Gender Income gap: why women earn less than men?

It is widely known that women earn less than men for the same job. Academic research, it is also extensive enough to support the notion that any income difference between men and women ,can be explained by different factors and variables ,each one of them related to one another such as education, family obligations, social backgrounds. But there is one key variable which count deeply in any prospective analysis for future on the job performance, and expected productivity: men can compromise themselves with the labor force more actively than women, because very much of the burden of raising a family( to have a child, initial years of mother attention) looks like a women task, at least those nine months that nature impose upon them to sustain unborn child life. It follows that in such a case, employers discount that expected on the job productivity difference against women(lower for women )usually paying at most one third (30%)less than men .The theoretical support for that decision is in the Marginal productivity theory, which states that expected return for hiring a productive factor must be equal to its cost ,leaving all others variables constant.
No matter the economic justification, the first question arising is :Is it fair for women being paid less, just because the expected productivity is lower when there is a period of time she is out of labor force ?; after all, she might recover that productivity losses by extra working hours. The problem still to solve, is that it is hard to find perfect matching between the worker abilities who is out with the worker abilities who is in, and even though there are head hunters agencies to do the job of finding the best worker alternative, it imply additional cost for firms, such that women must paid that cost with lower wages. In the men ´s case, they paid that cost with variable wages.-
Thus the real issue for women fair wage, is on the greater flexibility of women jobs. This means that they can work at home, which with technological support currently available is quite sure is the way jobs are going to be designed in the future. Alternatively, they can have part time jobs, flexible enough to make sure productivity levels are not severely affected while they are absent . It is all about more flexible labor market.-
Unfortunately , labor market flexibility discussion, has been focused exclusively from the wages levels point of view, specially the wage earned by men. Women wages ,and women labor condition ,seems to be aside of the matter. How can be explain that bias ?.
In European countries, women labor force participation is well above 60 %, So it is in the United States. Advanced countries seems to have become equally inspired, concerning jobs opportunities. In some Latin America countries, women are still considered for domestic activities and the labor force participation is below 50%.These differences, also count as an explaining factor for the bias in the labor market .Women are a minority with a weak capacity of organization and representation, which make them more vulnerable. The measure of that weakness is the income gap .

The new global uncertainties:Defining globalization frontier(II)

The key question is why such global uncertainties do not affect global economy growth, or why defining globalization frontier does not affect either global growth , even though it seems that the global politics is currently not well connected with global economy .
Although It is hard to find answers to these questions I will try some of them :
a.- There is a trustable global trade institution ,capable of dealing with tough issues such as protectionism ,agricultural subsidies and unfair trade practices, such that global free trade will be applied sooner or later ,all over different kind of products .
b.- There is strong perception that capital flows are free from restriction, around the emerging markets economy .At the same time, the most important financial places count with a new currency (the euro),such that the portfolio diversification allow for greater investment opportunities and higher investment volumes. This higher investment level, push upward global economic growth prospect.-
c.- There are new players (China and India),on key productive and services sectors on the global economy, capable of maintaining its growth leadership at least for the five years to come,(average economic growth above 6,5 %)
d.- There is transition going on from an oil resource based economy, to a knowledge based economy, which can sustain economic growth while oil prices are above historical levels.-
e.- The eurozone is moving ahead to be the dynamic partner global economy needs, which means global economy growth (new players included)opportunities ,are somehow rotating from the US based industrialized economy type of growth .-
If all of the previous factors apply ,it follows that global uncertainties are not economics one by nature , but rather political and geopolitical . Thus the interesting thing, is that almost nobody doubt about free market global economy model as a viable alternative to induce global growth ,which by itself move growth expectation and investment upward . Sure, this could be considered to be the right interpretation of recent economic history But is it enough?. After all we have the challenge of global warming, which might also affect economic growth like a new constraint .
A second line of reasoning might goes this way: There is a lot of global endogenous factors arising from the greater availability of global information throughout internet, and global news media . Higher level of business opportunities information ,specially market trend information, make possible to take business decisions with a better risk scenario analysis, which may compensate all the other variables still unsolved .In other words, the five factors previously mentioned have created a set of special condition, such that creativity and innovation forces might goes on their own ,no matter the political and geopolitical implications of current state of affairs .-
The implications of this line of reasoning would be that we have global economic growth despite new global uncertainties, no just because of the new big players coming in, but because of more information available to detect business opportunities in such way that it would not have been possible without internet, fostering global endogenous variables to take an active role to explain global economic growth. It seems that there is a combination of exogenous and endogenous variables, which can explain global economic growth even with the new global uncertainties. Does it implicate that it does not matter how the new global uncertainties are solved ?. Quite on the contrary, it means that the implication of such global growth is still unknown , the dynamic of growth is one thing, the direction is another ,beacuse the is no global frontier defined yet ,therefore this is the challenge to cope with.-

The new global uncertainties:Defining globalization frontier (I)

