There aren’t any nations with pure libertarian economic policy, but there are a handful of jurisdictions that deserve praise, either because they have comparatively low levels of statism or because they have made big strides in the right direction.
Hong Kong and Singapore are examples of the former, and Switzerland deserves honorable mention.
And if we look at nations that have moved in the right direction, then Chile is definitely a success story.
The free-market revolution in Chile is remarkable. If you look at the Economic Freedom of the World rankings, Chile was in last place in 1970 and third from the bottom in 1975. But then reforms began. It climbed to 60th place in 1980, 40th place in 1985, 28th place in 2000, and Chile now has one of the world’s freest economies, hovering around 10th place.
And the results are amazing. Now known as the Latin Tiger, Chile has become the richest nation in the region, thanks to a big increase in economic liberty. Many people know about that nation’s very successful system of personal retirement accounts (discussed here by Jose Pinera), but Chile’s economic renaissance is much deeper than private pensions.
The country has an admirable system of school choice, for instance, and 60 percent of students now attend private schools.
Most remarkable, the poverty rate has plummeted, showing that free markets and small government are the best way of helping the less fortunate.
But there’s no such thing as permanent success, and it appears that Chilean politicians may try to kill the geese that are laying the golden eggs.
Here are some excerpts from a Wall Street Journal report, starting with a description of the class-warfare tax plan proposed by the nation’s socialist leader.
Chile’s leftist government is proposing a controversial overhaul of its tax code that business leaders say threatens to reverse the gains that have made this country Latin America’s most prosperous nation. …The government says the tax reform will increase the tax haul by three percentage points of annual economic output, or by about $8.2 billion annually. The proposed overhaul includes an increase in the corporate tax rate to 25% from the current rate of 20% and the elimination of a popular tax exemption program that allows businesses that reinvest profits, known as the FUT. …Ms. Bachelet, a 62-year-old Socialist Party member, said Wednesday that the changes are required to fund a plan to improve the quality of the schools system.
The FUT system sounds like expensing, which is how the tax code should treat business investment, not a loophole.
In any event, we definitely know that the tax plan would significantly boost the tax burden.
And that has wealth creators worried.
The plan to raise the corporate tax rate and close an exemption that companies use to reinvest profits has stirred up an ideologically-charged debate at a time when economic growth has weakened to its slowest level in four years. …many of the company’s 450 business clients in Chile are reconsidering investment plans. “They are watching this with a lot of concern.” …business groups say they will try to pressure the government to rethink the tax overhaul. Juan Pablo Swett, the head of Chile’s association of small businesses, said that some 250,000 small-business owners could protest if the government doesn’t save the FUT. “Chile is going down the road of Latin American populism,” added Axel Kaiser, an economist and executive director at the Foundation for Progress, a conservative Chilean think tank.
The story notes that economic reform has been very positive for Chile.
This mineral-rich, long sliver of a country that hugs the Pacific Ocean has long been a laboratory for economic innovation. Starting in the mid-1970s, when much of Latin America had closed their economies from international trade, Chile went the other way, embarking on a program to liberalize trade, deregulate and even create a private pension system. Since 1990, successive governments, most of them left-leaning, oversaw business-friendly policies that turned it into the region’s most stable and wealthiest nation. …The robust economic growth, coined the “Chilean Miracle,” led to a decline in poverty to 15% in 2011 from almost 40% in 1990, according to the World Bank. During the same period, Chile’s gross domestic product per capita rose from less than $5,000 to more than $20,000, the highest in Latin America.
And since reform has produced such good results, that leaves us with two issues.
First, why do the politicians want to ruin a good thing? These people presumably are educated and well-traveled. They must realize how Chile has prospered relative to other nations in the region. So why tinker with success? Are they really so short-sighted that they’re willing to condemn their nation to slower growth just so they have the ability to buy votes with a temporary increase in tax revenue?
Second, why did voters elect these politicians? Don’t they realize that they’ve benefited from the pro-market reforms? Though I suspect the answer is that previous left-of-center governments haven’t done anything bad, while the recently ousted right-of-center government didn’t do anything good, so maybe voters didn’t realize that the new left-leaning government intended to make radical changes.
Regardless, it will be tragic if these reforms are imposed and Chile sinks back into economic stagnation.
The world in general – and Latin America in particular – already has plenty of basket case economies such as Cuba, Venezuela, and Argentina. The last thing we need is another statist economy.
I realize this may sound like whining, but it would make my job easier to have more examples of jurisdictions that can be role models for free markets and small government.
