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About post-communist economies, by Levan Vasadze, Georgian entrepreneur

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This article was sent to us by our readers and represents a particular political and economic vision that does not necessarily represent the views of our staff. However, we thought worthy of interest the analysis of the author, which encourage reflection on the economic system of the post-communist countries.

Levan Vasadze: “When the inflation myth is insufficient, the liberal propaganda takes refuge in another argument: the need for attracting of the investors via high local central bank rates.”

Speech by Mr. Levan Vasadze, President of the Georgian Society of Demography XXI, at the International Conference “Alternatives to Financial Capitalism for the 21st Century. Contributions to the 4th Economic Theory”. Mr. Vasadze was also invited to the Family Forum in Budapest last year.

“Dear Friends,

It is my honor and pleasure to be back in Kishinev for the second time during this year. What a Moldovan year for me thanks to President Dodon and my dear friend Yurie Roshka!

We gather here today, among other things, to begin conceptualizing economics, one of the 7 components of, what I have called the Affirmative Narrative of Tradition during my previous visit here.

Clearly, this is better done by the professional economists and scientists, who, by now realize that the liberal economic science is largely false. Of course that is still a rare breed of economists, although with the growing evidence of an artificial global crisis, I suppose, more and more such scientists will be joining our discourse.  In the meantime, tough, all of us should participate.

Not being an economist, but being a professional businessman in corporate finance and strategy, with a master’s degree from the US and almost quarter of a century of practical business experience, perhaps I can contribute today from the doer’s point of view. As I try to do so, I beg your forgiveness, for my non-scientific vocabulary and ammunition.

Perhaps the most intriguing question, when beginning our quest, that we should ask ourselves, is when and where did each one of us realize that something was fundamentally wrong in the proposed liberal economic paradigm. Coming from the era of failed economic Marxism and shining economic liberalism, this was not the easiest of the revelations to achieve.

For me personally the faulty logic became evident since the latest crisis of 2008, when I realized that there was just too much evidence to support my impression, that the poverty and slow economic development of the countries of FSU were artificial.

Traditional school of thought suggests that this is a natural process, which goes with the transformation of the post socialist economy into the capitalist one. However, China’s example suggests the opposite: you do not have to surrender completely to capitalism and still have world’s largest economy, which has grown 10 times over the past 30 years.

Another component of the suggested propaganda of why the countries of FSU remain poor and fragile is corruption. However, corruption is rampant everywhere, Washington’s multibillion-dollar official lobbying industry and Brussel’s bureaucratic machine being perhaps its greatest manifestations. The aforementioned China publicly executes thousands of corruptioners every year, hence admitting the problem of corruption, but still does not fail to be tremendously successful economically.

Third, albeit less commonly used, argument used when explaining slow growth of our economies is the notorious human rights matter. However, I believe cats and dogs enjoy more human rights in the FSU than humans do in some of the countries, which are the west’s allies worldwide, but this does not prevent them from being wealthy and economically supported by the west.

Hence, one can say, that in my case, the development of skepticism towards the fairness and freedom of the western liberal economic paradigm began with the realization of the harsh reality: as the territories of the defeated geopolitical camp we were made poor intentionally by the victors.

This school of thought of mine is regarded as the derogatory ‘conspiracy theory’ and is ridiculed. We are told, nobody wants us to be poor, the richer we are, the better for everyone who wants to sell their goods and services to us. True, if the task of geopolitical dominance and submission is completed. However, until Russia itself is dissolved this task remains largely unachieved, hence the intentional poverty of the countries of FSU, which makes them thus easier to manipulate and handle is only logical.

How is this artificial poverty achieved?

Let us start with the constitutions, written by the western advisors for all of the FSU countries.

The most stunning feature of those (certainly for those of Russia, Ukraine, Georgia, Moldova and Baltic States) is the fact that the respective central banks are not accountable to their governments or any other state structures.

We know in fact that all of them are indeed informal satellites of the US Federal Reserve Bank, which in turn does not belong to the American state, but rather to its private owners and has a monopoly over printing of the dollar.

These national central banks, despite the proclaimed animosity among the different FSU states, conduct twin strategies, which can be briefly described in two features:

  1. sky-high landing rates
  2. abysmally low monetary masses

Both of these dogmas are proclaimed to be based on the works of Milton Freedman’s concepts of monetarism. However, even this is a lie, because if we take a closer look at Freedman’s work, we will notice that he does not appertain a linear function, or even an inevitable dependence of inflation risks to those two. Freedman writes that the two factors may have negative effects on the inflation with the lag of 4-5 months in the developed economies and even a longer one in the developing economies, so possibly virtually no effect for us.

