Friday, April 15, 2011

Commodity exports and growth

The presidential election in Peru is more evidence of the fact that macroeconomic growth alone is not enough to understand whether people are becoming more prosperous.  Too many basically sit back and wonder why those Peruvians don't know what's good for them when they vote.

But the issue of growth comes back to an entirely unoriginal point I keep making, namely that commodity-driven growth is unstable. An article from the Brookings Institution, while even giddy about Argentina of all places, provides a glimpse into the problem.

Traditional Dutch disease has been linked primarily to the effects of high commodity export prices or volumes in one sector at the expense of other sectors. The symptoms are already apparent in commodity exporting countries like Argentina, Brazil, Chile and Colombia, where the volumes of non-primary net exports have been falling rapidly and industrial output and employment are starting to dwindle despite solid GDP growth figures. 

The authors also discuss "financial Dutch disease" and argue that a bit of financial tweaking will largely address the problem.  History suggests otherwise.  Plus, growth alone says nothing about distribution of wealth.  In short, nice looking growth rates obscure problems with employment (not to mention the fact that the nature and wages of the employment is almost never discussed) and commodity dependence.  These are very old ideas and arguments, but so often get lost in the shuffle.


leftside 6:10 PM  

But then why were Venezuela and Argentina able to reduce poverty so much more dramatically than Peru during the commodity booms? Obviously there is a role for redistributive public policy to play a role here.

Everyone understands that commodity booms are not sustainable (boom and bust). But with proper planning, the lows can be smoothed over and the highs can bring in money faster than you can nount it. Despite everyone's best effort, the South's reliance on commodities is not going anwywhere. Countries can hope to diversify, but that also requires State inteverntion and planning - something Peru under Garcia and Toledo were inclined to persue. Isnt't that Peru's real problem - no appetite to redistribute the new considerable wealth to the provinces?

ConsDemo 6:37 PM  

Venezuela is a one-crop economy, for all practical purposes, and the price of that crop (oil) has gone up by a factor of 10 since Chavez became President. Chavez had nothing to do with the price increase and plenty of other governments have spread the wealth without resorting to authoritarian tactics. A sufficient number of Venezuelans may be willing to give him credit by voting for him but the Chavez model, such as it is, can't be replicated elsewhere without a compared increase in its only source of revenue.

leftside 12:26 PM  

CD - you ignore the key policy decisions that allowed Venezuela to fully take advantage of the oil price, while other countries did not. This is why Venezuela did better during the boom than anyone else. I'm referring to doubling the royalty paymnets, massively upping the % going to social funds, the diversification and subsideries (agriculuture, shipbuilding, construction, etc.)

BTW - recently released data shows industrial production in Venezuela increasing to 7.5%, meaning that growth targets are going to be exceeded (perhaps doubling expectations), while inflation is coming down (as it increases in the rest of the world).

Vicente Duque 1:09 PM  

Extremely interesting article and comments .... This "Dutch Disease" is a cautionary tale and it may be very intelligent knowledge.

"When you see that someone is cutting your neighbor's beard, start wetting yours" - Famous Russian Proverb of the time of Peter the Great that enjoyed shaving the Boyards ( the nobility ) to humiliate them.

I can not believe in the Good of Hugo Chavez and his miracles and wonders in Venezuela ...

One of the reasons of my disbelief is that I frequently talk to travelers and to the same Venezuelans that receive the benefits of such Great Statesman ... ( many are very close friends of mine )

Venezuela is a country dedicated to the promotion of Santa Claus Economy .... Where the Government buys the "hearts and minds" of ignorants by means of subsidies, gifts, bribes, etc ...

This produces generalized corruption, many subsidized products are exported to Colombia and reintroduced in Venezuela at higher prices.

The system of controlled prices can not be more absurd and counterproductive ...

While in the "Poor" Colombia you find everything and the super markets are filled with the most strange and rare products ( because of free market economics and free capitalism ) , in "Rich" and Socialist Venezuela you only find loneliness and solitude in super markets ..

Oil seems like a curse for Oil Rich Countries and the OPEP ( Organization of Petroleum Exporting Countries )

Backwardness, Wars, Unrest, Revolutions, Revolts, Foreign Intervention, Santa Claus Economies.

People are very happy with the No Tax Economies and vote for the tyrant and despot.

I do not believe in Freedom of Expression or Free Press in Venezuela. And I do not believe in clean elections there.

Vicente Duque

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