The Future of Latin America: Another Such Victory and We Are Lost

"Another such victory and I am lost," said Pyrrhus of Epirus after beating Rome's legions. Juan Ferrero writes about another such victory--this time for the left in Bolivia:

Who Will Bring Water to the Bolivian Poor? - New York Times: COCHABAMBA, Bolivia - The people of this high Andean city were ecstatic when they won the "water war." After days of protests and martial law, Bechtel - the American multinational that had increased rates when it began running the waterworks - was forced out... its executives fled... protest leaders pledged to improve service... celebrated the ouster as a major victory.... Today, five years later, water is again as cheap as ever, and a group of community leaders runs the water utility, Semapa. But half of Cochabamba's 600,000 people remain without water, and those who do have service have it only intermittently - for some, as little as two hours a day, for the fortunate, no more than 14.

"I would have to say we were not ready to build new alternatives," said Oscar Olivera, who led the movement that forced Bechtel out.... [W]hile a potent left has won many battles in Latin America... it still struggles to come up with practical, realistic solutions to resolve the deep discontent that gave the movement force.... [I]n Bolivia... protests against the introduction of stronger market forces have toppled two presidents.... Frustrated that the economic restructuring prescribed by the World Bank and International Monetary Fund failed to translate into sustained growth and reduced poverty, country after country in Latin America has either discarded or is questioning much of the conventional wisdom about relying more on market forces....

Bolivia's back-tracking, more a product of roiling protests than government policy, began after the country became among the first in Latin America to apply market prescriptions wholeheartedly.... Bolivia's economy, though, grew at a dismal pace.... The fund and other institutions... blame grinding corruption, poor infrastructure and high pension costs... note that Bolivia, like other countries that seek help, come only when they are wracked by economic troubles that require tough choices.... But to Bolivians, the experiment was marked by failure.... In the end, market changes... fueled anger that severely weakened governments and gave rise to Mr. Morales... [who] has in the last four years used his outsider status, his... very poor origin... and his Indian roots....

That is why Mr. Morales is pushing for a "nationalization" of the gas industry that... will increase taxes and royalties on foreign energy companies.... He also wants to tighten borders to keep out cheap products and focus the government's attention on cooperatives.... "We will have an economy based on solidarity and reciprocity," Mr. Morales said in an interview. "We do not dismiss the presence of foreign investment, but we want it to be real, fresh investment to industrialize our hydrocarbons, all under state control."

The proposals, to be sure, are vague. Mr. Morales, who did not finish high school, is guided on economic matters by Carlos Villegas, a left-leaning economist, and by his running mate, Álvaro García, a socialist intellectual, professor of sociology and former guerrilla who articulates the party's position.

Much of the anger that has given Mr. Morales momentum began here in his home city, Cochabamba. The arrival of Bechtel quickly prompted heated protests when the water company increased rates, arguing that it needed more money to finance investment and expand service.... It also became clear that Bechtel would not expand service to the impoverished south, where the company had no profits to gain from an expensive expansion. The ouster of the company meant the return of Semapa.... Semapa has expanded service... to 303,000 people, from 248,000.... But Semapa still grapples with petty graft and inefficiencies... [and] a lack of money. The company cannot secure big international loans, and it cannot raise rates.... For a wide-scale expansion that would include a new dam and aqueducts, $300 million is needed, an enormous amount for a company whose capital budget is just shy of $5 million.

"I don't think you'll find people in Cochabamba who will say they're happy with service," said Franz Taquichiri, one of the community-elected directors of Semapa and a veteran of the water war.... [W]ater filtration installation is split into an obsolete series of 80-year-old tanks and a 29-year-old section that uses gravity to move mountain water from one tank to another.... "We're trying to be realistic, and we're looking for aid from Canada and other countries," explained Mr. Camargo, who has worked at Semapa 20 years....

At Rafael Rodríguez's home and small restaurant, a spigot in the yard provides water three hours a day from a community well. He has little good to say about Bechtel, but he noted that Semapa's pipes were far from reaching the neighborhood.... Edwin Villa, 35, lives in a neighborhood that gets its water through deliveries made two or three times a week by freelance water dealers. The deliveries are sporadic, he said, and sometimes the water contains tiny worms. His children ask for piped water, but there is not much he can tell them. "Our hope is that someday Semapa will reach this far," he said. "It would just be magnificent."

Comments

[liberal]

"...protests against the introduction of stronger market forces..."

Is the underlying problem really the "market," or monopolization of land and other natural resources?

[Palo]

90% of bolivians live in abyect poverty. They lived in poverty for decades, most, if not all, under different forms of market capitalism that benefited a 5% of the population. Bolivia, a nation of 90% indian population, never had an indian in any place of political power. Today, Evo Morales, a left wing aymara indian will become president of Bolivia. Yes, myopic macroeconomical analysis from Berkeley or New York will find Morales' politics and style unpalatable. I see a historical moment of justice. We'll see what happens.

[Fifty years ago, South Korea was as poor as Bolivia was. Evo Morales does not seem to be a man who can put Bolivia onto the South Korean road.]

[econgeek]

Brad, I think you must have a strangely shapped set of welfare weights for bolivians, or you must think you know a lot better than they do as to which of the available candidates would have made a better leader. Which one is it?

I understand (and share) your concerns about Morale's potential economic policies, but that Bolivia has (finally) chosen one of it's own to be it's president is trully a great thing. Are you simply blind to this?

You sadly remind me to a writter for The Economist who celebrated the death of Allende.

[Why?]

On a sidenote, it is not like Bolivias previous presidents (a certain goni with a remarkable accent and skin tone comes to mind) did a particularly good job on the economics side of things. I would bet fair money that Evo's economic outcomes will be in the upper half of bolivians presidents.

[Let's hope so. But what makes you think so?]

[david]

Why is it that Bolivia's f-ed up economy is the result of the left? Bechtel aside, as (I'd add even, though I like him alright) Forero notes, Bolivia has tried to do it the Chicago way.

The idea that it's the "left" that has problems getting water to the poor is laughable. So far, everybody has had problems getting water to the poor; offhand, I'd guess that there might be some class problems to overcome in this regard that aren't limited to the administrative performance of "left" politicians.

So, to turn your question to econgeek around: what specifically makes you think this administration is going to be worse?

[Robert Waldmann]

Andrew said most of what I have in mind. I wanted to re-edit the basic story about water

COCHABAMBA, Bolivia - The people of this high Andean city were ecstatic when they won the "water war." Bechtel was forced out... Today, five years later, water is again as cheap as ever, and a group of community leaders runs the water utility, Semapa. But half of Cochabamba's 600,000 people remain without water, and those who do have service have it only intermittently - for some, as little as two hours a day, for the fortunate, no more than 14.

[big snip]

The arrival of Bechtel quickly prompted heated protests when the water company increased rates.... It also became clear that Bechtel would not expand service to the impoverished south, ... The ouster of the company meant the return of Semapa.... Semapa has expanded service... to 303,000 people, from 248,000....

I can see that suspicion of a foreign firm might cause problems and I think this is one of many cases in which people refuse necessary changes in prices, because they don't trust the price setters to not just keep the extra money and don't see how, with higher prices profit seeking implies expanded supply.

Still the facts are that Semapa has expanded service and that Bechtel had no intention of supplying all of Cochabamba. In his excellent article Ferrero doesn't say if the unserved people he interviewed live in areas which Bechtel even claimed it would serve.

More generally the over all medium to long term consequences of IMF structural adjustment programs sure don't look so good.

Now, since it hasn't been discussed to death here on this blog, I am eager to talk about South Korea. South Korea had a massive land reform. Also when it was founded allmost all of the (limited) manufacturing capacity was seized by the state (it had been Japanese). Finally, of course, South Korea invested in education at a level absurdly out of line of any other poor country except maybe Taiwan.

I basically agree with you of course.
I don't have high hopes for Morales. I think the best outcome is if he has a chance to try what he has in mind and the outcome teaches Bolivians that things aren't a simple as he and they think.

[Hektor Bim]

Brad,

Your choice is a false one. It isn't simply socialism or the "Washington consensus". Bolivia isn't South Korea or Taiwan and won't ever be. For starters, neither South Korea or Taiwan started with absurdly skewed wealth distribution, or a plantation land system, or horrific classism and racism toward the overwhelming majority of the population. Only 12% of the Bolivian population is of strictly European descent. Indians make up something like 2/3 of the population, and they are systematically ignored by the government and the economic classes.

