Just as the old year was coming to a close, I read a very interesting and encouraging article in the Wall Street Journal (the editorial section, not the disappointing news section) by Mary Anastasia O'Grady. Ms. O'Grady writes frequently in the Journal about economic and political matters in Latin America. Her piece, titled "A Canadian Rock Star and the Pacific Rim Fab Four" caught my eye. Perhaps I was interested because I recently traveled to Guatemala to speak to NGO representatives in that area about fund raising for their organizations. I spoke at the Universidad Francisco Marroquin, an amazing university dedicated to academic excellence and to free market economics.
I was curious if Guatemala was one of what O'Grady called the "Pacific Rim Fab Four." It was not, and I was not too surprised, knowing a little bit about the situation there, including the negative influence that the United States and the European socialist nations have exerted on Guatemala.
The Canadian "Rock Star" was, of course, Canada, our neighbor to the north that has eschewed many of the illogical economic policies of the Obama administration. Canada has neither the dangerous debt situation of the US, nor any hesitancy to exploit the natural resources with which it has been blessed. While Canada may be a basket case when it comes to medical care and a candidate for the asylum as far as political correctness is concerned, it has pursued commonsense economic policies. In short, the Canadian economy is booming and the people are prospering.
Of course there are some very elemental policies that are necessary for the economic success of any nation, including low tax rates, a stable currency, civil order, minimal regulations, an educated work force, and a free and open marketplace. These elements are especially important for emerging economies that must have capital investment in order to grow and prosper. They are, of course, very important to any nation that seeks to not only bring prosperity to its citizens, but also make that prosperity accessible to everyone in the land.
The top down socialist model works well for those in the political system and their cronies who keep them in power. In other words, the Jeffrey Immelts of the world prosper because they are directly subsidized by the government. I emphasize directly because, in the Orwellian world in which we live, leftists often sophomorically refer to tax breaks as a subsidy. That is foolish on its face. A tax break can only be a subsidy if the government owns all the money and they just let us have some. In a free society, all money (which simply represents goods and services produced in the private sector) is owned by the people. They earn it through hard work, ingenuity, and risk taking.
In the failed socialist model, only the politicians, the bureaucrats, the crony capitalists like Immelt and the union bosses (not the workers) benefit. Everyone else suffers. In socialist societies you find a rich upper crust of the aforementioned reprobates and the poor. There is no middle class. In stark contrast, a free society is comprised of a whole bunch of people and a whole bunch of economic ladders. People are continuously going up and down those economic ladders as they succeed or fail, but the opportunity to ascend one of those economic ladders is open to everyone no matter where they start in life. There is no shortage of ladders, because there is no shortage of opportunities.
So let's get back to Ms. O'Grady's good news about nations in the Western Hemisphere. We have already identified Canada as one of the economic bright spots, but the four "Pacific Rim" nations may surprise you. It's not the US, of course, and it's not the socialist paradise of Cuba, nor is it Hugo Chavez's Venezuela. Ms. O'Grady rules out Ecuador and Bolivia who she says "fit the loser mold: left-wing populist politics supporting corporatist, authoritarian states." It's not "state managed economies" like Argentina where inflation is now close to 25%. Surprisingly (except for the fact that it is located on the Atlantic Ocean), it's not Brazil, which Ms. O'Grady describes as "…sticking to a closed economic model that tries to preserve an industrial plan from the 1960s…" She cites the World Bank's "Doing Business" survey that measures the ease with which an individual or corporation may do business in a nation. In that survey Brazil ranks 130th, Argentina 124th and Venezuela 180th.
Now, let's look at the "Fab Four"—Chile, Mexico, Peru and Colombia! Chile doesn't surprise me as much as the other three. It wasn't that many years back that Chile was mired down in a socialist economy with high inflation, low capital investment, and almost nonexistent economic growth. It looked much like the Venezuela of Hugo Chavez. But things have changed for the better for the citizens of Chile as it has taken strides toward a free and open economy.
Chile has an enviable retirement system that makes Social Security pale by comparison. It is universal and it is private. It's the type of system that makes sense for citizens of the United States. The only reason we don't have it is because it takes political leverage away from the politicians. The Democrats can't promise more or make threats that the Republicans will take away your Social Security if it is a private system. That's sad, because the performance of the privatized Chilean retirement system far outperforms the returns that US citizens are forced to accept under Social Security. Moreover, the US Congress and the President can't spend the money you set aside for retirement, as they do with Social Security funds.
Today, thanks to steps toward an open and free economy, only 11% of the population of Chile is living in poverty. This compares to numbers double and triple that amount just a few decades ago when it labored under a socialist top down economy. Moreover, the poverty rate of Chile (according to the US Bureau of Census) is lower than that in the United States, which is 15.1%. To be sure, the definition of poverty is a subjective number and one to be taken with a grain of salt. Nevertheless, the low rate of poverty in Chile is a sign of its widespread economic prosperity. In 2011, Chile was ranked 6th in the world for attracting capital relative to the size of that nation. That's what free markets do for a nation. Chile has come a long way and, as long as they stay on the free market path, the best is still yet to come for Chile.
