Friday, December 22, 2006

The year 2006: Some notes before it goes away

The year 2006 is close to its end and it is appropriate to make some balance for Latin America economies , although not a detailed one, but emphasizing some elements which can be part of new trends. Let take a brief look to some of the most important on the list:

a.- The year 2006,was an election year in Latin America: Brazil, Mexico, Nicaragua, PerĂº, Equator, Colombia . No matter the political environment and its tensions , it looks like each of these economy went through quite well in terms of its overall perspective to continue growth. Venezuela is a different case because of its oil resources endowment , it can take the risk of some luxuries.-
b.- Growth has reduced poverty and Unemployment in Latin America in the year 2004, 2005 and 2006, so Growth should be the first priority for the year 2007 ,to get further gains on both social illness .It seems that a majority of Latin America countries , believes in the power of markets to create wealth .-
c.- Quite on the contrary to some pessimism at the beginning of the year 2006, this year, was very positive in terms of promoting free trade, as one of the key condition for growth .Uruguay, Peru, Equator ,Colombia worked hard to get through a Free Trade agreement with the USA economy .-
d.- It follow that the Latin America economies, are ready to pursue further steps to complement free trade and Growth ,moving forward to a higher stage of economic performance, throughout additional steps like reforming the still heavily centralized colonial State , and open up new opportunities for private sector throughout microeconomics reforms such as those related to the entry barriers to begin new small business ,or greater flexibility to participate on public infrastructure.-
e.- It is also clear the increasing pressure for a greater social balance to distribute the benefit of growth, specially towards those more vulnerable to be left behind. Poverty reduction requires constant policy effort, simultaneously orientated to both: short run and long run . Growth by itself is not enough, the trickle down policy ,is far away from being the right policy in Latin America economies to reduce poverty. Chilean economy experience is quite useful on that issue.-
On the negative side, it is the attempt of moving backward the clock of economic history , when national leaders try to fool their own people with old solutions to new problems. The Traditional welfare State is on its way over to a new Services orientated State, which provide training, information, financial support for productive purposes , good quality of public education and public health, and lower entry barrier for new small business. Price controls, State intervention on the sphere of private sector, weak institutional framework, make a very dangerous policy mix. Two key countries like Brazil and Mexico ,have already settle down the way.
The Spaniard Chamber of Commerce has given its forecast for the year 2007.The expectation is positive, no matter the risk of a slowdown in the USA Economy. This might be explained because Latin America is well integrate to global economy ,and at the same time has an interesting flow of capital resources coming from migrants from the advanced economies, which make the continent less vulnerable.-

Friday, December 01, 2006

Milton Friedman: The Professor and his Global influence (II)

What was the real influence of Professor Friedman in Chilean economic experience?. To begin with ,he was not comfortable with the idea of fixing prices like the exchange rate, or for that matter any other price, which the Chilean economic authorities at that time did to reduce inflationary pressures. At the same time, he was critical of restraining political liberties as a justification for implementing market oriented policies. There was an unquestionable and clear connection between democracy and free market policies, he said; so that there was no way to get success with markets oriented policies without the support of democracy values. It follows that his influence was more on the ideological side, rather than on all of the practical matters related to policy implementation .However, there were some areas where his ideas were the inspiring foundation, such as education throughout the subsidy to demand programs, and privatization of retirement of labour force account and the expectation hypothesis and the Phillip curve (the acceleracionist view). On the other hand, Friedman seemed to be more distant from the argument which connect markets functioning with institutional framework, than Douglas North, so that his beliefs were strongly shaped by distrust of regulators and above all regulations. The empirical experience though, suggested that it existed an important relationship, between institutional framework and market policies results, such that it was possible to implement market policies within the frontier of a set of clear rules and institutional arrangements. If government had to intervene as an unavoidable effect of uncertainty , it had to be following certain rules .
At a global scale Friedman influence was decisive in the eighties helping to shape new macroeconomic policies ,and above all the new concept of the government intervention in the economy ,and its relationship with its citizens. The Keynes proposition that government was part of the solution, turned over to the other way around to become considered as part of the problem . As long as Government was identified as part of the problem, it was important to design the future policy scenario. The fall of the Berlin wall and Soviet Union collapse, was also part of the new paradigm concerning government role in the economy. Ireland , New Zealand followed the British economy experience ,to become later in the nineties the new stars of the Europe unified . They reduced government intervention, in such a way ,that it allowed those economies to get strong gains on economic growth and welfare improvement.
In Latin America ,at the beginning of the nineties ,following the debt crisis, there also was a new consensus about the principle that Government was part of the problem instead of the solution. So ,Latin America economies started out privatizations, deregulations, openness of markets to international trade ,and private firms were supported as the key leaders of wealth creations.-
A couple of final comments about Professor Friedman global influence. It looks like his was more political economist than most of his other colleagues, like E Phelps (Nobel Prize winner in economics, 2006) , or Alan Meltzer. However , the trade mark of Mr Friedman legacy ,is also related to his belief about intellectuals and professors ´role in modern society .While politicians and military shaped the twenty century, intellectuals and business man will shape the twenty one century. On that regard ,Milton Friedman was almost a century ahead of the rest of us.-