SLOVAKIA - MONACO UPON DANUBE

"I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it's possible. The reason I am is because I believe the big problem is not taxes, the big problem is spending. The question is, how do you hold down government spending? Government spending now amounts close to 40% of national income not counting indirect spending through regulation and the like. If you include that, you get up to roughly half. The real danger we face is that number will creep up and up and up. The only effective way I think to hold it down, is to hold down the amount of income the government has. The way to do that is to cut taxes. "
- Milton Friedman

Roughly a decade ago, Slovakia could be described in the following words. According to a vast majority of economic indicators, Slovakia was on the edge of existence and macroeconomic stability among the nations in transit. It was governed by Vladimir Meciar, an iron-fist nationalist dictator, and by the post-communist coalition. This coalition isolated Slovakia from the international community politically as well as economically. This enormously devastating stituation came to conclusion when Madleine Albright regarded Slovakia as the black hole in the heart of Europe. After the independence, Slovakian GDP cumulatively fell by 24,7 percent (Fisher, Saray 2000) taking into account the level of Slovakian GDP before the shift to transition began (1989 = 100). The program of macroeconomic and monetary stabilization lacked behind the very much needed pace. Until 1998, the inflow of foreign direct investment was the lowest among transition countries (Damijan, Polanec 2003). As a matter of fact, the household rate of internet connections was constantly below 15 percent (Eurostat, 2001) which the lowest internet connection rate among households in the entire European Union.

At this state of misery, a new Slovakian Prime Minister Mikulas Dzurinda began his mandate with a bulk of economic reforms which included the education reform, health sector reform, tax reform, social security reform, labor market reform as well as the entire reconstruction of public administration. A youthful team of reformers included experts who graduated from Harvard, Princeton and Stanford. Martin Bruncko, one of the foremost reformers, received an honorable reward from Harvard University for his thesis on the implications of the flat tax. As a result of fast, seriously and transparently imposed economic reforms, the Slovakian economy skyrocketed. In 2003, economic growth rate peaked at 4,2 percent, in 2004 it equaled 4,9 percent and in 2005 it reached its peak at an incredible 5,6 percent. In that year, Slovakian economy was the third fastest growing tiger in Europe (OECD, Economic Outlook, 2005). In 2006 OECD estimated the annual economic growth rate of Slovakia at 6,2 percent. In 2004, Slovakia adopted a single flat tax on both personal and corporate income. This easy, simple and pro-growth system replaced the previous one which included five different tax rates, ranging up to 38 percent. After the first package of tax reforms was introduced in 2003, tax burden rapidly decreased to 13,7 percent so that economic analysits from OECD noted Slovakia as "tax heaven of Europe". Giving the economy very much needed boost, the unemployment declined sharply. It went from 20 percent in 2001 to 15 percent in 2004 and 11 percent in 2005. As a result of radical and unabating structural reforms, the quality of business environment improved dramatically. Foreign direct investment (FDI), one of the most powerful engines of economic growth, grew robustly. Automobile industry found a bulk of incentives in Slovakia. Equipped with low labor costs, shining geographical location and incredible opportunities offered stimultaneously, Slovakia became a host for automobile enterprises such as Volkswagen, Pegueot, Citroen and KIA Motors. The latter will start pushing its production in a small town of Zilina in the North of Slovakia. On the other, a stimultaneous tax system and a flexible labor market did very much to attract foreign direct investment from the automobile sector. Increased volumes of capital inflows are a result of stimulating business climate which banished restrictions on ownership participation so that only minimal restraints remain in action.

"The country's low-cost yet skilled labor force, low taxes, liberal labor code and favorable geographic location have helped it become one of Europe's favorite investment markets."
- US Department of Commerce

According to numerous reports, Slovakia is the leading innovator in making investment climate furtherly favorable. Minimal barriers to capital transaction also present an important feature by which Slovakian policymakers let the system of business and capital transactions running freely, without burdensome restrictions and bureaucratic regulation.

A group of youthful and enthusiastic economists under the leadership of Ivan Miklos was aware of the importance of the privatization of banking and financial sector. Previously restricted financial system under the possession of the government did not offer credible enhancement mechanisms to entrepreneurs and individuals. A quick, transparent and relatively fast privatization of almost entire financial sector included the undergoing series of structural changes, financially weak banks were eliminated and three largest state-owned banks were immediately privatized. Today, the financial sector consists of 18 commercial banks and three largest banks are 100 percent under the ownership of foreign investors. Interest rates were liberalized without the preliminary enforcment of Maastricht conditions (within ER mechanism) needed for a country if it wants to enter the European Monetary Union as well as credit condtions were reset and credit limits eliminated. Slovakian financial sector is small but far most efficient than most of Slovakia's counterparts. Financial system offers incredible opportunities to foreign and domestic investors, there're numerous investment incentives which stimulate investors to rely on pro-market behavior. On the other side, financial sector in Slovakia had been reformed to change its behavior in order to transform it into pro-growth pillar of stimulations to businesses and individuals. The dynamics of the financial sector also applies to the business investment climate which is known after its transparency, tax and entrepreneurially-friendly attitudes (Heritage, 2006) and non-discriminatory treatment of investors regardless of their national origin. World Bank (2006) named Slovakia the top reformer in improving the climate of its investment environment. As to another importatn characteristic of the banking sector, credit limits are among the least restrictive in Europe (IMF, 2005).

