Accusations of the West towards Putin traditionally are based on the fact that he worked in the KGB. And, therefore he is a cruel and immoral person. Putin is blamed for everything. But nobody ever accused Putin of lack of intelligence.
Any accusations against this man only emphasize his ability for quick analytical thinking and making clear and balanced political and economic decisions.
Often Western media compares this ability with the ability of a grandmaster, conducting a public chess simul. Recent developments in US economy and the West in general allow us to conclude that in this part of the assessment of Putin’s personality Western media is absolutely right.
Despite numerous success reports in the style of Fox News and CNN, today, Western economy, led by the United States is in Putin’s trap, the way out of which no one in the West can see or find. And the more the West is trying to escape from this trap, the more stuck it becomes.
What is the truly tragic predicament of the West and the United States, in which they find themselves? And why all the Western media and leading Western economists are silent about this, as a well guarded military secret? Let’s try to understand the essence of current economic events, in the context of the economy, setting aside the factors of morality, ethics and geopolitics.
After realizing its failure in Ukraine, the West, led by the US set out to destroy Russian economy by lowering oil prices, and accordingly gas prices as the main budget sources of export revenue in Russia and the main sources of replenishment of Russian gold reserves.
It should be noted that the main failure of the West in Ukraine is not military or political. But in the actual refusal of Putin to fund the Western project of Ukraine at the expense of the budget of Russian Federation. What makes this Western project not viable in the near and inevitable future.
Last time under president Reagan, such actions of the West’s lowering of oil prices led to ‘success’ and the collapse of USSR. But history does not repeat itself all the time. This time things are different for the West. Putin’s response to the West resembles both chess and judo, when the strength used by the enemy is used against him, but with minimal costs to the strength and resources of the defender. Putin’s real policies are not public. Therefore, Putin’s policy largely has always focused not so much on effect, but on efficiency.
Very few people understand what Putin is doing at the moment. And almost no one understands what he will do in the future.
No matter how strange it may seem, but right now, Putin is selling Russian oil and gas only for physical gold.
Putin – dislike the constant noise of the West – is not shouting about it all over the world. And, of course, he still accepts US dollars as an intermediate means of payment. But he immediately exchanges all these dollars obtained from the sale of oil and gas for physical gold!
To understand this, it is enough to look at the dynamics of growth of gold reserves of Russia and to compare this data with foreign exchange earnings of the RF coming from the sale of oil and gas over the same period.
Moreover, in the third quarter the purchases by Russia of physical gold are at an all-time high, record levels. In the third quarter of this year, Russia had purchased an incredible amount of gold in the amount of 55 tons. It’s more than all the central banks of all countries of the world combined (according to official data)!
In total, the central banks of all countries of the world have purchased 93 tons of the precious metal in the third quarter of 2014. It was the 15th consecutive quarter of net purchases of gold by Central banks. Of the 93 tonnes of gold purchases by central banks around the world during this period, the staggering volume of purchases – of 55 tons – belongs to Russia.
Not so long ago, British scientists have successfully come to the same conclusion, as was published in the Conclusion of the U.S. Geological survey a few years ago. Namely: Europe will not be able to survive without energy supply from Russia. Translated from English to any other language in the world it means: “The world will not be able to survive if oil and gas from Russia is subtracted from the global balance of energy supply”.
Thus, the Western world, built on the hegemony of the petrodollar, is in a catastrophic situation. In which it cannot survive without oil and gas supplies from Russia. And Russia is now ready to sell its oil and gas to the West only in exchange for physical gold! The twist of Putin’s game is that the mechanism for the sale of Russian energy to the West only for gold now works regardless of whether the West agrees to pay for Russian oil and gas with its artificially cheap gold, or not.
Because Russia, having a regular flow of dollars from the sale of oil and gas, in any case, will be able to convert them to gold with current gold prices, depressed by all means by the West. That is, at the price of gold, which had been artificially and meticulously lowered by the Fed and ESF many times, against artificially inflated purchasing power of the dollar through market manipulation.
Interesting fact: the suppression of gold prices by the special department of US Government – ESF (Exchange Stabilization Fund) – with the aim of stabilizing the dollar has been made into a law in the United States.
In the financial world it is accepted as a given that gold is an antidollar.
