Adam Smith Goes To Mongolia

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Adam Smith Goes To Mongolia
Mongolias Wild Ride to Capitalism
Every man, as long as he does not violate the
laws of justice, is left perfectly free to pursue
his own interest in his own way, and to bring
both his industry and capital into competition
with those of any other man, or order of man.
The
Wealth of Nations
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Mongolia

• Population- 2.4 million
• Land area- 604,826 square miles
• Population density- 4 people per square mile!!
• Promotes population growth

• Livestock outnumber humans by 12 to 1
• Adult literacy rate- 96
• Surrounded by PRC on three sides and the Russian
  Federation on the remaining border

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Historical Background

• Genghis Khan- Lord of the Mongols
• 12th-13thc. Amassed one of largest land empires
  in history
• Reached from Caspian Sea in Russia to the South
  China Sea

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Historical Background

• Ruled by Manchu conquerors of China from1691-1911
• 1921-Mongolian revolutionaries gained control
  with aid from Russian Red Army
• Mongolian Peoples Republic

• Mongolian Peoples Revolutionary Party dominant
• MPRP identified with successful anti-Chinese
  nationalist movement
• Mongolian Nationhood became totally dependent on
  USSR

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The One-Party Period
Political developments after 1924 modeled those
of USSR
1920s and 30s - forced collectivization and
purges Estimated 100,000, roughly 15 of
population killed in this period Mongolian
traditional culture repressed Mongolias
dictators became known as junior versions
of their Soviet counterparts 1928-52 Horolyn
Choibalsan Mongolias Stalin 1952-84
Yumjaagiin Tsedendal Mongolias Brezhnev
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Sino-Soviet Split
Following the Sino-Soviet split, the USSR took a
more active role in developing Mongolia as a
buffer state, stationing troops throughout
Mongolia. Traditional animosity toward Chinese
was exacerbated, 1980-Chinese residents expelled.
Mongolias economy became more integrated with
Soviet Union- 95 of foreign trade with USSR,
30 of GDP came from Soviet foreign aid. One of
the poorest nations in the Communist Bloc- known
as the Soviet Unions unofficial 16th republic
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Reform-Minded Nations

• China- Economic reforms, still maintain
  totalitarian regime, suppress liberties
• Soviet Union- Political reforms, sought to
  install democracy, no economic reforms, failing,
  Oligarchy and Kleptocracy, Mafia rules
• Mongolia- Radical Political and Economic reforms
  simultaneously

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Mongolia loves American-style democracy
Political transition was peaceful- March 1990,
ruling Politburo resigned, that fall the first
free elections were held. Despite newfound
political competition, Mongolians were united in
a strong desire to embrace the West.
Partly because of geopolitics, however,
Mongolians were drawn to liberal ideals as a
reaction against their own isolation. One
democratic reformer stated After 70 years
of communism, we became more Westernminded than
any other Asian nation. Mongolia is called
Asias most libertarian nation.
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Mongolia adopts a Constitution
Mongolian officials drafted a constitution
modeled after the U.S. Constitution. Mongolia
lobbied the U.S. for direct help in building a
democracy. The Mongolian Constitution
was ratified in February, 1992 with obvious
American flourishes Mongolians, the preamble
declared, cherished human rights and freedoms
and aspired to the supreme objective of building
a humane and democratic civil society. U.S
scholars and officials, including Newt Gingrich
and John McCain have been directly involved in
showing Mongolia how to build a free-market and a
democratic country. No other Asian country
enjoys more political freedoms and commitment to
free-markets.
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Mongolias New Government

• Republic- 18 provinces
• Adopted Constitution Feb. 12, 1992
• Executive Branch
• Chief of State
• Prime Minister

• Legislative Branch
• Unicameral House called the Great Hural
• 76 Seats- popularly elected, serve 4 yr.
• Judicial Branch- Supreme Court, no judicial review

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Contract With the Mongolian Voter

• June 30, 1996- Democratic Union Coalition
  defeated ex-Communists that had ruled for 75 yr..
• Won 48 of 76 seats in Parliament
• Turnout near 90

• Freedom of the Press
• Private-property rights
• Encouragement of private foreign investments

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Shock Therapy

• New Democratic Union Govt instituting radical
  economic reform
• Cut spending, closed insolvent banks, raised
  utility prices, streamlined procedures for
  foreign investment
• Far reaching privatization planned