From the economics point of view, uncertainty is lack of information about future events . From the entrepreneurial point of view, uncertainty is a situation which characterize itself because there is no control of key variables which influence events. How to deal with uncertainty ?. The best way to deal with it ,is to improve information levels ,and therefore be able to getting a better control of key variables. It has become usual that firms need information about consumers, competition, regulations and the like, such that they transform an uncertainty scenario into a risky one. Business man works with uncertainty to transform it into a risk. However, one thing is to make decisions at the business level, let say to implement the new market strategy or the innovation policies, under a risky conditions, which means to have all the necessary information to get a better control of it . But what about the global economics scenario, which do not have a single decision maker, but a network of multiple connected small decision makers, which add up a new network? In this case it arises multiples uncertainties.
What do I mean by multiple uncertainties?. Basically three concepts ,one related to the other :
a.- Uncertainty concerning the global economics effects on the world order: The rise on global trade share of China and India, along with the financially stronger Europe , means a new economic and markets reality, which may allow to some extent a decoupling from the USA economy growth .But at the same time, it means higher risk of protectionism .
b.- Uncertainty concerning the leadership capabilities and global institutional framework to deal with these new challenges .-
c.- Uncertainty concerning the geopolitical lasting impact of these new scenario and its expected tensions.. New countries are moving toward Latin America Markets, but more so to its natural resources endowment . What are the implications of these new players expanding their influence?. .-
These multiple uncertainty setting is not a new one, (1973 with oil shock,2001 with religious terrorism) ,except that this time the world has become flatter, which means it has become more horizontally connected .Therefore it is about every one´ s best interest to look for integrated solutions to global problems, which means more coordination among key players on the global networks. However, like the game theory suggest, with no clear incentives, each one looks for their own solution, no matter that there is a gain waiting had it implement a cooperative coordinate option.-
But is it just a coordination problem ?. From the Latin America point of view, it is clear that ideology is still alive , as the globalization institutional frontier has not been defined yet, after all there are winners and losers in the process, therefore there is plenty of room for different multiple projects either inspired by ideology or pragmatism .Let say for example, among the ideologist inspired, the so called “hard leftist ” groups(Venezuela, Bolivia, Equator, and Cuba) , on the other hand , there are different Free trade agreements projects among the Asia Pacific countries, USA and Europe or Europe and China, which are good examples of the pragmatist point of view , or the so called BRIC group of countries,(Brazil, Russia, India and China).
Coordination policies among Latin America economies might be limited by ideological reasons .

Does socialism fit into the market globalization? (II)

The key question, whether to stay inside or to move out from global trend, was somehow solved in the mid seventies. Europe lead the way with visionary leaders which anticipated the change lying ahead to build up the new paradigm: Government was part of the problem instead of being part of the solution, so the State should do its job without interfering markets but complementing them .This plain but powerful statement, opened up the door for the Germany reunification ,Spain rise to the new condition of European union member, and England renaissance out if its economic crisis .It was the so called “Third road”. Socialism can coexist wit markets, such that it replaced the hard line view of getting rid of markets , therefore leaving aside the totalitarian notion of State Socialism. From the rightist point of view , it was the renaissance of the market and its capacity to creating wealth .Therefore, from both sides of political spectrum ,there was a transformation which allowed the market globalization to roll over such as ideology was gone , pragmatism was welcome.
Latin America has not been immune to this new trend. The year 2006 was an election year for the majority of its countries. Although the results, suggest that the leftist approach has taken over the control of the economic agenda, it is not the traditional hard line leftist which represents the current real preferences of voters. There is an alternative path which has taken into account the European influence :Chile , Brazil, Uruguay ,Peru even Argentina represent the modern view of the world from the leftist point of view, which is not apart from Europeans leftist views, such as current Prime Ministers of Spain, Italy and Great Britain.
This convergence between market and the state is good for economic growth, poverty reduction, and inequality corrections. It is also good for being part of globalization and its positive side, while at the same time allows consensus to face its negatives bias . Ideological Isolation is not the best alternative to a pragmatic integration. The proposition of more State to fight poverty and inequality, has been ruled out by history, In today´ s world represents the wrong solution. Latin America paid a very high price to overcome the State failure to solve the problem of lacking hope and expectations. It is not just a coincidence that in the seventies, the dictatorship as an alternative for democratic government ,was spread out as the “solution” for creating more favourable conditions for growth . What it seems to fit better into the current trend, is to modernize the State to make it more efficient, and better focused on urgent social problems , keeping as a top priority its complementary role with markets. This is the mix that has allowed Spain to become an economic advanced country in less than twenty years ,and it is shaping the way for more economic integration in Latin America .Private business has done more economic integration, than the Latin America traditional State did in half of a century. New jobs opportunities arising from private investment in Peru, Brazil, Chile, Colombia, Mexico, to mention a few, means that those people can have hopes not because of the State ,but because of private firms.-
On the other hand, the proposition of fostering growth leaving aside high income markets for exporting products is not realistic. Domestic markets do not have the income potential to sustain demand at such a pace, to justify the exclusion of foreign markets.
Latin America leaders must have the wisdom to identifies where is the right path and its main characteristics. One thing for sure, it is not about ideology, it is not excluding private sector, it is not about the traditional colonial State. All of those “solutions” were proven to be wrong. It follows it is about pragmatism ,it is with the private sector ,it is with a modern State.-

Does socialism fit into the market globalization? (I)

At first glance it looks like socialism does not match very well with globalization requierments. In a deeper focus it becomes a fact. Socialism and globalization does not match to each other. By definition globalization means the chance of getting access to better business opportunities, higher economic returns and profits throughout a global allocation of resources ,taking advantage of greater capital mobility to move into places with the more convenient input prices. As a result, people chances of increasing their welfare improves, as it has been the case in the last four years for Latin America, which it has benefited from strong global demand for natural resources allowing an economic growth of 4% on average.-.
On the other hand, Socialism means to restraint opportunities only to those one the State can afford . Therefore, it rules out any chance of getting advantages of the best opportunities, because the State (political by nature) moves in slow motion, it is inefficient to manage public resources, and its planning horizon is a short run span. So, given its nature, any possible action derived from the State depends crucially of the resources available .Whether these resources are not enough, the result will be egalitarian poverty, which means every one will turn out to be levelled off downward. On the contrary, whether resources are high enough even above the requirements, the result will be corruption. Those two options, corruption and higher poverty ,represent the past experience in Latin America as a result of state intervention in economic activity. A lot of Latin America countries has understood this fact, so they have changed their approach to dealing with markets and private sectors ,turning out its policies to a more friendly tone. For instance, although politically is considered a close regime, Cuba is a mixed economy strongly depending on tourism ,which is based on private sector. China has moved slowly but steadily to deeper integration with global economy open up opportunities for private sector.-
At the same time these days, poverty and income inequality reduction does not depend only from the State help. Empirical evidence suggests that it depend more critically upon the private sector capacity to create wealth ,which under the proper institutional framework and complementary social policy support for the more vulnerable , allow to reduce poverty and inequality. But, it also depends , of entry barrier for small investor to go into business opportunities. All of this imply less State intervention in the economy, which do not imply to get rid of the State. This has been the Chilean economic experience at its highest point of success.(1990-1998).-
Considering the precedent paragraph explanation , the world economy and the majority of Latin America economies, have chosen to follow the history trends supporting markets to do their job. To pretend the opposite it is not just the riskier thing to do, but it is to move back history clock.-
But not only pragmatic markets options are available to reduce poverty, unemployment and inequality , Idealism is also available, except that it has a high price. Chile paid a high price for such idealism. Since 1940 up to 1985, ideology was the driven force in Chilean economy ,whether it was leftist or rightist , both experiences represent the risk of ideology when it apply into the economy. Idealism do not solve poverty and worse of all, it becomes fatally linked with corruption, How is it so?. Idealism do not produce financial resources to finance it. . Today, socialism and idealism are closer than ever, but unfortunately corruption, poverty and inequality are its derived product . Therefore do move out of global trend, instead try to manage the best way to take advantage from it.

