Chile 2015: What went wrong?

In the latest years, Chile has become a darker if not a falling star, and it seems that its path to be the first developed country among its peers, has melted away. There is not a single field, which Chile has not deteriorated its performance: competitiveness, corruption level, business social responsibility, political institutions, ethic rules on civil servants, public policies focus, Governance standard. Such a negative scenario , has a lot of explanations and it may be the usual blame each other game. While Government claims that inequality was a moral shame, and it was not possible to delay reforms, the opposition claims that those reforms were technically wrong designed such that spoiled economic growth, business expectations, and investment. However, to be fair neither side of the political spectrum can walk away from explanations to the current citizens. Oligopoly, in the Chilean economy did not fall from the sky. Besides, quite on the contrary to the usual view, the Chilean economic model foundation was far enough, to be labeled as a neoliberal one, because there was not neither really effective (sufficient) political, nor economic freedom, nor efficient institutions, to make possible economic democracy. The usual comparison, with others Latin American economies was somehow misleading. In fact, concerning freedom limitations, Neoliberals may say “We told you so”. Let take a brief review to support this approach. The cost of oligopoly (competition among a few), is very well known in basic economic. Besides, if it is coupled with a political oligopoly, both become complementary, and the risk of collusion between business and politics increase, and with it corruption is inevitable. Thus, the premise of self regulation did not apply, and efficient institutions become a “must”. But, as long as few politicians were the guardian of the “economic Model”, they delay any change either to open politics to a keener scrutiny and competition, or to improve the quality of regulation to take care of the welfare losses arising from oligopoly , or to make more efficient the financial support for entrepreneurs and small firms, and the protection to consumers. At the same time, some of them had financial support from private firms to constraint their ability to work on improving laws. Chilean economy has become a case study, of an Oligopoly failure. But it is not only about oligopoly by itself, it is also about weak ethics rules to design the boundaries of doing social responsible business. Some Chilean firms ( a few important ones), went far beyond what it was expected from them, which is basically to create wealth for the benefit of its owners, the stake holders, and the shareholders, but not for expropriate it from others either directly or indirectly. At the end of the year, it looks like many Chilean leaders lacked the character to change course for the benefit of the ones who trusted them. This has nothing to do with neoliberals proposals.-

2015 A critical Balance

It is usual to make balances when the end of the year is coming closer. 2015 is not different, expect for the fact that it means half of the second decade of this XXI century.So it represents what make trends for the remaining of the decade. 2015 will be remenbered as the year of anguish and horror, from the refugees crisis, the terror threath in any place in the world, the painful consequences of those more vulnerable to Climate change, and the narrower boundaries to have a stable peace. It looks like war it is just around the corner. In fact, the world has begun a war against who do not consider other values than those they believe in, such as to get to the extreme to make them possible. Nobody knows what this war will look like in 2020, but it is a fact that the world is less safer than it was at the begining of this century.- The global economy, is still strugling to improve its performance.What it gains some where (USA and Europe), it lose it elsewhere (Japan, China).It was expected that the USA economy, would be the first to be on the track of economic growth, after the financial crisis of 2008.However, It was no expected the rise and fall ,so to speak of emerging economies, from being the engine leading the recovery, to become the last wagon.A lot of question arise about whether these economies are really out of the growth path either as a permanent situation, or a transitory one.I do believe it is a transitory stage.The traction of global growth will soon work to get on board, those economy which still keep its core fundamentals of good economic policies. In Latin America, there are not too many economies whithin the fundamentals: Inflation has been rising, output growth has been declining, fiscal deficit has been on the rise and the majority of these economies face the problem of lower prices for its main exporting products.However, some of these economies, specially those focused on the pacific grim seem to be in a better shape, to overcome what some analist have called the "Perfect storm".- Voters in Latin America are exhausted with the proposal which they have to decide. When the economies goes up it is easier to settle down, what it fits with every one expectations, but when the economy is on the down side of the growth path, the options are narrower, and the decision for the voter become thougher and the chance of mistakes higher.Perhaps an example of that in 2015, was Brazil, and on the contrary side was Argentina.It is not easy for voters to make the right decisions , it requires not only good information, but also good faith of the candidates they vote for to tell them what it closer to reality instead of illusions.- The expectations at the year end, and the regional-global mood , are not optimistic on every field of public affairs.Climate change, global and regional economy, world peace and stability , all looks like we end this year with an huge cloud above us, which only coordinated leaderships can overcome.

