalities but interdependence. It means that gains from trade are mutually exchanged and thus, nobody's welfare is made worse off after trade, but improved significantly nevertheless.

Even World Bank has recognized that there is a strong correlation between trade liberalization and economic growth (link). Trade liberalization enables individuals and enterprises to reduce the information asymmetry and transaction costs.

Surely, with globalization some jobs disappear but an unprecendent growth of jobs in innovative sectors of the economy has outperformed the costs of globalization. Contemporary development of emerging markets has shown that David Ricardo was right about comparative advantage where countries specialize in producing goods and services with the lowest opportunity costs. For example, the U.S companies design software chips, Swiss companies produce fancy watches and some Belgian companies produce unique chocolate candies because those companies have unique resources and advantages that other economies don't have.

In the election year, politicians of all colors, whether it be left or right, Democrat or Republican, endorse protectionist proposals that would protect domestic producers and set huge entry barriers to foreign companies. Maybe it's about time for Barack Obama, Hillary Clinton and John McCain to sit down and learn about microeconomic and macroeconomic fundamentals.

Here is my suggestion (link)

ECONOMIC FREEDOM IN 2008

In a mutual cooperation, Heritage Foundation and Wall Street Journal issued a new 2008 Index of Economic Freedom (link). The index measures the level of economic freedom in the world, emphasizing the degree of economic liberty in each country. Some countries, such as Montenegro, Serbia and Iraq, remained unranked subject to incomplete information about the areas reflecting the level of economic freedom. By a methodological definition (link), the economic freedom is a material autonomy in relation to the state and organized groups. An individual is free who can secure and protect his human resources, labor and private property. Economic freedom involves several sub-levels such as freedom to invest, freedom to start a business, freedom to choose, freedom to trade, freedom from corruption, freedom from government, fiscal freedom and the protection of private property rights nevertheless. Higher the value of each component, higher the level of economic freedom.

The Meaning of Economic Freedom

Innumerable empirical investigation has confirmed a positive correlation between economic freedom and sustainable economic performance. Gwartney, Lawson and Holcombe (1999) have explored the relationship between economic and economic growth (link). They concluded that an environment with a high degree of economic freedom is essential to sustainable growth performance. As an ingredient of general prosperity, high level of economic freedom is impossible without a firm role of institutions whose aim is to protect private property from expropriation and to enforce the rule of law. Institutions are defined as the rules of the game and interaction between individuals. Institutions are a set of formal and informal rules that define the scope and shape of behavioral limit in private contracts. Inevitably, the aim of institutions is to minimize the transaction cost through codified arrangements and the respect for individual liberty and a limited role of government. The pursuit of institutions to minimize the transaction cost is, of course, essential to sustainable economic performance. Douglass North, the father of new institutional economics once wrote:

"The inability of societies to develop effective, low-cost enforcement of contracts is the most important source of both historical stagnation and contemporary underdevelopment in the third world."

Source: Douglass North; Institutions, Institutional Change and Economic Performance, Cambridge University Press, 1990 (link)

The quality of the business environment regarding creativity, innovation, financial markets and free exchange, is a set of components that determine the rank of economic freedom in a particular country. By the logic of the common sense, economic freedom is a necessity for both human and political freedom. Economic control is not only the control of economic transactions. It is the control of the means for all individual ends. And whoever has the control over the means must also determine which values will rate higher and which ends shall be served. The following relationship has been succinctly explained by Friedrich August von Hayek who once wrote:

"Even striving for equality by means of a direct economy can result only in an officially enforced inequality - an authoritarian determination of the status of each individual in the new hierarchical order"
-- Friedrich August von Hayek