• In 1971, US President Richard Nixon closed the ‘gold window’, ending the free exchange of dollars for gold, guaranteed by the US in 1944 at Bretton Woods.
• In 2014, Russian President Vladimir Putin has reopened the ‘gold window’, without asking Washington’s permission.
Right now the West spends much of its efforts and resources to suppress the prices of gold and oil. Thereby, on the one hand to distort the existing economic reality in favor of the US dollar and on the other hand, to destroy the Russian economy, refusing to play the role of obedient vassal of the West.
Today assets such as gold and oil look proportionally weakened and excessively undervalued against the US dollar. It is a consequence of the enormous economic effort on the part of the West.
And now Putin sells Russian energy resources in exchange for these US dollars, artificially propped by the efforts of the West. With which he immediately buys gold, artificially devalued against the U.S. dollar by the efforts of the West itself!
There is another interesting element in Putin’s game. It’s Russian uranium. Every sixth light bulb in the USA depends on its supply. Which Russia sells to the US too, for dollars.
Thus, in exchange for Russian oil, gas and uranium, the West pays Russia with dollars, purchasing power of which is artificially inflated against oil and gold by the efforts of the West. But Putin uses these dollars only to withdraw physical gold from the West in exchange, for the price denominated in US dollars, artificially lowered by the same West. This truly brilliant economic combination by Putin puts the West led by the United States in a position of a snake, aggressively and diligently devouring its own tail.
The idea of this economic golden trap for the West, probably originated not from Putin himself. Most likely it was the idea of Putin’s Advisor for Economic Affairs – doctor Sergey Glazyev. Otherwise why seemingly not involved in business bureaucrat Glazyev, along with many Russian businessmen, was personally included by Washington on the sanction list? The idea of an economist, doctor Glazyev was brilliantly executed by Putin, with full endorsement from his Chinese colleague – XI Jinping.
Especially interesting in this context looks the November statement of the first Deputy Chairman of Central Bank of Russia Ksenia Yudaeva, which stressed that the CBR can use the gold from its reserves to pay for imports, if need be. It is obvious that in terms of sanctions by the Western world, this statement is addressed to the BRICS countries, and first of all China. For China, Russia’s willingness to pay for goods with Western gold is very convenient. And here’s why:
China recently announced that it will cease to increase its gold and currency reserves denominated in US dollars. Considering the growing trade deficit between the US and China (the current difference is five times in favor of China), then this statement translated from the financial language reads: “China stops selling their goods for dollars”. The world’s media chose not to notice this grandest in the recent monetary history event . The issue is not that China literally refuses to sell its goods for US dollars. China, of course, will continue to accept US dollars as an intermediate means of payment for its goods. But, having taken dollars, China will immediately get rid of them and replace with something else in the structure of its gold and currency reserves. Otherwise the statement made by the monetary authorities of China loses its meaning: “We are stopping the increase of our gold and currency reserves, denominated in US dollars.” That is, China will no longer buy United States Treasury bonds for dollars earned from trade with any countries, as they did this before.
Thus, China will replace all the dollars that it will receive for its goods not only from the US but from all over the world with something else not to increase their gold currency reserves, denominated in US dollars. And here is an interesting question: what will China replace all the trade dollars with? What currency or an asset? Analysis of the current monetary policy of China shows that most likely the dollars coming from trade, or a substantial chunk of them, China will quietly replace and de facto is already replacing with Gold.
In this aspect, the solitaire of Russian-Chinese relations is extremely successful for Moscow and Beijing. Russia buys goods from China directly for gold at its current price. While China buys Russian energy resources for gold at its current price. At this Russian-Chinese festival of life there is a place for everything: Chinese goods, Russian energy resources, and gold – as a means of mutual payment. Only US dollar has no place at this festival of life. And this is not surprising. Because the US dollar is not a Chinese product, nor a Russian energy resource. It is only an intermediate financial instrument of settlement – and an unnecessary intermediary. And it is customary to exclude unnecessary intermediaries from the interaction of two independent business partners.
It should be noted separately that the global market for physical gold is extremely small relative to the world market for physical oil supplies. And especially the world market for physical gold is microscopic compared to the entirety of world markets for physical delivery of oil, gas, uranium and goods.
