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Pension Nationalization: Peron vs. Kirchner
I just got back from a trip to Argentina, where Peronist President Cristina Kirchner announced a proposal to nationalize private pensions. This is theft on a grand scale—the assets are worth about $30 billion—at a time when government spending has skyrocketed and the possibility of yet another official default next year has increased. There is plenty to criticize about the populist regime’s latest moves, but in a 1973 speech, none other than Juan Perón emphatically condemns the nationalization of private pensions, calling it “theft” and referring to public pension systems as generally “inefficient” and “unsafe.” He describes a previous episode in Argentina when a government in need of money nationalized private pensions and depleted workers’ retirement funds, using them for other purposes. It was an “assault.” For those of you who understand Spanish, see the video that has caught Kirchner by surprise:
Peru May Become Latin America’s Next Success Story
The Senate passed the free trade agreement with Peru on Tuesday and it could not have come at a better time. That’s because Peru is increasingly distinguishing itself in the region as a successful market democracy. More than five years of sustained high growth (Peru grew 8 percent last year) are transforming the economy and spreading development to regions of the country that have traditionally benefited little from past progress. Unlike other countries in the region such as Argentina or Venezuela that are also experiencing rapid growth, Peru’s growth is characterized by widespread investment and wealth creation as opposed to redistribution or the mere effects of high world commodity prices.
Why is Peru succeeding? Again, unlike various other South American countries, it has sustained the far-reaching market reforms of the early to mid 1990s, has deepened some of them, and maintained sound macro-economic polices. The policies of openness and stability are paying off. Anybody who has been visiting Peru during the past 15 years as I have has noticed vast improvements in countless areas of national and everyday life, including notable progress in the past several years. The center of Lima, notoriously crime-ridden and dirty, has become safe and attractive. That kind of revitalization has occurred throughout the city and in major cities and towns of Peru. Consumer goods and services—cell phones, household appliances, and private education, for example—previously unavailable or in short supply have proliferated and serve all markets, rich and poor.
Freedom of the Press and Venezuela
There’s a general relationship between freedom of the press and economic freedom. My research assistant prepared the graph below showing that correlation. Countries that are more economically free tend to have a freer press.
Venezuelans have been finding that out in recent years as their level of economic freedom, which has been in steady decline during the past few decades, has fallen rapidly under the government of Hugo Chávez. Venezuela now ranks 126 out of 130 countries in the Fraser Institute’s economic freedom index (in 1985 it ranked 25th out of 111 countries). When you concentrate economic power in political hands, the institutions of civil society lose their independence.
The latest casualty in Chávez’s campaign to control the media is Radio Caracas Television (RCTV), whose license the government recently announced will not be renewed. RCTV, founded in 1930, was one of only a few remaining TV stations critical of the government in a country where media outlets are practicing various degrees of self censorship. But, according to the Venezuelan communication minister, RCTV’s “irresponsible attitude hasn’t changed.” Symbolizing the government’s intolerance of dissent is a law passed last year that can land individuals for months or years in jail for expressing disrespectful words about government officials.
The model looks suspiciously similar to that of Vladimir Putin’s Russia, where television stations refrain from criticizing the Kremlin, but a few leading newspapers still do not. In both Venezuela and Russia, relatively few people read newspapers; it is the electronic media that informs the general public.
Journalist and Venezuelan-born Cato adjunct scholar Carlos Ball tells a personal anecdote about the long-term decline of freedom in Venezuela (see his op-ed in Spanish here http://www.elcato.org/node/2143 ). In May 1987, Carlos was the editor of the Diario de Caracas, a leading newspaper. The paper belonged to the business group that owned RCTV. Then-president Jaime Lusinchi conditioned the renewal of RCTV’s license on Carlos Ball’s dismissal. Carlos was fired and the station got a 20-year license. It is that license that is expiring in May. According to Carlos, the road to political and economic centralization was set decades before Chávez declared his so-called socialism of the 21st century. The treatment of RCTV is only the most recent reminder that it is no longer accurate to refer to Venezuela as a democracy.
Transition in Cuba: How Would Raúl Rule?
Fidel Castro’s transfer of power to his brother Raúl is beginning to look like a test run for an eventual transition. As I wrote Tuesday (here, and in this op-ed in the Chilean newspaper La Tercera), the real question is whether the eventual permanent transfer of power will simply be a transition to new leadership or whether it will be a transition to a different kind of regime.
That’s a question to which probably nobody, even in Cuba, knows the answer. The Castro brothers have in fact been planning the transition to Raúl’s rule for some time. Given Raúl’s prominent treatment in the Cuban press recently, Cuba expert Brian Latell asked two months ago whether the transition has already begun.
Mexican Election Outcomes
Felipe Calderon has officially won Mexico’s presidential election, an outcome that will be challenged in the courts by Andres Manuel Lopez Obrador and in the streets by his supporters.