Top 10 - The Champions of Economic Liberty

In this year's index, economic freedom in only seven nations was distributed as free. The distribution of economic freedom is officially shaped in six different categories. Again, Hong Kong remained the freest economy in the world, scoring very high on each component of economic liberty. In the group of free economies there are also Singapore, Ireland, Australia, United States, New Zealand and Canada. Those countries scored very high in monetary freedom, business freedom, private property rights, labor freedom and financial freedom. Among top 10 there are three countries left: Chile, Switzerland and United Kingdom. Sound regulatory environment, efficient judicial system, deregulated product markets, liberalized financial sector and low exchange costs reflect the ranking of countries among top 10. Among them, only Chile is a middle-income country but economic reforms in the past decade such as the privatization of the pension system boosted growth performance of the Chilean economy and contributed to Chile's high score in economic freedom. In 2008, the overall economic freedom of the world has not increased, but some countries progressed dramatically well while some other countries diverged. For example, Mauritius and Denmark performed a continued improvement from previous ranking while Russia's ranking decreased substantially.

Economic freedom in Nordic countries

The proponents of the so-called Nordic model argue that it is possible to combine sound economic performance and an unlimited welfare state. At this stage, they cite the example of Nordic countries. It is somewhat of a paradox to speak of the Nordic countries as they notably differ in several aspects. Therefore, it is actually impossible to speak about the Nordic model in general. Nordic countries score very well in the area of the quality of the business environment, having created one of the freest business areas in the world. Nordic countries also score very well on freedom to trade internationally, open investment environment, non-existent corruption, flexible financial environment, and independent judiciary. But Nordic tigers score quite badly in the areas of fiscal burden and government size. However, each Nordic countries has its own features. Iceland has been very successful in tax reform, entrepreneurship and competitiveness, Denmark has reformed its labor market towards far greater flexibility, Finland is known for the highly rated elementary and secondary education system, Sweden pioneered voucher system and the privatization of health-care and pension funds. Norway, the least free Nordic country, is known for rich natural resources, enabling both generous welfare system and impeding structural environment.

Slovenia - Subalpine Jail

This year's rank of Slovenia in terms of economic freedom has not improved substantially. Officially, economic freedom in Slovenia improved by 0,4 percentage point reflecting a cautous approach to pro-growth economic reforms. However, Slovenia is ranked as 75th freest economy in the world. A growing number of former communist countries has overtaken Slovenia such as Albania, Macedonia, Romania, Bulgaria. Even Lebanon has surpassed Slovenia. The country scored well on trade freedom and monetary freedom. Poor quality of the business environment reflects the overburden and failure of the regulatory environment. Slovenia lacks the privatization of banking and insurance sector. Also, the judicial system lacks the independence from political influence and it is known for substantial court delays, inefficient staff and slow procedures. Halted privatization programs have been a wish of political aim to control particular sectors of the economy. In addition, minor tax reform slightly cut tax rates on productive behavior. However, tax rates remained steeply progressive and high. Public spending has not increased substantially but the level of public spending is still very high accounting for 47,2 percent of the GDP in recent year.

Trade Unions as Means of Coercion

The most significant obstacle to higher level of economic freedom is Slovenia's highly regulated and rigid labor market that hinders productivity growth and job opportunities. Without a radical deregulation of the labor market, productivity growth could slow substantially. Flexibility is a key feature of the labor market, brining generous effect on labor supply. In fact, the power of labor unions is the greatest obstacle to the strength of economic freedom in Slovenia.


Rok SPRUK is an economist.

Copyright 2008 by Rok SPRUK

INDEX OF ECONOMIC FREEDOM 2008

Heritage Foundation and Wall Street Journal have recently released the newest 2008 Index of Economic Freedom (link).

PRIVATIZATION OF STATE ENTERPRISES: THE CASE OF SLOVENIA

Dr. Joze P. Damijan, the professor of economics at Vienna University of Economics and Business Administration, recently wrote an article about the need to accelerate the privatization of state enterprises in Slovenia. The article can be read here and here.

In Slovenia, 65 percent of the GDP is composed of private sector while public sector is extensive, accounting for about 35 percent of the GDP. There is a numerous empirical evidence in favor of privatization. In fact, the allocation of scarce resources is the key argument for privatization. Managers in state enterprises have different interests than private investors. That's why, private enterprises are more risk-taking in particular investment opportunities. Thus, as an empirical matter, private investors usuallly sustain higher rates of return on equity than managers in state companies.

