Friday, October 30, 2009

Taxpayers, Unite!

Taxes are paid in the sweat of every man who labors. If those taxes are excessive, they are reflected in idle factories, in tax-sold farms, and in hordes of hungry people tramping streets and seeking jobs in vain. – Franklin D.Roosevelt. 1932
A government taxes its citizens for protection of individual rights, freedom and property, to provide normal and safe conditions for the social and economic development. Government should cover its operation cost for these goals, and takes responsibility to use the balance to implement national development project s that cannot be otherwise done by private sectors alone. Few individuals elected to power get the right to spend this money. But In countries of partial democracy, these politicians have an interest not to report back how they spend the fund.
That is why taxpayers got united and demanded the government to implement laws for effective spending. The first taxpayers association was established in Australia in 1919, the second – in Sweden in 1921. Many other associations have established one after another first in Europe and finally becoming a world-wide movement. At present, taxpayers are a largest, most dynamically growing interest group.
In Mongolia, this movement came with the democratic wave. One of the latest groups is an organization whose name expresses its mission clearly: Mongolians for Fair Taxes and Wise Spending. This association was initiated by a group of citizens working in private sectors. It joined the world and regional associations and recently was elected to the board of the Asian and Pacific Taxpayers Union, which recently held a conference in Singapore. The major reason why taxpayers unions are growing fast around the world is that citizens of every democratic nation understand that the basic conditions for the dynamic growth of economic and social development are to have a less costly and more transparent government. Taxpayers have a legitimate right to demand the government in this way. In countries where the taxpayers have united their voices, public governance is relatively transparent, elected officials are relatively responsible; as a consequence, economy grows faster and people lead a better life.
In countries where taxes are lower, business sector competitiveness is higher. Lower taxes have a positive impact on a nation’s productivity. Mongolian employers pay a higher salary in order to hire better professionals. But, because higher salaries mean higher taxes, Mongolian labor value is set very low. An employer pays many types of taxes including medical, social insurance fees and personal income taxes of employees.
Currently in the labor market, hiring a professional with an western MBA degree requires 2 mil tugrugs of net salary and the employer pays about 600 tsnd tugrugs for this employee’s obligatory social, medical insurance and personal income tax. So that employee costs the employer 2.6 mil tugrugs per month. Foreign and international organizations, on the other hand, do not pay those taxes and the same employee for them costs 2 mil tugrugs a month.
If wages do not fully express the values created by an employee, this means that the economy is becoming more and more distorted. In Mongolia, evaluation of labor value is substantially low. If a blue collar worker has to change a public bus twice on the way to work, the actual salary he gets hardly covers his public transportation fee and lunch, leaving almost nothing for his family. This is the main reason why 10% of Mongolian labor force has immigrated and the remaining 90% is ready to do so if they can get a visa as all we, Mongolians know well. What is it behind the policies of our public officials who go abroad and ask every country to hire more Mongolians instead of creating normal living and working conditions in their own country? If taxes are low and a businessman has more to keep from the value he has created, he is more enthusiastic to extend his business.
That Is why all taxpayers must get united and demand the government to keep taxes low and spend them wisely. Public leaders are keeping in secret from us what the tax money is spent for while they enjoy their luxury cars and their custom tailored health insurance that pays for health treatments abroad.
The guarantee of a better life for us is not the government, but we, ourselves.
We taxpayers, from whom the government collects tax revenue, have the right and the responsibility to demand.
Taxpayers, unite!

Friday, October 23, 2009

Social Security

For many families, children and elderly social security is a savior when difficult times come to their life. Every country develops a social security system that fits its economy and demography. Social security as your property is a pension to have at old age, care to have in case of loss of a job or a physical capacity to work, and a payment in case of illness. You create these funds over many years while working hard. You accumulate and save it in a public fund and take it back when the time comes.

It is the largest public pool of funds that is collected in every country through law enforcement from every citizen while they are young, healthy and working. The government uses it for public needs for a while and gives it back to its citizens. The Mongolian government takes it from citizens also by force to use this fund. It takes 10 percent of your salary directly from you and another 10 percent – from your employer. In other words, 20 percent of your revenue, which would have otherwise been brought to your home, remains with the state. This amount reached 29 percent last year. Out of this sum, as we are told, 1 percent goes to social care, 4 percent to medical care, 1 percent to unemployment insurance and the remaining 14 percent - to your pension fund. You pay this amount every month for 40 years. Fines will be charged if this social security fee is not paid on time. You may even go to prison. Apparently, there is no problem on the side of collecting.

But there are many problems on the side of giving back. First, nobody knows exactly how much the government has collected from you, or where that money actually is, or how this fund is used. Small group of few people who come to power on behalf of their political parties run these funds on your behalf. How and with what return? That remains a secret. When giving back, nobody accounts for the multiple price increases of the past 40 years. It would be a completely different matter if this money were in your personal bank account.

