Topic: International Economics and Development

Chile’s Proposed Education Reforms Would Kill the Goose that Lays the Golden Eggs

For the past three decades, Chile has had a nationwide voucher-like school choice program. Parents can choose among public and private schools, and the government picks up most or all of the tab. But, since the election last fall of a left-leaning government led by Michelle Bachelet, the future of the program has been in doubt. In May, President Bachelet introduced a first round of reforms aimed at dismantling aspects of the program, though these are still under debate. I’ve written about what that could mean for Chile’s educational performance and equality in today’s edition of the Santiago-based El Mercurio. Here’s the original English version:

Chile’s elementary and secondary education system has been harshly criticized in recent years for academic underperformance and for having large gaps in achievement between lower-income and higher-income students. There is significant truth to both charges. What is less widely known is that Chile has been improving substantially in both respects for at least a decade, and that president Bachelet’s proposed reforms are likely to reverse that improvement.

Though Chilean students perform in the bottom half of countries on the Programme for International Student Assessment (PISA) test, many of the nations that participate in that test are rich and fully industrialized. When compared to other Latin American countries, Chile is number one across all subjects. More importantly, Chile is one of the fastest-improving countries in the world on international tests, and so it is gradually closing the gap with rich nations.

Imperialist Tourist Spots Help Explain Chinese Aggressiveness Today

BEIJING—Modern China continues to rise.  But ancient China remains.  And bears witness to a history the West would prefer to forget.

The Summer Palace is one of Beijing’s most enchanting tourist destinations.  But some of the old buildings are in ruins—courtesy of the Western powers.

Imperial China long was a cultured and advanced civilization that eventually fell into decay.  By the 1800s the Western powers had begun to carve out concessions and colonies.

The Summer Palace first was created in the 12th century and was meant to ease the life of the royal family.  In 1860 during the Second Opium War French and British troops destroyed most of what is now called the Old Summer Palace.

In 1886 the Empress Dowager Cixi used funds planned for a navy to rebuild the royal playground.  She called the site the Garden of Peace and Harmony, an appropriate name, except for the garden’s unwanted guests.

In 1900 came the Boxer Rebellion, named for the violent xenophobic, spiritual movement named the “Righteous and Harmonious Fists.”  The Boxers targeted foreigners, especially missionaries, and Chinese Christians.  The revolt, supported by the Empress Dowager, reached Beijing, in which Western diplomats were killed and legations were besieged.  The Western nations raised an eight-nation rescue force, including American troops.

The allied forces eventually relieved the city—alas, the Boxers discovered that their training did not render them immune to bullets.  One of the casualties was the New Summer Palace. The gardens and buildings were burned by the allies, objects contained within were plundered.

The Empress Dowager had to rebuild again on her return to Beijing, which she had fled in advance of the allies.  She died in 1908 and the republican revolution occurred three years later.

This unseemly history is of more than just academic interest.  It helps explain Beijing’s behavior today.

No doubt, some Chinese, both in and out of the People’s Republic of China, have an exaggerated sense of Chinese history, civilization, and destiny.  And Imperial China, despite the fascinating esoterica surrounding it, was an unfriendly place for most of the humane values which we value today.  Nevertheless, China has been treated badly, especially by the Western powers which today are most insistent on Beijing following Western standards.

This historical experience helps explain the nationalism which afflicts even young Chinese who are liberal in many other ways.  The same students believe in a strong, even dominant China.

In fact, many ethnic Chinese living outside of the PRC cheered Hong Kong’s 1997 reversion to Beijing’s control.  For them, the issue was CHINA, not the particular regime ruling the territory known as China at this moment.

More important, those in charge feel a special responsibility as their nation gains the resources, influence, and power necessary to reverse a century or more of humiliation.  That may not justify increasing Chinese assertiveness, especially in the West’s eyes.  But it helps explain the behavior.

This doesn’t mean other nations should automatically concede the PRC’s claims.  But it suggests that Chinese assertiveness involves something other than malevolent aggression.

