Sanhattan

UB Post

April 30,2010

Santiago of Chile is a city of 470 years history, stretching out the western skirt of majestic Andes range. New part of the old city is called Manhattan in Santiago or in brief Sanhattan, since it resembles Manhattan of New York for its unique architecture of glass skyscrapers, looming up as if competing with the high peaks of mountains.

Sanhattan is a modern district of trees and greeneries, planted with full of thought for the best of man and also the world famous brand luxurious stores, deluxe hotels are located here. It is also leading Latin America dynamic financial center for its per capita income ($15000).

We flew via Korea, the USA and Brazil for two nights, travelling to the other end of needle, pinning through globe and arrived in a city of 6 million populations and with fresh air and we from Ulaanbaatar city could here breathe deeply.

Sanhattan is a symbol of effective and efficient economic policy of Chile managing wisely its mining income and improving the living standard of its population significantly and basis for further development and progress and prosperity of Chile.

Columbia University professor Jeffry Sachs said once that any country has to pass through three major transitions becoming a rich from being a very poor. There are four different economic phases of structures: pre-commercialization, commercialization, industrialization and knowledge based economy.

The country has to develop its development policy and strategy, suitable for its own condition to move to the next phase.

Many developing countries get stuck for many years at pre-commercialization or at pre- industrialization or at pre-knowledge based phase. Main reason is the extremely difficult transition activities and the complexity of finding right form.

To carry out the initial transition, there should be dynamic urban and rural labor distribution, and exchange of production between urban and rural population. Economy shall enter its commercialization phase when all the rural population participates in this exchange process. Many of the African countries are stuck up in this phase because they could not accomplish this particular transition.

As for Mongolia, it has successfully completed its initial transition and engaged in the preparatory period for its next transition from commercialization to industrialization phase.

But as for Chile, it has completed this phase about twenty years ahead Mongolia and today engaged in the process of transition from industrialization to knowledge based economy.

Chile has brought an end to its dependency on minerals through Stability fund and diversified its economy and managed to strengthen its capacity. Today Chile has developed world level industries of fishing, winery, fruits, vegetables, wood and paper and is laying foundation for knowledge based economy.

It is a great opportunity and viable university knowledge to learn from Chilean experience, which has successfully gone through the path, turning mining income as its foundation of rapid development, which is a challenge for Mongolians.

It is possible for us, Mongolians to go through this transition relatively short span of time if we could wisely utilize the existing opportunity of globalization and information technology achievements.

At that time, Ulaanbaatar will have its own Manhattan and would increase per capita income up to the level of Chile or by three times.

Santiago city.

Role of the Government

UB Post

2010.04.23

Over the past fifty years, there have been no significant principal changes in our central government methods and strategies to rule the country.

Instead there are increasing number of politicians who speak there were many changes. Almost every person who got positions in central government make them autocrats, treat the citizens as their bondservants and still do all things in dictatorial way. Though they passed laws and orders to moderate property relations, which is a fundamental to society, and develop economy by the law of market economy, central government still cannot get rid of its old socialist approaches in regulating other social relations.

Experts from the Harvard University have found that the understanding that the government plays the most important role in determining and developing national advantages is baseless at all. The government’s decision that it has the duty of a helper and supporter for each economic sector, hinders firms in their efforts to develop their competitiveness on a long-term basis, causing the loss of possibility of continuous economic improvement. For instance, in our country, in order to keep major consumer goods prices stable (meat, petroleum etc) certain type of goods are stored for an extended period and are released to market at cheaper prices in times of shortage in supply.

Actual cost of such “aid” (storage cost, loss, seller’s choice, transport cost) is often higher than the sold price. Indeed this is a wrong political action for income transfer attempting to support a part of the community with the money of other part of the community. Beside material losses, this kind of “aid” dampens the firms’ desire and enthusiasm for competition, sometimes brings ties of some businesses and politicians too closer and encourages corruption, which causes big damage to society. Aids only support and assist the increase of demand for aid itself. Experts claim that the most important role of the government in developing the economic competitiveness is to be a presser and challenger.