Just to rebut the obvious point: yes, South Korea and Taiwan did have unequal wealth distribution and some amount of a plantation land system under the Japanese, but the Japanese defeat in WWII decapitated a significant number of the ruling classes, and in Korea the Korean war did the rest, not to mention the land reforms.

So Bolivia has basically nothing in common with South Korea, historically, culturally, or even economically.

The real question is whether Bolivia has land reform, thus jumpstarting economic develoment outside the traditional elites. Widespread education and improvement of infrastructure would also help. Neither of these are priorities for the "Washington consensus" and they may be done poorly by the socialists under Morales. Bolivians voted against the "Washington consensus" because it wasn't working. That's a perfectly good reason to vote against it, and sneering economists might want to think about ways of improving third-world economies so that the poor actually benefit, instead of just being screwed.

Since screwing the poor is exactly what happened in Bolivia and Venezuela, this kind of sneering is out of place.

Face it, the "Washington consensus" screwed up. It wrecked Argentina, didn't improve Brazil, and still haven't made good progress in Mexico. Even Chile would probably be better off now economically if Pinochet had never taken power.

I have no idea if Morales will improve things, but I very much doubt that more of the same will work in Bolivia either.

[yawar mallku]

Interesting comparison with South Korea. Bolivia,like SK did have a massive land reform and nationalization in 1952. Contrary to current media reports they have also had Indian presidents.

The problem with Bechtel was one of perception, I think. The Bolivian people have a long and bitter history of being taken advantage of by their own oligarchs and less frequently by foreign companies. Bechtel doubled the price for water - the people thought they were being ripped off. They then did what they usually do and started protesting until everything ground to a halt.

If Evo is elected, he'll have about a one year grace period and then the protests will start again because things haven't improved (in fact, they will probably get much worse).

Bolivians assume, more or less rightly, that their governments are pilfering big time. After a year or two, the people's resentment builds and they start agitating for change.

I wonder if the SK prescription of education would work in Bolivia. The Bolivians are a friendly and generous people. It's too bad their economy has never left the bottom rung.

[Hektor Bim]

Yawar,

You're right that there was land reform in 1952, but it obviously didn't take, and everything was wiped out after the inflationary period in the 80s. So something went very wrong. The coca eradication programs (led by the US) didn't help.

There is a real problem in a country when an oligarchy runs everything. They care most about keeping power for themselves as opposed to growing the country's economy. The only way, long-term, for Bolivia to grow is to expand access to jobs and growth to the rest of Bolivia's population, and absent a sudden end to racial antagonism, that pretty much means an indigenous takeover of the government and more broad-based development strategies.

[liberal]

yawar mallku wrote, "Bolivia,like SK did have a massive land reform and nationalization in 1952."

Not sure it's a valid source, but a Wikipedia article on land reform (http://en.wikipedia.org/wiki/Land_reform) states: "Bolivia: The revolution of 1952 was followed by a land reform law, but in 1970 only 45% of peasant families had received title to land."

Of course, land reform might not lead to a prosperous society; it depends on the economics. Breaking up land into small plots might be good in terms of evening the distribution of land wealth, but it might be bad in terms of economic efficiency (as there's economies of scale in agriculture, most other industries). The best type of land reform, of course, is to tax land extremely heavily and let the market decide how to best arrange land use (with some regulatory limits)...the proceeds of such a land tax being used to fund a modern liberal state.

[Oskar Shapley]

"heated protests when [Bechtel] increased rates, arguing that it needed more money to finance investment and expand service..."

Isn't the main reason to invide a foreign company the fact that THEY HAVE THE MONEY? It's called FOREIGN DIRECT INVESTENT for a reason.

This situation looks like the drug market where the current patients, not some benevolent investors, are financing future drug research through exorbitant prices. AFAIR Abbott Labs have increased their prices for a AIDS drug by 400% and have argued that it's necessary for future research.

[Oskar Shapley]

Brad said: "Fifty years ago, South Korea was as poor as Bolivia was."

SK has protected their domestic small-scale rice farmers for decades. That's why they are the most vocal group in the ongoing protests in Hong Kong.

So whatever example SKorea should be for Bolivia, it isn't one of the achievements and virtues of free trade in agriculture.

[SLG]

I wonder what people think about the exporting of Bolivia's biggest crop - fact is people on the streets of Europe and US want cocaine, the demand is there. The damage of someone getting "bad gear" is worse than purer stuff, no doubt.

I think the debate on drugs needs to be seen from a supply POV rather than demand. Bolivian farmers can make a better whack with a decent supply-chain and their kids can drink water.

Meanwhile, will the streets of Europe be flooded with cocaine? Wake up and smell the stench people, it's here. You couldn't get streets, clubs, pubs and toilets more flooded with Bolivian Marching Powder.

Economics of narcotics - is it the only way?

[me]

I don't know what the fuss is about. I think the Bolivians should send their best jobs to India and China and declare that everyone is better off, just like the US.

[Christopher ball]

Many commentators seem to be missing Delong's point, which was best summarized by this:
{{QUOTE}} "I would have to say we were not ready to build new alternatives," said Oscar Olivera, who led the movement that forced Bechtel out. {{/QUOTE}}*

Olivera lead a movement to force out the foreign developer without a clue as to what to do instead. The poor are left with an unregulated market of freelance water dealers, who often provide low quality water. If SEMAPA was superior to Bechtel, why isn't it providing the services that the people wanted rather than the same-old-same-old?

As for Bolivia's natural gas, Saudia Arabia and many other Arab Gulf states seems to have done fine with nationally owned oil and gas fields but joint ventures with foregin firms. It is the design of the incentives that matters, not the fact of nationalization.

[dsquared]

I think Robert Waldmann is right; you have to read the article two or three times to get through the spin, but it looks as if the publicly owned utility has in fact improved the service. I don't know why anyone calls it an "excellent article" though; it seems to me to be thoroughly misleading.

[econgeek]

{You sadly remind me to a writter for The Economist who celebrated the death of Allende.}
[Why?]

That day one could say chile's per capita gdp took a turn for the better (id agree) and how long it would have otherwise taken the democratic process to solve the problem is not trivial to figure out. It is still a sad day in history. I think this far you will agree.

Today there is a good chance that bolivias median income is unlikely to be put on the track to being SK or Taiwan (through again, looking at the candidates I think Morales doesnt look that bad). It is however a day of much joy when a people can have a more-or-less fair election. Or at least one that seems to reflect in its outcome the feeling one gets from spending time there reflects those of a majority of the population (which for a multitude of reasons rarely got to express it in votes in the past).

Does this make sense?

{ I would bet fair money that Evo's economic outcomes will be in the upper half of bolivians presidents.}
[Let's hope so. But what makes you think so?]

His own interests are more closely alinged with those of the median bolivian better than the vast majority of previous presidents. Did you ever hear "El Gony" speak? The man had an accent for god sakes! and it was *not* a aymara one.

Other than that, I too join Waldmann in hoping that Bolivians voters learn the solutions are not quite as simple as the ones Morales proposes (through I suspect Morales himself is about to find that out himself). I must add doe that looking at Bolivias past this seems a much necesary step in that learning.

[econgeek]

"Contrary to current media reports they have also had Indian presidents."

I would normally feel embarassed of asking this, but given Boliviass tumultous presidential roaster I dont feel quite so bad; which ones?

And more to the point, both parents indian, not educated abroad, and elected?

[econgeek]

"Contrary to current media reports they have also had Indian presidents."

I would normally feel embarassed of asking this, but given Boliviass tumultous presidential roaster I dont feel quite so bad; which ones?

And more to the point, both parents indian, not educated abroad, and elected?

[anne]

http://www.nytimes.com/2005/12/18/weekinreview/18forero.html?ex=1292562000&en=558c4c3c738a08c7&ei=5090&partner=rssuserland&emc=rss

December 18, 2005

Latin America Looks Leftward Again
By JUAN FORERO

TACAMARA, Bolivia

AT first glance, there's nothing cutting edge about this isolated highland town of mud-brick homes and cold mountain streams. The way of life is remarkably unchanged from what it was centuries ago. The Aymara Indian villagers have no hot water or telephones, and each day they slog into the fields to shear wool and grow potatoes.