In 2003, Slovakian government undertook serious steps in reforming a very rigid labor market. Renovated Comprehensive Labor Code was legislated. It allowed greater flexibility at hiring and firing workers. The flexibility of labor market essentially contributed to the Slovakian shift to freer economy (CATO, 2003). The labor market is among the least regulated in Europe. In 2004 the costs of labor per unit of GDP equaled 0,2 percent.

Slovakia also has incredibly transparent, pro-choice and activity-based pension system. Many analysts from Ernst&Young and Dun&Bradstreet are putting Slovakian transparent and long-term sustainable pension system as an example to Western governments in France, Germany and Italy. New system enables more free choice. The individuals can therefore choose between the old 'pay-as-you-go' system and new system which is based upon individual contributions to personal (private) retirement accounts. Individuals can also put their away in various investment and private funds in order to keep their money safe from political expropriation. Current social security contribution rate is equal to 29 percent of the gross salary. 9 percent of this amount goes to the old system while 9 percent goes to the new system. This particular ratio also covers other types of insurances. More than 50 percent of all contributions is invested in various private investment funds which yields a lot more than the old system and also offers incredible opportunities to control long-term and short-term risk. Thus 8,5 billion SKK is saved in 8 various investment funds. Their job is the management of pension savings. There are numerous opportunities let to individuals. Every investment fund consists of 3 additional funds - growth fund, balance fund and conservative fund. 80 percent of all portfolio growth funds can be constructed in exactly the same way as asset management funds. Younger individuals can choose between all 3 funds while older generations can vary between balance fund and conservative fund. Businesses whose mission is the management of pension savings can accomplish their investment anywhere abroad but 30 percent of all investments is required to be based in Slovakia. Pension reform was enforced quickly, within the period of one year. Personal retirment accounts (PRA), where individuals and businesses can put their savings, have two increasingly important characteristics - (i) they don't violate the principle of private property and (ii) they are safe from political abuse (Tupy, 2006).

According to international research studies, Slovakia undertook pro-growth steps to make macroeconomic stabily sounder and business environment less wedged. For example, there are minimal barriers to the process of company registration. It only takes 3 steps to register the company which means 17 days until the company is established and ready to operate. The costs of establishing the company amount 0,1 percent of total property value (WB, Doing Business 2006).

Slovakia passed a long period of economic changed. From financially devastated economy, it stepped at the top of economic miracles under the leadership of Mikulas Dzurinda and Ivan Miklos. A group of serious economists and reformers, including Ivan Miklos and Martin Bruncko, made Slovakia the first serious reformist country in Eastern Europe after Estonia. In 2006, the World Bank ranked Slovakia among top 20 countries with the most business-friendly investment environment and entrepreneurial climate. There had been a particular emphasis on undertaking economic reforms in order to stimulate productive behavior which was generated by pro-growth tax legislation embodied in the imposition of the flat tax of 19 percent on both personal and corporate income. This particular type of tax system is far away from being complicated. It is far more efficient, transparent and pro-growth. The flat tax replaced the old system which was known after its enormously grown progressivity, ranging from 16 to 35 percent. According to analytical studies, tax reform stimulated the growth of the economy. It also improved the investment climate and removed heavy burden which had been caused through highly progressive system of income taxation. Tax reform resulted in both, greater freedom and greater equality. According to some econometric estimate, structural reform of the tax system empowered the economy which resulted in 2,5 percent increase of the economic growth on the annual basis. In the past period, Slovakia had significantly improved the state of macroeconomic stability. In fact, Slovakia was the foremost macroeconomic reformer in the region (see: Macroeconomic Environment Index). In 2004, the country scaled up and came among 50 most transparent, firm and efficient macroeconomic environments (WEF Global Competitiveness Report 2004, McKinsey&Company 2004).

The privatization of government enterprises and state assets was fast, non-troubled and transparent. In 2001, Austrian Erste Bank and Italian Banca Intesa acquisted the package of governmental stakes in the following banks; Slovensky Sportelna and VUB Banka. In 2002, the government sold the stakes of gas distrubtion company Slovensky Plynarenski Priemysel to EDF, RWE and Ruhrgas. The infrastructural change was accompanied together with rapid economic transformation (IMD, 2006).

The main features of labor market reform had been the shift towards greater flexibility of labor market itself. This particular objective was reached through (a) more flexible labor contracts, (b) stimulating working extra-hours and (c) less complicated hiring and firing of workers. According to data from TREND, approximately 80 000 graduates left Slovakia between 1994 and 2002 which equals nearly 7000 to 10 000 graduates a year. The so-called "brain-drain" effects reflect in 0,6 percent decrease in annual economic growth (McKinsey&Company, 2005).

