Thursday, May 31, 2007

Colombia and Bolivia

Here are two stories that contradict popular perceptions about economies in Latin America, albeit for different reasons.

The first is a Business Week story on Colombia (thanks to Mike, my resident gung-ho capitalist) which pokes fun at the stereotypes people in the U.S. have about the country. For example, the reporter’s taxi driver in the U.S. quoted Scarface when he learned where he was going. An anecdotal sign that conditions in Colombia have improved is that the famous “bulletproof tailor” has seen his business decline drastically. The story is a bit breathless (always beware of references to economic “miracles”) but at least a reminder that Colombia isn’t simply a black hole. I assume it was published to help push Congress to approve a free trade agreement.

The second, via MABBlog, the Heritage Foundation’s Index of Economic Freedom has a discussion of Bolivia that you wouldn’t expect. It rates Bolivia relatively low (25th out of 29 in the region) but that is mostly for corruption, which obviously predates the current government. For all the wild talk about Evo Morales, crazed leftists, etc. here was what a conservative think tank has to say about the investment climate he is presiding over:

Bolivia rates highly in fiscal freedom and solidly in freedom from government and monetary freedom. A very low income tax rate and moderately low corporate tax rate give it an enviable fiscal freedom score. Its freedom from government rating is also relatively positive despite a large amount of government spending. Inflation is not high, although prices are unstable and the government imposes de facto price controls on most utilities.


Anonymous,  1:24 PM  

Colombia is booming right now, thanks more than anything else to to Uribe and his crackdown against paramilitary groups and terrorism. It would be a shame if Congress decides to play politics and play the old tune of "defend American jobs" instead of supporting what should be the best example of a success story based partly on US support.

Greg Weeks 1:44 PM  

The term "play politics" is so common yet so odd. We elect member of Congress to make political decisions, so we should want them to play politics. What else would we want them to do? It's just a throwaway term that means "I don't like what they are doing."

Anonymous,  2:29 PM  

Fair enough. I don't like what they are doing. If I have to listen to one more Republican or Democrat try to defend their anti-free trade position I will vomit. In the aggregate, these deals help American workers and consumers. Defending one's turf is I suppose good for one's constituency, but it does not serve the interests of the economy as a whole.

Justin Delacour 4:04 PM  

In the aggregate, these deals help American workers and consumers.

This is simply a statement of faith that is repeated ad nauseum without corroborating evidence. In fact, the claim is repeated so often in the press that idealogues who buy the argument don't even feel the need to present supporting evidence.

Let's take a look at U.S. census data. In the 25-year period between 1956 and 1980 (prior to the onset of so-called "free trade" agreements), U.S. median family income rose 62.5%. In the 25-year period between 1981 and 2005 (a period commonly characterized as that of economic "globalization"), U.S. median family income rose 22.4%. In other words, U.S. median family income rose almost 3 times as fast in the period prior to "globalization."

Never mind, though. The "free market" idealogues will go on repeating, ad nauseum, that "in the aggregrate, these [trade] deals help American workers and consumers." Evidence need not get in the way of ideology.

Greg Weeks 4:11 PM  

I'm not really interested in a free trade debate at the moment, for or against. There are certainly good arguments against, but that isn't one of them. There are so many factors involved that a simple comparison of two long time periods isn't very compelling.

Justin Delacour 5:32 PM  

I completely agree with you that there are other factors to be considered, but even many mainstream economists agree that "free trade" has exacerbated inequality in the United States (which the data corroborates). Look, for example, at how the growth in median family income lags behind growth in per-capita income; that reflects the fact that income gains have been heavily concentrated at the top.

Many economists also claim that "free trade" has brought more prosperity overall, but the evidence is simply lacking.

You should look at the data on world growth rates, for example. World economic growth was in steady decline from the 60s to the 80s and then stagnated in the 90s. It's picked up somewhat in the first decade of the 21st century, but there is simply no evidence that globalization overall (i.e. financial liberalization, FDI liberalization and trade liberalization) has expanded the global economic pie. And there's a whole ton of evidence that globalization as we know it has exacerbated inequality.

Miguel Centellas 6:58 PM  

Despite the rhetoric, Evo's government has actually moved very slowly against investors & domestic capital. Mostly, it seems that the MAS government has made few (if any) changes to fiscal policy. So I'm not surprised, really. But it's good to see Heritage Foundation looking beyond the rhetoric.

Boli-Nica 10:37 PM  

The shape of Bolivia's central government changed drastically since "shock therapy"in the 1980's.

First of all, that period has cemented a prudent fiscal and monetary policy within the central bank. And the precedent of keeping a balanced budget.

While the state apparatus was being downsized, laws were also passed streamlining administration in key areas. The overall policy goal was to open up the country to business. But the policies themselves were not only aimed at ensuring the entry of big foreign capital, it was also mean to encourage small and micro-businesses. So this was a true top to bottom reform.

And what has happened is that these policies have become institutionalized, forcing a sort of continuity with the bureaucracy that runs them.

Lastly,there is the incompetence of the Evo government. Any sustained, 'structural change' needs a government that governs, administrators things, and a legislature that legislates. It took Evo and MAS six months to resolve a procedural issue on the constitutional assembly passed in the legislature. Traditional do-nothing Bolivian politicians run rings around them. MAS "best and brightest" at the energy ministry could not even come up with a boiler-plate contract when they were negotiating with the MNC oil companies. Evo pretty much rule only by decree, i doubt he has the energy and will to change macroeconomic policy at this stage of the game.

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