The Pope and the Left

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Pope Francis has made it very clear since he took over the reigns of the Catholic Church that his ideological agenda is rooted on the left. While advocating for the poor and the less privileged in society has always been part of the Catholic doctrine, the means and routes proposed by the current pope to lift these segments of the population are as lefty and as populist as we have seen in the history of the Church.

Recently, at the intriguing World Meeting of Popular Movements, Pope Francis sounded exactly like a “piquetero” or street protester in his native Argentina. He called the popular movements to “keep up the fight” and to “say together with our heart: no family without a roof, no peasant farmer without land, no worker without rights and no person without dignified labor.” He then went on to call that these demands “sacred rights.”

The problem is not that Pope Francis has an ideological agenda. After all, all religious leaders have one. The problem is that this particular ideological agenda is wrong. When people demand things such as “no family without a roof,” “no peasant farmer without land” or “no person without a job,” they typically mean it in a literal sense. That is, they mean that having a roof, a piece of land or a job are, indeed, rights, and families, farmers and workers are entitled to them. This ideology is dangerous because it goes agains the natural condition of human existence: scarcity. Because resources are scarce, not everybody can have a roof, a piece of land or a job. Pretending otherwise is plain populism and forcing this outcome (through expropriations or heavy taxation, for example) is highly inefficient.

People defending the pope will argue that if the massive amounts of wealth that the world’s economy has accumulated over time were more evenly split, everybody could have a roof, a piece of land and/or a job. True. But the major problem with this argument is that once the re-distribution of wealth is done, the world’s economy will not be likely to generate the same amount of wealth in the future. The incentives for accumulation will no longer be there. Think about it, if we assign the average grade to all students in a class, students earning higher grades will have no incentives to keep their high performance and students earning lower grades will have no incentives to improve it (they will receive the average grade anyway). As a result, the class average will drop in the future and everybody will fail the class.

Pope Francis, like many other religious leaders, is well-intentioned. Unfortunately, the ideological route that he has taken is not sound and will not advance the cause of the poor and unprivileged in a sustained manner.

The bittersweet results of the midterm elections

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The Republicans swept with the Democrats in yesterday’s midterm elections. Not a surprising result. The polls had been predicting more or less that outcome in the weeks before the election and it was all but unexpected. In fact, in my opinion, the interesting result of the elections had nothing to do with party candidates but with two highly debated political issues: minimum wage hikes and marijuana legalization.

Yesterday’s midterm election in the U.S. gave marijuana legalization important victories in key areas of the country: Oregon, Alaska and Washington D.C. This is, in my view, a very positive outcome and a move in the right direction. I am a long supporter of the legalization of all drugs and is fascinating to see how the case for legalization has been gaining ground very quickly in the U.S. and other parts of the world (e.g. Uruguay). We are seeing today what ten or fifteen years ago was simply unthinkable. At this pace, marijuana legalization could become a mainstream policy at national level in the next decade. The next big battle will have to be cocaine and the rest of the “hard” drugs.

On the other hand, yesterday’s midterm election gave minimum wage hikes a sweeping victory in Alaska, Arkansas, South Dakota and Nebraska. While this result is not very surprising either (minimum wage hikes have always been favored at the polls), it is interesting to see this result and the one about marijuana happening at the same time (an in the case of Alaska, in the same state). We voted for liberalizing one market but for imposing controls on another. Why? One reason is that while millions of workers could directly benefit from increasing minimum wage hikes (although many others will lose their jobs precisely because of this policy), most of us do not believe that legalizing marijuana would have a direct impact on our lives. Is the marijuana vote a “might as well” type of vote then? Or is it a conscious recognition that prohibition and controls are highly inefficient? If so, how deep is that conscious recognition buried under hopeful personal incentives in the case of minimum wages?

