Thursday, July 1, 2010

Ideological Labels Are Fun: Colombia and Chile

Did you know that, despite simplistic labels to the contrary, the US' favorite client state actually is not the free-market paragon most people think? That's right, I'm talking about the supposedly "free-market" darling Colombia, which according to a new Inter-American Development Bank (IADB) working paper has been pursuing extensive industrial policies for quite some time.

The economic merits of these policies aside, this underscores that just because a country has a horrible human rights track record and is in the State Department's pocket, it doesn't necessarily mean it's also "neoliberal." In other words, the media (especially up north) likes to assume Colombia is "market-friendly" simply because it is US-friendly and has signed a handful of Free Trade Agreements. But in reality it has also been pursuing fairly heterodox policies for a while.

One obvious example of this is Colombia's long-running affair with capital controls. As maladjusted has pointed out before, Colombia's regulations on international capital flows are currently the highest in the region. During the 1990s, when South America regained access to international capital markets and all the cool kids on the block were liberalizing, Colombia had smart regulations in place to tax inflows. This helped reduce flow volatility, prevented excessive exchange rate appreciation and lengthened the maturity of foreign liabilities (which lowers the likelihood of experiencing a financial crisis).

In any case, the point is that when it comes to labeling a country's economic policy, what's accurate is seldom the same as what is politically sexy. The truth in South America has always been more nuanced than "neoliberal countries grow, leftist countries don't."

A natural parallel in this regard is the case of Chile, which to much fanfare staked out claims to first world status last year when it was officially admitted to the OECD. The conventional narrative holds that Allende's socialist policies were destroying the country before the free-market champion Pinochet took power and, with help from the Chicago boys, set the foundations for the country's future prosperity. But, of course, the reality isn't so simple.

Chile hasn't prospered because of pure neoliberalism. It has prospered because of resource nationalism (even Pinochet was smart enough to keep the state-owned copper company, CODELCO), the state promotion of exports (salmon, wine, and virtually every other major export success have received extensive gov. assistance) and, on the macroeconomic level, well devised capital controls (Chile is actually the paradigmatic example of success in this area).


Dichotomies challenged. Reality trumps ideological labeling. And I'm a closet post-modernist. The End.

1 comment:

  1. You're totally right, but both Colombia and Chile live up to the basic neoliberal tenet. That would NOT be "get rid of government aid, free up markets, open borders." No no, it would be "give government aid to the privileged, and fuck the poor."

    I really want to put together a "fuck the poor" index and am trying to figure out how to do it. For example, here in Chile, it is several times more expensive to have a prepaid cell phone than a post-paid one, but to get a post-paid one you need proof of employment and a bank account. In Venezuela it's hard to get a post-paid phone, but the price difference is much smaler. On the other hand Venezuela subsidizes drivers more than just about anyone else on earth, and of course the bulk of drivers come from the wealthiest groups.

    Maybe in the end everyone would get a high score on that index.