China and the world economy

These days there are a lot of atention on the chinese economy and its new slower rate of growth path.Most of the market concern deals with the uncertainty about the outcome of the economic transformation from export to consumpion, which is taking place. Some issues related to this change are: a.-It is not an easy process, specially for those countries which depend of exporting commodities to China whose prices have decreased in the last year and the trend seems to stay at the new level for a while. b.-Besides, the issue of the quality of the data, about how the chinese economy is performing affect preciseness of the conclusions.- c.-How does the adjustment path may become?, either hard, bumpy or soft landing so to speak?.The consensus seem to settle down in between the extremes options. d.-The Chinese authorities seem to have a better control than previously thought, about the adjustment path.- In the mean time , the world economy watch the new chinese economy profile to take full shape, and work some policy options out, to deal with its consequences. How long is it going to take?. Current most developed economies, needed decades to close the transition from production to consumption. But the Chinese economy depend on its own, because of its huge internal market.This means that while it carry out its transformation, the expected outcome of a slower rate of growth (6%-6,5% range) , is not necessarily fully negative for the world economy.There are few economies,actually if any , with such a rate of economic growth.So, the Chinese economy may be able to keep its role to make the world economy recovery sustainable, although at a lower rate.-

Sustainable development: The UN goals 2015-2030

The UN has announced its 17 goals for a sustainable development, including the years 2015-2030.The previous experience (The milenium goals) should be a relevant path to evaluate what may be expected fifteen years from now.- Rougly the main issues within this coming goals are :(summary by categories) 1.- End poverty and hunger 2.- Increase concern about elderly health and well being 3.- Improve quality of education 4.- Better awareness about natural resources(water,oceans,forest,land degraddation, desertification) sources of energy supplies,infrastructure for sustainable consumption, production , economic growth and development.Above all, to take urgent action to protect the environment 5.- To protecdt women rights, genrder equality ,labor decency and productive employment 6.- To reduce inequality among countries .It means to increase convergence about each country GDP 7.- To make cities a better place to live 8.- Strenghten global partnerships for sustainable development Which one is more important?.Are they all complementary with a single purpose?.What about the necessary institutional framework to carry on these goals? The recent experience (2000-2015),shows that institutions matter for dealing with the risk of corruption, biased policies toward a few instead of those who require them most,government ineficiency and lack of transparency.- In some countries (Bnagladesh and others in Asia),was no possible to end poverty, and hunger among child population because of failures to improve first the quality management, its control standard and capabilities to deal with the isses at stake.- It is positive that the UN make a call for global partneship to deal with the sustainable development challenege.It is the lack of global gobernability criteria, the main cause of negative externalities arising from inmigration, wasteful of key resources, and Government failures to cope with internal gobernability.-

On the recent slowdown in global trade | VOX, CEPR’s Policy Portal

On the recent slowdown in global trade | VOX, CEPR’s Policy Portal

Fifteen Years into the XXI century in Latin America

It may be too early to assess this century trends, but for Latin America it is important because there was great expectations, following the lost decade (1980-1990), and the reforms which followed since then. Besides, it is unusual and risky, to analyze a century which is still on, and so much about to happen. However, it is interesting to make some evaluation when it comes to some facts about Latin America economies in this century quite different from the previous one, such as: a.- Market oriented economic policies, as an alternative for the state led inward economic development ones. (XX century).- b.- Democracy as a legitimate way to solve political differences, as much as to provide solutions for people ´s demands as well.- c.- Better institutional design for economic policies, such as Autonomous Central Banks , Fiscal policy responsibility, and better designed financial markets.- d.- Higher level of trade and financial integration with the world economies, such as to make Latin America a potential global partner.- e.- The lasting effect of the Asian economies crisis (1997-1998), such as higher country risks and outflow of foreign investment. So, what can be said as a preliminary balance so far?: a.- There has been an important expansion of opportunities arising from social mobility, economic growth, and both lower unemployment and poverty level.- b.- The new middle class, has become the key market target , for business expansion within Latin America economies.- c.- Firms and business man, have become the alternative for the state when it comes to economic integration, economic growth, and solving some publics investment needs such as infrastructure(energy, railroads and the like).- d.- Technology change focused on good consumers ,has been widely accessible to an important proportion of population.- e.- Government and politicians, have not been up to the challenge of coping with the demands arising from a more complex society, making gobernance more difficult . Seven elected Presidents since the year 2000,could not finish their period which they were elected for.(Peru,Bolivia, Equator(twice), Argentina,(three cases), Paraguay , Honduras and a few days ago Guatemala).- f.- Climate change is increasingly a pressing issue for this continent, as it is for the world,which required more coordinated policies.- However, even though it seems that there are more positive than negative events, the net outcome is far from being positive. Governments seemed to be unprepared for both decentralized and complementary solutions, instead it has been captured by those who looks to serve themselves, than others.This approach to public policies as a whole,has made an important difference for this preliminary evaluation to have a net positive outcome.-

Economics ,instability and uncertainty : Is it the weakest science of all?