2007 :Some thoughts

The year 2007 has just began. What can we expect from it?. As usual, the new year includes some remaining events from the previous one. On this regard, it is highly probably that the year 2007 will be at the beginning a sort of follow up on issues such as oil prices, USA economy slowdown, and the decoupling from it from the rest of the global economy .
However, some key questions shall be solved:.
a.- The most important one, the USA economy slow down process and its either soft or hard landing and its expected effect on Latin America economies.. At the same time ,the so called decoupling from the USA economy arising from the rest of the global economy .The answer to this question will make a difference for Latin America, and its prospect for keeping its current rate of growth. The expectations among analyst, is for the USA economy to have a soft landing ,which means a transitory slowdown in economic growth, not strong enough to have a negative impact on the economic growth for Latin America economies. Additional data will clarify definitively the situation probably in the middle of this year.
b.- Oil Prices will continue to be on the head lines, just because it is still the key energy resource, but also because its price trends will signal the transition from the oil energy resource which the industrial economy was based on, to a knowledge based global economy capable of changing its energy matrix toward new energy sources. The faster this transition, the lower the long run oil prices will be. But it is unlikely that the speed of such transition ,will be fast enough to push oil prices sharply down below its current trend given considering a normal scenario, which means oil producer cartel react to the lower oil price, and there is not disruptive geopolitical forces in motion. Therefore it is feasible that oil prices are going to be on the range of U$$ 55 to U$$ 65 the barrel.-
c.- New energy sources, will continue to move further ahead on the global energy matrix. Wind power as energy source ,solar panels among others ,will continue to be an alternative solution . It follows that environment, will also continue to be on the spot light ,specially on issues related to energy sources. This is nothing new except that the current institutional arrangement (Kyoto Protocol) will be under stronger pressure to be left out, to clear the way to a new protocol.-
d.- Market mechanism for environment contamination will also moves on upward , as long as there is increasing information about its benefits and expected gains. The price of such financial instrument in the secondary market, the “green bonds” markets, will continues to move in the upward direction.-
e.- The local stock exchange markets will be a good alternative for investment ,specially the retail sector which still has a wide area for further growth. In Chile it has been the star sector in the last five years , and there are strong expectations for higher return this year. Its share on the stock exchange index price has increased from 2,07% in 1997 up to 22.92 % in 2006 ,which reflect the increasing volume of business related to consumption expenditure, key characteristic of a growing economy .-
So, it is time for moderate optimism. Some caution on commodity prices and global economy unbalances adjustments and its impact on the dollar value deterioration .-

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, Perú, 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.-

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.-

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

While the relationship between knowledge ,sciences and the current wisdom is fascinating , the most of it comes out when the right man fit with the right time, to make an old paradigm to change. Keynes and Friedman´ s point of views , were quite apart from each other ,however they both fitted well with the economic history clock.
Friedman was critical of Government intervention, because it was not upon its interest to work out policies well founded on economic stability principles. By its own nature, government looks ahead for the next election, which means to satisfy preferences of voters no matter its effect on economic incentives. Therefore , Government is not more efficient than private sectors ,to allocate public resources on behalf of community .It is safer that you have control of your pocket, than to trust it on someone else according to Professor Friedman ´s reasoning .
Markets works well when they perform with the proper institutional framework. They do not need Government to replace that framework, because most of the time it will make it in the wrong way. Traditional Government intervention in the economy, means economic policies associated with inflation, corruption, special interest influence, and lately even the chance of being captured by those who are expected to serve people.. It follows that the lasting effects of Government intervention, beyond eventual some short run gains, is a long run welfare losses .-
Professor Friedman believed ,that markets flexibility and information was the sufficient condition to solve disequilibrium, whereas its Keynesian counterpart believed that it was needed a more active Government role because of rigidities which imposed heavy cost to society in terms of unemployment.
The end of the twentieth century was characterized from the economic point of view, by a clear dominance of markets orientate policies, and Governments facing the challenges of reengineer itself according to global economy requirements. It might look like a triumph to the one who fight on that direction.
A second line of supporting markets functioning, was related to institutional framework and political liberties, as a necessary condition for economic liberties to allow proper markets allocation of resources .In other words, democracy was a substantial ingredient for individual decisions .Whenever the markets orientated polices, worked out well, there was behind a strong democratic values .It was not clear the direction of the causality-effect relationship, whether political freedom preceded to economic freedom, or the other way around. When Mr Friedman visited Chile in 1975 there was an academic discussion about it to explain what it seemed a contradiction between Professor Friedman beliefs and his actions. Chile experience of markets policies implementation under the rule of an authoritarian regime, did not fitted well with conventional wisdom . But Chile was not at that time the first country to pursue so. So it was Taiwan, South Korea ,even China (1978)with its doctrine two systems one country. The interesting thing was that, market functioning had the ability of adapting itself to different conditions as long as the fundamental (Relative Prices as the guiding light for resource allocation decisions), stay in the right track. Government could also act as a facilitator for markets ,and not just as substitute for it. Of course this does not mean that democracy is substitutable ,but what markets needs can also be granted by government if it wants to.-