Ivan Miklos and the group of economic reforms were the first serious signs of economic change in Central Europe. Ther willingness to impose a bulk of structural reforms did not decrease even though trade unions and other signals of neosocialism furiously opposed economic reforms and refused the need to let the economy grow and make economic change happen. Today Slovakia is known as the European Detroit with a 19 percent flat tax rate on boh personal and corporate income which embodies all of the requirements for the country to become tax heavens. Foreign direct investment presented 18,4 percent of the GDP in 2000. In 2004 the amount of foreign direct investment presented incredible 35,3 percent of the GDP. In 2005 and 2006 the growth of Greenfield foreign direct investment showed positive signs of further investment growth. After the country enacted the flat tax in 2004, it joined the club of those economic miracles in Eastern Europe who showed enough courage to enact the flat tax and thus insured them against possible economic downturn in the future. The phenomenon of eastern European tigers is coined as the flat tax revolution.

The efficiency of government policies increased dramatically under the mandated leadership of Mikulas Dzurinda and Ivan Miklos. In World Competitiveness Ranking of the IMD in 2006, Slovakian government was ranked 17th according to the factor of efficiency. In 2005, tax burden measured as the percentage of the GDP was among the lowest in the OECD group of countries. Tax burden did not reached 30 percent of the GDP. Government spending decreased from 50,5 percent of the GNP in 2002 to 40,5 percent of the GNP in 2004. However, some forecasts have been made and show continually-adjusted signs of decreasing governmental consumption. Between 2000 and 2005, only Ireland, Estonia, Lithuania and Latvia had had higher rates of economic growth. Through the period of liberal economic reforms, the size of the budget deficit reduced from -13 percent to -3 percent. The latest research called Tax Misery & Index confirmed the simplicty of the tax system and its pro-growth nature. If you are a taxpayer working in Slovakia who earns 50 000 € gross annually, social security contributions transferred from your income will be equal to 1 736 €, 8 033 € will be taken away through the payment of an income tax. After other minimal obligatory contributions are taken into account, your net income will be equal to 40 231 € or 80,46 percent of the gross income. In Slovenia, your net income would present only 55 percent of the gross income (50 000 €). Social security contributions would be equal to 10 050 €, personal income tax would be equal to 11 323 €, so that only 27 627 € remained left (see: Tax Misery & Reform Index, Forbes).

However, the whole picture of Slovakian economy is far from being an ideal fairytale. Several challenges are still to come ahead. A bulk of incentives in order to energize the economy has been recommended by McKinsey&Company. It recommends the following advice:

"As first, Slovakia should face the problem of corruption and persistent inefficiency of the judicial system. The protection of private property rights should be enhanced immediately. The government should continue improving the infrastructure while it must avoid burdensome regulation of product markets. The liberalization of health-care sector and social security system should continue. Fighting against corruption will improved the efficiency of the judicial branch of government. Slovakia should avoid minimum wages and keep the labor market flexible. The government needs to furtherly privatize the rest of the its stakes in state enterprises whereas the elimination of various forms of ownership restrictions is vastly needed as well. The government should put more efforts to reduce the burden of bureaucracy. Those barriers reduce the dynamics of enterpreneurial prosperity. The government should not hesitate in making efforts to reduce brain-drain outflows. That is the way upon which economic growth will get very much needed boost. After a series of features stated above is to be enacted, Slovakia economy will have more opportunities and engines to be a competitive country with high rates of economic growth and sufficient climate of the entrepreneurial environment."

Source: McKinsey&Company Report on Slovakia (translated by Rok Spruk)

Economic reforms undertaken by Ivan Miklos and other younthful and enthusiastic group of economists made Slovakia one of the friendliest places for portfolio and direct foreign investors. The tax system was redesigned completely and became one of the most competitive ones in the world. In many recent surveys, Slovakia was recognized as the most entrepreneurially innovative country in the region. The level of entrepreneurial innovation is stimulated through low taxes, lower regulation and lower rate of government spending. The government under the leadership of Mikulas Dzurinda was attacked by the trade unions and other rent-seeking interest groups. Those groups penetrated the media and sent waves of illusionary fears against the process of economic change. We especially admire the fact that the bulk of measure to increase economic freedom and let the passage of transition become a success story, was never in question of political popularity of the government. During the period of economic reforms, the rate of political popularity of the government fell below 5 percent. Ivan Miklos told that the imposition of reforms is very costly. Opposition parties are doing propaganda, people are not satisfied, and trade unions fear others while the results of economic reforms come later.

At the following elections, Slovakian voter chose extreme leftists to be in charge of the country. Those parties even formed coalition with the party whose leader is former dictator of Slovakia Vladimir Meciar. With the election of leftists, right-wing extremists and nationalists, Slovakian economic freedom is about to be in danger. However, the people of Slovakia will soon feel the devastating impact of leftist government. It will surely be a colateral damage which puts the long-term competitiveness of Slovakia in a very fragile position.

