What Ails Latin America


Ricardo Valenzuela chero@mindspring.com, a native of Mexico now residing in Arizona,  is a member of the editorial board of "El Economista", the only pro free market newspaper in Mexico. Both he and Alberto Mansueti  are members of the Alianza Liberal (Liberal Alliance) whose philosophy is based on the liberal philosophy of Locke, Hume, Hayek, and Von Mises. Alberto Mansueti has published three books and hundreds of articles since relocating from his native Argentina to Venezuela. 

Ricardo Big, mercantilist government is trying to make a strong comeback throughout Latin America. Argentina is in chaos. Venezuela under Chavez is close to becoming the Cuba of the twenty-first century. Pastrana in Columbia is handing the country over to the drug lords. In Mexico Fox is under attack by the old liners whose goal is to sabotage his administration and return to power. 

Along with the economic collapse of Argentina a very interesting phenomenon is emerging all over Latin America: the new born Argentigologos, who are like the bad weed in the middle of green field after the rainy season starts. The newspapers are full of articles, the internet is intoxicated with news and theories, and the murmur in the cafes all over the continent has the rhythm of tango. But at the end of the day, we all are the same way we started; confused and lost.

In January 1995, I was at Tucson's airport about to board a flight  to Chile when I encountered some Mexican friends who immediately asked me the classic question: where are you going? "To Chile," I answered with enthusiasm. Then came the next one. What are you going to do there.? At that moment Mexico was in the middle of the chaos provoked by the devaluation of December of 1994 after a year of political assassinations, guerrilla attacks, etc., which had destroyed the Salinas reforms; so,  I answered: "I am going to get Pinochet and bring him to Mexico to solve all our problems because it seems nobody can do it." 

What has been happening in Argentina should be a very important lesson for all of Latin America. Residing in Venezuela, one of many  likely settings for an explosion, resides a very interesting man; Alberto Mansueti. Alberto is a brave Argentinean in exile to the country of beautiful women, a great libertarian, and to me, an example of a Latin-American Nosterdamus. Alberto had been predicting the debacle of his native country and also his adoptive one, Venezuela. But his predictions are different from the braying in the Mexican intellectual circles, because his have always been based on very firm and intelligent arguments and, more importantly, they came true.       

Alberto always has been an aggressive critic of what our friends in Latin America call Neoliberalism because he thinks, like me, that it is the same cat dressed in different clothes (a Mexican saying). Let me explain. It is the same statism, but now with a new custom like a wolf dressed in a sheep skin. Instead of expropriations, now they now levy high taxes; run deficits in their budgets; and  instead of protectionism, now they use competitive devaluations etc, the third way so well promoted by the IMF's economists. Unfortunately, my friend Alberto does not  predict a happy ending for  my native land: Mexico.

Alberto The big problem with the neo-liberal reforms of the 90s in Latin America is that they were very timid, not aggressive enough, vacillating, inconsistent, and incomplete. They looked like alcoholics when they think they don't have the problem any more because now they only drink wine and beer; they don't drink hard liquor any more. But they should leave us important experiences, as they all were failures exempt in Chile where in the past decades were much more decided and consistent in spite of the foaming of the world wide sheriff Baltasar Garzon. And here we have the first lesson: indecision-- and beer--and inconsistence are the sure way to failure. 

What would be a real libertarian program for Latin America.? Which one would be the difference between a real different cat; a cat with the right clothes.? Well, it is matter of making a comparison between the two cats. A real libertarian program would be "laissezferista," that is, it would be born from the idea that the economy should be left alone because it manages itself. The state (government) handicaps the economy and is an obstacle except when it limits its actions to fulfill the few responsibilities that a real liberal state should have. 

To place the estate (state) in the right context: protection and security; judicial management; defense and diplomacy; genuine public works: roads, communications, and health (in relation to epidemic problems, not health care in general). Those should be the funcionts; more than that, nothing. Then the state does not require that fat burocracie, those big and fat budgets, or the scandalous investments. So, less state expenses mean less taxes and less debt--the big problem of the third world countries. A slim and much more agile state could be much more effective and strong for its real responsibilities.    

