When it comes to economy, Mongolians act as if we are driving a car by looking at the speedometer only. It appears that speed is the only aspect that matters, rather than cost or the direction the car is going.
Our country is experiencing a deficit in efficient economic policy. The core of any policy is the principles that it is based upon. However, there is no such core in Mongolia’s economic policy, which explains the lack of implementation of numerous laws that have been passed. Furthermore, repealing or amending a law within less than a year since its enactment, is regarded as normal now.
Our economic policy is based on government formation rather than specific principles. It can be seen from the fact that every newly formed government in Mongolia has inheritance issues, and replaces the entire staff with people from their own political parties. This situation favors those in the government only and doesn’t benefit the private sector or citizens.
Therefore, the greed of politicians taking over governing power, reallocating capital created by others and stealing from public property is not to be unexpected.
Efficient economic infrastructure that can provide qualified public service is essential to nurturing economic growth as well as improving economic competitiveness. Government involvement is only needed when public services such as transportation, electric power, heat, safety, drinking water and sewage cannot be delivered by the private sector through market competition. Having the private sector provide public services is the most efficient option for the long term. In any case, the customer’s interests must be the top priority when any government regulation is made.
Messy government regulations
The previous government established the National Innovation and Development Committee by claiming that a single organization that regulates the operations of every ministry, similar to what the former Planning Committee did, was needed for further development. However, in spite of ministry opposition to establishing such a committee, the reformist government expanded the National Innovation and Development Committee and turned it into the Ministry of Economic Development. The newly established ministry set out the following as their mission on their website: “To improve the living standards of people in a sustainable manner by devising and implementing efficient short-, mid-, and long-term economic policies”.
Nevertheless, within a period of one year, government involvement in the economy has increased considerably and free market competition has been reduced. Currently, the government is attempting to set apartment prices by acquiring foreign loans. It begs the question: Is their policy as efficient as they claim?
The government does not carry out duties that private sector is incapable of accomplishing. Each time the Mongolian government gets involved, our economy suffers from various negative consequences such as debt pressure and corruption. On top of that, government involvement reduces labor productivity. A very clear example is the current affairs surrounding the Tavan Tolgoi coal deposit. Energy Resources LLC, a private company, erected apartment blocks, schools and kindergartens in Tsogttsetsii soum. They also completed major construction works, including paved road to the Chinese border, a coal washing plant and a power plant. On the contrary, looking at what the state-owned company that also operates in Tavan Tolgoi has accomplished, will demonstrate that it has caused a complete disaster. The government had its own company caught in debt, replaced their CEO, and is now having the former CEO investigated for corruption.
Our government hindered a private company from building a railroad to the southern border at its own expense and is now building the railroad themselves funded by a loan they acquired by increasing public debt. Only in the last few days has the Mongolian People’s Party, which has been in political power throughout the years, seemed to have realized that the government should not be meddling with the mining sector.
Another place where there is an apparent deficit of efficient policy from the government, is our communications sector. The government is adding Telecom Mongolia, a state-owned company, to the pool of four private companies that provide mobile network services, and is allowing the state-owned company to have an advantage over the others. The whole meaning of market competition is lost when the government changes its role from a referee to a player. The government has recently signed a Memorandum of Cooperation with South Korea’s KT Company, which owns 40 percent of Telecom Mongolia’s shares, to grant them the right to introduce modern 4G LTE wireless communication technology to Mongolia.
Basically, our government has stifled the countrywide networks built by existing mobile network operators (namely G-Mobile, Skytel, Unitel and Mobicom) just to have their own state-owned company do the job. Is this really an efficient policy? Furthermore, the government has sent a “friendly reminder” to Mobicom to discard their right to cooperate with Rostelecom. It could be interpreted as a case of political racketeering.
Decisions replacing investment in the private sector with invest in the government devalues long-term investments and creates barriers for private companies to pay off their debt. In other words, the government is discriminating against the private sector rather than showing it support. They are repeatedly putting deficit-ridden, state-owned companies on life support and injecting equipment and technology to them at expensive rates. Though the government is fully aware of the fact that what they are doing is not right, they choose to turn a blind eye.
Principles of regulation
The parliament has been discussing domestic and foreign investment laws and the “long-named” law these days. There has been a proposal to establish policy to be pursued in these areas before discussing the relevant laws. Mind you, this is actually the right step. When devising policy for government regulation, the first thing to be done is set core examples that will not be changed in any future scenarios. This way, there won’t be any need to make constant amendments to the principle policy.
If the government is to be involved in economy, the most important thing is to focus on improving the competitiveness of the private sector and prioritizing the interests of customers. The time is here for us to remove existent and potential conflicts of interest through the immediate privatization of state-owned companies. Waiting forever to increase the value of state-owned companies for privatization will end up leaving private companies with nothing.
Let us have an independent, professional legal entity carry out government regulations and introduce a principle where its reports are regularly produced and made available to the public. Economic regulations must have an apparent goal to be achieved by taking specific steps. Also, the effectiveness of regulations has to be measured by their outcome rather than what has been done. Such regulations should have predictable results and long-term investors ought to be able to receive benefits from them.
If our economic policy had been based upon specific principles rather than government formation, Mongolia’s economy would have already developed. However, it is good to see that our political parties are starting to look into it. As they say, it’s better late than never.
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