But Tacamara and dozens of similar communities across the scrub grass of the Bolivian highlands are at the forefront of a new leftward tide now rising in Latin American politics. Tired of poverty and indifferent governments, villagers here are being urged by some of their more radical leaders to forget the promises of capitalism and install instead a community-based socialism in which products would be bartered. Some leaders even talk of forming an independent Indian state.

"What we really need is to transform this country," said Rufo Yanarico, 45, a community leader. "We have to do away with the capitalist system."

In the burgeoning cities of China, India and Southeast Asia, that might sound like a hopelessly outdated dream because global capitalism seems to be delivering on its promise to transform those poor societies into richer ones. But here, the appeal of rural socialism is a powerful reminder that much of South America has become disenchanted with the poor track record of similar promises made to Latin America.

So the region has begun turning leftward again.

That trend figures heavily in a presidential election being held today in Bolivia, in which the frontrunner is Evo Morales, a charismatic Aymara Indian and former coca farmer who promises to decriminalize coca production and roll back market reforms if he wins. Though he leads, he is unlikely to gain a clear majority; if he does not, Bolivia's Congress would decide the race.

Still, he is the most fascinating candidate, because he is anything but alone in Latin America. He considers himself a disciple of the region's self-appointed standard-bearer for the left, President Hugo Chávez of Venezuela, a populist who has injected the state into the economy, showered the nation's oil profits on government projects aimed at the poor, and antagonized the Bush administration with constant invective.

"In recent years, social movements and leftist parties in Latin America have reappeared with a force that has no parallel in the recent history in the region," says a new book on the trend, "The New Left in Latin America," written by a diverse group of academic social scientists from across the Americas....

[anne]

http://www.nytimes.com/2005/02/22/international/americas/22bolivia.html?ex=1266814800&en=f39f4fe7c1ec29cf&ei=5090&partner=rssuserland

February 22, 2005

Latin America Fails to Deliver on Basic Needs
By JUAN FORERO

EL ALTO, Bolivia - Piped water, like the runoff from the glaciers above this city, runs tantalizingly close to Remedios Cuyuña's home. But with no way to pay the $450 hookup fee charged by the French-run waterworks, she washes her clothes and bathes her three children in frigid well water beside a fetid creek.

So in January, when legions of angry residents rose up against the company, she eagerly joined in. The fragile government of President Carlos Mesa, hoping to avert the same kind of uprising that toppled his predecessor in 2003, then took a step that proved popular but shook foreign investors to their core. It canceled the contract of Aguas del Illimani, a subsidiary of the $53 billion French giant Suez, effectively tossing it out of the country and leaving the state responsible.

"For us, this is good," Ms. Cuyuña said, voicing the sentiment in much of El Alto. "Maybe now, they will charge us less."

That is far from certain. Even less certain is how she and 130 million other Latin Americans will get clean water anytime soon in a region where providing basic services remains among the most pressing public health and political issues.

Governments like Bolivia's tried the task themselves before, abandoned it as too costly, and turned to private companies in the 1990's. Today as privatization is rejected, foreign investment is plummeting across the region and the challenge is being returned to states perhaps less equipped than a decade ago.

The trend is not unique to Bolivia, where a lack of clean water contributes to the death of every tenth child before the age of 5, and it has presented Latin American leaders with a nettlesome question: what now?

"The decisions that have to be made are stark and difficult," said Riordan Roett, director of Latin American studies at Johns Hopkins University. "They're going to have to make some sort of compromise, and that compromise often means buying back and taking over those services - and then, of course, making them efficient in the hands of the state. Their track record doing this in the past was miserable."

Indeed, the heated backlash against free-market changes - fueled by the sense that they promised more than they delivered while offering overpriced, often flawed services - has at once left governments vulnerable to volatile protests and forced foreign companies to retreat....

[Tracy]

Brad's difficulty is a common one: he has dropped into a particular discourse on development and can't see his way out. The problem Bolivia has is a common one too. There is a real lack of connection between an increasingly strong civil society and the state. The reason is straightforward; the development strategies used by the state are, as the Consensus dictates, authoritatrian. They call for a progression of increased state power coupled with "service-oriented", "development-minded" bureaucratic attitudes. The result will be a government that will "make hard choices" and "foster development".

Why anyone thinks that development will occur in a country like Bolivia within such a framework is simply beyond my comprehension. In the first place, it is definitely NOT in the interest of governing elites in developing countries to act in such a selfless fashion. They don't call it "the politics of the belly" for nothing. Increased state power will be used to increase state power; there is no reason to expect anything else. In the second place, development that isn't controlled from below and supported by individually mobilized mass publics invariably lacks either the support or the local commitment to succeed. Of course, you'll get plenty of lip-service to democratic involvement of the masses, but nothing of substance unless you ... democratically involve the masses. You can't do that through bureaus.

A Morales government will be dependent on those strong civic organizations that have forced out governments in the past and may actually do what they say they want. That's the first step towards national development. Without it all the Bechtels on the planet won't make a difference; with it the Bolivians may get the country they want. And that is the country they need.

[anne]

http://www.nytimes.com/2005/05/23/international/americas/23bolivia.html?ex=1274500800&en=958b56353478e572&ei=5090&partner=rssuserland&emc=rss

May 23, 2005

Bolivia Epitomizes Fight for Natural Resources
By JUAN FORERO

LA PAZ, Bolivia - The struggle over globalization and who controls natural resources is being waged across Latin America, but the battle lines are no sharper anywhere than here in Bolivia, where a potent confederation of protesters plans a march on Monday to demand more state control of energy resources.

Political analysts say the march - combined with a work stoppage and an Indian-style town hall meeting in a La Paz plaza - could further weaken the already debilitated government of President Carlos Mesa. It was just such a protest over energy policy that forced President Gonzalo Sánchez de Lozada from office in October 2003.

Now, with Mr. Mesa politically incapacitated and Congress thoroughly discredited because it is seen as corrupt, protesters have become emboldened, with some calling for the outright expropriation of private gas installations operated by such energy giants as British Gas, Repsol-YPF of Spain and Petrobras of Brazil.

Such demands have been gathering force, and they underscore the increasingly deep divisions in this Andean country, which despite its isolation has been at the forefront of a powerful backlash against market overhaul in Latin America.

"I think it's the most polarized the country has been in a long time," said Jim Shultz, director of the Democracy Center in Cochabamba, which studies the effects of globalization on Bolivia. "In October 2003, the issue was more volatile, but it was more volatile because it was basically everybody against the government. This isn't everybody against the government. This is a situation where Bolivia is split three or four different ways."

On one side, there are Bolivians like Carlos Alberto López, a former vice minister of energy who was educated at Harvard and the London School of Economics.

Mr. López, now a consultant for energy companies, contends that nationalizing the oil industry would be a disaster for the country. He said Bolivia should instead be taking advantage of the fact that it has Latin America's second largest gas reserves by attracting foreign investors with favorable terms and then selling the gas to energy-hungry giants like Brazil or the United States.

"This was our last best hope for Bolivia's economy to grow," Mr. López, 45, said in an interview.

Across this capital, in a small office decorated with posters of the revolutionary icon Che Guevara, another protagonist expresses a sharply opposed viewpoint.

"The people have a right to nationalize and expropriate," said Jaime Solares, 53, who started working at age 13, has a 10th grade education and heads the Bolivian Workers Central, the country's largest labor confederation. "The people no longer believe in neo-liberalism." ...

[anne]

Tracy

'he problem Bolivia has is a common one too. There is a real lack of connection between an increasingly strong civil society and the state. The reason is straightforward; the development strategies used by the state are, as the Consensus dictates, authoritatrian. They call for a progression of increased state power coupled with "service-oriented", "development-minded" bureaucratic attitudes. The result will be a government that will "make hard choices" and "foster development".

'Why anyone thinks that development will occur in a country like Bolivia within such a framework is simply beyond my comprehension. In the first place, it is definitely NOT in the interest of governing elites in developing countries to act in such a selfless fashion. They don't call it "the politics of the belly" for nothing. Increased state power will be used to increase state power; there is no reason to expect anything else. In the second place, development that isn't controlled from below and supported by individually mobilized mass publics invariably lacks either the support or the local commitment to succeed.'

