Why is it so expensive in Bulgaria? What economic measures should we expect from "Progressive Bulgaria"? And what measures would Bulgaria actually need? Ivaylo Noizi Tsvetkov talks to economist Georgi Ganev.
What real economic measures and actions do you expect from "Progressive Bulgaria"? Because the demands in their program are both left-wing and right-wing, like "something for everyone".
Georgi Ganev: This is very difficult to predict at the moment. Not so much because their demands were diverse before the elections, but because it seems that this political force has received its mass support from voters who do not form even vaguely coherent attitudes regarding economic policies. And the new majority will inevitably have to choose where to reflect some views and where - others. This will probably happen situationally, strongly depending on the specifics of circumstances that can hardly be predicted now. But I would like to remind you that one of the completely unambiguous and clearly stated priorities of this force in the election campaign was for a balanced budget without touching the taxation and social security. I mention it as a reminder, not as an expectation.
And what measures are needed? If you were the Minister of Economy with full political support, what would you do in a few steps?
Georgi Ganev: Let me clarify that I can never be the Minister of Economy with full political support in Bulgaria, because my understanding of good economic policy is extremely minority. But if for the purposes of the conversation we ignore this impossibility, the necessary measures are divided into two groups - immediate and more time-consuming. The first group includes a balanced budget, limiting (not zeroing, but this is a long conversation) the growth of salaries in the public sector, the beginning of an authentic haircut of the staff in the administration - central and local. Restoration of municipal and departmental capital programs, as for the municipal one this will be treated only as a first step towards a certain level of fiscal decentralization.
Long-term measures include reforms in ailing sectors. For example, the pension - towards a significant dominance of the private pillar and the use of the state expenditure-covering fund solely as part of social policy - state pensions only for those who would otherwise spend their old age in unacceptably severe poverty. All social policy should be reformed in the direction of social assistance, in any form, being received only by those truly in need and towards a ban on social policy being made through prices. Reform in the energy sector in the direction of much more competition and market mechanisms - for example, moving to a liberalized electricity market for absolutely all consumers at the first possible moment. Next steps towards fiscal decentralization - ceding shares of certain taxes, strengthening the ability to generate own revenue sources, for example, the long-overdue update of real estate tax assessments. And many other reforms.
Why is the right right? With the obvious reference to the double meaning of the English word "right".
Georgi Ganev: On a theoretical level, the right is right because it represents the best feasible combination between private incentives and the implementation of the common good that a society of homo sapiens is at all capable of achieving. On an empirical level, the right is right because only with the right does one become wealthy. This year we mark 250 years since the publication of "The Wealth of Nations" by Adam Smith. In one of his letters, he gives a simple and clear recipe: "Peace, easy taxes and an acceptable administration of justice". Nothing more. This is the right-wing recipe. It is theoretically irrefutable and proven in real life.
How do you make a sensible economic policy in a country where the majority, and even part of big business, gapes at the mother state with their mouths open and squeaks deafeningly "give it"?
Georgi Ganev: Gradually. First, making efforts to create an environment that benefits the competitors of the gaping scoundrels. By "competitors" I mean business people who adopt a life and entrepreneurial strategy of getting rich by creating, producing value for others, rather than by appropriating already created value. These productive, creative people and entrepreneurs are always able to achieve much more with much less than those with gaping scoundrels. Then gradually turning off the taps to the scoundrels. They will protest, sabotage, oppose, but if the productive business people have a clear perspective before them, this opposition will be unable to set the agenda or last long.
Is there a relatively easy answer to the question "Why is everything getting more expensive"? To what extent is it a question of price speculation, to what extent is the cause inflation, etc. Beyond "feelings" and politicking.
