Competing in a Globalized World

1. Competing in a Globalized World Trends & Strategies

2. Prosperity • Prosperity is the result of free people using intellectual talent combined with physical skill and a superior work ethic to produce goods and services that are valued and desired by others • There is a direct relationship between freedom and prosperity • The most free societies are the most prosperous

3. Irrefutable Truths • Governments consume wealth not create it • Globalization is now an irreversible reality • Decisions taken by one nation-state have effects on other nation-states • Capital Investment precedes job creation • Capital investment precedes prosperity • Capital migrates to the friendliest environment it can find • Capital and jobs are extremely mobile

4. Competitiveness • Competitiveness is a measure of whether one community’s ability to successfully improve its prosperity is equal to or better than that of other communities.

5. Critical Knowledge for Retaining Competitiveness/Prosperity • Competitiveness is in a state of constant change • Competitiveness is affected by decisions of local leaders • Competitiveness is affected by decisions of remote leaders • Compensating for lost competitiveness should happen constantly

6. Capital Attractive Environment • Certainty – that issues of safety, rule of law and peace exist • Certainty – that contracts are enforceable and property rights are secure • Certainty – that Government policy will remain consistent and equitable across all competitors • Certainty – that profits will be allowed to occur at a rate equal to or better than other environments

7. Policy Makers’ Strategy • Know before decisions are made the likely consequences of the decision on: • The intentions of future capital investors • The effect on existing businesses’ ability to compete in the global economy • The effect on existing jobs • The effect on the creation of future jobs

8. Accountability • The more open and transparent government activities are to public scrutiny the more confidence the public will have in government • The greater the transparency of government processes and procedures the better the decisions and less possibility of corrupt practice

9. Competitiveness & Government Policy • The decades of the 80’s & 90’s saw competitiveness focus on technological superiority • In the 21st century there is a growing international trend for Government policy to be at the center of competitiveness decisions. • Governments are learning that changing their policy mix can have an enormous beneficial or harmful effect on capital investment

10. Ireland & New Zealand • Two of the worst performing economies in the developed world until reform • High unemployment • Low growth • Poor competitiveness • Poor investment • Stagnant job creation • Falling per capita income • High debt & deficits

11. Goals for Reform in New Zealand • De-regulate labor markets • De-regulate capital markets • Reduce Governments share of GDP • Remove subsidies • Remove border protection • Attract capital investment • Reform revenue systems • Must improve international competitiveness

12. New Zealand Results • Tax rates were halved. • Revenue increased 20%. • Eliminated capital gains, death, excise, sales, payroll taxes & tariffs. • Eliminated double taxation. • Social policy delivered by direct payment. • High growth • Low unemployment • High investment • From 27th to 11th per capita income

13. Ireland • The only poor developed country • Tax rates in 1985: top 65%, bottom 35% • 2000 rates: top 40%, bottom 20% • GDP growth: from 0.4% to 10% pa • Unemployment: from 15.7% to 3.5% • Corporate tax: from 50% to 12.5% • Capital gains tax: from 40% to 27% • Debt: from 118% of GDP to 39%

14. Ireland Results • Revenue results • Personal income tax revenue up 5-fold • Corporate tax revenue up 600% • Capital gains tax revenue up 40% • Deficit of 14% of GDP • Surplus of 5% of GDP • Unemployment down from 23% to 4% • Second highest per capita income in Europe

15. Country Competitiveness • 23 countries either adopting or already have implemented flat taxes. 19 are in Eastern Europe • Georgia wiped out 85% of its regulations • Eastern Europe dramatically liberalizing labor markets • Dramatically reduced corporate tax rates zero to 10% • In the next 2 decades taxing corporations as a revenue mechanism may disappear

16. The Knowledge EconomyFast Adapting States • Places worth watching • Texas • Florida • Virginia • North Carolina • Washington • Catching up • South Carolina • Who else?

17. Economic Freedom and Income Per Capita Source: Economic Freedom of the World: 2007 Annual Report, The Fraser Institute

18. Strategic Planning, Performance Measurement, & Regulatory Analysis Realistic strategic planning and valid performance measurement require sound regulatory analysis

19. Planning & Measurement • Mission/Goals • What are you trying to accomplish? • Strategic Plan • What do you have to do to accomplish it? • Measures • What will you look at to tell you whether and how much of your goal you’re accomplishing? • Program Evaluation • How do we know we accomplished what we hoped we’d accomplish? How cost-effective was it?

20. “The Governor has asked that, to the extent possible, agencies use outcome measures for their objectives.” Virginia DPB, Agency Planning Handbook, 2008-10 Biennium, p. 30. Note: Activities, outputs, expenditures, laws, programs, and regulations are not outcomes!

21. Regulatory Analysis • Identify the desired outcomes • Assess evidence of market failure or other systemic problem • Identify state government’s unique role • Assess effectiveness of alternative approaches • Identify costs • Compare costs with outcomes

22. Regulatory Analysis in Plain English • Figure out what you’re trying to do and how you’ll know you did it • Figure out why government needs to do it • Figure out what level of government needs to do it • Think about different ways to do it and find the most effective one • Figure out what you have to give up to do whatever you’re trying to do • Weigh the pros and cons

23. Planning/Measurement Mission/Goals Strategic Plan Regulatory Analysis Identify desired outcomes Assess systemic problem Identify govt’s role Assess alternatives Establish causality Parallels

24. Planning/Measurement Measures Budgeting Program Evaluation Regulatory Analysis Identify outcome measures Establish causality Identify prospective costs Compare costs with outcomes Assess actual achievement and costs based on proven causality Parallels

25. When should either be done? • Prospective • Designing programs or writing regulations • Based on best evidence of likely effects and costs • Retrospective • Assessing programs or regulations to determine whether they should be continued or modified • Based on evidence of actual effects and costs

26. Budgeting allocates tax dollars to achieve outcomes • Taxes have direct and indirect costs • Regulation allocates citizens’ time and money to achieve outcomes • Regulation has direct and indirect costs

27. Brought to you by the Mercatus Center's Government Accountability Project www.mercatus.org