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10 Ways to Get Latin America Out of Poverty

By: Contributor - Feb 27, 2015, 8:41 am

Español José Piñera once said, “Latin America is not poor, it is impoverished.” Truer words have never been spoken, especially by a man that played a pivotal role in the Chilean Miracle, one of the most successful economic turnarounds in the 20th century. But this success doesn’t need to be confined to just Chile: it can be transported to just about anywhere in the region. Latin America is oozing with potential.

Unfortunately, populist governments have shackled this potential through burdensome regulation and government overreach. Here are 10 ways Latin America can get back on its feet and defeat poverty once and for all.

1. Rule of Law

Often taken for granted, rule of law is the bedrock of a free society. (Wikimedia)
Often taken for granted, rule of law is the bedrock of a free society. (Wikimedia)

An institution that is often taken for granted by many westerners, rule of law has been the bedrock of western civilization since the signing of the Magna Carta 800 years ago.

This entails limited government, an independent judiciary, respect for private property, and the enforcement of contracts. Ultimately, laws govern societies, not the whims of politicians.

For most of its history, Latin America has been governed by caudillos, strongmen that believe they are above the law. The result has been coup after coup, widespread corruption, and government control of the economy.

2. Free Trade

Free trade fosters economic growth and is a fixture of all developed countries. Free trade benefits everyone, as capital, goods, services, and ideas are freely exchanged among consenting parties. For too long, Latin America has fallen for the siren song of populism and import substitution industrialization.

Economic protectionism has absolutely no place in a globalized 21st century. The Pacific Alliance has put forward a model that the rest of the region should follow.

3. Privatize State-Owned Enterprises

Time to privatize these state-owned dinosaurs.
Time to privatize these state-owned dinosaurs. (Wikimedia)

Private property is another fundamental of a free society, and any society that wants to enter the developed world. Unfortunately, expropriation has been used all too often by populist governments in the name of “national interests,” when in reality only a select few benefit from the nationalization of industry.

Pemex, Petrobras, and PDVSA are some of the most notable state-owned dinosaurs that have only generated inefficiency and lined the pockets of corrupt officials. The average consumer always loses under these arrangements. The reality is that consumers overwhelmingly benefit from privately owned enterprises that are subject to dynamic, free-market forces. It’s time for these state creatures to go the way of the Dodo.

4. End Central Banking, Introduce Competing Currencies

Inflation has been a recurring theme in Latin-America history: Bolivia’s hyperinflation in the 1980s, Chile in the 1970s, and the current problems that plague Argentina and Venezuela are just some of the notorious cases that have hurt the region.

Decentralized currencies like bitcoin have the potential to break central-banking monopolies.
Decentralized currencies like bitcoin have the potential to break central-banking monopolies. (Flickr)

Contrary to popular belief, inflation is caused by excessive money printing carried out by central banks, and not greedy businessmen hoarding resources. Inflation destroys savings, creates all sorts of economic uncertainty, and shatters investor confidence.

The solution is the abolition of central banking and the introduction of competing currencies such as bitcoin. Given its decentralized nature, low transaction fees, and ease of access for even the poorest people in Latin America, bitcoin has the potential to be the most successful free-market currency in human history. Fiat money is a relic of the past. It’s time to get with the times.

5. End the Drug War

Nothing has been more destructive to Latin-American civil liberties and institutional stability than drug prohibition. Since the 1970s, the United States has embarked on a domestic and international anti-drug crusade that has yielded very little to no positive results.

Instead, it has given drug cartels incentive to expand and consolidate their operations, militarized police across the region, and created an unhealthy dependency on the United States for defense purposes.

Legalization and decriminalization are the only ways to cripple drug cartels and ameliorate drug-related issues. Drug abuse is ultimately a public heath and societal concern that is best handled by civil society, not the state. Ending the war on drugs will allow for resources to be reallocated to more productive sectors of the economy and drug-rehabilitation services.

6. Less Foreign Aid

Foreign aid may seem innocuous, but like any top-down government program, there are always unintended consequences. Despite its noble intentions, foreign aid is generally mismanaged, falls into the hands of corrupt politicians, and creates dependency.

In effect, foreign aid is welfare on a nation-state level. Instead, Latin-American countries should pursue a more efficient form of “foreign aid”: free trade and direct foreign investment.

7. Remove Barriers to Business

Current regulations in Latin America make it difficult for entrepreneurs to flourish.
Current regulations in Latin America make it difficult for entrepreneurs to flourish. (Flickr)

Many aspiring entrepreneurs in Latin America are kept of out of the game due to onerous regulatory procedures. No honest entrepreneur should be forced to jump through so many regulatory hoops.

It’s time to stop to treating business owners like criminals that have to be screened at every step of the way.

Business licensing should be done away with, and other barriers to entry should be reduced as much as possible. True free-market competition is only possible when the little guy can play on an even regulatory playing field with the big guys.

8. Get the State out of Retirement Plans

Originally introduced by Prussian statesman Otto von Bismark, state-managed social security and retirement programs have been the norm in countries all over the world for the past century. Unfortunately, many of these programs are starting to become unsustainable and will result in potentially burdensome tax hikes for future generations to bear.

Luckily, one of the great innovations in social-security reform came from Chile itself during its economic turnaround. Spearheaded by one of the architects of the Chilean Miracle, José Piñera, the private account system and its international replicas have effectively turned millions of workers into capitalists.

9. Embrace the ZEDE

The ZEDE (Zone for Employment and Economic Development) being developed in Honduras is a very promising project that could serve as a springboard for economic development not just in Honduras, but also for the rest of the region. Basically, ZEDEs are free-trade administrative divisions within a country that will abide by Anglo-Saxon common law and other free-market principles.

ZEDEs are very similar to the free-trade projects erected in Dubai, Shenzhen, Hong Kong, and Singapore. In effect, ZEDEs will allow for cities to avoid burdensome economic policies that the government applies everywhere else in the country.

The track record of these arrangements is quite successful, and will effectively allow citizens to see the benefits of free-market policies. With the overbearing dinosaur that is the nation-state slowly becoming irrelevant, these sleeker free-market alternatives are much more promising and can foster much needed competition in a region that has been crippled by protectionism and weak institutions.

10. Free-Market Education

Allow competition will improve education across Latin America.
Allowing competition will improve education across Latin America. (Flickr)

Public education in its current form is becoming increasingly obsolete and has been a major hindrance in developing human capital in Latin America. Like any sector in the economy, education can be improved through competition.

A good way to open up this sector is through voucher systems and by making it easier to open up private schools.

Ultimately, parents should be able to choose from private schools, religious schools, apprenticeships, homeschooling co-ops, or online education programs like Coursera and Khan Academy.

In an education free market, parents and children are the customers, and they have the money and means to choose the education that they want, instead of the government controlling what they will get.

This system would also empower teachers to set up their own schools and become entrepreneurs in education, which would enable the latest innovations in educational services to be more readily available to the general public.

All in all, Latin America faces many steep challenges on its journey to join the ranks of the developed world. For Latin America to break the shackles of poverty, it must follow free-market policies. Following played out protectionist scripts will only ensure its perpetual mediocrity.

These changes won’t happen overnight, but the next generation of leaders and intellectuals should be ready for the long haul and continually push for economic liberalization wherever possible. Latin America has been economically dormant for too long. It’s time for it to wake up from its slumber.