Emphasis on the phrase “physical gold” is made because in exchange for its physical, not ‘paper’ energy resources, Russia is now withdrawing gold from the West, but only in its physical, not paper form. So does China, by acquiring from the West the artificially devalued physical gold as a payment for physical delivery of real products to the West.
The West’s hopes that Russia and China will accept as payment for their energy resources and goods “shitcoin” or so-called “paper gold” of various kinds also did not materialize. Russia and China are only interested in gold and only physical metal as a final means of payment.
For reference: the turnover of the market of paper gold, only of gold futures, is estimated at $360 billion per month. But physical delivery of gold is only for $280 million a month. Which makes the ratio of trade of paper gold versus physical gold: 1000 to 1.
Using the mechanism of active withdrawal from the market of one artificially lowered by the West financial asset (gold) in exchange for another artificially inflated by the West financial asset (USD), Putin has thereby started the countdown to the end of the world hegemony of petrodollar. Thus, Putin has put the West in a deadlock of the absence of any positive economic prospects.
The West can spend as much of its efforts and resources to artificially increase the purchasing power of the dollar, lower oil prices and artificially lower the purchasing power of gold. The problem of the West is that the stocks of physical gold in possession of the West are not unlimited. Therefore, the more the West devalues oil and gold against the US dollar, the faster it loses devaluing Gold from its not infinite reserves.
In this brilliantly played by Putin economic combination the physical gold is rapidly flowing to Russia, China, Brazil, Kazakhstan and India, the BRICS countries, from the reserves of the West. At the current rate of reduction of reserves of physical gold, the West simply does not have the time to do anything against Putin’s Russia until the collapse of the entire Western petrodollar world. In chess the situation in which Putin has put the West, led by the US, is called “time trouble”.
The Western world has never faced such economic events and phenomena that are happening right now. USSR rapidly sold gold during the fall of oil prices. Russia rapidly buys gold during the fall in oil prices. Thus, Russia poses a real threat to the American model of petrodollar world domination.
The main principle of world petrodollar model is allowing Western countries led by the United States to live at the expense of the labor and resources of other countries and peoples based on the role of the US currency, dominant in the global monetary system (GMS) . The role of the US dollar in the GMS is that it is the ultimate means of payment. This means that the national currency of the United States in the structure of the GMS is the ultimate asset accumulator, to exchange which to any other asset does not make sense.
What the BRICS countries, led by Russia and China, are doing now is actually changing the role and status of the US dollar in the global monetary system. From the ultimate means of payment and asset accumulation, the national currency of the USA, by the joint actions of Moscow and Beijing is turned into only an intermediate means of payment. Intended only to exchange this interim payment for another and the ulimate financial asset – gold. Thus, the US dollar actually loses its role as the ultimate means of payment and asset accumulation, yielding both of those roles to another recognized, denationalized and depoliticized monetary asset – gold.
Traditionally, the West has used two methods to eliminate the threat to the hegemony of petrodollar model in the world and the consequent excessive privileges for the West.
One of these methods – colored revolutions. The second method, which is usually applied by the West, if the first fails – military aggression and bombing. But in Russia’s case both of these methods are either impossible or unacceptable for the West.
Because, firstly, the population of Russia, unlike people in many other countries, does not wish to exchange their freedom and the future of their children for Western kielbasa. This is evident from the record ratings of Putin, regularly published by the leading Western rating agencies. Personal friendship of Washington protégé Navalny with Senator McCain played for him and Washington a very negative role. Having learned this fact from the media, 98% of the Russian population now perceive Navalny only as a vassal of Washington and a traitor of Russia’s national interests. Therefore Western professionals, who have not yet lost their mind, cannot dream about any color revolution in Russia.
As for the second traditional Western way of direct military aggression, Russia is certainly not Yugoslavia, not Iraq or Libya. In any non-nuclear military operation against Russia, on the territory of Russia, the West led by the US is doomed to defeat. And the generals in the Pentagon exercising real leadership of NATO forces are aware of this. Similarly hopeless is a nuclear war against Russia, including the concept of so-called “preventive disarming nuclear strike”. NATO is simply not technically able to strike a blow that would completely disarm the nuclear potential of Russia in all its many manifestations. A massive nuclear retaliatory strike on the enemy or a pool of enemies would be inevitable. And its total capacity will be enough for survivors to envy the dead. That is, an exchange of nuclear strikes with a country like Russia is not a solution to the looming problem of the collapse of a petrodollar world. It is in the best case, a final chord and the last point in the history of its existence. In the worst case – a nuclear winter and the demise of all life on the planet, except for the bacteria mutated from radiation.
