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Venezuela Dead Last for Economic Freedom

By: Fergus Hodgson - @FergHodgson - Sep 19, 2013, 10:58 am

If the Chavistas hoped to extinguish capitalism in Venezuela, they have been successful. For the second year in a row, the Economic Freedom of the World Report has identified the “Bolivarian Republic” as the least free in its 152-nation ranking. The only consolation may be that other notorious cellar-dwellers for freedom — Cuba, North Korea, and Eritrea — did not have sufficient data to be included.

fraserThe 2013 report, released this week and published by the Fraser Institute of Canada, utilizes data for 2011, the most recent available — and it finds Hong Kong, Singapore, and New Zealand to be the top three. The Republic of Congo (150), Myanmar (151), and Venezuela (152) occupy the bottom of the list.

Canada and Chile are the top performers in the Americas, at 8th and 11th, respectively — although both have fallen since last year, from 5th and 10th. The United States (17), Peru (22), and the Bahamas (39) rounded out the top five on the continent.

The project began as the brainchild of Milton Friedman back in the early 1990s, and the authors identify “personal choice, voluntary exchange, freedom to compete, and security of private property” as “the cornerstones of economic freedom.” More specifically, they break that down into: size of government, legal system and property rights, sound money, freedom to trade internationally, and regulation (p.12, PDF).

They affirm these as necessary not only for elevated productivity and longer lifespans, but also for political and civil liberties.

Economic Freedom. Source:
Economic Freedom Ranking. Source: FreeTheWorld.com

“The link between economic freedom and prosperity is undeniable,” says Fred McMahon, the research chair who oversees the project. “The nations with the most economic freedom also offer people the best quality of life. Compare the bottom-ranked countries, where oppressive regimes deny their citizens opportunities for economic growth and personal freedom.”

Venezuela achieves its outcome by performing poorly in all five measurement areas. However, it fares worst with its openness to international trade (151), regulatory environment (151), and sound money (149) — or lack thereof (p.22, PDF). Considering that Venezuela is entering a period of hyperinflation, depending on one’s definition of the term, its standing will only have worsened since the 2011 data.

Canada, the only nation in the Americas to make the top ten, does so on account of its legal system and property rights (11) and stable regulatory environment (8). Chile, which slipped out of the top ten this year, performs best in openness to trade (17).

The primary criticisms of indexes such as these focus on the weightings — that they are arbitrary. In fact, a newer freedom index, the Freedom in the 50 States ranking by the Mercatus Center, responds to this by weighting each input based on public polling. They also allow for personal preferences, whereby one can adjust the input weightings to observe customized results.

Additionally, many critics dispute whether all inputs, such as marginal income tax rates and the size of government, have any clear bearing on economic growth. New Zealand, for example, is one of the top performing nations that has a relatively large government sector — ranked 72nd at 40 percent of the economy — but, according to the ranking, the nation offsets that with a superior legal environment.

Fergus Hodgson Fergus Hodgson

Fergus Hodgson was the founding editor in chief of the PanAm Post, up until January 2016, and he now studies finance at Tulane University in Louisiana and Francisco Marroquín University in Guatemala. Originally from New Zealand, he has also lived in Argentina, Canada, Colombia, Ecuador, Ireland, and the United States. Follow @FergHodgson and his Facebook page.

If Not Complete Protectionism, Why the Mediocre Option for Colombia?

By: Javier Garay - @Crittiko - Sep 19, 2013, 6:57 am
Colombia-Flag

Colombia is an “in-between,” mediocre country. In almost all international rankings, Colombia is near the middle: economic freedom, human development, economic competitiveness, and business climate, to name but a few examples.2013 Index of Economic Freedom, Heritage Foundation This reflects an historical fact: no real attempt was ever made to achieve either a high degree of economic freedom or to install a completely protectionist or mercantilist model like those I dealt with last week. We are dealing with the intermediate option, the mediocre option, to give it a name. Amid the difficult circumstances the country is now facing, however, attacks on free trade agreements have overwhelmingly focused on ignoring economic freedom and stressing protectionism. In a nutshell, many assume that Colombia is unable to compete in the international arena if not under the wing of a government protecting the national economy. This idea gains apparent support from the alleged experience of developed countries like the United States, France, Japan, and South Korea. In this forum, I cannot provide an in-depth study of each of those nations. But allow me to focus on the consistent pattern of the protectionist position, as manifested in Colombia, and the trumped up case studies. The first aspect that becomes clear is the contradiction between reality and perception. We see that no one is proposing the adoption of a fully-protectionist model in Colombia (isolationism, when taken to the extreme). Rather, proponents call for the middle-of-the-road, mediocre one. As noted, this model has already been in place for a long time, even though people are unable (or unwilling) to notice. I can assure you without a doubt, though, that the model and its accompanying rhetoric emphasize more protectionism than openness or a free market economy — both in the past in the populist proposals for the future. The second aspect I want to stress is that this protectionist push is arbitrary. None of its advocates will answer questions such as: to what degree must the state protect; for how long; and which sectors should be protected? At best, they will say that it depends on future research bureaucrats will have to carry out (assisted by lobbyists seeking a bigger piece of the pie). Third, the idea is dangerous. The ambivalence Colombians have shown towards restraining the state has led to the excesses known to all and denounced by most. Just consider the gross violations of human rights across the generations — and now people want to give more power to the state? How are we then to keep those same excesses from taking place again? Fourth, shallow rhetoric aside, this is a regressive idea — to the benefit of the cronies and not the common people. With or without international trade, there are always winners and losers. The difference lies in that, in an open economy, the consumers decide who wins and who loses, not the bureaucrats. To prevent the emergence of losers one would need to suppress natural evolution and innovation that renders some items and firms obsolete. In order to keep a small group from facing economic instability for a while, should government officials force Colombians to make the mistake of investing in agriculture, funding corporate welfare, or clinging to an incipient basic industry forever? Such a road would destroy development and foster a permanent class of privileged individuals, and not on account of merit or serving the needs of consumers. Fifth, the idea is paradoxical. If the recent farmer demonstrations proved anything, political elites have neglected these citizens. However, the proposed solution is for the same state of affairs and more pleading with these elites, even though historically it has failed to solve their problems. This rush to maintain and even strengthen the ruling class — the ones supposedly enjoyed by the United States, South Korea, and France — is not only unfeasible, it is cruel towards those who need solutions to their economic problems right now. Along the same lines, the sixth aspect we have to point out is that the protectionists focus on the wrong features of successful nations. In all of them, we can see that development did not stem from protected sectors or barriers to competition, let alone a complete shutdown of international trade. Even if said actions were executed, they were executed in specific circumstances and only for brief periods, and definitely not during the stages of “take-off” towards development. It is true that all states are interventionist to some degree. That is why classical liberal thought is always relevant. It is also true that the French government shows a greater degree of interventionism than that of Germany, which is in turn more interventionist than its US American counterpart. We could posit a similar ranking for South Korea, Japan, and Singapore. However, in both groups, which countries are the most successful? Which created more wealth? Those with economies comparatively more open or protectionist? Under any level of examination, the results speak for themselves. We can conclude that trade protectionism, industry interventionism, and middle roads are a recipe for mediocrity. Unfortunately, mediocrity, as Colombia has shown throughout its history, is not enough for progress. It is barely enough for survival. Mediocrity, as Friedrich A. Hayek famously proved in The Road to Serfdom, slowly breeds the recipe for failure: a socialist model. I can only hope the current situation in Colombia does not unwind into a future case study for Hayekian analysis. Translated by Mariano Filippini.

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