Among different sciences, economics looks at first glance, like the one with more pending issues. Physics, and Mathematics are the sciences which allow us to be in the space, to go to the moon, and to get to Pluto and Mars. Chemistry and Biology are fitted to provide food, at a faster pace to an increasing global population .In all of these areas, there is few space for mistakes. So, these sciences, are precise enough in its foundations such that there is little doubt about the final outcome.- Very much of that performance, is further improving with applied information technology and stronger capacity of new computers. Virtual reality increase the options, to reduce even further the error margin.- What a difference economics science does, regarding its inability to control uncertainty and instability. The implication is that there is no way to guarantee the preciseness of the outcome. It follows that ,economics will always fluctuate between what it is expected and what it real . Thus , How come a society may become dependent upon economics , to solve key issues ?.The risk is very high that in such a case, it would be hard to avoid the wrong path for society as a whole .- . Gary Becker made a huge contribution to the economics science, with its economics approach to human behavior. It stressed the rational nature of economics decisions made by humans, who keep in mind the benefits and the cost of its actions. Fertility, Marriage, Labor-leisure, rural-urban migration, crime were all subjects which could be explained by economics, so it defined policies to deal with them. So strong was the argument, that at macroeconomic level, it went that far as to suggest that economic policies , were not such a useful tool, for solving key unbalances between aggregate expenditure and incomes, unless nobody expected that policy intervention was necessary to coming in. The whole issue of right or wrong, became somehow also solved by economics, depending upon the cost and benefits involved. Unfortunately for its expectations as a science, this approach turned out to be insufficient to guarantee an outcome all events proof. When it seemed economics reached its highest stage to be at a same level with other sciences, it failed with the control of uncertainty and instability. Just a few economists, predicted what the remaining ones the whole economic science and its followers ,could not foresee.- The financial crisis of 2008, made a huge setback for the proposal of economics as the supreme master of all sciences. Economics alone is not enough to deal with uncertainty and instability. It needs complementary forces. Politics arise at the first place. Greek philosophers suggested, that politics instead economic should decide about the driven values and purposes of society, as long as values are permanent not transitory, and society become also more stable and peaceful. Let take an example, the meaning of freedom is based upon of its economics or politics implications?. It seems that politics has a wider response to justify freedom. Let check them out a.- Freedom is a necessary condition for justice. Freedom is the way to justice, Without freedom there is no path to justice. b.- Freedom allow citizen to become happier and richer, bot spiritually and economically so to speak.- c.- Freedom allow society to increase wealth, and with it more people living better than otherwise .- d.- Freedom allow a better allocation of resources to increase the welfare of society.- One out of five reason to justify freedom, deal with economics, and keeping in mind that economics needs for such a purpose(d), an institutional framework. So, Let politics to get through, and make it work with economics.

The EU integration project and its influence in Latin America

Because of the debt negotiations between the EU, IMF and Greece, it seems the chance of EU project breaking apart goes higher than the expected. The discussion of the EU model ability to address the challenges arising from within and from outside its borders, should take into account how strong has been the influence of this integration project around the world. It is not just the survival of the EU what it counts, but the fact that in many places in the world, especially in Latin America, the EU model ,is a path to follow for future trade flows and economic growth to become stronger, cultural ties to become part of common history, and social constraint such unemployment , poverty, and inequality to be properly solved . Integration has long been a complex process in Latin America countries full of expectations, but short of solutions. The experience in the sixties (Ecuador, Peru Chile, Colombia), did not get what it was expected, because it was wrapped by the rhetoric related to the confrontation North - South , and the argument of countries in the periphery lacking development because of industrialized economies from the north, exploit its raw material endowment at low cost . Thus, the orientation of such a process, on the one side, had a bias toward foreign investment, free markets policies, and on the other the conviction that a Strong state was part of the solution, to take the lead of economic development and social improvements. The outcome, was less promising, the external debt crisis of the eighties make it all a huge failure, with inflation, poverty and inequality worse than at the beginning of the experience. Those years, between 1980 and 1990, were considered the “lost decade”. But the “lost decade” concept real meaning and implications, was deeper for the integration dream. Tough questions arose at that time about the next step to confront the unsolved issues of inequality, poverty low rates of economic progress, and lack of institutional framework to deal with the dynamic of development. The EU integration path under way at that time,was the benchmark to follow. So, it came about different initiatives based upon the premise that trade and investment flows, work better through economic integration.