In order to define and develop its competitive advantage, the government needs not only focus on improving and strengthening the business environment but also needs to support business competitiveness in all aspects. The only unalterable principle for the government is to establish standards of human safety and environmental impact precisely and ensure their firm observation and compliance. For instance in Spain, there are is precisely established high standard for construction of building facilities and all competent agencies obey to these standards strictly. In order to comply with such high standards and make a good profit, building companies introduce the best technologies and can be creative and initiative to be competitive, thanks to which this country is very popular in Europe because it has the most quality and beautiful buildings in terms of cold and sound proof walls and window sets, as well as planning and architectural designs.

Another function of the government to improve the competitiveness of business sector is to give the right signal at the right time. For example, in 70s when Japan-made products were considered as low quality and cheap ones, the Japanese government had tightened up all quality-related national standards and initiated popular Deming Prize, which was an important signal for companies in planning their businesses. Because it was the matter of honor for companies to receive this prize, which is believed to be the guarantee of excellence in quality, after nearly ten years the name Japan meant “quality” and soon almost every company started to export their products abroad.

In our country it is an opposite. Some public organizations rates the companies according to the amount of tax the companies paid (originally the taxation is supposed to be the matter of government) and if exclude “prize certificates” the price of which is paid by the competing companies, there is no specific government policy in Mongolia in this sphere. It is even strange that such prize do not separate the vodka, tobacco and petroleum selling companies that are anyway obliged to pay excise tax depending on peculiarities of their businesses.

Principal objective of the companies is not to pay taxes but to be competitive in their respective fields, expand scope of their business, strengthen their position in market being different by their productivity and make a high profit. Main duty of the government in economy is to create a domestic demand by which every business will continuously endeavor and be constantly creative and initiative in order to increase their productivity and profitability.

The government has a duty not to support and assist business activities but to press and challenge them.

Translated by P.Shinebayar

New Strategy

UB Post

April 16, 2010

Time has come to look back to past two decades when we pulled our economy by free market system and stood up with the help of international donors though there were times of failure and conclude ups and downs in reality. We need to summarize what we have been focused our national policy and energy on and what results we have achieved and seriously discuss what we have to do and what should be our priority to outline strategy for next two decades.


On the other hand, as Mongolia is more shining on the world mineral map and as it neighbors with the world’s biggest consumers, the sharks of mining industry are keeping close eye on Mongolia, some of them have already set up here. As we intend to extract and use our natural resources which is not recoverable, we, the Mongolians, have to not only address current problems but also we are obliged to create a resource that our next generations can make use of. We need a new strategy of state policy directed towards ensuring efficient and fruitful development our economy and society based on mineral resources we are in possession of.

We have to recognize that new circumstances require a new way of thinking. In the past, Mongolian government had focused on issues of macroeconomics in order to maintain economic stability. The policy of macroeconomics or of a “bigger picture” includes four major objectives: increase total output of production; increase employment; keep the goods and service prices stable; and balance foreign trades. The goverments of Mongolia, one after another have been doing it with mixed results, mainly under the pressure of its main lender the International Monetary Fund, but it gained some experience.

Mongolian government like other developing economies did not consider that a good marcoeconomic policy without an efficient microeconomic policy can not result in a success. Macroeconomic stability is a necessary condition for economic development, main purpose of which is improving living standards of its citizens, but is not a sufficient condition. Because the government failed to carry out its economic policy in integrated and systematic ways, only living standards of macro-decision makers and their allies have improved significantly. It is evident by the recent public announcement about the huge personal income increases of our parliament members and top political officials. As a result of wrong economic policy, social crisis has worsened and most of population got poor.

The President once stated during 2009 election that we have government officials much richer than citizens. The above-mentioned sufficient condition for economic policy is created through microeconomic policy or a policy that is to do with particulare industrial sector.

