Wikileaks Cable: Martinelli Is a Threat to the Rule of Law in Panama
Last August I warned about the troubling signs coming from Panama’s president Ricardo Martinelli. Elected in 2009 on a free market platform, Martinelli has quickly embraced interventionist economic policies (particularly a sharp increase in public spending) that sooner or later will take a toll on Panama’s macroeconomic stability. More worryingly, I pointed at a disturbing pattern of cronyism, erosion of democratic checks and balances, and harassment of the media emanating from the Martinelli administration.
A cable released by Wikileaks this week seems to confirm many of these fears. Dated August 2009 and signed by then U.S. Ambassador to Panama Barbara Stephenson, it describes Martinelli’s “autocratic tendencies” such as asking the U.S. government for help to wiretap political opponents—a request that was promptly rejected by the U.S. embassy in Panama. Stephenson goes on to say that, after meeting the Panamanian president, she is under the impression that Martinelli “may be willing to set aside the rule of law in order to achieve his political and developmental goals.”
According to the cable, Martinelli has resorted to “bullying and blackmailing” of private businesses. Stephenson describes how the Panamanian president told her that “he had already met with the heads of Panama’s four mobile phone operators and discussed methods for obtaining call data.” A bill has also been introduced in the National Assembly (where Martinelli’s coalition enjoys a large majority) that would “require registry of prepaid cell phones and compel mobile operators to submit call data to the government for criminal investigations.” Martinelli also told Stephenson that “he had twisted the arms of casino operators and threatened to cancel their concessions if they did not pay their back taxes and cut their ties to the opposition political figures who had granted their generous concessions.”
The cable ends noticing how “[m]ost of [Martinelli’s] government appointments have favored loyalty over competence.” That is, the Martinelli administration is riddled with cronyism– as I wrote back in August.
There is new evidence outside of the Wikileaks cable which confirms Martinelli’s ominous autocratic inclinations. For instance, international media organizations have lambasted the Martinelli administration in recent months for its encroachment on independent media. Reporters Without Borders dropped Panama 30 spots in its latest Press Freedom Index, noticing that the country “has taken an opposite direction, in an atmosphere growing increasingly tense between the media and the authorities.” The Interamerican Press Association says in its most recent report on Panama that “[o]ver the past six months, freedom of the press has been threatened by actions by institutions belonging to the government of President Ricardo Martinelli, as well as from the Judicial Branch and the Prosecutors’ Office.” As I pointed out in my August op-ed, Martinelli has appointed loyal (and controversial) figures to both the Supreme Court and the Prosecutors’ Office.
The diplomatic cable leaked by Wikileaks as well as these reports by international organizations lend credibility to the argument that Ricardo Martinelli is a growing threat to Panama’s rule of law and democratic institutions. Panamanians have a lot to be worried about.
Are Industrialized Countries Responsible for Reducing the Well Being of Developing Countries?
A basic contention of developing countries (DCs) and various UN bureaucracies and multilateral groups during the course of International negotiations on climate change is that industrialized countries (ICs) have a historical responsibility for global warming. This contention underlies much of the justification for insisting not only that industrialized countries reduce their greenhouse gas emissions even as developing countries are given a bye on emission reductions, but that they also subsidize clean energy development and adaptation in developing countries. [It is also part of the rationale that industrialized countries should pay reparations for presumed damages from climate change.]
Based on the above contention, the Kyoto Protocol imposes no direct costs on developing countries and holds out the prospect of large amounts of transfer payments from industrialized to developing countries via the Clean Development Mechanism or an Adaptation Fund. Not surprisingly, virtually every developing country has ratified the Protocol and is adamant that these features be retained in any son-of-Kyoto.
For their part, UN and other multilateral agencies favor this approach because lacking any taxing authority or other ready mechanism for raising revenues, they see revenues in helping manage, facilitate or distribute the enormous amounts of money that, in theory, should be available from ICs to fund mitigation and adaptation in the DCs.
Continue reading here.
Somalia, Redux: A More Hands-Off Approach
The two-decade-old conflict in Somalia has entered a new phase, which presents both a challenge and an opportunity for the United States. To best encourage peace in the devastated country, Washington needs a new strategy that takes into account hard-learned lessons from multiple failed U.S. interventions.
In a new study, author David Axe argues that Washington should err on the side of nonintervention, and recommends:
The Obama administration should work to build a regional framework for reconciliation, the rule of law, and economic development that acknowledges the unique risks of intervention in East Africa….Somalia’s best hope for peace is the moderate Islamic government that has emerged from the most recent rounds of fighting, despite early opposition from the United States and its allies. There are ways in which the United States could help Somalia escape its cycle of violence and peacefully encourage progress by working with this former enemy, but Washington should err on the side of nonintervention.