In Slovenia, the government has been controlling the economy by extensive ownership participation in all major enterprises, ranging from insurance companies (Triglav), pharmaceutical industry (Krka), manufacturing sector (Gorenje) to retail industry (Mercator), banking sector (Nova Ljubljanska Banka, NKBM) and even telecommunication sector (Telekom Slovenije, Mobitel).

There is also a proof that sizeable state entrepreneurship reduces growth and distorts capital allocation nevertheless. In China, there is an average estimate that a decrease in state-owned enterprise share of industrial production increases real GDP growth by 1,14 percent (Phillips, Kunrong 2003).

In Slovenia, political and popular attitude toward the privatization is somehow negative. Yet, the privatzation is urgent. Some privatization is already taking place. Unfortunately, it is taking place very slowly and non-transparently. The withdrawl of government ownership of enterprises is essential to sound economic performance and economic liberty nevertheless.

AUSTRIA'S PROPELLING PATH TOWARDS PROSPERITY

The Economist has published four highly interesting reports on Austria's economic development (here, here, here and here). In addition, Economist Intelligence Unit provides some data on Austria's economic situation (here and here).

STREET SOCIALISM IS THE LAST SHELTER OF SCOUNDREL

Following the headlines of the international media, Slovenia is a fine land consisting of happy people, whose country's nobility is enriched by the fact that Slovenia is the wealthiest post-communist economy which recently entered the European Monetary Union, and a country enjoying the highest GDP per capita and standard of living in the Eastern Europe.

However, the reality is something completely different as I try to demonstrate in the words below.

Being a student is a nice slice of lifetime. I do not pay attention to attending student parties and thus, I rather wisely invest my time into sitting at the library and studying the economic theory, policy and philosophy besides regular study courses. The fact is that the opportunity cost of attending parties is huge and it'd be completely irrational to neglect it or ignore it respectively. For example, Kobe Bryant understands his opportunity cost very well. He can, for instance, spent 2 hours mowing his lawn, having low overall return.

Contrary, he can record a TV commercial, earning $10,000 USD in two hours. His neighbor, Sally, might spent 2 hours working in McDonald's, earning $8 USD. Despite the fact that Kobe might mow the lawn faster than Sally, it'd be rational for Kobe to record a TV commercial while it'd be equally rational for Sally to mow the lawn, because of the opportunity cost.

Economically, my interest as a student is to finish the undergraduate study as soon as possible and get an overall return from the education. The opportunity cost of the education is, of course, my time. But in a broader perspective, higher earnings and human capital value is what shall count as a compensation for investing my time into the education, getting both: better education and better job opportunities.

As an economist, I strongly favor free choice; an ability to choose among the greatest possible set of alternatives in the course of human life. In fact, individual, economic and political liberty and individual responsibility to the fullest possible extent, is what has unlocked creative and talented entrepreneurial and intellectual minds to pursue intuitive and powerful ideas that shaped the economic future.

But I don't understand, why on earth, should the students jump on the streets, wear red suits, head old Soviet flags and shout in favor of the welfare state extensively. Slovenia's student organization, pensioners, public sector employees and trade unions claim that wage increases should be more robust subject to Slovenia's sound current economic shape and, on Saturday morning, they will march on the streets of Ljubljana and promote the spellings of socialism, social security and generous welfare services respectively. Slovenia's student organization says the following:

"An accessible education without scholarships for all, higher pensions and greater social justice. These are the ideas that will make everyone better off."

Over at the faculty field, I noticed a socialistic parole, saying: "Factories in the hands of workers, universities in the hands of the students!" added with Soviet-styled propaganda and typical communist star. This situation rather reminds on a retarded Soviet satelite grunged by Leninism and Marx's diallectical materialism. The origins of socialistic mentality in Slovenia are strong roots of collectivism. In this post, I explain why student protests against pro-growth tax and economic policy, school choice and competition in higher education, reform of the budget-funded health care system and social security reform are based on the false assumptions, myths and hostility against individual, economic and political liberty.

