Mongolia and Chile

Mongolia and Chile are similar in many ways. Minerals, including copper play an important role in both economies. If the state owned company, Codelko makes a central contribution to Chile’s economy, Erdenet, the two states-owned joint venture does the same for Mongolia. Yet Chile’s copper is an established business, which having one third of the world’s copper reserve, creates 1/3 of world production. Chile has a population five times larger and two times smaller the territory compared to Mongolia. It skirts half of the Pacific coast line of South America. Mongolia’s Oyutolgoi is considered the world’s largest unexploited copper mine.

There are many differences between the two countries as well. Beaches and forests are some of the major geographical differences. Yet, at this time of information and technological revolution, one would assume that there would be fewer differences in terms of individual capacity and governance. In Chile, the government was changed many times but the economy kept growing and at the present moment the country has entered the club of developed nations. The way that they achieved this result is very simple: Chile has been saving a certain part of its revenues coming from the increasing price of copper and when the prices went down, putting it back into the economy in order to keep the economic growth dynamic.

In Mongolia, when copper prices rise, the size of our government increases immediately along with its expenses, festivals, holidays and entertainment. Remember the fable where the grasshopper, freezing in winter’s cold, comes to the ant’s house and asks for food and heat: The ant, after having worked hard during the summer to collect and dry wheat, and now enjoying his rest in the winter asked: “Why have you not treasured your food and prepared a house for winter when the time was warm?” The grasshopper replied: “I was busy singing and entertaining myself.” To this the ant said: “If you could sing the whole summer, surely you could dance through the winter as well.” Sounds similar to the story of our government, doesn’t it? When money comes in from the higher price, their first task is to spend. Plus, it is both parties, ruling in coalition that compete with each other in their promise to people to give cash one more than the other. Then in difficult times, our government asks for foreign aids and even charges the foreign investor with cash before they can produce anything.

The state budget is a tool for economic development in Chile. But in Mongolia, it is a tool for implementing political promises and funding election campaigns of participating political parties.

Actually, our government including parliament members, government representatives and working groups, has made so many study tours to Chile, that by this time they could implement any program. Furthermore, the Chilean ministers of finance, other officials and advisers have visited Mongolia several times. There should be many costs related to these trips but the question is, “where are the results?”

We did establish a “Stabilization fund.” But have we not seen the initiatives created by Chileans to spend a part of their revenues for the diversification of the economy, for less dependence on market prices of one commodity and for increase of economic competitiveness? In Chile, they have developed salmon farms, superior wines and have diversified their export. The whole preparation was made under a careful plan. It could have been our major mission of our study of Chile, but nothing has been brought back to Mongolia. It is indeed a time for fewer visits and more work. It is also a time to develop and strengthen our private sector as Chile has done.

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!

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.

Singapore-Ulaanbaatar

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 www.djargal.blogspot.com).

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.