In which case, as I write in my new article on China-US Focus, “Washington is foolish to militarize disputes which are, at most, of only moderate geopolitical interest.  Other nations, especially those, like Japan, whose behavior has been, shall we say, less than exemplary, have a special responsibility to accommodate Beijing’s perceptions and interests.”

History helps explain Beijing’s policies and politics today.  While those in the West might have amnesia about what their ancestors did to the forebears of China’s leaders, the latter are not so likely to forget.  Policymakers in the U.S. would do well to consider that history in designing their approach to Beijing.  A peaceful and prosperous 21st century might depend on it.

Should Scotland Reclaim Its Independence?

At USA Today, I write about Scottish independence, which the Scottish people will vote on this coming Thursday. I note that the late Nobel laureate Gary Becker wrote in 2005, like Simon Lester today, that the disadvantages of small nations are much reduced in a world of free trade:

My conclusion is that developments in the global economy during the past 50 years have greatly reduced the economic disadvantages of small nations enumerated for his time by Hamilton. In fact, being small now may even have efficiency advantages…. [As trade barriers have come down over the past half-century,] small countries can now gain the advantages of large markets through trading with other nations.

I go over arguments on currency, tax rates, and the likelihood that an independent Scotland could be as socialist as some of its political leaders would like if it has to create its own prosperity. In the end, I write:

In any case, the economic arguments will go on till the vote on September 18. Scotland certainly has the elements necessary to be a successful European country. The real question is whether the Scots themselves desire, to borrow an Irish anthem, “that Scotland long a province be/A nation once again.” As a descendant of Scots who helped America secure its independence, I hope so.

I wrote previously about Scottish independence here

Scottish Independence: Not That Big a Deal in Today’s World

Yesterday, my colleague Doug Bandow blogged about Scottish independence, concluding with the following: “Whatever the Scots choose on September 18, Americans should wish them well.” I just wanted to add a quick point here, drawing on something law professor Eric Posner said on this issue: “the benefits of a large country—mainly, security and a large internal market—are of diminishing significance in a world of free trade and relative peace.”

To me, this is a very important consideration. If Scottish independence meant an increased chance of war or high tariffs designed to separate the Scottish market from the rest of the world, it would be worrying. But those seem unlikely. In terms of war and peace, there have been no Mel Gibson sightings that I’m aware of. On trade, there may be some bureaucratic challenges, but it seems clear the goal is for Scotland to join the EU and be part of its large, single market. As for trade with the rest of the world, Scotland will take on the EU’s trade policy–which is not perfect of course–but has followed the trend toward liberalization that the rest of the world has pursued over the past few decades. In all likelihood, Scotland will continue to search for export markets for its whisky and allow the free flow of imports.

If Scottish independence meant it would become like North Korea, I’d be concerned. But it doesn’t seem like that’s the path it is on. With the exception of a few regions, we live in a highly integrated, peaceful world. Scottish independence would not change that.

Argentina: Down The Tubes, Again

President Christina Fernández de Kirchner has turned up her left-wing rhetoric as the economy goes down the tubes. Indeed, GDP has contracted for the past two quarters; inflation is galloping at 56%, not the official 15.01%; and the country has defaulted on its debt, again. Never mind. The President claims Argentina’s financial system is “one of the most solid in the world.” She asserts that Argentina’s woes can be laid squarely at the feet of foreign “vulture funds” and greedy capitalists who have speculated against the peso. Yes, the peso has lost 42.6% of its value against the U.S. dollar on the black market since the first of the year, and for very legitimate reasons.

But, for realists like me, a fact check is always worth a peso. Recently, Bloomberg’s Charlie Devreux and Pablo Gonzales penned some most edifying reportage on one thing that’s booming in Argentina: criminality. Bandits have put cargos of grain headed for the port of Rosario in their crosshairs. And why not – grain is traded in greenbacks, not pesos.

Property’s worst enemy is theft: theft makes property insecure. And unless property is secure, it can’t be accumulated and it is wasted. The increasing incidence of heists on grain, Argentina’s most valuable export, indicates that property rights are becoming more insecure and that the economy only has one way to go: down the tubes.

