Welcome to my personal blog. I mostly write on entrepreneurship, economics, libertarianism, movies, and my travels.

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Sep 13, 2012

The Secret of the Successful "Socialist" Sweden


Whenever I get engaged in a debate where I argue that mixed economies, although very promising in theory, get too mixed up too work, I invariably face a statement similar to this: "But look at the Scandinavian countries, especially Sweden. Mixed economy and welfare state is working so well there and in fact  doing better than the free market economies."

Well, Sweden seems to be the ultimate example of the promise of welfare state. But is it really? When a well-functioning and sustainable welfare state seems to elude every nation around the  world, Sweden seems to have turned into reality all the rosy promises offered by socialists. What's the secret of the successful socialist Sweden?

Institute of Economic Affairs has recently published a discussion paper by the Swedish author Nima Sanandaji which has tried to explain the secret. The discussion paper entitled "The surprising ingredients of Swedish success – free markets and social cohesion" makes a few points about the Swedish success which are as follows:

Sweden did not become wealthy through social democracy, big government and a large welfare state. It developed economically by adopting free-market policies in the late 19th century and early 20th century. It also benefited from positive cultural norms, including a strong work ethic and high levels of trust.
 
As late as 1950, Swedish tax revenues were still only around 21 per cent of GDP. The policy shift towards a big state and higher taxes occurred mainly during the next thirty years, as taxes increased by almost one per cent of GDP annually.

The rapid growth of the state in the late 1960s and 1970s led to a large decline in Sweden’s  relative economic performance. In 1975, Sweden was the 4th richest industrialized country in terms of GDP per head. By 1993, it had fallen to 14th.

Big government had a devastating impact on entrepreneurship. After 1970, the establishment of new firms dropped significantly. Among the 100 firms with the highest revenues in Sweden in 2004, only two were entrepreneurial Swedish firms founded after 1970, compared with 21 founded before 1913.

Since the economic crisis of the early 1990s, Swedish governments have rolled back the state and introduced market reforms in sectors such as education, health and pensions. Economic freedom has increased in Sweden while it has declined in the UK and USA. Sweden’s relative economic performance has improved accordingly.

Sweden was a poor nation before the 1870s. As a capitalist system evolved out of the agrarian society, the country grew richer. Property rights, free markets and the rule of law, in combination with large numbers of well-educated engineers and entrepreneurs, created an environment in which Sweden enjoyed an unprecedented period of sustained and rapid economic development. In the hundred years following the market liberalization of the late 19th century and the onset of industrialization, Sweden experienced phenomenal economic development (Maddison, 1982). 
 The complete discussion paper can be downloaded here

So what do you think? Feel free to share you views and opinions in the comments below.

Sep 8, 2012

The Kiwi Revolution: How New Zealand transformed itself


Sir Roger Douglas, the Finance Minister of New Zealand during the initial reforms.

I just watched a documentary about the economic reforms and the transformation of New Zealand from one of the most heavily regulated economies until 1984 to one of the freest economies in the world today.

New Zealand is one of the freest economies in the world making it a prime example of how free markets can make create competitive economies and prosperous societies. However, New Zealand didn't always use to be so. In fact, until 1984 it used to be a paradise of the welfare statists as it used to be one of the most heavily regulated economies among the advanced countries in the world. It was also among the first developed countries to introduce welfare programs when Labour government introduced welfare programs in 1930s.

By 1984, however, decades of heavy-handed state interference in the economy and excesses of Prime Minister Muldoon had taken its toll pushing the Kiwi economy to the brink of bankruptcy.

In an ironic twist of events, the Labour government that came to power in the 1984 elections initiated sweeping economic reforms towards a free economy. The reforms were pushed even further by Nationalist government that came into power in 1988 continued it until 1991 transforming New Zealand into what it is today. The reforms, no matter how beneficial, were very painful though. But I was very surprised by the way Kiwi people accepted the reforms and the way both National party and Labour party put aside their ideological agendas and pushed for reforms and even pushed further reforms initiated by the other party.

Here is the documentary in four parts in You Tube. It is a must watch for anyone interested in economic reforms and free market economics.

First episode: Fortress New Zealand


Second episode: The Grand Illusion


Third Episode: The Great Divide


Final episode: The New Country


Happy watching! By the way, what do you think about the economic transformation of New Zealand? Feel free to share your opinions in the comments.

