Economic Policy Review ISSN 1313 - 0544

We Can… Better

Author: Peter Ganev / 05.02.2009
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The Bulgarian economy falls again into the group of the "moderately free" according to 2009 Index of Economic Freedom, published by the Heritage Foundation and the Wall Street Journal. Although in this year's study Bulgaria has its best index until now (1995-2009), the improvement is almost negligible.  

Here we must state it clearly that I am not talking about the performance of the country's economy (for example: economic growth), neither about the level of personal income, nor about the behavior of the economic players. In this one we are talking about the "rules of the game" - under what conditions investments are made, is the ownership protected, etc. These "rules of the game" are defined one way or another by the ruling majorities and they are actually responsible for the "moderate" economic freedom of the Bulgarian citizens and companies. It could be compared to the world average, but is far off from the results of the so-called developed economies.

Starting with this understanding, I would try to answer the question "where the rules of the game are wrong?"

  • The Government expenses are too high (nearly 40% of the GDP) - most of these expenses are useless, ineffective or even harmful. And on top of that are financed with someone else's money, with funds taken from the citizens and the companies;
  • The Government is influencing most of the prices - either directly or indirectly. The simplest examples are electricity, water supply, medications, etc.;
  • The Government is distorting the markets - key sectors are being defined, in other words they are getting preferences (for example: tourism). The agricultural producers are subsidized and are given a number of reliefs. Separate preferred investors are introduced, instead of all the investors to get preferential status. State projects are tolerated. But the State properties are sold at knock-out prices;
  • Starting a business continues to be slow and difficult. The large numbers of regulations are a burden on the business - from registration, through activities, up to closing the companies;
  • High levels of corruption - here the issue of national mentality is irrelevant. People all over the World are alike. Simply, when the municipalities and the central government must approve every undertaking (particularly if it is referring to business) than the problems could not be avoided.
  • Private property is not protected - and from that are arising all problems. The main role of the State is to simply guarantee the rights of each one of us. But here exactly is its main failure, taken into account by the index. While they are talking about the European funds (money of the tax payers from other countries, viewed as commonly accessible) and problems in the energy sector, the fact that the dominant role of the law practically does not exist is left without any attention.  

Bulgaria could do better.

Studies such as this one by the Heritage Foundation and the Wall Street Journal show where the problems lie and what has to be changed. All we have to do is to look into the comparisons to see that the freer societies are the most developed. The freer is a country the higher the incomes of the people are, they live longer and the environment is cleaner. All these are not accidental observations, but conclusions made after studying over 180 countries from every corner of the World. The truth is that moderate freedom does not make the citizens and the companies of the country wealthy.

More information about the Index of Economic Freedom 2009 and the Bulgaria's results is available here (in Bulgarian) - "Bulgaria is again freer, but not exactly..."