Interesting comment :)

[anne]

The model for Latin American intellectuals is not the United States, no longer the United States, but China. Similarly for African intellectuals. We are tending to foreign affairs in ways that increasingly have no resonance in Latin America or Africa, and this I do regret.

[jon livesey]

It's interesting to read the comments here - on both sides - as I seem to have been watching the identical back and forth for the past fifty years, and you can see the same thing going on for much longer if you read some history.

First people complain about being exploited, but do nothing. Then talented demagogues mobilize the discontent to overthrow all or some part of the current order. Mass joy and rejoicing. Then it turns out, to widespread amazement, that the talent that makes someone an effective demagogue does not translate into effective economic management. In fact it turns out that the theoretical basis for demagoguery tends to cripple economic development, no matter how many enemies of the people are killed. Finally Utopia implodes and since Utopia has no law except obedience to the leader, we pass into an era of lawless capitalism and widespread exploitation. And so it goes.

The lucky countries eventually escape from this cycle, often by the grace of military intervention from their more fortunate neighbours, but the Bolivias, Egypts and Nepals of this world just go round and round, basically because everyone has more important problems to worry about.

Maybe if the western middle class pseudo-intellectuals who are so sure that Utopia ought to work "in theory" would just shut up for a generation, and stop encouraging the demagogues, then even benign neglect might end up gaining everyone something like economic freedom and a decent standard of living.

[anne]

http://www.nytimes.com/2005/12/09/opinion/09gumucio.html?ex=1291784400&en=e37fd81b73b42bdf&ei=5090&partner=rssuserland&emc=rss

December 9, 2005

Señora Presidente?
By RAFAEL GUMUCIO

Santiago, Chile

CHILE is one of the more conservative countries on a continent that is not especially renowned as tolerant, forward thinking or democratically minded. Divorce was legalized here just last year, and abortion continues to be a taboo subject even for the most progressive of politicians. Our social codes and racial prejudices are deeply engrained. We are an overwhelmingly Catholic country with a history that has been marked - and continues to be marked - by the power of its military.

Given this context, it is nothing short of extraordinary - even revolutionary - that the clear front-runner in the presidential vote being held on Sunday is Michelle Bachelet, a divorced mother of three who is an atheist and a member of the Socialist Party.

Polls show Ms. Bachelet, a former defense minister, far ahead of her rivals, Sebastián Piñera, one of Chile's wealthiest businessmen; Joaquín Lavín, the ultraconservative former mayor of Santiago; and Tomás Hirsch of the Communist Party. Although a runoff is likely, the prevailing opinion here is that Ms. Bachelet will be the ultimate winner.

If she is, she will be the first woman in the Americas to be elected president not because she was a wife of a famous politician, but because of her own record. That this is a probability is even more astonishing when one considers that nothing like it has occurred in countries like the United States or France, where the democratic tradition is far more stable and feminism's impact presumably far greater. Curiously, American television is now running a series that revolves around the "novel" idea of a female president. What is fiction in the United States may well become reality in Chile.

The twist is that the Chilean candidate is a far more interesting character than the female president portrayed on American TV: as defense minister, Ms. Bachelet oversaw the successors and subordinates of the men who killed her father and tortured her and her mother during the darkest moments of the dictatorship of Gen. Augusto Pinochet.

How has this happened? Chile, more than ever, is proving itself to be the polar opposite of Lampedusa's Sicily: in order for things to change, they have to stay the same - or rather, they have to look as if they are staying the same....

[John Emerson]

"[Fifty years ago, South Korea was as poor as Bolivia was. Evo Morales does not seem to be a man who can put Bolivia onto the South Korean road.]"

I doubt that this was true. Japan exploited Taiwan and Korea, but they also developed their colonies, built infrastructure, etc., so when the Japanese left the Taiwanese and Koreans had a foundation to build on.

As in China, the answer may be that the majority of Bolivians are not going to see benefits very soon, development or no, and that an authoritarian government will end up using harsh methods to keep them quiet.

[camille roy]

Prof. Delong:

"The Future of Latin America: Another Such Victory and We Are Lost"

I don't get the title. Why the 'we'? Why would 'we' be lost? What's at stake for you as liberal leaning American economist?

thx.

[nmg]

What a fantastic article.

I find it somewhat amusing but mostly sad that they ignorantly nationalized the privately managed water service over outrage against raising prices, which Bechtel was doing in order to fund expansion, and now they are "trying to be realistic, and we're looking for aid from Canada and other countries,", and the localas are buying worm-ridden water deliveries but local private dealers because the public water service is so dismal and has no money to expand.

Sadly, neither Morales nor anyone else seems to have learned the right lessons from this.

nmg

[Ari]

Well, then, what are the right lessons that we so smugly know? How would you bring fresh safe water to the poorest Bolivins?

[Palo]

[Fifty years ago, South Korea was as poor as Bolivia was. Evo Morales does not seem to be a man who can put Bolivia onto the South Korean road.]

During 50 years not one of the american-inspired economists that directed Bolivia's economy put Bolivia in the South Korean road. What makes Brad DeLong think that the first time someone different heads the country is a good evidence of potential failure?

[anne]

http://www.nytimes.com/2004/07/17/international/americas/17boli.html?ex=1247803200&en=6fdf1cc82248f171&ei=5090&partner=rssuserland

July 17, 2004

Where the Incas Ruled, Indians Are Hoping for Power
By JUAN FORERO

ACHACACHI, Bolivia -After centuries of misery and discrimination, indigenous people across the region are flexing their political muscles, moving to wrest power from the largely European ruling elite but also dreaming of an independent state.

Such a state could look a lot like this bleak town in the highlands, where the police and central government authorities were chased out long ago, their offices destroyed by seething Aymara Indians. The Bolivian flag has given way to the seven-color Wipala, the flag of the Indian nation. Roads linking this landlocked country to the world were also blockaded frequently, a lever to prod the government to meet ever-tougher demands.

The political awakening has extended into Peru, where indigenous people have also closed highways and taken over some small towns. In Ecuador, groups of the Pachakutik movement have pledged to step up protests meant to force the resignation of President Lucio Gutiérrez, whom they helped to put in power but who has fallen out of favor over his free-market policies.

It is in Bolivia, the most indigenous country in Latin America, where they hold the most influence. One crossroads for the two visions of Bolivia will come Sunday, when a referendum is held on the issue of how to use the country's abundant natural gas, either exporting it in the hope of conventional economic development, or keeping it for use at home. The outcome could ignite new protests unless President Carlos Mesa is able to finesse the issue through his complicated five-question ballot.

He faces Indians who are increasingly aggressive in taking on the government, and have scored a series of victories. Just nine months ago, their protests forced President Gonzalo Sánchez de Lozado to resign. Now, they want Mr. Mesa to expropriate Bolivia's oil and gas companies, a proposal he rejects.

In local meetings, some Indians now even talk of forming a completely new nation, reaching across the scrub grass of the Andean highlands into Peru and Chile, where the Aymaras also live. It is a idea that has a powerful hold on this swath of the former Inca empire.

"We could remain part of Bolivia, but we want to run things," said Ramón Yujra, the director of a school in Achacachi and an indigenous leader.

Felipe Quispe, a former guerrilla and a prominent indigenous leader, went further. "What we've been doing is taking out the government representatives, the police, the transit force, the judges, the subprefects, even the mayors," he said. "Like a drop of grease that expands, if this movement keeps growing, we will reach all of Bolivia." ...

[liberal]

jon livesey wrote, "Maybe if the western middle class pseudo-intellectuals who are so sure that Utopia ought to work 'in theory' would just shut up for a generation, and stop encouraging the demagogues, then even benign neglect might end up gaining everyone something like economic freedom and a decent standard of living."

Not so clear.

There are two choices:
* anarchy
* government

I'll assume without comment that all agree that anarchy isn't a good choice.

If one chooses government, then one must have a political theory or system in mind.

It's true that many leftist theories of political economy are faulty. But there are plenty of "free market reforms" that are claimed to work "in theory" but that fail, often drastically, in practical application. (Cf California electricity deregulation crisis; a historical level of theft of assets in the reforms instituted in Russia, etc.)

