Cyclopedia Of Economics 3rd edition

1. 
   Import goods and services that can be manufactured and provided more cheaply abroad than domestically. Simply, if something costs more at home (and is of comparable quality) – import it.
   

2. 
   Import goods and services the will increase the use of your economic resources and your future inflows of income in foreign exchange.
   

3. 
   Minimize imports of goods and services that will have no effect or a negative effect either on the optimization of the use of the economic resources – or will generate outflows of foreign exchange in the future for further consumption.
   

4. 
   Emphasize the quality of imports – not their quantity. Buy state of the art goods and services. Buy the few best rather a lot of the mediocre.
   

5. 
   Refrain from financing your purchases with debts. The only exceptions are the financing of infrastructure and public health (defense, education, health). Very few goods and services provide a return that it sufficient to cover the principal and interest of such debts.
   

6. 
   Have clear priorities and preferences. What is more important: to have sufficient foreign exchange to buy food – or to preserve and improve the environment? I think that the answer is self-evident.
   

7. 
   Employ discriminatory policies. Impose customs duties and quotas on some goods and services – and exempt others. Tax cars prohibitively – but exempt catalytic converters (or even help to finance them) and, thus, preserve the environment.
   

8. 
   Encourage import substitution only when it is clear that the domestically manufactured or provided goods and services will be cheaper (=economically more efficient) than the imported equivalents.
   

9. 
   Punish smugglers, bootleggers and other trade violators. Be fair and evenhanded. Make your priorities, punishments and rewards known and lucid.
   

10. 
    Act fearlessly against other countries that violate the acceptable principles of international trade. Impose duties and quotas or quality and health requirements on their products as well.
    

11. 
    Encourage importers to establish factories and open offices in your country. Go ton the extent of subsidizing their presence. It is important to be revealed to these people. A lot of trade is the result of mere presence, of daily friction with reality and with its needs.
    

In the framework of export stimulation and import de-stimulation in order to reduce debts, should include reciprocal measures against countries which do not respect signed free trade agreements. Also, in order to reduce the Macedonian deficit in the balance of payments it is needed to implement retaliatory duties against countries which block the import of Macedonian products for consumption and otherwise.

For the purposes of  protection against imports and the outflows of foreign exchange it is preferable to use fiscal instruments such as taxes and fees (and rarely duties), prior to imposing administrative quotas. The administrative taxes open wide possibilities for corruption and crime and they are not very popular. I think that definitely the duty on the imports of investments, equipment and raw materials, should be reduced to a minimum or cancelled altogether, which will make the production enterprises more competitive.

SV: Absolutely. This is a fine example of discriminatory practices. Raw materials, infrastructure, computers, investments – should be exempted. This will be a tremendous boost to domestic manufacturers. There is, of course, an even simpler way: the introduction of a Value Added Tax (VAT). Such a tax applies to imported goods and services – but not to exported ones (the tax is returned to the manufacturer or exporter). Research has conclusively demonstrated that in the first year after the introduction of VAT there is a surge in exports and a decrease in imports (which become more expensive). People either consume goods produced domestically and which substitute for the imports – or they resort to exporting.

NG: We shouldn't forget the leading role of an active anti dumping policy as applied to import products, which are more expensive in their domestic market and for which there is an obvious knowledge that they fall within the scope of the anti-dumping measure.

At the same time, the efforts of RM to enter in the World Trade Organization should be more vigorous. But, until such time it is possible to take advantage with regards to certain limitations, which are not obligatory for non-members of that organization. The membership in WTO guarantees a mutual respect of the issued rules of the game between the trading countries.

For a small country like RM, it is interesting to regard the idea of an economic relationship with some other very big and powerful economic power (if the latter will find any interest in it: concessions, extra investment bonuses or even a covert political benefit). For a small country that would mean a lot, and for the bigger one the trade with the small partner would not even be noticed.

For sure there is a danger of long term political dependence, but if a few moves would be adopted cautiously, the two parties would be satisfied. The second danger is the so-called "butterfly effect" - an economic crisis in the big country. The waving of the butterfly's wings in the big country would mean severe hurricane over the smaller country a week later. Following the Asian crisis, everything is regarded with fear. The speed of the crisis hopping from one country to another appears like a thunder.

The scale of dissertation process on the basis of exports made the country more or less sensitive to the fluctuations in the conditions of trade.

Of course that are some other problems. First, RM doesn't have access to the sea nor the ideal geographic position necessary to become the subject of this kind of  collaboration in the sense that it is not territorially close to one economically powerful country, as for example is the case with the Czech Republic and Germany, or Japan and some other countries in the south-east Asian region.

Second and very important component is that RM has a serious problem with its manpower requirements.

