Palms & Company Document

HOW TO REVERSE IN 1999 THE ECONOMIC DECLINE IN THE INDEPENDENT COUNTRIES WHICH ONCE MADE UP THE SOVIET UNION

By: Dr. Peter John van de Waal-Palms November 1997

Five years after the start of efforts by former socialist economies to convert to other forms of economic systems, many of them have significantly lower GDP and living standards and significantly deteriorated social services. There are valid and obvious reasons for this, not difficult to understand, but infrequently spoken of by any nation.

By now it is obvious that the concepts employed be real governments responsive to the instruction of their electorate, the citizens of the country, cannot be expected to work in a tyranical corrupt kakistocracy. Five years after the Great War, the economies of Europe were well on their way to recovery. The unique obstacles to economic development of these former socialist economies can be overcome. Some can be removed by making them irrelevant, while of necessity postponing their correction because they cannot be solved by short term measures. Others can be removed by adopting flexibility with regard to sovereignty and eliminating insistence by domestic governments, upon regulating economic activity of investors that is conducted within their borders.

1999 could be the year that past failures and shortcomings are recognized and that the acute needs of the populations of these countries give birth, on the part of their elected representatives, to a truly collaborative and cooperative effort to eliminate unnecessary human suffering, by accepting the solutions which do exist for them, at terms consistent with global norms of a civilized global population.

Economic Development Plan

STEP ONE

Division of Communal Property of Socialism among its existing owners.

The very first step required for economic reconstruction of a nation, which has had a socialist system of government is the division and distribution of the communally owned property of the population, amongst the population/owners in a moral and ethically and socially just manner. The will require repatriation of $700 billion in stolen flight capital and reversal of "privatization" in favor of and by the people of Russia rather than the government.

The new form of government in Russia does not inherit any of the socialist property "manifesto" of a socialist government. The concept of "State Property" is abandoned when Socialism is abandoned. In other respects the new form of government inherits existing laws until they are modified, cancelled, or replaced with new legislation but it does not inherit property.

The equitable division amongst the existing owners is vital to, and a prerequisite for, economic recovery because the "from the top down" Command system of the Socialist economy cannot be replaced with a "from the bottom up" market system of the capitalist type, until the population has control of the tools of production with which to continue to undertake economic activity and with which they can begin exercising individual private economic decisions.

It is important, in this process that those members of the population acting in a fiduciary capacity as the elected representative of the other members of the population (the elected officials of the government of the people), should not assume the role of landlords. Particularly destructive to economic progress is the continued reference by elected officials to "State property" which is a concept of socialism. Even more destructive to economic reconstruction of the country is failure to formally recognize all communal property as the property of the population and to segregate and safeguard the proceeds of sale of communally owned property of the former socialist state from budget funds of the new government. Under no circumstances should the money from the sale of communally owned property every be co-mingled with funds of the new government. In this sense there is no longer any "State". The newly elected officials of the new nation with a system of private ownership, inherit the fiduciary task of dividing between the rightful owners, the population, what is already theirs and has been owned in common as an undivided interest for decades.

The concept of "privatization" by the government is an inaccurate description of the task of the elected representatives of the people. The task is not to afford the population an opportunity to own private property by selling it to them. The task is division, by the trustees, elected by the people (the government), of the property ALREADY OWNED by the population. The task is to divide it amongst themselves in an equitable, just and fair manner, bearing in mind the capacity of each member of the population to utilize the property in a manner that will permit that person to reach his full productive potential. In this process the elected representatives/trustees of the population (officials) may, in a fiduciary capacity, exercise some control over the process of division to assure that natural and physical resources are placed in the hands of such members of the population who possess the management skills to operate them effectively and efficiently. But such administrative function should never be confused with ownership.

In this context the "privatization" programs that have been initiated by nations changing from a socialist system to a market economy during 1992-1997, have been a denial of the "covenants" of the participants in the preceding socialist systems, which, it had been contractually agreed, during the preceding 70 years, to have been communal ownership, both by consensus and public policy. As a result, such a breach of faith with the Russian people as represented by these forms of "privatization" has destroyed Russia's productive capabilities by:

1. Selling the property of Russia's population to individuals without regard to the property rights of the rightful owners, which constitutes theft.