Yugoslav economy before the Western intervention of the proxy war, depopulation and de-industrialization of any important Slavic state and the NAM leader.
The Western economic establishment can see and understand the essence of the situation. Leading Western economists are certainly aware of the severity of the predicament and hopelessness of the situation the Western world finds itself in, in Putin’s economic gold trap. After all, since the Bretton Woods agreements, we all know the Golden rule: “Who has more gold sets the rules.” But everyone in the West is silent about it. Silent because no one knows now how to get out of this situation.
If you explain to the Western public all the details of the looming economic disaster, the public will ask the supporters of a petrodollar world the most terrible questions, which will sound like this:
– How long will the West be able to buy oil and gas from Russia in exchange for physical gold?
And what will happen to the US petrodollar after the West runs out of physical gold to pay for Russian oil, gas and uranium, as well as to pay for Chinese goods? No one in the west today can answer these seemingly simple questions.
And, this is called “Checkmate”, ladies and gentlemen. The game is over.
Original text: Grandmaster Putin’s Golden Trap taken with the permission from the Gold-Eagle (www.gold-eagle.com/)
Future Economy: Micro-Manufacturing & Micro-Exports
Recovery now forces economies to emerge as dynamic entrepreneurial landscapes; today, the massively displaced working citizenry of the world may not return to old jobs, but with little help slowly shifting towards entrepreneurial startups as new frontiers to create economic independence and increased local grassroots prosperity. Today, the latest global influences of trendy entrepreneurialism optimizing available options like high quality “Micro-Manufacturing” and high value added “Micro-Exporting” now common discussions on the main streets of the world. Although, this is not an easy task, but still very doable for so many and promises local uplifts. Smart nations are awakening to such bold notions and entrepreneurial driven agencies mandated to foster local economies are using virtual events to rise up with global rhythm and rich contents.
Therefore, the blueprints and new models of today on upskilling SME exporters and reskilling for better-designed manufacturing, nation-by-nation and city-by-city are mobilization ready ideas to optimize abandoned talents. Nevertheless, such upskilling and reskilling of masses demands already skilled leadership of most of the gatekeepers of local economic development venues.
Furthermore, global competitiveness has raised the bar and now only high quality value added goods and services traded for the wide-open world. The conveyer belts of technology and zoomerang culture of virtual connectivity flourishes platform economies. Missing are the advanced skills, complex problem solving and most importantly national mobilization of entrepreneurialism on digital platforms of upskilling to foster innovative excellence and exportability. SME and Startups must advance on global thinking, optimize access, and maximize image and quality superiority to reach the farthest markets with deeper pockets.
This is not an easy task. Methodical progressions needed. Study how Pentiana Project tabled advanced thinking on such trends during the last decade. Export Promotion Agencies, Chambers of Commerce, Trade Associations and most SME and midsize economic developments bodies all called for bold and open debates. For fast track results, follow the trail of silence and help thought leadership to engage in bold and open debates and give them guidance to overcome their fears of transformation.
Small enterprises must now open to new world of 200 nations and 10,000 cites
Micro-Exporters: Upskilling Startups to think like global exporters; the pandemic recoveries across the world coping with a billion displaced all have now critical needs of both upskilling and reskilling. Upskilling is the process of learning new skills to achieve new thinking. Reskilling is the process of learning new skills to achieve new performances. What is exporting, how to start at micro-levels and how to expand globally with technology are new challenges and promising options.
Micro-Manufacturers: Reskilling Startups to think like smart manufacturers; the real goals for startups to enlarge and base thinking on reskilling for “real value creation” becomes mandatory. How to start by thinking better, design quality with creative global age strategies and advance? Advanced Manufacturing Clusters in various nations will greatly help, but understanding of global-age expansion of value offerings with fine production is a new art and commercialization to 200 nations a new science.
The future of economies, The arrival of Virtual leadership and Zoomerang culture is a gift from pandemic recovery, although at infancy, the sector will not only grow but also alter global commerce for good. Once successful the traditional advertising and marketing models dying, direct access live interaction is now far superior to mass-mailing and social media screaming. The zoomerang impact of global thought leadership now forcing institutions to become armchair Keynote speakers and Panelists to deliberate wisdom from the comfort of their homes round the clock events has arrived.