Open and massive privatizations are needed. This should be accomplished by competitive bids with the property going to the highest bidder. To be avoided is creating a friend's club with no objective but to enrich my compadres. The objective is not to capitalize the state or to make public monopolies private, but to capitalize the private economy and make it more rational and efficient. Real competition must be put in place.

Deregulation is needed in order to return to the private sector the capacity and the attributions that the state expropriated for so many years. Freedom to contract and the principles and codes of law that have been lost and mismanaged should be enforced. Bad laws like the sectorial rules which forbid competition and make goods and services much more expensive must be eliminated. Laws that fix rents, thereby  jeopardizing the supply of housing, or the ones that fix minimum wages which reduce the supply of jobs, and all those of the same type that jeopardize the very people who it us claimed they favor must go. Eliminating all such laws should be the center of a libertarian, supply-side  program. 

Monetary freedom, too, is required. Needed is the elimination of the legal and obligatory tender and deposits and obligations in that money. Appropriate are a flat tax on income or a sales tax.  Fiscal decentralization is also needed. Regional and national services should be financed with this kind of taxation. We still keep the viceroy style of the Colony but now we have regional money Lords.  We urgently need to establish a real federalism all over the region.

Only one kind of social program should be financed with national taxes. Fat and bureaucratic  state educational, and medical institutions should be eliminated by giving them to their employees. The new system would serve three different groups of people: children and youngsters, sick and handicapped people, and the members of the provisional systems. The public should have the freedom to chose among the different companies and competing private services. 

The neo-liberal program that has been followed is not based in the laissez faire of the physiocrats,  but, instead, on the Anglo-Saxon, neoclassical theory with its concept of  market failure and, therefore, the need for  the state as a mechanic and repair entity. So here we have the same statist cat dressed in different clothes in which the state is everything.

Here's how they finance all this nonsense: There is no inflationary financing anymore. Instead of decreeing monetary freedom, they impose dollarization. They don't reduce the big expenses of the state in order to balance their budgets. Instead, they raise income in two ways: Privatizing the state monopolies, but keeping them as that, monopolies with no competition and high prices. Then the private monopolies can charge exorbitant prices; producing monstrous profits like Telmex in Mexico. Thus is provided the money used to pay back the banks where those investing in these businesses got the money from. The other way is by raising taxes and getting foreign financing through the sale of bonds in the international markets. thereby increasing even more more the huge foreign debts of all those countries. 

Here's how they operate: The state corporations are replaced by state regulatory agencies, and in some cases with the same personnel, same unions, same vices etc., but with the advantage (for them) that now they don't even have the obligation to produce goods or services, but to control and oversee their production by the new private and super regulated companies. (In other words, now the thief becames the custodian). In Argentina this was so evident when they converted the old telephone monopoly ENTEL to an state regulatory agency. The same happened in other countries whit the airlines and maritime industries. 

In their relations with the world they don't establish tariffs anymore.  Now they legislate antidumping laws; thereby always protecting inefficiency. Instead of the old Cepal style toward the interior, which is the state, to the loss of exporters, serving as the benefactor of the producers for the internal market. Now we have the opposite: Cepal style toward the outside; but always with the state's finger signaling who will be the winners; who will get  the privileges and who will be sacrificed. So, excepting these types of changes, some of them for the worst; the rest are the same, we have the proliferation of state social, cultural, non governmental entities who all feed every day on the  fatter and fatter budget. But the force of the state absent where it should be present in the fields of security, order, and justice in the court rooms.

So, as I said before, we have the same cat but with different clothes. Are not  the failures of  neo-liberalism perfectly clear? The reforms of the 90s were a big lie and now the people are opening their eyes. But now the big problem is that those on the left are screaming; !No! "What we are witnessing is the collapse of the savage capitalism." Again the field is ready for the seed of populism, demagogy, the mixed economy, and the rest of the demons we had to fight for the last 80 years.

