One way to learn about whether specific economic policies work or not is to look at different countries that have tried them. Believe it or not, patterns do emerge about what works and what doesn’t work, as you look across different times and places. I’ve been reading a book called “Money, Greed and God” with my friend Carla, which talks about what has worked to reduce poverty.
The author basically outlined two approaches. In the first approach, the government 1) confiscates the wealth of the most productive workers, 2) nationalizes (takes control of) the businesses of the most successful entrepreneurs, 3) restricts trading between citizens and with other countries, with minimum wage, price controls and tariffs. In the second approach, the government does the opposite: 1) lowers taxes on the most productive workers, and 2) lets entrepreneurs compete to provide goods and services to consumers, and 3) lowers restrictions on internal trading and trading with other countries, e.g. – eliminating minimum wage, tariffs and price controls.
Let’s take a look at two Latin American countries that went in opposite directions. Venezuela and Chile. Then we can finally find out which policies actually achieve results for the people.
Here is how Chile started out in 1973.
PROBLEM: Price controls and tariffs:
Prices for the majority of basic goods were fixed by the government in 1973. Even though Chile was and still is a small economy, the level of protectionism was high. By the end of 1973, the nominal average tariff for imports was 105 percent, with a maximum of 750 percent. Non-tariff barriers also impeded the import of more than 3,000 out of 5,125 registered goods. Just as economic theory predicts, large queues in front of stores were usual in Santiago and other cities in Chile as a result of the scarcity caused by price controls.
PROBLEM: Government taking over private businesses:
The decline in GDP during 1973 reflected a shrinking productive sector in which the main assets were gradually falling under government control or ownership through expropriations and other government interventions in the economy.
PROBLEM: Deficit spending and government printing money:
The fiscal situation was chaotic. The deficit reached 55 percent of expenditures and 20 percent of GDP and was the main cause of inflation because the Central Bank was issuing money to finance the government deficit.
SOLUTION: lower or eliminate restrictions on trade:
The most important economic reform in Chile was to open trade, primarily through a flat, low tariff on imports. Much of the credit for Chilean economic reforms in the following 30 years should be given to the decision to open our economy to the rest of the world. The strength of Chilean firms, productive sectors, and institutions grew up thanks to that fundamental change.
SOLUTION: let competing entrepreneurs in the private sector provide goods and services to consumers:
A second fundamental reform was to allow the private sector to recover, adding dynamism to the economy. In fact, important sectors such as electricity generation and distribution and telecommunications were still managed by state companies. After we implemented a massive privatization plan that included more than 50,000 new direct shareholders and several million indirect (through pension funds) shareholders, these companies were managed by private entrepreneurs that carried out important expansion plans.
SOLUTION: let people take responsibility for their own lives instead of depending on government:
The 1981 reform of the Chilean pension fund system deserves special mention. Under the leadership of Minister José Piñera, an individual capitalization account program was designed with specific contributions, administered by private institutions selected by the workers. The Chilean Administradoras de Fondos de Pension (Pension Fund Administrators or AFP) has been replicated in more than 20 countries, and more than 100 million workers in different parts of the world use these accounts to save for retirement.
SOLUTION: allow parents to choose the school that fits their needs from competing education providers, and push school administration down from the federal government to the municipal level, where it would be more responsive to voter’s needs:
In 1981, Chile introduced a universal educational voucher system for students in both its elementary and secondary schools. At the same time, the central government transferred the administration of public schools to municipal governments… The financial value of the voucher did not depend on family income.
RESULTS: And I was able to find a nice short, description of how all that worked out for them on the far-left Wikipedia, of all places:
The economy of Chile is a high-income economy as ranked by the World Bank, and is considered one of South America’s most stable and prosperous nations, leading Latin American nations in competitiveness, income per capita, globalization, economic freedom, and low perception of corruption.
In 2006, Chile became the country with the highest nominal GDP per capita in Latin America. In May 2010 Chile became the first South American country to join the OECD. Tax revenues, all together 20.2% of GDP in 2013, were the second lowest among the 34 OECD countries, and the lowest in 2010. In 2017, only 0.7% of the population lived on less than US$1.90 a day.