I am more astounded by Mexico being included as a "Fab Four" by Ms. O'Grady than I am by any other nation. When I think of Mexico I think of a nation wracked by narcoterrorism. I think of Juarez where people are shot on the streets and members of opposing gangs are beheaded. There's no doubt that Mexico has a serious gang problem related to illegal drugs. The incoming President, Enrique Pena Nieto, has made noises about ending the nationalization of oil, gas and telecommunications. If he is successful in doing that, and with the North American Trade Agreement in place, some believe that the economy of Mexico can be transformed into a powerhouse that passes that of Brazil in the next decade. If that happens, it will be an astounding turnaround for a nation that has for too long been shackled in a moribund socialist economy. Mexico has vast, untapped natural resources, but has been, thus far, unable to attract substantial outside capital investments that are key to a growing economy. The more free market reforms that Mexico enacts, the faster and further its economy will grow.
The other two members of the "Pacific Fab Four" are going down the same free market route as Chile and Mexico. They are not as far down that path as Mexico and not nearly as far as Chile. However, both Peru and Columbia are taking the right steps toward an open market economy that is the key to economic growth. Just 20 years ago, in 1993, 60% of the population of Peru was living in poverty. In 2010, 31.3% of the Peruvian population was living in poverty, and today that number has dropped even further to 27.8%. That's still an awfully high number, but the progress is significant and consistent. Providing Peru stays on a free market course, that number will continue to fall.
The situation in Columbia is much like that of Peru. It is a stable civil society that has been very successful in attracting capital investment. A free market approach has been gaining steam in this nation for a number of years. According to UCLA economist, Sebastian Edwards (as cited by Ms. O'Grady), it deserves to be included in what he calls "the resurgence of the Pacific of the Americas." Of course, there is always the danger that there will be a political sea change in any of these nations that could drive them off track and back toward a failed socialist system.
While Ms. O'Grady did not mention it in her Wall Street Journal article, I'd encourage investors and Latin America watchers to keep an eye on tiny Guatemala (population 14 million). Led by graduates of the Universidad Francisco Marroquin (UFM), this nation has the potential to become another economic growth powerhouse. The university was founded by the late Manuel Ayau with the encouragement of Nobel Laureate, Milton Friedman. Dr. Ayau's goal in founding the University was to spread free market principles across his nation, then across Latin America, and ultimately across the world. The current President of Guatemala and many members of its Congress and courts are graduates of UFM. Through their leadership, Guatemala has been blessed with extensive free market reforms, in some cases in spite of the United States.
Sadly, US Ambassador Prudence Bushnell, who served under President George W. Bush, endeavored to roll back many of the market reforms enacted by the Guatemalan Congress. In the high handed manor of arrogant bureaucrats, Ambassador Bushnell openly threatened the Guatemalan Congress and President with damaging economic actions by the US if it refused to enact 28 laws that she provided to them. Nearly all of these measures were detrimental to a free and growing economy.
If this wasn't bad enough, Guatemala, which is blessed with mountains and many opportunities to produce hydroelectric power, is being blocked from doing so by outside interference from greens in Europe and the US, using similar economic threats. The result is extremely expensive and limited access to electric power. This alone stymies economic growth and perpetuates a high level of poverty in the nation. Without such interference and sans the very real problem of narcoterrorism, Guatemala could join the small group of Latin American nations experiencing strong economic growth.
The situation here in the US is unfortunate. The President is a captive of economic inanities that he gained in the academy. To paraphrase the late Bill Buckley, it's not that he isn't a smart man, it's just that so much of what he believes to be true, isn't true. In short, he doesn't understand economics 101. He thinks bigger and more powerful government is the answer, when it is really the problem. He believes government needs to be more involved in the economy with more regulations, more restrictions and a heavier hand, when just the opposite leads to prosperity and opportunity for all Americans. Without any rationale whatsoever, he believes that you can create a green economy, even though it has to be subsidized by the government. Such subsidies, of course, mean that such activity is not marketplace sustainable. In fact, each and every subsidy lowers the standard of living of all Americans.
Oh well. Every day that goes by takes us one day closer to his last day in office. He is a lame duck whose clock is running. And as each day passes his power diminishes ever so slightly. While he will continue to do much damage to the Constitution, to the rule of law, to the economy, and to economic opportunity (especially for the poor), his days in office are numbered.
Let's not let the bad news of President Obama in the White House dampen our enthusiasm for the five nations in the Western Hemisphere who are on the right economic path. We can only hope and pray that they will continue down that road, providing an example of what course a nation should follow if it seeks prosperity for its citizens.