If only the reforms were even more radical...

The neoliberal belief that the failure of the Washington Consensus was caused by its insufficient application is alive and well.  In yesterday's NYT, Juan Carlos Hidalgo from the Cato Institute maintains that Costa Rica's problems are caused by excessive protection, incentives to selected sectors like tourism and a weak exchange rate. He concludes that "what Costa Rica needs are genuine market reforms that eliminate the government’s power to pick winners and losers."  At the same time, he repeats the unproven claim that Frente Amplio wants to replicate Chavez's policies.  

This is rather surprising: together with Mexico and Chile, Costa Rica has been an avid participant in free trade agreements.  Openness has radically transformed the agricultural sector and has reduced the opportunities to survive through subsistence agriculture for the domestic market.  Most of the manufacturing sector has suffered due to liberalization and not despite of it.  The tax system has not helped to raise enough taxes and any attempt to reform it and make it more efficient has failed because of political pressures (including those from the Libertarian party that is closest to Hidalgo's ideas). The problem of Costa Rica is that the current model has failed to support domestic producers and has built few linkages between the dynamic sectors (which receive incentives) and the rest.

At the same time, Hidalgo's criticism of the incentives some sectors like tourism have received should be taken seriously by proponents of industrial policy.  The fact is that many of us believe that it is important to develop new sectors and that attracting companies like Intel was probably a good thing.  Yet contrary to what Hidalgo says, the problem has been insufficient state intervention to promote linkages and to use the reduction of external bottlenecks created by higher exports to support other sectors.  This is something Eva Paus in her book on Ireland and Costa Rica and my paper in World Development showed.

Regarding the Frente Amplio, it is just better not to say anything.  The "politics of fear" should be clearly named for what they are: not only unhelpful but also undemocratic!

More on inequality

A new policy brief from Oxfam provides striking numbers on the extent of inequality at the top in the global economy and in a few countries like the US. Much of all the data we use is questionable, but it is still clear that we are moving to a world of super-rich and everyone else.  Here some the information they provide:

·         "Almost half of the world’s wealth is now owned by just one percent of the population.

·         The wealth of the one percent richest people in the world amounts to $110 trillion. That’s 65 times the total wealth of the bottom half of the world’s population.

·         The bottom half of the world’s population owns the same as the richest 85 people in the world.

·         Seven out of ten people live in countries where economic inequality has increased in the last 30 years.

·         The richest one percent increased their share of income in 24 out of 26 countries for which we have data between 1980 and 2012.

·         In the US, the wealthiest one percent captured 95 percent of post-financial crisis growth since 2009, while the bottom 90 percent became poorer."

The real question, however, is whether any of this will truly feed into the political agenda and where.  Nothing significant is likely to happen in much of Latin America... or in Spain for that matter.

Central America: growing violence and persistent economic problems

The AECID (the Spanish cooperation agency) organized last week an interesting conference in Antigua (Guatemala) on the changes in Central America in the last 25 years and the challenges for the future.  The conference highlighted many of the improvements but also challenges discussed in the Handbook of Central American Governance we recently published.  Four are particularly important:

a. The growing costs of violence, which is now almost an epidemic in Central America. Carlos Dada, director of the great daily El Faro, gave an insightful talk on the failures of recent policies to prevent crime. He highlighted the costs of inequality and the lack of young people´s opportunities in the labour market.  He also explained why "mano dura" proposals tend to be so popular: they at least respond to poor people´s anxieties when they lose a member of their families or are victims of crime.

b. The difficulties that the region has to transform its economic model.  Several participants still hope that regional integration can help to promote economic growth and trigger a process of economic transformation.  Will this really be the case? Can small and medium firms (the main source of employment in the region) build links with regional partners?

c. The weakness of the state. Talking about new social policies or industrial policy (and, fortunately, there was a lot of talk about both) is useless unless we are able to improve the quality and autonomy of the bureaucracy and make the state stronger and more responsive in all countries.

d. The central role of the elite.  As I discussed with my friend and colleague Salvador Martí i Puig, we need to know much more about the elites: who they are now? How they operate? What are their everyday practices? And how the old and new elites interact with each other?