The election has been a triumph for modernity and democracy. Calderon’s vision of Mexico’s future is a modern one: openness, more competition, and higher growth based on wealth creation. Lopez Obrador’s vision is based on backwardness: more government spending, protection of national industries, and arbitrary rule based on his own notion of “the will of the people.”
The election so far has been a victory for democracy, or perhaps better put, the rule of law. The electoral commission (IFE) has, by all independent accounts, run the elections with the utmost professionalism, transparency, and strict regard to election rules, thus making charges of fraud difficult to sustain. Luis Carlos Ugalde, the head of the IFE, is a sophisticated scholar and public servant and a student of public choice theory who understands well the dynamics of collective decisionmaking and the importance of the rule of law.
This Sunday in Bolivia and Mexico
This Sunday, when Mexicans will vote for a new president, Bolivians will also be going to the polls — selecting a new constituent assembly that will rewrite their constitution.
Bolivian president Evo Morales is using Venezuelan leader Hugo Chavez’s example as a model to concentrate power. Chavez introduced a new constitution that centralized political control and he has used popular referendums to eliminate checks and balances on his power. Morales will have a somewhat harder time at gaining and maintaining similar control, since he doesn’t have the vast oil resources or military background to support him that Chavez has.
If Mexican populist Andres Manuel Lopez Obrador is elected this weekend, will he too follow the Chavez path? Many observers, including the market, don’t seem overly concerned. Mexico is not Bolivia; it is a much larger, more diverse, open economy with a free trade agreement with the United States. Democratization and economic reforms — especially openness to international capital markets — will temper Lopez Obrador’s populist sentiments. At least, so the argument goes.
Good News (and Some Uncertainty) from the Peruvian and Czech Elections
Citizens in Peru and the Czech Republic rejected the far left in those countries’ elections this weekend.
Peruvians gave 54 percent of their votes to former president Alan Garcia against 46 percent for nationalist candidate Ollanta Humala. Garcia is no market liberal, but at least he promises to stick to democracy, orthodox macroeconomic policies and not reverse the gains of Peru’s economy since it began liberalizing in the early 1990s. Thus Peruvians rejected Hugo-Chavez style populism and contributed to the regional backlash against the Venezuelan President’s desire to unite Latin America under his leadership. A more moderate and modern Latin America is taking shape among the countries along the Pacific Rim (with the possible exception of Ecuador) that are opting for free trade with the United States.
The fact that Peruvians voted for a candidate who is remembered as one of the worst presidents in Peruvian history (1985-1990) rather than for Humala says a lot about how deep anti-populist sentiment goes–at least among those who voted for Garcia. The problem for Garcia, and for governability in Peru, is that Humala won in the majority of Peru’s departments, mainly in the andean and jungle interior, thus revealing a divided country. The leftist-populist party also has the largest representation in the Peruvian congress. Already, Humala has declared the formation of a nationalist front, calling for all leftist organizations to unite. This may represent democracy in action, but it is a sign that Humala will remain a major irritant to the next government and possibly to social and political stability if Humala follows Bolivian President Evo Morales’s example of forging a path to power by creating unrest and instigating riots and violence to achieve political ends. Populism and the influence of Chavez have not been definitively defeated in Peru.
In the Czech Republic, the communists lost seats in the parliament and the pro-market Civic Democrats won a plurality, with 34 percent of the vote. Normally, the head of the leading party, in this case Mirek Topolanek, would form a government. But the elections resulted in an even split in the parliament–with the Civic Democrats and their allies holding 100 seats and the communists and the Social Democrats holding the remaining 100 seats. It is difficult to see how Topolanek will form a majority, but the coming days and weeks will surely see lots of political negotiations and some degree of compromise. If that doesn’t work out, the Czech Republic will have to hold general elections again in the next few months and hope that voters are more decisive in choosing between free-market reforms and euro-socialist polices.
Peruvian Elections and the Future of Latin American Populism
The upcoming Peruvian runoff elections for president may provide another sign that the wave of Hugo Chavez-style populism in Latin America has crested. The contest is between Alan Garcia–a former populist president who ruined the country during his term (1985-1990) with heterodox economic policies (Peru was set back 30 years in terms of per capita income; had 7,000 percent inflation in 1990; and much of the country was controlled by the Shining Path guerrillas)–and Ollanta Humala–an extreme nationalist and populist who, following the example of Chavez, led a brief but failed rebellion against the outgoing regime of President Alberto Fujimori in 2000. Humala´s popularity among the most disenfranchised of Peru´s poor, especially in the country´s interior, went virtually unnoticed among Peru´s elite and the press until last year. (Peruvian adjunct scholar Enrique Ghersi was alone in foreseeing this development in an op-ed in the Christian Science Monitor in 2003).
Garcia promises to run a responsible government that respects the constitution and the separation of powers, including the independence of the central bank. Humala promises nationalizations, a rejection of the free trade agreement with the United States pending in the congress, a constituent assembly to draft a new constitution, and the arrest of corrupt ex-presidents including Garcia himself.
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