Institutional variables and Economic Growth (II)

From time to time there has been allegations concerning the role of religious beliefs and cultural values, on economic growth. Religious beliefs are important because represent the moral approach to issues such as wealth accumulation, and a moral guideline to important untouchable assets like tradition, trust, authority, individual initiative and faith. Religious and cultural beliefs could be the energy flow any society needs to sustain the requirements of growth.. However, it could also mean a state of mind which keep individual static throughout time ,unable to decide any action because of lacking of rational instrument beyond God ´s wishes , to solve any of current global challenges .
Let take the global warming issue. What is the answer from the religious point of view?. Economist, scientist, journalist share a common perception about the necessity of giving key attention to its expected impact, such that to make economic growth sustainable. But Is just faith good enough to overcome the threat arising from global warming? . If it is not , because of the cost of waiting is too high, what is going to be the future role of religious values, if they are not inside the whole discussion? Maybe the religious point of view is the missing variable in the effort to reduce the global warming, although I do believe it is more a matter of economic incentives which are at this point already under way ,such that the invisible hand will start soon to show how it works in the global scale.
Clearly, religious beliefs can not be left out from the analysis because of its cultural impact. In the environment issue, If people do not care about God property (the environment)protection,there is a tough road to follow before any action start to take place.-
Cultural variables are also important for economic growth. Thrift, hard work, and willingness to take risks, are the essential fuel for the engine of growth. It allows innovation , creativity ,saving and investment. When people get the fish instead of the tools for fishing, it is the beginning of the state of mental laziness the first condition for leisure and passive behaviour .It follows that People loss its ability to decide on their own what it is the best for improving their living conditions. Therefore They get trapped on the State machinery of selling services, which it charge a fee for(corruption).
Cultural and religious beliefs are interdependent, besides each one influencing to one another. The critical question then is what is the magnitude of the cross effect they have upon each other? .If religion emphasizes the importance of linking faith to what anyone is able to do, rather than to what anyone can expect to happen, there will be a huge difference in terms of the attitude for getting more than just surviving level of living condition.
The second critical question is: what is the relationship between religious beliefs ,cultural values and poverty?. Is it that poverty stay longer in those areas with values which might become like a cultural constraint?. After all it was just at the end of the twentieth century that the Pope John Paul the Second ,settle down the controversy between capital and labour with Laborem Excercens, later reinforced by Sollicitudo Rei Sociallis which recognizes the individual right to pursue his own economic initiative as a condition to improve common welfare.
Previously to the Pope JP II clarification, Latin America witnessed sharp criticism to private firms even from religious point of view with the so called Liberalization Theology. On the other hand, more than forty years of State intervention, undermined the importance of wealth creation. It also prevailed a social mistrust about private firms , because of its maximization purpose supposedly against people welfare. Is it just coincidence that private firms in Latin America(Chileans ,Braziliens,and Mexicans) has been growing and getting more influence to generate wealth since that John Paul II blessed it ?.

Institutional variables and Economic Growth (I)

Economic theory has different explanations for economic growth, in particular economic development models have stressed in their statistical and econometric estimations, the key role that capital accumulation, technology advances and human capital quality (endogeneous variable)have on economic development. But recently there are a growing interest in what it is called the instrumental variables ,and its effect on economic growth, let say for instance quality of institutions, cultural values and religious beliefs.-
The issue becomes more relevant ,when it is important to have explanations for the steady efforts made since the eighties, to improve growth performance in Latin America, and the outcome measured in terms of poverty reduction ,income inequality corrections and social mobility prospect leaves still some questions .
Before going into the roots of the problem, what if we ask ourselves the following :Who benefits most from the current level of poverty and income inequality?. Most of the policy orientated to fulfil economic growth goals ,are based on the importance of the private business, deregulation, property right protection, the rule of law and the like. However , there is not too much attention about the barrier entry an entrepreneur has to overcome to begin a new business. In other words, the whole idea of market economy functioning is based on the abilities of current business man and entrepreneurs to create wealth ,but without taking into account the barriers they might have to face to get into business and out of the state dependence. It looks like it is part of the State business to keep some portion of citizens as captive costumers for its free services(public education ,health, security, and so on) so to justify its bureaucracy and expenses levels.
Entry barriers to start out new small business , seems like the protection the state needs to keep alive its social network The more people go into the chance of trying its own way to do a better living condition, the less they will depend upon such state services. In fact, all of those who succeed ,would be able to pay a better education for their children , a better health services , improving their welfare beyond what it is case while they are depending only on the state. It follows that in this situation ,those who do not succeed will really need state support ,but as long as the amount of such people is less than before ,the quality of public services would be higher because the same amount of financial resources would be shared by fewer people than before.
Therefore, to improve the quality of public services it is not necessary to have higher public expenditure, but to allow more people to try their own way facilitating their access to new business opportunities .
An additional implication of such state services dependency is that the bureaucracy, charge a fee for it, merely corruption .Each step people has to get over for starting new business, means the chance of charging such a fee. In fact ,corruption is higher in those places where the State has a stronger entry barrier for new business opportunities to be available for anyone. The incentive to keep the current level of state dependency, is about the chance of charging such a fee which has not a cost as long as control mechanism are soft . These cost are low or zero, when the mechanism of control are rather light , or they do not exit at all.
So, given that the effects of free market economy policies ,fall on those who are inside its borders of participating of the business opportunities available, the ones who are left out are those who will be kept inside the state own borders.

