When it comes to economy, Mongolians act like as if we are driving a car looking at its speedometer only. It appears that speed is the only aspect that matters rather than the cost or the direction the car is going.
Our country is having a deficit of 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 had been passed. Furthermore, repealing or amending a law within less than a year since its enactment is regarded as a normal act 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 gives no benefit to either the private sector or the citizens.
Therefore, the politicians’ greed to to take over the governing power, reallocate the capital created by others and steal from public property is not to be unexpected.
Efficient economic infrastructure which can provide qualified public service is essential to nurturing economic growth as well as improving economic competitiveness. Government involvement is only needed when public service 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 service is the most efficient option in long term. In any case, the customer’s interests must be the top priority when any government regulation is made.
Mess in government regulations
The previous government established the National Innovation and Development Committee by claiming that a single organization that regulates operations of every ministry, similar to what the former Planning Committee, was needed for further development. However, in spite of oppositions to establishing such committee from ministries, 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 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 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 have carry out duties that private sector is capable of accomplishing. Each time Mongolian government gets involved, our economy is suffering from various negative consequences such as debt pressure and corruption. On top of that, the government involvement reduces labor productivity. A very clear example is what is the current affairs around 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 had 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 had hindered a private company from building railroad to the southern border on its own expense and now is build the railroad themselves on the loan they acquired by increasing the public debt.
Only in the last few days, the Mongolian People’s Party, which has been in the ruling spot mostly, seems 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 shares of Telecom Mongolia, to grant them the right to introduce a modern 4G LTE wireless communication technology to Mongolia.
Basically, our government halted the countrywide networks built by the existing mobile network operators (namely G-Mobile, Skytel, Unitel and Mobicom) just to have their own state-owned company to 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 the investment from the private sector with that from the government devalue long-term investments and create barriers for private companies to pay off their debt. In other words, the government is discriminating against the private sector rather than showing support. They are repeatedly putting the deficit-ridden, state-owned companies on life support and injecting equipment and technology supply 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 blind a eye.
Principles of regulation
The parliament is discussing the domestic and foreign investment laws and the ‘long-named’ law these days. There has been a proposal to establish the policy to be pursued in these areas before discussing the relevant laws. Mind you, it actually is the right step. When devising a policy for government regulation, the first thing to be done is setting the core examples that will not be changed in any future scenarios. This way, there will not be any need to make constant amendments to the principle.
If the government is to be involved in economy, the most important thing is to aim at improving competitiveness of the private sector and prioritizing the interests of customers. The time is calling us to remove the existent and potential conflicts of interest through immediate privatization of state-owned companies. Waiting forever to increase the value of state-owned companies for privatization will end up wrecking the private companies to 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 the long-term investment parties 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 is better late than never.