Be free and prosper 4

There are a few countries that have not been plunged into recession by the almost global economic crisis. Some have prospered in the midst of it, though not because of it.

The fall in US real estate values, unemployment, and deep debt were caused by socialist policies, as Thomas Sowell explains in his new book, The Housing Boom and Bust. Find an excerpt from it here.

The countries that have prospered have done so as a result of sticking to free market policies. Here are two examples:

1.  Chile is a shining model.

From Investor’s Business Daily:

Chile is expected to win entry to OECD’s club of developed countries by Dec. 15 — a great affirmation for a once-poor nation that pulled itself up by trusting markets. One thing that stands out here is free trade.

At a summit of Latin American countries last week in Portugal, Chilean President Michelle Bachelet suddenly became the center of attention — and rightly so. She announced that her country was expected to win membership in the Organization of Economic Cooperation and Development, an exclusive club of the richest and most economically credible nations. …

For the rest of us, it’s a stunning example of how embracing free markets and free trade brings prosperity.

It’s not like Chile was born lucky. Only 30 years ago, it was an impoverished country with per capita GDP of $1,300. Its distant geography, irresponsible neighbors and tiny population were significant obstacles to investment and growth. And its economy, dominated by labor unions, wasn’t just closed, but sealed tight.

In the Cato Institute’s 1975 Economic Freedom of the World Report it ranked a wretched 71 out of 72 countries evaluated.

Today it’s a different country altogether. Embracing markets has made it one of the most open economies in the world, ranking third on Cato’s index, just behind Hong Kong and Singapore. Per capita GDP has soared to $15,000.

Besides its embrace of free trade, other reforms — including pension privatization, tax cuts, respect for property rights and cutting of red tape helped the country grow not only richer but more democratic, says Cato Institute trade expert Daniel Griswold.

But the main thing, Griswold says, is that the country didn’t shift course. “Chile’s economy is set apart from its neighbors, because they have pursued market policies consistently over a long period,” he said. “Free trade has been a central part of Chile’s success.”

Chile has signed no fewer than 20 trade pacts with 56 countries, giving its 19 million citizens access to more than 3 billion customers worldwide. When no pact was in force, Griswold notes, Chile unilaterally dropped tariffs. This paid off handsomely. …

The success belies claims, made mostly by protectionist unions, that free trade is a job killer and source of misery.

It’s also a reminder of how the U.S. has lagged on trade agreements, signing just 11 with 17 countries since 1993 — one reason why its ranks just 17th on Cato’s 2009 Index of Economic Freedom.

Despite the recession, American trade pacts with Colombia, Panama and Korea are languishing into a fourth year, and treaties were nowhere to be found on the agenda at last week’s big White House jobs summit.

By contrast, Chile got to where it is by embracing trade. Its example is a shining lesson of how prosperity can be achieved no matter what the challenges — a lesson the U.S. would do well to relearn as our recovery tries to get traction.

2. Israel is thriving economically, and as a result so is the West Bank.

Here’s an extract from a Wall Street Journal article by Tom Gross, who visited the West Bank recently:

The shops and restaurants were  full when I visited Hebron recently, and I was surprised to see villas comparable in size to those on the Cote d’Azur or Bel Air had sprung up on the hills around the city. Life is even better in Ramallah, where it is difficult to get a table in a good restaurant. New apartment buildings, banks, brokerage firms, luxury car dealerships and health clubs are to be seen. In Qalqilya, another West Bank city that was previously a hotbed of terrorists and bomb-makers, the first ever strawberry crop is being harvested in time to cash in on the lucrative Christmas markets in Europe. Local Palestinian farmers have been trained by Israeli agriculture experts and Israel supplied them with irrigation equipment and pesticides.

A new Palestinian city, Ruwabi, is to be built soon north of Ramallah. Last month, the Jewish National Fund, an Israeli charity, helped plant 3,000 tree seedlings for a forested area the Palestinian planners say they would like to develop on the edge of the new city. Israeli experts are also helping the Palestinians plan public parks and other civic amenities.

Outsiders are beginning to take note of the turnaround too. The official PLO Wafa news agency reported last week that the 3rd quarter of 2009 witnessed near-record tourism in the Palestinian Authority, with 135,939 overnight hotel stays in 89 hotels that are now open. Almost half the guests come from the U.S or Europe.