1. Population crisis in Slovenia is estimated to hit negative numbers. Aggregate labor supply is falling respectively and the number of retired persons is growing significantly. In Slovenia, when a person retired, the main slice his pension in financed through 1st pillar of pension fund which is funded directly through taxes on labor supply. The impact is clear: tax burden on labor supply is rising, public debt is growing respectively and fiscal outlays are expanded every year.

Consider the gross cost of an educated and intelligent worker in Slovenia, which an employer has to bear. Assume that monthly salary of the worker equals $3500 EUR in gross terms. The contribution rate to the retirement fund is 15,5 percent. Basic health care insurance deducts additional 6,36 percent. Personal income tax rates are composed into three brackets; 16 percent for the lowest quantile, 33 percent for the middle-income earners and 41 percent for the workers in high-income groups.

Obligated voluntary health insurance contribution rate is small compared to basic coverage rate of contribution, but it deducts the disposable income respectively. Additionally, employers have to pay the payroll tax and enhance the worker's income by compensating the costs of food and transport. In addition, an employer in Slovenia has to slice a contribution share to health care, social security and pension fund, at the expense of worker's productivity. Now, calculate the disposable income of the employee and see the tax wedge, squeezing his productivity after the hours he spends on the market.

2. Moderate tax cuts by the center-right government stimulated the growth of incomes by a narrow rate. Modest cuts in the labor taxation showed that tax cuts are self-financing, the unmistakeable notion of the Laffer Curve. Recently, the growth of economic activity in Slovenia reached historic highs. In 2007, the growth is estimated to reach 5,6 percent, which is quite uncompetitive compared to Eastern European economies. In 2006, Estonian economy grew by 7,9 percent, Latvia accounted 10 percent rate of output growth, Slovakia recently announced the data, revealing 9 percent annual growth rate.

By 2012, Slovenia's economic growth is estimated to diminish straight-forward to 3,6 percent respectively, reflecting weak structural advancement, age-dependency pressures and rapid increase in retirement activity. In 2006, the rate of inflation sparked up primarily due to higher food prices and intensive demand for food in Asian high-growing economies. Economically, inflation is a monetary phenomena arising from too much money, chasing too few goods. In a simple equilibrium, the result is the increase in overall price level. By January 2007, Slovenia entered the European Monetary Union, and after fixing the monetary emissions, the growth of money supply calmed down which normalized the inflation rate.

Subject to deteriorating exchange rate regime and periodically stimulated high inflation in the past, it will take time for Slovenian economy to adjust to new stream of monetary policy whereby the money supply is determined through interest rate setup by the ECB.

3. There is no such thing as free education. In fact, somebody has to pay the equipment, rent and maintain the facilities, lecture rooms, provide the electricity and heating. In addition, somebody has to hire and pay the academic services. Somebody has to pay and provide computers, internet access and modern means of study. Saying that education is free is like claiming that you can go into the mall and take away some furniture without payment. There is a dozen of proofs that private sector education is competitive in terms of quality of the future graduates.

The best and most respected universities in the world are private ones. Eight Nobel-winning economists have come from Chicago University which is funded by private means as well as Stanford University. Investment in education provides the best interest in the future. The time you give up to consume, is the cost you have to bear to have greater returns and personal welfare in the future.

There is no such thing as free lunch, and the education has never been a free lunch. Scholarships, by empirical proof, improve the standards of education and provide opportunities for thousands of individuals to unlock knowledge potentials and empower the intuitive mind whether it be in entrepreneurship, design, economics, medicine, mathematics and everywhere else.

