One of our recent blogs discussed how the substance of the political and economic platform of President Putin’s United Russia party was conspicuously missing in the hype preceding the December 2 parliamentary elections. In fact, the party’s slogan “Putin’s plan is Russia’s victory” rang somewhat hollow in the light of survey results showing that only 6% of Russians could explain what that plan was.
As United Russia’s predicted landslide victory came to fruition, the continuation of President Putin’s leading role in the country seems assured for the years to come. His hand-picked likely successor Dmitry Medvedev suggested that Putin (barred by the constitution from the third consecutive term in office) become Prime Minister after the March presidential elections and linked...
In a follow-up to the previous blog on the need for clearer privatization and stock market rules and better corporate governance in China’s new multi-billion businesses, I’d like to mention this interesting Foreign Policy article. The article focuses on Carlos Slim, the owner of Mexico’s telecommunications giant Telmex, who is the world’s richest man with the net worth equivalent to whopping 6.6 percent of Mexico’s GDP. But it also explores the broader global trend of the emergence of super-rich in developing countries.
In 1990, there were only a handful of multinationals based in emerging-market countries on the Fortune 500 list of companies; in 2006, there were 52. Their influence and wealth are growing by the day—and not just within the developing world. … The 10 Mexicans...
Sometimes it’s hard for an honest person to fathom the extent to which people will go to take advantage of each other. As details emerge in the sordid saga of Zimbabwe’s economic implosion, government officials figure prominently in personally exacerbating the hardships created by their preposterous policies.
The New York Times reports that the government is following up on its price cap policy — which has already created shortages of basic food items, gasoline, and medicine — by sending inspectors to force merchants to mark prices to below cost. But first they tip off their buddies.
The lines of officials in their swanky sedans form early at the predetermined locations and swarm in behind the inspectors to snap up all the goods at marked down prices, filling...
Petty traders in Mtwara, Tanzania are starting to pay their taxes. Why? A BBC news article this week quotes a Tanzanian wholesaler:
“Paying taxes is an important thing because it helps in the development of our country. Every citizen is responsible for this as it has a direct link with our development.”
Understanding the value of tax revenues is a crucial first step, but in many countries paying taxes is a complicated process that most businesspeople successfully avoid.
However, Mtwara has found a solution to tax collection that benefits both the taxpayers and the government.
The difference in Mtwara is that it is not the local tax officials who are collecting the money, but an association of traders, called Wabisoco, that Shaibu Ng’ombo belongs to.
The association uses part...
CIPE knows that young people can be a powerful force for change! As future reformers, they have innovative ideas on how to solve the political, economic, and social problems facing their countries. However, they often lack the voice to bring these ideas to policymakers. Simply, young people are often regarded as recipients of reforms, not active participants in the reform process.
To give young people the opportunity to share their ideas, CIPE has launched its 2007 International Essay Competition. We want to know what they think about the situation in their countries and the innovative solutions that they propose. We are especially interested to hear what citizens of non-OECD countries have to say, and how their own experiences have helped them develop concrete solutions to the...
Last year I wrote about cheap food in Venezuela. Price controls imposed by the government to help the poor were hurting them instead, by, among other things, putting farmers out of business and reducing the availability of goods. Simply put, farmers were refusing to sell at a loss - and who would blame them?
The solution in Venezuela, however, has been not to listen to the country’s producers - instead, the government chose to impose more price controls and greater penalties for violation. Reports the New York Times:
Faced with an accelerating inflation rate and shortages of basic foods like beef, chicken and milk, President Hugo Chávez has threatened to jail grocery store owners and nationalize their businesses if they violate the country’s expanding price controls....
The verdict of today’s Wall Street Journal (subscription required) on the recent developments in Thailand - is that much will depend on the kings’ ability to support democracy if the country is to enjoy economic growth in the coming years. Early moves by the country’s new leadership thus far suggest that governance structures are being re-developed to institute more of a top-down approach in both political and economic spheres.
What role does the king play in advancing the country’s democracy? He does not have a set of constitutional rules at his disposal that would allow him to direct the country’s institutions, yet, as WSJ notes, his views and opinions can influence the country’s development course a great deal.
Ousted Thaksin has appeared in...
The rise of populism is one of the key concerns in the development field today, as many new leaders gain wide support with promises of removing corrupt, crony elites and making political and economic institutions work for the people. While the idea is a noble one - corruption and close political regimes do exclude people from development and benefit few at the expense of many - the approach is often questionable, because populist leaders tend to substitute market institutions with the ones that resemble command economies (such as price controls and subsidies).