A big part of the problem is the phrase "economic freedom": most people who use this term don't understand what it means, and many who claim to be in favor of economic freedom in fact are dead-set against it. (See the essay "Are you a real libertarian or a Royal libertarian," at
http://geolib.pair.com/essays/sullivan.dan/royallib.html
for more details.)

[me]

Look, the city of Atlanta privitized their water supply and had to fire the company and take back control, so why is it surporising that it failed in Bolivia.

Tracy has a very good post.

anne said "The model for Latin American intellectuals is not the United States, no longer the United States, but China. Similarly for African intellectuals. We are tending to foreign affairs in ways that increasingly have no resonance in Latin America or Africa, and this I do regret."

I agree but look through their eyes. They have Bush and the US government at war in Colombia, refusing to give up sugar and other agricultural subsidies, at war with Chavez, with religious jihadist like Robertson calling for his assasination. While China, makes trade agreements with Brazil.

Do you think they admire China, who is beginning to own the US, or the bellicose US that deposes soverign countries that they don't like.

How do you get on that not liked list? How do you get off that list?

The US is rapidly becomming a collasal failure. In Iraq we destroyed the invinciablility of our military so now countries are no longer afraind to challenge us because they see our weaknesses.

They see that 3 months after a storm hits the US we have sone nothing except save tax dollars by kicking those displaced out of their temporary living. All the money ahs gone to republican relatives of Trent Lott and he still sues the insurance companies.

If we can't help our own and we can't defeat an enemy on our terms, why should Latin America hold us as a role model?

[Arun Khanna]

I have a suggestion. Why doesn't Berkeley influence a Latin American country's economic policies so that we can compare Chile (Chicago School) with unnamed Latin American country (Berkeley).

[jon livesey]

"Well, then, what are the right lessons that we so smugly know? How would you bring fresh safe water to the poorest Bolivins?"

My answer would be the same in all cases where people cannot afford some basic resource. Give provision of the resource to a private company - profit is a wonderful incentive to efficiency - and then subsidize those who cannot afford the private market price, in the hope that some day they will be able to afford it.

And if you ask "from whence comes the subsidy?" I would reply that I believe that the international community will be more willing to assist a country that plays by the rules than one which expropriates property and businesses and attempts to set up a socialist autarchy.

To me, subsidizing just those in need is far preferable to distorting the entire economy in the vague hope that as a side-effect someone somewhere will get something they currently don't get.

I believe that the greatest weakness of socialism is that it places a strait-jacket on every consumer so as indirectly to help a minority. And this is true not just in Bolivia.

[jon livesey]

"If one chooses government, then one must have a political theory or system in mind."

I think that the weakness with this analysis is that it treats government and economy as somehow the same.

I am enthusiastic about the "theory" of democracy, but I don't call it an economic utopia. It's just a mechanism for getting a government. And I don't call capitalism a system with a "theory". Capitalism is just what you get when you don't impose an economic utopia, or when the current economic utopia implodes. And then government's role is administer a legal framework for business, not to impose an ideology on business.

[Ari]

Quite eell answered, and I agree until the last phrase:

'My answer would be the same in all cases where people cannot afford some basic resource. Give provision of the resource to a private company - profit is a wonderful incentive to efficiency - and then subsidize those who cannot afford the private market price, in the hope that some day they will be able to afford it.

'And if you ask "from whence comes the subsidy?" I would reply that I believe that the international community will be more willing to assist a country that plays by the rules than one which expropriates property and businesses and attempts to set up a socialist autarchy.'

As was mentioned above, China is serving as a most successful development model for country after country.

[Ralph]

The privatization of water systems whose operations have been dominated by municipal or state governments until recently has become a burgeoning field for foreign investments. Note that these are not greenfield operations but takeovers of existing systems. Abuses of water systems have become widespread under corporate control and are not limited to poor Latin American cities with their corrupt and incompetent leaders. Two of the leading global water privatizers are the French corporations Suez and Vivendi. Suez is particularly aggressive in this area of investment. Suez's takeover of the Atlanta water system was a "complete failure" according to Public Citizen, the non-profit watchdog group. There was a huge increase in "brown water days" when the water was not fit to drink or wash clothes in. After the takeover, Suez fired half of the staff which caused a deterioration in service almost immediately. The municipal authorities in Potsdam, Germany canceled their contract with Suez after it demanded a huge increase in water rates. anne mentioned the case of Suez's El Alto Bolivia subsidiary Aguas del Illimani earlier. Vivendi's water subsidiary, Generale des Eaux was prosecuted for supplying below standard water quality by the city of Tregeux, France. Privatized water companies in the UK are among the worst polluters of water resources and Northumberland Water the Suez subsidiary is one of the two worst water suppliers in the UK. In S Africa privatized water companies were accused of creating the conditions for a cholera epidemic. A tragic consequence of this global rush to privatize more municipal water systems is that corporations have enlisted the aid of the World Bank to push for more privatization by making loans conditional upon a committment to privatize. The WTO has the General Agreement of Trade in Services to bind developing countries to open up water and other government run utilities to private investment which really falls outside its mandate to regulate trade in goods. There is a movement to oppose this exploitative expansion of capitalist investment which is growing though still small in scope. The information presented here was taken from a report by the Institute on Agriculture and Trade Policy (IATP).

[Ari]

By the way, we sure have had an awful lot of public water systems in America that have served us awfully well. Same for other public services, from schools to police and fire forces.

[anne]

Important comment, Ralph :)

[anne]

http://www.nytimes.com/2005/10/25/international/americas/25GOLD.html?ex=1287892800&en=b11552f1154afd44&ei=5090&partner=rssuserland&emc=rss

October 25, 2005

Tangled Strands in Fight Over Peru Gold Mine
By JANE PERLEZ and LOWELL BERGMAN

SAN CERILLO, Peru - The Rev. Marco Arana drove his beige pickup over the curves of a dirt road 13,000 feet high in the Andes. Spread out below lay the Yanacocha gold mine, an American-run operation of mammoth open pits and towering heaps of cyanide-laced ore. Ahead loomed the pristine green of untouched hills.

Then, an unmistakable sign that this land, too, may soon be devoured: Policemen with black masks and automatic rifles guarding workers exploring ground that the mine's owner, Newmont Mining Corporation, has deemed the next best hope.

"This is the Roman peace the company has with the people: They put in an army and say we have peace," said Father Arana as he surveyed the land where gold lies beneath the surface like tiny beads on a string.

Yanacocha is Newmont's prize possession, the most productive gold mine in the world. But if history holds one lesson, it is that where there is gold, there is conflict, and the more gold, the more conflict.

Newmont, which has pulled more than 19 million ounces of gold from these gently sloping Peruvian hills - over $7 billion worth - believes that they hold several million ounces more. But where Newmont sees a new reserve of wealth - to keep Yanacocha profitable and to stay ahead of its competitors - the local farmers and cattle grazers see sacred mountains, cradles of the water that sustains their highland lives.

The armed guards are here because of what happened in the fall of 2004 at a nearby mountain called Cerro Quilish. For two weeks, fearing that the company's plans to expand Yanacocha would mean Quilish's desecration and destruction, thousands of local people laid siege to the mine. Women and children were arrested, tear gas was thrown, the wounded hospitalized after clashes with the police....

[Charly]

Profit is a wonderful incentive to efficiency or it is a wonderful incentive for inefficiency. This is especially a problem in situations were you have a natural monopoly, like in the water industry. The reason why you have an incentive for inefficiency is because the polical reality is that profit is a percentage of cost. If you reduce cost than your total profit will also shrink.

[yawar]

What makes private enterprise efficient is competition. A muni water system, however, is a monopoly. I doubt we will ever see many benefits in having private corporations run utilities except perhaps in the case of very small municipalities. I've spent some time working with municipal utilities and the ones operated by special districts tend to be quite efficient (as opposed to those operated directly by municipalities which are sometimes paralyzed by extended chains of command)

By the way, the disparity in wealth in Bolivia is not that apparent, compared with... let's see ... here in Berkeley.