Now we are suffering from a violent reaction from the ideological left that have been renovated by the anti-liberal currents of this new century fueled by substantial support coming from the unhappiness born out of the failures of the present governments. There is no substitute for real and valiant libertarian solutions. And here we have our second lesson: beside being consistent, complete, and decisive, they should be simultaneous, aggressive, quick changes in the right direction. In a different context, they would not be effective and would have the contrary effect that we are now witnessing all over Latin America. We have the third need: providing right response to the anti-liberal ideologies.   

One of the reasons why Chile and El Salvador have enjoyed  liberty, free markets and prosperity, is because both countries have parties which sustain and defend libertarian ideas. Their governments push for and accelerate libertarian public policies. At a minimum the damage done by socialists is kept under control. Nobody knows why, but the reforms of the 90s  were the product of of populist and socialist parties and were not appropriates for the mission. Every ship needs a crew: sailors, captain, and a first officer at least, and, of course, a helmsman. You can't employ a group of peasants, factory workers, thieves, nuns, soldiers or whatever, pretending to have trained them in 24 hours. There are no such short cuts.   

Out of these two countries; what do we have? Inconsistencies, confusions, scream like Fox during his campaign. Domingo Cavallo supposedly was the paradigm of neo-liberalism. But, like dad with the children, he decreed limits to the cash Argentineans can withdraw from their accounts every week or month. Then his government decided to use the pension funds to alleviate the weight of foreign debt. That has not worked, even for Hugo Chavez on the other side of South America, who is supposedly on the same side of the political spectrum. In the telecommunications sector, his politics, which are greatly admired by Fidel Castro, ratified the criteria of orthodox neo-liberalism.

During the 90s we had simulations of reform with a little or nothing of "liberal" and a lot of "neo". Instead of affirming the separation of public and private--the old libertarian axiom--as a matter of principle, they embraced visions of close cooperation between the state and the market, and invented synergies in order to affirm that national borders now have to disappear. Instead of liberation, they established many more regulations. Instead of tearing down political and legal restrictions looking for the recuperation of the micro equilibriums of the individual agents, they pursued more than anything the macro equilibriums through the wrong ways: Instead of lowering fiscal deficits, cutting the expenses resulting from the existence of a massive amount pork barrel spending, they increased income taxes, took on more debt, and engaged in monopolistic privatizations. And in trade they now practice the Cepal recipe favoring exporters through competitive devaluations. 

We should not now be in shock because the situation of the whole region is getting worst. And, of course, we now suffer from the aggression of the left which is empowered with the collectivist expressions so popular today such: ecofeminism, anti globalization of the markets, human rights, the rights of children, real democracy etc, in a very well tuned chorus from all the agencies of the UN and some other national and international organizations, including some parts of the federal government of the USA that favor  the "globalization of governments."

So now, after this kind of ambush, we have left the only politically viable way which is to return to the old short term manipulations of the phase A, pre 90s in Argentina--something that Cavallo invented every day--a more desperate and cornered, compulsive-like waiting for a miracle. Some of his maneuvers were so coarse and almost illegal, like not paying creditors. Some one should be a great economist to discover that magical solution of not paying bills.? I have a friend who likes to do the same, but he is not known as a financial genius but like something else.

Moreover, a return to the lefties and Peronist policies means that now we are talking about the mythology of the cave in Plato's "Republic": those who were born, grow up and live in the darkness of ignorance, the light for them is blindness and they rejected with some kind of fury.  The return of the left in Latin American is this kind of scenario. The only valid answer is the one from Hutt: campaigns to shift opinion in order to extend the perimeter of the "politically possible"-- just telling the truth to the people, just the truth and nothing else but the truth.      