Latin America ´s economy reforms: Some facts and myths (II)

Once the myths are melted away, it is more obvious that Latin America has gone too far to move backwards again. The New leaderships styles currently on charge in most of Latin America governments, means the people ´s call for further steps in the direction of finishing the job for this continent, to have its chance of taking advantages of new opportunities arising on the horizon. Although it might be debatable, about its contempt and scope, most of these further steps are focused on the manner the New State will be connected with its citizen and the economy and how each Latin America economy fit the best it can this people demand.-
To have a better understanding of the whole issue ,we need to move further to take into account some fact .Following J Zettlemeyer paper ,fact are classified in two groups: the first one are the well known fact settle down by the research already done in the past, and the second one is the result of new research.
Fact 1: In the last 25 years Latin America economic growth, has underperformed relative to other developing country economies ,such as East Asia pacific , and South Asia.
Fact 2: Slow GDP growth in Latin America, has been driven by slow TFP (Total factor productivity) .This means the overall efficiency of allocation of resources is below the desire levels, taking into account institutional capacity.-
Fact 3: Latin Americas economies shows similar growth patterns until the eighties, but more recently there has been large cross country differences in growth performance. External and internal shocks makes their way through with different patterns, according to each country weakness and strength.-
Fact 4: Business cycles in Latin America are both more volatile and more protracted . Volatility has changed over time, decreasing to its historical levels in countries like Mexico, Brazil and Chile in spite of a much higher capital trade and mobility. This is probably the expected result of applying rules for macroeconomic policy decisions.
Fact 5: Latin America and Africa has suffered more frequent output collapses (falling in output for more than two years resulting in a total output loss of at least 5%) than other developing countries. This means a strong vulnerability when it comes to faces external shocks.
Fact 6: Period of high average trend growth, have been shorter lived in Latin America, than in other developing countries. A possible explanation for this is related to the on and off between economics and politics ,so that as long they do not move together in the same orientation the outcome will be more unstable growth.
What do all these facts means ?. It is not easy to have precise answers or even more difficult to have the last answer ,but it seems probably that like others authors have mentioned on their research, there are institutional traits in the lower than average economic performance in Latin America . The nature of the State role in the economy and its relationship with its citizens is at the key for explaining these facts. The quality of political institutions, the protection of property right, the control of corruption, the rule of law , and the quality of bureaucracy are all relevant to explain different economic growth performance . However, the result available indicates an improvement on these issues in Latin America, but there is one key restriction; the nature of the centralized state which can affect the true democratic nature of its performance. In this situation, there are strong incentives to capture the State by political and special interest groups for their own purposes.-

Latin America ´s economies reforms:Some facts and Myths (I)

It has been usual to argue that Latin America economiesa are not getting all the benefits from Globalization , even worst it is behind Asian countries, because of its lack of additional and deeper reforms to make it more competitive, specially important these days to face the challenged posed in global markets, by countries like India and China .-
But , is it necessary to go further on with deeper reforms to get higher benefits from globalization? Or , Is it a necessary condition for competition with Asia to implement deeper reforms?.-
First let take a look at the current record concerning the impact of the past reforms done in the nineties. A recent IMF paper, (WP/06/210.Growth and reforms in Latin America: A survey of Facts and arguments. J Zettlemeyer ),analyses Latin America reforms from a broader than usual perspective ,such that it is possible to separate facts (which is the topics the IMF paper is concerned about) ,from myths about it. From my point of view, which of course is not the key one, some of the myths are:

M1:Latin America still depend on government willingness to engage in deeper reforms., because private sector business in Latin America, is not mature enough yet, to be the key leader for further economic integration.-
M2:The view of the State role in the economy, is not possible to change further, because Latin America still need a strong state for social development., stable economic growth and fair income distribution.-
M3:The reforms done in the nineties, were not properly focused, such that the results it has gotten, has not been as successful as it was expected.-
These myths are still pending on the collective mind and somehow the intellectual elites, because much of the free trade experience ,state reforms, market orientated economic policy and institutional changes , were carried out during a very difficulty period for democracy values, such that these achievements were not the outcome of a clear consensus about the path based on such free trade, markets and a smaller role for the State. However, facts indicates that Latin America people might actually have a different perception of these issues and myths ,as long as the economies have managed to have economic growth, better opportunities for the poor, and higher social mobility expectations than with the former situation. The region as a whole, was a lot of more stable during the 1990´s (average growth 3,5 %)than in the two previous decades.( the seventies and the eighties),which given the fact that the region was more open to capital flow volatility and the terms of trade were far less favourable than the previous years ,this is quite significant. Latin America voters are not necessarily supporting deep changes of policies but improvement in its social effectiveness. (M3)
Private business are doing new investment across Latin America, fostering a new wave of closeness between regional governments to push further the integration agenda. (M1). On the other hands, Chile ´s experience is still a benchmark on how the State can be reformed , without loosing its ground on social issues. The State in its current model (the so called colonial bureaucratic state)is not the best way to induce growth, quite on the contrary it is a constraint for growth .All those countries which have the better performance in terms of growth ,are the ones which have reduced the Stat role in the economy (M2).

Government Bureaucracy : An entry barrier for entrepreneurs?