Now let us look at our reality. Having lived through the record low risk free rates in the western countries (0-1%), for the past 10-15 years, the countries of FSU had to suffer the era of sky-high risk free rates during the same period (7-10%).

When the inflation myth is insufficient, the liberal propaganda takes refuge in another argument: the need for attracting of the investors via high local central bank rates.  However, in case of a country like Russia, for example, the official data for capital flight is around 2 trillion dollars since the collapse of USSR, and is hence infinitely larger than any foreign direct investment in the same period.

Now let us look at the monetary mass, measured by different economic coefficients, such as M1, M2, or M3. Depending on the parameter and on the country, in the developed countries these coefficients have ranged between 100% to 200% of GDP, whereas in the countries of FSU, they have averaged the 20-40% range.

So not only is the money very expensive, but it is also very scarce. Also an artificial situation masked by the pseudo-concerns over inflation.

Not to mention the fact that even despite these measures, inflation in the countries of FSU has by far exceeded its western peers all along.

Nobody denies such correlation in theory, but details matter.

Looking back at our post-soviet history we can say that perhaps the brief years of hyperinflation in the countries of FSU, which were also managed back then by the IMF and State Department controlled local governments, were the first act of the two-stage manipulation, aimed at strengthening the case for the subsequent harmful tight monetary policy. Because the populations of the FSU states remember the 90-ies with so much dreadfulness that they would be prepared to stand the following harmful tight monetary policy under the fear of returning of the previous one.

Based on the above, when thinking about the alternative, post liberal paradigm, we should be asking ourselves the following first question: maybe, if left truly free, the liberal economic paradigm is actually productive and we should not concern ourselves with anything but freeing it up from the hegemony of the FRS.

This, in my view would be a faulty strategy for the simple reason that the naive hope of hijacking the liberal framework from its authors and using it efficiently without them seem absurd by definition.

That said, just as we need to rid ourselves of the faulty concepts of Fascism and Marxism, as we do the same towards liberalism, we should not reinvent the wheel where we do not have to.

Hence, here are the following cornerstone issues that we need to address in the post liberal economic harmony (herein “PLEH”, which ironically spells as the opposite of HELP.)

My time frame does not allow lengthy pros and cons discussion along all of them. Hence, I will give my preliminary views on the subjects at hand, admitting that I did not come here with too many preconceived notions and that I, just like anyone of us should remain open and flexible in this new discussion.

Q1.  Should there be a private ownership in PLEH?

A1.  Absolutely yes, anything else would mean repeating the tragedy of Marxism.

Q2.  Should there be a private ownership in every industry in PLEH?

A2.  Each country should be free to decide itself. Any standardization would mean repeating the insidious dual standards of liberalism. For one country, water is a strategic resource, for the other – education. Every state should be free in its choice and independent from the pseudo-universal standards

Q3.  Should there be an institute of central banks and if so, should they be independent of their states?

A3.  If we remove their function of subordination to foreign FRS, they can be easily amalgamated into the local treasuries or even ministries of finance.

Q4.  Should the economic policy be free of ideology?

A4.  To begin with, there is no such thing as freedom from ideology. Current liberal economic paradigm has ideology of the profit at its center, hence is not free of ideology by definition. The PLEH paradigm should serve whatever is central to each state: family values, nation, etc.

Q5.  What should be the basic form of credit allowed in PLEH, usury or participation?

A5.  Participation preferred.

Q6.  Should there be regulation on trans-border mobility of Capital?

A6.  Yes, as deemed appropriate by each state.

Q7.  Fiat currency or secured currency?

A7.  In principle, up to each state, but fiat currency more realistic

Q8.  Labor law regulations?

A8.  Present and based upon each countries priorities.

To summarize, the fundamental conservative revolution of PLEH as seen from today’s viewpoint lies in the proposal for the abolition of usury and the detachment of the states’ monetary policies from FRS.

Needless to say, all of the above is very raw and preliminary, but we have to start somewhere. Inventing of the PLEH is equivalent to writing music by the deaf, and if Beethoven had a chance, it was due to perhaps his phenomenal memory, memory, which we must search for the answers in our respective pre-modern era societies.

Thank you for your attention!”