Category Archives: GIS Statements

Is economic inequality a bad thing?

GIS Statement by Prince Michael of Liechtenstein

Statistics is a wonderful tool to support hypotheses. Data can be selectively arranged, given “weights” or cleverly suppressed depending on a desirable outcome. Of late, the case of excessive and rising inequality has become a mantra in economics, media, academia and politics. It is backed up with statistics and presented as one of the major factors that threaten economic development, public welfare and social cohesion. The state is asked to curb inequality via money transfers with taxes.

Share of the population living in extreme poverty,  by world region

economic poverty bad thing

If one feels there is a danger, one should, before panicking, analyze the situation. First, try to find out if the supposed threat is real. In this case, we should look at the causes of inequality and determine whether the situation indeed leads to detrimental consequences.

We need to acknowledge that inequality is quite a normal condition in human society. As a matter of fact, equality exists only before God and law. A healthy society cherishes and preserves the freedom of choice in pursuit of opportunities by its citizens. This freedom inevitably leads to inequality. Economic evenness will never exist in a free society. Only authoritarian systems can bring about a drab form of uniformity, as was demonstrated in the Soviet Union or East Germany.

In a normal economic development process, we see periods of increasing and decreasing inequality. If we look for causes, we find different ones in different regions of the world. In the United States, it is the emergence of IT monopolies. A surge in inequity is quite normal at the start of super-technologies, as legitimate patent protections render enormous market and pricing power to new technology leaders – in this case Google, Microsoft, Apple, Amazon, and the likes. With time, their positions will get a healthy challenge from competitors. It must also not be ignored that the IT boom is extremely beneficial to the global economy and has allowed new sectors, such as biotechnology, to emerge.

Another factor causing inequality, which works as strongly in the U.S. as in Europe and Japan, is the oversupply of money by central banks and policies of artificially low interest rates. One bad result of these is an enormous overvaluation of assets such as real estate, company participations, art and various other valuables. Such bubbles will eventually burst. A more lasting and troubling consequence of low interest rates is the erosion of pensioners’ money. The disastrous policies of central banks are mainly geared to alleviate the problem of government debt, although the official pretext is to trigger consumption and investment.

The real problem

In Europe, a tight maze of government regulations stiffens competition, creating protectionist oligarchies and, as a result, concentrations of wealth. This regulatory density combined with a “nanny” welfare state limits the freedom of choice and gives improper economic incentives. Taxation is certainly the wrong remedy here. More freedom and competition would be the natural choice. This approach does not preclude protection for the weakest in society – to the contrary, it assures a sustainable economic basis for it.

Statistics on inequality are misleading. More and more wealth is controlled by governments; they decide to whom it is allocated. Valuation of assets, especially in times of bubbles, is also arbitrary. Look also at how the assets of pension funds and sovereign wealth funds are treated in this system. Are we not dealing with a fog of “fake news” in this area of public debate?

Our real problem in large parts of the world is not inequality as such, but the shortage of opportunities caused by corrupt systems. This is why the resulting inequality is so biting. The best answer to corruption is not big government, but as little regulation as possible, to deny government officials the power to grant favors. Competition, accountability and wide freedom of choice combined with an efficient judicial system are the remedies. The validity of this approach has been demonstrated time and again, all over the world. A recent example was reforms in Georgia by President Mikheil Saakashvili (2008-2013).

Yet it is globalization, neoliberalism and free markets that are blamed for the increases in inequality. Let us note, though, that just as such protagonists of equality as the economist Thomas Piketty or former U.S. Vice President Joe Biden are lamenting its decline, a large share of the world’s population is being relieved from extreme poverty by the same system and can lead dignified lives.

It is crucial to raise the quality of life and well-being of as many people as possible. But this requires entrepreneurial spirit, the driver of real progress. Natural cycles of development alternately give rise to increases and decreases in inequality, but it is not a key indicator.

Inequality can serve as a great tool in populist politics, though. Taxing a few rich and distributing wealth to as many voters as possible can be a great ploy for power-hungry cynics, but such policies are corrupting Western democracy. The result can only be misery.