The Difficult Questions: Nation-by-nation,when 50% of frontline teams need ‘upskilling’ often 50% of the back-up teams need ‘reskilling’ so how do you open discussions leading to workable and productive programs? Each stage challenges competency levels and each stage offers options to up-skill for better performances. Talent gaps need fast track closing and global-age skills need widening. New flat hierarchical models provide wide-open career paths and higher performance rewards in post pandemic recovery phases. When executed properly such exercises match new skills and talents with the right targeted challenges of the business models and market conditions. The ultimate objective of “extreme value creation” in any enterprise must eliminate the practices of ‘extreme value manipulations”.
First Three Steps: In order to mobilize a startups revolution along with a small medium business economy, start by identifying 1000 to 10,000 high enterprises anxious to grow for national global markets. To quadruple exportability, select a small leadership team, from local trade Associations, Economic Development Bodies and Chambers of Commerce responsive to calls of upskilling and reskilling as critical steps. Suggest roundtable discussions to reach local, national or global audiences to spread the message. Explore such superior level debates to mobilize local businesses. Most importantly, such mobilizations are not new funding dependent they are deployment hungry and execution starved. Futurism is workless, uplifting mental powers towards better value-added production of goods and services will save economies. Optimize zoomerang culture and use virtual events to raise the bar on thought leadership. The world is moving fast and best to join the pace.
The rest is easy
Portugal’s crisis management: “Economic patriotism” should not be tied to ideological beliefs
The economic policy of the Hungarian government has provoked fierce criticism in the last decade, as it deviated from the neoliberal mainstream and followed a patriotic path, putting Hungarian interests in the foreground. While many link this style of political economy to the conservative position of the Orbán-government, in Portugal, a left-wing administration followed a similarly patriotic line to overcome the symptoms of the Eurozone crisis, showcasing that economic patriotism is not tied to ideologies, but is merely responsible thinking.
The catastrophic path of austerity
According to the theory of austerity, the government by implying austerity measures, “puts its finances in order”, hence the state does not become indebted and consequently investors’ confidence in the economy returns. However, if we think about what we really mean by austerity (tax increases, wage cuts, budget constraints, etc.), even the theory itself sounds counterproductive. Not surprisingly, this theoretical counter productivity has been demonstrated in practice in several cases.
One of the best examples is the case of Portugal, which along with Greece and other Southern-European nations was probably hit the hardest by the financial crunch. While all of the “GIPS” (Greece, Italy, Portugal, Spain) entered a steer recession, Portugal somehow managed to overcome it more successfully than its regional peers, but before that, it felt the bitter taste of neoliberal structural reforms.
Although the case of Portugal was not as traumatic as the ones of its Southern-European counterparts, in order to keep its debt under control, stabilize its banks and introduce “growth-friendly” reforms, Lisbon negotiated a € 78 billion bailout package in 2011, in exchange for a rigid austerity program aimed at the 2011-2014 period, orchestrated by the European Commission (EC), the International Monetary Fund (IMF) and the European Central Bank (ECB), the infamous “Troika”.
The neoliberal recipe did not differ much from that of Greece, and the then ruling Passos Coelho conservative government faithfully followed the structural reforms demanded by the “group of three”: working hours increased, number of bank holidays fell, holiday bonuses were abolished, wages and pensions have also been cut by 20 per cent, while public spending on health and education was drastically cut, and due to escalating privatizations, public assets have also been sold off quickly.
Despite the fact that by 2014 the country’s budget deficit as a share of the GDP had fallen to 4.5 per cent from the staggering11.2 per cent recorded in 2011 and the current account showed a surplus – as domestic demand fell apart, forcing companies to export –Portugal was still on the brink of social and economic collapse.
Public debt soared to more than 130 per cent of the GDP, tens of thousands of businesses went bankrupt, unemployment rose to 17 per cent and skyrocketed to 40 per cent amongst the youth. As a result, many talented Portuguese fled abroad, with an estimated 150,000 nationals emigrating in a single year.
