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for Russians, foreign = evil

Kitty Miv, Editor
30 January, 2014

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

Of course it's positive that Russia is favoring SMEs. Or does it? As so often in that benighted country, one step forwards equals two steps back. It's great to give tax breaks to small enterprises: even the Russians, who view everything through some strange sort of distorted antiquarian, pre-capitalist lens, realize that small companies are more likely to generate jobs than large ones. But why restrict the tax-break to Russian-owned companies? It seems so obvious that ownership of companies is disconnected from their economic performance that it should be hardly worth discussing; yet for Russians, foreign = evil. You could have at least two views about this: either that Russia has suffered from centuries of economic persecution by foreign oppressors; or that Russians have a straightforward compulsion to deny foreign ownership of native assets. Perhaps the first caused the second. At all events, they just don't seem able to shake themselves out of this obsessive distrust of the West, and you have to ask yourself, to what purpose? All too often, the result is to damage Western perceptions of Russia, and in the end, Russia's own interests.

Spain's Rajoy has promised income tax cuts in 2015, so half a cheer for him for at least talking the talk. But will he walk the walk? Perhaps more credibly, the Finance Minister would only say that he is not planning a VAT rise "for now." If they weren't politicians, they wouldn't even begin to consider lowering taxes at this moment in history: the deficit for 2013 was probably just over 6 percent, while debt was 84 percent of GDP in 2013 and is expected to rise to 94 percent in 2014. While these figures aren't as catastrophic as those for Greece (and Italy's debt stands at 135 percent of GDP and rising), they are quite frightening. What they ought to do, of course, is to cut public spending, even though that would increase already massive unemployment (26 percent). But you must be getting bored of hearing me say that governments should cut spending, not because I'm wrong, but because it's flogging a dead horse. Of course what I really want to say is that they should leave the euro, but that is even less realistic: even Don Quixote stopped short at tilting at windmills. Not that it's in the hands of the Spanish Government in the first place - it's the Troika, stupid. And the only medicine the IMF knows about is an ointment called "taxincreases." That's why the Finance Minister is dutifully considering a VAT increase: rub on all over areas of exposed skin, it says on the tube, and wait. If the patient hasn't expired after three months, repeat the treatment until death occurs.

This seems to be open season for China-bashing: you can't turn on the TV or peruse a business magazine without being told that it's all going wrong for the Middle Kingdom. Our own news service reports sadly that tax collections rose "only" by 10 percent last year instead of 12 the year before, while growth was "only" 7.7 percent in 2013. And the saintly Economist this week would have you believe that Western investors are leaving China in droves because of the adverse business environment. No doubt that accounts for the fact that FDI in China in 2013 was nearly USD120 billion, up 5 percent on 2012. It's all wishful thinking, as far as I can see, a bit of hopeful schadenfreude, based on commentators' inability to face the contrast between China's rude health and the gritty reality in "Western" countries. I am put in mind of Dr Johnson's observation that "a man who is tired of London is tired of life." I wonder how a portfolio of companies would fare based on the principle: buy when they invest in China and sell when they leave. I am not licensed to give investment advice, of course, so it's just futile jabber. Don't pay any attention to me!

One of the millstones that China does not labor under is called the European Parliament, but it does hang heavily around the collective neck of the EU's Member States. I feel ashamed of myself that I am coming out against a "democratic" institution (OK, came out, a long time ago), when there is a serious democratic deficit in the EU, but the Parliament has done nothing but disgrace itself, year after year and stupidity after stupidity. We would be better off without it: when it is not decorating the Commission's proposals with unworkable, anti-business regulatory baubles, it is indulging in wishful, unrealistic rhetoric, often spun for the benefit of domestic electors. Its latest wheeze is to attack the UK's proposed shale oil and gas regime. Now it may be true that Whitehall's offer to allow municipalities to keep tax revenue from shale operations amounts to bribery, but on that basis, all subventions from central to local governments should be classified as bribery (all "pork" is bribery, of course), and that would include the outrageous Common Agricultural Policy and the EU's regional funds. MEPs' time would be better spent attacking those monstrous schemes, which on the contrary they keep close to their hearts. Well, European voters are about to have the chance to express their views on MEPs, who are all up for re-election in May. The general opinion of voters has been displayed in falling turnouts in every successive election since the first one in 1979, when 62 percent voted. Last time it was down to 43 percent, and everyone expects it to be even lower this time around. The European powers that be are scared however that there will be a heavy turnout of euroskeptics. Bring it on, I say, not because I am euroskeptic (I am) but because the EU, not to mention the Parliament, badly needs shaking up, and a strong contingent of doubters might just be what the doctor ordered. Even more intriguingly, this will be the first occasion on which the President of the EU will be directly elected alongside MEPs. Imagine if a euroskeptic landed the top job! Unfortunately "they" will probably make that impossible by offering only the usual stale, old candidates, but let's keep hoping that a ringer will slip through. It's almost enough to make me go to the polls myself.


Kitty's Encomiums and Execrations

Methodology: each week (this is the 89th) two or three countries are given encomiums and two or 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 is at neutral, 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, then dropping to minus one in week 50, and back up to plus one in week 51, then to plus two in week 52. Some weeks ago it dropped a place, but then quickly recovered one step. Etc etc and now it's on neutral again.

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.

Kitty's Encomiums:

China on the wing

Russia understands SMEs?

Spain jam tomorrow

And Kitty's Execrations:

European Union on the wrong side of history




Tags: Euro | Government | London

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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