Doing business in Chile or in others key Latin American economy, can be an interesting experience , although there are some cost to take into account .According the World Economic Forum , in the year 2005 it was needed 27 days and 9 procedures to start up in Chile a new business, whereas in Mexico it was needed 8 procedures and 58 days, and Brazil 17 procedures and 152 days. It is not that bad to be in a better position than key players in Latin America Economy. On the other hand, a World Bank Study for Chilean business opportunities ,found that to start up a new industrial business, it requires roughly U$$ 1320 ,and an average period of time of 130 working days to fulfil the whole bureaucratic procedures . To start a restaurant business it requires U$$1240 ,and a grocery store it might cost U$$1185. Highly business orientated countries , such as New Zealand requires no more than 1 or 2 working days and less than U$$40! To get through the whole procedures. In the United States ,it is needed no more than 5 days,5 procedures and roughly U$$210 .
How can we explain these differences? .Maybe there are a lot of alternatives to begin with, but it is clear that those countries which still do not have a business friendly environment ,are the one where the government has some homework to do. In fact , in the Chilean case there are a lot of discussion concerning the necessity of modernizing the State. Sure, very much of those procedures and cost involved in the process of starting up a new business , are related to States bureaucracy. At every level of new business opportunities, let say small, medium or large scale business operation ,there are these bureaucracy costs . Therefore, any new business opportunities must pass the government filter ,before trying to get over the other more important filter: consumer needs..
What does this all means ? It means that Government , is acting like an entry barrier for entrepreneurs to taking advantage of new business opportunities.-
The real issue is not to improve the access to new business opportunities, but who control the access door to that opportunities. In this sense, the State has been captured by politicians, bureaucrats ,and special interest group who depend upon the State to provide them support. The more people depend upon the State, the more needed it is to have resources to finance its services. It is in their own interest to keep the State alive, imposing additional cost to those who try to move away from the State social programs or protections throughout private business.
Chilean Government experience is not too negative on the issue, although there is still plenty of room to move forward..
A 2004 study ,found that the level of effectiveness of Chilean Government was ranked at 14 place out of 155 countries, which is quite satisfactory. The Economic freedom ranking was in the 13 place. This is because Government has implemented different programs to support entrepreneurs ,besides it has created different programs to improve social assistance to the poor, and it has helped to macroeconomic stability following fiscal policy rules. However, business opportunities do not wait and people enthusiasm for seeking new alternatives can not be exhausted by bureaucratic procedures.
To start a new business, it should be necessary only to check some minimum requirements concerning tax laws ,all of other requirements, can be fulfilled through supervisory rules made by consumers decisions and at the same time improving consumer rights protections.-

Oil prices decreases:Is it permanent or transitory?

Available evidence (De Gregorio ,Landeretche and Nelson 2006,mentioned by Central Bank of Chile in its september monetary policy report))suggests that the link between oil prices increases and inflation has been weaker in recent years than what it supposed to be. While in the period 1967-1980 ,an increase of 1% in oil prices meant a cumulative increase of 0.48% in the long run inflation rates, in the period 1980-2006 that impact was just a barely 0,06%.Considering the years 1990-2005 ,such impact of oil prices increases, has been even lower, 0.03%.Therefore, given the magnitude of this effect, current lower oil prices would not necessarily will mean a significant relief for current inflation rates, although if it is permanent it might induce inflationary expectations further downward. In such a case, the positive effect is upon the chance of not just keeping down inflationary expectation, but also because it would allow Central Banks to take a softer approach on inflation, moderating the slowdown impact on economic growth of increase in interest rates.-
What is the explanation for this oil prices decline?. Given that there are supply and demand explanations, it would be important to know the share each factor (supply or demand, being speculative or geopolitical) has on oil prices behaviour at this time. At first glance, it appears that lower global demand is driving oil prices down. The demand expectations for this year is to have an increase of about 1.2% less than what it was expected a few month ago. Concerning the supply there is still no agreement on oil exporting countries about the reduction levels in oil production to counter balance this downward price trend .
Therefore there is not clear indications whether this decrease in oil prices is going to be permanent or transitory .However for the year 2007,markets expectations (oil options markets transactions), indicates a roughly 50% probability that oil prices will be in the range of U$$65 to U$$85 a barrel,(Central bank of Chile ,Blommberg .September 2006) recovering itself from the current below sixty dollars level. The remaining 50% it is roughly split off between the lower range (25% probability of being below U$$65),and the higher range ( 25% probability of being above USS 85). So ,it looks like at least partially, there is a correction in oil prices. This means that only part of the current reduction in oil prices, would be due a decrease in global demand, probably the more significant one related to the US economy slow down. On the other hand ,it is not unrealistic to assume that speculators are changing theirs portfolios to a more secure assets, moving away at the same time (it is a fact that Us economy is slowing down its growth ) from commodities. Global Information available allows them to make such kind of decisions. In this scenario , current oil prices reduction would be transitory.
What about the chance of such oil prices reduction to be permanent? :it is unlikely that oil exporting countries will no react to prices movement .The oil cartel means a strong incentives to act in a coordinated fashion to restraint production further, such as to keep oil prices stable to its mid term levels (probably around sixty or sixty five dollars).At the same time demand is expected to growth although at a lower pace (1.6% next year ,down from 1,7% growth a few month ago)because of the just mentioned US economy slow down. But ,whether as it is expected ,such slow down turn out to be short lived , global demand for oil resources will move back upward again. Therefore the chances of having a transitory oil prices decreases are higher, than the chances of having permanent oil price decreases.-

Self regulation: is it possible ? (II)

