A Political Alliance

Guatemalan leftist candidate for the next elections Alvaro Colom has visited Venezuela to ask for campaign financing. Lets speculate what Colom is promising in return for those petrodollars.

Nothing would make Hugo Chavez more happy than to see a Guatemalan Leftist candidate get elected and humiliate the United States by ending Guatemalan participation in the Central American Free Trade Agreement. A major blow to the prosperity of Guatemala. David Ricardo and Adam Smith proved a long time ago that everyone benefits from free trade. Once again, look up to counties like Ireland and Singapore that embraced free trade and drastically improved their prosperity and wealth. The most important aspect of trade and one that all leftist leaders seem to forget is “comparative advantage”.

This is only speculation, but be sure that Alvaro Colom and Hugo Chavez are political allies.

The Virus is Spreading

Let me introduce the newest character in what seems to be a tragedy-in-the-making for Latin America. His name is Ollanta Humala, an ex-military colonel who is campaigning for the presidency of Peru on a very similar platform to that of Evo Morales, Kirchner and Hugo Chavez. Not surprisingly and in consistence with the reckless leftist trend in Latin America, Ollanta Humala came in second place in the latest opinion polls, behind by only three points of central-right candidate Lourdes Flores.

Reasons to be very worried:

Ollanta Hulama father, Isaac Humala, was the founder of Peru-based Institute of Ethno-Geopolitical Studies. It would be very naïve and foolish to assume that Isaac had no influence in the ideology of his son. The policies that the Institute advocates are:

• An Autarkic Economy (Autarkic: A policy of national self-sufficiency and nonreliance on imports or economic aid.)
• Stronger State and Military
• Restructuring of Private Pension Funds
• Limits to Debt Services in the Budget
• Renegotiation of contracts to exploit natural resources

Ollanta Humala has expressed admiration for former dictator Juan Velasco Alvarado, who nationalized the oil industry and expropriated lands in a sweeping agrarian reform after the coup that brought him to power in 1968. The same socialist regime that in 1968 immediately expropriated assets of US oil companies and many other sectors of the economy to establish a socialist state to help the poor of Peru. During the twelve years of socialist rule (that Ollanta Humala admires) real income dropped 40% and a country that had been able to feed itself for centuries ended up importing food. The wealth of Peru sharply decreased.

Ollanta Humala is an ex-colonel with military education and training. As Hugo Chavez, he has participated in presidential coups and has been jailed / released. If history has tough us anything, it is that this types of individuals, if elected (or by coup) President, tend limit and revoke the liberties of their citizens and rule their nation with an iron grip for many years in the likes of Alfredo Stroessner, Augusto Pinochet, Hugo Chavez and Fidel Castro.

The elections in Peru are set for April 2006. There will be a battle of ideas between Liberty, Private Property and Free Markets against Socialism, Collectivism and Ignorance. Hopefully, with the help of responsible and intelligent Peruvians and Latin Americans we will prevail.

THE LEFTIST TREND

The recent elections in Bolivia, Argentina, Haiti, and the ones to come for Mexico, Brazil, Ecuador, and Chile among other Latin American countries share a common trait: They all have favored the leftist candidates. This trend confirms what I long had suspected, that Latinos suffer from severe memory loss! It is the only way to justify the outcomes of what the polls show. The poverty and lag in economic development that our countries suffer are living proof of the failure of socialist inclined governments. The corruption, inefficiency, and economic drought that derive from these social reformers are the reasons why our countries still appear in the “Developing economy’s” list. It is inconceivable that people have forgotten the abuse that large centralized governments bring to the citizens. One would think that the Cuban example, or better yet, our own past experiences with these types of governments would’ve taught us better. But evidently that is wishful thinking on my behalf, and people need to be reminded that prosperity and development can be achieved only by limiting the power of government, the guarantee of private property and the promotion of free enterprise. For Bolivia, Argentina and the rest of the countries where the elections already took place, one can only wish them luck; but for the rest, this is as good a warning sign as they come. Let’s hope that this signs will find good interpreters that learn from the other countries experiences so that we all are not condemned to the same fate.