The whole export of RM is a drop in the ocean compared to the export of the big economical powers. For example the whole export of Japan in 1996 was $333.832 billion and the whole export of RM in the same year was less than $1.2 billion. The exports of Japan that year were about 278 times the exports of RM. A similar conclusion would be reached when we compare RM with other economic powers   (USA, France, England, Germany, Canada, etc.).

The regional free trading zones appear to be a better option for the smaller countries, supported by WTO, which battle fiercely against duty restrictions. But, taking into consideration prices of the competition and more rarely the quality of the products of neighbouring and other countries in the region, there is a danger of such situation developing (regional free trade zone). In this development phase, RM could experience a rude awakening if excluded from such a regional club.

In my opinion, RM should definitely institute new policies for its economy by more actively and more vigorously pursuing foreign policies for the opening of new markets in a political way (through bilateral and regional agreements), parallel with the internal economic reconstruction, preparing the conditions for a free market economy and stimulating the enterprises to think about their development and future by themselves. The latest example, the involvement of the Minister of Agriculture in the sale of Macedonian wines in the Slovenian market, should be a positive example for further dealings. I think that with bilateral contacts at the highest level, RM will be able to significantly increase its exports and to contribute to the opening of new markets in the long run and to the attraction of foreign investments. Of course these measures are not economically healthy, nor are they the ultimate solution. The Macedonian economic situation is not very healthy , so they can be used more pervasively in the short and medium term. Such an idea should not be understood that domestic economic entities should rely on the government for help, on the contrary, it should be only an additional effort on the way to achieving quicker economic prosperity.

In this context I will mention one recent example. While I stayed in Japan, I discovered that RM doesn't have an Ambassador or a Consul or any other representative (Macedonian) in the SECOND LARGEST ECONOMIC POWER IN THE WORLD with 126 million people and a nominal GDP per capita of $36.572 (source: Japan 1998 an International Comparison - Keizai Oho Center – The Japanese Institute for Social and Economic Issues). I assume that the answer to the question "why" is that RM conducts only small business with Japan. According to my opinion it should be an additional reason for a representative to be sent there in order to prepare the territory and to make conditions for this situation to be changed drastically.

SV: You touched upon the three alternatives available to small countries that wish to increase their exports and to extract themselves from a chronic state of poverty (=of deficits). The first alternative, is to attach itself to one big economic power. This is the case of the Czech Republic and used to be the case of Israel, Cuba and dozens of other countries. The lessons show clearly that this is a good strategy as an interim measure. A small country can attach itself, economically, to a bigger one, ONLY if it uses the time that it thus buys to get rid of this dependence. While closely and overwhelmingly collaborating (usually, not only economically but also politically) with the bigger power – the small country should fervently and ceaselessly develop alternatives: other markets. Otherwise, it will end up like Cuba did. It sank into abject poverty when its main "sponsor" (USSR) became economically defunct. "Sponsor-Client" or "satellite" relationships are good as a stopgap measure or in times of emergency. There is no such thing as "pure" economics. In the global arena, economics is a reflection of political and geopolitical realities. Ask Saddam Hussein. There is a political price to pay for attaching oneself to a global power. Many will find this price unacceptable. Germany allows itself to publicly humiliate and chastise the Czechs (regarding the Sudetenland Germans issue) precisely because it is economically dependent. The wish of Macedonia to join the EU has always hampered its ability to negotiate freely with Greece.

The second option is to join a regional trade club. The most prestigious is, of course, the EU. I have expressed my opinion many times: it would be unwise for Macedonia to join the EU now. These are the conditions under which a country should join a regional club:

1. 
   That it includes all the major trade partners of the country;
   

2. 
   That it will not be overwhelmed by the size, importance, wealth, history, experience, or personality of the other participants;
   

3. 
   That it will not be consigned to one role (Macedonia – the supplier of cheap and educated labour or the supplier of cheap, good quality raw materials, for instance);
   

4. 
   That it will benefit by joining. In other words, that due to the privileges of the membership either the net foreign exchange outflows will decrease or the net cash inflows will increase. This could be achieved by lowering trade barriers and simplifying bureaucracy or by providing investment and export incentives;
   

5. 
   That it will not get involved in a trade war as a result of joining the club and that it will not breach any international treaty or convention;
   

6. 
   That it will have well defined and clear opt-out options, clear procedures for the settlements of disputes, equitable and fair treatment of all the members and a clear political and economic stance vis-a-vis other clubs and countries;
   

7. 
   That the rules of the club will not conflict with its rules, the mentality of its people, its ethos, its political structure or any other important component of its identity.
   

