What Obama Can Learn from Belarus About Running an Economy By Sasha Cekerevac for Investment Contrarians | Oct 18, 2012
When it comes to job creation, the key is to drive economic growth. With the current presidential election unfolding, we not only get to hear about what candidates plan to do over the next four years, but we can also see a historical record of what each party has done. To be honest, both parties have their faults. What surprises me, though, is that President Obama talks about his administration’s ability to be a factor in job creation when there is plenty of evidence around the world that suggests the administration appears to be on the wrong track. I firmly believe that economic growth stems from supporting businesses, which leads to job creation. Supporting businesses is crucial, considering they’re doing the hiring. Looking at polls of business leaders around the nation, many are worried and concerned about the future; it’s no surprise that there’s a lack of job creation. You will constantly see that business owners are uncertain regarding regulations (including health care) and the “fiscal cliff.” I do believe both political parties are responsible for not dealing with the fiscal cliff issue. It is unconscionable to me that they can’t come to an agreement and are holding the American public hostage for their political maneuvering. I believe the fiscal cliff is a huge issue holding back economic growth for both large and small businesses, and there is no reason why it should be left to the last minute. However, for long-term economic growth one should look at what drives business and job creation. Instead of discussing an opinion, let’s look at some facts. The tiny nation of Belarus is most likely unknown to many people. A former Soviet republic that gained independence in 1991, Belarus is essentially run as a dictatorship. It is the last place you would think of as a hotbed of job creation activity. The country did two things quite smartly over the last decade. It created an education system in which a large number of students graduated with skills related to computer programming, math, and science (especially physics). But just as importantly, it created an incentive for businesses to set up shop there. The republic developed the Belarus Hi-Tech Park (BHTP), an area in which any company that opens up business pays no corporate taxes. Any employee that works there also receives a substantial reduction in the taxes they pay, as compared to other industries. So would you be shocked to hear that a large number of businesses have opened up in BHTP, employing
thousands of people? I’m not surprised at all, as history shows that when you encourage business creation through low taxes, economic growth and job creation follow. According to Valery Tsepkalo, who is the director of BHTP, there are now 106 companies within the area and approximately 12,500 employees. This includes the well-known company Viber, a competitor to Skype, which has 100 million users and one million new sign-ups every month, with Americans forming its biggest customer base. (Source: “The Skype Killers of Belarus,” Bloomberg Businessweek August 23, 2012.) According to Tsepkalo, BHTP is the densest concentration of high-tech companies in eastern and central Europe. Belarus is the last place one would think of as a high-tech hub of economic growth and job creation. Was the government involved in its development? Absolutely, by creating an incentive structure for businesses to set up in that location and develop their products. Plus, the government convinced the public to move into the more advanced industries by offering the incentive of lower taxes. The lesson is that incentives, as well as disincentives, work. If a government increases taxes, it provides a disincentive. Conversely, if a government decreases taxes, it creates an incentive, and you will see more of what the government was encouraging. These are not opinions but facts. For economic growth and job creation to resume in America, we need to create a structure where businesses are encouraged to begin and grow within our borders. We need to provide incentives for people to get educated for the industries that are in high demand. Everyone knows that there is a shortage of available workers in many sectors of the economy, such as math, science, and computer programming. Economic growth and job creation are possible by encouraging an action, providing an incentive, and fostering an environment that supports small and large businesses. Once the incentive structure is set up, the government should back away and only step in if rules are broken. Much like a football game, the referees are there to ensure fair play, but not to be part of the play. The current administration believes that the more they’re involved, the stronger economic growth will be. History tells us this is clearly not the case. After all, the nations with the highest level of government involvement include Greece, Spain, Italy, and France. I don’t know about you, but I don’t consider those nations to be economic powerhouses.