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Economic inequality bad thing


*GIS is a global intelligence service providing independent, analytical, fact-based reports from a team of experts around the world. We also provide bespoke geopolitical consultancy services to businesses to support their international investment decisions. Our clients have access to expert insights in the fields of geopolitics, economics, defense, security and energy. Our experts provide scenarios on significant geopolitical events and trends. They use their knowledge to analyze the big picture and provide valuable recommendations of what is likely to happen next, in a way which informs long-term decision-making. Our experts play active roles in top universities, think-tanks, intelligence services, business and as government advisors. They have a unique blend of backgrounds and experience to deliver the narrative and understanding of global developments. They will help you develop a complete understanding of international affairs because they identify the key players, their motivations and what really matters in a changing world. Our experts examine the challenges and opportunities in economies old and new, identify emerging politicians and analyze and appraise new threats in a fast-changing world. They offer new ideas, fresh perspectives and rigorous study.

Parliaments worldwide neglect their duty to maintain fiscal discipline

GIS Statement by Prince Michael of Liechtenstein

Under the Antideficiency Act of 1884, the federal government of the United States may incur obligations or make expenditures authorized by appropriations. When budgetary limits are exceeded, new funds can only be provided by an act of Congress.
When no agreement on new appropriations is reached between Congress and the White House, the government must stop all so-called “nonessential” expenditure and furlough federal staff. This is called a “government shutdown.”

parliaments worldwide neglect their duty to maintain fiscal discipline
Parliaments worldwide neglect their duty to maintain fiscal discipline.

This mechanism provides a necessary disciplinary check on overspending. In theory, it could prove healthy for some European states as well. It should be resorted to sparingly, however, and only under exceptional circumstances. Unfortunately, the act kicked in more frequently of late and under the administration of Barrack Obama. And last week, one year into President Donald Trump’s term, there was another shutdown.

Interestingly, Congress did not block the funds for fiscal or budgetary reasons, as would have been legitimate. It was a tactical ploy. Congressional Democrats set a political condition, demanding that the White House alter its immigration policy, Mr. Trump refused to budge. In this case, the “gambler” was not the president, but Congress.

Essential safety fuse

The Antideficiency Act, an essential safety fuse in the U.S. governance system, is being used in a political poker game. This incident reveals an alarming shortage of budgetary and fiscal prudence on the side of the lawmakers.

One of the key tasks of any parliament, not just the U.S. Congress, is to enforce discipline in government spending. Legislatures in the Western world, however, are usually controlled by parties that also compose the governments. Their function of controlling how citizens’ money is spent is jeopardized when the budgetary process becomes overly politicized. Examples of such parliamentary malfunction can be found in many European countries.

I am afraid that not even a shutdown mechanism modeled on the U.S. act would address the overspending problem in our continent, because parliaments would most likely align with government policies. Their role as long-term protectors of fundamental interests of the state and its people is frustrated by this conflict of interest. This is exacerbated by the fact that parliamentarians today depend on politics as a career. Like a cancer, it gradually destroys democracy and freedom.

The lesson of the sovereign debt crisis is being ignored. Austerity has been abandoned. Government spending is increasing again in many European countries and new debt is accumulating – the process being facilitated by the excessive money supply policy of the European Central Bank. The European Commission has set a bad example of substantially increasing its outlays even as the European Union faces the approaching loss of financial contributions from the United Kingdom. This revenue shortfall alone should trigger a shutdown and immediate cost-cutting measures.

An important disciplinary restraint on EU spending has been the rule that the commission is not allowed to levy taxes directly.

Now, the prospect of a deficit, not only Brexit related, is being used cynically in Brussels to argue for abandoning that safeguard and letting the commission impose direct taxes. Ecology is the hypocritical pretext for establishing a European tax on plastic, which would set a new precedent and open the floodgates for more levies. I have not heard any protest from the European Parliament against this shameless scheme.