ON COURAGE AND SUCCESS

"It is not the critic who counts: not the man who points out how the strong man stumbles or where the doer of deeds could have done better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly, who errs and comes up short again and again, because there is no effort without error or shortcoming, but who knows the great enthusiasms, the great devotions, who spends himself for a worthy cause; who, at the best, knows, in the end, the triumph of high achievement, and who, at the worst, if he fails, at least he fails while daring greatly, so that his place shall never be with those cold and timid souls who knew neither victory nor defeat."

Teddy Roosevelt

THE PHILOSOPHY OF LIBERTY IS BASED ON THE PRINCIPLE OF SELF-OWNERSHIP

Click here and watch the movie which reveals the core of the philosophy of human freedom as well as it shows how the responsibility of the members in a free and competitive society is vitally important to go towards the free society itself.

ECONOMIC EDUCATION AND FREE CHOICE - A KEY TO UNLOCK THE ECONOMIC MIRACLE

I recently noticed the latest hotspots on the market concerning increasingly important targets of economic education. According to IMD Scoreboard from 2003, pupils from elementary and secondary schools in many different countries failed to reach the edge of basic financial and economic literacy. The country where I come from, namely Slovenia fell below 50th place on the rank of economic and financial literacy.

It is very interesting to see that predominantly genetically anti-capitalistic and genetically socialistic youth is very much eager to protest against any kind of particular economic reforms. Europe is the most obvious place to see such protests. The main source of objection to free-market economy and personal responsibility mainly comes from the environments in which the awareness of economic problems is very weak. In Slovenia and France, students even emerged as an interest group, a compassionate rent-seeker. This significant situation is partly the result of weak and unstable institutions permitting non-market behavior to be undertaken through the special status of treating students as a separate group which “shall not take market rules of the game into account.”

The effect is, of course, disastrous. Because of specially given status, students do not want to undertake productive behavior (work, save and invest) after they finish the study. Instead, they rather focus on how to maintain their current status because if they entered the market, the rules of the game would become very different. Students are also having a serious intention of becoming a strong political power. In this case, the quality of future graduates rapidly falls below the very much needed pace.

On the other hand, students who are not willing to finish the study are manipulating with their insane ideas about “socially just society” That’s the way how rent-seeking students in Slovenia brainwash younger schoolboys and schoolgirls. Instead of focusing how to grab the opportunities and make them come true, they are rather engaged in various forms of protests, being totally unaware of economic problems. In essence, this is a short summary telling how youngsters become anti-capitalistically inspired fanatical fighters in the framework of neosocialist ideology. This inevitably produces a long-run deficit of human capital in the economy. The shift from know-how to political engagement in terms of detecting economic reforms to be enforced is also the primary reason why youngsters become anti-capitalistic. And when they resist the market economy, they become economically as well as financially illiterate. Below you can find two efficient methods to avoid being economically and financially illiterate;

1. FREE TO CHOOSE is from now on available online. You can watch all ten parts of the television series on your personal computer. Both versions are easily available. Parents, this television series is a very useful tool for educating your children about the fundamentals of free market economy.

2. INTELLECTUAL SERIES PORTRAITS; in this audio collection of conversations with distinguished economists Nobel laureates are available to be listened. You can the interview with Ljubo Sirc, Milton Friedman, Friedrich August von Hayek, James Buchanan, Ronald Coase, Lord Harris, Israel Kirzner, Sir Adam Walters and others.

I wish you a joyful listening of conversations and watching of the series.

And remember, there’s no liberty without economic liberty. Without it, even political, personal and civil liberties cannot exist. When Arnold Schwarzenegger came to America, he had no money in his pocket, but he had a freedom to get it. Being free to choose means being free to make your own decisions, free to pursue your own goals and free to turn your potentials into good business.

BUSINESS COMPETITIVENESS IS THE MAIN INGREDIENT OF LONG-TERM PROSPERITY

The U.S. and Germany remain at the top of the business environment competitiveness while China continually slips down and India ascends. In addition to ranking countries by overall competitiveness, the report identifies national competitive strengths and weaknesses, highlights global economic trends, and signals the ingredients of successful economic development. The Index is part of the research contributing to The Global Competitiveness Report 2006-2007, released September 26 by the World Economic Forum.

The U.S. topped at six various level of measuring business competitiveness respectively. It scored high on business environment dynamics, financial markets sophistication as well as on innovative capacity. On the other side, while Germany gained from the quality of legal and partly regulatory framework. It benefited from its orientation on exports and also from the competitive position of German companies in the global markets.

