Reforming laws and policies could be an enormous stimulus for any economy, but changing them is almost impossible. Every law creates systems of economic winners and losers. So without real reform, a global recovery is nowhere in sight
The world is moving slowly into another recession. Europe is going through a sovereign debt inspired credit crunch. India’s industrial production dropped 5.1% in October from a year earlier. The Guangzhou government’s land sales program has seized up decreasing the province revenues by 70%. The United States has a massive deficit and political grid lock.
To resolve these issues the world has resorted to all sorts of economic solutions. In China they tried fiscal stimulus through massive bank loans, but only ended up with inflation and a housing bubble. The US tried quantitative easing, but only helped to create a commodities bubble while devastating savers and pensioners. The EU now is trying fiscal discipline, which will surely result in a recession. They have tried everything except the one thing that actually would work and cost nothing. They can’t resort to this simple solution because of politics. Printing money does not have a political downside. Real reform does.
Business cycles will always be with us, but economies are more resilient if their legal systems, their legal infrastructures, are economically efficient. In short their systems must make business easier. For example if you look at the World Bank’s Doing Business rankings, the economies that have survived and even prospered during this recession are the same economies that rank very high in the index. They include Singapore, Korea, Hong Kong, Norway, Sweden, Denmark and Canada. The US has a good ranking and has definitely had its problems, but nowhere near the issues of other many other countries. Two other countries near the top also help prove the thesis, Ireland and Estonia. Both countries recently were considered economic basket cases. Yet both countries have been able to go through painful ‘internal devaluations’ and are growing. In fact Estonia’s growth in the first quarter of the year was a blistering 8.5%, the highest in the European Union.
Despite their devastating effects countries all over the world continue with disastrous policies. Subsidies are one of the worst. Nigeria is one of the world’s largest oil producers. Not surprisingly with its vast mineral wealth it subsidizes petroleum, which was meant to help the poor. Yet the cost of the subsidy is so great that it almost exceeds the oil export revenues. It also has created enormous inefficiencies and corruption. In the US a subsidy for ethanol has made it this year the cheapest motor fuel, but at the expense of higher food prices.
Laws in many countries that are supposed to protect labour have resulted in coddling some workers and insuring that others cannot get jobs. The labour market in Spain has become a two-tiered system. Older workers with jobs are protected from layoffs and have good benefits. Meanwhile, it is so difficult to hire and fire workers that the unemployment rate among younger workers tops 40%.
Brazil has a labour code taken from Mussolini’s Italy. It is just about as devastating. Getting rid of a worker without “just cause” can result in a fine of 4% of the total amount the worker has ever earned. The employee’s incompetence or the bankruptcy of the company are not considered just cause. Like Brazil, India’s infamous inflexible labour codes have made it impossible to take advantage of its inexpensive labour.
Revenue for the state usually in the form of taxes is a necessity, but how it is collected makes a big difference. In China since all land belongs to the state, so with a few experimental exceptions, there aren’t any real estate taxes. This makes the governments dependent on sales of land (actually sale of long term leases of up to 70 years) to developers for up to 40% of their revenue. Local governments also use the land as collateral for loans from state-owned banks. This system worked well as long as the money kept flowing and the prices kept rising. When Beijing restricted real estate sales and tightened lending, the real estate bubble started to collapse with potentially devastating consequences.
Subsidies, inflexible labour markets, and poorly designed tax codes are just the tip of an enormous iceberg. To these problems you could add protectionist policies, failure to protect property rights especially intellectual property rights, slow or corrupt judiciary and transparent markets.
All of these problems have to do with laws. Laws can be changed at no cost. Reforming these laws and policies could be an enormous stimulus for any economy, but changing them is almost impossible. Every law creates systems of economic winners and losers. As Mancur Olson free rider thesis predicted, those who benefit are willing to fight tooth and nail to protect what they consider their property interests even if it means economic suffering for all of their fellow citizens. So without real reform, a global recovery is nowhere in sight.
Kim Jong Il inherited power after his father, revered North Korean founder Kim Il Sung, died in 1994. He had been groomed for 20 years to lead the communist nation founded by his guerrilla fighter-turned-politician father and built according to the principle of “juche” or self-reliance
Seoul: Kim Jong Il, North Korea’s mercurial and enigmatic leader whose iron rule and nuclear ambitions dominated world security fears for more than a decade, has died. He was 69, reports PTI.
Mr Kim’s death 17 years after he inherited power from his father was announced today by the state television from the North Korean capital, Pyongyang.
The country’s “Dear Leader” reputed to have had a taste for cigars, cognac and gourmet cuisine was believed to have had diabetes and heart disease.
North Korea has been grooming Kim’s third son to take over power from his father in the impoverished nation that celebrates the ruling family with an intense cult of personality.
South Korea put its military on “high alert” and president Lee Myung-bak convened a national security council meeting after the news of Kim’s death.
In a “special broadcast” today, state media said Mr Kim died of a heart ailment on a train due to a “great mental and physical strain” on Saturday during a “high intensity field inspection.”
Mr Kim is believed to have suffered a stroke in 2008 but he had appeared relatively vigorous in photos and video from recent trips to China and Russia and in numerous trips around the country carefully documented by state media.
Kim Jong Il inherited power after his father, revered North Korean founder Kim Il Sung, died in 1994. He had been groomed for 20 years to lead the communist nation founded by his guerrilla fighter-turned-politician father and built according to the principle of “juche” or self-reliance.
In September 2010, Kim Jong Il unveiled his third son, the twenty-something Kim Jong Un, as his successor, putting him in high-ranking posts.
Even with a successor, there had been some fear among North Korean observers of a behind-the-scenes power struggle or nuclear instability upon the elder Kim’s death.
Few firm facts are available when it comes to North Korea, one of the most isolated countries in the world, and not much is clear about the man known as the “Dear Leader”.
North Korean legend has it that Mr Kim was born on Mount Paekdu, one of Korea’s most cherished sites, in 1942, a birth heralded in the heavens by a pair of rainbows and a brilliant new star. Soviet records, however, indicate he was born in Siberia, in 1941.
Kim Jong Il, a graduate of Pyongyang’s Kim Il Sung University, was 33 when his father anointed him his eventual successor. Kim Jong Il took over after his father died in 1994, eventually taking the posts of chairman of the National Defence Commission, commander of the Korean People’s Army and head of the ruling Worker’s Party while his father remained as North Korea’s “eternal president”.
He faithfully carried out his father's policy of “military first”, devoting much of the country’s scarce resources to its troops even as his people suffered from a prolonged famine and built the world's fifth-largest military.
Mr Kim also sought to build up the country’s nuclear arms arsenal, which culminated in North Korea’s first nuclear test explosion, an underground blast conducted in October 2006.
Mr Kim was an enigmatic leader. But defectors from North Korea describe him as an eloquent and tireless orator.
Mr Kim cut a distinctive, if oft ridiculed, figure. Short and pudgy at 5-foot-3, he wore platform shoes and sported a permed bouffant.
Kim’s marital status wasn't clear but he is believed to have married once and had at least three other companions. He had at least three sons with two women, as well as a daughter by a third.
Do you need a financial planner or an advisor? Probably both
Recently, I was reading an...