Good News for the Enemies of Liberty and Free Markets

Yesterday, Evo Morales was elected to be the new President of Bolivia. A victory for ignorant Bolivians who voted for this enemy of freedom with no understanding of the harsh consequences they will face in the next decades. I pity those Bolivians for having such terrible memory. They should remember that most of what their new elected President is proposing has already been tried in Peru when in 1968 a socialist military regime ousted the elected president. Although the military regime was not democratically elected and Evo Morales was, they both share the same flawed and rotten ideas. The regime immediately expropriated assets of US oil companies and many other sectors of the economy (as Evo Morales has publicly proposed) to establish a socialist state to help the poor of Peru. Capital fled the country since it was more profitable and safe to invest in other countries. During the twelve years of socialist rule real income dropped 40% and a country that had been able to feed itself for centuries ended up importing food.

Facts are Facts.

A note to Bolivians:

Prepare yourselves to experience time travel, since the wealth and prosperity of your country will go back to what it was decades ago. Mistakes like the ones that Evo Morales will make take many years to mend and repair. Bolivia might serve as a perfect case study for other Latin American countries of what NOT to do to increase the wealth and prosperity of a nation.

A Bolivian Mirage of Prosperity

Presidential Candidate Evo Morales is the long waited champion of Bolivia’s indigenous majority, a group that has long been left out from Bolivia’s Economy and Politics. It precisely this, their exclusion, that has brought them poverty, misery and despair for many decades. (Read Hernando De Soto condensed version of the Mystery of Capital here to understand this indispensable key insight in 10 minutes.)

Evo Morales, having experienced poverty growing up, thinks he understands why the vast majority of Bolivians are poor. In the following statement, Evo Morales explains:

“The worst enemy of humanity is capitalism. That is what provokes uprisings like our own, a rebellion against a system, against a neo-liberal model, which is the representation of a savage capitalism. If the entire world doesn't acknowledge this reality, that the national states are not providing even minimally for health, education and nourishment, then each day the most fundamental human rights are being violated."

This statement is pure evidence, in Evo Morales case, that there is an immense difference in having experienced something and understanding it. Ignorance is perhaps Bolivia’s worst enemy. Socialism and Collectivism, which represent the abolishment of liberty and private property, are disguised in popular and appealing phrases like: we call for “decolonizing” the state and installing a new “social economic model” favoring the “peasant family economy” and guaranteeing social rights and “distributive justice” for indigenous communities. These phrases seduce the ignorant mind and create a mirage of prosperity that Bolivians will never reach.

Evo Morales calls for the violation of the institution of private property by the nationalization of hydrocarbons and other natural resources. Keep in mind that it was foreign multinational companies that originally made investments in Bolivia to give Bolivians better, cheaper and more reliable access to energy. Nationalization would equal robbery to those foreign multinational companies. (In no civilization in the world is robbery tolerated) After nationalization, foreign investments in Bolivia will virtually disappear along with an exodus of Bolivian capital leaving the country. This will represent the start of a downward spiral for Bolivia that will in the future manifest in the form of more poverty and agony. The excellent book The Commanding Heights gives examples of countries that choose the path that Evo Morales is advocating and what a great disappointment it was.

On this December 18th, Bolivians will go to the polls and elect their new President. There is a decent probability that Evo Morales gets elected. If so, another enemy of liberty and freedom will join Chavez and Kirchner in carrying out policies that will sink Latin America’s poor and middle class deeper into agony, poverty and despair.

A Gathering Storm for Argentina

Bad news for Argentineans; a gathering storm above them threatens the prosperity of their nation. The major components of this storm are in complete contradiction to the fundamentals liberty, wealth and prosperity.

It is only fair to mention that currently Argentina has reported strong economic growth, but future prospect are rather dim. President Kirchner’s government has decided on the following policies which in his opinion will allow Argentina to prosper.

• The Argentine Government has opted for macroeconomic intervention to keep the peso weaker than it otherwise would be given the strong rise in exports receipts. Other countries have tried this policy before and have been unsuccessful. Although in the short term economic growth may pick up due to distortion on the prices of exports, in the long term these distortions tend to be corrected, growth will be hampered and it will directly injure companies whose sales depend on rising domestic incomes. If history has taught us a lesson, never has a government been able to out-smart market forces and shortcut a country’s passage to prosperity. The free people and free markets know better.

• The Argentine Government has continued to disregard contractual rights. Kirchner’s administration has suspended contractual agreements with private companies, contributing to uncertainty about legal protection of contractual and property rights in Argentina. Once you violate the Institution of private property you’ve crossed a line where you have destroyed the framework of conducting business and producing wealth. This can be observed in Argentina’s Energy Utilities Sector. The government’s failure to resolve contract and tariff disputes with this Sector is leading to delays in investment in energy production, raising the possibility of energy capacity constraints that will impede future economic growth.