China Investment in Latin America:Some thoughts about Its implications

In january this year, the Chinese Government announced an investment plan for USD 250.000 millions, to be implemented in the next ten years in Latin America. Most of these investments, deal with infrastructure projects which would allow a better trade flow between China and its counterparts in Latin America. Last year, China start off a Global Bank,specially designed for infrastrucute projects to be implemented in many economies in the world. Actually ,this trade flow is slower than desirable, imposing higher transaction cost affecting the eficiency gains of such trade for everyone. Just to give an idea, while a trip for a cargo ships by the pacific, takes 12 to 15 days, the same trip by the atlantic ocean ,requires 23 or so, days. So ,it is obvious that there is a necessity for Chinese Government and its partners to improve the logistics of its trade chanels. Quite different to other countries with the same requirement, China does have the capacity to look for these changes within its partners borders, instead of waiting for free trade agrement alone, to be fully in place .These treaties need complementary investment, so they finance them. This week , China made official its partnership with Brazil, for implementing investments in railroads projects and others projects, from 2015 up to 2021 for USD 53.000 millons. So, it is doing a similar project with Argentina and Colombia, to improve railroad networks to get a faster speed toward the pacific ports.Raw material better disposal, is also a justification for these invesment flows. What are the gains for Latin America?. a.-It does not have the resources to implement such investement on its own,and a lot of research done by the international organisms ,call the atention on the weak instructure in Latin American economies as a restriction for growth. b.- It will improve Latin America capabilities, to engage in deeper integration with global markets.- c.- It will support economic growth potential, which it will have a lasting effect on the quality of living of its citizen, whether this growth is complemented with better public policies. A sensitive issue is about the influence China is getting in the region,and its consequences for the strategic equilibrium between global partners. Concerning this influence ,it is hard to argue that it is decisive for its policy decisions, and commercial ties within each country, or with other economic blocs such as the European Union. The issue rather is, that Latin American economies have a new commercial ally , for its integration into the global economy , to get fully the advantages from it. A stronger Latin America, is also a good condition for better trade flows , with this traditional partners . However, from the political and geostrategic point of view, it is for sure that it will arise a scenario with a different setting for diplomacy.-

The new mediocrity: an alternative meaning

At first glance it may looks that the notion of mediocrity as a rule for global economy and local economies in particular, is unfair. The fact is that policy makers, are doing their best to overcome the lasting effect of the worst financial recesion of this century.They did not create that recesion because of their policies, but because they lacked of them,otherwise it is hard to understand the reason why smart people did nothing to prevent it.This fact, some how shift the burden of responsibility to markets economic agent, however, not any of them ,but those innovators who lead the new way to do business with high risk financial products.- Financial Innovation went through markets transaction at a faster pace, than policy makers were able to design the proper approach first , then the proper policy, to deal with its higher than usual risk profile in financial transactions. Therefore ,the new mediocrity hypothesis arise from the fact that no matter its consequences, a lot of the most promiment financial institution in the world ,followed that innovation bet,and aside from almost the usual innovation flow coming from information and communication technologies , there is no current innovation on the global economy capable of matching that one which led to the financial crisis.The obvious implication is that those innovation failed, but that is the path for better and stronger innovation in the future. Perhaps, unconventional Monetary policy match such an innovation label, but it is unusual to count on that indefinitely,sooner or later it will back to normal, which is the opposite of lasting innovation(creative destruction).Fiscal policy, still is depending on taxes, and worst of all on higher taxes. This macro economy policy , should follow the innovation path of the monetary policy, but this one, to last for longer period of time. Let take the case of a partnership with the private sector to provide better services, protecting the state from corruption with better laws ,or to get rid of centralized solutions away where the problems come from Thus, given that none of these macroeconomic policies are even close to be innovative, so the sources of economic growth will not be either.The endogeneous source of growth, arise from talented people who have the chance of following their way up to the top, within a supportive environment, with clear and stable rules,and the right incentives, which asumes an innovative State. At the end of daily analisys, economic growth still depend upon the same approach applied in the past, more State and less private initiative.If this is the case, there are two implications: a.-The new mediocrity means, lacking of new ideas to lift both investors and consumers expectations up.To get rid of traditional text books solutions to solve old problems, but inefficient to deal with new problems arising from konwledge and information, as the driving force of the global economy, and economy growth. b.-The new mediocrity will stay for a long period of time,unless innovation also apply to fiscal policy.

Commodities prices and Latin America economies

Commodities prices has been declining.This means that those economies whose public budget depend upon commodities prices , will have troubles to make the balance whether public expedenditures keep the pace without adjustment. But ,the implications of this situation go even further : a.- According to the Interamerican Development Bank, there is a reasonable probability for latin american economcies to have a lower rate of economic growth, in case that Europe, China and Japan have also lower economic growth than expected.The decrease in the rate of economic growth though ,is different within different groups of economcies, such as those oil exporter. metal exporter and so on.The estimated average economic growth for South America is 3,8%( (2015-2017), in the best scenario,and 2,9% in the weaker scenario.- b.- If the USA economy keep the pace even with higher interest rate, economic growth for South America would be 3% instead of 2,9% according to the EDB.(source : www.latercera.com).- c.- Foreign investment could be affected in commodities sector, because of commodities prices volatility.So, even it is not that much relevant its share in these countries ´s GDP, the ECB suggest better policies to manage prices uncertainty.- d.- The more complex problem for those econimies more vulnerable to commodities prices fluctuations, is to adjust expenditures, and the path they will follow to implement it, unless the get external financial resources , but sooner or later expenditures will have to be revisited.This will put more pressure on economic growth, to the downward side specially if affects consumption. The positive side of the story is that global economy seems to have found the track of economy growth back from the financial crisis of 2008.In Europe, Germany and Spain are in the position to lead the recovery to a more sustainable level, and lower prices of oil will push that performance further.-