Aug 23, 2012

How to make good policies? : 10 principles


1. A sound policy has government do only what individuals and associations cannot do for themselves.

2. A sound policy considers long-term consequences over all groups of people not just the short terms effects on one group.

3. A sound policy will enhance: choice, competition and freedom.

4. A sound policy focuses on measurable outcomes, not just inputs and good intentions.

5. A sound policy aligns incentives by moving up the hierarchy of Friedman's Law of Spending.


6. A sound policy would enable governance (like decisions about taxes and expenditures) closest to the people.

7. A sound policy would impose the same standards, norms and punishments for non-performance on governments as are imposed on non-state providers.

8. A sound policy will not sacrifice the rights of an individual for the interest of many.

9. A sound policy is based on the premise that people are responsible, resilient, and self-governing given the right set of incentives and framework of law.

10. A sound policy should often have an expiry date (sunset clause).

(Source: Social Change & Public Policy by Parth J. Shah)

Jul 29, 2012

Free People are not Equal


Economic inequality is one of the most popular issues in our political and economic discourses. With the ‘Occupy Wall Street’ movement around the world, the debate has resurfaced in the global scenario too. In our context, totalitarianism is sought after for the sake of equality. The issue, no matter how well-intended, begs for a different perspective.

Opportunities against outcome

Equality of opportunity is indeed a prerequisite for a free society and the government can play a crucial role. Ensuring rule of law, property rights for every class of people and equal access to economic activities are things a government can do to achieve a prosperous society.

On the other hand, equality of outcome sought through government actions is not only antithetical to a free society but also counter- productive to economic growth. Many intellectuals and politicians advocating equality tend to ignore that free people are not equal and equal people are not free.

In a free society, economic outcome largely depends on the talent, intelligence and preferences of an individual. Some people may prefer to work harder and choose a less luxurious lifestyle, whereas some may want a lesser paying endeavour and put more preference on luxury. Some may choose the safety of a regular job with a secure income while  some may wish to take risks and start their own venture. Moreover, what a person earns is determined by the value society is ready to pay for the services he or she offers.

So should it come as a surprise that some street vendors are earning better than a teacher or a clerk? Entrepreneurs, no matter how small, generally earn better than a jobholder but the extra income is usually a compensation for the risk they take and better value they are creating through their services.

Equality versus growth

For a poor country like Nepal, the importance of economic growth is unquestionable. Higher economic growth would mean lower mortality rates, better living standards and longer lives. Countless revolutions have occurred already in the name of bettering people’s lives. Agendas of increasing government control over the economy and lives of people in the name of equality have been in the forefront of these revolutions, which may explain why we have not achieved expected economic growth so far.

Economic freedom, which is a precondition for growth, has largely been ignored in favour of cheap populist agendas like government providing food, shelter, education, health, employment, entertainment and what not. Studies have shown that economic growth and economic equality cannot go hand in hand. This tendency is shown by the increasing inequality in the rapidly growing economies like China and India too. Although lack of equal opportunities in all segments of population contributes more in increasing inequality, economic growth has a part to play in the phenomenon.

On the other hand, re-distributive efforts by the government tends to retard economic growth, making everyone equally poor. The ineffectiveness of government efforts to alleviate poverty is highlighted by the fact that foreign employment has lifted more people out of poverty in less than a decade than the populist government programmes in the past half a century.

Freedom and equality

Huge inequality in a society can be disastrous. High income inequalities encourage rent-seeking behaviour and social unrest. Crony capitalism, which has been flourishing rapidly in Nepal, is a prom-inent contributor in increasing inequality. One of the major causes of crony capitalism is the provision that allows government’s extend-ed intervention in the economy.

Regardless of their objectives, such interventions create the avenues for crony capitalism, which in turn contributes to increasing inequalities in the society.

Hence, our obsession with inequality is going to be counter-productive in the long run, even if our actions are well-intended. It is necessary to bear in mind that society trying to put equality before economic growth will end up keeping everyone equally poor, whereas putting economic freedom first will result in greater growth and equality.

-Surath Giri
(Published on The Himalayan Times - Perspectives of 29th July 2012.)