• The Argentine Government has pursed an interventionist approach to price setting. In less regulated industries that do not operate under concessions or operating agreements, the government has used executive power and the implicit threat of sanctions and expropriation to influence final product prices charged by private companies. While the government does not set prices formally, an implicit (yet opaque and unpredictable) form of deflationary price controls is clearly in place. In addition to price controls, the government has also implemented new industrial regulation and export taxes. This is pure evidence that in order for Kirchner to move away from neo-liberal-free-market economics which he so dearly objects, he has done so by removing the individual freedoms of his citizens and companies.

Kirchner’s Policies disregard the institution of private property, free markets and limited government, which are pillars of prosperity. He has just started where Peron and others left off in their inherent task of destroying the once great nation of Argentina.

Commentary in italics was taken from Bear Stearns Research.

THE PARABLE OF THE SUPERMARKET

By José Raúl González

heconomicus@hotmail.com

Do you want to free yourself from free trade? Here’s how…

Checking my family budget I realized something terrible. My family had a trade deficit with the supermarket. Meaning that, every week, we buy food from them but they do not contract any service from us in return. This means that my family was running a trade gap (as they say). Horrified, I realized it was exactly the same situation that my country was in since we, Guatemalans, import more than we export to the US. It was my duty, as the head of my family, to take the initiative and correct this situation.

The thing started to worsen when I realized that my whole condo was in the same situation. I thought of immediately calling for a general assembly of the condominium to correct this dangerous situation of economic dependency that jeopardized our food security. Moreover, if nothing was done, we were running the risk of the supermarket eventually keeping all our money… And when such time arises… how would we support ourselves?

Here was my plan: the supermarket would have to immediately hire our professional services, at a fair price, in order to start reducing our trade deficit. Otherwise, we would be forced to proceed and establish commercial sanctions by creating our own Bolivarian Free Trade Area; named as such since two of my neighbors are Venezuelan.

The proponed sanctions would include a boycott to the supermarket (closing our borders as they call it). All the members of the community would start growing our own vegetables, fruits and we would raise our own cattle and chicken. Alter all, our condo had plenty of unused land (called gardens) and we could use them for our new needs.

All trade between neighbors would be free and just since it would be among equals and not with an imperialist giant (the supermarket) with whom there were obvious asymmetries. Our newly won economic and food independence would be, finally, guaranteed. We would have also achieved our precious goal of reducing the trade deficit with the supermarket!

After finishing drawing the plan, I asked my wife to call on the meeting ASAP. She carefully analyzed it (in about ten seconds) and the recommended that, in order to protect my reputation, I should not expose myself to making such stupid proposal. I was very disappointed. After all, these were the same preoccupations and recommendations I was hearing from economists, politicians, activists and social and
religious leaders.

Eventually I had to admit that it was very stupid… don’t you think? And if it wasn’t going to work for my condo why would it work for my country? So, I guess we should not worry about the anti free trade rhetoric. Better pay attention to your wife’s advice instead of paying attention to the recommendations of the so called “social leadership”. Common sense and free trade definitively go hand and hand.

Absurd?

The agreement between GM and the United Auto Workers : All workers are guaranteed full pay and benefits through the end of their contract in September 2007, whether or not the company has work for them. It could not be any clearer why GM is heading into bankruptcy. Shouldn’t it be: A company guarantees you a job only if it has is work for you?

But the UAW may not be as worried as one may think since if GM goes bankrupt and can't meet its pension obligations, the Federal Pension Benefit Guaranty Corp. would step in and pay workers their pension up to a cap. Government comes to the rescue. The dire truth is that the American taxpayers of today are going to pay for mistakes made by GM and the UAW decades ago.

Fair or Absurd?

The Simple Facts of General Motors

When Bill Durant decided to organize General Motors in 1908 he created the company for one reason: He saw an opportunity to profit, and seized it. There is nothing wrong with pursuing profit, in fact that is the reason why businesses exist, but somehow unions like United Auto Workers (UAW) and the government seem to have lost sight of this fact. For years the UAW (with the help of the government) have dug the hole where GM lies, and now they claim they had nothing to do with it. The truth is exactly the opposite, with the negotiation of ridiculous labor contracts, fixing minimum wages, and outrageous benefit plans, UAW and the government have absolutely everything to do with getting GM to where it is today. By forcing GM to incur in these types of obligations they force them to shift the efficient allocation of resources. Instead of investing in better designs, alternative fuels, or better technologies GM was dealing with contracts, unions, and regulations. The government and Unions lost sight of the fact that jobs are created as a consequence rather than the purpose of a business.

