Friday, March 10, 2006

Business men and theirs farewell to President Lagos

We all learn in school to read books ,but few of us learn how to read history. That is a desirable skills for anyone to be endowed with. President Lagos ,is one of those very few able to read quite well the history .He followed an economic policy , which aulthough it was not his choice, he make it his own by introducing it social values, like integration , fairness, and protection .
He believes in a society whose key traits are not the one given by the markets preferences, but by its people ¨s right. In other words , in Chile the new society style which was coming out after 1990,very much prone to american style, would based on a strong economy, but supported by social values . After all, Society well functioning is beyond markets behaviour.
This path meant a giant step forward for the prospect of further development in Chile , because following the European model ,it integrated economic growth with social compromises . On the other hand, because of its markets inspiration, open up the way to the so called “Third Road” economic model implementation in Latin America as an alternative to the neoliberal approach..
In Chile , few markets analysts ,believed on this approach to be successful. After all ,it was based on additional labor markets regulations, more fiscal expenditures on education , public health, and tax increases. Following the Asian crisis in 1997- 1998 , this policy mix ,implied barriers for the economy recovery so urgently needed , specially because affected flexibility for business decisions, and markets behaviour . There were doubts, mistrust and pessimism in the business community.. Sure, those changes were expected to affected the productions costs., profitability margins , employment levels, and investment.-
However, if the market size increased, the expected higher demand and the scale effects associated with it, would allow to confront the challenge of growth with heavier social burden, without weakening the firms abilities to sustain the creation of wealth. So, it began the Free Trade accord round all over the world markets. Then Business man realized, that the economic policy was not against them, but rather with them, and most of all , was based on them!. So when it comes to say bye, business men embraced him as the leader of a new deal between government and business.-
Following the Mexican and Canadian free trade agreement of early nineties,, it continued with the USA FTA, The European Union FTA (A plus category Free trade accord),China and recently India a probably in the near future Japan.-
Is it too good to be truth ?.Let looks at the data: The average rate of growth between 2000-2006 it is on the range of 4%, average unemployment is 8.8%, and annual inflation is on the range of 2.5%-3,5%. Could it be better?. Sure it could. Lower taxes for investment and saving, more flexibility in key markets would have done a better result.
From the long run perspective for development and growth though, what it count most is that in Latin America there is a new paradigm which is moving away from the “lost decades policies” of the eighties decades. This new paradigm take the best of market to combine it with social requirements, including modernization of the State and strong private sectors, capable of asuming traditional public investment such as highways, airports,ports . President Lagos was not the first, because he arrived to the Presidency when others already started off this path, mainly Former Brazilian President Fernando Henrique Cardoso.However, he took the most advantage of it.-
The lasting effects on Brazil of this symilar approach, was that the new President Lula decided to support it, quite on the contrary to expectations. So, it is also expected to be in Chile with the new President Ms Bachelet .-

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