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Trade Deficits and the Health of the Economy-13: Dialog with Nikola Gruevski, former Minister of Finance of Macedonia

Sam Vaknin, Ph.D. - 3/25/2006

SV: One technical comment, though. TQM is a more comprehensive management philosophy, which revolves around the assurance of quality in all phases of the economic activity of the firm. But TQM is one of many such philosophies (and lately very much out of favour). These fads are by no means comparable to ISO, which is a set of procedures and processes which are rigorous, clearly defined, objective, management-independent to a large degree and widely and unanimously accepted. ISO is a standard, almost mathematical in its purity. TQM is a management fashion. Comparable to TQM is the system of thought developed by Isaac Adijes, a Macedonian (!!!) Jew. Adijes deals less with quality and more with corporate survival as a function of the corporate life cycle. There are numerous such management theories. Their implementation depends to a very large degree on the instructor or teacher in charge. ISO is a science, TQM is an art.

NG: Having ISO 9000 doesn't mean that the company reached the top. It only means that a specific production process offers guaranteed quality standards, which afterwards can be graded. Such a certificate would be very useful also for firms, which do not export, because it makes it possible to improve the firm's operations.

We discussed earlier the way to stimulate producers in RM - tax stimulation, bonuses and in certain cases tax holidays for limited periods of time, providing advantages for using credit financing (stimulation both of the users and of the banks). For a start, the state can cover the basic costs for obtaining quality certificates to the 20 to 40 most strategic Macedonian companies, elected according to predetermined criteria for qualifying. With this the process of economic reconstruction in the export sector will be much quicker. This represents the state's investment, which will be returned very soon, through increased exports (and production), increased inflows of foreign currency and finally bigger income to the budget from the companies, which will increase their production and their exports. I am convinced that if RM will ask for it, it will receive non-returnable help from some foreign funds for this purpose, with a big part of the financial resources obtained on this basis. If RM plans to become a member of the EU and to increase the trade exchanges with it, it has to achieve higher standards of operations and production. This means that, basically, this should be a concern of the producers and the managers of the national economy have to find the way to speed up this process.

SV: Quality plays a dual role in the advanced and developed economies of the West. True, it is intended to guarantee some kind of uniformity and predictability, which make the consumer's life easier. He knows what to expect when he buys a product. Uniform quality standards also facilitate economic activity because the amount of information, which has to be exchanged is reduced dramatically and disputes are more easily solvable. When the two parties agree – through the medium of the quality standard – what should be the minutest and precise characteristics of a product or a service, there is an ever smaller room for misunderstandings and arguments.

But there is an uglier side to "quality standards". This is the side of protectionism. Countries use quality, health, environmental and other standards to protect domestic producers from foreign competition. Shielding them from competition is costly because it is economically inefficient. It is always better to buy cheaper imports than to manufacture the same products locally and expensively (the relative advantage theorem). But it is politically popular because it saves jobs and makes some people richer. Crazy health, safety and environmental regulations mix with unearthly and outlandish demands for purity and performance to protect rich countries from their poorer brethren. It is virtually impossible to sell agricultural produce or textiles to the EU or textiles to the USA – unless the exports are regulated in special agreements and treaties. It is totally impossible to export to Japan and very difficult to export to China. But the same produce (wine, meat) or textiles – refused under the quality or health pretext when it emanates from Macedonia - are often sold in the very same markets under Italian or German or South East Asian labels. This only serves to expose the amount of hypocrisy with which quality standards are applied in order to block free trade. To this there is only a political solution and small countries are too insignificant to influence market giants like the EU. But they can and should operate through the mechanism of the WTO and the various international commercial arbitration courts available even to small countries. The advantage of puny trade players like Macedonia is that their nuisance value is higher than the potential damage that their negligible produce can inflict if given free access to the target markets. In most cases, they will be given exemptions and preferred treatment on condition that they do not rock the boat of international trade. Shut up and export as much as you like – is the warning-cum-promise. Macedonia should take advantage of its nuisance value.

NG: Every company, which has attention to enter or to invest in another market, has a need for reliable data on which it will base its decisions and plans. It needs to know the potential market's volume, the preferences and principles of the buyers, the characteristics of the distribution channels, the competition. As the more sophisticated companies reach the decision to invest or to act in the markets of undeveloped countries (such as the countries in transition) they need more detailed and reliable data without incurring big expenses. Also, the local investors have such needs, and it is very important for the small and medium enterprises, most of which are oriented towards the domestic market. That's why I think that RM needs a database for each economic field. The data will be detailed, efficiently processed and presented through the internet, in publications, bulletins and at the request of the clients. Similar databases exist in the Chamber of Commerce of RM (an information center) and in the Bureau of Statistics, but I think that they are not sufficiently analytical, and are inadequate for certain types of market research and not sufficiently available to the wider circle of users. Such a database can be managed within the Agency for Marketing and it can be under the same budget. Its data will be on disposal free of charge to every economic entity and to any other interested party. Even though, in the beginning, the interest in using these data will be low, because of the low level of investment activity and the wide rejection of the concept of marketing in the enterprises, it will start very fast to play a big role in the improvement of work of the economic entities and in their development, as in that of the whole economy.

Beside the export-oriented policies, great care to secure the substitution of imported goods is needed, in order to prevent the outflow of foreign exchange, through the provision of cheaper credits, tax holidays (especially for higher quality goods), projects from the governmental agencies and eventually through duty protection.

According to the Bureau of Statistics the structure of imports in RM, classified by economic use, is as follows: materials for re-processing constituted 57.6% of the total imports in 1995. In 1996 – 55.6% and in 1997 – 61.4%, which still has to increase. Imported machine tools constituted 4.2% of the import structure in 1995. In 1996 – 3.3% and in 1997 – 2.9%. The situation with imported consumer goods is not good: in 1995 – 37%, in 1996 – 47.1% and in 1997 – 44.7%. It is remarkable that consumer goods represented almost one half of the total imports to RM. It is known who drinks and who pays, but can it be known until when?

Within the Macedonian imports, the highest part belongs to oil and oil derivatives, because of the absence of gas, as cheaper energy sources and the dependence of RM on energy imports. But it is interesting that in the second place, according to the amount of foreign currency spent, is the import of cars. Car imports comes second in the structure of Macedonian imports and this implies that the state should increase the cost of purchasing cars, which, on the other hand, is against the improvement of the environment and the renewal of the fleet of vehicles in RM, which still is on a very low level. The arguments for and against this measure are strong and they can be a subject for a separate discussion.

I think that the policies of the state should also be directed at limiting the imports, but by more sensitive measures and at the same time more useful, for instance, by determining high standards for the quality of the imported products. The quality standards should be determined in advance and be compatible with the EU standards. This policy would be implemented especially regarding the import of agricultural products and consumer goods.

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