The problems we see today in GM came from shifting the perspective, and instead of regarding it as a profit seeking business, they saw GM as major employer, regulating and guarding the workers as if it was the main purpose of the firm. Under free market conditions the efficient allocation of resources will result in profits, and the employer will keep the most efficient workers by rewarding them with better salaries and benefits. But when government or unions force employers into conditions that shift the most efficient allocation the results are chaotic. It is not the mean selfish business man that took GM to the position where it has to lay off 30,0000 workers to remain in the business, it was the noble unions and the supportive government, the so called victims, the ones that forced GM to this situation.

Let the Market be the judge and grade GM’s latest Actions

GM announced it would cut 30,000 jobs. The Market is the best judge to determine if GM’s the latest measures will save them from bankruptcy. The market gave GM a low grade (a warning that they may flunk out). Although its stock traded higher in the beginning of the day, it closed 2% down from the pre-job-cut announcement level. Also the credit derivative market, the cost of buying protection against GM’s default ended with little change. (GM would have hoped that it would have gone down) Most importantly, the cost of buying protection against default by General Motors Acceptance Corp, their profitable financing unit, rose yesterday. You can deduce what this implies.

GM needs to make better and more attractive cars which is the underlying issue of why their market share in the US (let’s not say the world) has gone down from 43% to 26% since 1982. You make better cars by using the more efficient methods of assembly and letting trained executives run the company, not unions. You make more attractive cars by embracing innovation and creativity. If that is too hard, then just hire German engineers or the folks at Apple.

The wheels are coming off from GM

The news:

“GM is getting hit by a perfect storm” (and that they are hardly at fault)

Really?

The truth is that the storm has been slowly forming for decades. People knew that their pensions where under funded, that the Japanese and Koreans are more efficient in assembling vehicles (and their unions are less militant), and most importantly, that the UAW (United Auto Workers) and other unions got away over the years with having negotiated ridiculous labor contracts (with help from the government). Unions left GM with little elbow room to adapt in technological changing times to more efficient assembly methods that required less human labor. It is because of UAW wheeling and dealing that it very hard for GM to cut jobs and adapt. GM has tens of thousands of employees currently not working. They are idle, waiting for a job opening, but still receiving benefits and pay from GM. This magnificent working environment was made possible by the wonderful UAW. Is this good or bad for the shareholders of GM? You decide.

Suddenly, the storm is here out everyone is is surprised. It was a ticking time bomb.

Whose fault is it?

• GM was at fault by accepting absurd labor contracts with the UAW for the past 30 years. They should have fought for the ideal that GM's only responsabilty is to that of it shareholders. Not surprisingly, when the shareholders are making money, the employees are generally better off and not loosing their jobs! On the first nine months of 2005, GM has reported losses of 4.1 Billion.
• The government is at fault for the support they lend to unions. (It is clearly a symbiotic relationship; the government supports the legitimacy of strikes and other union’s vicious tactics, and in return the unions support those political candidates who will support their causes. One bureaucratic monster helping another bureaucratic monster. )
• Above all, it is the Union’s fault that GM is in this perfect, but predictable storm. Some of the unions’ causes may be noble, but they have no right to intervene with the business’ owners will to make a profit in their plant. If there is someone willing to perform the same tasks as those unhappy autoworkers, under the same circumstances, that is a strong signal that a strike is not legitimate; and that it should not be protected by government.
• Although a subjective claim, it is also the executives' at GM fault for lack of creativity and making unattractive cars.

It took no genius to see that the only way avoid bankruptcy in the long term is to close plants and fire autoworkers. Today GM announced that it will cut 30,000 jobs to achieve $7 billion in cost reductions by the end of 2006. At last, creative destruction. This is the only way out, but still the Unions rather see the ship sink to the bottom of the ocean rather than to save the company. Keep in mind that this is the only way to avoid bankruptcy in the long run.

“Today's action ... is devastating to many thousands of workers, their families and their communities. While GM's continuing decline in market share is not the fault of workers or our communities, it is these groups that will suffer because of the actions announced today”

It was UAW’s noble causes to help autoworkers that ultimately led for 30,000 of them to loose their jobs. They won concessions in the short run but made thousands loose their jobs in the long run. The UAW has just proven how harmful they are and why they should not exist. They where the ones that planted seeds of GM own destruction and now should be held responsible to make sure that neither unions nor government interferes in the market place in the future.

