Economic Policy Review ISSN 1313 - 0544

Again “New” State Companies

Author: Metodi V. Metodiev / 28.05.2009
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When the state decides that it should participate actively in the creation of businesses and the development of certain sectors, we should all ask ourselves the question - why the state would like to participate in such endeavor?  

The common beginning ...

The history of the World shows, that during the time of economic convulsions the state becomes active in undertaking all sorts of measures, plans and strategies to fight the advancing crisis. To some extend this is easy to explain, due to the widely accepted understanding about the role and function of the state. It has to be the first and last arbiter, as well as the savior and healer of bad and evil. The conventional theory spreads such type of thinking and the people somehow naturally leave the state to replace their individual choice/plan with some common panacea which solves everybody's' problems. This is taking place due to the deliberate thesis, that the state knows more about the preferences and the needs of the individuals, than they know about themselves. Naturally, this is entirely erroneous concept, which is built on the basis of imposing general behavior models instead of granting individual possibilities for planning.

...the specific proposal

In recent months there was almost at very meeting of the Council of Ministers a discussion of the topics about the crisis and how it should be counteracted. After we have become witnesses to many modifications of the so called "Stanishev's" plan, now there is a talk about the establishment of a number of companies and/or continuation of unprofitable projects. For example: a golf company, because the government thinks that Bulgaria should become one of the leading World golf destinations; putting a large amounts of money into the Bulgarian Development Bank; state guarantees for the continuation of the Nuclear Power Plant Belene; the establishment of a company working in the area of nano-technologies; a number of industrial parks, etc.

Frankly speaking, these actions lack any rational economic logic. Taking money from one pocket - the taxpayers (through taxation and quasi-taxes), sorting them through the state apparatus and giving them again to the other pocket of (a selected part of) the taxpayers is nothing more than a redistribution of the created wealth, i.e. in this way no added value is created.

But what is the hidden political logic? Only a few months away are the elections in Bulgaria and if we review more carefully the actions of the government, we could clearly note that under the general banner "to save the economy" are passed various projects which intent to satisfy the plans of various groups with special interests, which are very useful "sympathizers" for the implementation of political goals.

...the possible response

If we leave a side the purely political merry go around such as - "you scratch by back now and I would scratch yours later", then due to the political failure of the state to plan the needs and preferences of the individuals, the efforts must be directed not toward the establishment of new companies and spending large amounts of money into specific sectors, but toward a general improvement of the business environment for everybody and at any price. Such policies are lower taxes, more effective work of the institutions, optimization of the administration, reduction of the regulations of the business and encouraging the savings in the economy.