štvrtok, septembra 27, 2007

Slovenia, Soviet Enclave

by Rok SPRUK

This year's vacation has been the longest in my life. Consequently, there was much less writing of article and analysis than in the ordinary working season. Even daily updated news during the last teenage holidays was instantly heated by the sparks of reaction. Housing slump in the U.S. market finally bubbled the last spark subject to sub-prime mortgage mess. Federal Reserve Bank confused the market and boosted the interest rate cut through cutting both, discount rate and federal funds rate. There's hardly any particular justification that a central bank should heavily intervene the particular market dynamics unless there is a danger to price stability. Despite the heating in inflationary pressures, inflation targets set by the FED remain anchored firmly within the target zone. However, inflation forecast should not be neglected and are ought to remain intense since future inflation pressures could force FED to further cut the compound interest rate and get into serious liquidity constraints. The response of the European Central Bank was not mild. The financial infusion probably eased the mortgage demand and forced financial institutions to be careful about the future practicing of loans. Again, it is questionable whether a central bank should get involved in issues that do not regard the question of price stability. In any case, the future credibility over the inflation battle is now seriously under quest since such interventions could heat the inflation volatility and trigger the possible financial shocks when the capacity of liquidity runs out of effect.

Despite the high level of interest of this topic, in this article I shall rather focus on my home-country Slovenia. During the holidays I visited a Mediterranean coast in Slovenia, a small town called Isola. Despite the abundant natural resources and significant geographic position I was roughly disappointed with the quality of tourist service supply. After a day of accommodation, I explored the town a little bit deeper. The streets and monuments named after communist revolution and its heads seriously pose the credible question whether Slovenia really gained emancipation from its socialist legacy. Another particular backslash of Slovenia's supposedly important tourist resort is the low quality of services. Instead of Bermuda-styled beaches and dynamic tourist supply, rampant publicly-owned beaches so when you wake-up in the morning for a refreshing jump into the sea, it is disgusting to sea dead birds and oil smacks into the sea marred by the dusts of slickly sea grass. That is probably the purest reflection of inefficiency of public ownership since property rights are weakly defined and do not allow investors to renovate the resorts through high-quality supply of tourist convenience and a sense of enjoyable stay. And there is another side-effect of public ownership and extensive local government intervention; the prices of real-estate soar since the supply curve of lands is further pushed downward which, ceteris paribus, blows the price of land upward and consequently, the price of real-estate located in such area is higher. The sum-up effect is simple: the government seeks rents since its sees that heavy ownership involvement in demand-intensive areas will yield higher rent from direct or indirect taxes on property. In fact, further scarcity of land resources will induce every supplier to lift price which means that the real purchase value of a property is overvalued.

During holidays I also noticed how backward the propaganda and agitation of Slovenian trade unions to gain popular support really is. Recently, in one of local schools in Slovenia, the major trade union of government-funded education sector induced the propaganda among pupils by giving them sheets on which the claims of trade unions were written in a very ideological manner. There has always been a lot of evidence on the ineffectiveness of Slovenian education sector. Just to put a few examples:

1. In the fourth year of high (secondary) school (gymnasium), at the economics lesson, students are taught the dictions of Lenin's imperialist division of the world. I still keep the notes from that lesson.

2. At the same lesson, the impact of fiscal policy on economic growth is explained in a pure old Keynesian fashion, saying that the major source of long-run is not capital formation (i.e. saving and investment) but aggregate demand. The author of the government-approved textbook obviously never read a serious book on the fundamentals of economic growth.

3. When student unions refused to embrace much-needed structural reforms in education sector, they propagated the political participation on student demonstrations against proposed education reforms. I still remember the day when the coercive propaganda tried to instill us to join the politically-gamed resistance. Of course, I did not go there. When I was watching the daily news on television, I saw a crowd of young demonstrators which skipped classes to be at that place and protest against the proposals unknown to the majority of students. At that time, the television showed how drunk pacifists are waving-out Soviet flags and wear T-shirts with the image of Karl Marx and Soviet revolutionary slogans.

4. According to IMD's World Competitiveness Yearbook, Slovenia is among those countries with the least openness to foreign ideas and values openly oriented towards the hate of globalization. I remember those flushy dark days when nationalism was actively promoted in the course of literature. In addition, discriminatory discrediting of creative and intellectual superiority has been marked as a source of evil, some sort of threat to the nation. I was really surprised by the degree of hostility which Slovenian history and contemporary present fuels against open society and free-market initiative. In history books, dr. Ljubo Sirc was never mentioned despite his contributions to economic and personal liberty, neither the golden age of Slovenian economic performance before World War 2 when Slovenia's economy operated at full capacity, sustained remarkable growth, experienced a true entrepreneurial boom and converged the living standard very close to neighboring Austria. The wages in manufacturing grew significantly and the industrial output reached record-highs until the Unitarian totalitarianism started erasing the benefits of wealth and new markets which a newborn economy had sustained.

There are numerous more examples served on the table, showing Slovenia's Soviet syndrome. In fact, the state of Slovenian society currently reminds on the unique Soviet Union's radio frequency system which is isolated from and disintegrated with the rest of the world, claiming that vital interests of the Soviet empire would be severely damaged by the influence of the rest of the world. Tiny Slovenian state, its instances and institutions function practically on the same note, marred by dusts of fears, envy, esteemed self-superiority, socialist mentality and the lack of visionary ideas. Such society cannot prosper, and never will if coercion remains the mainstream of the institutions. It cannot succeed and prosper from the fruits of global economy and open borders, because fear is the enemy of itself and governmental tyranny, as a desire to control the lives of individuals, the first step towards the state which rests on glories unknown to the rest of the world and knows neither victory nor defeat of itself.

Rok SPRUK is an economist and a libertarian/classical liberal. He currently lives in Slovenia where he works and studies economics and business. He recently won a prestigious award called "Golden Matura". He is interested in economic growth, international economy and macroeconomics in general and also in issues such as tax and social security reforms and international competitiveness. In the field of business he is focused on strategic management, financial markets, business models, innovations and new economy. His ideas, writings and post are written on his web log called "Capitalism & Freedom". You can send Rok an email on rok.spruk@gmail.com