Human behaviour can be explained by different disciplines such as psychology , anthropology ,but also by economics. Economic theory tell us that individuals pursue any activity up to the point when marginal benefits are equal marginal cost. This means nobody will carry out any action, without expecting to get a benefit much higher than its total cost. So, the expected benefits of privilege information must be compared with the cost of taking advantage from it. If these cost are rather low, then it is plausible to have information asymmetry.
It should be a golden rule for financial markets, that the cost of using privilege information of any kind, is higher than its benefits. This means strict laws with specific procedures to enforce the rights of those who depends upon information, which might be available with some delays allowing information asymmetry, coupled with strong institutions to deal with all the issues involves in its enforcement .
But how to deal with the privilege information for financial purposes anyway?. If the cost of using privilege information are defined ,what about the benefits? .After all, it is impossible to assume that information does have only cost for the decisions making process and no benefits. Well, it is a matter of technology.
Actually, firms have web page with different design ,services and strength .The on line communication ,is very useful when it comes to get from top to the bottom quickly, to get corrective action. Internal networks allows people to be in touch with each other, the rest of the firm community and external customers and investors .This is the key, because privilege information should become public information, as soon as it develops to get published on the corporate web page, so any one interested can take advantage from it. Any time a decision with implications for financial markets has been made, it should be publish on the web page as soon as it is possible. This way it would be possible to match the higher cost of using privilege information, with the expected higher benefits arising from it. In other words , the benefits arising from using privilege information by a lot of people simultaneously make it public, reduce the cost of using it to zero, and make the most of its benefits .
Therefore privilege information is inefficient for markets decisions, because concentrates its benefits among few people risking high cost. Alternatively, whether it gets public, information allows benefits to a lot of investors ,with almost zero cost.
But the issue of self regulation is still pending to be solve. Economics tools also allows us to understand the reason why self regulation is not feasible. Individual investors seeks their own interest when it come to make decisions, specially when it come to financial ones. The same for corporate business. Because of this characteristics of individual behaviour ,it is expected that the whole community might also get the aggregate benefits from such decisions(assuming they turn out to be correct) through charity, donations , investment and the like . Self regulation contradict this pattern ,as long as it deny the benefits of a better informed decisions to everybody ,specially while information is labelled as privilege. On the other hand, each one want anything on their own, which make harder to regulates individual behaviour.-
So, do not expect self regulation to be the proper guide for dealing with business information. It is a lot more efficient, a clear framework of rules to follow through, when it comes to such topics. What about Ethics standards?. It is an alternative ,but to be useful it requires the proper enforcement mechanism.

Self regulation;Is it possible ? (I)

Market allocate resources following available information ,for economic agent to make the right decisions to maximize profits. When that information is reliable and opportune, the results are better than when the information is late and unreliable. Efficient market theory argues , that prices reflect all the information needed to make decisions .Therefore ,it is a matter of knowing the prices which include all the proper information, to decide where it is more profitable to invest in one sector or another.-
However, there are some complications with information, when there is a gap between the time it takes data to becomes information at the organizational levels, and the time it becomes public. In that case, prices will not include the whole information, but only a part of it, such that anyone who buy a financial asset because of current positive information available, might turn out to make losses later on when the real information is available and it might be negative. Let me remind that data is one thing and information is another. To have access to data does not mean to have information. Information imply a judgment which is complementary to data. I might watch a lot of numbers about the financial situation of any firms, but that does not necessarily means privilege information. Data without the qualitative judgment is just that: data. Therefore is the qualitative judgment complementing data, which make some information to be privileged. While data are everywhere, qualitative judgment is rather scarce and some times confidential, such that privileged information has a high price. Let take Parmalat case .It was not the numbers itself which indicates that the firm was in trouble, but the impressions (judgment) that there was not way to overcome the shortage of cash following the loss of credibility, following the fraud .For every data there is a judgment, which is transform it in information.-
What about Privileged information?. This is the most common situation in the inner circle of business evaluation opportunities .This is so not just because of the nature of such activities , but because any projects have its own dynamic closer to their original owner ,than to the potential users or beneficiaries of it. The problem is this : How long it take to close the gap between what it is private information relevant to make decisions and the time it becomes public?. For example, If the directory of any firm approves and decides to implement an expansion program which imply heavy investment on equipment and construction, this will have an impact on firm market value, such that any one who knows about it in advance will have the chance of making profitable decisions buying financial assets of that firms. It is the same whether any one who knows in advanced the positive financial result of a firm, and decides to buy financial assets of that firm .Again ,it will have the chance of making profits using privileged information .
In both cases, it is very important to take that step as faster as possible, otherwise there are consequences on prices and the efficiency of markets transaction. Because privilege information is scarce ,there are incentives to trade wit it. Here it is the point when the regulator dilemma arises. They have two options ;To let the system regulate itself ,or to apply corrective regulation on any situation related to overlapping self related interest , and privileged information procedures to make it public and the like. Of course , it is better self regulation. But is it possible?.-

Regional Integration :Which way Latin America should follow?

The United Nations forums ,give us an opportunity to know the current state of world affairs .At the same time ,it allows to know the different focus world leaders are concentrated on to overcome the main challenges arising from such affairs. For Latin America, it is the special occasion to discuss its position and interests, on that global politic scenario.-
Given that the situation and prospect for a wider global trade including agricultural goods, is standing by after the Doha meetings results, some analysts are saying that it is the time for regional integration, starting with the Asia Pacific area next to have its annual meeting this year in Hanoi. The instrument, would a be a Free Trade Agreement for the whole area included in the Asia Pacific Economic Cooperation forum (APEC),fostering a new impulse on global trade talks.
For Latin America economies, such regional integration strategy would also imply to reinforce trade within themselves and others partners, mainly Europe, Asia and the United States.
The question is which direction should follow such effort?. In the United Nations forums, The Latin America Presidents gave different and heterogeneous speeches. Chile concentrated on the necessity of improving trade, Argentina concentrated on the necessity of improving the financial architecture for capital flow and debt renegotiation, Brazil concentrated on the necessity of reducing poverty, Colombia concentrated on the necessity of reducing violence, and Venezuela concentrated on the necessity of confronting the empire (¿?). There was different styles, moods and strategy to capture the audience attention, but it seems clear that there is no connection between these speeches and the regional integration demand. What if the Venezuela approach is followed?. It means to go nowhere .Insulting does not provide leadership . What about Chile proposition ? .The Doha results are evident that there is still a long way through . Argentina initiative? .It emphasizes the financial requirements for global trade. Brazil proposition ? .A desired goal for development, and finally Colombia proposition?. Peace is the United Nation business.
None of the orientation and guidelines mentioned ,kept the attention on what is really needed for regional integration : To foster growth and wealth creation as the precondition to overcome poverty, violence, and underdevelopment so to be able to have a place on the major leagues.
The regional integration effort during the nineties, has been driven mainly by private business which searching for bigger external markets ,to sustain investment levels in some cases above the levels that domestic markets were capable of support. Latin America firms, went to different countries within the continent , such as it allowed them later on , with the expertise and economy of scale advantage of greater volumes, to improve its access to world markets.-
This integration path got Latin America government policies closer to one another, but behind private firms, not leading them. So, the driven factor ,as mentioned, was not Government ,but firms. The implication of this is that the only integration which have a common language is the one leaded by private sector, which imply a complementary role for governments .-