Our leaders who do not bother to even report on what they did with our funds recently have started to talk about increasing the fee for another few percent. Only robbers talk about taking more without telling what they did with the previous collection. In a civilized country, all operations of elected public officials, including the collection and distribution of public funds, are transparent and clear. The citizens of those countries periodically receive reports on their pension funds which they will use at a senior age. They can live and work with peace of mind because their social security serves as a guarantee in their hard times.

In Chile, for example, this fund is divided into certain categories and invested in government bonds and some stocks in order to increase the value. In Singapore, there is even a medical saving account for every citizen along with the pension account. Since not everyone gets sick at the same time, this fund is used for upgrading the health sector facilities. As a result, they created hospitals of a world standard and treat not only Singaporeans but also foreign patients. Singapore’s citizens do not need to go abroad for medical treatment. Mongolians, however, do go abroad for just a reliable and truthful diagnosis for their treatment, spending their entire life’s savings and even getting additional bank loan. In Singapore, people may also use their fund once for purchasing real estate (housing). This is very profitable for those who are healthy and need only a few medical analyses from time to time.

A few years ago, the Mongolian government has announced that it created a personal pension account for every citizen born after 1960. But the people do not know how much they have in their account. It is doubtful that there even is any money at all.

The accumulated social security funds can be used for house mortgages and other purposes of social and economic development. By this time, the government of Mongolia is supposed to know all these advantages. Social Security is a fund created by people while they have jobs, accumulated in mutual funds and used for financing social development projects. For us, ordinary citizens, it is also a tool used in case of problems or at a senior age, the values of which at the time of taking back should have not reduced but increased.


Friday, October 16, 2009

Mongolia 2030

The world has begun to recognize Mongolia as one of the richest countries in terms of natural resources, particularly in mineral wealth. At the same time we, Mongolians have begun to increasingly worry about the “Dutch decease” an economy gets when there is too much dependence on mineral commodity.

It looks like both our politicians and our government do not have any further agenda behind finding cash in any form at any cost, in order to buy electorate votes for the next election.

For ordinary Mongolians who measure life and their wellbeing with longer than four year span, or the lifetime of their children and grandchildren, at times it is necessary to think for a moment about the future of our country in 20 or so years from now. Not any Mongolian would wish for the next generation to live in the current way, so that one is born, married, has many babies, and not finding a job exists hardly making ends meet and then cheats himself by drinking vodka. This is the lifestyle of half of the Mongolian population today. Our future must be different tomorrow.

Every developed nation whose people enjoy high standard of living and whose visa is hard to obtain for Mongolians, had to discuss its future vision as a nation once upon a time. After that everyone could see clearly many years ahead and worked hard to get there. Their government does its best to make sure their creative business activities are based on certain principles and not on circumstances, that their citizens’ freedom and their properties are protected. So they spend their resources in a productive way and their long term hard work results in their current wealth.

For us, who do not know where we are on the road of development and most importantly where we will be, not surprisingly all roads seem right. While officials talk about goals for millennia, it is not clear what that means for us. What is each of us supposed to do in our lifetime to attain those goals? What could a vision for Mongolia in the year of 2030 be?

In 20 years from now we can be an international center for higher education, medicine, banking and financing, as well as a major hub for air transportation.

If we can provide these services at a world class level, there would be a global demand for them.

If we establish a branch of the World’s best universities, whole of Asian and Eastern Russian students would come to study in Mongolia. It would even be cheaper for European and American students, provided that the quality of educational services is the same. This model could also be applied to medical and banking sectors. There is even more chance in the air passenger and cargo transportation (Please read the essay “Air transportation” in

We would establish the infrastructure, the “hardware,” for the branches of the strongest schools through most modern design with our mining revenue. The “software” or the know-how would come with the faculty and academia of the schools and should be run by their management. We would provide all the conditions for showing as minimal difference from the base schools as possible.

We would adapt to their standard of teaching, and not limit with labor quota or other conditions. Legal and business environments are to be created to ensure that both branch and base campuses have the same quality.

One of the valleys of Bogd Mountains could be say a Yale-Ulaanbaatar University Campus. Several similar branches have opened in China already, but there are limitations in terms of freedom of speech, due one-sided ideology. The same could be applied to the medical, banking and financial services

The problem with us Mongolians is that our actions are short sighted. We must think big and create big. Sadly, in some cases we proceed without purpose. Many hurdles we face today in terms of increasing our living standard are due to this single defect.

We have almost all the resources needed for creating such centers. The financial resources are coming in the very near future. We are as global as ever before and we have freedom to act. We have a smart younger generation. If we make a clear cut vision and focus, there is a historic chance emerging for us to use the enormous mineral proceeds in a smart and effective way. It depends on our will and aspiration, productivity, and transparency level of governance. If we can become such a knowledge economy, than it would be a real renaissance of the same powerful Mongolia 800 year ago.

Friday, October 9, 2009

Air transport

Air transportation industry is a facilitator of economic growth, as well as an investment through tourism and a development factor for international trade. It occupies a central position among other industries at this time of globalization.