Also, I was just reading an article by Jeffrey Sachs in which he briefly compares the twentieth century development of Argentina and Australia, countries that both began as exporters of raw materials. Australia, however, converted to a "knowledge-based economy" by raising its educational level. This did not happen in Argentina (nor in Bolivia, obviously). I wonder if perhaps Robert Waldman has the secret: “...South Korea invested in education at a level absurdly out of line of any other poor country except maybe Taiwan." Maybe the World Bank and others should be funding schools and teachers as the top priority. In Bolivia, many are completely outside the educational system – don’t even speak Spanish – and so one can hardly expect them to make informed decisions when voting (please, no nasty comments about the inability of US citizens to make informed decisions while voting!)

[econgeek]

yagar;
". I doubt we will ever see many benefits in having private corporations run utilities except perhaps in the case of very small municipalities"

I strongly recomend you read "Water for Life: The Impact of the Privatization of Water Services on Child Mortality" S Galiani, P Gertler, E Schargrodsky - Journal of Political Economy, 2005
Being an argentine I do not have the warmest of feelings towards privatization but it is definatly posible (even likely) that there are a lot of good effects if carried out properly.

The berkley/bolivia inequality comment seems preposterous, Get a flying to the airport in Santa Cruz de la Sierra. Look around, buy something nice in the fancy duty-free. Now take a bus westwards until you reach titicaca.Or look up a gini coeficient for each of the two places. I cannot imagine anyone who has actually been to both places for any extent making that comment.

[Maynard Handley]

"...protests against the introduction of stronger market forces..."

Is the underlying problem really the "market," or monopolization of land and other natural resources?

.............................

Let's talk about the real problem, the one no-one is willing to mention. This is all about overpopulation.
Of course not directly; removing overpopulation will not remove the stupidity of the left and the avarice of the right. But it is overpopulation that makes these problems so difficult to solve.
Since 1950 the Bolivian population has more than doubled.
I'm guessing the bulk of this increase has occurred in cities rather than the countryside, and that Cochabama is typical.

A quick Google confirms:
http://countrystudies.us/bolivia/40.htm
Bolivia's pattern of urbanization is exemplified in the growth of Cochabama. In 1900 Cochabamba consisted of 22,000 residents and included only 7 percent of the total departmental population. Over the next half-century, the city's population expanded at 2.5 percent annually to 81,000 in 1950, when it contained 16.5 percent of the total departmental population. The pace of urban growth quickened to 3.5 percent annually between 1950 and 1976; by 1976 Cochabamba consisted of 200,000 residents and included 28 percent of the overall departmental population. During this period, squatters pushed far beyond the city's previous southern and eastern limits; for example, Cochabamba's airport, which had served as one part of the southern boundary, became surrounded by new urban communities. Between 1976 and 1986, urban growth intensified to 4.2 percent annually as the city encompassed 31 percent of the department's population.

Providing water economically for a city of size A is, let's say, trivial.
For a city of size 4A, it's starts to become a hard problem.
For a city of size 16A it starts to become impossible.

This is what overpopulation IS folks. It's the erosion of things we take for granted because providing them for everyone is simply impossible. It's not some dramatic die-off over one year, some definite event that supposedly did not happen in the last thiry years therefore proving that overpopulation does note exist.

OK, you may now resume your sneering at the Club of Rome report, along with your cheerleading about how, when the price of water in Bolivia rises high enough icebergs from Antarctica will be flown in. (But answer this --- what economic activity will the Bolivians provide that provides the money for this water? That's the hidden, undealt with issue, in these claims about how rising natural resource prices will persuade the market to find alternatives.)

[econgeek]

Maynard; explain to me the following then; Japan, HK, Taiwan, Luxemburg. They all have population densities that put bolivia to shame.

[Yawar]

Econgeek - fascinating! Galiani et al: "...Using the variation in ownership of water provision across time and space generated by the privatization process, we find that child mortality fell 8 percent in the areas that privatized their water services; and that the effect was largest (26 percent) in the poorest areas." And the drop was in waterborne illnesses. I'm astounded! (Also, surprised that people are still dying in Argentina from waterborne illnesses - this is really inexcusable.)

Haven't been to Santa Cruz for awhile so I withdraw my Berkely/Boliva comment (altho I am blown away by some of the folks around the East Bay that have extraordinary amounts of $$) Coincidentally, my daughter took the bus trip from Santa Cruz to La Paz two weeks ago so I should ask her.

Maynard has likely put his finger on an even more fundamental problem than lack of education - population growth. I read recently that at one point in the past (not sure when) the US and SA had about the same population and now SA is 2X the US. A couple years ago I drove thru the slums ringing Lima - they blanket the rolling hills: millions living in mat-walled homes of maybe 120 sq ft. - it left me with an overwhelming feeling that the Andean countries would never pull themselves out of poverty. I don't know how Jeffrey Sachs maintains his optimism that poverty can be ended. His shock therapy doesn't seem to be the way.

[econgeek]

Yagar;

"(Also, surprised that people are still dying in Argentina from waterborne illnesses - this is really inexcusable.)"

I agree that it is inexcusable, through a large part of northern argentina resembles... well ... western Bolivia, a lot more than it Buenos Aires.

New York, or Tokyo or (probably) even SF have far larger population densities than even the densest barriada of Lima. I wish I had something more rigourous to refer you to, but sadly I must stop procastrinating and do a literature review for a class. Someone else, preferably someone who allready has a PhD please cite some reasonable critique of malthusianism. This is really not the conclusion to draw from this episode.

[liberal]

jon livesey wrote, "Give provision of the resource to a private company - profit is a wonderful incentive to efficiency..."

Not necessarily. Presumably these water systems are local monopolies. And all those theoretical points about competition spurring efficiency are irrelevant in such a context.

That doesn't mean, of course, that private companies might not do better. But you can't wave the magic wand of the free market and competition in order to prove your point, in a monopolistic situation.

[liberal]

econgeek wrote, "Someone else, preferably someone who allready has a PhD please cite some reasonable critique of malthusianism. This is really not the conclusion to draw from this episode."

Over 100 years ago, Henry George demolished the Malthusian argument by pointing out that (a) there's no evidence for it, (b) every child born into the world brings not only a mouth, but two hands.

Not that George's argument was necessarily original. But it's noteworthy for its surrounding context: the solution to the problem of poverty. To wit: tax away private capture of (Ricardian) land rent to provide revenue for the state, and at the same time decrease reliance on destructive taxes on economic activity.

This bears on the current discussion. To the extent that the private companies discussed in this blog post are allowed to capture land rent ("land" in classical economics includes all natural resources, obviously therefore water), it's a bad thing. To the extent that they're adding capital to improve water systems, it's a good thing. There's a separate problem of monopoly rent, of course.

[dsquared]

[every child born into the world brings not only a mouth, but two hands.]

True, however the mouth needs water poured into it for quite a long time before the hands can be put to use. Water provision for growing cities is a serious town planning issue (it's a real problem in parts of the USA, where capital isn't so scarce) and I think it probably deserves more discussion than just to be dismissed as Malthusianism.

I'm beginning to think that Malthus got a raw deal, in any case. In order to ensure that population growth isn't immiserising (that every new population member is able to produce output equal to the cost of their subsistence) one needs to solve a fairly difficult programming problem, the constraints on which are land and capital. The simple fact that a solution to this problem is possible (viz Japan, UK etc) doesn't in any way guarantee that it can be reached in every case and nor does any realistic concept of free market equilibrium.

[Maynard Handley]

Maynard; explain to me the following then; Japan, HK, Taiwan, Luxemburg. They all have population densities that put bolivia to shame.

........................................

This is hardly an original complaint. The standard country offered up is the Netherlands.
The relevant issue is the concept of ecological footprint --- how much of the earth is the country involved *effectively* using up through importing material from elsewhere. The answer, in the case of the Netherlands, when this was looked at some time ago, is 14x the area of the Netherlands. The Netherlands, like Manhattan, stays alive through the effective control of 14x its area.
SO --- if we had 13 other earths to extract resources from, your argument might be reasonable. Given the actual situation, it is not reasonable.

That was my point about the ability of Bolivians to PAY for water produced by high-tech means. Sure, in some theoretical sense you can extract water, oil and so on from anything if the price is high enough, but what's the other side of the equation? What's the task to which this ultra-high cost water or oil to be put that justifies the cost?
(This is nothing but a way of trying to force the obvious point, by writing it in economist's language, that there's something very different between the unburdened situation of simply piping in water from a clean nearby lake, and heroic technological measures like pumping it in from 100 miles away over the Andes, or desalinization or whatever.)