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Government Shutdown


*GIS is a global intelligence service providing independent, analytical, fact-based reports from a team of experts around the world. We also provide bespoke geopolitical consultancy services to businesses to support their international investment decisions. Our clients have access to expert insights in the fields of geopolitics, economics, defense, security and energy. Our experts provide scenarios on significant geopolitical events and trends. They use their knowledge to analyze the big picture and provide valuable recommendations of what is likely to happen next, in a way which informs long-term decision-making. Our experts play active roles in top universities, think-tanks, intelligence services, business and as government advisors. They have a unique blend of backgrounds and experience to deliver the narrative and understanding of global developments. They will help you develop a complete understanding of international affairs because they identify the key players, their motivations and what really matters in a changing world. Our experts examine the challenges and opportunities in economies old and new, identify emerging politicians and analyze and appraise new threats in a fast-changing world. They offer new ideas, fresh perspectives and rigorous study.

Europe and Germany’s coalition of losers

GIS Statement by Prince Michael of Liechtenstein

The talks between Germany’s Christian Democrats (the CDU/CSU) and Social Democrats (the SPD) have ended in an agreement that will create a coalition of the biggest losers of last September’s federal elections. The parties’ rank-and-file members must still approve the deal. For Chancellor Angela Merkel and SPD leader Martin Schulz, the coalition is the only option to keep their political careers alive.

On the evening of the election, the SPD said it would go into opposition, while Angela Merkel declared herself the winner. She deluded herself into believing that her governments’ actions had somehow received a seal of approval, ignoring the failures that had led to the CDU/CSU losing more than one-fifth of its voters.

No Jamaica coalition

With the SPD, her previous grand-coalition partners, deciding to enter opposition, Chancellor Merkel (with the support of President Frank-Walter Steinmeier) tried to form a “Jamaica coalition.” The strange political hybrid of the CDU, its Bavarian sister party the CSU, the Greens and the liberal Free Democratic Party (FDP) was so called since the parties’ colors (black, green and yellow, respectively) corresponded to those of Jamaica’s flag.

The resulting government would have had a very socialist bent, with the Greens and the CDU’s left wing dominating. Fortunately, the FDP pulled the plug on the talks, not wanting to associate itself with a rather authoritarian, left-wing government that would have worked for a planned economy. This is very much to the credit of the FDP’s leadership.

To avoid new elections and further losses, the two losers – again very much supported by the president – decided to try a coalition once more.

Avoiding the real problems

Germany’s political parties, with the exception of some personalities in Bavaria’s CSU, the FDP and the sometimes brash protest party Alternative for Germany (AfD), avoid mentioning the country’s real problems. They prattle on about the dangers of globalization, inequality, hate speech on the internet, the nasty British and the so-called “illiberal democracies” in Hungary and Poland. They refuse to address the basic issues of immigration aside from quotas: crime committed by foreigners, the loss of family values and the fact that Germany’s Christian identity is under threat.

They pontificate on the economy, which is doing well now, but ignore substantial threats, especially the country’s sovereign debt, which has not been calculated properly. If pension obligations are added in, Germany has a total debt equal to some 400 percent of its gross domestic product. That many other eurozone countries have debt problems of comparable size does not improve the situation.

If this coalition comes to life, we cannot expect that any of Germany’s most urgent problems will be addressed, because its major players are convinced that they have been doing a wonderful job. Chancellor Merkel called the initial agreement a “fresh start” for Germany, which begs the question as to why one is needed after her last 12 years in power. It is difficult to believe that this coalition, if it comes about, will be strong. It looks like a recipe for further populist expediency, more socialism and technocratic centralization.

In summary, we wonder why the only solutions seem to be this weak coalition or the dreaded new elections. One can also wonder why Angela Merkel and Martin Schulz did not resign after their crushing defeats. It might be that Chancellor Merkel has become the only person in her party who can lead – a very negative sign for Germany’s Christian Democrats.

Unfortunately, former Finance Minister Wolfgang Schauble left office in October. He was the bulwark against eurozone overspending. The new coalition is likely to be open to French calls for stronger European Union centralization and sharing sovereign debt within the eurozone. This “unionization” of debt would oblige countries like Germany to pay for the oversized deficits of countries like France, Greece and Italy. Both proposals will weaken Europe’s economy in the long term and have all the ingredients necessary to break the EU’s already fragile cohesion.