4. The essential to understanding complex phenomena in society is the economic literacy and education. Thus, Slovenes should know that despite the same length of working time as Austrian or German workers, the latter earn more because of higher productivity and technological progress which stimulates the productivity through effective individual management of creativity and knowledge. In addition, Slovenia is, as shown above, one of the most taxed countries in the world (link), thus giving investors a sign of avoidance as an investment location. Empirically and practically, labor supply is highly sensitive to tax rates, meaning that the labor supply is elastic, ceteris paribus.

It means, that the labor supply strongly responds to the marginal changes in taxation of income. As a result of higher taxes, gross labor cost in Slovenia is huge, discouraging job formation and denying the opportunities to thousands of intellectual and entrepreneurial minds to show their skills and talent. I wonder whether trade unions and its anti-growth intellectual leaders will bear full responsibility for the actions they presume as socially just. To say it again, social justice is a mirage and a trojan horse riddled by the totalitarian governments and supported by the individuals who deny economic and personal liberty to others. Those who deny the enforcement of economic and personal liberty as a property right to others, neither deserve it for themselves.

The demands of trade union such as full employment, high taxes on productive behavior, high wages, expanded income and profit redistribution, extensive welfare and social security services, would propel the stagnation of growth as well as the productivity potentials which is the main engine of growth in standard of living. Claims of egalitarian pursuit of redistribution, material and income equality, under which trade unions in Slovenia delegate the course of living order, can only be met under governments with totalitarian powers. Extensive unionism and its influence on structural and economic policy is perhaps the most powerful evidence that Slovenia is de facto the most socialist country in Europe.

5. At last, Slovenia's economic policy in the past 15 years is the most notable proof about the negative impacts of gradualism entailed into the course of public policy. Slovenia kept persistently the highest inflation among advanced countries in Eastern Europe. When the left-wing government took over the chairmanship in government, wages in public sector trimmed up enormously by 40 percent, creating an additional source of inflation pressures. The deadweight loss from economic depression was vast. Meanwhile, Slovenia's international competitors grew rapidly and thus a development was geared-up. In addition, the policy of early retirement enabled the formal retirement before the age of 50. In just one year, between 1992 and 1993, the number of retirees rolled-up by more than 100 percent.

Over the years, Slovenia's pension system, in terms of outlays, has been financed through budget and the first pillar of retirement insurance is estimated to be depleted in the medium run consequently because of the abovementioned reasons including early and beneficial retirement, high pensions and sky-rocketing continual spirals of wage increases in the public sector, adding a burden to high government spending.

6. In 1950, in terms of current prices, Slovenia's real GDP per capita was higher than Austria's which suffered war losses. From 1960 onwards, Austria's prosperity increased tremendously after Austrian early reformist government and its minister of finance Reinhard Kamitz adopted low taxes, imposed deregulation and liberalized trade and prices, while Slovenia's GDP growth started to trick towards relative stagnation. When Austria's technological development accelerated productivity growth, its standard of living grew tremendously, at the fastest pace in Western Europe.

When Austria enjoyed the fruits of market economy and remarkable output growth rate, Slovenian economy was mischiefed by socialist self-management which demolished the efficiency of entrepreneurial investment by wrongful decisions embraced by politicians, political entrepreneurs, workers and union leaders, who knew neither risk nor ambitious agenda, as there was no private means of production under socialism.

Finally, when Slovenia gained independence from communism, Austria's economy advanced the output growth while "the wealthiest ex-communist country" slid into depression while its central bank tacitly led the policy of high inflation through deteriorating exchange rate. Thus, the hourly output per average Austrian worker is higher relative to the output of Slovenia's worker per hour, because of higher productivity, greater innovative and entrepreurial capacity, and succinctly utilized gains from hours spent in the market.

7. Tomorrow, the streets in Ljubljana will shout and scream again, reflecting the misery of sub-Alpine socialism, which has always known nothing else but envy, misery, lies and deception. I will rather spend my time studying and reading Friedrich August von Hayek's The Constitution of Liberty, Greg Mankiw's Principles of Economics, Imre Lakatos's Proofs and Refutations, Karl Popper's Logic of the Scientific Discovery, James Buchanan's Demand and Supply for Public Goods, Kenneth J. Arrow's Social Choice and Individual Values and Wilhelm Roepke's Economics of Free Society.