Though the government adopted certain industrial development policies in the past, there is no principal results yet. No sustainable development is reached in any of the sectors. Instead, the competition was replaced by conspiracy in every field, the government is involved in, the „close ties” between business and government was developed till the next election, because of which corruption has flourished and government officials are becoming richer and richer.

In the past two decades, Mongolian economy is politicized into real fever, and every one wants to be a member of a political party, like at the old time of socialism.
Originally, supporting the macroconomic stability by means of efficient microeconomic policy means creating a free competition in all business sectors. Under the circumstance of free competition, people have to race their minds and skills and supply demanded goods and service at reasonably cheaper prices, in order to improve their livelihood. 
The competition is created through the policy of productivity. Business clusters in a certain region, counry and locations increase productivity of that industry, where firms to supply for domestic demand first, then expand their business to foreign markets.

The July 1, 2008 event has shown that how fast the poor citizens can stand up and create instability in society, if we do not understand and implenment the needed microeconomic policy in order to address the poverty. The latest reminder for that are hunger strike protesters at the Sukhbaatar Square and events happening in Kyrgyzstan. 
Another urgent need to discuss the policy of productivity seriously is a business cluster emerging in the southern region of Mongolia already. If this cluster is supported by an efficient microeconomic policy, our underground resource can turn into aboveground resource and if not, only an empty hole will be left behind. 
Thus, the time has come to renew our economic strategy and policy.

Translated by T.Shinebayar

Policy for Productivity

UB Post

April 09,2010

The key policy of the Mongolian government has now turned into the distribution of grants. Our government has mobilizing all of its efforts and minds for thinking up the ways of fulfilling the promises they gave to voters in order to get to power and for giving at least of half of their promises.

It would be fruitful for the country’s economic and social development if the government focused its policy and actions on not backward-looking but forward-looking long-term tasks defined precisely.

The first thing they thought up was to set up a so-called Human Development Fund, which is indeed a grant fund. Through this grant fund, the coalition government is trying to give at least what one party pledged, before next elections by giving money in small instalments. They had no other way but to say their promises once again after the people demonstrated in mass and demanded their promise fulfilled.

They are playing cat and mouse with its people over their promise to give cash and this theme has become a core concern in political and social life of Mongolia, making both politicians and citizens believe that the cash grant is the key to development. It has turned that principal duty of citizens is to keep poor while basic responsibility of the government is to take care of and feed them.

Level of social development in any country largely depends on only which this country’s policy is focused on. We all know that the government has two principal duties. These are to protect and produce. It means the government must protect human right, freedom and property and produce and supply those services and products the private sector is not capable of doing alone. Depending on what the policy of government’s creation duty is focused on, the countries reach different level of development within same period of time. A survey conducted by professors from the Harvard University established that policy of those countries that managed to develop rapidly given similar period of time and conditions is based not only on grants but also on productivity. Clear examples of this fact are Finland, South Korea, Taiwan and Singapore.

According to the Harvard survey, national wealth and living standard in any country is determined not by natural resource, cheap labor force and financial wealth but by its productivity. The productivity includes a worker’s income and input of capital he makes per hour. The environment that creates this productivity depends on competitiveness or on if there is informati

on, encouragement and pressure from competitors which support productivity growth in a particular industry. Moreover it relies on the availability of qualified and experienced personnel in supplying company of a particular industry, relevant institutions, infrastructure and in a particular locality. Therefore, the government must create this condition.

Only the country that manages to organize its government policy, legislations and institutions based on productivity, is capable of improving its productivity. In this process, its economy gets more diversified. Every country is not able to develop every industry and to become a leader in all of them.

Business cluster is created and productivity is increased in a place where businesses, suppliers, and associated research and development institutions interconnected in a particular field are concentrated. Thus, the key duty and responsibility of the government is to locate and employ its human and capital resource in a highly effective way. Every government should seek to build that environment and condition in which companies strive to introduce new and more productive technology and practice and penetrate into success-promising industry.

If economic objective of the country is not defined by long-term productivity growth, then unimportant short-ranged policy begins to pull back government actions. If businesses of a particular field always manage to seek for the new and keep them updated and innovated, then that field becomes more competitive and further builds own position in international market. It is almost an established custom that high productivity jobs stay in the industry while low productivity jobs go out abroad.

