Tag: chile

Paul Krugman’s Distorted Views on Inequality in Latin America

When it comes to discussing Latin America, Paul Krugman has a tortuous relationship with facts. Let’s take a look at a post he wrote last week on inequality in the region. Krugman claims that Latin America’s decline in inequality in the last decade is due to the region “partially turning its back on the Washington Consensus” (a term that has misleadingly become short hand for free market policies). Is that the case?

First, note how the graph in Krugman’s post actually shows inequality going up in Latin America during the 1980s, before the implementation of policies related to the Washington Consensus (which for most countries begins in the early 1990s), and then sharply declining before the arrival of what he calls the “new policy approach” of left-of-center governments. The rise of inequality in Latin America in the 1980s coincides with the periods of hyperinflation that crippled the economies of Argentina, Brazil, Nicaragua, Peru, and Bolivia. Central banks in Latin America were all too busy in those years financing the acute fiscal imbalances of their central governments through the emission of money. And Latin American countries were deep in the red precisely because their bloated public sectors became unsustainable, leading to the serious debt crisis of 1982. Thus, it was an inflationary spree, caused by the crisis of big government, that exacerbated inequality in the region. Of course, Krugman fails to mention this.

Can we assign the recent decline in inequality in Latin America to any specific ideology? A recent study by Kenneth Roberts of Cornell University on the politics of inequality in Latin America looked at inequality trends from 2000 to 2010 and found that “countries that experienced net declines in inequality were governed by diverse administrations of the left, centre, and right, including non-leftist governments in Colombia, Mexico, Peru, Paraguay, El Salvador, Guatemala, and Panama.” According to Roberts, “there was no strict correspondence between declining inequality and either the ideological profile of national governments or any specific set of redistributive initiatives.”

Second, it’s quite a stretch to state that Latin America as a region moved away from the Washington Consensus. I’m not going to dwell here on the virtues of all the policy recommendations identified by John Williamson back in 1989 or discuss the extent to which they were actually implemented by the various Latin American governments. However, even though some countries such as Venezuela, Ecuador, Bolivia, and Argentina have turned their backs on responsible macroeconomic policies in the last few years, most governments in the region, including those called “left of center,” still implement macroeconomic policies related to the Washington Consensus such as freer trade, fiscal and monetary discipline, and attraction of foreign direct investment.

It is telling that despite the serious deterioration in economic freedom in countries such as Venezuela, Ecuador, and Argentina economic liberty has actually increased—slightly—in Latin America as a region in the last decade. According to the Economic Freedom of the World , Latin America went from a regional average grade of 6.56 (out of 10) in 2000 to 6.62 in 2009. Implying that Latin America has somehow turned its back on market-friendly policies is misleading.

Third, Krugman looks at the economic performance of Latin American governments based on their ideological affiliation, suggesting that social democratic regimes have a better record than non-left-of-center governments. However, the study on which he bases his post relies too heavily on analyzing governments by their ideological labels, rather than looking at their actual economic policies. This can be very misleading. For example, during the period covered by the study (2000s), Chile is ranked as left of center, even though during that decade the country increased its level of economic freedom, moving up in the ranking of the Economic Freedom of the World index from 28th place in 2000 to 5th in 2009.

Finally, Krugman finished his post questioning Chile’s free market model and private pension system (even though the study he was referencing categorizes Chile as “left of center” and thus credited that ideological camp for Chile’s healthy economic indicators). Krugman doesn’t provide evidence to substantiate his criticism other than making a presumable reference to the recent student protests in Chile. If he looked at the facts, he would see a different picture. He would find that Chile is the country with the most impressive record in poverty reduction in Latin America (the poverty rate fell from 45 percent in the mid-1980s to just 15 percent in 2011), that it has tripled its income per capita since 1990 to $16,000 (the highest in Latin America), and that it is set to become the first developed nation in Latin America within a decade. What is it about this record that Krugman finds so annoying?

Palestine To Adopt Chilean Private Pension Model

Hashim Shawa, the head of the Bank of Palestine, says that in 2012 Palestine will adopt the private pension system that Chile pioneered 30 years ago and has exported throughout the world. As you can see from the map below, it will become the second Arab territory after Egypt to do so. Of course, the devil is in the details, and for the reform to be as successful as it has been in Chile, Palestine should introduce a whole set of complimentary economic reforms. But if done right, at least in this regard Palestinians will be ahead of almost all of their neighbors, including Israel.

Here’s Where Better Schools HAVE Scaled Up…

Earlier this summer, I released a study comparing the performance of California’s charter school networks with the amount of philanthropic grant funding they have received. The purpose was to find out if this model for replicating excellence was consistently effective. The answer, regrettably, was no.

But a new study we are releasing today finds that there is at least one place where better schools HAVE consistently scaled-up: Chile. Thanks to that nation’s public and private school choice program, chains of private schools have arisen, and they not only outperform the public schools, they also outperform the independent “mom-and-pop” private schools.

For anyone interested in replicating educational excellence, this study by a team of Chilean scholars is worth a look.

Obama’s Trip to Latin America

As Ted Carpenter notes below, President Obama is departing on an important trip to Latin America. The countries that he will visit exemplify the macroeconomic stability and advancement of democratic institutions now found in much of the region.

