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What is wrong with Bolivia?
Neoliberalism failed in Bolivia because a macroeconomic checklist is not enough to make an economy work. Incorporating a new business in Bolivia, for instance, takes fifty-nine days, entails fifteen separate procedures, and costs twice as much as the average person earns in a year. So, according to a recent World Bank study, most of Bolivia’s businesses remain “informal,” which means that they have no legal protection, and limited access to credit markets. Corruption is rampant—a survey in 2000 found that it was a greater problem in Bolivia than in about ninety-five per cent of other countries surveyed. And the state bureaucracy has been more interested in patronage and clientelism than in good policy.
Even if Bolivia got the big picture right, it got the details all wrong. And it’s increasingly clear that when it comes to development God really is in the details. A country’s history, institutions, and power structures have a profound impact on whether reform can work.
Read the whole thing. Elsewhere in The New Yorker, here is an article about Battlestar Galactica; season two showed up on my doorstep yesterday.
Posted by Tyler Cowen on January 18, 2006 at 08:07 PM in Economics | Permalink
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» Moraless Bolivia from shloky.com
James Surowiecki of the New Yorker discusses what I wrote about last time.
Another day another socialist in Latin America; this time the ill fated Evo Morales is the topic of discussion. Socialism is doomed to fail under Morales for three reasons -
... [Read More]
Tracked on Jan 19, 2006 4:18:54 PM
Comments
Land reform in these poor countries, particularly ones emerging from basically feudal arrangements like most of Latin America, is the "big gotcha" on the road to neoliberal reform. It almost seems that it takes a dictator to come in, strip the old landed aristocracy, and then conveniently die childless - hopefully well after the land has been redistributed. Only then can free market reforms start to work - otherwise, the old barons will just buy the privatized companies and prevent a new economy from emerging.
Posted by: Foobarista at Jan 18, 2006 8:42:53 PM
What's so liberal about this "neoliberalism"? Sounds like Bolivia could use a dose of *classical* liberalism...
Posted by: Peter Saint-Andre at Jan 18, 2006 10:00:51 PM
You don't need to steal land from the the old aristocracy: just forbid "entail", introduce an inheritance tax, and let fast women and slow horses do their work.
Posted by: dearieme at Jan 18, 2006 10:17:39 PM
Could've taken that out of DeSoto's "The Mystery of Capital"
Posted by: doinkicarus at Jan 18, 2006 11:08:19 PM
The blame for the failure of neoliberal reforms on inept business regulation does not satisfy me. If you check the Doing Business report produced by the World Bank, Bolivia actually ranks higher than India for overall 'Ease of Doing Business.' Yet, the performance of the Bolivian economy cannot compare to the performance of the Indian economy. This indicates to me that there must be more significant factors that cause economic growth than sound institutions.
Posted by: Jimmy at Jan 19, 2006 12:01:05 AM
Coincidence? I just posted a very brief discussion of Guatemala's ills (they lost almost 40,000 jobs last year in their most important industry: garments and textiles). Will CAFTA do more good than harm?
Posted by: GP Edwards at Jan 19, 2006 1:04:02 AM
Foobarista, do you have an example land-reforming dictator or country in mind? Did Pinochet or Allende accomplish land reform? The only example I know would be Japan under MacArthur.
Re: Bolivia, IMHO neoliberal reform will never work in the absence of the political stability and/or social acceptance to ensure that reforms last. Would any investor (other than Hugo Chavez) looking at Bolivia 5 years ago think that their money would be safe from outright expropriation?
Bottom line: never invest in a country where regaining land lost in a past war is a significant factor in elections.
Posted by: DK at Jan 19, 2006 10:43:22 AM
Hernando De Soto told me that the essential problem in places like Bolivia is that the descendents of the Conquistadors still run the place, and they like it the way it is.
Posted by: Steve Sailer at Jan 19, 2006 11:12:48 AM
I had in mind most of the East Asian countries, particularly Taiwan under Chiang Kai-shek and South Korea. Both of them did rather radical land reforms, which broke up local gentries, and both were unpleasant dictators. Park died and passed power onto another general. CKS managed to pass power to his son Jiang Jingguo, who ended up being an effective "reforming" dictator in the Deng Xiaoping mold - and didn't try to pass power along to his family. Both countries ended up being successful capitalist democracies.
Of course, both also had rather close American "tutelege" and were "dictators of the right" (like most non-communist Asian dictators), which seem more likely to evolve democracies than "dictators of the left". But they also had extensive land reform. This is in contrast to the Philippines, which had all the above but no land reform.
Posted by: Foobarista at Jan 19, 2006 12:46:50 PM
In my opinion the post got it partly right by referring to the overwhelming informality of the Bolivian economy. Informality that is present from bidding processes for oil concessions down to a micro level of landing a vending spot in the local farmers market. A lot of it has to do with historical reasons, solidity and authority of institutions and uncertainty avoidance and power difference perceptions at the personal level.
Are "neoliberal" policies -as they have been applied to Bolivia- to blame for this? in my view no.
Case in point: the fact that many of the best-working regulations (GAAP, taxation frameworks, pension fund managment, and even the creation of Bolivia's stock exchange) were instituded as result of structural adjustment and privatization.
What is wrong now? All that was good about neoliberalism is being "undone" along with all that was wrong about it.
Posted by: Jonathan at Jan 19, 2006 1:11:25 PM
Other examples of historical land reform leading to industrial countries are rife: Dissolution of the monastries in England, followed by enclosure acts and finally the inheritance taxes.
The French Revolution of course. And maybe the communist revolutions in China and Russia, but they have to ensure that things don't go back to the way they were when the lands are privatised.
Possibly include the breaking of the large plantations after the USA civil war
Posted by: Patrick at Jan 19, 2006 8:15:18 PM
Patrick, I was under the impression that the enclosure acts increased, not decreased, the amount of land owned by the rich. Is this still "land reform"? I don't think either Tiberius Gracchus or Hugo Chavez would recognize them as such.
Foobarista, thanks for your examples. Perhaps that is one of the reason for East Asian economic miracles -- historic quirks putting American power and land redistribution on the same side.
Posted by: DK at Jan 20, 2006 8:47:23 AM
FYI, wikipedia has a nice page with an overview of historical land reforms, including the East Asian examples mentioned above, one led by Hernando DeSoto in Peru, and past efforts in Bolivia: http://en.wikipedia.org/wiki/Land_reform
IMHO, the big role of land reform is in its relation to political stability -- i.e. do you need a large, property-owning middle class to make neoliberal reforms stick, or can you go neoliberal while 90% of your population are tenant farmers? I accept all the neoliberal principles in theory, but in practice I think you do more harm than good when you try short-lived unpopular reforms and then trigger an antiliberal backlash. Neoliberals and neoconservatives both seem to have trouble anticipating the backlash.
Another random question inspired by the Wikipedia article: I wonder if Castro's death will lead to the US forcing Castro's land reforms to be reversed. A lot of the US sanctions laws refer to Castro's expropriation as something that must be reversed for sanctions to end -- and the political constituency for those laws is mostly the former owners of Cuban land.
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