The reality, however, is that much of the corruption, cronyism, and uneven development is based on too little democratic governance and too few market institutions and the solution, therefore, lies in more democracies and...
In Kyrgyzstan, mechanisms for corruption between SMEs and the government are perhaps most prevalent in the clothing industry, and most notably in the manufacture and export of clothing. It is cheaper for small factories to work in the shadow economy, than to follow the rules and pay taxes. Even if SME business owners understand the need for taxation, most citizens don’t understand what their tax money pays for since pensions are not paid, teachers earn a meager salary, and public budget figures are kept secret. Another incentive for staying in the shadow economy is to avoid the complex tax regime. Complying with the tax code is such a brainbusting exercise that businesspeople have to hire expensive tax consultants in order to navigate their tax payments. In the end it is cheaper and...
In this column, John Sullivan and I talk about Robin Hood economics in Georgia. Although the recent change of government has been hailed as a victory of democracy in this country, reform is proving to be a bit more difficult than many originally envisioned. Despite some reform successes, many in the Georgian business community are unhappy with the pace of reform and the government’s approach to implementing it. Robin Hood economics refers to the tactics used by the Georgian government.
In Georgia After the Rose Revolution: An Opportunity Lost? Devi Khechinashvili talks in more detail about the measures government has taken to exert more influence over the economy and civil society, rather than create an operating environment that is based on economic and political freedom....
The Moscow Times reports (subscription only) on the announcement of the Ukrainian Prime Minister Viktor Yanukovych that the government is planning to buy back some companies privatization of which is questionable.
“There were mistakes or fraud by the state towards such companies, and we need to correct these mistakes,” Yanukovych told reporters after a Cabinet meeting. “The state will include in the budget very soon funds to buy shares on the stock market to return them to the state.” He did not specify which companies he meant or when the process might be started. Yanukovych also said he wanted to boost controls over companies where the state has a majority stake.
Murky privatizations became a staple of the transition process in the republics of the former Soviet...
Is populism a real problem in Latin America? I’d say it is - as it diverts attention and resources from the much needed reforms. Populist leaders run on platforms of addressing the needs and concerns of the ignored segments of the population - the poor. To simplify - there two ways of doing it. One, is giving a handout - i.e. subsidizing food prices, providing free services, etc. There is an interesting story in the Washington Post on one such program in Brazil - Bolsa Familia.
Bolsa Familia is the cash assistance program that pays more than 11 million low-income families in Brazil about $40 per month in cash if they meet conditions such as ensuring their children regularly attend school and have regular health checkups and vaccinations. The assistance was enough for...
From politicians, academia, and media to businesspeople, aid groups, and famous artists — everyone talks about addressing poverty and spurring development in Africa these days. While there are plenty of suggestions for the ultimate solution to the problems the continent faces, few will argue with the fact that widespread corruption and poor governance lie at the heart of development challenges in Africa. We often hear about government leaders amassing enormous amounts of wealth, while sectors of the economy they are responsible for lie in ruins. We hear about citizens being locked out in the informal sector, with few opportunities to participate in the formal economy or hold government officials accountable.
So, how do you bring corruption under control and improve...
The Economist’s survey of emerging economies (September 16) describes these economies’ impressive growth over the past five years and the effects of this growth on developed countries and the world economy as a whole. In many respects, this is a positive story. Many emerging markets have demonstrated convincingly that income growth and the conquest of poverty are possible. Developed countries benefit, too, from an expanded world economy that is providing lower-cost imports and expanded outlets for exports.
The survey also draws attention to the hardships and challenges some face as a consequence of overall growth in a competitive global economy. In the developed world, while consumers gain from lower prices and investors gain from increased productivity, workers confront stiff wage...
As Vietnam gets ready to join the WTO, some companies are set to gain from access to global markets while others…According to Deputy Prime Minister Nguyen Sinh Hung
…local companies will have to make many improvements if they don’t want to lose out in domestic markets.
“If enterprises do not reform quickly, particularly state-owned enterprises, which generate more than 40 percent of the GDP, they will be confronted with huge difficulties,” he said.
Sounds like WTO membership is a great incentive to reform state-owned enterprises in Vietnam and business environment in general. You want to have access to the global economy? WTO is a solution. But having access is not the same thing as integrating into global markets, and its not the same thing as...
