The dictatorship that runs Bolivia – Part II


A few days ago, Bolivia’s public prosecutor ordered the arrest of a journalist (photo) accusing him of interfering with the judicial process in a case of child abuse. The specific reasons behind the arrest were never very clear but it seems that the prosecutor considered that the journalist’s research on the case, and his interviews with the people involved, were somehow interfering with the official investigation. As expected, the press and other media outlets initiated a strong protest campaign against the arrest and the public opinion was that the apprehension of the journalist was a flagrant abuse against free speech.

Aware of the political costs that this arrest could provoke only two weeks before regional elections, yesterday, the party in power, the MAS, acted quickly and “coordinated” with the prosecutor the release of the journalist. Today, the journalist was, indeed, released.

Apart from any consideration as to whether the arrest was appropriate or not, what is truly amazing in the story is the political power of the executive branch. In just two days, the government “coordinated” with the judicial system (i.e. ordered) the release of somebody previously arrested with the order of a judge. How is this possible? Does the judicial system not have rules and procedures that are independent of any “coordination” or order from the executive branch? Where is the separation of branch powers? Is this the way justice works in Bolivia? If the government doesn’t like an arrest, can they just pick put the phone and “coordinate” the immediate release with the judges and prosecutors? This is truly pervasive and yet another example of the continuous abuse that characterizes the dictatorship that runs Bolivia.

The dictatorship that runs Bolivia


President Evo Morales and his party, MAS, have been elected three times with important margins over opposing parties. While these results give the current administration formal political legitimacy, it is clear for anybody watching the political situation in Bolivia that the power that MAS has accumulated over time has led to a consistent abuse and violation of basic human and civil rights. Evo Morales and the MAS have violated basic democratic rules all over the place. The third term is fraudulent (they changed the Constitution to allow for it), the political power has co-opted the judicial system entirely and the public administration is corroded with incredible levels of corruption all covered by the political apparatus. And here are two more fresh examples of cynical political abuse.

First, the Vice-President publicly admits that he ordered (with public funds, of course) the publication of grave accusations against the governor of Santa Cruz (opposition) even though he has not been found guilty of any wrongdoing. The governor has been accused in several cases but has never been proved guilty. Why not let the judicial process take its course without political interference? Why is the Vice-President publishing accusations?

Second, Evo Morales, publicly said that he will not work with any mayor or governor elected that belongs to a different political party. Can you believe the abuse? Is he just the president of MAS sympathizers? What about the rest of the Bolivian citizens that could democratically elect somebody from a different political view? Disgraceful.

The Pope strikes again!


Pope Francis, like most of our friends on the left, has good intentions. Since he took over the reigns of the Catholic Church he has always argued in favor of the poor and unprivileged and renounced himself to several “luxuries” that use to come with the job. Among other things, he has repeatedly argued that workers should receive a compensation package that can allow him/her and their families to afford a decent life and cover their basic needs. He has publicly mentioned this preoccupation in many occasions and demanded of all Christians to work toward that goal. In fact, he just did it again today. And again, as in many occasions before, he made an important analytical mistake. Why can’t he hire a good economics advisor?

Today, he asked if employers who make important donations to the church but don’t pay “fair” salaries or hire workers in the informal markets (without reporting the contract and, therefore, without paying benefits, insurance, taxes etc.) can be considered good Christians. In fact, he went further and said that those employers are committing a horrible sin by “using God to cover injustices.” Hmm…let’s see…

Let’s say that Pope Francis gets his wish and starting tomorrow all employers in Argentina (his native country) report all the labor contracts and pay the full amount of benefits, insurance, taxes, etc. In other words, say that, by way of a miracle, all labor markets in Argentina become formal and completely legal. Seeing this miracle, Pope Francis declares those employers not sinners anymore but perhaps saints. Sounds good right? In fact, too good…

Let’s think carefully about the results. Would employers hire the same number of workers as they did before? Now that they have to pay benefits, insurance and taxes, hiring a worker will be a lot more expensive. So, while employers will comply with all the legal requirements, they will hire less. That is a simple economic law: price goes, other things equal, quantity demanded goes down. Think now about the incentives for workers. Now that they know that every job will pay all the benefits and insurance, a lot more people would want to work. People will stop collecting unemployment checks and join the labor force to look for a job. In fact, lots of people from the rural areas will move to the city attracted by these benefits and look for a job as well. Another simple economic law: price goes up, other things equal, quantity supplied goes up. And so, what have we created? We created a situation in which quantity supplied of labor is higher than quantity demanded of labor. That is, unintentionally, the miracle has created unemployment.