Rounding out top 10, were Finland, Denmark, Switzerland, Netherlands, Denmark, United Kingdom, Hong Kong and SAR. It's been a striking surprise that Hong Kong improved its position by seven. The main area of improvement has been Hong Kong's moving direction in making management education an increasingly important factor of moving towards the rounding up of competitiveness of this small Asian tiger. France, Czech Republic and Cyprus decline partly due to the lack of innovative capacity. France, for example, suffers very much from the rigid labor market, financial markets signalized no notable improvement. China slipped sports to 64th place. This year's lack in this particular area of general and detailed competitiveness was engined by a very high rate of corruption. In release, Transparency International noted China's spreading corruption as on of the foremost concerns. Buyer assessment was weaker and labor rigidies amounted a huge burden as well. China is also known as an environment in which weak private property protection remains one of the biggest obstacles when it comes to improve China's competitiveness position in the global context. The inability of companies to face the upcoming competitive challenges is mainly driven by an inefficient board governance and low management education. Chinese management schools are still more or less politically instilled while according to various reports (Forbes, McKinsey, AT Kearney, Harvard Institute of Strategy for Competitiveness...) the improvement and innovation in management education lacks behind the very much needed pace. In the future, we can expect a decent moderation on China's euphoria in response to its decline in competitiveness index respectively. That's how China's nominal convergence of competitiveness as well as its real position in it, will become more apparent.

On the other side India surprised nearly every economist and research analyist. Somehow, we have diagnosed India's increase in the field of competitiveness score since Indian government has undertaken some serious steps towards the improvement of legal and regulatory framework for companies. Indian companies have become more sophisticated. The conditions on financial markets are still not efficient enough but the increasing level of country's openness and willingness to liberalize the framework for Foreign Direct Investors could, on the long-run, play a pivotial role as one of the greatest measures of country's global position. The recent announcement of Wal Mart to penetrate into Indian retail market, shows that India's comparative advantages (comparably cheap labor and a large market gap for sophistication) dynamically coexist with the improvment in previously stated regulatory and legal framework liberalization. Dozens of other variables increase India's competition itself. There's an ever increasing locally intensive competition, intellectual property is becoming stronger, per capita Internet use and phone calls is growing, and financial market's are slowly getting more sophisticated but this is only a temporary sign of improvement. To make it effective, policy-makers will have to focus on continually announced reduction of state ownership of insurance companies, banks and financial intermediaries. Generally speaking it is admirable that private sector is getting a stronger role within the financial markets. There're also several ingredients to ensure long-term, sustainable economic growth. Institutional stability is very much needed, privatization required, sound macroeconomic policies urgent and the promotion of market openness highly desirable.

However, those measures are still not sufficient enough for a long-term prosperity. The reduction of regulation of business sector is urgent to let firms compete, grow and sustain themselves, FDI measures should be the same as for domestic investors. High tax burden should be put down as income and corporate tax rates were cut. Freedom of the trade should be enforced immediately. Standards and qualifications, confusing bureaucracy and conditional restrictions limit the very much needed imports. Banking reform delays behind the pace required for long-term prosperity of businesses and individuals. Current state-owned bank accounts form more 70 percent of deposits and loans. Private banks represent 17 percent of the entire market activity, while foreign banks accounts, situated in metropolitan areas , account for more than approximately 13 percent of market activities. The explicit protection of governmentally enhenced banks, seen in making limits to foreign enterers, is harmful. The Central Bank is still putting pressure on commercial banks to offer low interest on loans to "priority sectors" such as agriculture and small companies an similar areas. Microeconomic activities account 80 percent of the GDP per capita across countries, while the aim of macroeconomic policy must be committed to officially announced inflation-targeting regime of the central bank, public debt pay-off and budget efficiency balance. There's still many gaps upon which India can easily switch to creating long-term framework for economic prosperity and for the international competitiveness as well. In fact, the latter is the main indicator of country's prosperity.

Macroeconomic factors should improve the quality of business environment while microeconomic activity must be committed to productivity and competitiveness among firms.

If anyone is interested, we can make discuss this issue on my blog.


Furtherly recommended readings:
- The Global Competitiveness Report 2006-2007: Interviews
- Harvard Business School's Institute for Strategy and Competitiveness; Global Competitiveness Report
- The Global Competitiveness Report 2006-2007
- Harvard Institute for Strategy and Competitiveness
- U.S. Tops Business Competitiveness Index 2006
- Porter's Perspective; Competing in Global Economy

SWITZERLAND - BUDGET AID TO NEW EU-MEMBER STATES AS A SOCIALIST ENTERPRISE

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

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

LEFTISTS - COMPASSIONATE SPENDERS OF OTHER PEOPLE'S MONEY

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

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

WORKING HOURS PER EMPLOYEE in 2003
USA - 1895
Portugal - 1804
Great Britain - 1787
Ireland - 1779
Sweden - 1775
Luxembourg - 1768
Italy - 1764
Spain - 1763
Greece - 1744
Netherlands - 1741
Belgium - 1722
Finland - 1714
Austria - 1696
Germany - 1674
Denmark - 1658
France - 1651

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

GARY BECKER ON PROFESSOR FRIEDMAN'S IDEAS

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

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

FREE MARKETS SAVE LIVES

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

ARNOLD SCHWARZENEGGER ON "FREE TO CHOOSE"

http://www.youtube.com/watch?v=ABF1uW6wOyg&eurl=

MORE TRIBUTES TO PROFESSOR FRIEDMAN

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

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

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


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

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

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

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

IN MEMORIAM: NOBEL LAUREATE MILTON FRIEDMAN DIES AT THE AGE OF 94

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

- Milton Friedman

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

We will never forget.

