Monday, April 7, 2014

Productivity is the way out

In 2013, Mongolia’s gross domestic product (GDP) grew by 11.3 percent to reach 17 trillion MNT. However, the average income of Mongolians did not increase significantly because the cost of living rose 10.3 percent in the same year. It allowed the purchasing power of people to increase by only one percent. Furthermore, our economy, which receives 88 percent of its total consumer goods through imports, suffered a huge blow when the tugrug rate declined by 30 percent.

During the recently held Mongolia Economic Forum, our Prime Minister said, “The reason why our economic growth has not shown great benefits is associated with our low level of productivity.” He also said, “If Mongolia had produced competitive products and been able to largely meet its domestic demands, we would not have faced such a situation today.” Then, what should we do in order to boost our productivity?

REASON FOR LOW PRODUCTIVITY

The main reason behind low productivity today is that it is possible for anyone to work and live in Mongolia without having to truly master whatever job he or she might do. Also, people do not realize that they could have a good life by working hard and putting their best efforts into what they do. There is not yet any kind of social pressure that requires people to be hard-working to live their life. Mongolians are not able to increase their income and create an accumulation of wealth due to a lack of diligence, professional knowledge, and skills. Furthermore, the blame should be shared by companies that are not paying their employees. Parts of our workforce, especially those who do hard labor, are not being paid and are losing their faith without knowing what action to take next.

Mongolians have become used to laziness, excessive spending, and a habit of consuming more than we create. You can see expensive imported luxury cars on the streets of Ulaanbaatar. It shows that luxury consumption per capita has become very high in our country. Nevertheless, most of our population has no savings and are using up all their salary by the time their next salary comes in. For those reasons, there is no middle class being formed in our society. The minority who has become wealthy are shifting to luxury as soon as they earn just enough money to do so. It makes it difficult for the nation to create capital accumulation.
Being unable to accumulate capital domestically, we have spent many years conducting policy to attract foreign investment into our country. However, we’ve chased investors away in the last few years. The government is now attempting to acquire huge foreign loans in order to keep the economy functioning and build required infrastructure.

HOW TO IMPROVE PRODUCTIVITY

We already know that in order to make our economy productive, Mongolians have to produce goods and services that can be competitive on the international market. But it does not mean that we are going to produce everything that we are currently importing. Our advantage lies in not only natural resources, but also prospecting and mineral extraction, meat, milk, wool, cashmere, and other animal products, raw materials, tourism, and, eventually, financial services. In order to improve our productivity, we need to produce internationally accepted, high quality goods and services and supply them to the markets in our two neighboring countries.

To achieve this goal, we will clearly need a considerable amount of investment. Such investment must be created, saved, and accumulated by us. When it comes to wealth creation, similar principles apply to a nation and an individual.

Benjamin Franklin, one of the Founding Fathers of the United States of America, wrote in his book “The Way to Wealth” (1758), that an individual must follow three principles in order to become wealthy. His three principles are: to create, save, and spend wisely. Creating means having a profession and a job, and working hard and productively. Saving means being prudent and economical. Spending wisely means working smart, knowing what to spend your money on, and acquiring knowledge and education.

If Mongolians implement these exact principles at a national level, we can create accumulation and be able to make investments. The investments would help us build infrastructure, expand our businesses, and improve our livelihoods. Economic growth requires stable government policy, a competitive business environment, and capable business management.

In order to have increased investment, the government, along with the private sector and individuals, should reduce their luxury goods consumption, accumulate capital, and save their money in banks so that they can use it to provide loans. Besides boosting foreign investment, we should pursue such policy. The government should look at domestic capital accumulation and support investment before trying to acquire foreign loans.
It is time for the government to increase the taxes imposed on luxury consumption, replace old vehicles that do not save and conserve energy, and show exemplary initiatives to the public by being modest in their own expenditure. We should learn to save money and engrain such culture in our mindset.

In order to increase productivity and create competitiveness, many companies need to be competing in a given industry and become able to meet domestic demands before entering the international market. During this process, the required infrastructure, both hard and soft, is created along with reliable human, material, and financial resources. Improving our productivity is the only way for Mongolia to develop its economy and improve the livelihood of people.

Translated by B.AMAR

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