Rok SPRUK is an economist

Copyright 2007 by Rok SPRUK

THE EFFICIENCY OF PRIVATE ENTERPRISE VERSUS GOVERNMENT FAILURE

"Everything the government does, private enterprise can do for half the cost."

-- Milton Friedman



Just a few days ago, Dallas Fed posted previously unreleased conversation with Milton Friedman. It can be found here.

Here is an opinion of the Nobel-winning economist about several issues:

On the impact of globalization:
“…it's a curious situation. You read the newspapers and you think the world is going to hell. You think the economy is doing badly. And yet, the truth is, that we have never in our history had as productive an economy as we do now.”

On China:
“You cannot maintain, in my opinion, today's political structure and today's economic structure.”

On Government Spending:
“…as government has increased spending, we make ourselves a less attractive society in which to set up business, in which to run a business.”

On Social Security:
“My favorite solution…would be to give every individual who's in a Social Security system now—either as a recipient or as a payer—a bond equal to the present value of what they so far have actually earned and then close the system down.”

FLAT TAX EXPANDS INTO GEORGIA

Alvin Rabushka of the Hoover Institution briefly outlines the adoption of the flat tax in Georgia as well as the implications of the tax reform on growth and revenue. Here is some remarkable data: by January 2005 Georgia adopted 12 percent flat tax, replacing previously imposed four-bracket system. The tax reform lower the rate of taxation on productive behavior which, in turn, had dramatic effects on economic growth, averaging 10 percent in the past three years. Tax revenue increased from 14.5 percent of gross domestic product in 2003 to 22 percent in 2006, and should reach 24 percent in 2007.

MONTENEGRO'S ROAD TO FREE MARKET ECONOMY

The International Monetary Fund recently released the report on Montenegro's overall economic performance, emphasising basic fiscal and macroeconomic policy perspectives. In English the report is availible here while it can also be reached in Montenegrin (here).

Two years after gaining a formal independence from Serbia, Montenegro's economy operated at a full capacity, having seen robust output growth rates estimated to exceed 7 percent by the end of 2007. The growth, mainly driven by a significant amount of foreign direct investment, seems to remain robust in the medium-run despite particular tensions referring to the signs of overheating. Nearly 85 percent of capital value of companies was privatized. Banking sector, telecommunications, oil distribution and import services are 100 percent privately owned. Foreign direct investment is reaching record highs. In 2006, according to Montenegro's central bank, foreign direct investment reached $680 million USD, six times higher than in 2004. In the first half of 2007, foreign direct investment increased by 78 percent, while from January to July 2007, the amount of FDI was $650 million. Thus, Montenegro has one of the highest FDI per capita, $ 1,100 USD, one of the highest shares in Europe.

Montenegro's business environment is weak by international ranking, despite of significant improvement in since the independence year. Montenegro ranks 81st in the world according to the ease of doing business. The failure of public administration to provide the operating business environment at sound quality, long licensing procedures, severe difficulties faced when registering a property, bureaucratized trading environment, and a high level of difficulty in enforcing commercial contracts, reflect the disadvantages of Montenegro's business environment (link).

Affected by international financial turbulence, Montenegro's asset prices soared in the last two years, leading to a remarkably rapid growth of credit which further fueled the investment into real estate industry. However, rapid credit growth posed signs of an overheating economy which has been a particular backlash of Montenegro's domestic economic environment.

On the other side, Montenegro's growth is not drifted by inflationary pressures. Subject to concentrated market structure, retail inflation peaked slightly ahead of central bank's expectations, particularly in the electricity sector which has not yet been demonopolized by the infusion of competitive mechanisms and price liberalization. Electricity shortages occured despite tariff increases.

