A Winning Economic Policy
Over my Christmas vacation, while I wasn’t blogging much, I was still watching the news and bookmarking articles to cover later on. Today I’m using one of those bookmarks. While the original story itself is a bit stale, the concept is what I want to focus on.
From “Investor’s Business Daily” on December 4th:
Chile is expected to win entry to OECD’s club of developed countries by Dec. 15 — a great affirmation for a once-poor nation that pulled itself up by trusting markets. One thing that stands out here is free trade.
(And they did, as this the OECD website notes.) So how did they do it?
Chile is the first country in South America to win the honor, and in a symbolic way its OECD membership card seals its exit from the ranks of the Third World to the First.
For the rest of us, it’s a stunning example of how embracing free markets and free trade brings prosperity.
It’s not like Chile was born lucky. Only 30 years ago, it was an impoverished country with per capita GDP of $1,300. Its distant geography, irresponsible neighbors and tiny population were significant obstacles to investment and growth. And its economy, dominated by labor unions, wasn’t just closed, but sealed tight.
In the Cato Institute’s 1975 Economic Freedom of the World Report it ranked a wretched 71 out of 72 countries evaluated.
Today it’s a different country altogether. Embracing markets has made it one of the most open economies in the world, ranking third on Cato’s index, just behind Hong Kong and Singapore. Per capita GDP has soared to $15,000.
Besides its embrace of free trade, other reforms — including pension privatization, tax cuts, respect for property rights and cutting of red tape helped the country grow not only richer but more democratic, says Cato Institute trade expert Daniel Griswold.
But the main thing, Griswold says, is that the country didn’t shift course. “Chile’s economy is set apart from its neighbors, because they have pursued market policies consistently over a long period,” he said. “Free trade has been a central part of Chile’s success.”
Free trade and free markets. Chile is on the economic rise, while Venezuela, deep into Hugo Chavez’s socialist experiment, has been left to rationing, lately of water and electricity. It’s quite clear that capitalism is beating out socialism handily, and yet we in the US keep trying to move closer to the losing side of the ledger.
I think one of the reasons we’re doing this is because of the concept that the perfect is the enemy of the good. Because things are not perfect, we try to make them that way, via government, rather than let the market (i.e. the people) work things out themselves. In the US, those on the Left saw that people were not getting health care in some cases, so they decided that government must step in to do it. Never mind that charitable organizations exist to handle much of this, and never mind existing laws that guarantee health care even to those who can’t pay; it wasn’t up to the par they expected, so, by their lights, government must step in.
When government keeps stepping in like this, you get Venezuela. My concern, borne out by so many reports of sub-par health care in Canada and the UK, and evidenced by Canadians who come here for care when theirs fails them, is that our overall level of care in our country will fall while we give government more and more power over our lives. While the poor in Venezuela may have marginally more social care given to them by the government, overall, the socialist approach to anything leads to what Churchill described as “shared misery”.
The result is further from perfect than the previous good was for the people as a whole.
Chile, however, has lifted itself up with free markets and free trade. Congratulations to them. I hope the world is watching.
Doug Payton blogs at Considerettes.