After more than a year of the Fox's administration a big disappointment is emerging in Mexico. As Anastasia O'Graddy wrote a few months ago in an editorial in "The Wall Street Journal" entitled "What Happens to the Mexican Revolution?" "Where is that tall handsome man who wearing cowboy boots took over more than a year ago, promising to clean up the country dump and bring prosperity for the people.?" I wrote an article about it that I entitled; "Where is the beef." The people in Mexico believe that they did not get someone who is going to lead the country through the storm to get the changes and reforms that we so urgently need in order to leave the hell of the third world. Now both parties. the PRI and PAN, with new leadership are getting ready for battle in this year's elections and the not far away year of 2006. 

What sort of solution do we need in Mexico in order to avoid becoming the next Argentina.? We only have two: to resuscitate Porfirio Diaz, or the real libertarians getting much more involved and leaving the comfort of the critic's chair and the irresponsible attitude of being part of the solution only through the world of ideas. Another one.? To go back to the Echeverria's era now modernized with a touch of Chavismo-Venezuela-that the "new" PRI is offering, the PRD and all the new editorialists who write with that kind of intensity and aggressiveness, but sustaining their writings with a score of Cantinflas' ideas but  affirm, as does Milton Friedman, that in economics there is no such thing as a free lunch. In politics and in the economic restoration of our countries, there are, unfortunately, no short cuts.

Ricardo Not long ago in the beautiful city of Monterrey in the North East of Mexico there was the strangest gathering of people--with an even more strange goal--than I have seen in a long time, “The Forum for the Financing for Development.”  Its objective was to combat poverty. 

This Mexican city,  where I spent 5 years of my life while attending college at the Monterrey Institute of Technology, was the location of the reunion of representatives of practically every country of the world—prime ministers, presidents, secretaries of economy and finance, and of course the classic bunch of "Globafolics". They met to analyze the ways in which they are planning to fight poverty all over the planet. Even though the solution to this terrible problem that is killing millions of people all over the world can be found in writings as simple as the little book: “All that I needed to know I learned in kindergarten,” the important members of the international community met with big displays of power and arrogance trying to achieve this common goal; a goal which I can very easily predict will waste miserably their valuable time.

This struggle involves hatred, envy, and resentments between rich and poor are as old as humanity itself. We should remember the words of Calvin Coolidge:  “We don’t need more material development; we need more spiritual development. We don’t need more intellectual power; we need more moral power. We don’t need more knowledge; we need more character. We don’t need more government; we need more culture. We don’t need more laws; we need more  religion. We don’t need more visible things; we need more invisible things.” Even though these words were written almost 100 years ago, some of them have value at the present time. Obviously we don’t need more government, we need less. We need much more character and especially a very different kind of culture--a different culture from the one which has made us slaves in the last centuries.

While watching on TV the news about this important convocation, I suddenly found on a Mexico City channel an interview with a Mr. analyst who immediately identified the problem of terrorism as a manifestation of a bigger problem; the disparity between the rich and the poor countries of the world. In other words, if I work, save, prosper, sweat, innovate, risk and create while someone else does not; his natural reaction is to expect that at some point these people to assault and burn my house and kill my children.

Forgive me Mr. Analyst, but you are out of your  mind, and this kind of attitude is the root of these problems. I got upset and changed the channel only to find an interview with a great “Mexican intellectual,” Lorenzo Meyer, who bluntly affirmed that the strategies applied the past ten years with the intent of changing the world and beating poverty through free markets, free trade, the free movement of  capital, fiscal discipline etc, have been a failure.

First of all, Mr. Meyer,  if the openness and the liberation of the economies have been like the one  in Mexico, the fiscal discipline like the Argentinean, the fight against corruption like the one in Peru, and openness of the markets like Japan; there you have your answer. It is childish to think that what took Mexican revolutionaries 100 years to destroy can be rebuilt in 10 or 20 years, especially with hesitations and half solutions and a lot of public relations.