The post-2015 turnaround
Things only began to change in 2015, when the Portuguese elected Anotnio Costa as Prime Minister, who was the mayor of Lisbon under the years of the crunch. Shortly after his election, Merkel encouraged the center-left politician to follow the neoliberal prescription proposed by the “Troika”, while her Finance Minister, Wolfgang Schäuble, underlined that Portugal would make a “serious mistake” if it decided not to follow the neoliberal doctrine and would eventually be forced to negotiate another rescue package.
Not being intimidated by such “threats”, Costa ditched austerity without hesitation, restored working hours, cut taxes and raised the minimum wage by 20 percent in the course of just two years. Obviously, his unpopular position made him crush with Brussels, as his government allowed the budget deficit to reach 4.4 per cent, compared to the agreed 2.7 per cent target. However, in May 2016, the Commission granted Costa another year to comply, and since then Portugal has consistently exceeded its deficit targets.
Tourism also largely assisted the post-15 recovery, to which the government placed great emphasis, so that in 2017 the number of visitors rose to a record high, reaching 12.7 million. Concurrently, Portugal has significantly improved the international reputation of its businesses and products, which contributed to increasing the country’s export revenues and attracting foreign investment.
Furthermore, Costa has raised social spending and at the same time planned to invest state revenues in transport, environmental infrastructure and energy, initiatives that could be extremely beneficial, as they would not only significantly improve the country’s sustainability, but also boost job creation, something that yet again indicates how important public investment is to an economy.
Additionally, Portugal has become an undervalued tech-hub, with plenty of start-ups offering good employment opportunities in addition to fostering innovation. The government with several initiatives, seeks to create a business-friendly ecosystem for them, under which they can thrive and boost the economy to the largest extent. It is thus not surprising, that Portugal has been the fastest growing country in Europe when it comes to the number of programmers.
Finally, one of the Costa’s top priorities, has been to lure back emigrated Portuguese who moved abroad during the crisis. To this end, tax cuts are offered to Portuguese citizens who choose to return home.
In a sum, since Costa stepped into office, Portugal has undergone a rapid recovery: economic growth has returned, unemployment has fallen radically, the public debt was also set on a downgrading path, while the budget remained well-balanced despite the increased spending, with Costa himself explaining that “sound public accounts are compatible with social cohesion”. Even Schäuble acknowledged Portugal’scrisis management, by actually calling Mário Centeno – the finance minister of the Costa government – the “Cristiano Ronaldo” of finance ministers.
Of course, not everything is bright and wonderful, as the country has emerged from a large crisis, the effects of which cannot be eliminated in just a few years. Public debt is still amongst the highest in the EU and several other challenges lie ahead for the South-European nation, especially by taking into consideration that the world economy just entered yet another crisis.
Furthermore, according to many, it was not Costa who led the recovery, but Portugal passively benefited from a strong recovery in Europe, falling oil prices, an explosion in tourism and a sharp drop in debt repayment costs. Indeed, it has to be taken into account that Portugal entered the recession in a relatively better position than many of its spatial counterparts and the relatively high quality of its domestic institutional infrastructure and policy-adaptation capacity aided the previous government to efficiently complete the memorandum of understanding (MoU) as early as 2015. Nevertheless, this is not a sufficient reason to discredit the post-2015 government’s efforts and justify the harsh austerity measures implied by the Troika. Taking into account that austerity never really provided decent results, it becomes evident that Costa’s policies were quite effective.
Economic patriotism should not be connected to ideologies
While in the case of Hungary and Poland “economic patriotism” has been fiercely criticized despite its prosperous results, this spite tendency has been an outcome of strong politicization in economic policy analysis. Even though the political context is verily important, it is also crucial to interpret economic policy independently, in order to take away valuable lessons and identify mistakes. Political bias is not a fortunate thing, as it is absolute and nullifies debate and hence development.
The case of Portugal is a perfect example, as it provides sound evidence, that a patriotic economic policy can be exercised by governments from all across the political spectrum and that the notion should not be connected to political and ideological beliefs. The left-wing Costa-government with its policy-making demonstrated that a solution always exists and that requires a brave, strong and decisive government, that pursues its own plan in the interests of the ‘patrie’, regardless of its positioning.
The Question Of Prosperity
Galloping economic woes, prejudice, injustice, poverty, low literacy rate, gender disparity and women rights, deteriorating health system, corruption, nepotism, terrorism, political instability, insecure property rights, looming energy crisis and various other similar hindrances constrain any state or country to be retrograded. Here questions arise that how do these obstacles take place? How do they affect the prosperity of any country? No history, geography, or culture spawns them. Simply the answer is institutions that a country possesses.