MACEDONIA FOLLOWS THE FLAT TAX REVOLUTION

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

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

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

ASIAN ECONOMY HEADING FOR SLOWDOWN?

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

MURRAY ROTHBARD ON THE ESSENCE OF FREE MARKET

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

Murray Rothbard, Free Market, The Concise Encyclopedia of Economics

OPPORTUNITIES, PRIVATIZATION AND ENTREPRENEURSHIP; THE ONLY WAY TO DEMOLISH POST-COMMUNISM IN CENTRAL AND EASTERN EUROPE

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

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

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

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

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

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

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

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

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

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

UN-SPONSORED ATTACK ON THE INTERNET GOVERNANCE

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

GLOBAL LOCATION STRATEGIES AND INWARD INVESTMENT

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

WHEN SWEDISH MODELS DESTROY THEMSELVES

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

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

Click here to view the article of the author.

IRELAND IN ITS OWN HAND - A TIGER THAT COULD, A TIGER THAT DARED

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

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

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

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

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

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

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

SAXO BANK GOES INTO THE FLOW OF FREE TRADING

Recently announced, Danish investment bank Saxo will abolish the minimum ticket fee and percentage commission on Danish stocks. Saxo will therefore become the very first Scandinavian bank to approach to zero-commission online share trading. Improving the financial conditions for shareholders and online traders is definitely one of the key features to gain success along global benefits of free online trading, increased competition and better efficiency among customers in online trading. Global market as a whole is generally headed toward increasingly smaller commissions. According to Christopher Noon from Forbes, Saxo's zero-commission trading extends offer to retail clients as well as new clients with a minimum account balance of 50,000 Danish Krone ($8,393). These clients can trade online with zero-commission up to 50 times a month on the Danish stock market. Saxo's Vice Chief Executive is not expecting to take away business from traditional online traders such as E*Trade, IFX Markets, Charles Schwab and StockTrade. According to his words, only 10% to 20% of e-trade business actually comes from equity trading. Saxo's furtherized ambitious agenda also includes plans to access of the its initiative before exporting the idea across borders.

LA VIE SOCIALISTONOMIQUE - ARE THEY INSANE?

Here's some more economic lunacy from France.

SETTING THE STAGE TO SOAR FUTURE ECONOMIC GROWTH

It seems that U.S. Congress is captured by an unwillingness when it comes to shift from social security programs to ownership-based retirement programs. U.S. Congress actually made a huge failure due to permanently maintain tax reforms that would eliminate the death tax and cut marginal tax rates on capital gains and dividends. In the U.S., the economic growth has been higher for most of the decades than it was overseas. But also editorial pages have been enriched with the words from Milton Friedman and other Chicago guys. They firmly set the intelectual foundation for an economic policy based on low taxation, market competition and individual ownership. However, today you won't find those words written in English. Instead they are printed in Estonian, Hindi and Spanish as well as in other languages where policy-makers decided to shift the wheel of economic policy towards the implementation of free-market ideas. They have been, of course, successfully implemented. It was amazing to see how the idea of Private Retirment Accounts (PRA's) exploded in South America. Chilean labor minister Jose Pinera boldly ran the Chicago vision back in 1981 and the results of this encouragement are still seen in Santiago today. Chile's current national saving rate accounts 21 percent of the GDP. Following the Chilean example, at least 30 other nations followed that way, having replaced benefit pension systems with individual ownership and personal control, including countries such as Denmark and Sweden. Former communist nations in Eastern Europe also enacted pro-growth and free-market economic reforms, wathcing their economies setting the path for future economic growth. Simple, dynamic and low-cost flat tax codes encourage people to work more as well as to expand economic activity more rapidly. Recently, Estonia has reached the edge of economic growth soaring over an amazing 10 percent. In the past six and seven years, the rates of economic growth in Baltic countries, including Latvia and Lithuania, averaged 8 percents consistently. Seeing the situation today, more than 9 countries have adopted the flat tax code, including Russia and Romania. Conversely, the U.S. Congress consumes its days. Instead of debating how to cut public consumption rate and improve macroeconomic situation, Congressmen are rather busy with intensive debates on how to impose taxes on energy profits. While America is still the greatest pillar of newly-born ideas, it is not the leader in tax competition anymore. The U.S. federal tax code is grasply written on 66 498 pages, adding $265 billion compliance costs. Currently, the U.S. Government is facing a long-term problem of how to cut unfunded liabilities in retirement systems such as Social Security and Medicare. Those programs amount to $80 trillion. Therefore, work force is facing a shrinking benefits and higher tax rates while Congress still remains unwilling to impose serious reforms to cut those benefits and provide a decent and sustainable way of living to thousands of Americans in the future. Giving workers the right to choose ownership-contribution retirement system would helpfully replace current massive debt, giving individuals real ownership and control would ensure and secure better financial future for each member of the big hub, namely "taxpayers". Continually prolonged retirement systems based upon massive outlays for Social Security and Medicate programs would, on the long term, result in higher tax rates on income and capital gains, higher public debt while economic growth would start to push the economy towards falling off the cliff. The consequences of this way of spending and economic policy-making would be painful for everyone. Rising taxes on labor and capital formation would cause capital flight, economic contraction and high unemployment. As an output of "socialized results of production" there would be no means to boost productivity and create more value-added goods and services in order to create a society based on soaring productivity through hard-work and anticipated innovative behavior. Other nations have prospered from economic policy based on economic freedom. Global financial markets are about to judge the efficiency of economic policy, not flashing cameras around the enemies of progress and development. If policy-makers in countries such as the U.S., Slovenia, Italy, Germany, France and Spain will not undertake serious structural reforms capital and investment will quickly fly to other nations where the ideas of Chicago economists work and where economic freedom coupled with low rates on capital and income taxation soundly works as future prosperity peaks and opportunities flourish.