Pakistan: More Aid, More Waste, More Fraud?
Pakistan long has tottered on the edge of being a failed state: created amidst a bloody partition from India, suffered under ineffective democratic rule and disastrous military rule, destabilized through military suppression of East Pakistan (now Bangladesh) by dominant West Pakistan, dismembered in a losing war with India, misgoverned by a corrupt and wastrel government, linked to the most extremist Afghan factions during the Soviet occupation, allied with the later Taliban regime, and now destabilized by the war in Afghanistan. Along the way the regime built nuclear weapons, turned a blind eye to A.Q. Khan’s proliferation market, suppressed democracy, tolerated religious persecution, elected Asif Ali “Mr. Ten Percent” Zardari as president, and wasted billions of dollars in foreign (and especially American) aid.
Still the aid continues to flow. But even the Obama administration has some concerns about ensuring that history does not repeat itself. Reports the New York Times:
As the United States prepares to triple its aid package to Pakistan — to a proposed $1.5 billion over the next year — Obama administration officials are debating how much of the assistance should go directly to a government that has been widely accused of corruption, American and Pakistani officials say. A procession of Obama administration economic experts have visited Islamabad, the capital, in recent weeks to try to ensure both that the money will not be wasted by the government and that it will be more effective in winning the good will of a public increasingly hostile to the United States, according to officials involved with the project.
…The overhaul of American assistance, led by the State Department, comes amid increased urgency about an economic crisis that is intensifying social unrest in Pakistan, and about the willingness of the government there to sustain its fight against a raging insurgency in the northwest. It follows an assessment within the Obama administration that the amount of nonmilitary aid to the country in the past few years was inadequate and favored American contractors rather than Pakistani recipients, according to several of the American officials involved.
Rather than pouring more good money after bad, the U.S. should lift tariff barriers on Pakistani goods. What the Pakistani people need is not more misnamed “foreign aid” funneled through corrupt and inefficient bureaucracies, but jobs. Trade, not aid, will help create real, productive work, rather than political patronage positions.
Why Chile Is More Economically Free Than the United States
In the 2009 Economic Freedom of the World Report, Chile is now #5, one place ahead of the United States.
In 1975, of 72 countries, Chile was No 71. How did this happen? The explanation lies in what I call the “Chilean Revolution,” because it was as important and transformative to my country as the celebrated American Revolution that gave birth to the United States.
The exceptional political circumstances of this period have obscured the fact that from 1975 to 1989 a true revolution took place in Chile, involving a radical, comprehensive, and sustained move toward economic and political freedom (from a starting point where there was neither one nor the other). This revolution not only doubled Chile’s historic rate of economic growth (to an average of 7% a year, 84-98), drastically reduced poverty (from 45% to 15%), and introduced several radical libertarian reforms that set the country on a path toward rapid development; but it also brought democracy, restored limited government, and established the rule of law.
In 1998, The Los Angeles Times described the importance of the Chilean Revolution to the world:
In a sense, it all began in Chile. In the early 1970s, Chile was one of the first economies in the developing world to test such concepts as deregulation of industries, privatization of state companies, freeing of prices from government control, and opening of the home market to imports. In 1981, Chile privatized its social-security system. Many of those ideas ultimately spread throughout Latin America and to the rest of the world. They are behind the reformation of Eastern Europe and the states of the former Soviet Union today… which demonstrates, once again, the awesome power of ideas.
Using Gasoline to Douse a Fire? OECD Thinks Higher Tax Rates Will Help Iceland’s Faltering Economy
Republicans made many big mistakes when they controlled Washington earlier this decade, so picking the most egregious error would be a challenge. But continued American involvement with the Organization for Economic Cooperation and Development would be high on the list. Instead of withdrawing from the OECD, Republicans actually increased the subsidy from American taxpayers to the Paris-based bureaucracy. So what do taxpayers get in return for shipping $100 million to the bureaucrats in Paris? Another international organization advocating for big government.
The OECD, for example, is infamous for trying to undermine tax competition. It also has recommended higher taxes in America on countless occasions. And now it is suggesting that Iceland impose high tax increases – even though Iceland’s economy is in big trouble and the burden of government spending already is about 50 percent of GDP:
Both tax increases and spending cuts will be needed, although the former are easier to introduce immediately. The starting point for the tax increases should be to reverse tax cuts implemented over the boom years, which Iceland can no longer afford. This would involve increases in the personal income tax… Just undoing the past tax cuts is unlikely to yield enough revenue. In choosing other measures, priority should be given to those that are less harmful to economic growth, such as broadening tax bases, or that promote sustainable development, such as introducing a carbon tax.