Why are people listening to Hugo?

It is very hard to conceive why someone with the least bit of intelligence is listening to Hugo Chavez. He preaches about “Socialism of the 21 Century” and how this new economic/political model will launch Latin America out of poverty.
His prescription:

• Take from the rich, give to the poor
• Nationalize private property
• Undermine and end free trade agreements with the US
• Take away individual liberties of citizens
• Structure a society and state based on Fidel Castro’s Cuba (has said so publicly)

This prescription looks very much alike those of Dr. Death

The Facts:

1959 , before Fidel Castro, Cuba’s GDP per capita was twice as large as that of Spain, and a third larger than that of Chile. Forty seven years later, Spain’s GDP is six times larger than that of Cuba’s; Chile is four times as large.

Why not choose an alternate prescription. The prescription taken by the four Asian Dragons, Spain, Ireland and New Zealand that allowed them to take a leap into the First World and increase the welfare of all their citizens.

The alternate prescription:

• Absolute respect for the institution of Private Property
• Free Markets
• Limited Government: Minimal (preferably none) regulation, low corporate and individual taxation

US vs. Europe vs. Third World Part V

High government regulation and involvement in the economy will have many destructive effects in the long run in both the US and the EU. R.W. Grant is correct when he asserts, “Much of business regulation, specially antitrust, today is based less on fundamental concepts of justice than on “murky” ever-shifting notions of “ideological law”: concerned less with real people who have suffered the actual harm, than with abstract notions of “fairness”, “integrity of the market place”, or “greed”, or “sleaze”, or whatever.” One famous example would be how US regulators approved the GE-Honeywell merger and European regulators stopped it. How Mr. Welch, CEO of GE at the time, was very angry about the amount of bureaucracy and special interests that where involved in the decision. From this, and many other rulings we can assert that antitrust regulation is heaver in the EU than in the US. Never the less, antitrust regulation is also very extensive in the US. To better understand regulation one has to find out what is the proper role og government. (This is very subjective and depends on who you ask) A good explanation is given by Ezra Taft Benson, “It is the single function of the government to secure the rights and freedoms of individual citizens”. But what are our rights? According to Frederic Bastiat, “Each has a natural right, from God, to defend his person, his liberty and his property. If every person has the right to defend, even by force, his person, his liberty, and his property, then it follows that a group of men have the right to organize and support a common force to protect these rights constantly. Thus the principle of collective right, its reason for existing, its lawfulness, is based on individual rights.” With this powerful tool and guideline we can now correctly judge if government is playing a correct or incorrect role in the EU or US. Government in France owns a controlling interest in hundreds of companies and its spending represents half of the French economy. Is it the role of the Government to be actively engaging in the economy? NO. The French government has been engaging in embarrassing economic regulations like the introduction of the 35 hour workweek in 1999. Is it the role of government to dictate how long one should or should not work? NO. My point cannot be made any clearer than when French finance Minister Nicolas Sarkozy said, "It is not a right for the state to help industry. It is a duty." He must pay more attention to his fellow Frenchmen Frederic Bastiat and also remember Hitler’s duty to the Fatherland.

In Germany things are not any better. The government has an institution called the German Federal Labour Agency which job placing unemployed workers into employment. Grant M. Nulle best describes this government agency, “Another example of German corporatism, the agency allots equal shares on the federal and regional governing boards to labor, business and government personnel—this bureaucratic creature is inefficient at best. Last January its head was summarily sacked for his dodgy dealings with contractors and extravagant expenditures (especially office furnishings), which did not mesh well with the 6.5% of gross wages paid by both employer and employee and appropriations from general taxation that fund the agency’s $66bn budget.” Once again we can observe what happens when government interferes in the market place.

We have observed what happens when the principles of individualism, the institution of private property and the free markets are violated. We have also observed what is the proper role of government and its current roles in the EU and US. The EU is the birth of an important new empire in the likes of the US and the URSS. It will fill much of the economic and political vacuum of left in world after the collapse of the URSS. Unlike the US and URSS who where at complete opposite ends of the economical and political spectrum, the EU is very close to the left of the US most areas. Only a decade after the collapse of the Soviet Union the differences between these two very old allies (US and Western Europe) are they beginning to become more and more visible. In order to be more effective with its policy the EU needs to move more into a more supranational system like the US. The elongated time it takes to reach a decision has made the Union very inefficient in some instances. The opt-out option in policy dealing is always a weakness which in the long run when a difficult situation or crises arises will threaten the integrity of the Union. The policies decided in the next few years will likely determine the potential of this new empire. Europeans should wake up and get more involved in these decisions.