The cable car in Bolivia

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A Bolivian public company has recently finished building a series of cable car lines in La Paz. It is, of course, too soon to run a cost-benefit analysis of the investment but it seems that the public has welcomed the cable car system enthusiastically. Travel times have been greatly reduced and the cable car seems the perfect method of mass transportation given the difficult topography of the city. As with any other public investment, however, I will remain skeptical about the sustainability of the service in the long run. Governments are, by definition, bad business managers and public companies typically become political trophies and sources of rampant corruption. I wouldn’t be surprised, therefore, if the cable car company in Bolivia adds in the end to the long list of inefficient public enterprises in Latin America. Only time will tell…

The building of a cable car system has transformed the mass transportation market in La Paz. As it is always the case with the introduction of new technologies or innovations, old markets are destroyed and new ones are developed. The examples abound. The creation of MP3 files destroyed the market for CDs and the creation of computers destroyed the market for typewriters. That is the way technology works. It is inevitable and actually desirable. Schumpeter called it “creative destruction.” That is the way countries develop and grow. Did you ever hear the manufacturers of CDs or typewriters complain and demand compensation for the market/customers they lost when MP3s and computers were introduced? No. Did we give a compensation to VHS manufacturers after DVDs were introduced? No. Those are the rules of the game and everybody understands them. Should we then give a compensation to taxi and bus drivers in La Paz who lost their market when the cable car system was introduced? Definitely not! Of course, however, that is exactly what they are demanding. Interestingly, the populist Bolivian regime is not giving up and rejects to give these drivers any compensation. For once, I agree with them.

Zidane not allowed to coach

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Bad policies also affect football (soccer). Zinedine Zidane, one of the best footballers in the history of the game and former captain of the French national team, has been suspended by the Spanish Football Federation from coaching Castilla, a team currently playing in the second division of the Spanish football league. The reason? Zidane does not have the appropriate coaching degree and, therefore, according to Spanish rules, he cannot coach in this country. Unbelievable.

I could start by making the argument that Zidane’s experience and knowledge of the game are so profound that a formal coaching degree is evidently not necessary in his case. But that argument is secondary. What is really wrong here is the policy itself. Why do teams need a government agency (the Spanish Football Federation in this case) telling them what coaches they can hire and what coaches they can not? Why does this government agency restrict the freedom of teams (and coaches) to reach a mutually profitable outcome? If a team wants to hire somebody without a degree because it thinks that person is the best choice for them, why should the governing agency have anything to say on that decision?

Unfortunately, football and Spain are not the only industry and country in which government agencies restrict participants in the labor market from making the decisions that they consider appropriate. In the US, for example, physicians, lawyers, teachers and even plumbers cannot practice if they don’t have the required certification. These certifications act as a powerful barrier to entry and the result is that medical, legal, educational and plumbing services in the US are outrageously expensive. All of these agencies claim that they impose the certification restrictions to protect consumers from malpractice and abuse. Right…. think about how protected you are next time you pay $70 for a plumber to fix your faucet.

No returns allowed!

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The size of the informal economy in Bolivia is one of the largest in the world. According to the commonly used indicator produced by Schneider (2010), the size of Bolivia’s informal economy in 2005 reached an amazing 67 percent! That is, 67 percent of Bolivia’s GDP in 2005 was generated in the informal/shadow economy where no taxes are paid and no formal rules apply. [For comparison, the size of the informal economy in the U.S. during the same year was only 8 percent.]

What is sold in Bolivia’s informal economy? Mostly imported goods. Bolivia does not produce much more than natural gas, minerals and some agricultural products; everything else is imported and sold in informal markets. If you need to buy clothing, appliances, tools, cleaning products, furniture, electronics, construction material and even cars, there is a 67 percent probability that you will be buying those goods in informal “ferias” or flea markets. But careful, by the very nature of these markets, any type of warranties on those goods are meaningless. If the toaster you bought doesn’t toast, you are out of luck. You don’t have the right to return a product that you bought in an informal market to a merchant that brought it illegally (avoiding customs) into the country. Everybody knows that and Bolivians have gotten used to doing this type of “unprotected trade” for many years now.

Why do Bolivians put up with unprotected trade? Because the products are sold at incredibly low prices. Informal importers/merchants do not invest in big facilities or fancy stores, they do not train personnel on the technical details of the products, they do not offer insurance or other benefits to their workers, no custom duties or sale taxes are paid and, of course, no warranties are offered. All of those savings translate into more profits for the merchants and lower prices for the customers.