In what can only be termed a stunning upset, the 2006 Nobel Peace Prize was awarded to Muhammad Yunus, the entrepreneur who invented “microcredit lending,” a system whereby small amounts of capital are made available to poor, often rural individuals who would otherwise not be able to obtain credit or loans through traditional lending institutions or mechanisms. In fact, in most instances the primary consumers of microcredit are women who would otherwise have no means for starting businesses or entering into the economy.
The microcedit system Dr. Yunus devised in his home country of Bangladesh was coined “Grameen” and it did not require collateral, references or any legal instruments from its customers. It simply relied on the notion and power of being shamed in...
According to a new survey by Transparency International, Bribe Payers Index 2006,
Overseas bribery by companies from the world’s export giants is still common, despite the existence of international anti-bribery laws criminalising this practice…
The BPI looks at the propensity of companies from 30 leading exporting countries to bribe abroad. Companies from the wealthiest countries generally rank in the top half of the Index, but still routinely pay bribes, particularly in developing economies. Companies from emerging export powers India, China and Russia rank among the worst. In the case of China and other emerging export powers, efforts to strengthen domestic anti-corruption activities have failed to extend abroad.
Conclusions suggest, at least to me, that introducing penalties...
We all know corruption is bad. We’ve written extensively here how it has economic (not cultural) underpinnings and how it costs businesses by creating an environment defined by uncertainty, as well as disrespect for rule of law and property rights. In all, as I always say, businesses should not participate in corruption because while it may be beneficial in the short term, they ultimately dig themselves a hole out of which it will be hard to get out.
Now try telling this to some firms in the U.K.
According to a recent law firm report,
According to International business attitudes to corruption, published today by risk consultancy Control Risks and law firm Simmons & Simmons, 22 per cent of UK businesses thought they had failed to win a contract abroad in the past 12 months...
Some people in Argentina are not at ease about foreign ownership of land. The Washington Post is running an interesting story about it:
“We believe this is a new way of trying to dominate the South American countries,” said Araceli Mendez, a congresswoman who represents this region and sponsored legislation last month that would expropriate Tompkins’s land. “It is dangerous for the defense of our national security to have the concentration of so much land in the hands of foreigners.”
You think its all talk?
…last month, Argentina’s undersecretary for land and social habitat declared war on such land purchases with one highly symbolic act: He marched onto Tompkins’s land, cut down a fence and called for the expropriation of the property....
I was reading a hard copy of a Russian magazine Vlast (means Power) published by Kommersant and came across some ‘fun facts’ about a few oil companies that are hard to ignore.
Did you know that:
Saudi Aramco contributes 80% of the budget and constitutes 40% of the country’s GDP.
National Iranian Oil Company contributes 40-50% of the budget and 80-90% of export profits.
Petroleos Mexicanos covers about 30% of government spending and its privatization is prohibited in the constitution.
Petroleos de Venezuela S.A. constitutes about 30% of the GDP, contributes 50% of the budget, and 80% of export profits. Its privatization is also prohibited in the constitution.
Kuwait Petroleum Corporation covers 90% of the country’s export profits and constitutes 40% of the GDP....
Europe has been struggling with a wave of illegal immigration from Africa recently. Spain has been at the front lines, as literally thousands of mostly young men have flocked to the coasts of Canary Islands in search of new opportunities. As migrants await their fate in special detention centers set up for them, debates on what can and should be done are heating up. Here is one solution:
the exodus can be stopped by encouraging young Africans to set up businesses in their own countries, supporting these enterprises, and at the same time combating the mafias that organize and profit from trafficking in migrants.
This is via International Business Times on Spain-Africa Business Cooperation meeting held this week. Some good points in this story - I encourage you to read it.
The...
Watch out world, China is a top-10 reformer. The government sped business entry, increased investor protections and reduced red tape in trading across borders. China also established a credit information registry for consumer loans. Now 340 million citizens have credit histories.
Eastern Europe improved the most in the ease of doing business. The desire to join the European Union inspired reformers in Croatia and Romania. And Bulgaria and Latvia are among the runner-up reformers—economies that rank 11–15 on the list of top reformers—along with El Salvador, India and Nicaragua. Regulatory competition in the enlarged union added to the impetus for reform.
You can see the other top 10 reformers in the newly released Doing Business Database 2007 here.
It is somewhat surprising to see...
CIPE’s latest Economic Reform Feature Service article by John Murphy takes a closer look at somewhat impressive macroeconomic numbers coming out from Latin America. In “Chronicle of a Bust Foretold“ he argues that many of the positive statistics
…may be transitory — the very trends that are lending prosperity to the region are driving policies and perspectives down the same “boom and bust” trajectory of the past century.