Brazil, by far the largest Latin American economy, has enjoyed almost a decade of sound growth and poverty reduction. Chile is the most developed country in the region thanks to decades of economic liberalization, a process that has also made it Latin America’s most mature democracy. And El Salvador is undergoing a delicate period in its transition to becoming a full-fledged democracy with its first left-of-center president since the end of the civil war in 1992.

In an era when most Latin American nations are moving in the right direction—albeit at different speeds, with some setbacks, and with notable exceptions—the United States can serve as a catalyst of change by contributing to more economic integration and the consolidation of the rule of law in the region.

Unfortunately, despite President Obama’s assurances that he’s interested in strengthening economic ties with Latin America, his administration is still delaying the ratification of two important free trade agreements with Colombia and Panama. President Obama also continues to support a failed war on drugs that significantly exacerbates violence and institutional frailty in the region, particularly in Mexico and Central America.

It’s good that President Obama’s trip will highlight significant progress in Latin America, but his administration’s policy actions still don’t match the U.S. goals of encouraging economic growth and sound institutional development in the region.

Cloning “Superman”

We all know there are too few good schools and too many lousy ones. The trouble is, we lack a mechanism for reliably scaling up the former and crowding out the latter. Competitive markets perform this service in other fields, from coffee-shops to cell phones. Can the same thing work in education?

To find out, we’ve invited experts from both hemispheres to tell us what their nations have learned from decades of experience with private-school choice. Peje Emilsson founded the largest chain of for-profit private schools in Sweden’s nationwide voucher program. Humberto Santos has studied the academic performance of public schools, independent private schools, and chains of private schools in Chile’s voucher program. Responding to their findings and asking challenging questions will be Education Week journalist Sarah Sparks.

I hope you can join us for this fascinating discussion, and lunch, at noon on January 28th. Click here to register. The sooner we can stop “Waiting for Superman,” the better.

Chilean Government Now Wants Higher Taxes on Junk Food

Following Rahm Emmanuel’s advice of not letting a crisis go to waste, the new center-right government in Chile now wants to extend the permanent rise in tobacco taxes—supposedly adopted as a measure to finance post-earthquake reconstruction—to foods with high concentrations of salt and trans fat [in Spanish]. Jaime Malañich, the Health Minister, said that the earthquake is opening up an opportunity to implement a measure that would increase the government’s revenue and fight obesity and that has been considered for many years.

My colleague Ian Vásquez wrote a few days ago that, by announcing unnecessary tax increases as post-earthquake reconstruction measures, the recently-inaugurated administration of Sebastian Piñera was quick to disappoint those who expected a bold move toward strengthening free market policies that have made Chile a Latin American success story. If these announcements are any guide, expect more disappointments.

A Disappointing Start in Piñera’s Chile

The presidential election in Chile that brought Sebastián Piñera to power last month was good news for Chile and the region. It confirmed once again that Chile is Latin America’s most modern country, one in which Chileans chose a center-right candidate to lead the country after 20 years of center-left governments that by and large stuck to the free-market model set in place in the 1970s and 1980s and that has made the country one of the most economically free in the world. In Chile, what’s at stake in presidential contests is not a radical change of the rules of the game, but rather policies that build on or depend on high growth. Chile’s mature democracy and economy serve as a model for Latin America.

But in just over a month of being in office, Piñera has made two decisions that disappointed his supporters both inside and outside of Chile who believed that he would reinvigorate the Chilean economy and stand firmly against the populist-authoritarian model that Hugo Chávez has exported to the region. Piñera backed the re-election of José Miguel Insulza to head the Organization of American States and has proposed a tax increase on large companies. Insulza and the OAS are widely and correctly viewed as having been silent, incompetent or complicit in the face of repeated violations of basic democratic and civil rights by populist governments in the region. Whatever the domestic political reasons for Piñera’s decision, countless Latin Americans who cherish their rights—not the least of whom are Venezuelans, Hondurans, Bolivians and Ecuadoreans—were disillusioned by the endorsement of Insulza.

On Friday, Piñera proposed to “temporarily” raise taxes on large companies from 17% to 20% (and to increase mining royalties and to permanently increase tobacco taxes) to finance Chile’s post-earthquake reconstruction needs. But a number of Chile’s leading economists are criticizing the tax increase and point to other sources of revenue that would be less damaging to growth. Hernán Büchi, a finance minister in the 1980s, and Luis Larraín, head of Chile’s free-market think tank, Libertad y Desarrollo, have both written op-eds in recent weeks pointing out that one of the country’s main problems has been the steady drop in productivity in recent years. Piñera was elected on a platform to increase productivity. A tax increase would aggravate the problem. According to Büchi, 20 years of center-left governments reduced Chile’s ability to eliminate poverty and followed a path that was politically easy and consistent with their ideology: “It would be a bad omen if the first measures of a government that should represent change in this regard, went down the same path.” Larraín adds that the tax decision will reveal Piñera’s governing approach, in which there is a real danger of avoiding necessary reforms and a president content with simply being a better administrator. We shall see.