US vs. Europe vs. Third World Part IV

Drug enforcement is an area where the EU and the US share different approaches. Holland has legalized many drugs that in the US are currently illegal. European countries are a lot more lenient towards drugs and drug consumption than the US. The US government has also taken active role in keeping the drinking age at 21. This policy is really viewed as controversial not only in Europe but in other countries as well. It was very shocking for me coming from a country where the drinking age limit is 18 and not enforced to the US where it was virtually impossible to get alcohol if one is under 21. In the US there is an assumption that government has a legitimate role in correcting any behavior that does not meet a required standard. It is essential that one is given the personal responsibility to make the individual choice if one wants to engage in destructive behavior or not. For my surprise American kids told me that in the dorms it was easier to get marijuana and other drugs than alcohol. If you don’t consume drugs you won’t know who it is, but there is always someone in the dormitory building who sells drugs. You can see this phenomenon more clearly when one tries to purchase alcohol in a bar or from a liquor store with a fake ID; there is a considerable amount of risk of getting in trouble during the transaction since the other party is obeying the law. That compared to buying drugs from the kid a few doors down in the resident hall which is virtually risk free because no party is obeying the law; American kids often choose the latter. So as you can see that the 21 drinking age limit has ultimately made some kids, not all, look for alternatives to drinking like marijuana and other drugs. In my opinion this is actually worse than an 18 drinking age limit in Europe and most of the world. Again we can see what happens when you try to do good by force. A lyric from a song of my country’s most famous singer/songwriter best captures the irony of this specific US policy, “By eighteen you (an American) are still a child for a drink in a bar, but you are also a full-grown man to kill and for a war”. This type of inconsistencies in policies are what fuels anti-American ideology, at least in Latin America. The US is the biggest consumer of drugs in the world and the country with largest budget in drug enforcement. As long as there is demand, there will always be someone willing to supply. As with alcohol prohibition in the 1920’s, drugs prohibition also creates a great number of problems like pushers in street corners, police corruption, fighting amongst drug dealers, and the billions and billions of dollars spent in drug enforcement. It is no surprise why rate of violence is much higher in the US than it is in the EU. Engaging in drug consumption, as alcohol and tobacco consumption, is a very dangerous endeavor that can result in death or prolonging illnesses. But one should never forget that the individual made a personal choice to engage in this destructive behavior. Other dangerous endeavors include hang gliding, riding a motorcycle without a helmet, skydiving, and one might very well choose not to participate in them. For example, with the awareness of the health hazards associated smoking, thousands of people have stopped smoking and those who still smoke are considered on some places social outcasts. Cigarettes kill more people every year than heroin and cocaine do combined and it is still very legal to smoke. As it is possible to voluntary stop drinking and smoking it is also possible, although sometimes harder, to stop consuming drugs. If the individual chooses not to stop consuming drugs, then that is a different story. The US and EU should gradually move towards Holland in their approach of personal responsibility. It should be in everyone’s individual decision and responsibility, not the state, to engage or not in drug consumption. As Peter King best describes, “It is reasonable to propose that the state should be neutral towards citizens, whom it has a duty to protect equally. It is not for the state arbitrarily to apportion benefits for some and punishment for others.” We can already see some positive change in policy when on December 7, 2004, New Yorkers voted to ease the tough Rockefeller Drugs which constrained individual liberty and since 1970’s have been sending some low-level first-time drug offenders behind bars for sentences ranging from 15 years to life. Nowhere in the EU could you possibly witness drug penalties this harsh and unjust.

US vs. Europe vs. Third World Part III

The view of what is proper role of government is different in the US and EU. It is also very different between countries inside the EU, for example much Great Britain and France. It would be unmerited to decide on one between the US and EU of where government plays a more significant role. It can be said that in the US the government has a more active role in censorships of cultural deviant media and behavior, insider trading regulation, drug enforcement, and safety and workplace regulation (OSHA) than in Europe. In the EU the government plays a more significant role in social, economic and environmental policy.

You can easily see the difference in US and European media by visiting the regions. In the last Superbowl in the US there was a huge outrage when a “costume malfunction” revealed a breast of Janet Jackson on national television. In Italy and France you see women’s breast in national television in body lotion commercials without causing any uproar at all. When you visit Hamburg or Amsterdam you’ll observe how culturally deviant people and establishments and the normal population are able to live together in peace. Differences can be seen in deviant practices like prostitution, which is legal in most Western European countries, while it is a crime in the most US states. This can lead to a conclusion that European lifestyles are much more liberal than US lifestyles. In some Scandinavian countries there have recently been a lot of partnerships without marriage.

