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Colombia’s Price Controls a Cure Worse than the Disease

By: PanAm Post Staff - Feb 25, 2015, 8:52 am
Despite his formal training in economics, Alejandro Gaviria still touts price controls as a medicine for Colombia, to the detriment of citizens. (MinSaludCol / YouTube)
Despite his formal training in economics, Health Minister Alejandro Gaviria still touts price controls as a medicine for Colombia, to the detriment of consumers and the nation’s development. (MinSaludCol / YouTube)

EspañolAn astute academic once noted that the first lesson of economics is scarcity, but the first lesson of politics is to disregard the first lesson of economics.

One might be tempted to attribute this enduring conflict, between hard truths and demagoguery, to obstinate and naive politicos. But too often the political sphere rewards them for promulgating misperceptions and shortsighted rallying cries, as opposed to sound thinking for the long-term benefit of a nation.

Colombia’s health minister, Alejandro Gaviria, is one such official who knows these perverse incentives all too well. This past week he informed constituents that the central government will mandate prices on medical supplies — or, to be precise, expand the price-control regime to include more items, such as coronary stents, cochlear implants, and osteosynthesis products.

Heart disease is a leading cause of death in Colombia, he lamented. Meanwhile, medical suppliers enjoy markups of 40 percent, and manage to charge the state even higher prices.

Not only does Gaviria claim he will put an end to the purported price gouging, he will make these supplies more accessible and save taxpayers US$5 million per year. What heartless person could oppose such an honorable plan?

There’s just one small problem: this ploy will have the exact opposite effect when it comes to accessibility, both in the short and long run.

How imposing lower prices could ever attract more goods to the market remains an unsolved mystery, perhaps because it won’t. As if anyone needed a reminder, Argentina, Panama, Venezuela, and other Latin-American nations have been playing the price-control game, and somehow those enforcing the policies are still surprised when shelves empty out.

Of even greater concern than the inevitable shortages and black markets, though, is the disincentive to invest in Colombia. Capital flows to where it can garner the greatest return, so Gaviria’s efforts to mitigate returns will likewise mitigate Colombia’s development.

There are ways to address a lack of accessibility that don’t merely deride the symptom of high prices and demonize corporations. Gaviria might wish to consider, for example, why his own department is so incompetent that it pays up to twice what private vendors pay, along with the costs of doing business in Colombia that get passed on to consumers. That includes rampant corruption, an excessive tax burden (p. 57), and unnecessary steps before one can open a business.

These root causes for inflated prices cannot be whisked away with a speech and a few ad hoc mandates, and require government officials to take a hard look in the mirror. Not surprisingly, Gaviria and his allies have chosen the easy option, one of shallow promises.

Worse, they are expanding a price-control apparatus that will be a magnet for campaign donations and shady deals. When officials decide prices based on their whims, the incentive to get into bed with them to manipulate those prices is glaring.

Such sinister outcomes may not be the chief motives of those leading this policy, but whether they are or not, constituents will suffer all the same.

Ecuadorian Opposition Muster New Front to Take On Correa

By: Rebeca Morla - @RebecaMorla - Feb 25, 2015, 8:21 am
Opposition mayors gather in Cuenca, Ecuador, to found a new political movement against President Rafael Correa. (JaimeNebot)

Mayors of Ecuador's major cities, alongside representatives of multiple political parties and social organizations, gathered in Cuenca on Monday, February 23, to form a new political front against the government of President Rafael Correa. One year after legislative elections on February 23, 2014, when candidates of the PAIS Alliance lost in several important cities across the country in one of the ruling party's few defeats at the polls, over 40 political actors attended the meeting hosted by the Provincial Prefect Paúl Carrasco. The two guests of honor were the mayors of Quito, Mauricio Rodas, and Guayaquil, Jaime Nebot. At a conference in the Azuay provincial capital, they expressed their desire to defend democracy, the diversity of ideology, and liberty. https://twitter.com/jaimenebotsaadi/status/569912581747564544 "We come to talk about the country with responsibility. Unity begins." During his speech, Nebot asserted that national unity is essential for true democracy, as well as the respect for pluralism and freedom. “We have come to speak about the country with responsibility, without sectarianism, going beyond ideology and politics," he said. "We have come to seal a joint commitment to begin ... the indispensable national unity of all, which is nothing without respect for local and provincial diversity," he added. "Progress is not passing laws and constitutions about it, or promising it ... it's the opposite. Progress is to do, not to talk; to deliver, not to promise; to add, not to subtract ... so we have to fight and defend the different views of local and regional progress that have been successful." For his part, Rodas said that the meeting with his colleagues was "the beginning of a joint effort in order to create a democratic space ... under the framework of ideological, regional, and cultural diversity." https://twitter.com/MauricioRodasEC/status/569911801200168960 "Democracy, freedom, and respect for rights must go hand in hand with welfare and prosperity." Rodas also talked about an imminent economic crisis facing the country, and pledged to do everything in his power "to prevent Ecuadorians from being harmed." "We will maintain the proposal to promote ... measures to stimulate investment and development," he said. Carrasco, tasked with delivering the closing speech, asserted that "unity within diversity is the path that will lead to better days," and invited others that believe democracy in the country to be at risk to join the initiative. He further argued that the time had arrived for every person opposed to the government to set aside parties, ideologies, and personal interests. "We need a democratic majority.... Today I pledge, as a radical democrat of the left, to build a democratic space for unity. The nation and democracy come first," he stated. https://twitter.com/PaulCarrascoC/status/569918884226203648 "Ecuador together for democracy, change begins today!" The new front led by the three local officials follows other joint-opposition initiatives, such as Commitment Ecuador, a movement calling for a popular referendum to prevent indefinite reelection in the country. Commitment Ecuador members were not present at the gathering. A Manifesto for Unity During the opposition meeting in Cuenca, Carrasco, Nebot, and Rodas signed a manifesto titled A Call for the Unity and Defense of the Democratic Principles of Febrary 23, in which they pledged to work together to defend democracy. "We express our willingness to work together to promote and unreservedly defend democracy, civil liberties, civil rights, pluralism, and respect for all people regardless of their line of thought, which are the principles and values of February 23," the document reads. "We agree to undertake a joint work under ideological, territorial, and cultural diversity to consolidate a democratic and united space. We therefore invite all Ecuadorians to join this initiative to achieve an Ecuador of well-being, progress, and freedom." Government Hits Back While the opposition gathered, members and supporters of President Correa's administration delivered hostile commentary via social media. Several argued that the summit was the work of the "Conservative Restoration" — as Correa routinely dubs those opposed to his government — and aimed to destabilize his government. https://twitter.com/secpolitica35/status/569903609745428480 PAIS Alliance National Secretariat for Political Action: "Opposition meeting in Cuenca highlights the unnatural alliance between the pseudo-leftism and the recalcitrant right." https://twitter.com/FAlvaradoE/status/569840285863186432 Ministers Roberto Wohlgemuth and Fernando Alvarado: "They say that today there will be a coup in Cuenca. The high-class Conservative Restoration has gone to Cuenca." https://twitter.com/marcelaguinaga/status/569944198226558977 Marcela Aguiñaga, second vice chair of the National Assembly: "Ecuador has already changed, but the Conservative Restoration wants to return at all costs to the neoliberal, privatized and exploitative past." Edited by Laurie Blair.

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