BISHKEK - Monday, July 30, 2012 -
Recently, politicians began to look to the experience of Singapore as an example for Kyrgyzstan to follow. What is remarkable about the country? Singapore is a country with a small population of 5.2 million and the total land area is 5 times greater than the city of the Kyrgyz capital Bishkek. At the same time, Singapore's gross domestic product (GDP) totaled $260 billion in 2011. Foreign direct investment (FDI) in Singapore is comparable to the volume of investments in Russia.
How has a country, so modest in territory and population, achieved such amazing results? These results were achieved thanks to the high level of economic freedom of citizens of Singapore. Economic freedom is defined as the freedom to produce, sell, and consume any goods and services purchased legally. Economic history shows that the universal principles of economic freedom bring prosperity of any country, regardless of its initial conditions.
For a better understanding of economic freedom, let's look at the 10 criteria on the basis of which is determined by the index of economic freedom around the world. Singapore is ranked the best in the world according to these criteria, followed by Hong Kong. Below are the criteria:
Freedom of business: The legal framework allows quick and easy procedures to open, maintain, and close the business.
Freedom of trade: There are no customs duties and non-tariff barriers are minimized. The ease of doing business in Kyrgyzstan is ranked 171 out of 183 countries in the 'Doing Business 2012' rankings.
Monetary freedom: There are no price controls and an increase in unsecured money.
Government spending: The lower government spending is, the better. Ideally, government spending does not exceed 15-17 percent of GDP. In 2011, public spending accounted for 34 percent of the Kyrgyz Republic's GDP.
Fiscal freedom: Mainly characterized by low taxes, not exceeding a total of 15-17 percent of the profits.
Protecting private property rights: The state protects the rights of private property and does not allow the violation of these rights.
Freedom of investment: There are no barriers for the inflows and outflows of investment capital. Individuals and legal entities are allowed to move their resources within and between countries without any restrictions.
Financial Freedom: There is no government control or intervention in the financial and banking sector.
Freedom from corruption: Corruption destroys economic freedom by bringing insecurity and uncertainty in economic relations. Countries with high levels of economic freedom have low levels of corruption, because it eliminates the root cause of corruption - over-regulation and legislation, as a consequence of the economy.
Freedom to work: The basis of the employment relationship is a contract, not the Labor Code.
Studies indicate a direct correlation: the income of countries with high levels of economic freedom is five times the income of countries with low economic freedom. Why does economic freedom brings quick and tangible results, in contrast to state planning and regulation of the economy? Why does reducing the economic functions of the state, and transferring the responsibility for economic decision-making to entrepreneurs, lead to the rapid growth of the welfare of society?
At a conceptual level, this is due to the fact that private entrepreneurs have self-relevant information about their resources and enterprises, enabling them to make efficient and effective solutions. Employers also have a powerful incentive mechanism in the form of profits and losses. In other words, in making the right decisions the entrepreneur makes a profit, if he makes erroneous decisions, he loses.
The state, represented by government officials, cannot make effective economic decisions, since it cannot possess and, therefore, analyze all the information available to entrepreneurs. In addition to this the public system lacks a mechanism for reward and punishment. Officials manage budget funds, that is, costs and losses due to bad decisions is the fault of a third party - the taxpayers.
Summing up the above, we can draw the following conclusion: the best economic benefit is achieved in an environment where the State provides a clear and reliable legal framework for the functioning of the market and minimize its impact on the economy. The role of the state is to be a neutral arbiter, tracking compliance with the rules of the game by all participants.
For Lee Kuan Yew, the father of the economic miracle of Singapore, this vision was fundamental. Singapore, reaching second place in the world ranking of economic freedom after Hong Kong, for several decades, steadily maintains its high position. This country has turned into a quiet harbor of grace for investors with a predictable long-term policy by authorities.
Could Kyrgyzstan repeat the experience of this "Asian tiger"? Unfortunately, this scenario is unlikely. Improvement of economic freedom implies the elimination of state barriers and the reduction of functions and powers of government in regulating the economy. The question of the availability of power to go to such measures in Kyrgyzstan is unclear.
Why, then, have politicians started talking about Singapore? I see two reasons. The first reason is that politicians do not know or understand the principles of economic freedom, otherwise they would not have mentioned the experience of this country. The second reason is that Singapore is an example of fast and effective reforms carried out by an authoritarian regime. And politicians tend to focus on the authoritarian regime as an explanation of the reasons for the success of Singapore. Singapore is a symbiosis of limited political freedom and economic freedom. These political systems are usually characterized by monarchical countries.
Considering the changes within the Kyrgyz Republic in the last five years, can you trust the idea of giving full power to one man - our "Lee Kuan Yew?" As the bitter experience of our country has shown, instead of positive results, absolute rule leads to monopoly and concentration of the country's resources in the hands of a narrow group of people.
In my view, it is preferable for Kyrgyzstan to follow the example of countries such as Australia, New Zealand, Switzerland, Canada, and Estonia. These countries have a parliamentary form of government that promotes pluralism and the preservation of political freedoms. At the same time the citizens of these countries hold economic freedom and, therefore, enjoy a high quality of life.
(This article was first published in the FreeMarket.kg web site. See original article at http://freemarket.kg/news/stanet-li-kyrgyzstan-vtorym-singapurom)