It was surprising, therefore, to read that the Bolivian government has just passed a law requiring merchants to offer warranties and accept product returns if these are defected. The new law is being promoted by the government agency responsible for “protecting consumers’ rights.” Really? Can such a law be enforceable in a country in which 67 percent of the economy happens in markets precisely characterized by the lack of formal rules? If it is enforceable, what are the unintended consequences? The obvious one is that prices will go up. Sellers will have to protect themselves against the risk of product returns. Will customers like to trade the possibility of returns for higher prices?

This is just another example of how seemingly well intentioned laws create unintended consequences that may make them in the end Pareto contracting. Would the agency responsible for protecting consumers’ rights be really protecting these rights if it, unintentionally, makes the goods more expensive?

Fighting against child labor

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The International Labor Organization (ILO) recently estimated that there are currently 12.5 million children working in Latin America (9.5 million of which work in activities considered “dangerous”). Recently, representatives of 25 Latin American countries signed an agreement and committed themselves to eliminate child labor by 2020.

I have never been a big fan of this type of rhetoric. Before “fighting” child labor and commiting ourselves to eliminate it, we should ask why is that child labor happens in the first place. Child labor is only the symptom of a deeper problem. In the overwellmingly majority of cases, children work because they don’t have other options. Children and their families depend crucially on the income they earn. While I wish that children wouldn’t have to work if they didn’t want to, I also recognize that if they are not allowed to, these children and their families will probably be in even more precarious situations. Thus, “eliminating” child labor because we don’t want to see kids working won’t solve the underlying problem of poverty that forced those kids to work. By formally forbidding child labor (like in Bolivia), we don’t help to solve the sources of the problem and make things even worse by limiting their possibilities.

Most children wouldn’t have to work if they parents did and could sustain the family’s needs. That is where the problem resides and the efforts should concentrate. But that is, of course, a bigger and more difficult problem to solve. It is always very tempting, therefore, to attack the symptoms rather than the disease itself.

How does the future look for Bolivia? I am pessimistic.

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Here are my reasons:

  • While Bolivia has been growing fast in recent years, and is predicted to be the fastest growing economy in South America next year, most of its success has been generated by increases in commodities’ export revenues (mainly natural gas and minerals). As the prices of these commodities decrease in the near future, however, export revenues will also decrease and Bolivia will not be able to sustain the fast growing pace. And why would the prices of these commodities decrease? There are strong signals in that direction. China’s economy is slowing down, Brazil – Bolivia’s major trading partner – is expected to suffer a drastic reduction of its growth rates, Argentina – an important buyer of Bolivia’s natural gas – is on the bring of economic collapse, etc.
  • The nationalization of hydrocarbon companies has left the country without the required investment capacity to explore for more deposits in Bolivia’s territory.
  • While Bolivia has kept in check its fiscal discipline, the increase in income has not been used to improve the institutional environment required to attract more investment. In fact, the judicial system is now less efficient and more corrupt and politicized than ever. Impartial justice is simply non-existent under Evo Morales’ regime.
  • Property rights are continuously affected and investing in Bolivia continues to be a risky adventure. Here are just a few examples. The government controls the prices of beef, chicken, flour, sugar and other foodstuff. The government also controls the exports of corn and soya, the tuition charged by private schools and the interest rate in the financial system. Moreover, the government obliges all companies to pay 14 salaries (instead of the normal 13) each year the country’s growth rate reaches 4.5%.
  • Corruption has increased tremendously. In fact, corruption in Bolivia is no longer the “normal” rent-seeking practice that a few bureaucrats always engage in in any country. The corruption in Bolivia is now also political and violent. Bureaucrats are not only after money but also after establishing a complete political control of the country a la Chavez or Correa.
  • Drug trafficking has exploded under Evo Morales’ regime and its behind the rampant increase in criminality.

While some analysts argue that the political stability achieved under Evo Morales is a positive factor, I will argue that such stability is precarious and based mainly on the economic boom described above. The minute the country stops experiencing the accelerated growth of recent years, the obvious presence of political abuse, the lack of institutional development and the increasing corruption and criminality will likely erode Evo Morale’s support quickly. Until that happens, the country would have wasted its most favorable economic circumstances in history.

Want a different opinion? Here is somebody that is optimistic.