Is Chile weakening its ground ? (II)

When everything looks fine for strong economic performance there are worrisome indicators in Chilean economy. So, where is the real problem?.
a.- Negative expectations both from consumers and business man.(last week blog)
b.-Lack of a comprehensive focus about the real issues currently important for the future prospect of social mobility, quality of public services, better access to opportunities for all well educated person, decentralization , and transparency as a protection against corruption .It seems that it is all about lacking of economic democracy: which means to ensure every one a fair chance to take the proper benefit of the economic growth.
Chile has overcome the macroeconomic reforms quite successfully ,allowing the country a steady rate of economic growth which has reduced poverty (actual levels of 18%),but with a minor impact on unemployment (roughly 9%in the second quarter of this year ).Considering that copper prices has improve public resources availabilities ,it has also induced both better and higher expectations . Therefore ,Chile is living times for leaderships to set the direction to follow through .
The next question is : Is it just a government problem ?.I do not think so. The current Government has concentrated its effort to solve what it is urgent, including some unsolved issues from the past administration. In the mean time, it is still working on what it is important but without a specific plan yet. The resulting gap, push down expectations .Anyway, it is too soon to blame government.-
Some would argue that the government program is quite clear to set the directions which the country should move forward to, however there is still an important challenge to work out some of those ideas with the parliament .My point of view, is that there is no clear priorities at the politicians level(parliament) about what the important issues are for the country. They moves from one topics to another, without a sense of dealing with solutions to real necessities. Some of them are starting to preparing their campaigns for the next presidential election in the year 2009,such that it is harder to work out consensus needed to go deeper on further reforms.-
After 15 years of a renewed democracy and economic growth, Chile has achieved important assets and strength. It is a stable and prosperous environment for doing business, culturally homogenous , well educated middle class, but still with a lot of reminiscence from the past. Close to its 200 hundred year of independence ( 2010),it is still a centralized country with a regional management model , unsuitable and outdated for the present regional needs. This imply that business opportunities are lost , because there is no clear regional autonomy to make tough decisions. The Chilean State has made a strong effort to modernize itself, but there is still a long way to go before giving it a new profile, prone to deal with the solutions rather than to just analyze the problem.-
On foreign affairs, it looks like complex issues such as the energy resources supply and its implications for regional foreign policy, are not articulated within a strategy yet, by the same token , there is not a clear understanding of what the FTA with the US economy, meant for Chilean role in Latin America. Its expected leadership on issues concerning with free market economy and free trade expansion, has been elusive while strong winds supporting a more active role of the state in the economy moves around.-
So, Chile is facing the problems which arises along with growth, whereas other countries are dealing with the problems of lacking of economic growth. Therefore, there are new challenges which should be addressed ,but within the context of a broader view on foreign affairs .-

Is Chile weakening its ground? (I)

The recent data of GDP growth in the month of July (4,2%) has induced a wide spread feeling that some thing goes wrong with the aggregate economic variables. In the second quarter, April-june 2006),GDP grew 4.5%,and in the first six months Chilean economic growth is 4,9%, below the 6.9% at this time of last year. Although core inflation is 3.1% in a twelve month period, it is still within the range of Central Bank inflation target, however there some questions concerning the future pace of current adjustment in monetary policy of increasing interest rates, actually at the 5,25%,shifting the emphasis from controlling inflation to support growth .This is the current cruel dilemma of most of the Central Bank around the world economies .How to make the balance between controlling inflation with oil prices pressuring it up, and at the same time not to disrupt the economic growth pace ? .
The mood is increasingly worrisome even with the actual positive external conditions, beginning with export growth and copper prices, at such a high level of U$$ 3,2lb,as it has not been before. However, consumer confidence index dropped to 46.7 in august.
An healthy macroeconomic environment and saving at a 21.7% of GDP, (down from 22,8% in the same period last year),the expectation is to have a GDP growth of around 5%(it could be a bit less according to some forecast) at the end of the year 2006,also down from previous estimation slightly above 5,5%.So , there is a mix of cautious skepticism coupled with what it could be promising situation.
A month ago, there was a Government ´s package of supply side incentives , to small and medium size companies, lowering some taxes, delaying the time for mandatory payment taxes, all of which is expected to induce a better cash flow conditions for those companies. It is unlikely that these measures will have a strong impact in the short run to counterbalance current monetary restriction on growth , but it is rather more probably it will have so in the medium term. So ,it does not look like there are more difficulties ,other than the necessary tightening on monetary policy .-
A recent report from World Bank , (Doing business 2007),place Chile in the 28(down form 24 last year) preference among 175 nations to do business ,followed by Mexico (43), and Uruguay ( 64).
Where is the real Problem ?.I will develop this answer in two stages:
a.- Negative Expectations about the future course of the microeconomic reform needed to improve competitiveness. While Mexico and Perú moved aggressively forward on the microeconomic reforms , increasing facilities for private investment, lowering bureaucracy for doing business, Chile still maintain the 27 days period as a necessary condition to fulfil the legal requirement to open up a business. Therefore it is the proper time to go beyond the current state of affairs, concerning these reforms. But is it possible? .Unfortunately it is not likely in the shorter period of four years of actual Government .Besides the parliamentary forces are not so prone to make deeper support for markets and firms to do its job of creating wealth, because the current majority represent a moderate leftist views concerning the economy ,the state and the market . Social Protection grid issue is the priority right now , before moving on for more market flexibility .-
Business man are expecting to improve market flexibilities, because this way the economy can not only get higher competitiveness but also to take full advantage of new opportunities for growth ,given tough competition everywhere .Past reforms are already exhausted its positive impact,therefore it is necessary to move reforms one step further .