[Ari]

Maynard, but what then are you suggesting? The comment is useful, but the population is there. What then can be done?

[Ari]

The suggestion that allowing private water system development with subsidies extended to poor families is a possible answer; possible, but affording the subsidies will take additional taxing of domestic resources. From the notes by Robert Waldmann and Ralph and Anne, I would suggest that public development of water systems through revenue generated by added taxing of resources could work just as well.

[liberal]

dsquared wrote, "In order to ensure that population growth isn't immiserising (that every new population member is able to produce output equal to the cost of their subsistence) one needs to solve a fairly difficult programming problem, the constraints on which are land and capital."

A good beginning would be for modern economists to actually admit that land is not capital; many of them seem to have a hard time with this.

[anne]

Liberal

Land is surely not capital, though land ownership can be used to borrow money. Ownership of land is important for Bolivia's Indians for generally there can be the basis of what wealth they have.

But, I am not sure what you and DSquared are thinking.

[liberal]

anne wrote, "Ownership of land is important for Bolivia's Indians for generally there can be the basis of what wealth they have."

That's true. But read my Dec 19 1:50 AM post: while a Jeffersonian system of small plots might be just from a distributional point of view, it's bound to be inefficient.

Much more efficient, and simultaneously just, is for the value of land (i.e., land ex its improvements) to be fully taxed by the state, with the revenue used for constructive ends.

Google on "land value taxation".

[anne]

Liberal:

"Of course, land reform might not lead to a prosperous society; it depends on the economics. Breaking up land into small plots might be good in terms of evening the distribution of land wealth, but it might be bad in terms of economic efficiency (as there's economies of scale in agriculture, most other industries). The best type of land reform, of course, is to tax land extremely heavily and let the market decide how to best arrange land use (with some regulatory limits)...the proceeds of such a land tax being used to fund a modern liberal state."

Yes; I remember this post but how are small land holdings to be heavily taxed when they are relatively innefficient to begin with and what families cling to in the end? What happens when Mexican farm families are forced from the land?

[anne]

http://www.globalpolicy.org/socecon/bwi-wto/wto/2003/0303mexi.htm

March 3, 2003

Why Mexico's Small Corn Farmers Go Hungry
By Tina Rosenberg - New York Times

Macario Hernández's grandfather grew corn in the hills of Puebla, Mexico. His father does the same. Mr. Hernández grows corn, too, but not for much longer. Around his village of Guadalupe Victoria, people farm the way they have for centuries, on tiny plots of land watered only by rain, their plows pulled by burros. Mr. Hernández, a thoughtful man of 30, is battling to bring his family and neighbors out of the Middle Ages. But these days modernity is less his goal than his enemy.

This is because he, like other small farmers in Mexico, competes with American products raised on megafarms that use satellite imagery to mete out fertilizer. These products are so heavily subsidized by the government that many are exported for less than it costs to grow them. According to the Institute for Agriculture and Trade Policy in Minneapolis, American corn sells in Mexico for 25 percent less than its cost. The prices Mr. Hernández and others receive are so low that they lose money with each acre they plant.

In January, campesinos from all over the country marched into Mexico City's central plaza to protest. Thousands of men in jeans and straw hats jammed the Zócalo, alongside horses and tractors. Farmers have staged smaller protests around Mexico for months. The protests have won campesino organizations a series of talks with the government. But they are unlikely to get what they want: a renegotiation of the North American Free Trade Agreement, or Nafta, protective temporary tariffs and a new policy that seeks to help small farmers instead of trying to force them off the land.

The problems of rural Mexicans are echoed around the world as countries lower their import barriers, required by free trade treaties and the rules of the World Trade Organization. When markets are open, agricultural products flood in from wealthy nations, which subsidize agriculture and allow agribusiness to export crops cheaply. European farmers get 35 percent of their income in government subsidies, American farmers 20 percent. American subsidies are at record levels, and last year, Washington passed a farm bill that included a $40 billion increase in subsidies to large grain and cotton farmers.

It seems paradoxical to argue that cheap food hurts poor people. But three-quarters of the world's poor are rural. When subsidized imports undercut their products, they starve....

[anne]

http://www.nytimes.com/2005/09/22/international/africa/22niger.html?ex=1285041600&en=9be0fc0627db213f&ei=5090&partner=rssuserland&emc=rss

September 22, 2005

In Place Where the Hungry Are Fed, Farmers May Starve
By NATASHA C. BURLEY

NIAMEY, Niger - The images coming out of this impoverished, West African nation have been unrelentingly grim: hungry children with stick-thin arms and swollen bellies, mothers carrying babies hundreds of miles to look for food after a poor harvest and high prices put local staples out of reach. A few months ago, those images prompted a torrent of food aid from Western donors.

But now, after a season of good rains, Niger's farmers are producing a bumper crop of millet, the national staple. This should be a cause for rejoicing, yet in one of the twists that mark life in the world's poorest countries, the aid that was intended to save lives could ruin the harvest for many of Niger's farmers by driving down prices.

The newly harvested millet and the donated food will reach market stalls at the same time, and with prices depressed, poor farming families may be forced to sell crops normally set aside for their own use and use the money to pay off debts. The effect would be a new cycle of hunger and poverty.

Dr. Edward Clay of the Overseas Development Institute, an independent research organization in London, said by e-mail that because the donated food was delayed, "there is a real risk that late arrival will disrupt recovery in Niger and distort agricultural trade within West Africa."

Millet is grown by almost all of the nation's farmers, but the crop has become one of the factors that work against the people of Niger and in favor of malnutrition and hunger. A distant cousin of corn, it is a hardy crop but provides almost no protein or other nutrients essential for the diets of children, and requires hours of daily pounding to be made edible.

Amadou Hassane, a millet farmer north of Niamey, has begun harvesting some of the millet in his fields for his family. "It is wonderful to be able to give millet to my wife to pound," he said, proudly fiddling with his tall stalks. "This year promises to be plentiful, and we're grateful."

But he said he would sell much of his harvest to repay debts incurred to buy seedlings after last year's drought devastated his millet plants and left him with nothing to sell.

"I'll keep no more than half of my harvest as stock for myself, and sell the rest to pay back my debts," he said. "I badly need cash." Since he, and most other farmers in the muddy village of Fala, borrowed money, he will have to sell a greater proportion of his harvest if prices are low.

To survive the lean season - the period after household stocks are gone and before the new harvest - Mr. Hassane engaged in a sort of futures market, borrowing against his next harvest so he could buy seed....

[piotr]

Population growth increases the ratio NIITAD/GNP, where NIITAD stands for "necessary investements in the infrastructure to avoid deterioration".

Suppose that a decent water system costs equals 20% of the GNP for a given year. If population increases 2.5% every year, you need .5% of GNP to maintain the relative decency of the water system, and if it increases 1% every year, you need 0.2%. Other necessary infrastructure include street network, schools, electricity production and distribution etc.

The problems are magnified in cities that yet faster population growth.

Given that in a given socio-political system there is a limit how much you can invest in infrastructure, the faster the population growth the shabbier the infrastructure.

And what is the "correct way" of funding the infrastructure? Both public and private providers can be subject of competent oversight and regulation or given to graft or profiteering. It is a shocking surprise that poor communities with low education level gravitate to the latter options rather than the former. (To analyze a bit some examples given here, when people in Atlanta or Pottsdam are displeased with the local monopolistic private supplier, the competent municipal specialists can enforce the contract that was very thoughfully negotiated, or this at the very least should be the case, these communities can also directly access the municipal bonds market etc.).

[econgeek]

to whoever complained about the braketed comments; some of us *are* undergradutes! Or; on the internet no one knows you are a dog.

on to somewhat more relevant matters;

"A good beginning would be for modern economists to actually admit that land is not capital; many of them seem to have a hard time with this."

For most poor countries where capitla intensity is low, and thus decreasing returns are still relatively far away, It would seem like K and T (land) being perfect substitutes is a pretty good first order approximation (I shall whait to see if waldman chides me for saying this). The same would apply for a country that is allready hitting diminishing returns in substitutions of K and T in the production of food. The argument works even better if one is looking at a small open economy, then K is definatly a very good substitute for T (imports).