Read the original article here ->
Coalition of Losers


*GIS is a global intelligence service providing independent, analytical, fact-based reports from a team of experts around the world. We also provide bespoke geopolitical consultancy services to businesses to support their international investment decisions. Our clients have access to expert insights in the fields of geopolitics, economics, defense, security and energy. Our experts provide scenarios on significant geopolitical events and trends. They use their knowledge to analyze the big picture and provide valuable recommendations of what is likely to happen next, in a way which informs long-term decision-making. Our experts play active roles in top universities, think-tanks, intelligence services, business and as government advisors. They have a unique blend of backgrounds and experience to deliver the narrative and understanding of global developments. They will help you develop a complete understanding of international affairs because they identify the key players, their motivations and what really matters in a changing world. Our experts examine the challenges and opportunities in economies old and new, identify emerging politicians and analyze and appraise new threats in a fast-changing world. They offer new ideas, fresh perspectives and rigorous study.

Limits on posting workers create Europe’s high-cost cartels

GIS statement by Prince Michael of Liechtenstein

Markets work efficiently when they are based on competition. Cartels are damaging, and rightly are not allowed, because they eliminate competition. A successful internal market needs regional and regulatory competition, something that some countries – mostly those with excessive cost structures – frown upon. They use the terms “race to the bottom” and “unfair competition” to discriminate against less regulated or lower-cost regions.

GIS statement, ECAEF
GIS statement by Prince Michael of Liechtenstein. Photo: dpa.

At a meeting in Luxembourg on October 23, European Union labor ministers decided to put limits on “posting workers” – a system by which companies bring workers from one EU member state to another and remunerate them according to the laws in their country of origin. This is not to be confused with “wage dumping” and is perfectly in line with the EU’s principles of free exchange. Posting workers enhances competition and has mainly been used by companies based in Central Europe, such as Hungary, Slovakia and Poland.

French President Emmanuel Macron pushed hard for this change. He faces resistance from trade unions against his mild deregulation of labor laws in France. According to the agreement, wages and social security benefits should be paid according to the regulations of the country where the work is done. It is surprising that Mr. Macron, who claims to be a proponent of European values, has worked so hard to weaken liberal EU principles. Unsurprisingly, several Western European countries are following along for similar reasons, including Germany and the Benelux countries.

These countries complain that posting workers gives EU member states with lower labor costs an “unfair” competitive advantage, but they ignore that they are protecting a high-cost cartel. Imposing such rules is protectionist and limits competition.

The ministers of labor reached a compromise that would introduce a cap of 12 months during which employers can “post” workers to another member state, with a transition period of four years. This change will be proposed to the European Commission and the European Parliament.
Astonishingly, President Macron posted a triumphant tweet on this subject, saying that Europe is “moving forward” and adding “more protections, less fraud.” This suggests that he considers a legitimate competitive labor market practice as “fraud.” It is disappointing that this comes from a politician who calls himself liberal.

In August of this year, President Macron embarked on a tour of Central and Southeastern Europe. It seems he had two interlinked agendas. The first was to divide the Visegrad Group by conspicuously only meeting in Vienna with the Czech and Slovakian prime ministers, purposely snubbing Hungary and Poland. The other was to lobby for the limits on posting workers. It has been reported that in exchange for Slovakia’s support, he suggested he would help the country reduce its refugee allocation.

This is a case where under the pretext of “fair” competition, real competition is being limited and protectionism is applied inside the internal market.

Read the full GIS statement here ->
Limits on posting workers …


*GIS is a global intelligence service providing independent, analytical, fact-based reports from a team of experts around the world. We also provide bespoke geopolitical consultancy services to businesses to support their international investment decisions. Our clients have access to expert insights in the fields of geopolitics, economics, defense, security and energy. Our experts provide scenarios on significant geopolitical events and trends. They use their knowledge to analyze the big picture and provide valuable recommendations of what is likely to happen next, in a way which informs long-term decision-making. Our experts play active roles in top universities, think-tanks, intelligence services, business and as government advisors. They have a unique blend of backgrounds and experience to deliver the narrative and understanding of global developments. They will help you develop a complete understanding of international affairs because they identify the key players, their motivations and what really matters in a changing world. Our experts examine the challenges and opportunities in economies old and new, identify emerging politicians and analyze and appraise new threats in a fast-changing world. They offer new ideas, fresh perspectives and rigorous study.