Insider trading is the number one white collar crime in the US. Only in the US is insider trading such a big deal, in France there are few laws on the issue. According to RW Grant, “In Great Britain insider trading was not addressed until 1980, since then there have only been a handful of convictions and no prison terms.” Is insider trading regulation fair since the other party to the trade was going to buy (or sell) anyway? That is, if they didn’t buy from insider trader (person with the most perfect information), they would have bought from someone else and had resulted in the exact same position no matter who they bought from. This is an example of ideological law, where an exact victim cannot be identified. But rather the crime is committed against an abstract greater good. For Marie Antoinette in 1793 that abstract greater good was it was “the revolution”, but it can also be for the Fatherland, the party, the workers. The crime should not be the act of trading on more perfect or inside information, but the way in which that information was obtained. If it was stolen, then you would have an invasion of private property. But if it was simply whispered by a company director or employee, then the problem is solely between the company and the employee/director.

US vs. Europe vs. Third World Part II

Mixing altruism with politics can be sometimes dangerous. Every tyranny in history has been based on an altruist theme. For example for Lenin and Stalin it was the duty to serve the proletariat and for Hitler it was duty to the Fatherland. Although not in the same context as before, there is a duty of some European nations’ citizens to the Welfare State. To highlight on some dangers of altruism one can rely to the famous saying, “some of the greatest evils committed in history have been done not by people set out to do evil, but by people set out to do good by force.” One can also see it in the famous Nazi slogan, “Gemeinutz vor Eigennutz” which means: Common interest before self. Altruism is at the very heart of socialism and socialism, best now known as social democracies, is the economic system of most European Nations.

Socialism in Europe has been a very popular ideology for many decades. The Swedes and Norwegians are very proud of the social states and for many years have served as role models for other European countries. The current vice-president of my poor central american country, an ex-gorilla commander, has often expresses his admiration for these systems and wants our country to move in that direction. Should he really be admiring those systems? Germany, a big a welfare/social country, for 2004 had a real growth of -0.1% and an unemployment rate of 10.5%. On the other hand, we have the far less but still socialistic system in some ways of the US which during the same global recession period held a real growth of 3.1% and an unemployment rate of 6%. Well, he will probably still choose European Model since there is no morality in the US model. To emphasize on this we can look at what happened in Peru. In 1968 socialist military regime ousted the elected president and immediately expropriated assets of US oil companies and many other sectors of the economy to establish a socialist state to help the poor of this overwhelmingly poor country. Some of the European Socialist countries’ measures where imposed like price controls and regulation and in some years later even farming became unprofitable. Capital fled the country since it was more profitable to invest in other countries. During the twelve years of socialist rule real income dropped 40% and a country that had been able to feed itself for centuries ended up importing food. It is my view that third world countries can act as catalysts of political, economical and social systems. In the EU and the US it might take several decades to see the results of a specific economic system or policy because of its high educated population, relative low poverty, a legal system that works and most important that they are already industrialized. In a third world country it might only take a few years to see the results of the same system or policy. Take socialism in Peru and the free market economy of neighboring Chile. Both countries where in similar situations before each system came into play and it is obvious which system not only prevailed but set an example for the rest of our poor nations. So do European countries need to wait more decades to find out that in the long run socialism is a self defeating system? And for my vice-president, is there morality in Chile’s economic miracle?
According to Olaf Gersemann there is a very strong feeling in Europe that “Americans work three jobs just to make ends meet, and unemployment is low only because so many people are in jail.” In his book “Cowboy Capitalism”, he emphasizes that low economic growth and high unemployment are direct consequences of welfare and big government policies. I think Leszek Balcerowicz, former Finance Minister of Poland, said it best when he commented on the book, “This book offers an excellent comparison of U.S. capitalism with the 'social' model of Germany, France, and Italy. It is also a penetrating study of anti-market propaganda. Olaf Gersemann shows that the features of the American model that are attacked most by European critics from both left and right are those which continental Europe actually needs in order to overcome the social problem of high unemployment and to make the European economy more dynamic and competitive.” It is important to mention that Olaf Gersemann is German. More and more people are beginning to realize that socialism is not appropriate path to take. Like its more extreme version, communism, socialism in some time will be a relic of the past. A system that genuinely tried to do good by force and end it up with decreasing the overall welfare of the country. It will very difficult to move away from the welfare programs already in place in the EU and US without causing great economical and social turmoil.

