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Friday, January 4, 2019

Chile’s Pro-Market Reforms Generate Big Benefits for the Less Fortunate, Part II January 4, 2019 by Dan Mitchell

I’m currently in Chile, enjoying the warm sun and doing research on the nation’s impressive economic performance.
I met yesterday with Jose Pinera, the former minister who created Chile’s incredibly successful system of personal retirement accounts (he’s also one of the people Gary Johnson should have mentionedwhen he was asked to identify an admirable foreign leader).
Back in 2013, I shared some of Jose’s datashowing how the economy took off after Chile enacted pro-market reforms.
I was especially impressed by the stunning reduction in the poverty rate, which had dropped from 50 percent to 11 percent (it’s now down to 7.8 percent).
In other words, capitalism has been great news for poor Chileans. Simply stated, when given more freedom and opportunity, most of them escape poverty.
Interestingly, Reuters reports that even the IMF recognizes Chile’s superior performance.
The International Monetary Fund (IMF) hailed Chile’s strengthening economy in a report published on Friday while encouraging President Sebastian Pinera to push forward with promised structural reforms. In a statement following its annual consultation with Chile, the IMF praised Pinera’s proposed reform drive… Conservative billionaire Pinera took office in March with a strong mandate to make changes to the country’s pension system and labor laws and simplify the tax code. …The bank praised his early efforts, which it said were aimed at “re-invigorating investment and economic growth.”
Hmmm…, makes me wonder if the IMF (given its dismal track record) actually understands why Chile has become so prosperous.
Though the World Bank has praised the country’s pro-market reforms, so international bureaucracies sometimes stumble on the right answer.
But let’s not get distracted. Today, I want to share further evidence about how pro-market reforms produce big benefits for the less fortunate.
Here’s a chart from an article in the latest edition Economia y Sociedad. The article is in Spanish, but a translation of the relevant passage tells us that, “in Chile, the income of the poorest 20% of the population has risen at a rate (8.2% per year) that is 50% higher than that to which the income of the richest 20% has risen ( 5.3% per year).”
In other words, a rising tide lifts all boats (just as in the U.S.), but the bottom quintile is enjoying the biggest increases.
Sounds like great news. And it is great news. But some people put on blinders.
My left-leaning friends loudly assure me that they are motivated by a desire to help poor people. Yet if that’s true, why aren’t they falling over themselves to praise Chile? Why are they instead susceptible to waxing rhapsodic about the hellhole of Venezuela or bending over backwards to defend Cuba’s miserable regime?
And why do some anti-capitalist economists engage in absurd examples of cherry picking in failed efforts to discredit Chile’s accomplishments?
The bottom line is that Chile became the Latin Tiger thanks to economic liberty. That’s great news for the country, but especially good for the less fortunate.

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