According to the Heritage Foundation, Chile is ranked as the 18th freest economy in the world. The World Bank ranked Chile as the 50th highest GDP per capita for 2018, just below Hungary and above Poland.
Now, you can contrast those results with Venezuela. I have been blogging about Venezuela for years on this blog, and documenting how they raised taxes, banned guns, nationalized private sector companies, raised tariffs, and increased regulations. They are now ranked JUST ABOVE NORTH KOREA for economic freedom – #179 out of 180 countries measured. Basically, they did the opposite of everything that Chile did – transferring power away from parents, workers, business owners, churches and municipal governments to the powerful centralized federal government.
Wikipedia explains how Hugo Chavez took over in 1999 and enacted a communist revolution.
Since the Bolivarian Revolution half-dismantled its PDVSA oil giant corporation in 2002 by firing most of its 20,000-strong dissident professional human capital and imposed stringent currency controls in 2003 in an attempt to prevent capital flight, there has been a steady decline in oil production and exports. Further yet, price controls, expropriation of numerous farmlands and various industries, among other government authoritarian policies… have resulted in severe shortages in Venezuela and steep price rises of all common goods, including food, water, household products, spare parts, tools and medical supplies; forcing many manufacturers to either cut production or close down, with many ultimately abandoning the country as has been the case with several technological firms and most automobile makers.
They confiscated private property, took over private sector businesses, implemented tariffs and price controls, redistributed wealth via massive welfare programs, and pushed all decision-making out of families and municipal governments up to the federal government. By depriving the producers of their earnings, the country caused massive shortages of goods and services, to the point where people are fleeing the country, consuming zoo animals, and selling their bodies as prostitutes in order to get food and water.
In the next election, we are not picking a tribe because of how they make us feel about ourselves. We are not choosing in order to see ourselves as “nice” and “not nice”. We need to look at specific policies being proposed, and see what works and what doesn’t work. The examples of Chile (rags-to-riches) and Venezuela (riches-to-rags) are helpful for voters who want to get RESULTS instead of FEELINGS.
I’ll leave you with a list of links from previous posts so you can see how communism worked out for Venezuela.
- Before socialists in Venezuela could run over protesters, they had to ban gun ownership
- Venezuela solves hunger by banning bread lines, and solves crime by banning self-defense
- And now slavery: Venezuela’s socialist policies lead to forced labor camps
- Do young Americans know how well socialism is working in Venezuela?
- How well are Democrat Party economic policies working out in Venezuela?
- How well does socialism work in countries and cities that adopt it?
- How well are Democrat economic policies working in Venezuela and Argentina?
- Marco Rubio’s speech exposing the horrors of socialism in Cuba and Venezuela
- Obama silent as Venezuelan government violently represses democratic opposition
- How well is government-run health care working out in socialist Venezuela?
- Venezuela orders soldiers armed with assault rifles to impose price controls
- An honest look at the many contributions of Hugo Chavez to Venezuela
- What causes Colombia’s economy to grow? What causes Venezuela’s economy to shrink?
- Socialist government of Venezuela announces devaluation of their currency
- Obama’s buddy Chavez nationalizes an American company
- Venezuela legislature votes to nationalize 11 US-owned oil rigs
- 80,000 tons of food rotting in Venezuela government warehouse
- Hugo Chavez confiscates private property as Venezuelan economy declines
- Owner of the last anti-Chavez TV station arrested in communist Venezuela
- OAS report details violence and lost freedoms in communist Venezuela
- Photos from the revolution against communism in Venezuela
- Venezuelans riot as communist Hugo Chavez seizes control of TV channel
- Hugo Chavez says that Haiti earthquake was caused by secret US weapon
- Chavez marches Venezuela down the road to serfdom at gunpoint
- Communist Venezuela introduces energy rationing in 2010
- Hugo Chavez shuts down 34 radio and TV stations in Venezuela
- Venezuela nationalizes Spanish-owned bank