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More on Shock Therapy
Adam Smith goes to the former Communist Bloc,
too
After 1989, leaders of Poland, Hungary,
Czechoslovakia moved quickly to replace the
police state organs that undergirded communist
rule for four decades. In Poland, the government
boldly adopted a strategy called shock therapy-
austerity measures (budget cuts, wage
restraints, reduced state subsidies), an end to
price controls, and rapid privatization of the
economy. In Czechoslovakia, officials moved a
little more slowly, but no less completely, to a
free-market.
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Economic Revival?
Czechoslovakia amicably divorced in 1992, both
remain loyal to liberal reforms. The new Czech
Republic, Slovakia, Hungary, and Poland created a
free press, extended civil liberties widely and
held free parliamentary elections. By the mid
1990s, Poland and the Czech Republic were making
strong gains in their new economies- annual
growth rates of 6 to 7 percent. Poland, by the
end of 1992, GDP was expected to be on the rise
by 3 to 4 percent, industrial out put growing
rapidly, driven almost entirely by robust
private sector. By 1993, Polands new private
sector made up half of GDP and 60 of labor
force. Progress in the former Soviet Bloc is
slow but substantial.
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Those Free-Trading Mongolians

• April 18th, 1997 voted to abolish all tariffs and
  trade taxes
• As of May 1st 1997, only country in the world to
  levy no taxes at all on foreign trade

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How is Mongolia doing?

• Sheep herders now trade on new stock market
• Agricultural sector privatized-successful, the
  sheep herders are very happy
• Rising entrepreneurial class
• Economic growth 6 in 1997

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Whats Missing?
Economic collapse ensued after the fall of the
Soviet Union Inflation rose over 180 and
unemployment skyrocketed The initial pain of the
shock therapy is subsiding and Mongolia is
making strides in the right direction The Asian
economic woes slowed Mongolias growth rate to
3.3 and Mongolia has 15 unemployment because of
defunct Soviet industry. Mongolia needs to
continue development on these three fronts-
liberalization (especially in former Soviet owned
industry, legal and institutional reform and
macroeconomic stabilization.
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Conclusion
1989 was the year the world changed The
countries of the former Communist Bloc embarked
on an arduous journey from Soviet domination to
democracy and free-markets. The road from
communism to capitalism is long and fraught with
ups and downs. Nevertheless, those nations are
enjoying many successes and remain committed to
their endeavors.
Unfortunately, Russia itself remains a perplexing
exception. Their future is rather uncertain...
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Statistics
United States
Japan GDP-PPP-8.083 trillion
GDP-PPP-3.08 trillion GDP-growth rate-3.8
GDP-growth rate-0.9 GDP-per capita
PPP-30,200 GDP-per capita PPP-

24,500 Hong Kong
China GDP-PPP-175.2
billion GDP-PPP-4.25
trillion GDP-growth rate-5,5
GDP-growth rate-8.8 GDP-per capita PPP-26,800
GDP-per capita PPP-

3,460
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Statistics
Mongolia
Russia GDP- PPP-5.6 billion
GDP-PPP-692 billion GDP- growth rate-3.3
GDP-growth rate-0.4 GDP-per capita
PPP-2,200 GDP-per capita PPP-4700
Czech Republic
Slovakia GDP-PPP-111.9 billion
GDP-PPP-46.3 billion GDP-growth rate-0.7
GDP-growth rate-5.9 GDP-per capita
PPP-10,800 GDP-per capita PPP-8600
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Statistics
North Korea GDP-PPP-21.8 billion GDP-growth rate-
-3.7 GDP-per capita PPP-900
South Korea
GDP-PPP-631.2
billion
GDP-growth rate-6
GDP-per capita PPP- 13,700
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Statistics
Poland
Hungary GDP-PPP-280.7 billion
GDP-PPP-73.2 billion GDP-growth rate-6.9
GDP-growth rate-4.4 GDP-per capita-PPP-7250
GDP-per capita-PPP-7400 Singapore
Taiwan GDP-PPP-84.6 billion
GDP-PPP-308 billion GDP-growth rate-6
GDP-growth rate-6.8 GDP-per capita-PPP
GDP-per capita-PPP
24,600
14,200
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Pictures of Mongolia
Buddhist temple in Ulan Bator
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Ulan Bator- capital city of Mongolia
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Nomadic Herders