Latin American governments must put aside protectionism, eliminate tariffs and respect the contracts they sign, argues Carlos Sabino.
CARRIED AWAY BY an anachronistic nationalism fed by agitators and demagogues like opposition leader Evo Morales, the Bolivian people recently rescinded the contracts they had signed with foreign companies to start exporting their incalculable reserves of natural gas.
Bolivians said they did not want foreigners to take away their wealth and amass excessive gains by profiting from Bolivia’s resources. Bolivians would rather wait, would rather leave the gas just where nature had placed it, while the conditions were created for some national public enterprise to extract it.
Now, in a sad paradox, it has been announced that Bolivia will have to endure electrical power blackouts in La Paz and in six of the 10 provincial capitals “due to an insufficient supply of natural gas.” The gas continues to be Bolivian-owned, no question about that, but remains useless underground. Many are questioning the point of owning these huge riches if they can’t be used for one of the minimum requirements of modern life: a dependable supply of electricity.
Similarly, with protests fueled by “social activists” of the most varied kinds, a project to build a hydro-electrical plant in Guatemala has been paralyzed, oil strikes have been staged in Peru and Ecuador, and mining is attacked everywhere as the cause of awful ecological and social ills (despite the new non-contaminant technologies being utilized and the many jobs being created).
The supply of crude oil, the price of which has reached unprecedented heights (thus increasing the cost-of-living of millions of people and worrying businessmen), has also been the victim of an ill-conceived ecological and nationalistic zeal that has affected oil production and refining.
IT SEEMS TO US, therefore, that this is a good time to examine certain economic theories about growth, which, although they have proved wholly false and have been rebutted in practice, are still in vogue throughout much of Latin America and serve only to condemn us to perpetual poverty.
Many people think that our countries are immensely rich because they contain great natural reserves of minerals of all types. We have gas and crude, iron, copper, tin and aluminum as well as a variety of climates and altitudes that permit the production of all kinds of valuable crops.
Despite this impressive blessing of resources—about which we never stop talking—a tour of any of our cities reveals a sad landscape of poverty and unhealthy living conditions, of abandonment and overcrowding.
How is it that we haven’t been able to overcome this depressing reality, despite enjoying an abundance of such coveted goods?
The first thing we must remind those who boast of our potential wealth is that natural resources by themselves do not guarantee either economic growth or the welfare of the people. Conversely, countries like Japan and Finland, which are truly punished by their inclement geography, show levels of economic and human development that rightly justify the envy of some observers.
In contrast, nations that derive enormous revenue from the sale of crude—such as Iran, Iraq, Venezuela and Nigeria—wallow in a chronic stagnation that, to make things worse, exhibits frequent episodes of backwardness and crisis.
This is not a question, therefore, of owning great resources belowground but of achieving functional and highly productive economies, something that can be done only when there is sufficient investment as well as a political environment of peace, confidence and stability. With few exceptions, none of these conditions can be found in our burdened countries, hamstrung still by ideas and attitudes that have proved to be erroneous and serve only to aggravate our misery.
Lamentably, our America remains anchored in old-fashioned ideas, under the influence of populist leaders who seem still unaware of the gigantic fiasco the Soviet Union turned out to be. These are the leaders who threaten to walk once more down the road of economic nationalism—the very protectionist policies, state-run enterprises and anti-capitalist mentality that pushed us to the back of the line in our process of development.
TO COMBAT POVERTY—something we all want—it is necessary to understand that we need investment, the capital that will furnish us with a modern technology capable of boosting the productivity of our workers. This will mean that, with the same effort, a greater number of goods and services can be created for the benefit of consumers.
With greater productivity, workers will earn higher wages in line with those paid in the developed world, where wages flow not from social laws or government intervention but from the immense capacity for production industrialized economies enjoy.
For all this to happen, governments must put aside protectionism, eliminate tariffs and open their nations to the many exchanges of the modern world. Investments are indispensable, but they will be unattainable if governments don’t respect the contracts they sign, and guarantee—credibly and consistently—the private property of those investors, be they national or foreign, who are willing to run the risk of creating new enterprises or expanding the existing ones.
Carlos Sabino is a fellow of the Francisco Marroquín Foundation in Guatemala, a director at CEDICE, a public policy institute in Venezuela, and the author of many books on development. This article was originally written for The Center on Global Prosperity at the Independent Institute.
Originally published Sept. 12, 2006