Latin America's tale of two countries
BY JAMES M. ROBERTS
Heritage.org
It's a well-kept secret, but Latin America boasts one of the world's 10
freest economies. Chile ranks seventh globally — ahead of the 10th place
United States, in fact — according to the 2012 Index of Economic Freedom.
That's cause for celebration in Santiago. Studies show economic freedom
is closely related to stronger economic growth and prosperity — and with
other desirable outcomes ranging from environmental protection, to
wellness, to general "happiness."
Of course, not all the news from Latin America was positive. The Index
shows the region also is home to two of the world's most repressed
economies: Venezuela (ranked 174th) and Cuba (177th). Only Zimbabwe and
North Korea offer their citizens less economic freedom than the Castro
regime.
The Cuban economy has been repressed for decades. That's not the case in
Venezuela. Comparing what's happened over the last dozen years in Chile
to what's happened in Venezuela vividly illustrates the benefits of
economic freedom.
Hugo Chávez came to power in Caracas in 1999. At that time, economic
reforms advanced by the democratic government of Patricio Aylwin were
already well under way in Chile. Still, the two nations were far from
polar opposites in terms of economic freedom.
In 1999, the Index already ranked Chile 12th in the world, with a rating
of 74.1 (out of a possible 100). Venezuela ranked 99th out of 179
nations with a 56.1 rating. But Chile continued marching toward greater
economic freedom while Venezuela, under Chávez, made a hard U-turn.
As president, Chávez has done away with property rights and imposed
foreign-exchange controls. Along the way, he has nationalized many
private businesses, from agricultural producers and financial
institutions to oil and steel companies. This approach, notes the CIA
Fact Book, has "hurt the private investment environment [and] reduced
productive capacity . . . "
The strongman's misguided push to tighten government control of the
economy has produced dramatic changes. In its annual report measuring
the quality of life in nations around the world, London's Legatum
Institute notes that, in Venezuela, cronyism is now rampant, "[t]he rule
of law is incredibly weak," and it has "one of the most inefficient
bureaucracies in the world."
And Venezuelans are paying the price: a chronic electricity crisis, food
shortages, an epidemic of crime and the lowest economic growth rate in
the Americas. They also suffer from the worst inflation in Latin America
— the rate improved to "only" 27 percent in 2011.
Contrast that with Chile, where free-market policies have produced
economic growth averaging 4 percent annually since 2009. Barriers to
free trade are low, and foreign investment is welcome. Indeed, from 2004
to 2010, direct foreign investment quadrupled.
As of November 2011, Chile had more than $18 billion banked against the
next downturn and an economy getting stronger by the day. GDP, which
increased more than 5 percent in 2010, increased at a 6-percent clip in
2011. And all that growth came despite an 8.8-magnitude earthquake — one
of the 10 strongest on record — that rocked the nation in early 2010.
Blessed with a free economy, Chile was able to pick up the pieces,
recover and move on to even greater prosperity. Compare that to
Venezuela, where a sharp drop in oil prices caused an economic
contraction in 2009-2010. Though Chávez has devalued the currency twice
within the last two years, Caracas still ended 2011 with a budget
deficit running 5.3 percent of GDP and sharply higher national debt.
After 12 years of Chávez, economic inequality is far greater in
Venezuela than in Chile, and a greater proportion of Venezuelans face a
daily struggle to afford adequate food and shelter.
Small wonder, then, that Legatum reports "[m]any among Venezuela's
professionals, intellectuals and members of the middle class choose to
emigrate . . . "
Chávez has chosen to replace the hidden hand of free markets with the
dead hand of government control. His people are the poorer for it —
literally and in terms of the overall quality of their lives.
Chile and Venezuela present a "natural experiment" — one that proves,
once again, the value and virtue of economic freedom.
James M. Roberts is a research fellow at The Heritage Foundation's
Center for International Trade and Economics.
http://www.miamiherald.com/2012/04/03/2729850/latin-americas-tale-of-two-countries.html
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