2. Disenfranchised the rightful owners and relegated them to tenants within their own country, which constitutes injustice. The result have been the greates day-light robbery of the 20th century in which a new generation of serfs and Czars has been created.

3. Misappropriated the proceeds of sale to the newly elected officials to use in their budgets, and embezzled for their private use, without consent of the rightful owners, which is dictatorial and undemocratic and constitutes malfeasance in office by the trustees whom the population elected.

4. Denied the population access to the tools of production.

5. Encouraged the removal of the tools of production from such countries in the form of flight capital by those who, even if they are nationals, have a greater vested interest in protecting their newly acquired property then in rebuilding the economy of their country, until it is 'safe' to do so monetarily, thereby participating in the exploitation of the disenfranchised population and the destruction of the social services of health, environment, education, which the preceding social system had interwoven into its communal system of ownership.

Since these actions are immoral they produced immorality in the form of unprecedented crime and corruption which has further immobilized these nations. The benefits which were to be realized from a change to a market economy were neutralized and eliminated by creating the equivalent of a feudal serf system. The interests and needs of the Russian population became at once, no longer the interests of those who bought Russia,

THE RESULT

The result as been a 50% decline in both the GDP and standard of living of the populations and a 10 year decline in life expectancy, of these nations and a redistribution of resources which has created a new minority of rich by the taking of resources from the poor. In other words the pie was not made bigger, but was redistributed by lowering the resources of the poor to make some rich. While there are similarities between the tactics employed by Europeans in the period from 1800-1900 in the United States and the tactics employed in the Socialist nations from 1992-1997, the 'Robber Barons" in the United states did introduce capital and tools of production to "make" new money by means of increased GDP to create what has become a rich nation as well as a nation of a wealthy population. That may still happen in these former socialist nations. But the difference is there was no relationship of opponent pioneer vs indigenous people in the socialist countries. There was an acknowledged covenant of "communal ownership. Further, the Wild West of early America was a place of land and natural resources. The socialist nations were lands of industrial capability and high technology and a well educated population in the sciences. While great injustices were committed against the indigenous people's of the United States, there is absolutely no rationale for considering that such acts were to be expected in the former socialist nations, or in any way justified on the basis of early U.S. history or any other history.

Inevitably rectification of this injustice in the distribution of communally owned property of the populations of former socialist countries must precede any full scale rebuilding of these economies or any "reform", meaning removal of injustices. But interim measures steps are possible to deal with the symptoms even if the cause will take time to cure.

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STEP TWO

Until step one is addressed, the major opportunity for improving the economies of former socialist countries is to utilize Rusisan manpower in branches of western business created in Russia, which are totally free of regulation by those pretending to be a government, when in fact Russia has no government..

In post Great War Europe, reconstruction was achieved by the Marshall plan and also with internal resources and by repatriating nationals, who had spent the war years outside Europe. Existing NAZI rulers were eliminated from government. Rule of law was quickly restored and foreign exchange regulations were impartially and fairly applied to prevent flight capital, so that the use of resources could be effectively restricted to domestic economic development. While every society has corruption, it was not of a sufficient proportion to defeat the objectives of rebuilding Europe.

In the former Socialist countries this is not the case and those who acquired property to which they had no moral claim, are also the same parties who have used the absence of rule of law as a means of evading currency control regulations. The currency exchange laws were themselves designed to allow the "Nomenklatura" to steal the savings of the Russian population rather than help Mother Russia. Generally speaking the law has become a tool of the usurper class to systematically disposess the population of Russia of both its savings and its ability to participate in economic activity, through the use of exchange rate manipulation, licenses, permits, and outright extortion. All who do business within these borders fall prey to these tools of the usurpers. What inadequate capital there is introduced is diverted from economic development to other goals

Accordingly, until restitution is made to the Russian people of their country's resources, the only effective means of creating employment, economic development and increasing GDP in these countries, is through thorough elimination of all possible exposure of such external capital investment to the sovereignty of these nations and their existing regulatory practices. This implies permitting capital to:

1. maintain their bank accounts outside these countries.