Taxation horrors and Europe’s frustration

GIS statement by Prince Michael of Liechtenstein

At their meeting in Tallinn, Estonia, in mid-September, European Union Finance Ministers discussed new measures for taxing internet-based companies. They want to establish a system that could be brought to the Organisation for Economic Co-operation and Development (OECD), which would adapt these measures to global standards.

Whew! Finally, wealthy companies like Google, Facebook and Apple will be taxed and punished for their rapacious capitalist methods to the detriment of European taxpayers.
Of course, this is the populist side of the story. The cynical side is that there is an undeclared economic war between the United States and the EU. On one side, the U.S. Department of Justice issues fines against European companies for the alleged violation of American laws. On the other side, Europe retaliates with tax claims resulting in complicated schemes that are administrative nightmares.

The OECD has a program to limit practices called “base erosion and profit shifting” (BEPS), which is supposed to ensure that companies are not moving their results to jurisdictions with lower taxes. The scheme is extremely complicated, opens wide possibilities for arbitrary assessment and abuse of authority, and probably costs more than the additional tax revenue it generates.
The more complicated a system is, the more vulnerable it is to manipulation
The new measures discussed in Tallinn are likely to produce a similar nightmare, and will also affect European businesses.
Unfortunately, these are just some examples of an illogical, overly complex and oversized system. This is not only a European problem, it is a global problem. The more complicated a system is, the more vulnerable it is to manipulation. Taxpayers’ abuse of the system might even increase, but such complexity will especially lead to a high degree of legal insecurity and arbitrary application of the rules. In any case, it creates huge, unnecessary costs for the economy. All this is harmful.
Remedies are very easy. Simplifying tax systems would save enormous costs for governments and taxpayers. It would not necessarily reduce taxes received, but it would relieve resources and therefore benefit the economy and society. It will result in more freedom and reduce citizens’ dependence on the authorities.
European complex
The Tallinn decision might also be an indication of a European “inferiority complex” in the face of American tech giants. But instead of slapping new taxes on these companies, Europe should ponder why it is less competitive than the U.S. in the field of technology.
It might want to start by looking at differences between the European and American defense industries. Defense is one of the only areas where government programs bring innovation, and such research and development has frequently resulted in new technologies for civilian use. A striking example is that both the internet and Silicon Valley got their start through U.S. Department of Defense projects. Over the last 60 years, the U.S. has invested heavily in defense. This has not been the case in Europe.
The main remedy, however, would be for Europe to adapt to a culture of increased innovation and entrepreneurship. Rather than public grants schemes for innovative endeavors, this would simply mean fewer restrictive regulations. It would also require a less risk-averse attitude and a better ability to accept failure. New ventures frequently fail, but in Europe, especially among government authorities and financial institutions, few are willing to excuse such failures or offer a second chance.
The solution – so simple, but apparently difficult to implement – is streamlined taxation and regulatory systems, and especially a better acceptance of risk and failure.

Read the full GIS statement here ->
Taxation horrors and Europe’s frustration


*GIS is a global intelligence service providing independent, analytical, fact-based reports from a team of experts around the world. We also provide bespoke geopolitical consultancy services to businesses to support their international investment decisions. Our clients have access to expert insights in the fields of geopolitics, economics, defense, security and energy. Our experts provide scenarios on significant geopolitical events and trends. They use their knowledge to analyze the big picture and provide valuable recommendations of what is likely to happen next, in a way which informs long-term decision-making. Our experts play active roles in top universities, think-tanks, intelligence services, business and as government advisors. They have a unique blend of backgrounds and experience to deliver the narrative and understanding of global developments. They will help you develop a complete understanding of international affairs because they identify the key players, their motivations and what really matters in a changing world. Our experts examine the challenges and opportunities in economies old and new, identify emerging politicians and analyze and appraise new threats in a fast-changing world. They offer new ideas, fresh perspectives and rigorous study.