Topic: International Economics and Development

Iran, Stable but Miserable

Since Hassan Rouhani assumed the presidency of the Islamic Republic of Iran in August of last year, the economic outlook for Iran has improved. When Rouhani took office, he promised three things: to curb the inflation which had become rampant under Mahmoud Ahmadinejad, to stabilize Iran’s currency (the Rial), and to start talks to potentially end the sanctions which have battered Iran since 2010. Rouhani has delivered on each of these promises. From this, one might assume that the Iranian economy, and the Iranian people, are headed towards better times.

Unfortunately, the Misery Index paints a different picture. The Misery Index is the sum of the inflation, interest, and unemployment rates, minus the annual percentage change in per capita GDP. It provides a clear picture of the economic conditions facing Iranians.

Why Measles Outbreak Is Newsworthy

A small measles outbreak recently made national news, yet another testament to our progress in eradicating disease. Measles is serious stuff. It leads to hacking cough, a spotty rash, and sometimes, death. The disease is so contagious that it will infect nine out of ten unvaccinated people exposed. The outbreak started when a Christian mission brought the disease back from the Philippines. The infected passed it along to several Americans who refused to get vaccinated or those too young to be vaccinated.

Contagious, deadly diseases like measles were once common, even among the wealthiest. For example, King Louis XIV of France lost his son, grandson, great-grandson, and brother to smallpox. Smallpox used to kill some 400,000 Europeans annually in the late 18th century, and in the 20th century alone, it claimed hundreds of millions of lives across the globe.

Now, these diseases are rare and cause far fewer deaths:

 

In this recent measles outbreak, only 68 people were infected. Despite the low number, that constitutes an 18-year high of measles infections in the United States. And that number may have been lower if doctors hadn’t misdiagnosed their patients, which occurred because the disease is so unusual nowadays. This is all good news. That such a small outbreak makes national news and constitutes an 18-year high is a testament to the human progress we have made in eradicating disease.

Will Hindu Nationalist Narendra Modi Be Prime Minister of All Indians?

For years India has disappointed expectations.  Tagged as the next great power preparing to challenge China and eventually America, India instead has lagged economically, stagnated politically, and battled religiously.

Now Narendra Modi’s Bharatiya Janata Party (BJP) has won a stunning political victory.  India’s future depends on Modi’s ability to transcend his sectarian roots and govern on behalf of all Indians.

Throughout the Cold War the Delhi government kept its people poor by mismanaging the economy.  Politics was dominated by the dynastic India National Congress Party.  Eventually the Congress Party began economic reforms and the BJP broke the Congress political monopoly.

India is a secular republic in which freedom of religion is formally protected.  However, legislation authorizes government interference in the name of preventing conduct “promoting enmity,” undermining “harmony,” and more.  Moreover, 7 of 28 states have passed anti-conversion laws, which target proselytizing.  Of particular concern is the government’s inability or unwillingness to combat religious violence and prosecute those responsible.

Much violence occurs between the two largest groups, Hindus and Muslims, but other religious minorities also are targeted.  In 2007 and 2008 in the state of Odisha (formerly known as Orissa) rioting Hindus murdered scores of Christians, forced thousands to flee, and destroyed many homes and churches.

Unfortunately, India’s presumptive prime minister, Narentra Modi, was implicated in one of the country’s worst episodes of sectarian violence.  In 2002 in the state of Gujarat, in which Modi served as chief minister, Hindu rioters killed more than 1200 people, mostly Muslims, and forced 150,000 people from their homes.  Critics charged Modi with both encouraging the violence and failing to stop it.  He defends his conduct, saying he only wishes he had handled the media better.

However, Modi has ridden a sectarian tide to power.  He graduated to the BJP from the Hindu nationalist group Rashtriya Swayamsevak Sangh (“National Volunteer Society”), which he joined young.  He denounced Muslims early in his career and received strong backing from the RSS.

The good news in Modi’s victory is that he was elected to reform the faltering economy, not stoke the fires of religious hatred.  Gujarat has prospered and the BJP is committed to relaxing India’s often stultifying government regulations.  The quickest way for the new government to discourage foreign investment would be to trigger more sectarian violence.

Relations with the U.S. will be a key issue.  The Bush administration formally acknowledged Delhi’s acquisition of nuclear weapons, improving bilateral ties.  Since then, however, relations have stagnated.