The economic reforms, such as the privatization of state-owned assets and the openness to foreign trade and investment, contributed to stable macroeconomic position. The budget remained anchored in surplus. Public debt does not currently evince any sign of quick consumption-inflated indebtedness. Total public debt peaked at 38 percent of the GDP while loans denominated into foreign currency presented 27 percent of the GDP by the end of 2006. As a matter of fact, overall public debt was reduced from 88,3 percent of the GDP where it stood in 2002 (link). Foreign indebtedness is expected to decrease in the years to come due to large amount of inflows from the investors' buy-outs of state-owned assets and enterprises.

As a transition economy, Montenegro has experienced typical short-term and medium-term problems due to the rapid convergence of GDP and robust economic growth as well. Transition process, by itself, poses a lot of risk and challenges, ensuring economy's vitality and growth sustainability. First, in Montenegro, real estate and equity prices skyrocketed due to signficant demand-induced pressures and country's valuable tourism potential, which folded residential and coastal property prices upward.

Second, according to IMF, credit growth accelerated at 170 percent by August 2007, pushing the the household indebtedness to record highs. Credit growth has surpasses the amount of inflows from foreign direct investment which Montenegro has received in this year. However, deteriorating current account deficit is not alarming, neither a sign of recession or downturn, whether it applied to established economy or an economy in transition. In case of Montenegro, widening current account is a result of accountable investment imports and capital inflows whose contribution to overall output growth is significant. In relation to credit growth, it is the question whether banking industry is strained by the lack of ability to assess loans in real estate.

Third, external demand-supported pressure on wages poses a significant threat to overall competitiveness of Montenegro's booming economy. If productivity expectations are high, the spiral of wage-increases claims could have been eased by the fact of productivity outcome. But if the productivity expectations are low, the wage-increasing claims could have bursted the triggering of inflation-pressing spiral. In case of Montenegro, public sector has claimed wage increases several times. It is the question whether the sector whose contribution to growth is relatively low relative to the components of the private sector, could claim wage increases on a legitimate basis subject to distortionary effects of wage-increasing claims under conditions of low and possibly rachitic productivity performance. The rigidity of wage claims is mainly derived by the lack of labor market reforms, whereas outdated labor legislation returns uncompetitive effect respectively.

Montenegro's abundant potential of a flourishing tourist industry propelled by market optimism and Stabilization and Association Agreement with the EU, provides sound opportunities to address the abovementioned concerns. Years ago, Montenegro adopted euro as a common currency, thus eliminating the possibility of currency and exchange risk. Monetary policy's ability to tackle demand pressures is thus partly limited and that's why a prudent fiscal stance is needed in lines with transparency and restrictive expenditure agenda.

In a booming economy, such as Montenegro, fiscal policy is a powerful tool in managing the fluctuations and brisk economic progress. In the state of robust output growth rates and soaring private sector productivity, fiscal policy is ought to be countercyclical to prevent the possiblity of overheating where the expansionary fiscal policy could turn a non-inflationary economic performance into inflationary economic growth generated by fiscal expenditures on infrastructure and public or/and foreign indebtedness, while seeing the overheating of economy's overall capacity. Fiscal balance or possible surplus is favorable to the business cycle for two particular reasons: (1) it faces adverse shock with low risk and (2) it gives support when revenue growth cools the impact on public finance. Also, significant import growth, reflecting the current account deficit, presented 4-5 percent share of imports in the GDP.

The role of fiscal policy is ought not to be undermined. As a powerful tool in responding to cyclical fluctuations during a "catch-up effect" period, fiscal stability and low government spending are usually based on surplus mechanisms. By avoiding budget deficit, policy responses may prevent the demand shocks and low level of public spending is a sign of maturity that helps to detach the anticipation of inflationary pressures and its impact on macroeconomic stability.

Tax cuts implemented in previous years may be seen as a policy failure in generating greater revenue. As the Laffer curve succinctly explains, it is able to reach higher tax revenue from a broader tax base, by reducing the rates on corporate and individual income. Since the implementation of low flat taxation on major sources of productive behavior, revenues have increased rapidly. Currently, public spending stands at 45 percent of the GDP (link), and the share of capital investment is 3 percent in this respect.

