This article is certainly informative and offers a good deal of insight into the confusing world of Moldovan politics and economy. It would be interesting to read a David Smith Manifesto - what, based upon your experience - is the government - party aside - that would best serve Moldova?
Hey David! thanks for the comment and I'm quite flattered you would find my thoughts / manifesto interesting :)
I won't lay out my full thoughts here both because I have not fully thought on it and because it would take too long for me to meander on about the topic. But fundamentally I think that you need to focus the majority of the conversation on corruption and strengthening institutions. In addition to the social and national security damage of corruption there are profound economic consequences for companies big and small. Petty corruption prevents small companies opening and succeeding and it prevents the ones who do from growing. Kleptocratic and monopoly / raiding behavior loot large business and scare off foreign investment as well. A culture of public servants acting as such, and the rule of law protecting property rights and warding off abuses of officials is absolutely key.
One key area that will be affected by reforms such as this is "unloyal competition." Monopolies control entire market segments through legal and court manipulations which is a problem. But even small companies like mine struggle to compete when only a fraction of our competitors pay taxes. Creating an even playing field will allow new ventures and ideas to flourish and also cause the critical demise of unprofitable, poorly managed state enterprises or private monopolies. Simply put the economy needs to experience the creative destruction of the free market and move away from the vestiges of the past control economy.
A final thought in this area is that while a level playing field and rule of law approach to regulation will support workers and average people in many ways, it's not enough. Moldova needs to introduce progressive taxation in order to break away from an incredibly dangerous status quo whereby the poor and working people pay nearly all of the taxes and the wealthy and super wealthy pay nearly none. Moldova's migration crisis is also in many ways a "relief valve" whereby people leave for more opportunity. I dare to say that were leaving not possible, the pitchforks would have come out long ago.
David, thanks again for providing such a well written and informative article about politics. In your estimation, what factors are involved in the lack of foreign companies operating in Moldova? It would seem that an affordable and plentiful work force here would attract companies to open manufacturing operations here. Thanks.
Hey Mike! thanks for the question. Some of the answer to your question is in my above reply to David's comment. But I'll fill a few more ideas in here.
Moldova suffers from dual issues with foreign investment around rule of law and infrastructure. I have friends who have run large manufacturing investments in Moldova and the number of times they have been awakened at night to deal with trucks the ran off the road is frightening. And why are the trucks running at night? because in many parts of the country the asphalt is so poor in quality that the government bans trucks from driving in the hot summer days because the roads literally deform under the wheels.
Moldova has no connection by highways to western Europe and transversing Romania is a very long haul on their small village roads. Romania is building a highway to Iasi which will connect Moldova to Europe but it's still a few years away. Similarly, Moldova has a port (technically) but it is so often plagued by issues and accusations of monopolistic behavior it simply isn't a great option for many companies.
Finally, corruption. Even large foreign investments can suffer from corrupt actions by kleptocratic individuals. Moldova's recent record of political instability means that there are many times (like now) where unelected placeholder governments get real power and never have to face voters. This, and other issues, create lots of opportunities for unscrupulous actions. I know one company that canceled an investment that was projected to create 2500 jobs only months before breaking ground because they were attacked by a corrupt local official. Those jobs went elsewhere in the region where costs were higher but that was offset by the lack of such risks.
Thanks and YIKES! This really makes one wonder if there is any real hope of Moldova making any steps towards getting out of this current miasma. Thanks for another great analysis.
Hey Mike, I think it's important to remember that while we were discussing problems there has also been a lot of progress. Even without real leadership the last years have seen a lot of growth in the economic sector and real changes on the streets and in people's lives. I came to Moldova 9 years ago and it's a totally different place since then. But the major challenges remain.
The main thing I think is to realize that some key interventions will create a snowball affect as pent up demand for reform and economic energy will be released. I often tell friends that Moldova is not a naturally poor country, the government chooses to keep it poor. If that changes, a lot of good will happen very fast.