Modi’s election poses another challenge.  In 2005 the State Department refused to issue him a visa because of his presumed role in the Gujarat violence.

But the U.S. ambassador to India met with him in February.  President Barack Obama congratulated Modi after the latter’s victory and extended an invitation to visit America.  No doubt the visa ban will be quietly forgotten.

As I point out in my new Forbes online column:  “The responsibility to reconcile is not Washington’s alone.  Set to become perhaps the most powerful Indian prime minister since Indira Gandhi three decades ago, he should attempt to set foreign governments and, even more important, his own citizens at ease.”

After the election results were announced, he said that “The age of divisive politics has ended, from today onwards the politics of uniting people will begin.”  It was a good beginning, but he needs to clearly communicate that he will be prime minister of all and his government will not tolerate violence or discrimination against religious minorities.

Modi has a historic opportunity.  His government will be the first in years to enjoy a solid majority in the Lok Sabha, or lower house.  The people he will represent are both entrepreneurial and impatient, demanding the chance to better their lives.  The Indian people need more opportunity, not more dependency.

The choice soon will be up to Narendra Modi.  Much around the globe depends on what he decides.

A Drop in Mortality Is Stale News

The New York Times reported that a drop in mortality in Massachusetts not seen elsewhere can be attributed to its adoption of mandatory health care coverage:

The death rate in Massachusetts dropped significantly after it adopted mandatory health care coverage…offering evidence that the country’s first experiment with universal coverage…has saved lives… In contrast, the mortality rate in a group of counties similar to Massachusetts in other states was largely unchanged.

Implying causality based on this evidence is misleading in several ways as discussed here. In particular, I take fault with mentioning mortality reductions only in locations with mandatory health care coverage even though mortality has been dropping throughout the United States and the world since at least the 1960s. According to the World Bank, American males’ mortality rate has dropped by 3.6 percent between 2000 and 2007—a greater rate over a shorter time period than covered in this study. Over the same period, American females’ mortality rate has dropped by close to four percent.

The mortality rate is dropping, on average, throughout the United States, yet only Massachusetts adopted the mandatory health care law. Therefore, we may conclude that reductions in death rates happen for many reasons that do not restrict human freedom. One possible cause is new technologies that inform and enable proactive people to improve their health, ushered in through greater economic freedom. Check out Cato’s new website, HumanProgress.org, to see more positive changes to our health that are highly correlated with liberty.

Human Progress Story of the Day: Speaking Exchanges

Technology vastly enriches our lives—sometimes free of charge. Consider Google’s search engine. It’s an incredibly complex algorithm that informs users about any topic imaginable faster than the blink of an eye. And it’s free. And it’s just one of millions of helpful online services provided for free to internet users around the world. For instance, you can Skype for free—that is, video chat with anyone in the world at any time (assuming, of course, that you have internet access). You can email for free—send and receive instantaneous messages and media content from one location to any other location on earth. You can host your own personal webpage that allows you to interact with your friends and family—share photos, videos, stories, and event invitations—for free—on social media websites like Facebook.

Sometimes technological advances are not only useful, but also uplifting. For a group of seniors in the United States, a new, free application helps to cure loneliness. A school in Brazil matches American senior citizens with adolescent Brazilians. Brazilians want to learn English, while elderly people want company. Everyone wins. Here’s the outcome:

Moreover, the internet and, consequently, all of the free goodies it offers that improve our lives, is spreading throughout the world. As you can see from data taken from the website HumanProgress.org, a majority of Americans and an increasing number of individuals in developing countries have web access:

Venezuela Arrests Human Rights Activist, Cato University Alum

Last night Venezuela’s Bolivarian Intelligence Service (SEBIN) arrested Rodrigo Diamanti, president of “Un Mundo sin Mordaza” (A World Without Gag), an NGO that promotes human rights and freedom of expression in that country. Diamanti is also a good friend of the Cato Institute and attended the Cato University that we co-hosted in Venezuela in 2009.

No charges have been filed, although reportedly he had an arrest warrant against him. Two weeks ago, while visiting Caracas to run another Cato University and speak at a conference of the pro-liberty think tank Cedice, my colleague Ian Vásquez and I got to talk to Rodrigo and other Venezuelan friends who were part of the student movement that defeated Hugo Chávez in a referendum in 2007. They told us how the government was increasingly harassing NGOs. Sadly, we noticed that many of the guys that attended that Cato University in 2009 have left Venezuela. Those who stayed and continue to fight against the increasingly authoritarian government face the consequences.