As a negative aspect of fiscal and structural policy, Montenegro's policymakers approved a significant 30 percent wage increase in the public sector, which is far ahead of current productivity and output growth measures. Such expansionary effects should be wisely avoided to prevent the loss of incentives to boost the economic performance when the growth performance slows. Robert Barro, a professor of economics at Harvard University, has shown empirically that reducing the size of public sector by 10 percent, stimulates growth by 1,3-1,8 percent. As a sign of innovative policy, public sector employment and expansion might be frozen and possibly reduced to prevent further unanticipated shocks such as wage-increasing claims.

In recent years, Montenegro's economic policymakers implemented a rigorous tax reform. Flat tax was implemented on personal and corporate income and it is expected to be dropped slightly in the years to come. Tax cuts were imposed procyclically. However, complex taxation structure such as numerous exemptions, loopholes, breaks and deductions have counter-effects as they raise the cost of paying taxes, notified as a difficult tax compliance and administrative burden which costs firms and taxpayers millions. The aim of tax reform and system is to pursue the efficiency and minimal tax burden levied on firms and individual taxpayers. High tax burden, empirically and practically, constrains growth and does not meed the indicated measure of efficiency. Fiscal reform, such as braking-up the size of government spending, is expected to pursue the objectives of fiscal consolidation which contains easing pressures to anticipated as well as unanticipated external or domestic shocks. The goal of prudent fiscal sustainability in the medium-term is to meet the demands of macroeconomic and structural stability. In the medium run, demands to invest rapidly in infrastructure may be tackled. However, it would be wise to avoid infrastructure investment through the expansion of state-owned enterprises. By the means of risk-taking and efficiency of capital and technology investment, infrastructural investment is easily attainable through private sector. In case if externalities and signs of market failure appear, then public infrastructural investment may be justified, also to prevent the emergence of public or natural monopolies where one firm, in public or private ownership, could substantially abuse its market power, such as in case of railway and highway infrastructure.

In monetary area, Montenegro has stabilized low inflation rate and the monetary policy remains anti-inflationary (link). In 2006, inflation rate peaked at 2,5 percent. In the first half of 2007, inflation rate was 1,1 percent (link). S&P has given Montenegro BB+ credit rating. The abovementioned rapid growth of credit has tightened banks to raise capital adequacy ratios. This could hamper the ability of banks as well as equity funds in responding to the demand claims of investors in real estate and stock market industry (link)

At last, structural reforms demand both; challenge and perspectives. One of the greatest potential of structural reforms is to boost economy's potentials. According to the data, the government and state, still own shares in 65 companies. In 53,8 percent of those companies, government has more than 50 percent ownership share. The argument for an accelerated privatization is the fact that the allocation of labor, capital and technology resources is better utilized as well as distributed in the channel of productive use. In fact, as an owner, government has severely different interest than private investors. In addition, the data shows, that privatized companies sustain higher level of productivity than state-owned companies.

The area in which radical reforms should not be postponed, is the labor market. The aim of the labor law is to pursue flexible and dynamic environment, allowing firms to dismiss non-performing employees without high severance costs. As every economist can confirm, collective contracts and bargaining such as oligarhic bundling between monopoly structures such as federation of employers and trade unions, does not match the needs of modern market economy. Instead, flexibility and deregulated labor market are essential to maximize productivity growth and eliminate discretionary wage-increasing pressures and also fight unemployment. In this respect, Montenegro's business environment is free of unnecessary regulation which boosts the potential of private sector growth. In the long run, fiscal risks are inevitable and Montenegro's abundant potentials may be implemented not by government intervention but by low public spending and first-class investment environment that underpins the role of private sector, free of corruption, in the economic performance respectively.

Rok SPRUK is an economist.

Copyright 2007 by Rok SPRUK