Housing Bailouts: Lessons Not Learned
The housing boom and bust that occurred earlier in this decade resulted from efforts by Fannie Mae and Freddie Mac — the government sponsored enterprises with implicit backing from taxpayers — to extend mortgage credit to high-risk borrowers. This lending did not impose appropriate conditions on borrower income and assets, and it included loans with minimal down payments. We know how that turned out.
Did U.S. policymakers learn their lessons from this debacle and stop subsidizing mortgage lending to risky borrowers? NO. Instead, the Federal Housing Authority lept into the breach:
The FHA insures private lenders against defaults on certain home mortgages, an inducement to make such loans. Insurance from the New Deal-era agency has enabled lending to buyers who can’t make a big down payment or who want to refinance but have little equity. Most private lenders have sharply curtailed credit to those borrowers.
In the past two years, the number of loans insured by the FHA has soared and its market share reached 23% in the second quarter, up from 2.7% in 2006, according to Inside Mortgage Finance. FHA-backed loans outstanding totaled $429 billion in fiscal 2008, a number projected to hit $627 billion this year.
And what is the result of this surge in FHA insurance?
The Federal Housing Administration, hit by increasing mortgage-related losses, is in danger of seeing its reserves fall below the level demanded by Congress, according to government officials, in a development that could raise concerns about whether the agency needs a taxpayer bailout.
This is madness. Repeat after me: TANSTAAFL (There ain’t no such thing as a free lunch).
Bringing the States Back In
It’s an annoying, hackneyed trope of foreign policy types to say “if you want to understand X, you have to understand Y.” That said, let me engage in a little bit of it.
What’s going on in Afghanistan, we’re supposed to believe, is about terrorism, failed states, economic development, counterinsurgency, counterterrorism, human rights, and some other stuff. And to an extent, it is about each of those things. But to my mind, if you want to get a handle on what’s driving events over there, and on its historical status as a plaything of regional and extraregional powers, you ought to read this article in today’s Wall Street Journal.
The themes that permeate the article are familiar: States as the primary actors in international politics, their uncertainty about other states’ intentions, the fundamental zero-sumness of security competition…somebody should cook up a theory or two on this stuff.
Eventually–although in fairness, God only knows when–we’re going to leave Afghanistan. When that happens, India and Pakistan are still going to live in the neighborhood. They’d each prefer to have lots of influence in Afghanistan, and to preclude the other from having too much. Accordingly, they’re both trying to set up structures and relationships that would, in the ideal scenario, let them control Afghanistan. In a less-than-ideal scenario, they’d like enough influence to undermine the other’s control of the country. Until you grasp that nettle, you’re really just fumbling around in the dark.
Find a solution for that in your COIN manual.
Obama Says 20 Percent for Government Is Too Much!
While perusing Instapundit, I came across a post suggesting that President Obama thinks investment will suffer if government takes 20 percent of a company’s income. At first I thought this was a form of satire, but there is a real link to a speech that the President gave to the Parliament of Ghana. Indeed, the speech has several good comments:
Development depends on good governance. …Repression can take many forms, and too many nations, even those that have elections, are plagued by problems that condemn their people to poverty. No country is going to create wealth if its leaders exploit the economy to enrich themselves… No business wants to invest in a place where the government skims 20 percent off the top… No person wants to live in a society where the rule of law gives way to the rule of brutality and bribery. That is not democracy, that is tyranny, even if occasionally you sprinkle an election in there. And now is the time for that style of governance to end.
My initial reaction, focusing on the passage about 20 percent being too much for government, is to ask why Obama wants higher tax rates in America? After all, he wants American small businesses to pay 40 percent, which is twice the burden he thinks is excessive for Ghanians. Upon further reflection, though, I wonder if the President is referring to corrupt bureaucrats asking for bribes. But, even if that is the case, why does that matter? Investors and entrepreneurs care about the amount of disposable income that is generated by an investment. Losing 20 percent to the tax collector has a negative impact on incentives, regardless of whether the money winds up in Treasury coffers or a bureaucrat’s pocket. In any event, it is good to see that the President recognizes that the economy suffers when government becomes too much of a burden. We just need to figure out how to convince him that the laws of economics work the same way in America as they do in Ghana.
Want to Know Why the U.K. Tory Party Is Revamping its Development Policy?
If so, just pick up a copy of James Tooley’s The Beautiful Tree: A Personal Journey into How the World’s Poorest People Are Educating Themselves.
The Tories have looked at the evidence amassed by James and his colleagues (see p. 36 of their new report) and concluded that the best way to advance education in developing countries is to encourage and support existing entrepreneurial schools that are already serving the poor. And if the polls are any guide, that will likely be official government policy in the U.K. before too long.
Congratulations to James, Pauline Dixon, and their wonderful team for bringing sanity to the development policy debate.
