Political Reform

Abstract: This article once more discusses political reform. Various reform paths point into surprisingly simular directions, i.e. privatization. This is partly due to the simularity of technological and economic changes taking place around the world. Nevertheless, one can argue about the order and pace of changes. As an example, should a more active competition policy preceed such privatization? Unfortunately, most politicians only see a rather narrow road towards privatization, typically moving two steps forward and one step back on that road, without much interest for alternative pathways.

A.The narrow Path

Technological and economic developments around the world take place in surprisingly similar patterns. Examples are urban developments such as suburban shopping centres, which are boosted by the fact that more people go shopping by car. Computers are changing the way banks operate around the world in quite simular ways. Change is both predictable and inevitable.

However, many sectors in society are effectively controlled by a single entity, i.e. a government departement or corporation, or a private monopoly. These monopolies do not allow for multiple developments to take place along parallel paths. These monopolies also have substantial political clout, typically influencing politicians to preserve their monopolies.

Furthermore, the short-term nature of politics further narrows the road towards reform. Politicans are motivated more by a selfish desire of personal political survival than by interest in longer-term implications of their policies. Politicians are seldom visionaries. Due to the need to win the next election, which never is more than a few years away, politicians are only interested in short-term effects. Political parties are hesitant to draft long-term policies, they are hesitant to express long-term directions. Politicians want to gain power. They are generally not in favor of change. If change is inevitable, politicians prefer to imitate policies that have already been implemented abroad, over policies that seem to be totally new.

As a result, politicians move on a reform path that is rather narrow. They may move one step forward and two steps back, but the direction is both predictable and inevitable.

B. Political Reform

Political reform takes place with predictable steps, whatever country one happens to focus on. There may be different political parties active in a given country, but there is a surprising simularity between the policies each of them implements.

A few decades ago, there was a wide difference between various political ideologies. Communists and capitalists were in a state of cold war with another, reflecting the cold war between the USA and the Soviet Union. Today, protectionism is still popular, especially among the conservative left and the conservative right. Both communists and right-wing nationalists still call for more government control over financial markets. But most political parties nowadays realize the negative impact of populists measures such as government intervention in financial markets.

A few years ago, well-known speculator Soros took the UK to the cleaners for insisting to fix the exchange rate of the pound sterling. Since that time, most politicians have learned their lesson, including 'recalcitrants' such as Malaysia's Head of State.

Political reform has become rather predictable. Privatization is inevitable, protectionism is dead! Politicians can only argue in favor of faster or slower reform on these issues. Associated issues are equally predictable. Excessive printing of money as a way to raise funds for the government, is now widely rejected for its inflationary impact. Floating exchange rates are inevitable. The liquidity of international capital makes that countries have to compete for capital by offering ever more attractive conditions. Globalization of trade forces all countries to lower taxes. The need to attract international investment forces all countries to stop discriminating against foreign companies and individuals with money to invest. Foreign visitors are such an important source of foreign currency that every country has to lower barriers such as visa requirements.

All the above is rather straightforward in politics. The direction is inevitable, the argument is merely about the pace of reform. But there are issues that invoke a differentiation of pathways. One such issue is the priority of abolishing monopolies.

C. The Situation in Russia

In the light of above developments, it is clear that this month's developments in Russia are a step back in the wrong direction. Therefore, Quintessence gladly publishes the Open Letter to President Yeltsin, an initiative by the Freemarketeers of Australia.

Nevertheless, Quintessence stresses that there are different paths of reform, neither of which should be selected as the one and only rightful path. The Freemarketeers of Australia represent one approach, they argue in favor of swift privatisation. In line with Libertarians, they reject any government intervention, except perhaps in areas such as national defence and law and order.

However, another approach argues that the problems in Russia are largely caused by the monopolization of society resulting from the many years of communist rule. In this approach, it makes sense to enact strict antitrust and cartel legislation, before any large-scale privatization of government assets is to take place. In this approach, active competition policy has priority over policies of out-sourcing, corporatization and privatization. This political approach argues that it is easier to split up organizations while they still are firmly under government control, either as government departments or as fully government-owned corporations. Once such an organization has been privatized, it is much harder to convince the chief executive to cooperate with such a split-up.

D. Conclusions

Given the predictable impact of globalization and technological change, and given the wealth of economic evidence against public ownership, it makes sense that organizations in sectors such as energy, transport, communications and finance will increasingly be privatized. Privatization is both inevitable and recommendable policy.

Unfortunately, few countries have been able to abolish monopolies in such sectors. The result is that privatization has merely transformed government-owned monopolies into private monopolies. Competition policy only seems to become politically relevant in mainstream politics after privatization has taken place.

One can argue that it is more difficult to abolish monopolies once they have been privatized. The unfortunate trend is that politians may see the immediate benefits of privatization, especially the financial benefits, but that they typically overlook the monopoly issue.

Quintessence urges some discussion of long-term developments and their impact on society, in order to develop political reform with more substance than the haphazard approach of most politicans. An interesting reference model for cultural change is DonParagon's Vision of the Future. Quintessence is looking forward to further discussions of the longer-term directions of political reform.

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