SINGAPORE - THE FINANCIAL OASIS

Singapore has made significant economic progress based upon favorable conditions for incoming financial institutions that set-up their assets in small Asian city state such as Singapore. In fact, the economic and financial policy coupled with low corporate tax rates and comparatively modest fiscal burden has created very stable financial environment for incoming capital flows and foreign investors as well. However, Singapore went ahead of other global competitors. Its recent measures were done in order to revitalize the financial marketplace. Policy-makers in a small and highly competitive Asian city decided to furtherly adapt banking secrecy laws, much of its tax and trust policy in a recent drive to reinvest itself. Nowdays, investors in banking industry usually take a closer look at country's secrecy laws, taxation on interest bearing and capital gains and taxation in terms of residency and trust policy. But this is generally speaking not the entire framework of sets of decisions. Investors also pay attention to other general banking measures such as set-ups and set-up speed of banking operation and of course regulation as such. One of the very first measures was to boost banking confidentiality laws by imposing a sentence of $78,000 USD for disclosing information. Singapore has also amended its trust laws to allow incoming foreigners to move away from European state interference which dicatates how inheritance is being carved up. Singapore also completely slashed taxes on profits from foreign investment earned abroad and finally reduced corporate tax burden to attract more dynamic businesses. Singapore has therefore followed the example of many Swiss cantons which also adapted similar measure to foster competitive markets. Unlike in European countries, tax evasion is not a criminal act unless proof of sharp practice is found. Singapore managed to foster more growth by bringing more foreign investors into a small cherry-flavoured Asian tiger. These parts of measures have been very favourable and along with other attractive features, those parts are about to fit the competitiveness of Asian financial markets. Unlike in European countries, in fostering growth and developmental progress, Singapore relied on global financial integration by taking various examples in financial capitals such as London, Tokyo, Sydney, Hong Kong and Zurich. The combinations of measures in each of these examples will result in a higher and more rapid growth of Singapore's and Asian financial markets because businesses itself will be able to rely on sustainable options of crediting and other alternatives to continue an amazing move-up of Singapore's growth of entrepreneurial activity particulary in areas which require strong support from the financial industry. But this is not the end of the story at all. One of the Singapore's main strengths is highly sophisticated infrastructure modelled specifically on creating the ambience in order to invigorate and recreate this small and hopefully Asian peer. One of the foremost infrastructural achievements of Singapore has been converting salt water marina into a fresh water lake. One regulation did not transfer ti Singapore - European saving-tax directive imposed on Switzerland by the European Union. This particulary tax law is levied on Swiss accounts of foreign nationals on behalf of their resident countries to counter tax evasion. However it would be a little bit too soon to expect rapid capital flight from Switzerland to Singapore, emptying from Swiss accounts into Singapore's. Turning the issue to Switzerland, there're definitely some investors who have problems with withholding tax. Will this lead to a major capital flow? Perhaps only a little bit. To make this happen, there should be a big thing that moves the needle. Switzerland will definitely not capture future growth market to the extent that once used to. Swiss banks are still setting-up in Switzerland so the government still benefits through greater revenues as a result of low taxation of corporate income and capital gains.

*The indicators describe three dimensions of investor protection: transparency of transactions (Extent of Disclosure Index), liability for self-dealing (Extent of Director Liability Index), shareholders’ ability to sue officers and directors for misconduct (Ease of Shareholder Suits Index) and Strength of Investor Protection Index. The indexes vary between 0 and 10, with higher values indicating greater disclosure, greater liability of directors, greater powers of shareholders to challenge the transaction, and better investor protection.

Source: World Bank, Doing Business 2006

DYNAMIC CAPITALISM

Edmund PHELPS, this year's Nobel Laureate has publish perfectly pin-pointed opinion on the superiority of modern dynamic "laissez faire" capitalism over the so-called social market economy which has primarily taken origins from archaic German and French corporativist models. Institutional protection of interest groups and rent-seekers is now paying the price. Economic growth rates are sluggish, job-creation rarely finds itself productive while international competitiveness of those welfare-based economies (Germany, France, Italy, Slovenia) is falling off the cliff. I recommend you to read the opinion of Edmund Phelps.

"The issues swirling around capitalism today concern the consequences of its dynamism. The main benefit of an innovative economy is commonly said to be a higher level of productivity--and thus higher hourly wages and a higher quality of life. There is a huge element of truth in this belief, no matter how many tens of qualifications might be in order."