This article is certainly informative and offers a good deal of insight into the confusing world of Moldovan politics and economy. It would be interesting to read a David Smith Manifesto - what, based upon your experience - is the government - party aside - that would best serve Moldova?
Hey David! thanks for the comment and I'm quite flattered you would find my thoughts / manifesto interesting :)
I won't lay out my full thoughts here both because I have not fully thought on it and because it would take too long for me to meander on about the topic. But fundamentally I think that you need to focus the majority of the conversation on corruption and strengthening institutions. In addition to the social and national security damage of corruption there are profound economic consequences for companies big and small. Petty corruption prevents small companies opening and succeeding and it prevents the ones who do from growing. Kleptocratic and monopoly / raiding behavior loot large business and scare off foreign investment as well. A culture of public servants acting as such, and the rule of law protecting property rights and warding off abuses of officials is absolutely key.
One key area that will be affected by reforms such as this is "unloyal competition." Monopolies control entire market segments through legal and court manipulations which is a problem. But even small companies like mine struggle to compete when only a fraction of our competitors pay taxes. Creating an even playing field will allow new ventures and ideas to flourish and also cause the critical demise of unprofitable, poorly managed state enterprises or private monopolies. Simply put the economy needs to experience the creative destruction of the free market and move away from the vestiges of the past control economy.
A final thought in this area is that while a level playing field and rule of law approach to regulation will support workers and average people in many ways, it's not enough. Moldova needs to introduce progressive taxation in order to break away from an incredibly dangerous status quo whereby the poor and working people pay nearly all of the taxes and the wealthy and super wealthy pay nearly none. Moldova's migration crisis is also in many ways a "relief valve" whereby people leave for more opportunity. I dare to say that were leaving not possible, the pitchforks would have come out long ago.
David, thanks again for providing such a well written and informative article about politics. In your estimation, what factors are involved in the lack of foreign companies operating in Moldova? It would seem that an affordable and plentiful work force here would attract companies to open manufacturing operations here. Thanks.
Hey Mike! thanks for the question. Some of the answer to your question is in my above reply to David's comment. But I'll fill a few more ideas in here.
Moldova suffers from dual issues with foreign investment around rule of law and infrastructure. I have friends who have run large manufacturing investments in Moldova and the number of times they have been awakened at night to deal with trucks the ran off the road is frightening. And why are the trucks running at night? because in many parts of the country the asphalt is so poor in quality that the government bans trucks from driving in the hot summer days because the roads literally deform under the wheels.
Moldova has no connection by highways to western Europe and transversing Romania is a very long haul on their small village roads. Romania is building a highway to Iasi which will connect Moldova to Europe but it's still a few years away. Similarly, Moldova has a port (technically) but it is so often plagued by issues and accusations of monopolistic behavior it simply isn't a great option for many companies.
Finally, corruption. Even large foreign investments can suffer from corrupt actions by kleptocratic individuals. Moldova's recent record of political instability means that there are many times (like now) where unelected placeholder governments get real power and never have to face voters. This, and other issues, create lots of opportunities for unscrupulous actions. I know one company that canceled an investment that was projected to create 2500 jobs only months before breaking ground because they were attacked by a corrupt local official. Those jobs went elsewhere in the region where costs were higher but that was offset by the lack of such risks.
Thanks and YIKES! This really makes one wonder if there is any real hope of Moldova making any steps towards getting out of this current miasma. Thanks for another great analysis.
Hey Mike, I think it's important to remember that while we were discussing problems there has also been a lot of progress. Even without real leadership the last years have seen a lot of growth in the economic sector and real changes on the streets and in people's lives. I came to Moldova 9 years ago and it's a totally different place since then. But the major challenges remain.
The main thing I think is to realize that some key interventions will create a snowball affect as pent up demand for reform and economic energy will be released. I often tell friends that Moldova is not a naturally poor country, the government chooses to keep it poor. If that changes, a lot of good will happen very fast.
So there's always hope :)