Just Throwing Good Money after Bad
Kitty Miv, Editor
21 March, 2013
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.
Two cheers for Spain, which has put in place a package of measures to do something about youth unemployment. Only two cheers, because normally you can't bribe firms to take on extra workers, or persuade young people to start businesses if they don't already plan to. What happens instead is that a firm will take on a young worker instead of an older one it was already planning to hire, or, worse, get rid of an older worker. Except in Spain it's probably quite hard to do that, which is exactly the kind of rigidity Spain ought to be dealing with. Germany showed how that problem can be dealt with, ten years ago, making a bonfire of many of its rigid employment rules. With youth unemployment at more than 50% in many parts of Spain, it's for sure that something has to be done, but make-work schemes are probably not the answer; it's just throwing good money after bad.
It could never happen in Old Europe: the Taiwanese are planning to encourage more derivatives trading by halving the transaction tax they place on stock market futures. For Europeans, derivatives are on a par with bigamy or sheep-stealing. Of course, the Taiwanese should never have had such a stupid tax in the first place, but they do now seem to have come to a realization that derivatives trading calms volatility, generates employment and is good for the economy. There have been any number of academic studies showing exactly that; but if you believe the earth is flat, even a trip to the moon to look back at it won't convince you otherwise.
Not content with one Hong Kong, China is trying to build another one just across the border in Shenzhen on a patch of reclaimed land at Qianhai. It's not going to be very large, at least in territorial terms, but may be a kind of offshore onshore, tax privileged, with foreign financial institutions allowed to set up there and lend in Renminbi to Chinese companies in the zone at unregulated interest rates. So I suppose it will be a brass plate paradise, with umpteen banks and umpteen Chinese holding companies busily doing megabucks of electronic business with each other. They are planning a city of 800,000 people, though. What it shows is that the Mainland's rulers are serious about financial liberalization, wanting to internationalize the Renminbi, and unhappy with the existing domestic financial structure which boasts bloated banks lending at inflated rates to basket-case borrowers.
Francois Hollande's chickens are coming home to roost, with the news that senior managers are apparently leaving France in droves because of the penal tax regime for share options and high salaries. It's not clear whether these executives are leaving their jobs as such, or merely going to live somewhere else and continue their work in a friendlier tax climate. Perhaps it's the latter. Governments, whether socialist as in beknighted France, or centrist as in the UK, haven't woken up yet to the new electronic reality that senior managers can do their work just about anywhere with their tablets, Blackberries, Skype and conference calls. If you're a factory floor supervisor, then for a while you will still have to walk around and talk to people; but fairly soon even that supervisor (if he still has a job at all) will be managing a work-shop full of robots, and will be able to do it sitting in a bar in Cyprus with wi-fi. Perhaps Finance ministers do know this, and are counting on seeing out their term and getting their gongs before the sands start running out from under their feet; but if that's the case then they are being most improvident, because a large percentage of their top-earning and top-tax-paying senior people are probably actively planning to leave. Ministers should be trying to create attractive tax regimes for their best managers; instead, they seem to be doing the opposite.
And along the same lines, here's another government getting it comprehensively wrong: Russia has doubled the social security contributions it extracts from the self-employed and is surprised to find that there are suddenly fewer self-employed people. Well, actually, not, there are just as many as there were before, Vladimir, it's just that you can't see them any more. Ten years ago Russia did a very sensible thing and cut individual income tax from a maximum of 40% to just 13%, and needless to say it raked in more tax from a much higher number of people who were prepared to pay it. But good economic sense has gone out of the window in Putin's Russia, along with a lot of other good things.
Argentina seems to be doing its best to acquire a reputation as an unreliable and even antagonistic international business partner. After expropriating YPF last year and annulling its tax treaties with Spain and Chile, the government is now seemingly making it impossible for mining company Vale to continue with a major potash extraction project. The culprit as much as anything is the weakness of the peso, which the government is maintaining at a ridiculously high rate with all the normal accompanying impediments such as exchange control and reporting of foreign credit card transactions. According to economists, inflation is running at 26% and is accelerating, yet the government is pretending it is 10.8% and in an act of purposeless desperation has slapped a two-month price freeze on supermarkets. Stay away!
Kitty's Encomiums and Execrations
Methodology: each week (this is the 44th) 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 neutral ranking, 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 in week 16 it gained a further star, so then it was in neutral territory until week 23 when it dropped back to minus one, but reverting to neutral territory in the following week..
The rankings are intended to be a proxy for business friendliness; evidently they are highly partisan, but as time goes by they are becoming useful for decision-making. For any country in negative territory, you should think carefully before starting a business there.
China wants another Hong Kong
Spain treating the symptoms
Taiwan cuts a tax
And Kitty's Execrations:
Argentina being stroppy
France losing talent
Russia blows it
« Go Back to Blogs