US vs. Europe vs. Third World

To deeply understand the main differences between the EU and the US we must first establish what is what sets Western Civilization apart the rest of the world. Mainly, which are the major principles which separate the US and Western Europe from poor and volatile places like the Middle East (currently in the media spotlight), Africa, China, and my own cultural background of Latin America? These principles are individualism, the institution of private property and the free markets. It is from Individualism which the other two principles build up and is also the most controversial. It has been correctly linked to self-interest and “ethical-egoism”. Is there really no moral justification for individualism? Does it mean one has to reject any sense of obligation to others? No, but one should only recognize those obligations which he has voluntary assumed. One might have obligation to one’s children, to his friends or to any group which with he has, in his own self interest, voluntarily associated himself. Individualism does recognize the need for cooperative association but only when it is voluntary nature. When one is forced or by law instructed to serve the self interest of others, it is not cooperation, it is servitude. In the following five part blog postings I will discuss how some of these principles affect and make a difference between the US and EU.

Unlike Individualism, altruism is a very ethical principle. Altruism is the antonym of individualism and it means by definition, “devotion to the interest or welfare of others”. Over the last decades the US and more so European countries have both been moving away from the individualism principle and more towards the altruism principle. Some Europeans even find the US social policies offensive for not having a large enough safety net. There is a widespread notion in EU and in the US that individuals that find themselves in the position of receiving welfare benefits are somewhat blameless and guilt free. Contrary to common notion, the policies in which the state tries to alter social and economic imbalances actually give an incentive for those imbalances to grow. We can see that in certain parts European countries where entire groups of people just don’t work and collect welfare payments. This reality can be even viewed on HBO’s show The Ali G Show. Ali G, the main character is a man from Berkshire, England who collects welfare payments since it’s easier than having a job. Although a TV character, I can assure you that the idea for this show was taken from thousands of people who do presumably that. We can see it in the US in the provision of financial aid to lone parents. In order to qualify for this program you cannot be living with a partner and should be out work. Although the intentions of the program are very honorable, we cannot help but notice that programs like this will lead to more poverty. The woman now has the encouragement not to look for a job and not live with a partner in order not to loose her benefits. So did the program reduce poverty or encourage it? State programs like welfare make individuals alter their normal behavior to take advantage and maximize their income and benefits from these programs. Scholar Charles Murray said that “the increase in poverty in the USA since the early 1960’s was a direct response to the introduction of measures aimed at relieving poverty.” It is very natural that some people in Europe see their social policy as strength. There is no doubt that their concerns and objectives are praiseworthy, but can they really say their programs are a success? Instead they should try to portray personal responsibility. When someone is involuntary unemployed they have various choices: to restrain, move to another area (in Europe the language barriers might make this option less practicable but none the less possible), take a low-paid job, take more advanced job training, or wait along until the right job comes. Taking advanced training this day in age is very different from before. The amount of training establishments around the country have grown dramatically and the internet has made education much more accessible and cheaper. More people would save money for hard times if personal responsibility was promoted than if they were told they could be irresponsible and that it is the proper role of the government to take care of them. My views on this matter come from the personal experience, that most of Americans and Europeans don’t have, of living in one of the poorest countries in the world and interacting everyday with it citizens. Although my country is very different from the US and EU, the best way to help it get out of poverty is to promote the three basic principles of individualism, the institution of private property and the free markets. The incorrect alternative would be Collectivism, Restriction of Property right in order to serve better the state and a state controlled economy. In order to shed some light to how these principles can help the poor in third world countries Hernando de Soto correctly asserts, “The real problem lie in the fact the poor and the middleclass are not allowed to use their assets as the more privileged classes are. One of the great political challenges facing the Third World is to have these goods move from the "extralegal" sector, where they stand now, to a less excluding legal property system, where they may be more productive for all, in addition to generating capital for their owners.” He continues, “Their (the poor) assets in Peru amount to close to 90.000 million dollars, or 11 times over the value of all the stocks listed in the Peruvian Stock Market and 40 times more than the sum of the foreign aid that the country has gotten since the end of WWII. In Mexico the estimated amount is 315.000 million, seven times more than the value of PEMEX, that country's national oil corporation.”

Salutations to the eager minds who dare take on this quest of blogging…

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