[econgeek]

On the land-limits argument;

Ok so let us say that the netherlands is using 13 times more land than it actually has between its borders. The world as a whole however is definatly only using one world worth of resources, I hope this far you will agree. If you tell me that we are using resources too fast, then I have a bet for you....

The world of 2000 is a lot more populous than the world of 1700, which one is richer? which one has greater population density?

[econgeek]

dsquared wrote, "In order to ensure that population growth isn't immiserising (that every new population member is able to produce output equal to the cost of their subsistence) one needs to solve a fairly difficult programming problem, the constraints on which are land and capital."

It seems like over the last 200 years the vast majority of the world has done a remarkably good job at solving this admitedly complex problem. Or am I missing something to the argument?

[anne]

Nicely done :) What Bolivia has is resource wealth and a slowly growing educational base. Education of girls and women is increasingly notable. So, the hope in Evo Morales is to increase nationally retained resource wealth and use it to develop an infrastructure, including education, that will allow for sustained development in taking advantage of an increasingly broad Latin American and Chinese market.

[anne]

http://www.nytimes.com/2004/11/20/international/asia/20china.html?ex=1258606800&en=6af924a356976d31&ei=5090&partner=rssuserland

November 20, 2004

China Widens Economic Role in Latin America
By LARRY ROHTER

SANTIAGO, Chile - The expected arrival here on Friday of President Bush, who personifies for Latin Americans the economic and political power of Washington, is being greeted with an uneasy mix of protests and hopes for greater growth.

But while the United States may still regard the region as its backyard, its dominance is no longer unquestioned. Suddenly, the presence of China can be felt everywhere, from the backwaters of the Amazon to mining camps in the Andes.

Driven by one the largest and most sustained economic expansions in history, and facing bottlenecks and shortages in Asia, China is increasingly turning to South America as a supplier. It is busy buying huge quantities of iron ore, bauxite, soybeans, timber, zinc and manganese in Brazil. It is vying for tin in Bolivia, oil in Venezuela and copper here in Chile, where last month it displaced the United States as the leading market for Chilean exports.

While President Bush is spending the weekend here for the Asian-Pacific Economic Cooperation forum, President Hu Jintao of China is here in the midst of a two-week visit to Argentina, Brazil, Chile and Cuba. In the course of it, he has announced more than $30 billion in new investments and signed long-term contracts that will guarantee China supplies of the vital materials it needs for its factories.

The United States, preoccupied with the worsening situation in Iraq, seems to have attached little importance to China's rising profile in the region. If anything, increased trade between Latin America and China has been welcomed as a means to reduce pressure on the United States to underwrite economic reforms, with geopolitical considerations pushed to the background....

[Arun Khanna]

4 million reasons for you to think about a better way to solve developing countries including Bolivia's water problems. Check out World Bank's 4 million dollars prize competition:
http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTWRM/
0,,contentMDK:20669151~menuPK:337246~pagePK:64020865~piPK:
149114~theSitePK:337240,00.html

[anne]

If only we were properly engaged in Latin America, there is so much that could be accomplished, but it is not so.

[anne]

What dear Brad might have titled this post is the future of "America." We are forgetting our neighbors.

[Maynard Handley]

"
The world as a whole however is definatly only using one world worth of resources, I hope this far you will agree. If you tell me that we are using resources too fast, then I have a bet for you....
"

Are you really this stupid?
Let's consider an analogy.
I inherit $1 million. Invested in 5% treasuries, that yields $50,000 a year. Now suppose I spend $100,000 a year, and, when my account points out that this is a bad idea, I reply "What's the problem? The checks clear, don't they?"

The earth supports 3 times its carrying capacity because we are using up natural resources (ie "natural capital") rather than living off what is renewable ("natural interest"). Oil is the most obvious example, but fresh water (pumped from aquifers) is also a common case, as is agricultural soil (salinized by too intensive agriculture), as is the depletion of fisheries.

[Maynard Handley]

"
dsquared wrote, "In order to ensure that population growth isn't immiserising (that every new population member is able to produce output equal to the cost of their subsistence) one needs to solve a fairly difficult programming problem, the constraints on which are land and capital."

It seems like over the last 200 years the vast majority of the world has done a remarkably good job at solving this admitedly complex problem. Or am I missing something to the argument?
"

Really? The "vast majority" have done a "remarkably good job"? So you believe the vast majority of the world lead acceptable lives? You'd like to trade places with a randomly chosen member of the 6.5 billion? You like the odds that the resultant lifestyle would be comparable to your own?

[econgeek]

>Are you really this stupid?

I prefer the term cognitively challenged, thank you very much. Now, seioursly, no need for name calling. I really am trying to understand what you mean.

>Really? The "vast majority" have done a "remarkably good job"? So you believe the vast majority of the world lead acceptable lives? You'd like to trade places with a randomly chosen member of the 6.5 billion? You like the odds that the resultant lifestyle would be comparable to your own?

You are not understanding what I said. What I said was that the currrent 6 billon are much, much better off than any other set of peoeple from the past. The relevant question then is;

if you are going to pick being born at some point in time as a random member of the population. If I have to pick any year before the present, which one do you pick? I pick 2004. You, why?

[No von Mises]

Mahmood Mamdani's _The Myth of Population Control_ is a good, microeconomic critique of neo-Malthusianism from 1960s.

[anne]

http://www.nytimes.com/2005/12/20/international/americas/20bolivia.html?ex=1292734800&en=317105a1a7bb9924&ei=5090&partner=rssuserland&emc=rss

December 20, 2005

Bolivia's Newly Elected Leader Maps His Socialist Agenda
By JUAN FORERO

LA PAZ, Bolivia - After his decisive win in the election for president on Sunday, the Socialist indigenous leader, Evo Morales, vowed Monday to respect private property but repeated his pledge to increase state control over the energy industry and reverse an American-backed crusade against coca, the plant used to make cocaine.

Wearing his trademark black jeans and tennis shoes, Mr. Morales arrived in La Paz to begin laying the groundwork for an economic and political transformation that he says will give voice to the poor, indigenous majority that fueled his campaign. "The voice of the people is the voice of God," he said late Sunday....

Unofficial results showed that Mr. Morales won up to 52 percent of the vote to become the first Indian president in Bolivia's 180-year history, a victory that solidifies a continent-wide shift of governments to the left.

"For the first time a candidate wins with 50 percent plus 1, and it's the biggest margin between the first two finishers," said Gonzalo Chávez, an economist and political analyst at Catholic University in La Paz. "This is a democratic revolution. The voting was tremendously strong, and signifies a tremendous demand for change in Bolivia."

President Hugo Chávez of Venezuela and President Néstor Kirchner of Argentina, two of the continent's leading left-leaning leaders, quickly offered their congratulations, as did Chile, Spain and the European Union....

[lise]

The problems in Bolivia are neither new nor unique and have been well reported for several years, but as far as I can tell the Administration has spent no effort assisting Bolivia even though her problems were echoed elsewhere in Latin America and there was a noticeable turn to the left from Mexico to Argentina. Now, Bolivia is taking a new turn and we had better feel compelled to ask if we wish to remain at all engaged with our neighbors. Here is where our interests significantly lie.

[liberal]

anne wrote, "Yes; I remember this post but how are small land holdings to be heavily taxed when they are relatively innefficient to begin with..."

Under land value taxation, they'd be taxed for their land rent.

"...and what families cling to in the end? What happens when Mexican farm families are forced from the land?"

If Mexico adopted land value taxation and spent the proceeds to develop a modern, liberal industrial state, there'd be plenty of jobs.

[liberal]

piotr wrote, "And what is the 'correct way' of funding the infrastructure?"

Taxing land rent.

Creating improvements leads to land rent. Thus taxing land rent is equitable. It's also extremely efficient.

[liberal]

econgeek wrote, "It would seem like K and T (land) being perfect substitutes is a pretty good first order approximation..."

Hardly.

[anne]

Interesting, then we had better attend carefully to the transformations of China and South Africa, and likely India and possibly Brazil. These are the models that are being looked to in emerging states.

[dsquared]

[It seems like over the last 200 years the vast majority of the world has done a remarkably good job at solving this admitedly complex problem. Or am I missing something to the argument?]

You're missing Africa, for a start.