The Strenght of free market policies:to fullfill its promises

How come that it is not usual in Latin America presidential elections, for free market ideas, to take control of government policies?. What make free markets ideas weaker , such that it does not get good voters approval? These two questions arises, because of the recent presidential elections in Latin America, none were for candidates who believe in free markets ideas. Instead, in all cases a stronger role of the State prevailed. The empirical evidence available, shows that as far as the outcome is concern, free markets proposals ,overcome those arising from more an active state in the economy. The explanation for it, goes on the line of which of the two proposal, has the ability to provide better chances for steady economic progress and wealth accumulation: a.-Given an institutional framework, free markets work, on the basis of self coordinated actions and decisions made by individuals, with no other purpose than to increase the outcome they get, which otherwise would not be possible to get it alone. The key for such outcome ,is to have an institutional framework effective enough, to guarantee that the decisions process goes smoothly toward its wealth objective, which as a by product can generate value and innovation.- b.-On the other side, the State is vulnerable to be captured either by politicians , bureaucrats, or special interest groups, which change the path of public policies to their own purposes instead of the whole community. Besides the risk of corruptions, make it more difficult for the State to keep close to its promise of well being for everyone. By its nature, the State must keep distance from those risks of being captured, limiting itself to fulfill the effective conditions. This means, to do what it have to do, with a sense of Social responsibility. After all, markets need the State to do the complementary task of correcting its failures. If the State fail because it has been captured, the whole society have a welfare loss. However, the outcomes of recent elections in Latin America, seem to suggest that voters prefer to stay away from policies dealing with free markets proposals. But does this means that they really prefer more State?. Given the performance of markets and the State, the only explanation for this adverse selection, is that voters look for some kind of protection. If voters do prefer protection over well being, it means that they get the wrong message about free markets ,which based on freedom suggest that it assumes everyone is in the same possibility to take advantage of their freedom. Some people obviously are better off regarding freedom, because they have better education, good quality social networks , accumulated wealth and so forth. Those who do not, because of poverty, hunger, mal nutrition and the like, will stay behind, depending upon some one to give them, what they can not get by themselves. They do not know what freedom is about. They live on their fears, instead of the their freedom.- Thus, what matters most for voters are not the appealing of free markets outcome elsewhere, but how these ideas and policies , may give them better protection than the one arising from the State promises, which as it has been demonstrated by past experience, most ot the time are just that, promises.-

Cultural values and inclusive capitalism

Cultural values have always been within the main core of capitalism. Of course, what kind of cultural values, make the difference between inclusive capitalism, or any other form of savage capitalism. Savage capitalism, deals with profit maximization, selfishness behavior, but also with rules, in particular the rule of law. These values, do not solve inequality, but they are the drivers of innovation, wealth creation, and economic growth. However, when there are flaws in the legal system, its laws or the regulatory procedures, the outcome become quite harmful.- On the other side, the Society as a whole, also has its own values. Most of the time, they do not fit with those of capitalism. Society cares about the common welfare, which means to support values such as solidarity, dignity ,respect to basic rights, no matter the backgrounds of any individual are.The recent experience of a South Korea Air Lines executive, who was punished with one yeas in jail because of breaking the rule of safety flights, show how strong certain values (prudence) are for a society. Sure, values are not away from ethics standards.In the South Korean case, everyone face the law no matter their economic or social position.- The financial crisis of 2008, was a tough example, of the risks concerning capitalism behavior , with no clear sense of where the limits are. It became clear that capitalism also have its limitations, In fact, limitations so risky ,that many of the most prominent leaders and economist around the world ,asked for more regulations and prudential economic policies, such as to "guide" the markets , instead of leaving them to solve on its own and by itself, the difficulties of uncertainty.- Aside from its values, capitalism, also has the advantage of adapt itself to new conditions. Let mention the case of State capitalism, or Mixed market economy, which works on the basis of the State and the market, working together in a complementary fashion. In some cases, this mix is more political than others and the level of state intervention becomes higher. This is the case, of Chinese model, the opposite of the Spain, German or the USA Model.- So, inclusive capitalism seems to be the reaction to the collapse of 2008.What is the meaning of inclusiveness?. Basically, to care about others. This means to take into account people´s preferences beyond those related exclusively to profit maximization on its own. Thus, firms apply social responsibility, they engage with local governments to solve community needs, they improve the ethical standard of management practices, they become involved in seeking international goals, related to poverty, health diseases, nutrition deficiencies and the like. Government and firms, working closely are at the core of inclusive capitalism. The world, need this more flexible approach to create wealth .- .

