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Thursday, October 14, 2004

Economic Reform

Benjamin Netanyahu writes about Israeli economic reform in the Washington Times. Several of his points are general and apply to much more than just Israel and those are the points that interest me most. He begins:

Governments no longer have a choice. They either enact free-market reforms now at a painful but tolerable cost, or they reform later at an infinitely higher price. We live in a world full of choices. With the push of a button, billions of dollars can instantly be sent across the globe. Plants and even whole industries can be transferred to the country that offers the most business-friendly environment. Yet because consumers and investors have more choices, governments have fewer. More choices mean more competition, and more competition means that governments — regardless of their political and ideological composition — must enact policies that will enable their national economies to compete in an increasingly uncompromising and unforgiving global marketplace.
This scares a lot of people, and I can understand that, but it is a great comfort to me. I trust individuals more than governments, so any trend that increases the power of the individual and weakens the power of the government is something that I like. Some worry about globalization causing a 'race to the bottom' a fear that as first glance seems credible. I have been reading In Defense of Globalization by Jagdish Bhagwati, which I highly recommend to anyone who has an interest in globalization and wants a good account of it's benefits and it's problems. He argues, convincingly to me that the 'race to the bottom' while a valid fear, does not bear out in reality. Basically, I attribute this to the fact that human capital is the single most important resource a corporation can have, and that good human capital isn't going to settle for living at the 'bottom'. No doubt about it, globalization can cause problems, particularly short term problems dealing with changing economies, but the benefits far outweigh the problems. Netanyahu also says:
The formula for economic success in the global marketplace is clear: lower taxes, reduce government spending, streamline bureaucracy, invest in infrastructure and education and de-monopolize industry. Enacting these reforms demands political courage. Leaders can try to delay reform in the hope of avoiding unpopular decisions. But what may be politically prudent for the individual leader proves disastrous for the nation.
He is right, that is exactly what a country needs to do to be economically competitive, the only thing I would add is a respect for rule of law and avoiding coruption, two things that are expected to exist in the U.S. and Israel but sadly lacking in parts of the world (the poorest parts primarily.)

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