Wednesday, May 17

The Cure for Illegal Immigration and Latin America's Economic Problems -- True Capitalism

I've written before here that the reason Latin America seems to have a distaste for Capitalism is that what they know as capitalism is really what economist Gary Becker calls "crony capitalism." Glenn Reynolds writes about this in his latest GlennReynolds.com post.

Here are Becker's thoughts:

One legitimate reason for the opposition to capitalism in Latin America is that it frequently has been "crony capitalism" as opposed to the competitive capitalism that produces desirable social outcomes. Crony capitalism is a system where companies with close connections to the government gain economic power not by competing better, but by using the government to get favored and protected positions. These favors include monopolies over telecommunications, exclusive licenses to import different goods, and other sizeable economic advantages. Some cronyism is found in all countries, but Mexico and other Latin countries have often taken the influence of political connections to extremes.

In essence, crony capitalism often creates private monopolies that hurt consumers compared to their welfare under competition. The excesses of cronyism have provided ammunition to parties of the left that are openly hostile to capitalism and neo-liberal policies. Yet when these parties come to power they usually do not reduce the importance of political influence but shift power to groups that support them. A distinguishing characteristic of Chile since the reforms of the early 1980's is the growth in competitive capitalism at the expense of crony capitalism. This shift more than anything else explains the economic rise of Chile during the past 25 years that has made Chile the most economically successful of all Latin American nations.


A while back, I reacted to news that the IADB it was going to cancel the debt to Honduras and other third world countries. Honduras This Week had reported that "fifteen Hispanic legislators of the US House of Representatives claimed that the move [would] aid development in the countries involved and help to halt illegal migration into the USA."
They added that this must be done 'without imposing economic conditions and with urgency since the delay costs lives'.
My reaction in that blog post:
What these US [House] representatives SHOULD be doing is putting pressure on third world country governments, and providing assistance, in getting rid of corruption! Debt forgiveness without reform conditions is only an incentive for further debt and corruption. These sort of policies continue to enslave the regular folks who desperately want to be able to work and provide for their families, but can't be competitive because of the corruption in the system.

Meanwhile, the Zelaya government is making the mistake of promising fuel price freeze for the next two weeks. Union bosses continue to incite strikes, putting pressure on the government to reverse common sense free market policies.

Don't tell me capitalism doesn't work when you are not really practicing free market economic policies. Don't tell me capitalism hurts the underclass, if you are going to let bully union bosses dictate economic policy, further crippling the national economy.
From Glenn Reynolds, here is the sad truth about the economic situation in Mexico:
If Mexico were to reduce corruption and cronyism, and promote openness and the rule of law, its economy would grow and the flood of immigrants to the United States would shrink to a trickle. Unfortunately, the Mexican "right" is wedded to state power, and it seems unlikely that a Mexican leftist regime would enact those sorts of decentralizing economic reforms. That's too bad, as a Chilean-style economy would solve a lot of problems on both sides of the border.
My message to the GOP is very simple:
You want more "Latino" votes? Start putting pressure on Vicente Fox, and the rest of the Central American countries, to make real strides in the fight against corruption. Start putting strong conditions on loans and handouts. Start sending common-sense economists to Central and South America so that they can experience the creation of wealth of a true free market in an environment of justice and law.
Here is part of the truth from the mouth of a leftist.

Illegal immigration to the United States is "Mexico's disgrace," caused by the government's failure to create enough jobs, the country's leftist presidential candidate said on Tuesday.

Andres Manuel Lopez Obrador, who trails conservative Felipe Calderon in polls ahead of July 2 elections, accused President Vicente Fox's administration of causing the flight of millions of Mexicans to the north, which prompted President Bush to order National Guard troops to the border.

"They are the ones mostly responsible for what is going on because there is no employment, there are no jobs in Mexico so people need to emigrate," Lopez Obrador said on his morning television show."

Becker provides great concluding thoughts in regards to the shift to the left in Latin American countries. It provides hope for those of us concerned about Venezuela and Bolivia. I'll ad to Becker's thoughts on Cuba--more than disappointment, Castro's policies have cost lives! Thousands of people are dead at the hands of a maniacal communist. Unfortunately, there is a real cost to these social experiments.
I believe that the leftward move in Latin American governments indicates only a temporary tiring of neo-liberalism. The overall trend during the past several decades in practically all countries of this region has been toward more open economies with greater competition within industries, with much more reliance on private enterprise, and with a reduced role for government mandates, government-run enterprises, and cronyism. Since these policies have provided greater benefits to all classes than the socialist policies of a Fidel Castro or a Hugo Chavez, the vast majority of people that live under such leaders will be, or in Cuba have been, disappointed by the unfulfilled promises. They are likely to come back to parties that support more market policies as long as free elections are preserved.
Of course, Glenn is right-on on the issue--not just for Mexico, but for all of Latin America.
If Mexico were to reduce corruption and cronyism, and promote openness and the rule of law, its economy would grow and the flood of immigrants to the United States would shrink to a trickle. Unfortunately, the Mexican "right" is wedded to state power, and it seems unlikely that a Mexican leftist regime would enact those sorts of decentralizing economic reforms. That's too bad, as a Chilean-style economy would solve a lot of problems on both sides of the border.