Money and politics: The chilean politicians under scrutiny

It is the only way to sustain political campaigns, to pay for advertasing and mobilizing people all over the places where voters are.No doubt about it.Money in politics, is the "cash card" any politician can live without. But there are some considerations,about money in politics : a.- It has to be legal b.- It has to be for good purposes But this is different to say that only reach people can do politics. After all, elections winning is also a matter of good candidates, and good candidates arise when they fit well with the times and mood of voters to fullfill their expectations.The right time ,the right man or woman,say it clear. So, money has a specific function which fall well behind that one of politics.Money can not solve, what good politics does.Money has limitations in politics,as it does not in business. Therefore good laws are necessary to set the boundaries of money, concerning its relationships with politics.- The institutional frameqork must be strong enough, to make clear the different field of politics and money .Politics deals with dreams,social achievements,government outcomes. While money is exclusive, politics is inclusive.While money has no principles,politics does or at least it seem it has. In Chile, the most pressing issue these days , deals with the irregular financial source some politicians used in past elections (2013).Current laws in Chile ,allow firms to give money for candidates, while they are participating in elections, but this does not mean that these donations can be used to by pass tax laws. Thus, like in many fields, after the worst happened, it create the condiitons to make corrections, to improve the quality of the regulatory board,and the penalties for those who cross the line. Those who believed that politics is the short way to make a fortune,are in trouble twice: a.- They are under investigation for fraud suspicious b.- They betrayed their voters.Whom they really represent to ,when it comes to approve a law? It is out of any decent consideration, to think that democracy has its price.

2014: The year a lot of things changed

It is time for everyone for making balances.So it does happens with the economy, politics and other fields .We are less than a week away from begining 2015. What can be considered to be the outcome of 2014,wether positive or negative , depends on the side each one is on: either Optimistic or pesimistics.- From the optimistics side, things do not look as it was expected.Thus, the pesimistic ones are those who have the last word. However,2014, was a year of mixed outcomes.Let take a look at it: a.- From the global economy side, there was important progress in the USA economy as it moved along to a sustainable recovery.Whereas ,The European Union is still struggling to get into reliable economic growth path,increasingly difficult as the geopolitics take its stake on it. China is also in its way to find the proper economic growth path, taking with it the prices of commodities. b.- Latin america economies did not make it better.Most of these economies grew below the expected.Unemployment had a good perfomance, which is expected to reach near 6%, below 6,2% of 2013.- c.- Oil prices went down more then previously thought, and the trend is to continue that path because there is no evidence to have reached a bottom level.Less so, while there is no reduction in production level. The effect of this new prices are still to premature to say anything,except that those countries which depend upon oil prices have problems.- What to expect for 2015? It is not hard to say, that it will not be an easy year either.Global economy will face the situation of normalization in monetary policy in the USA while still struggling to get away from deflation, weak economic growth and geopolitics risks.- It will probably be a year for politics and diplomacy.-

Are free markets ideas strong enough in Latin America?

Economic backgrounds in the last century in Latin America economies, was built mainly based on the notion that the state has a key role in the economy.Throughout years, the markets approach was in a secondary place.The import substitutions strategy followed in the second half of last century,the Dependence Theory, and the North -South focus of world order ,were all based on the supremacy of the State . However,after the external debt crisis, (the lost decade of the eighties) ,such models collapsed. The Washington Consensus of the nineties , was an attemp to get a better framework for free markets policies.However, actually there is no elected government in key latin america countries,(aside from Colombia), which could be considered to be center right oriented.Most of those candidates with such profile ,were defeated in recent elections.(Brazil,Uruguay).- Are free market policies a weak approach to improve the quality of economic performance?.Is there some structural weakness in the leadership of free markets policies?. The first question speak by itself.Most of the richest economies in the world, have followed free markets policies with the state as a reliable complement.The worst of poverty ,is not in those economies based on markets mixed with the State as partner .In Latin America those economies which are doing better, are the ones which support markets as the driver for economic growth.- What about a structural weakness in the leadership of free markets ideas?.Perhaps this would give some explanation. There are no many Latin America intelectuals to be considered a fan of the market outcome, as there are those who can be considered to be fan of the state inspiration .This does not mean that someone is correct, while other is wrong, but the fact is that most of the intelectuals in latin america, are less prone to individuals , than what they are to the State, as the main brain of society.Thus, those who believe in freedom and individuals as the brain of society , become shy about it because it seems that there is no strong intelectual room for it.Besides there is also the permanent risk of dogmatism,as current leaders feel there is no easy way to build bridges between different positions.The outcome is that average voters, feel unconfortable with the prospect of getting rid of anything(policies,programs), which can offer them protection. So, it follows that the strenght of free markest ideas,even with no strong intelectual support, goes on the line of pragmatism.This means , markets alone are not enough.Markets and the State complementary role do matter, because they are a necessary condition for economic development.-

