Vivid Economics and Business March 2005

Regulars
ECONOMICS AND BUSINESS
Economic priorities: a call for national debate

by Matei Paun
March 2005

Much commentary has been made in the past weeks concerning Romania’s economic path, be it concerning new fiscal policies, a fluctuating currency, increased excise taxes or the oncoming European accession. As we are a Latin people, it seems everyone has a different opinion!

I believe that in order to impose some clarity on this chaotic diversity of opinions, and hopefully help us differentiate between good opinions and bad ones, we have to define our long-term objectives, our priorities.

In economic terms, healthy growth can only take place through increases in productivity. Per capita output must increase if we are to be better off economically. Nothing else can make us “permanently” and “continuously” wealthier.

But what boosts productivity? Here again, it is generally accepted that productivity is the strict by-product of investment capital-specifically in technology, infrastructure, education and health.
Having said this, a successful investment of capital can only occur in a stable economic environment, which means low real interest rates and stable prices.

The first two goals (productivity and investment) must be delivered by our elected government and should reflect society’s priorities. The central bank has been mandated to ensure the last goal, that of a stable economic environment.

But how does our government reflect our values and aspirations? What investment strategy has it outlined in terms of improving our education, health and infrastructure? Not to mention technology, which no one even bothers with any more?

Are our schools better today than they were ten years ago, or even two years ago? Are we producing more university graduates? And if so, what kind? Is our life expectancy going up? How about our infant mortality rate? Are our roads better? Our public transportation network? How much better are they relative to the investments made so far?

In terms of technology, are we trying to incentivise those that are trying to develop or import technology? Why? Or more importantly perhaps, why not?

When it comes to the central bank and its objective of economic stability, should we not ask ourselves why is it that we have the worse inflationary track record in post-communist Europe? Why is our currency behaving erratically and unpredictably? Why is there suck lack of transparency coming from the National Bank? Why are the NBR’s board minutes not made public, when those of many other central banks are freely published? In their defence, other banks choose not to publish as well, principally the US – but which option is preferable to us in reaching our objectives of productivity based growth?

These are all questions that should be asked every minute of every day, not only by those elected into power, but by those elected by them, and the press, which is entrusted with watching over them.

Romania needs to think about and debate its economic priorities. For over fifteen years now, the average Romanian has been told what it should consider important, what the country’s priorities are: from the need for privatisation, to membership in Nato, to the ongoing quest for European accession, Romania’s political elite has spent little time explaining the pros and cons of many decisions it has had to make, and has rather opted for, at best, merely informing a pliant population on the decision it has taken.

If Romania is to truly benefit from EU membership, this attitude must change. Romania must engage in a national debate from which will hopefully result an outline of the sort of nation that it wishes to become.

Do we, for example, want to remain a nation of peasants (for we surely are not farmers yet)? Or perhaps, do we want our children to take part in the Internet revolution and design software and create content for this rapidly changing world? Do we want to compete with the Chinese in terms of manufacturing, particularly textiles or steel? If so, what is our strategy? If it is cheaper wages, then we’ve already lost. How do we win?

We need to prioritise what we consider most important, and what we consider less important. I would propose that the teacher is more important than the miner or the steelworker. That our children should turn out to be more software designers and fewer peasants. You may think this is all wishful thinking, but are we even trying to do something about all this? Is anyone even asking these questions? That would be a good start.

Matei Paun is a founding member of the Romania Think Tank and a managing partner with the specialist investment bank BAC Romania. He may be contacted at matei@bac-romania.com