There have been quite some events – some more peaceful than others – over the past weeks that have put different outspoken economists in conflict. Take Chile where a price rise in public transport was the spark that set off week-long violent protests against the government, with wide spread destruction of public infrastructure (most notably the Santiago metro, which I fondly remember from past visits) as well as police violence. These protests came as a big surprise to many; after all, Chile has been regarded as a Latin American success story having reached high-income status and being a healthy democracy. Obviously, not everything has been as good as it looks from the outside. Some regard this as the ultimate proof that “neo-liberal” reforms have failed, achieving growth only for the 1% and not the 99% (to borrow one of Jeremy Corbyn’s slogans). Top of the list of “failed reforms” are pension and health insurance. What these critics seem to ignore is that income inequality has actually reduced over the past years, even though from a very high level. Throwing the baby out with the bathwater (as Jeremy would also love to do in the UK) does not seem the right answer. But two things seem problematic in Chile (and I am NOT talking as a Chile expert, simply from outside observation and drawing on broad experience in Latin American economies) – a very limited civil society and democratic participation (especially in comparison with other – European – high-income countries), with voter turnout dropping below 50% after voting stopped being mandatory, and the problem of a small market. A small economy easily allows the establishment of monopolies, especially if you have a small political and business elite and if the two are closely interlinked – so, in addition to the market not being able to maintain to many players, there is a political and thus regulatory bias in favour of incumbents. Again, I am not trying to undertake a comprehensive analysis of Chile, but this crisis certainly drives home one point (and here I am in synch with the above mentioned critics): per capita growth is not enough – income and wealth distribution is critical (where economists have moved to analyse the former, there is still limited analysis of the latter). And we also have to move beyond material achievements! In the short-run, I am most concerned about the well-being of my Chilean co-authors and friend; in the long-run, this crisis has given us lots of food for thought (and research).
Take next Bolivia – a coup or a public uprising? While working for the World Bank in the early 2000s, I was struck by the enormous contrast between the rich (and white) neighbourhoods (e.g., Zona Sur in La Paz) and the indigenous neighbourhoods (large parts of La Paz but especially El Alto). The early 2000s was a time of crisis and I still remember an intensive discussion with students and social activists during one of my World Bank missions – the conclusion was that much more was needed to address the underlying socio-economic problems than the technocratic solutions we were offering. I also remember a conversation with the representative of the chamber of commerce who saw us out at the end of the meeting on bank and corporate restructuring, opened the door and said: “Well, we have had a very nice and interesting discussions, but out there – that is the real Bolivia,”, referring to the informal economy so predominant in Bolivia. Evo Morales has brought enormous change to his country, addressing an important historic injustice by giving voice and power to the indigenous population. He managed the natural resource wave somewhat smarter than other “leftists” in the region (especially Argentina). But as so often, entrenchment in power leads to hubris and arrogance. It was pretty clear that there was cheating at the last election, which triggered the protests. Ideally, he would have stayed on as caretaker president with a commitment not to run again (as per the referendum result in 2016), but unfortunately, the tension had raised to a point where this no longer seemed possible. One can only hope that the Bolivian political system is capable of managing the transition to peaceful elections and a new government. As in Chile, the situation in Bolivia does not lend itself to the neo-liberalism vs. socialism contrast, but has many more facets.
And to round this up, there was a row about libertarianism, Marxism and the Doing Business indicators. Simeon Djankov, a former World Bank colleague of mine (and who returned to the World Bank a few months ago) dismissed criticism by economists of the Center for Global Development by referring to them as Marxists. He did make a valid point that Doing Business gauges the business environment and not economic and societal success; I disagree with him when he implies that there is no philosophy or (at a minimum) hypothesis behind the data collection - whenever you collect data, there is always some idea in the background, in the case of Simeon, one only has to consult the multiple publications that use the data. More generally, the labelling of critics with historic ideologies is not conducive at all to a fruitful debate. I have written on Doing Business before and will not warm up old debates, but we have to get back to a point where we can discuss theories, empirical findings, policies, and – most importantly – recent events without referring to silly labels and point scoring.
15. Nov, 2019