About Reforms and its conditions for successfull implementation

It has beeen usual to ask for economic reforms, every time economic results do not match expectations.Besides, as an aditional input, past reforms has a limited life span; which call for further ones, such as to make possible the economy to move on, further beyond what the previous reform did, before the economy get weaker.Reforms has diminishing returns so to speak, which require a complementary set of policies every time a new framework arise, otherwise its impact will vanish in the political inertia.- But what is the problem with focusing only in the demand for doing reforms in some areas?.Aside from the complementary policies requirement , is the issue of political support any reform also need to be succesful.So, it implies a lot of political skills to get that support ,and on the other side to make them tunning with the proper time.There is also the right time and the right field contraints, to do reforms. The premise should be, do not change what it is working well,and do change what it is not working along with to get strong allies before going forward.- But above all, the ultimate source for sucessfull reforms ,is related to the instituional frameworks which it is based on to take place.Any refoms means change and with it ,the unexpected . Strong institutions make the difference, as long as it represent the supply side. It is not the same to do changes, within the context of the rule of law,economic police rules, and Central Bank autonomy, than to do the same missing any of those . The demand for reforms must match the supply of resources for it, otherwise as the traditional demand and supply tools indicates,the price of implementing the reform will get higher.- What includes this price?: a.- Political Uncertainty and with it weaker economic expectations b.- Unneccesary widening the Conflicts area, overcoming the specific scope concerning the focus of the reform c.- Higher risk of failure because of misscalculation about the proper deepness of the reform d.- Political desillusion concerning not fulfilling the expected outcome e.- The reforms are left out of the negotiation zone d.- Financial sector volatility It follows, that it is not only to ask for reforms, but also to wonder about institutional conditions characteristic it requires as a key input.- Some examples: a.- Can any economy with high level of corruption,be capable to get a positive outcome with reforms dealing with more private sector involvement into public investments.? b.- Can any economy with the State heavily involved into the citizens life ,to get the most of any reform dealing with more entrepreneurs?. c.- Can any economy with the business sector out of the negotiation table, to get full political support for reforms dealing with labor practices?. Finally, the best way to evaluate the chance of successfull reforms is to have very clear where it is headed.In other word, what a difference does it make the situaion without and with the reforms, given the supply side variables. That is the real meaning of politics, to work out the gap between what any economy have, and what it needs to move forward.

Productivity gains: A Necessary condition to boost economic growth

The average rate of economic growth in the last 50 years (1964-2014), has been 3,8%, and half of it because of productivity increases, with information technology playing a key role since the mid nineties, to recover productivity trend up from the falling direction since the seventies (McKinsey Global Institute (MGI)September, 2014). The issue of productivity has been a main concern for economist, although not all of them have focus it, beyond the orthodox approach based on good (free markets)economic policies, rules instead of discretionary decisions, strong institutions ,markets flexibility ,market competition and openness to world trade. However, recent research done by the MGI, gives new clues about what It may be missing to improve the understanding about how to get more productive economies, especially when structural forces (lower population rate of growth, and less employees ), may affect the pace of future economic growth, to lower rates, or in the pessimistic side of the matter, stagnation. Beyond macroeconomic variables, productivity gains also arise from microeconomic ones. This is the reason economist usually ask for reforms, aimed at the microeconomic side of the economy. Thus, improving efficiency of public sector organism, logistic and productive services, becomes relevant and necessary. However, management models and its decisions framework, are not considered, given the fact that most of the economic analysis , is based on the assumption that business are always efficient because of markets competition, which leads to optimization and maximization of return in specific sectors, where the benefit are the most related to other alternative ones . Ronald Coase , made this point quite clear when stressed that the transaction cost of organizations, should be lower than any competitor to justify its use of resources , otherwise the firm is out of the market, because other more efficient ones take its place. But, what about management style which is applied on business?.Lack of productivity improvements ,also arise because of low quality management practices. Management take decisions about the use of inputs in the proper time and quantities, it coordinates its use and make possible value added throughout the whole production process. It develops the incentives for innovation and it is the last responsible for efficiency in the organization and the maximization of profits. The problem is that management practices, usually fall short of that requirements , and failure of management decisions, turns out to explain differences in productivity across countries(R Solow, MGI, September 2014).It also follows that whether management do not add up to productivity the way it is expected ,it means that somehow competition may not be the driving force of business practices as a whole ,which instead is focused in making sure some share of the rent arising from imperfect markets. So ,when it comes to productivity gains, it is not only about effective market competition, but also about better management skill, especially in those areas where productivity gap are higher.