The high price of commodities is the main source of Latin America’s impressive growth, but that cannot last forever. Unfortunately, today’s moment of prosperity may be enticing policymakers to defer needed reforms, and it may also lull businesses into deferring the arduous climb up the value ladder now being scaled by Asian rivals....
The news agency EFE reports that 60% of Brazilian workers are employed in the informal economy. EFE based these numbers on a report that was just released by the Brazilian Geography and Statistics Institute (IBGE)
According to EFE:
One of the main areas of the informal economy is in the small and medium-firm business sector, where there are calculated to be around 10 million unregistered companies.
Spokesmen with the National Confederation of Industry, or CNI, say that one of the reasons for the huge informal economy in the South American giant is because of the enormous bureaucratic difficulties and high costs of starting a business in Brazil, as well as the high taxes.
According to the World Bank’s Doing Business database that provides comparative data on business regulations, their...
Quote of the day comes from the Secretary-General of the U.N. Kofi Annan. As he notes in the latest issue (2006 #3) of the Compact Quarterly, a newsletter of the U.N. Global Compact:
…it is the absence of broad-based business activity, not its presence, that condemns much of humanity to suffering.
This issue focuses on Africa, and as Georg Knell writes in the introduction, institutional environment within which business operates is quite important in making sure the private sector contributes to the wealth and development of society:
…responsible business practices will provide benefits to society only in an enabling environment. Business cannot grow or become competitive if public institutions are failing or ineffective. Men and women will not even attempt to grow their...
CIPE’s partner the Brazilian Institute of Corporate Governance (IBGC) is studying the 15 most successful corporate governance oriented family-owned firms in Brazil including Weg, an engine manufacturer, Grupo Ultra, a petrochemical company, and Gol, a regional airline. IBGC has been gathering information through interviews with officers in charge of adopting best practices at each company and research of secondary data such as stock market information and public data from the Brazilian Securities and Exchange Commission (CVM).
Initial findings of IBGC’ study show that those companies that incorporate corporate governance practices and principles are more successful than those that do not. After comparing the median results of their sample (15 firms) with the median data of all listed...
A fascinating new article is available through CIPE’s Economic Reform Feature Service. William Pyle, takes a critical look at Mancur Olson’s argument that strong business associations threaten economic growth, and provides a study of Russian associations which proves otherwise. Abstract follows:
A quarter century ago, Mancur Olson published The Rise and Decline of Nations, one of the modern era’s most influential studies on the institutional determinants of economic growth. In it, he linked development patterns in industrial democracies to the entrenchment of organized interests, including those in the business community. Strong business associations, he theorized, actually harm national economies through their efforts to undermine competitive markets.
However, Mancur...
Andrei Przhezdomsky, a member of the Russian Public Chamber, speaks out on efforts to beat the “corruption curse” in Russia in an interview published in Rossiiskie Vesti (in Russian) — translation via Johnson’s Russia List issue #155. Particularly interesting is his comment on political instability and how it contributes to the culture of corruption [emphasis mine]:
The experience of developed nations with low levels of corruption shows that the focus shouldn’t be so much on remuneration - or rather, not solely on that - but on social guarantees. Public servants ought to know that if they perform their duties well, their jobs will not be at risk, no matter what kind of shake-ups may happen - like a minister or some other superior resigning. But things are...
OECD says Russia’s decision to make ruble convertible is a positive step in country’s overall effort to attract investment, yet, more needs to be done. I think this is a particularly interesting fact:
Much of the investment inflows recorded so far probably stem from Russian-owned assets held offshore and reinvested in Russia, rather than from foreign investors bringing fresh capital into the Russian economy, according to the OECD. In 2005, for example, 28% of FDI came from Cyprus.
Further,
Corruption remains a big problem. Greater policy transparency is needed. According to a survey of foreign firms operating in Russia undertaken by the OECD in 2005, getting work permits takes a long time, as does registering land or property. These procedures should be shortened. New...
I think I mentioned several times on this blog that fake alcohol kills 42,000 people in Russia. Recent economic measures of the Russian government, intended to reduce that number…are actually going to increase it! The reason? Good intentions, bad implementation.
Imported alcohol has disappeared from stores and restaurants over the past several weeks. Why? Because the law mandates that there should be new excise stamps on bottles being sold, developed partly to ensure that counterfeit goods (and stamps) don’t make their way into the market. There is one key problem - while old stamps can’t be used, the new ones have not been printed up. This means, alcohol can’t be legally sold. There are several consequences - one is increased prices (Econ 101 -...