[…] the good news is that Chile hasn’t deteriorated. The nation has endured some left-leaning governments, but economic freedom has remained high by world standards. Which means the economy continues to […]
[…] the good news is that Chile hasn’t deteriorated. The nation has endured some left-leaning governments, but economic freedom has remained high by world standards. Which means the economy continues to […]
[…] not surprised. There has not been any meaningful pro-growth reform this century. Indeed, the opposite is true. Policy has actually drifted in the wrong […]
[…] the good news is that Chile hasn’t deteriorated. The nation has endured some left-leaning governments, but economic freedom has remained high by world standards. Which means the economy continues to […]
[…] the good news is that Chile hasn’t deteriorated. The nation has endured some left-leaning governments, but economic freedom has remained high by world standards. Which means the economy continues to […]
[…] discouraging development is that Chile dropped to #29, a very disappointing result (and perhaps a harbinger of further decline in the nation that used to be known as the Latin […]
[…] second place, though I confess that I was not expecting to see pro-reform success stories such as Chile and Canada in the top […]
[…] the way, I take no pleasure in having predicted that Ms. Bachelet’s tenure would yield bad […]
[…] contra o famoso sistema privado de previdência social e tentativas de minar o modelo. De fato, escrevi sobre essa batalha em 2014. E também observei que até mesmo alguns acadêmicos concordaram que seria tolice minar uma […]
[…] would be a tragedy if politicians wrecked Latin America’s biggest success […]
[…] it appears there will be backsliding according to the aforementioned New York Times […]
[…] And I include Chile because I’m worried about the decline in recent years. […]
[…] we see some nations appear from the developing world and the post-communist world. Most notably, Chile, Estonia, and […]
[…] famous private social security system and attempts to undermine the model. Indeed, I wrote about that battle back in 2014. And I also noted that even some academics agreed that it would be foolish to […]
[…] for all the Baltic nations, the top-20 rankings for Denmark and Finland, and Chile‘s good (but declining) […]
[…] all the Baltic nations, the top-20 rankings for Denmark and Finland, and Chile‘s good (but declining) […]
[…] the current government is pushing policy in the wrong direction. This drift toward statism has been unfortunate, featuring higher tax burdens, more spending, and […]
[…] Chile started at the very bottom compared to the rich nations of the western world, so anything other than a large increase would have been a disappointment. But the magnitude of Chile’s increase is nonetheless quite impressive and presumably a testament to pro-market reforms. […]
[…] improvement has been dramatic, even though the nation has slipped a bit since […]
[…] improvement has been dramatic, even though the nation has slipped a bit since […]
[…] the goose that has been laying golden eggs. That’s the good news. The bad news is that some recent politicians have adopted strident anti-market views. And the nation’s economic freedom score and ranking have both marginally declined in recent […]
[…] Unfortunately, the current government is pushing policy in the wrong direction. […]
[…] And it’s very sad that one of the big success stories of economic liberalization is now being undermined. […]
[…] And it’s very sad that one of the big success stories of economic liberalization is now being undermined. […]
HOORAY! SALUTE PRESIDENT OBAMA He did it. Showed guts. Went to a war zone-Afghanistan.I admire him for it. Help the military morale.NowâIf he will veto the tax extenders of 50 Trillion. Pass the Minimum Wage Increase to $10.10. Increase taxes on Estate Wealth and enormous incomes . Stop increasing Medicare costs onto patients..
A one time redistribution dollar today is worth more than five perpetually compounding growth dollars in the future. That is how most voters in most nations choose. The demise of most nations comes from the short sighted inability of most people, and in this case voters, to leverage delayed gratification.
Those electorates that understand this pivotal issue will be the few that succeed. As in evolution, most others will become extinct branches. But there’s a huge amount of lost opportunity, stagnation and malaise in these dead branches.
But the most detrimental effect is the vicious cycle. Whatever growth the Chilean voters have become accustomed to, a flattening of the effort-reward curve will lead to a lower growth rate. In turn, in an effort to prop up their standard of living to the old growth rates, the electorate will return to the polls for the apparent quickest fix: more redistribution and hope in the harmonizing and homogenizing promises of dirigisme.
Will the current Chilean changes be enough to close the vicious cycle? That, on a quantitative level, I do not know. But that cycle seems to have closed for the US.
Stay mobile.
*looks at empirics*
Nah, they’d never do that.
Reblogged this on Public Secrets and commented:
Sigh. The Left never learns. I wonder what “Killing the goose that laid the golden egg” is in Spanish?
Clarence Swinney of Burlington, NC. Adored Ronald Reagan acting, speaking and personality. He voted twice for him as President. He regretted the 60% tax cut (70-28%) for the richest and his involvement in 5 foreign conflicts. The record is not good in a Comparative Analysis with President Clinton
1.JOBSâgrew by 43% more under Clinton. 2.GDP—grew by 57% more under Clinton. 3.DOWâgrew by 700% more under Clinton.. 4.MARKET CAP INCREASEâClinton + 330%–Reagan + 136% 5.NASDAQ-grew by 18 times as much under Clinton. 6.S&P500âgrew by 370% under Clinton and 140% under Reagan 7.SPENDING–grew by 28% under Clinton—80% under Reagan. 8.DEBTâgrew by 43% under Clintonâ187% under Reagan.(995b to2870b) 9. DEFICITSâClinton got a large surplus–grew by 112% under Reagan. 10.NATIONAL INCOMEâgrew by 100% more under Clinton. 11.PERSONAL INCOMEâgrew by 110% more under Clinton. 12.MEDIAN FAMILY INCOME-grew by 75% more under Clinton 13. DEFENSE BUDGETED-Clinton -2311BâReagan-2062B (current $) 14.UNEMPLOYMENTâAVGâClinton 5.2%–Reagan 7.6% (I admit averaging averages can be dumb. I dumb.) SOURCESâBureau of Labor Statistics (www.BLS.Gov)–Economic Policy Institute (EPI.org)âGlobal & World Almanacs from 1980 to 2003 (annual issues) http://www.the-hamster.com (chart taken from NY Times) National Archives History on Presidents. http://www.nara.gov LA Times 10-11-00 on Market–www.Find articles.com Federal Budget.Com 2009
Politicians short-sighted!!?? I’m shocked!!!