"International competition": how to develop a country

[innonimatu]

So, I'm starting a thread about development policies. This isn't about the really poor countries (they have different types of problems), it's about at least "emerging economies" vs. estabelished "wealthy countries".
And it's also about large countries with at least 10 million people, so no "I'd turn it into a tax heaven" like some tiny island nations.

The open question here is: how would you go about doing it, if you were responsible for drafting a development strategy?

Both general ideas and specific proposals for countries are all welcome, as well as discussion about countries with such strategies currently in place.

 

[pi-r8]

It really just depends on the specific country- pretty much all strategies have had success in some countries and failure in others.

I guess the biggest point of discussion here is free trade vs. protectionism.

 

[amadeus]

Totally laissez-faire, as if you expected me to respond any other way.

No trade barriers, respect for contracts, no taxation of foreign-earned income, no favoritism, respect for property rights. The government's job would be solely to protect people from aggressing against one another. Those that don't like it are totally free to leave and those that want to try and make fortunes would be welcomed with open arms.

 

[pi-r8]

Totally laissez-faire, as if you expected me to respond any other way.

No trade barriers, respect for contracts, no taxation of foreign-earned income, no favoritism, respect for property rights. The government's job would be solely to protect people from aggressing against one another. Those that don't like it are totally free to leave and those that want to try and make fortunes would be welcomed with open arms.

How would you fund the government? Would you have taxes at all? And would you just have totally free immigration for anyone who wants to come?

 

[amadeus]

How would you fund the government? Would you have taxes at all? And would you just have totally free immigration for anyone who wants to come?

I suppose you'd have to have some very minimal tax to support the country's defense against external aggression and the court system, though I don't think that would take more than 1-2% of GDP, especially if it was a neutral state that kept its nose out of everybody's business. I don't like any taxes, but I'm not going to give up the hard-earned 99% I want in the hopes of getting that last 1%. In the country, though, I'd encourage people to use arbitration and come up with private common law instead of always coming to government courts to solve problems.

For your last question, yes, save for the minority of individuals that have histories of violence.

 

[Agarwaen]

I'll say the country needs a strategy, a long term strategy that must be coordinated by the state (although the state alone can't do all if we are to continue in a market economy). And that strategy must have consensus among the society, both the support of the elites (or part of the elite) and the support of the workers. If not, political infighting will bring the project down.

The exact strategy I fear changes from country to country and from time to time.

 

[MagisterCultuum]

I'd have a generally laissez-faire minarchist state funded entirely by user fees and taxes on negative externalities.

There would be modest port fees to cover safety inspections and Pigouvian green taxes on pollution, but otherwise there would be complete, unilateral Free Trade with everyone.

A significant Land Value Tax would discourage speculation and encourage development, as it would cost just as much in taxes to hold a vacant lot as to operate a business there. Unlike with the usual property taxes, making improvements on the land would not increase the tax burden.


The only restrictions on immigration would be health screenings to prevent the spread of epidemics and criminal background checks so as not to become a haven for dangerous fugitives. There would probably be a modest fee to cover the administrative costs those precautions would require.

Citizenship would never be automatic or mandatory, but would require signing a contract after passing tests to ensure properly informed consent. The tests would be roughly the equivalent of the GED. The state would offer loans to cover the cost of the education required to pass the tests, and would forgive these loans as part of the citizenship contract. It would also provide a modest Citizen Dividend/Basic Income, but no other social safety net programs.

 

[Tee Kay]

What South Korea and Taiwan did. Though as Agarwaen said the strategy would be different from country to country and time to time.

 

[Angst]

Outsourcing. (Or insourcing in this case lol.)

Go lenient on companies and keep income taxes low to increase growth. If my only purpose is economical development, having a low tax usually helps that.

Free, strict education.

Gradially increase taxes as well as public services as the economy grows.

 

[Monsterzuma]

i'd take the empiricist route and take notes from Botswana, the fastest growing economy in the last half decade. supposedly the policies implemented involve some form of Georgist land reform that is found among almost all economic growth powerhouse nations of the last few decades. see Fred Harrison's "The Silver Bullet" (book and documentary):


Link to video.

 

[Quackers]

After all that economic growth you still would not want to live in Botswana...

 

[Verbose]

Education, education, education.

Whatever else I'd do, that's where I'd start.

 

[Masada]

In short, I would need to look at the state in question. Ethnic/religious cleavages, the terms under which independence were granted, the state of play at a given date, insurgencies/rebellions, the strength of the political parties/military and so forth would all need to be carefully considered. I would treat a diversified economy with a healthy civil society, strong political parties and good governance vastly different from how I would treat one with none of those features; I would treat a state with a strong diversified economy vastly different from a strong diversified economy and forth forth.

Education, education, education.

That's what most developing countries do initially. Unfortunately the main problem is a lack of relevant skilled jobs with one of two approaches taken to resolve the issue (A) creating unsustainable jobs in the public service/military with resulting pressure on government finances/fiscal capacities or (B) not creating jobs and ending up with an over-educated workforce that will either emigrate - wasting all that effort - or rioting, causing trouble in some capacity. Zimbabwe is a good example of what happens when this approach is taken, albeit with some exogenous shocks mixed in for good effect.

