Bussiness wants stability
26 September, 2013
Bussiness wants stability
People disagree on what is best for business or even how much business matters to an economy. The Soviet Union had an economy of sorts and didn't really have any legal business that was driven by market principals. In many parliaments and certainly in the US Congress there is disagreements about how to help the economy and how to promote business. A few years ago, United States Treasury Bills were downgraded in their ratings. Some members of Tea Party wing
of the Republican Party had made statements that it wouldn't matter if the US defaulted on its debts. So the rating agencies downgraded what everybody had believed was the safest long term investment in the world and it became more expensive for the US to borrow. Since before it was completely clear what would happen with US Treasury Bills, then it became a little less certain, some people got nervous.
And yet amid all the disagreement and debate in a democracy, there is a good reason for there to be a steady and clear plan with the economy in general but also for each of the the laws that affect business. Businesses understand that the one thing that can immediately kill them is not competition, not high taxes, not corruption, those things can stifle business but with time at least some businesses can adjust and even have a little bit of success in those situations. What can be lethal is some quick policy change that becomes law. Even the fear of this change can be lethal to investment.

The previous government was fairly predictable in its policy formulation. They liked simple taxes that were fairly low, particularly for the wealthy. They created a clean and transparent system for small businesses, but a fairly unpredictable and corrupt system for big businesses in certain sectors, for example broadcast media, advertising, or fuel. But there was some predictability both in the corruption and in the policy. Nevertheless there were a few shocks. Particularly when whole businesses were taken from owners. This danger of businesses being taken led investors to try to take as much off the table as quickly as possible. It actually long term investment because nobody knew if the business would be theirs in a few years, particularly if it was successful. Why invest in the future?

But there are some things about the new government that are turning out to cause problems for investment. The first problem is that because they are a broad coalition, they have no agreement on fundamental economic principals. They have no unified economic vision. The previous government on the other hand were libertarians, or at least that is what they thought of themselves as. They created a strong authoritarian state, but at least in their narrative and fantasies about themselves they were librarians and even thought of them selves as self-made-men. This made their policy choices generally predictable. But the new group is so diverse that people can see that they don't agree about economic policy and nobody is sure who will win the debate they are having among themselves. There are a few basic principals about business and the economy that almost everybody in the developed world agrees on. But there are those in the ruling coalition that don't agree with those principals.

Even if there is no uniting vision, there should at least be some agreement on the details of the vision. That is also not there yet. Almost a year after the election and there is still not a document from the government, hopefully with agreement from the ruling team in parliament, that says what they want to the economy to look like at some point in the future. They have not portrayed their goals. If they did this and it made sense, then businesses could adapt to it.

What is happening now is a variety of different ideas are popping up, mainly in parliament, and investors are waiting to see if any of these ideas somehow influence critical sectors. What is really needed is leadership to clarify the policy: this is what we will do, this is what we will not do, here are out targets on this particular date, and everything else, businesses and investors don't have to worry about. I hope that shows up soon, so Georgia can bring some money in.
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