Today, Mongolia needs to use its non-restorable natural resources based on long-ranged proper policy to lay right and firm foundation for further prosperity enjoyed by from generation to generation.

We need to concentrate our government policy not on grants but on productivity like we need air to breathe and water to drink.

Lost Fund

UB Post

Friday,April 02, 2010

Electors gave their votes during the 2009’ parliament elections in their hope that they will get one million five hundred tugrugs if the Mongolian People’s Revolutionary Party wins the elections or one million tugrugs if the Democratic Party wins the elections, in cash from the government to be formed by one of the two parties.

When the two parties that raced to buy electors votes, formed a joint coalition cabinet after the elections, many people were happy that they will surely receive two million five hundred tugrugs from this coalition government. Unfortunately, it did not happen despite it has been fifteen months since that and desperate voters are getting angry. They even formed a so-called “People’s Movement to Demand Promises”. Our country is not economically capable and solvent to distribute 6,25 trillion tugrugs, which outnumbers our a year’s GDP, to each population.

The two political parties ruling the state jointly have calculated, not before making this promise but after being pushed and demanded by citizens to keep the promise, if it is possible to pay the promised money to the citizens, and have realized later that they are not able keep their promises and pay the money. The only thing the two parties think of now is how to cheat a population by giving little money and it is a big headache for them. They tried to shut the mouth of people by distributing US$100 million, which received from Ivanhoe Mines as advance payment from the income of Oyu-Tolgoi mine in credit with 10 percent interest rate per year, to every citizen under the Human Development Fund passed in rash. In the first phase, Tg70,000 were distributed to every children, disabled people and elders.

The first 70,000s were spent by these beneficiaries for buying cheap and low-quality goods from Erliang, China because it was paid in cash on the eve of Lunar New Year Holiday called Tsagaan Saar. A shamed on coalition parties do not care the difference between understandings about the care and development. Originally, the Human Development Fund should not be a care fund, but must help and assist Mongolian people perfectly develop them physiologically and physically. Unfortunately, the objective of this Human Development Fund is ‘to create money accumulation from mining income and distribute it to population in equal way’. The most appropriate name for this fund would be or can be the Fund of Attempt of a Political Party to Buy Electors Votes In Illegal Way. Article 17 of the Law on Human Development Fund states that citizens can benefit from the Fund in different ways such as a pension or health insurance premium, or a grant for purchasing dwelling apartment, or a payment for medical service or in cash.

This law is about the state fund which account is not clear where is it, how much money is in it and it is not clear when the Fund will be beneficial. The government’s idea for human development by disappearing the existing funds and passing a new law for another fund is exactly same to capital city administration, which sold lands of existing kindergartens and is now demanding donations for construct new kindergartens, with no shame.

It would be much believable if the income from mineral exploration will be used for the improvement of health and education services, if they want to support and provide human development. No matter how it is called or named elegantly, the allowance is the money to feed poor people for short period of time. No matter you receive social allowance, no one in the world have lived in wealth. The only benefit from this is that the politicians, who promised such allowance, get elected.

The social allowance indeed means the transfer of income in its wide sense. It is like we collect income from one group of people as tax and distribute it to other groups. Such kind of work is never done efficiently and beneficially. The reason is the Government has never been a good manager. It would be much efficient and beneficial if religious, charity and other non-governmental organizations do allowance works because they are more aware of local peculiarities and target beneficiaries, rather than the government.

In other countries, the donations purposed for such allowance is exempted from tax after thorough inspection and assertion. Originally, everyman must create and earn their income on their own. This means the creation and supply of products and service demanded by other people. Countries develop when government does not hinder the citizens earning their income on their own and support their income-making where necessary. Lost fund should be found and politicians should forget their goal to raise their political authority and this Fund should focus on supporting and encouraging any development actions required for developing Mongolian people.

Translated by P.Shinebayar