When you think about it, therefore,those employers hiring in the informal markets should be called “super heroes” instead of “sinners.” They risk their licenses to hire workers and generate a mutually profitable outcome for the employer and employee. Because of this hiring in the informal markets, workers can have a job that otherwise they wouldn’t be able to find. Yes, they would prefer to earn more (just like the employer would prefer to pay less) but a job in the informal market is better than none.

The “fair-price” markets


The Bolivian government regularly organizes “fair-price” markets in some of the most important cities in the country. In these markets or ferias one can buy agricultural products for significantly lower prices than in regular markets. This week, for example, you can buy a bag of potatoes for Bs. 35 in the “fair-price” market in La Paz when the price for the same item is Bs. 50 in regular markets. You can also buy a kilo of chicken for Bs. 13.50 when the regular price is Bs. 18. The Vice Minister of Rural Development argues very proudly that with these initiatives, “families will save half the money they would normally use in groceries.”

Sounds fishy, doesn’t it? It sounds too good to be true and so it probably is. If I am a producer or distributor of agricultural products, why would I take my product to the “fair-price” market when I can get a much higher price elsewhere? Doesn’t make sense, right?…unless…unless, somebody is covering my loss… If the government pays me the difference then, sure, I will sell at the “fair price” any day. And that is what I bet is happening: the government is subsidizing the difference between regular prices and “fair” prices. And voila, that is the magical trick about these “fair-market” ferias. They are just another transfer or subsidy paid with the taxes collected from everybody else in Bolivia.

More importantly, the idea of “fair prices” in itself (as opposed to regular-market-determined prices) is particularly revolting. Why are regular-market-determined prices not “fair” as well? This is an old and common misconception: if an entrepreneur makes profits, then the price at which he/she sells must not be “fair.” What proponents of this idea often forget is that in competitive markets (like agricultural markets) the only way to make money as an entrepreneur is by convincing customers to buy the product from you. And you can only do that if you offer good quality at a competitive price. Given that buyers are not obliged to buy the product from you, whenever they do one can conclude that it must be because they are better off after the purchase: they get the product they want at a price that makes the purchase worth it. In other words, a transaction such as the sale of a bag of potatoes makes the seller and the buyer both better off. There is nothing “unfair” about that.

What is truly unfair or, at the very least, deceiving, is to organize “fair-price” markets by subsidizing products with tax money paid by everybody else.

The dramatic fate of public enterprises


Here is a dramatic example of how bad things can go when populist governments take over private enterprises.

América Textil (Ametex) was a Bolivian private company that manufactured textiles and exported its product mainly to the US. Ametex benefited from trade preferences offered by the American government (ATPDEA) and up to the early 2000s it exported more than $20 million worth of textiles to that country. Its clients included Polo Ralph Lauren, Express and other famous brand names. Ametex employed almost 3,000 workers in seven factories and the average wage was 135% higher than the Bolivian minimum wage. Indeed, a successful entrepreneurial story.

And here comes the government…

The ATPDEA preferences were conditional on positive results on the war against drugs. As the production of cocaine and coca plantations increased since the early 2000s (together with the confrontational rhetoric of Evo Morales against the US government), Bolivia finally lost its ATPDEA treatment in late 2008. And that was the beginning of the end. Ametex lost its main market and started to lose money. The situation turned unsustainable and Ametex was going bankrupt. In a typical populist move, the government of Evo Morales decided to buy the company to save the many jobs that were on the line. The company was purchased by the government for $15 million.

And then things got worse…

Ametex was renamed “Enatex” as a public enterprise in 2012 and things turned ugly. As usually happens with public enterprises in Latin America, the company became a political trophy and has seen three CEO changes in three years. The original, and very populist idea, was for the workers to run the company. They quickly realized and admitted that the managerial aspects were not their forte and so the government started to appoint executives. At some point a movie maker was in charge and now the company is led by a PR person. The main markets for Enatex are now Cuba and Venezuela which we all know cannot afford to buy even toilet paper. The company employs now only 1,600 employees and they haven’t been paid in four months. The cotton imported to make the textiles is getting ruined at the ports in Chile because the company cannot make payments to the suppliers. The workers have organized massive protests and have accused the government for poor management. And here is the cherry on top of the cake. In a pathetic effort to make things better, the Bolivian Minister of Productive Development has publicly appealed to the “consciousness” of the public so they can buy products from Enatex. The government is actively trying to sell “400 pieces of clothing” to the Bolivian people to “save Enatex.” Isn’t that remarkable? A populist action gone bad that all Bolivians now have to pay by buying the products.

The Pope and the Left


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


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?