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A Scorched Earth Policy

Kitty Miv, Editor
06 September, 2012

Kitty's Kountry Rankings are below, with a description of how they are kompiled. This week, as every week, I give out three Encomiums to countries which have done Good Things, and award three Execrations for countries which according to my highly personal and partial views have done Bad Things.

No tax reductions this week, or even half-veiled discussion of any. But that's probably normal at this time of year, and anyway where would the money come from? Lower public expenditure, that's right! You're learning fast. But what you haven't learnt is that while politicians may talk about, plan, promise and even in rare cases actually try to reduce public expenditure, the real politik is that it never happens except in extreme circumstances of national collapse. As in The Last Emperor, civil servants threatened with the sack, redundancy or lower pay operate a scorched earth policy - they would rather destroy their patrimony (and yours and mine) than see any threat to their gilded lives.

So we have to give a star to the UK, despite the fact that it is going to miss its debt reduction targets and has achieved only a tiny percentage of the cuts it promised two years ago, to recognize the fact that it is continuing to try, and will not give in to the siren calls for stimulus. What's the point in stimulating a near-dead patient in intensive care?

The same sort of logic compels me to give a star to French Finance Minister Moscovici, who keeps singing an encouraging song to business despite his almost certain knowledge that his 2013 budget, now imminent, is going to be disastrous for enterprise and wealth-creation. Anyone who can lie that well is destined for greater things, so he is my tip for the next President, once the life is choked out of Francois Hollande by a deep, deep wave of disappointment and scandal.

Egypt gets this week's last star, for what may seem rather perverse reasons. It's obvious that the government of a country in that much of a mess doesn't have a clue as to how much money it has or doesn't have, or what its deficit will be next year, so it may as well promise no tax rises, which is bound to go down well with the electorate and the IMF both. There is by the way a rule in politics that a country without a government is always better-off (recent examples include Belgium and the Netherlands), because while the politicians are fighting each other they are too busy to focus on fighting you. The USA is pretty close to this condition at present, and if it falls off the fiscal cliff in January things will be even better. Who needs Washington? It's probably pretty good to be a business-person in Egypt right now; the government is focused on getting money from the IMF, can't make up its mind about anything, and there is a general air of post-revolutionary freedom. Don't make any long-term investments, though: and keep your bags packed near the front door. Just like Russia in 1992, and look how rich they got. Of course you may have to show your appreciation to the traffic cop, the tax inspector and the border guard, which rules the place out for law-abiding Americans; but the Chinese are making hay!

Digression: I have never been able to understand the current obsession over bribery. It's impossible to do business in any Middle Eastern, Asian or Oriental country without bribing, always has been, and will be for long into the future. What is the purpose then of trying to ban it? I say 'trying to', because the only result is to drive shadowy behaviour even deeper into the shadows. The way for the Congress (or any government) to deal with bribery is to legalize it. Sales commissions are not illegal - they appear in the published accounts. Why is bribery different? If a company pays a bribe, it has a commercial purpose in doing so, and it is to the advantage of the shareholders. If an individual does it, there is an issue between that person and his/her employer, which would be a whole lot easier to resolve if the behaviour were not criminalized. The removal of the pursuit of private advantage from public service (where for centuries it was the guiding principle that convinced energetic people to risk their futures in the uncertain pay of princes) has led to the much-lamented politicization of government, and has thrown back civil servants onto the exercise of power rather than the acquisition of money as their aphrodisiac. Like many other aspects of current society, this has all stemmed from ignoring human nature. I'm sure Herbert Spencer wouldn't have made such an error. Perhaps now that Richard Dawkins has proved his point about God, he should turn to debunking morality as a spring of corporate behaviour.

Brazil must be the world's champion tax-fiddler: as if its tax system wasn't complicated enough already, it is forever changing rates and incentives to favour or disfavour this industry or that. That's on the surface: just imagine how much lobbying and less mentionable types of persuasion are going on; Brasilia makes the Beltway look like a haven of stability. So, a bad mark for this week's extension of the unnecessary IOF reduction on home appliances. Just scrap the tax altogether, please!

'Never do business with a bearded man', my father used to tell me (a prejudice shared with Margaret Thatcher, interestingly), so I get some amusement from watching the Spanish people being duped with Mr Rajoy's smoke and mirrors. 'I won't increase income tax or VAT,' he says. Excuse me? He is in the middle of doing both, right now! Who does he think he's kidding? Anyway, he will, increase them again, that is. He'll have to, with a rag-tag army of bankrupt municipalities spending money like it's going out of fashion, which he pretends to Brussels he has under control. Dream on, all of you.

More twaddle from the Indian Finance Minister about the 'imminent' introduction of the new GST. Even quite sensible, highly trained economists fall under the spell of Finance Ministry make-believe once they cross those august portals. It must be something they put in the tea; or maybe Ned Lutyens's Portland stone gives off hallucinogenic vapours. Whatever: the rest of us know that the GST is still years away.

Kitty's Encomiums and Execrations

Methodology: each week (this is the 18th) three countries are given encomiums and three are given execrations. Those are the entries below with descriptive links. In the following week, each encomium counts as 1 for that country, and each execration counts as - 1, being added to that country's existing score. Over time, therefore, a ranking will build up for each country, and further countries will join the listing. Germany has a ranking of - 1, since in the second week it had an execration and in the first week it had an encomium, leaving it at neutral; then it had an execration in week four, thus dropping to - 1, and another one in week six, dropping to - 2; finally in week 13 it got something right, so it went back up to - 1; then last week it gained a further star, so it's now in neutral territory.

The rankings are intended to be a proxy for business friendliness; evidently they are highly partisan, but hopefully one day they will become useful for decision-making, even if for the moment it is all just an amusing game. For any country in negative territory, you should think carefully before starting a business there.

Kitty's Encomiums:

France . . . . is paved with good intentions

Egypt is free (for now)

UK keeps trying against all the odds

And Kitty's Execrations:

Spain did invent Don Quixote, after all

Brazil fiddling while the toast burns

India where they don't even realize they are lying





About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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