This concentration of aggressive beggars swinging sticks is pathetic. Like always, poor countries blame all of humanity for their tragedies rather themselves, their governments, their culture, their attitudes, and their religions. This event with the participation of Chavez, Castro and Duhalde has become the great convention of Latin American Idiots which now, at international level , includes the "turbans" and the mantra that  “Our poverty is the consequence of the wealth of others"--the classic zero sum. "What others have is because they took it from us.” Sometimes it looks like they almost  cosign the actions of the Taliban: “Gringos are very rich and powerful, let’s destroy them and then we will have a more just and fair world.”

This gathering in Monterrey could have been one of the most important ones in the history of mankind if they had pushed the right buttons. It is about time that the rich countries of the world stop the black mail by the international "compassionate" agencies. It is time they stop feeling guilty because there are poor countries.  It is time to stop the Jesse Jacksons of the world. It is time for the poor countries to  leave in the archive of their  memories attitudes like the popular one: “we can’t,” while someone else can.

It is time they stop blaming someone else for their poverty and assume responsibility for their own destinies. It is about time to stop the hemorrhage of capital from the IMF and the World Bank flowing to those countries which have no accountability and which just promote dependency.

To talk about, to promote, and to announce the fight against poverty is pathetic. You don’t say it, you just go to battle liberating the forces of civil society, freeing men and allowing them to go after their dreams and  their purpose. You don’t fight poverty with demagogic speeches and tournaments to define who is to blame for humanity’s suffering. You don’t  fight this battle complaining and reproaching others because the wealthy countries of the world don’t throw enough crumbs to the hungry ones; not with the wave of globafilics driven like cattle by the international NGO who don’t know  what they are protesting for, against what, or against whom. You don’t fight poverty in reunions of obese men dressed in Versace suits, arriving in corporate jets, and staying in elegant five star hotel suites.

You don’t fight poverty using edicts, pronouncements, or decrees like mortal weapons; covering the poor countries with loans which end up in the Suisse accounts of their political leaders never to be repaid. You don’t do it with  magic formulas to multiply the bread and fish. You have to fight poverty with hard work, individual responsibility and independence from "daddy" governments. You have to go to this battle with some kind of symphony between governments and the people, where everyone needs to play the right  note. Governments need to serve and protect, and the people need to work and  produce.

Not only is this pathetic, but it is also painful and shameless to see groups of thinkers and politicians demanding to keep financing, not development; but irresponsibility, corruption, excess, and grossness. On one hand, they demand help with a big stick through Taliban-type threats, and on the other they refuse to quit the vices which have keep them so sick: Keynesianism and collectivism. They don’t want to go through a painful withdrawal, not realizing that this is what makes them beg and to lose one of the most important values for a people; dignity. It Is very sad to see the arrival of the leaders of the USA, England, Japan, Germany, and France
who control 90% of the GNP of the world, but then it is frustrating to see the arrival of the leaders of the other almost 200 countries that arrive to pick up the crumbs of the 10% left on the table.

But what is really pathetic is to realize that a lot of our intellectuals think that these five countries are the villains of the world as if they have stolen that wealth that they built on sweat and blood, and consider victims the rest who, like addicts to cocaine and alcohol, keep begging “with a big stick on hand,” in order to keep going and finance their vices.

Mr. Beggars of the world riding Mercedes and limousines: the fight against poverty is not in Monterrey, Washington, or New York. The fight is in your  countries, in your homes and in the minds of your people. And as Hernando de Soto said, you don’t fight poverty from the top of the pyramid down. You have to fight it from the base to the top, because if you don’t, you are going to lose this war.

This is a war of ideas. As Vargas Llosa said, "Libertarian ideas are not going to be easy to install in Latin America, because for centuries the whole continent was molded with the philosophy of statism, socialism, corporativism, so we need a new revolution but with the purification of the meaning for us of blood, death and demagogy, and impregnate it with ideas, creation, freedom, rationality, pluralism and legality."


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