Georgi Ganev: Yes, there is an extremely easy, clear and simple answer to the question of the rise in price of everything. Everything rises in price because the state creates the money supply faster than real production in the economy grows. Let me repeat: the state creates inflation. Why it does it is an interesting secondary question, to which, with a slight simplification, the short answer is that the inflation tax, at relatively moderate levels of inflation, is politically the most convenient, the most comfortable, the most hidden, with the easiest avoidance of responsibility – compared to all possible taxes or taking on debt. The evasion of responsibility by the rulers who created inflation is done with various propaganda myths that inflation was the result of greedy speculators.
What do you think about the leftward shift that we have been observing recently in an economic sense (and thought)?
Georgi Ganev: I think that it is happening far from only in economic thought. Even economics is perhaps the place where this leftward shift is happening much later and is currently to a much lesser extent than in other social sciences. And the overall leftward shift of the social sciences is a purposeful project that began almost immediately after World War II (but in the case of Beatrice and Sidney Webb, well before that). It is about the purposeful unification of Marxist postulates with the ideas of Fabian socialism - both from the second half of the 19th century. Both originated in good old England. Then there appear highly developed continental "thinkers", especially French ones. And always an essential part of this project is the permeation of the entire academic world - gradually, slowly, step by step, but continuously, steadfastly, unwaveringly. Like Fabius against Hannibal. Never a direct heroic battle. Always an inch by inch conquest, quietly and stubbornly. Hayek noticed it almost immediately after the Second World War, but economists, then mostly right-wing, underestimated the process. Today, the only possible form of the right as capable of imposing an agenda is in the form of right-wing populism. The irony is that only among ordinary "people of the people" any right-wing thoughts and values are still present at all, and even with visible support. The "elite", "intelligentsia", "thinkers", with few exceptions, are currently a lost cause for the right.
Let's try a bold mid-term look into the future: how will the entry of artificial intelligence affect the labor market, especially in Bulgaria? Should we not return to the leftist Paul Lafargue and his "right to be lazy"? That is, should we work hard, as Vazov commands, or will the falling value of labor (unskilled) increasingly render the effort meaningless?
Georgi Ganev: In answering this question, I turn to the lessons of the past. It is claimed that we are now going through a phase of "industrialization" of societies, which is defined as the fourth. These definitions and periodizations are not very convincing to me, but in the past, every visible and tangible novelty has given rise to predictions of the death of jobs, the destruction of labor, all kinds of turbulence and dangers. Usually, in the end, yes, many jobs are destroyed, but even more usually, many times more, better-quality and more profitable jobs are created by these same innovations. Perhaps we need to deliberately remind ourselves that the biggest destroyer of jobs in the late 19th and early 20th centuries was the automobile, and in the second half of the 20th century - the computer. So here too, Bulgaria cannot be isolated from the rest of the world. Economically, Bulgaria is indeed already an organic part of the world and artificial intelligence will destroy jobs. Based on my knowledge of the past, it will also create many, many more, more diverse, more profitable and more productive jobs. It is a question of the quality of the entrepreneurial environment to what extent each particular society will limit the damage and maximize the possible benefits. Maximizing benefits cannot be done without labor. In this light, I do not see a decline in the marginal product of labor, including unskilled labor, on the contrary - productivity and hence the valuation of labor will probably, in real terms, increase.
How would you explain our current economic situation and prospects to a, say, 22-year-old Bulgarian?
Georgi Ganev: I will describe to him how things were when I was 22. I was 22 in 1989-1990. A failing planned-socialist, command-administrative economy. A rapidly depreciating capital base, without maintenance and renewal. Disintegrating economic relations. High (already in the tens of percent per year) and promising to become increasingly higher inflation. A winter of famine. Food crisis in the cities. Budget deficits of 6, 8, 10 percent, with quasi-deficits - often over 15 percent of national income. A major entrepreneurial project: plundering state property. State debt, much larger than the annual national income and denominated in a currency over which the state has no control. An extremely strong - winning elections and full majorities - party, whose officially declared goal is to find the path to "correct" socialism. Total domination of state property in the economy, in the media, in almost all public mechanisms. That's what I would tell a 22-year-old Bulgarian today. And let him make his own comparisons, he certainly knows better than me how he sees things today from his perspective.