Indonesia Reform, Please

The Indonesian stock market has just hit a record high on the hope that the incoming President, Joko Widodo, will push through economic reforms. But, what path should he follow? My advice to President Widodo is the same as that I gave President Suharto, when I was his advisor in 1998: follow Singapore and Lee Kuan Yew.

When Singapore gained independence in 1965, Lee Kuan Yew developed a set of sound principles, which proved to be highly successful. Indeed, their implementation propelled Singapore to the top of the world’s competitiveness rankings. I have dubbed these principles the “Singapore Strategy.” It contains the following five elements:

  • First and foremost, stabilize the currency. Singapore achieved stability with a currency board system – a simple, transparent, rule-driven monetary regime.
  • Second, don’t pass the begging bowl. Singapore refused to accept foreign aid of any kind.
  • Third, foster first-world, competitive, private enterprises. Singapore accomplished this via light taxation, light regulation, and completely open and free trade.
  • Fourth, emphasize personal security, public order, and the protection of private property.
  • The final key to Lee Kuan Yew’s “Singapore Strategy” is the means to accomplish the previous four goals: a small, transparent government that avoids complexity and red tape. And one that is directed by first-class civil servants who are paid first-class wages.

Taxes, Tennis, and Transportation

We have an uncompetitive federal corporate tax rate of 35 percent compared to Canada’s 15 percent. Our Roth IRA is inferior to Canada’s TFSA, as Amity Shlaes and I discussed in the Wall Street Journal. And while Serena Williams still tops rising star Eugenie Bouchard, we should be paying attention to ”What Canada Can Teach Us About Tennis.”

Now we face another competitive threat from the north. This time it’s British Columbia seaports says Bloomberg:

Container ships sailing across the northern Pacific are carrying more cargo and are setting course for British Columbia to avoid delays from a possible strike by U.S. West Coast longshoremen. Traffic in Prince Rupert soared 49 percent in July from a year earlier, according to data compiled by Bloomberg Intelligence, while volume dropped 19 percent in Seattle, its nearest major U.S. rival.

Canadian ports are gaining an advantage over their U.S. rivals amid an economic recovery that’s increasing container volumes from East Asia. While U.S. West Coast ports are mired in a labor dispute and congestion hobbles local railways, Prince Rupert is winning customers with its shorter sailing times from China and efficient infrastructure that can whisk freight to the U.S. Midwest and beyond.

“If people are using the Canadian ports now out of concern for a slowdown, and they like what they see and they like the processing times and the experience, they’ll continue to funnel some of their traffic that way,” Emma Griffith, a director at Fitch Ratings in New York.

So Canadian seaports are gaining in the short-term because of our self-inflicted wound, but they may also gain in the long-term because of both natural and man-made advantages:

[Prince Rupert] lies ice-free 745 kilometers (462 miles) northwest of Vancouver, is as many as 68 hours closer to Shanghai in sailing time than is Los Angeles, according to the Prince Rupert Port Authority. Including rail times, cargo transiting from Shanghai through Prince Rupert would reach Chicago two days quicker than if the ships called at Oakland or Seattle-Tacoma, and three quicker than if they unloaded in Los Angeles…

One of Prince Rupert’s advantages is that inbound containers can be transferred directly to trains rather than trucks that head to a distribution center, which is what happens at other West Coast ports, according to Kris Schumacher, a spokesman for the port authority. This kind of traffic, which uses different modes of transportation, is known within the industry as intermodal freight, and it’s booming for Canadian National.

Meanwhile back on the United States, it’s antibusiness-as-usual:

…there’s no indication when new contracts will be signed for workers at 29 ports from Washington state to California. About 20,000 dockworkers represented by the International Longshore and Warehouse Union have been without a contract since early July. The union and the maritime association are negotiating over work rules, salaries and health-care benefits.

In 2002, the maritime association locked out U.S. West Coast port workers after contract talks broke down. The 10-day shutdown ended when then-President George W. Bush invoked the rarely used Taft-Hartley Act to reopen the ports. The dispute cost the U.S. economy $1 billion a day, according to the maritime association.