 

[Alassius]

If you are starting from zero, do these:

1. Fight corruption.
2. Cut red tape.
3. Microfinance people with ideas.
4. Build roads.
5. Get into free trade agreements.

Worry about education, health and other nice things later, after you have got a working economy, ie one in which most people work full time, instead of sitting in the field because they couldn't find better jobs.

 

[luiz]

The opposite of what Brazil doing. In short, Brazil is a poor country, but because of our insatiable and hopelessly corrupt government, everything is extremely expensive due to taxes and regulations. Even though take home pay in Brazil is low, the total cost of hiring an employee is actually higher than in the US due to our outrageous payroll taxes and mandatory benefits (they cost more than the salary itself). So Brazil, a poor country, is witnessing a de-industrialization process. Industries are shutting down there and building stuff in Argentina and Mexico to export them back to Brazil.

If I was in charge, instead of the corrupt and illiterate buffoons in Brasília, I'd essentially abolish all payroll taxes. I would get rid of the ridiculous regulations that make hiring and firing so damn expensive, I would privatize all remaining public companies (while keeping the regulatory agencies - today they are useless) as well as the public universities. I would keep the income tax exemption as it is today, but replace the progressive rates for a flat 15% rate. I would privatize Social Security along the lines of what Chile did, and fix basic education (also along the lines of what Chile did, with a voucher system). And of course, I would get rid of the ridiculous importation tariff, among the highest in the world, and get in as many free trade agreements as possible (also like Chile! I wonder why Chile is the most succesful Latin American country!). Oh, and I would send everyone associated with the Workers' Party to jail for the rest of their unnatural lifes.

It's pretty much guaranteed that by getting rid of our confiscatory tax burden (by the far highest of any developing nation) and our abusive regulations we could become a developed nation very soon. But we won't, and that's why I got out.

 

[Winner]

Totally laissez-faire, as if you expected me to respond any other way.

No trade barriers, respect for contracts, no taxation of foreign-earned income, no favoritism, respect for property rights. The government's job would be solely to protect people from aggressing against one another. Those that don't like it are totally free to leave and those that want to try and make fortunes would be welcomed with open arms.

A recipe for a total disaster, or "road to hell is paved with good intentions".

 

[Verbose]

If you are starting from zero, do these:

1. Fight corruption.
2. Cut red tape.
3. Microfinance people with ideas.
4. Build roads.
5. Get into free trade agreements.

Worry about education, health and other nice things later, after you have got a working economy, ie one in which most people work full time, instead of sitting in the field because they couldn't find better jobs.

So how will you NOT end up with a bunch of diseased analphabets sitting around in the fields, as that would seem the likely candidate for the traditional business?

You need people with skills, and health, to get out of any kind of rut. You might end up with a very well-run third-world country otherwise, but where's the take-off going to come from? Who's going to have the ideas if education isn't a priority?

 

[Verbose]

That's what most developing countries do initially. Unfortunately the main problem is a lack of relevant skilled jobs with one of two approaches taken to resolve the issue (A) creating unsustainable jobs in the public service/military with resulting pressure on government finances/fiscal capacities or (B) not creating jobs and ending up with an over-educated workforce that will either emigrate - wasting all that effort - or rioting, causing trouble in some capacity. Zimbabwe is a good example of what happens when this approach is taken, albeit with some exogenous shocks mixed in for good effect.

Well, quite.

That's when things get interesting. Work on the level of education, and you get a people that might do all sorts of things. The question raised tends to be one of whether they will be given the opportunity to have a crack at novelty? And that, imo, seems to be largely a matter of how to deal with the traditional Powers That Be in various societies, who will tend to be challenged by the new situation. So, Zimbabwe aside, we get situation like Mubarak's Egypt. Is this nation going to go for development, or continued political controll by ... ; what mix of these?

 

[GoodSarmatian]

Education, education, education.

Whatever else I'd do, that's where I'd start.

I wouldn't.
The problem with education is that it's expensive and it's easy to wind up on the wrong end of brain drain. Ecuation is important, but don't think it's the first priority. I'd focus on one or two universities and try to make them world class, set up research institutes similar to the Max-Planck or Frauenhofer association to attrac.foreign talent.

My first priority is to fight corruption and create a transparent legal system as to not scare investors away with shady business practices. Then I'd take a good look at what my neighbors are doing, what they are importing or exporting and try to find a niche industry where I don't have too much competition. Forget IT when India is your neighbor, better focus on filtration systems systems or clean energy. Things that the largest or emergent economies will need in the future. After I have identified the industries I want to focus on I'll subsidize them and close this segment of my economy off from foreign competition. Protectionism is often bad, but it has it's uses when you want to create new industries. It worked pretty well for Japan in the past with electronics and cars. I'd also try to copy some of Chinas's socialist industrial policies when they make sense. For example, if a large foreign corporations wants a piece of the cake they'd have to set up a joint-venture with local companies as the majority shareholders.

 

[amadeus]

A recipe for a total disaster, or "road to hell is paved with good intentions".

I will respond only to valid criticisms from people who have offered something.