Also, early this morning the Bolivarian National Guard violently took over two camps in downtown Caracas where students had been staging a permanent protest against the government. The authorities claim they arrested 243 people. I visited both camps and met several of the students there. One of them, Maria Alejandra, 23, told me she had an arrest warrant against her and woke up every day not knowing whether she would be free –or even alive—by the end of the day. I haven’t been able to contact her today and I’m afraid she’s among those detained during today’s raid.

The crackdown comes at a time that the government is holding phony dialogue meetings with a sector of the opposition. Yesterday a poll by Datanálisis found that 78% of Venezuelans are pessimistic about the situation of the country and 59% thinks that president Nicolás Maduro is doing a bad job. The trend is clear: As the popularity of the regime dwindles, its authoritarianism increases.

Chile: If Ain’t Broken, Don’t Fix It

Nick Miroff of the Washington Post rightly credits Chile’s free-market system for the country’s stability, low unemployment and corruption, and for producing Latin America’s wealthiest society. But he also states that this economic model “has given Chile some of the highest levels of inequality in the developed world.”  Thus, he adopts the narrative of the Chilean left that blames free markets for producing social inequality and argues that the model needs fixing through higher taxation and government intervention in the economy. Four points need clarification:

First, high levels of inequality existed in Chile prior to the implementation of the free market reforms that began in 1975. A recent book by economist Claudio Sapelli of the Catholic University shows that Chile’s Gini index coefficient* was higher in 1970 than what it is today (see graph below). Inequality dropped significantly between 1970 and 1975 as everyone became poorer (the average annual inflation rate in that period was 124.2% and by 1975 over 50% of Chileans lived below the poverty line). Inequality rose again in the second half of the 1970s as the economy recovered and people’s incomes began growing at different paces. As Luis Larraín of Chile’s Libertad y Desarrollo institute points out in a recent book, “It is a well-known fact that fast-paced processes of growth, in the early stages of development, create a worse distribution of income, as the example of China shows today”.

Source: Claudio Sapelli, Chile: ¿Más Equitativo?, Ediciones Universidad Católica de Chile, 2011.

Second, inequality is decreasing in the Andean nation. Income disparity reached a zenith in the late 1980s and has decreased since then. Data from the UN Commission for Latin American and the Caribbean (ECLAC) shows that in 1990 Chile had a Gini index coefficient of 0.55 while in 2011 (latest year available) it was 0.51. In the last two decades of the free-market system, inequality has actually come down somewhat. Interestingly, Chile has less inequality than Brazil, but not many people blame the latter’s income disparities on its bloated big government development model.

Third, inequality in Chile will continue to go down since income distribution significantly improves among the young. Sapelli shows that Chile’s Gini index coefficient goes down with age (see graph below) as more Chileans, especially younger generations, have access to health care and education (which, as Miroff notes, are highly privatized). For example, the percentage of people aged 25-64 who have received high school education in Chile is 68%, lower than the OECD average of 71%. But when he looks at the generation aged 25-34, he notes that the rate goes up to 85%, not only higher than the OECD average of 80%, but also superior to the rates of the Netherlands, Norway and Australia. Today, 1.1 million students are enrolled in higher education (45% coverage) compared to just 200,000 in 1990. Over 70% of these students are the first generation in their families to receive higher education.

Source: Sapelli, 2011.

Fourth, some of the policies announced by the newly inaugurated president Michelle Bachelet, supposedly aimed at rescuing Chilean capitalism “from its excesses” (as Miroff puts it), would actually benefit the richest segments of society. A study by the Libertad y Desarrollo institute found that if higher education were “free” in Chile (and by “free” read “paid by taxpayers”), 41% of the resources would go to finance the education of the richest 20%, and only 9% would go to the poorest 20%. As Miami Herald columnist Andrés Oppenheimer has repeatedly documented, “free” higher education in Latin America disproportionately benefits the well-off (and adversely affects the quality of the education).

The reasons behind Chile’s left-turn have been explained elsewhere. But for the sake of Latin America’s most prominent success story, and the example it provides to the rest of the region, it’s important to tackle the myth propagated by the left that Chile’s free-market system is something that needs a radical fix through higher taxes and government intervention.


*In the Gini Index, zero implies perfect equality, while one represents perfect inequality.