2. secure permission to conduct currency exchange freely in the open market without regard to prevailing regulations, either for themselves or those they deal with in such transactions.

3. Perform their accounting according to generally accepted accounting practices in the countries in which they are incorporated.

4. operate according to the laws of their country of incorporation

5. subject themselves to registration as branches only in so far as it concerns matters of record, without acquiescence to any regulation of their commercial financial affairs

6. remit such taxes as are due from external accounts

7. export production within these countries freely to themselves for subsequent resale outside these countries, without the necessity to pay themselves for such relocation of their inventories across borders.

8. Import funds only to the extent required to pay for overhead and raw materials and wages.

9. lease to its destination, machinery and equipment which crosses the border, with detailed understandings regarding its withdrawal in the event lease payment are in default.

10. Make land building and fixed asset improvements only in circumstances where free and clear title can be transferred and where international governments provide guarantees against nationalization or interference with use.

11. Obtain governmental decrees creating exceptions to all existing laws which contradict any of the above described policies.

12. Obtain grandfather clause agreements regarding any changes in laws and incorporate them into the guarantees of international governments.

13. Limit host country power to requesting the company, together with all its fixed assets and property, to leave the country

The business of international business is the conduct of production of goods and services, subject to recognized international conditions of competition, supply and demand and its ability to compete, within an environment of well established rule of law with precedents and reliable enforcement of contracts in accordance with such international law. Private companies are not political organizations and cannot function with partners who hold claims to sovereignty as a tool to be unilaterally imposed and from which there is no appeal.

Since the normal conditions under which a private capital functions do not at present exist within the former socialist nations, the only effective way to proceed at present with economic development is by allowing responsible efficient multinational-companies to operate on their territories in accordance with the laws of the country of origin of the investors, avoiding all involvement with responsibility for compliance with domestic laws in these former socialist nations, particularly economic regulatory efforts. In practical reality there will always be some applicable local law such as traffic laws, criminal laws (except for criminalization of activities not considered to be criminal in one or more industrialized nations). For tax payments reliance would be on the tax laws of the country of incorporation of these branches with suitable arrangements for tax payments under double taxation treaties, to the country where they are actually earned, irrespective of where the revenues are collected for products which were manufactured in the host country of the branch. ______________________________________________________________________

THE LIKELY RESULT

In the long run former socialist nations have nothing to fear from relying upon the better developed "rule of law" of other nations, and substituting them for their own, until they can eliminate present shortcomings within their country. There is no reason to defer economic progress until infrastructure of this type is created. The greatest barrier to investment is "uncertainty". most of it would be eliminated by permitting investors to rely upon the "certainty" with which they are familiar in their home-lands. Certainly these former socialist countries can rely upon the cooperation of other nations in monitoring the fair payment of taxes due from operations of branches within their territory. Most nations would be relieved of significant amounts of economic aid they have elected to be burdened with, in efforts to support the weak economies of these former socialist countries, if the taxes from economic development activity of private companies investing in these nations were to replace the budget subsidies these nations now require to remain viable.

If nothing else, such nations can experiment with this process as they have with free trade zones. Such zones didn't work because they were based upon domestic law of the host countries. These new experiments would isolate international investors from domestic legislation and allow them to exercise full control over their assets, outside the host country.

There is no question that world economies have the skill and experience to put human and natural resources and fixed assets of these former socialist nations to productive use, if they do not have to consider issues of law, sovereign power, and infrastructure shortcomings. When these nations have had the time to create norms that comply with global practices, they can transition to domestic forms of regulation. We are no loner dealing on this planet with the imposition of national wills, but rather of a global economy that responds to uniform practices. The past five years have demonstrated that delaying economic development until governmental infrastructure is developed and assimilated, is a strategy these nations cannot afford and which will cost a price in human suffering that a principled elected representative of the population must be unwilling to pay if there is a way to avoid it...and there is.

Dr. Peter John van de Waal-Palms palms@PeterPalms.com http://www.peterpalms.com

For discussions in Russian language

Comments: Russian General Directors will benefit from the advice of an experienced American Investment Banker in preparing investment capital proposals and dealing with questions about disclosures. we invite your inquiries

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