States “Creating” Jobs – One Corndog at a Time
A couple weeks ago, I blogged about the foolishness of press release economics: states “creating” jobs by handing out taxpayer money to select businesses. I concluded by saying that “journalists should be on the lookout for more press-release economics schemes coming from the states as revenues remain tight and politicians become desperate to demonstrate they’re “doing something.” Journalists should examine a state’s tax structure when a taxpayer giveaway is announced to see if perhaps the governor is masking economic-unfriendly fiscal policies.”
Sure enough, the Pew Center’s Stateline.org has an article up detailing the efforts of state governors dealing with the recession by giving businesses taxpayer money to “create” jobs. Of course, it would make more sense for a state to simply reduce the tax and regulatory burden on a businesses looking to expand or relocate operations within its borders. But then state politicians might miss out on the short-term benefit of issuing fluffy press releases that are particularly helpful when a state is bleeding jobs.
Stateline notes that “You’d never know Michigan has the nation’s highest unemployment by visiting the Michigan Economic Development Corporation’s Web site, which trumpets a string of successes in recent months that have resulted in thousands of jobs in a state battered by the decline of auto manufacturing.” And in neighboring Indiana, the state’s economic central planners are celebrating the “creation” of 50 jobs at a corndog and fritter manufacturer. Anyone familiar with Hoosier waistlines knows there’s no shortage of corndogs in the state to justify taxpayers having to subsidize their production.
However, Stateline reports that Wisconsin officials are targeting Minneapolis-St. Paul manufacturers with a study that shows relocating to west central Wisconsin would save the Minnesota businesses millions of dollars due to lower worker’s compensation costs, corporate income taxes, and property taxes. Whatever else Wisconsin’s economic development bureaucrats are up to, this is the right idea.
Injustice of State Subsidies
My colleague Chris Edwards made a good point yesterday in his post on the injustice of federal subsidies. The wrangling between the states to haul in the federal largesse is wasteful, and getting worse. But the underlying issue in the article Chris cites — a state using taxpayer money to lure a company away from another state — is another wasteful activity that is all too common.
Instead of competing with other states to attract industry by lowering taxes and reducing regulations, it seems most state governors prefer a politically opportunistic method I call “press release economics.” Here’s how it works:
A state “economic development” agency offers an out-of-state company (or even an out-of-country company) tax breaks and/or direct subsidies to locate some or all of its business operations in that state. Most likely, the business would have located there anyhow due to myriad factors including demographics, transportation logistics, and workforce capabilities. Sometimes several states will engage in a “bidding war” to get a business to set up shop within their borders. The governor of the “winning” state will then issue a press release citing the new jobs and capital his administration has just brought to the state. The locating company usually tells the press that the winning state’s package helped seal the deal. The company and the governor’s press staff then typically arrange a photo-op at an orchestrated ground-breaking ceremony for the new facilities.
If a state is already bleeding jobs, as is often the case in the current economy, such press releases and photo-ops can be a political coup. Moreover, the governor will have given up, or foregone, relatively little in tax revenue in comparison to, say, cutting the state corporate income tax. This also leaves the governor with more money to spend on various vote-buying programs. I’m picking on governors, but the legislature generally prefers the press-release economics route for similar reasons. And if you’re a governor, why risk the headache of engaging the legislature in a fight over reducing corporate taxes, unemployment taxes, or any other tax — including personal income taxes and sales taxes — that effect industry when you can take the easy win?
Am I too cynical? Actually, I had first-hand experience with this issue when I worked in state government. My suggestion that the governor eliminate or reduce the state’s high corporate income tax rate, and “pay for it” — at least in part — by getting rid of the state’s corporate welfare apparatus, was routinely ignored for the reasons I cited above. That one would be hard-pressed to find support among the economics profession for the state corporate welfare give-away game means little to the majority of policymakers and their minions who naturally favor short-term political gain over long-term economic gain. That other companies already located within the state are stuck paying the regular tax rate, and are thus put at a competitive disadvantage, is a secondary or non-concern as well.
Another issue that I won’t delve into here is the fact that these giveaways often blow up in a state’s face when the locating company ends up not producing the jobs it promised and/or it relocates to another state or country after pocketing the free taxpayer money. Anyhow, journalists should be on the lookout for more press-release economics schemes coming from the states as revenues remain tight and politicians become desperate to demonstrate they’re “doing something.” Journalists should examine a state’s tax structure when a taxpayer giveaway is announced to see if perhaps the governor is masking economic-unfriendly fiscal policies.
Note: South Carolina Gov. Mark Sanford proposed late last year to do exactly what I recommended: eliminate the state’s corporate income tax, offset in part by the elimination of corporate tax incentives. There is hope.
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