The third option is always preferable and admissible. Politicians, diplomats and spies all should participate in the new "Green (economic) World War". Politicians and statesmen should sign bilateral and multilateral agreements. Lesser political mortals should protect the interests of their businessmen and exporters. Diplomats should educate, disseminate information, visit, lecture, cajole, convince, threaten, negotiate and matchmake (joint ventures). This activity is the raison d'etre of modern government.

I discovered that Japan in the past and RM today have many common characteristics and similarities.

Industrialization in Japan begun slowly with the revival of imperial authority in 1868. Japan remained closed to the external world for 230 years, a period known as the Tokugawa era. The country was very poor by way of natural resources and its people lived an improvised existence, something similar to RM at that time. According to some estimates GDP per capita during this period was $100-200, which placed Japan in the category of the world's poorest countries according to standards which are used by the UN today. People were employed in agriculture, and Japan today as in the past was totally dependent on imported raw materials.  Today Japan depends on foreign imports for its carbon (92.9%), distilled oil (99.7%), oil derivatives (19.4%), natural gas (96.1%) (imported frozen in container ships), iron ore (100.00%), bauxite (100.00%), phosphate rock (100.00%), lumber (55.2%), pulp (20.3%), salt (90.2%). The energy and the metals are imported from a few countries in the world and Japan depends on them.

The four bigger and the few smaller islands on which Japan exists represent 0.3% of the planet's earth surface, and the Japanese population is 2.4% of the total population of the planet. Within the years following its opening to the world, Japan went from being a poor agricultural county to full industrialization. For them to start and to develop the industry on the basis of the European and American technology was imperative. At that time the Japanese government invited people from different countries, experts from different areas. So, in the period 1880-1910 the establishment of the most important science institutions, which started to conduct research, to transfer and develop western technology, started. The construction of a complete travel infrastructure started. Governmental intervention and planning were big at that time. Prior  the second world war, Japan became one of the most advanced countries in the world even though it depended heavily on imports, which means that it had to export and with the foreign currency earned, to import. Unfortunately, in 1936 the controlled economy begun, the economy which was prepared for war, from which Japan emerged totally destroyed (as a result of mass bombarding), territorially and humanly damaged and above all suffering the consequences of the nuclear bomb. It was tortuously difficult to find work for 7.2 million ex soldiers plus 13 million unemployed workers, students and others from factories, faculties etc. The real income in 1946 had been 30% of the average one in the period 1934-1936 and the inflation was 200% in the period August 1946 - March 1947. Everything that was built before had been destroyed and Japan started its development anew.

From the bottom of the list by its economic development and natural resources, the relatively small Japan pulled itself into the position of the second economic power in the world with the biggest foreign currency reserves in the world (which the current currency crisis reduced somewhat), a long term surplus in the trade balance, the second place in the world by GDP per capita (above $36.000), bigger than the USA's or Germany's (above $28.000), a country which almost one third of its exports (one way or the other) are placed ion the very sensitive markets of North America and 22% in Western Europe, transforming itself at the same time to a regional leader, and into a country with an unemployment rate which in the past few years increased from 2.7% to 4.1% (close to the American rate). Only 25 years ago its income per capita was less than one half of the American one. To reach a situation of having an advantage of 25% over the USA is an amazing feat. In the period 1900-1987 Japan with an annual average economic increase of 3.1% digested the biggest increase of the real income per capita. Beside this, from a sizable importer of expertise transformed itself into a big exporter. For example in 1989 about 100 thousand professionals left Japan (more than half went to the USA) and it accepted 65 thousand from other countries (90% from the undeveloped Asian countries).  Besides the stable political constellation, the Japanese built a separate strategy for car exports to the USA and Europe. However criticized, as much as it relied on dumping, it helped Japanese firms a lot.

Towards the end of the last decade, Japan became the biggest investor in the  world. The Japanese began to invest twice as much abroad than they earned by their exports, their foreign investments in the mentioned period were eight times bigger than their domestic investments. The Japanese penetrated strongly the export of capital. They exporting capital to the West as direct investments in 1988 of more than $30 billion, which translates to ten times their imports of capital in the same year.

A closer look reveals the ten categories of products with at least 2% of the exports in 1989:

1. 
   Cars (17.8%);
   
2. 
   Office equipment (AOP processing machines) (7.2%);
   
3. 
   Precision machinery (4.8%);
   
4. 
   Steel (4.4%);
   
5. 
   Car spare parts (3.8%);
   
6. 
   Self-regulated instruments (integral movement, etc.) (3.1%);
   
7. 
   Internal Combustion Engines (excluding aircraft engines) (2.2%);
   
8. 
   VCRs (2.2%);
   
9. 
   Telecommunications equipment (2.1%); and
   
10. 
    Organic pharmaceutics (2.0%).