New LAC Working Papers in Political Economy

I am happy to announce that the Latin American Centre at the University of Oxford is launching a new working papers series in political economy.  Supported by CAF-Development Bank of Latin America, the working papers aim to publish high quality research on political economy and economic issues that deal with the region.  This will include the annual working paper from the CAF Visiting Fellow.  You can find the new webpage here.

I am particularly happy because the first paper we publish has been written by Jorge Katz, formerly at ECLAC and now at the University of Chile.  Jorge is not only one of the best specialists on innovation in Latin America, but also a great teacher and colleague.  In this paper, he elaborates a great critical account of growth theories with examples from the region.

Five reasons why Latin America is important for debates on development

Paul Collier has famously argued that development debates should focus on the "bottom billion"--the poorest countries in the world--and should ignore regions like Latin America. The region is too rich, too modern and, for others, too unimportant from a geopolitical perspective.

 This kind of approach--which is becoming increasingly dominant in the UK--does not make much sense. There are many reasons why the region offers important lessons and illuminate many debates in development studies. Here you have five (a catchy number!):

 1. For at least a century, Latin America has been one of the most (if not the most) unequal region in the world, but many Latin American countries (led by Brazil) are now reducing inequality faster than ever.

2. Many Latin American countries have relatively well-functioning states capable of implementing industrial and social policies... but without the autonomy and capacity to do so effectively. 

3. Their shift in economic policies across history has probably been more radical than in any other region: from an export-led liberal model to import substitution to neoliberalism (see Rosemary Thorp's full book in the web for a great illustration) and to the current rich debates on post-neoliberalism and the left today.

4. Latin America has benefited from some of the best economic thinkers in the developing world (including Raul Prebisch) and some of the most dynamic international organizations.

 5. Latin America is probably the region with most ecological wealth and diversity in the planet and with more creative debates about the conflicts between development, the environment and human rights. What (many) other reasons am I missing?

Los problemas de España: siempre acabamos perdonando a la elite económica

El profesor Luis Garicano de la London School of Economics ofrece un diagnóstico interesante, aunque también bastante repetido, sobre los problemas políticos y económicos en España en una entrevista en El País. Como ha sucedido tradicionalmente en América Latina, el problema es que los empresarios tienen más probabilidades de éxito si cultivan relaciones con los políticos encargados de la regulación que si crean nuevos procesos productivos y nuevos productos. En otras palabras, es más provechoso ser Paco el Pocero que Bill Gates. Además, la atracción por convertirse en funcionario después de años de estudiar una oposición es mayor que el de crear e innovar. Todas ideas que se asemejan mucho a los argumentos de Acemoglu and Robinson en Why Nations Fail. No dudo que hay mucho de verdad en esta interpretación de los problemas españoles y que Garicano los explica muy bien. Sin embargo, me preocupa siempre el excesivo acento que se acaba poniendo en el Estado. Aunque se habla de que hay un problema institucional, en realidad se está diciendo que hay un problema con los partidos políticos y con la forma de gestionar el Estado. Ello contribuye a perdonar bastante a la élite económica (y con ello no me refiero a los pocos empresarios que han salido de la nada para crear las Zaras del país sino el entramado de familias que se sientan en los Consejos de Administración de bancos, constructoras, Telefónica y las otras grandes empresas). Su poder, su influencia y la falta de control sobre ellos es tan problemática como los otros chanchullos de los que habla Garicano. Sin embargo, no sólo no se mencionan sino que acaba por decir que "las empresas internacionalizadas [pregunto yo: ¿los grandes bancos? ¿Sacyr?] ya van por otro camino".

Readings on time management and similar topics for graduate students

In Inside Higher Education, Kaitlin Gallagher offers some book recommendations for graduate students. I have taken a quick look at them and they all look useful to organize our time better and to have a more positive state of mind in dealing with theses and exams. Yet I always find the concept of success in this kind of book troublesome and contradictory. Success is about happiness and fulfillment but at the same time about having powerful management roles and playing an important role in society. Do these two definitions always go hand in hand? And isn´t part of our problem that we hope to have it all at the same time?