Jul 20, 2012

दासत्वको बाटो कस्तो हुन्छ (कार्टुन चित्रमा )



 













 माथिका कार्टुनहरु नोबेल पुरस्कार बिजेता एफ ए हाएक को पुस्तक रोड टु सर्फडमको नेपाली अनुवाद 'दासत्वको बाटो' बाट साभार गरिएका हुन । उक्त पुस्तक बजारमा सर्वत्र उपलब्ध छ । ईच्छा लागेमा  पढ्नुहोला । माथिका कार्टुनमा केहि प्रतिकृया भए तल व्यक्त गर्नु होला ।

Jul 10, 2012

What Milton Friedman Means to Me


Nobel Laureate economist Milton Friedman's contribution to the economic discourses around the world, mostly the Western world, through revitalizing free markets movement is indeed something 'liberty' lovers around the world should be thankful to him. His writings and contributions have meant a lot to me as well. 

Following is my entry for the 'What Milton Means to Me", a video competition being organized to celebrate the 100th birthday of Milton Friedman.


Number of views, comments and likes covers half the score for the contest. Please help me win the contest by watching the video, providing your feedback and sharing it! :)

Jun 13, 2012

Book Review: Innovation and Entrepreneurship


Realizing that since I have been working on promoting the ideas of entrepreneurship, especially among youth I also need to have some knowledge of theoretical aspects of entrepreneurship I had been looking around for some books on the subject when I bumped into management guru Peter F. Drucker's classic work Innovation and Entrepreneurship: Practice and Principles. I just completed reading the book and I must say despite being almost 3 decades old, the book is very interesting and pretty much relevant in current scenario. I was able to get some new insights about entrepreneurship which have refined my understanding about entrepreneurship.

The confusion between entrepreneurship and business is prevalent in our society and I think with the increasing use of the words 'entrepreneurs' and 'entrepreneurship' to refer to any business venture-small or large, innovative or non-innovative, the distinction is getting even more vague which is unfortunate. Entrepreneurship is more about innovation than just a business. Innovation doesn't necessarily mean finding a new product or technology only, innovation is, in fact in most cases, about finding new ways of doing the same thing more effectively, recognizing the incongruity between the perception of consumers and producers, recognizing the changes in industry and market structure and adjusting products and services accordingly, planning and producing products and services according to the demographic structures of the society etc. 

For example, Ray Kroc, the founder of McDonald's, didn't invent the hamburger; he established a new system of clean, reliable, fast food delivery that created a whole new industry. Similarly, Henry Ford didn't invent the automobile and J. P. Morgan didn't invent banking; but they applied their imaginations to the systems by which cars were produced and money was exchanged. 

The author has distinguished between invention and innovation and has tried his best to dispel the  "flash of inspiration' myth about entrepreneurs. With enough evidences and arguments he has asserted rather than the 'flash of inspiration' tremendous amount of hard work goes into every successful new enterprise. According to him, the process of entrepreneurship can be systematized and any company large or small can practice entrepreneurship. Although generally entrepreneurial working style shuns management because of the control and pre-defined framework required by the management, the author believes entrepreneurship can be and should be managed. In today's rapidly changing business environment and cut-throat competition, no company how big it is or how pervasive it is in the market can rest on its laurels. Every company should be continually looking around for innovation and improvements.

Drucker proposes that there are seven sources of innovative opportunity:  
  • unexpected events,
  • incongruities between the expected and the actual,
  • new process requirements,
  • unanticipated changes in industry or market structure,
  • demographic changes,
  • changes in perception, mood, or meaning, and
  • new knowledge.
And as per him, contrary to the popular notion, the last entry in this list, new knowledge, is the least reliable and least predictable of them all.

According to him principles of innovation are:
  • Begin with an analysis of all the opportunities
  • Go out to look, ask, listen for consumers perspectives and find the incongruities
  • An innovation must be simple and focused on a specific need.
  • Effective innovations start small
  • Entrepreneurship aims at leadership in the market not at being the biggest player
Towards the end of the book, he has also outlined some entrepreneurial strategies that are generally used by very innovative ventures to keep leading the market.

I found the book very insightful and a must read for anyone wishing to understand the process and principles of entrepreneurship. By the way, scribd.com hosts a free copy of the book at this link. If you are interested grab it before it gets deleted!!