Competitiveness Among Nations: Conclusions (Part Three)

“The worst evils which mankind has ever had to endure were inflicted by bad governments”

—— Ludwig von Mises

 

(…Continued from Part Two)

All over the world, the current political system has made most governments fall into complacency and allow a great deal of free-riding from probably the majority of elected officers. That’s why gridlock has resulted as a virtually inevitable outcome. Within that environment, serious, profound, virtuous structural change is almost impossible to implement.

Given that the bureaucracy and the establishment at large are experts in blocking change, the required strategy demands leadership, guts and plenty of skill.

History unmistakably shows that every single effort to mess with the markets is doomed for failure. That is the major reason behind the strepitous collapse of communism. Central planning is no match for free markets. History has unequivocally shown that.

However imperfect free markets are, as any human process, mankind has not developed a better system for high employment, growth, and prosperity.

Politicians should stop playing God. Whenever free markets can set the direction and the pace, mankind should follow.

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The indispensable role that freedom plays in any human endeavor was extremely clear in Milton Friedman’s mind; hence, the superb title of one of his many books: Free to Choose.

Fair game is open borders: the ability to move freely, in and out of any country as they please  (for people, corporations, and capital). Any other approach is suboptimal, and quite costly to society. The feudal mentality, insulation and protectionism have caused too much damage to mankind.

A big irony of all this is that, despite the deplorable standing of the US when compared against the most competitive nations on earth on the tax burden subject, the US still manages to have a rather excellent overall standing (see Part Two of this series). Two comments in that regard:

  • Small nations like Singapore, New Zealand, and Switzerland, among others, are performing substantially better in the tax area, a foremost aspect of overall competitiveness. If things do not change substantially for the better in the US in the near future, it will only be a matter of time before some nasty spillover effects materialize. That is the way the economy functions.
  • If the US truly desires to maintain —or even better, improve— its competitiveness, it should better start right away, before things get uglier and more difficult to reverse.

Competition, a fundamental pillar of the free market system, is a superb and most effective checks-and-balance mechanism. Yes, competition very often is painful to be observed. Fortunately, the benefits far outweigh the costs associated with it. Governments should not be exempt from the market discipline.

Free-riding in governments must end. Policymakers have a most natural and disgusting tendency to avoid though decision making. Though decision making is the raison d’être  of government existence, in the first place.

Society must end its complacency on how government goes about doing business. The approach taken by the Obama administration concerning the tax diversion issue is a formidable example of how not to do things.

Not utilizing appropriately the price mechanism is extremely costly to society. The major reason behind the collapse of Communism and all centrally-planned economies is precisely that. Instead of following market signals (supply & demand) they tried to rely in the judgement of government officers who dictated who produced what, at what price it should be sold at and so on.

Whenever feasible, the market mechanism should be highly regarded and followed with the strictest discipline possible. Governments should not be an exception; quite the contrary, governments should set the example.

The cost of inappropriately allocating resources from society due to government meddling is humongous.

The misalignment of interest between policymakers and society is quite frequently grotesque. In the tax diversion issue it is a most evident reality. What policymakers want to protect and preserve in this issue, by not taking the bull by the horns, is a most illegitimate bunch of vested interests —at the expense of the electorate—. Policymakers are well aware that if they reacted appropriately, a great deal of questionable government programs will have to be severely reengineered, diminished and, in some cases, altogether cancelled.

It is evident that we, as a global society, still have a lot to learn about the virtues of free markets. Once that learning process is sufficiently advanced, there won’t be any room for false solutions to great opportunities for collective improvement in employment and the standard of living. The abnormally heavy tax burden in the US —and in so many other countries around the world— suffocates the global economy. There is no mystery or false debate about it. It’s as simple as that. Taxes must exist, yet within reason and particularly observing competitiveness with other nations. That checks-and-balances system is worth gold. We shouldn’t mess with it.

Society has to react and force governments to do their homework and sensible tough decision making, looking for the common good, not to protect illegitimate vested interests of minority groups.

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About Martin Marmolejo

Global Investment Manager | Founder & Managing Director at MMA Global Investment Management | Proud husband and father | Follow me @globalmarmolejo.

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