For a landlocked country like Mongolia, this industry, to a certain degree, is a guarantee of financial independence and protection of individual freedom. The angle from which our society approaches this industry determines Mongolia’s economic efficiency. Instead of seeing it as an important part of development and a great opportunity for creating economic competitiveness, at the present, we see it only as a tool for making a small group of individuals wealthy.

A Means for Development

Mongolia is situated on the shortest air connecting route between Asia and Europe, whose economic interrelations are growing faster than ever. We are also on the shortest route (over the North pole) of the vertical air connection between North American market with the highest purchasing power and South East Asia, its major supplier of almost all goods.

At the moment, air transportation industry is growing intensively due to increasing safety standards of flights and capacity of aircraft loads. Mongolia, as a large air traffic navigator has a great potential for self development into a major hub for international air transportation.

The United Arab Emirate, for example, saw the exact same opportunity and took advantage of it. Only a few years ago many flew over Dubai as it was just another city in the middle of sand. Today, they have transformed it into a center where millions of passengers land for connecting flights, shop in its large duty free malls and relax in the hotels inside the international airport. Just recently, they completed a construction of an inside ski resort and spa complexes in an environment where the outside temperature reaches over 50 degrees Celsius. Nothing is impossible.

As we know, Mongolia in the summer attracts tourists of most any country. In winter, we have many great mountains of the north covered in natural snow. Skiing in soft, real snow, not watery and artificial one is a dream for millions of people living south of us.

We have enough land to be the largest air cargo hub of the world. After all, Mongolia is the 17th largest country in the world. More than that, the majority of it is a flat steppe. If we wanted, we could get all aircrafts of the world to land and line them up in a row. The huge Siberian resources and Northern Chinese people are on our two sides, waiting for integration to the world economy. Thus, a great opportunity awaits us.

A tool of plundering

Quite recently we thought only of MIAT when we talked about air transportation. Since the revolution in 1990, there were some moves towards economic liberalization in this sector that divided the “Buyant Ukhaa kingdom” into two: MIAT, the national airline company and the Civic Aviation Authority. But the privatization of MIAT and further separation of airports from Civic Aviation authority has not been accomplished not to mention the creation of alternative choices for fuel supply and catering services. Every political party promises to complete these steps before every election, but they never do it after gaining power. The main reason why this promise is not delivered is because politicians quickly realize that these two organizations are great cashier machines with endless and hard to control sources.

From time to time, the related authorities of governance conduct inspections in operations of these two organizations and make a big noise in media. The real purpose of these inspections was never in favor of increasing productivity, but actually in finding out the wrong doers and incumbent decisions makers for replacing them with their own people. This starts with sending their own people to positions abroad and ends with gaining control over the few global businesses of the industry that supply fuel and catering to all the airlines stopping over in Mongolia. It is a bloodless front for political wars.

Almost all individuals working in these organizations come and go with the political waves and the main challenge for them is to survive, then to adapt to the next tide.

In short, Buyant Ukhaa is a kingdom without a king. Light is on, but nobody is at home. MIAT’s top management changes almost every year. They fly anyway they like and stop any flight anytime if they do not like it. They recently announced that they will fly to London, and the day before they threatened to stop the flight to Berlin. They believe that the customers are not kings, but slaves. They lease only 2 aircrafts but have 800 employees. How can they compete when they do not know what to do? That is the reason why MIAT is at a loss, and all foreign airlines flying to Ulaanbaatar make money. MIAT needs not more fleet, but more heart to do the job.

Unpredictable MIAT is a stumbling block for tour operators instead of being the leading player in the development of tourism sector. They think of domestic flights as non profitable, select the best routes only for the high season and then forget it. They land in local airports aircrafts heavier than the designated weight and turn the runaway strip dysfunctional. One would assume that passenger safety is a first priority.

All these irregularities must be coordinated by the Civic Aviation authority, who is always busy with coordinating its income from the overflying aircrafts navigation fee instead. They never report publicly what is done with that revenue, 20-30 times profitable than MIAT. A part of that income must be spent for the air transportation development of the country, not for the development of their own organization only. They never treat private and public airlines equally. Though they keep talking about the new international airport with Japanese loan, but keep quiet in announcing to the public the other related infrastructure what private sector is waiting for to participate.

The point of Take-off

If we consider for a moment the Mongolian air transport industry as an aircraft, it would be a giant aircraft with a very small engine. This aircraft, full of people is not certain when to speed up on its runway and to take off. Actually this kingdom has all that is required to cease the opportunity it has. Yet, they have not accomplished any major project with full knowledge and financial resources.

Privatization of MIAT would produce a concrete owner who would really care for the property and cost. A private company never passes a supply to itself “under the table”, or makes any unnecessary cost.

The Aviation authority should not be engaged in daily operations of airports and other services that private companies can do. Instead it must be engaged in making the Mongolian air transport more global.

For this “Kingdom”, it is time to think big. We cannot go far by thinking of few individuals with their narrow interests. The motto really should be ‘the world is large, the work is enormous”. This “Kingdom” needs a long and large vision to reach this take-off point. Let us hope this take-off time will come soon.