The Berlin Wall fall: It was not the last one to get down

These days, Berlin is booming with its investment in real states properties. Berliners, enjoy their city in coffee shops and restaurants (shopping malls close on Sunday), riding a bike around the city and its parks ,walking by near historical places or learning more about the past visiting their museums . At night, it does not make a difference for offering interesting alternatives for tourists such as walking by Brundenburg gates,or staying at Alexander Platz.Besides ,artistic and music shows(usually sold out) give a chance of knowing new trends about life style,arts and innovation. All of which, make of Berlin the city which does not sleep. 25 years ago, there was a different story the week before November 9th.The wall which was built in 1961 , was in its last week of existence , but who could know that in advance?.Who could predict such exact outcome?.It was hard even to imagine its fall. But, anxiety of eastern Berliners, was mounting high that week ,after such a long time of keeping them in a place which was very much like a concentration camp. They wanted to become Germans again!.- There has been a lot of stories written about “The Berlin Wall” (Pink Floyd wrote a song about other Wall), much of them related to its humiliating nature which offended the dignity not only of Germans, but also that one of human being and the whole world. World leaders said their thoughts about it, with brilliant speeches keeping them tuning in with history.- The Wall was conceived to stop any chance of getting rid of the dictatorship from within, or from outside, because as much as it was an exit barrier , at the same time, it was an entry barrier as well. Its political purposes was to impose a totalitarian view of society, based on the rule of fear. However, it follows that the feeling of fear, was in the minds of everyone living inside the new boundaries set by the Wall.- At the heart of all, it was the decision to live up with fear as the driver for human behavior , denying the opportunity to feel what is like to live up to whatever the talents any individual may have, and how those talents make the difference between economic progress and poverty. At the very end of such experiment, the bill was paid by the wealthy West Germans. There are a lot of lesson to be learn from this experiment.Perhaps just tewo are enough for current times: a.- Freedom, is stronger than fear as a driver of human behavior.- b.- Although the Berlin Wall does not longer exist , there are still others one in place, which arise because of lack of good quality education, inequality and poverty ,which keep people out of the best of opportunities available and force them to live in the other side of a different wall, but not less relevant to delay its end .-

Income inequality, a pressing issue of this time

Income inequality get the attention of everyone involved in the challenging task of designing and implementing effective policies to reduce inequality. The implications of inequality goes beyond the scope of economics , it also deal with sociology, anthropology and politics , which means that inequality arise and stay on because a variety of factors. Thus, inequality matters because : a.- It diminish the legitimacy of economic growth . A recent report of the International Development Organization , (IDO)March 2014),shows that 85 of the wealthiest people in the world, own as much wealth as the poorest 50% of total world population. b.- It make weaker, the social contract and democratic values ,that any community need to get along within diversity and usually biased opportunities. From the politicians point of view, inequality imply voters willing to support policies which they would not be willing to support otherwise (lower inequality). Thus, inequality allows voters to get captured which is also a threat to democracy.- c.- It is a cause for instability, as long as social issues becomes in charge of the inefficient State to be solved. Most of the countries with higher inequality( Gini coefficient above 0,5, leaving aside Africa, (IDO report ),) are from Latin America,(11 countries) where the inefficient State, is still considered to be part of the solution for this problem. Thus, it is also a threat for economic freedom and growth.- d.- The increase in inequality in the last 30 years , has been driven by the top1% of wage incomes,(The Equality Trust Research Digest: trends & Measures, (ETRD)2011),who get the highest return on their human capital endowment. This means, that there is an additional explanation for inequality, dealing the quality of education and the access to it when it is restricted only to a few. What is the best approach to solve inequality?. Given that inequality may move up or down overtime, empirical evidence suggest that: a.- Countries with more economic freedom have lower inequality(Western and Eastern European countries, USA ,Canada and Japan) ,but those with lower economic freedom , have higher inequality. This is the situation in the majority of Latin America economies. It follows, that more economic freedom is a necessary condition to reduce inequality. b.- Although a necessary condition, economic freedom seem to be insufficient to solve by itself inequality. Economic growth may create jobs, but it does not guarantee that all of them to be the “better pay kind of jobs”. Efficient Complementary policies are also relevant. UK income inequality, increased by 32% , and in the USA increased by 23% between 1960 and 2005 ,however for the same period, decreased by 12% in Sweden which applied such complementary policies. (ETRD)2011).However, the same study show that after 1980, all three countries experienced increases in inequality. So , those policies also requires evaluations.- c.- The first best approach to reduce inequality is better quality of education, coupled with wider access to such a quality ,to all qualified students( Japan, Finland), because it helps to reduces the loopholes between growth and good quality jobs.-