- Edmund Phelps

HONG KONG'S LAISSEZ FAIRE POLICY - TOO GOOD TO LAST?

The story of Hong Kong had been the tale of roaring tiger as a shining example of economic freedom. At the end of World War II, Hong Kong was a dirt-poor island with a per-capita income about one-quarter that of Britain's. When laissez-faire economic policy of positive non-interventionism was adopted, Hong Kong’s territory started to wheel the new era of prosperity and business freedom. Hong Kong began to boom. That was a striking demonstration of the productivity of freedom, of what people can do when they are left free to pursue their own interests. In fact, Hong Kong's remarkable achievement, seen in a rapidly growing economy, benefited its neighboring countries as well. It boosted them to move away from central-planning and move towards the reliance on private enterprise and free-market. As a result, both, Hong Kong and China benefited from rapid economic growth. But Hong Kong's current leader Donald Tsang has recently declared the death of the policy on which the prosperity of small and up-beating tiger had been built.

Milton Friedman, the 1976 Nobel laureate in Economics and the most influential economist of the 20th century bemoans the latest Hong Kong's political shift toward governmental interventionism and statist approach that is forgetting the lessons of the policy that lead Hong Kong toward the miracle of free market. You can read it here.

MASTERING LIBERTARIAN WISDOM

Tomaz has published a great post that gives youthful population very helpful advice about the way of how the youth should look forward to the future. Don't miss that and read the post as quickly as you can.

"Slovenia is a land of contradictions, an Alpine paradise for pensioners with extremely hostile environment to the youth. They are enchained to be forced to pay high progressive taxes that don't take assets into account as well as they're compelled to high prices of real estate. They will sweat longer than current pensioners ever did, they will pay higher social security contributions and at the end they will receive lower pensions. Those who're thrown into the wheel of life without backup basis are only able to create wealth and welfare on their own account respectively. Closer they reach the point of their objectives, more they are pushed to the ground with progressive taxes. The outcome of "socially egalitarian" order is that people spend more time on the workplace and rarely decide to start taking care of themselves as well as they rarely decide to start creating their own families ... And remember, if you're a liberally minded individual living in Slovenia, don't get despaired. Instead, keep on finding the way of how to be liberal within the current system.

ITALY'S TAX HIKE

It seems Italy's going to plunge into another serious economic downturn by increasing income tax rates. The country is captured by a fairly unstable macroeconomic situation. Public debt (measured as a percentage of GDP) is the highest in the Union. Italian leftist policymakers chose to cut country's 4,2% budget deficit by increasing tax rates instead of cutting spending habits. Although the budget reduces payroll taxes by EUR6bn in 2007 and EUR9bn in 2008, income taxes are raised immediately by EUR33.4bn, mostly through an increase in the top rate of tax from 41% to 43%, and lowering the floor for the top rate from EUR100,000 to EUR75,000. Lower bands are adjusted to favour the less well-off. This amounts to a savage attack on the middle classes, and is presumably exactly the opposite of what needs to be done if Italians' notorious under-declaration of tax is to be brought under control. Prodi announced measures to punish professionals who don't declare all their income; but successive governments have totally failed in this endeavour and there's no reason to think that the new one will be any more successful. It is completely impossible to create economic growth by increasing taxes and uncutting government spending. Italian general economic picture is everything else but favorable. IMD ranked Italy's Competitveness even below its neighbour Slovenia. Foreign investors face enormous restrictions on operations and ownership as well. Economic freedom of Italy is miserable. Together with France, the country's economic freedom has been kicked-off far below the level of the most competitive economies. Fiscal deficit is huge. Labor market amount indispensable rigidies that produce difficult practices of hiring and firing workers. It takes more than 500 hundred days to enforce contracts while venture capital funds are rarely availible. New tax increases proposed by Prodi's government will make this problematic situation even worse off.

REVOLTING HUNGARY

But this was before Europe's deficit fetish spread to Budapest. This past June, concerns over Hungary's public finances came to head given Euro currency adoption requirements, which stipulate a budget deficit of no greater than 3% of GDP. Hungary's deficit is expected to be 10% of GDP this year. As a result, an austerity package aimed to please Brussels at the expense of Hungary's growth outlook was pushed through parliament. The package, which raised taxes and cut spending, was passed in July and Gyurcsany's popularity has been on the decline ever since. The tax increases included an introduction of a 20 percent capital gains tax, the introduction of a bank tax, along with hikes to the VAT, personal income tax and corporate tax rates. Meanwhile, the administration cut social welfare spending and ended free public education. The policy combination was a political double whammy for Gyurcsany.

THUMBS UP: NETHERLANDS TO CUT CORPORATE TAX RATES IN 2007

The Dutch government has pledged to increase the amount of budget budget surplus next year through continually evaluated reductions in corporate tax rates. The rate of corporate income tax will be put down 25,50% in 2007 from 29,1%. This will put Dutch corporate tax rate below the European Union average.