Institutions ramify into two types: inclusive and extractive. Inclusive political institutions make power broadly distributed in country or state and constrain its arbitrary exercise. Such political institutions also make it harder for others to usurp rights and undermine the cornerstone of inclusive institutions, which create inclusive economic institutions that feature secure property rights, an unbiased system of law, and a provision of public services that provide a level playing field in which people can exchange and contract; it also permits the entry of new businesses and allow people to choose their career. On the contrary, extractive political institutions accord clout in hands of few narrow elite and they have few constrains to exert their clout and engineer extractive economic institutions that can specifically benefit few people of the ruling elite or few people in the country.
Inclusive institutions are proportional to the prosperity and social and economic development. Multifarious countries in the world are great examples of this. Taking North and South Korea; both countries garnered their sovereignty in same year 1945, but they adopted different ways to govern the countries. North Korea under the stewardship of Kim Il-sung established dictatorship by 1947, and rolled out a rigid form of centrally planned economy as part of the so-called Juche system; private property was outlawed, markets were banned, and freedoms were curtailed not only in marketplace but also in every sphere of North Korea’s lives- besides those who used to be part of the very small ruling elite around Kim Il-sung and later his son and his successor Kim Jong-Il. Contrariwise, South Korea was led and its preliminary politico-economic institutions were orchestrated by the Harvard and Princeton-educated. Staunchly anticommunist Rhee and his successor General Park Chung-Hee secured their places in history as authoritarian presidents, but both governed a market economy where private property was recognised. After 1961, Park effectively taken measures that caused the state behind rapid economic growth; he established inclusive institutions which encouraged investment and trade. South Korean politicians prioritised to invest in most crucial segment of advancement that is education. South Korean companies were quick to take advantage of educated population; the policies encouraged investment and industrialisation, exports and the transfer of technology. South Korea quickly became a “Miracle Economy” and one of the most rapidly growing nations of the world. Just in fifty years there was conspicuous distinction between both countries not because of their culture, geography, or history but only due to institutions both countries had adopted.
Moreover, another model to gauge role of institutions in prosperity is comparison of Nogales of US and Mexico. US Nogales earn handsome annual income; they are highly educated; they possess up to the mark health system with high life expectancy by global standards; they are facilitated with better infrastructure, low crime rate, privilege to vote and safety of life. By contrast, the Mexican Nogales earn one-third of annual income of US Nogales; they have low literacy rate, high rate of infant mortality; they have roads in bad condition, law and order in worse condition, high crime rate and corruption. Here also the institutions formed by the Nogales of both countries are main reason for the differences in economic prosperity on the two sides of the border.
Similarly, Pakistan tackles with issues of institutions. Mostly, pro-colonial countries are predominantly inheritors of unco extractive politico-economic institutions, and colonialism is perhaps germane to Pakistan’s tailoring of institutions. Regretfully, Pakistan is inherited with colossally extractive institutions at birth. The new elite, comprising civilian-military complex and handful aristocrats, has managed to prolong colonial-era institutional legacy, which has led Pakistan to political instability, consequently, political instability begot inadequacy of incentives which are proportional to retro gradation of the country.
Additionally, a recent research of Economic Freedom of the World (WEF) by Fraser Institute depicts that the countries with inclusive institutions and most economic freedom are more developed and prosperous than the least economic free countries; countries were divided into four groups. Comparing most free quartile and least free quartile of the countries, the research portrayed that most free quartile earns even nine times more than least free quartile; most free quartile has two times more political and civil rights than least free quartile; most free quartile owes three times less gender disparity than least free quartile; life expectancy tops at 79. 40 years in most free quartile, whereas number stands at 65.20 in least free quartile. To conclude this, the economic freedom is sine quo non for any country to be prosperous, and economic freedom comes from inclusive institutions. Unfortunately, Pakistan has managed to get place in least free quartile.
In a nutshell, the institutions play pivotal role in prosperity and advancement, and are game changer for any country. Thereby, our current government should focus on institutions rather than other issues, so that Pakistan can shine among the world’s better economies. For accomplishing this highly necessary task government should take conducive measures right now.
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