Palestinian economic growth so far this year—in a year dominated by economic crisis elsewhere—has been an impressive 7% according to the IMF, though Palestinian Prime Minister Salam Fayad, himself a former World Bank and IMF employee, says it is in fact 11%, partly helped along by strong economic performances in neighboring Israel. …

In June, the Washington Post’s Jackson Diehl related how Palestinian President Mahmoud Abbas had told him why he had turned down Ehud Olmert’s offer last year to create a Palestinian state on 97% of the West Bank (with 3% of pre-1967 Israeli land being added to make up the shortfall). “In the West Bank we have a good reality,” Abbas told Diehl. “The people are living a normal life,” he added in a rare moment of candor to a Western journalist. [Well, this may be partly why, but the main reason is that acceptance of a Palestinian state would entail acceptance of the Jewish state, a reversal of Arab policy which no Palestinian leader would dare attempt – JB]

Nablus stock exchange head Ahmad Aweidah went further in explaining to me why there is no rush to declare statehood, saying ordinary Palestinians need the IDF to help protect them from Hamas, as their own security forces aren’t ready to do so by themselves yet.

The truth is that an independent Palestine is now quietly being built, with Israeli assistance. …

Read it all here.

Posted under Commentary, Economics, Israel, Latin America, middle east, Socialism, United States by Jillian Becker on Saturday, December 5, 2009

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This post has 4 comments.

  • Rogerinflorida – In the time of Pinochet, an economist from Chile (who was – yes – a disciple of Milton Friedman) came to talk to us at the Institute of Economic Affairs (IEA) in London. This was in the 1970s when Margaret Thatcher was engaged in a fierce struggle with the trade unions (which she won). The visiting economist told us that under Pinochet a dispute between employers and workforce could be brought to the designated authority for arbitration, but the authority had to find for one or the other; it could not suggest or impose a third solution. This meant that it was in the interest of each side to get as close to the other as possible. The result was that hardly any dispute was ever brought to arbitration. A brilliant idea.

    Whatever Pinochet's faults, he was a darned sight preferable to Allende. I'm with you on that, aeschines.

    And Pinochet did help Britain in the Falklands war. That's why Mrs Thatcher was grateful to him, and furious when he was arrested.

    Roger, I do remember the time you ask about – the armed guards all over Heathrow etc. – and the explanation given, which was expectation of heightened terrorist activity. If there was more to it, some other threat not disclosed, I didn't hear of it. But that doesn't mean it wasn't there. I'll try to find out more, and if I do I'll post what I find.

  • rogerinflorida

    A lot of the credit for the success of Chile must go to Gen Pinochet. It was he who stopped the left wingers and cleared them out of public institutions. Unfortunately he used violent methods and some 2-3000 people died in the process. He also instituted the free market reforms with advice and guidance from “The Chicago School” of economists from U of Chicago, and iniated the free trade process. Personally I believe he did what he had to do, and should be admired for it.
    Such intervention in the US is very unlikely, which is why we will likely follow the Argentinian economic model and the Brazilian social model.
    It is possible that such an intervention was tried in the UK, I believe it was in 1977, at the peak of the industrial and social troubles. I remember that the Guards took over Heathrow airport and that there were a lot of soldiers on the streets of London, but then it died down and was ascribed to some sort of “training exercise”, although it was rumoured to have caused near panic at 10 Downing Street.
    Anybody know any more about that?

    • aeschines

      You're right, I do admire the man for pulling Chile out of the toilet. His goal to “make Chile not a nation of proletarians, but a nation of proprietors.” was a admirable one. He certainly stabilized a country that could not have been stabilized by any weak-backboned-quasi-leftist. Salvador Allende ripped the guts out of a country that had previously been a boon to capitalists everywhere – and it took a man like Pinochet to restore it.

  • aeschines

    A fascinating look at what free markets can do. Who knows, we might all move to Chile in 10 years because of the deplorable conditions in the US and UK.

    As I have said before, if you're looking for a good book that explains the economy well, Thomas Sowell always has great material. I hope he'll be remembered as the great economic educator of our time.