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Which way to growth? Lessons on development from Chile

Published:Sunday | January 9, 2011 | 12:00 AM
Miner Carlos Barrios waves to the crowd after emerging from the capsule that brought him to the surface from the collapsed San José gold and copper mine near Copiapo, Chile, on October 13, 2010. The rescue of 33 miners is a metaphor that Chile is, despite the odds, a rising star in Latin America and indeed the world. - AP
Brazilian President Dilma Rousseff (left) greets Chilean President Sebastián Piñera during her inauguration ceremony at the Planalto presidential palace in Brasilia, Brazil, on New Year's Day. - AP

Ia Boyne, Contributor

Clovis had a cartoon on Monday with Venezuelan President Hugo Chávez energetically chopping away at private-sector infrastructure using an implement called 'socialism', while Brazil's just-departed President Lula was smilingly pushing a wheelbarrow titled 'Brazil's wealth' with one item included titled '20 million pulled from poverty', an obvious reflection of the latest Brazilian 'Miracle'.

The Observer followed up on Tuesday with an editorial titled "Brazil - Jamaica's new best friend in Latin America'. "We note, approvingly, that the new year found Mr Golding attending the inauguration of Brazil's new president. These visits need to be sustained by the establishment of an embassy in Brasilia and honorary consuls in Rio de Janeiro and Sao Paulo," the editorial said.

Extolling the economic clout of Latin America's powerhouse, that newspaper gushed: "By 2009, Brazil's economy was over 40 per cent of the total GDP of Latin America and the Caribbean, and 55 per cent of South America. It has a population of just under 200 million and a per capita GDP of US$10,000. It is an increasingly active member of the G-20, which is charting a course of reform of the institutional architecture of the global economy."

From Goldman Sachs dubbed Brazil one of the now much-touted BRICs countries (Brazil, Russia, India and China), there has been much buzz about Brazil. And justifiably so, as Brazil experiences its second 'economic miracle', though this time with fewer of the inequalities and less of the poverty which characterised its first period of uneven development. The discussion about Brazil versus Venezuela, and, in effect, the two paths to development, is a welcome one locally, for we have tended to be too parochial in our economic discourse, with our chattering classes nonchalant about comparative development experiences. Though there is a lot of hype over Brazil because of its population size and economic and political clout, as well as the charisma of its former president - named in one poll as the most admired political leader - the fact of the matter is that it is Chile which is the star performer of Latin America and its superstar.

Inconvenient facts

So before we drown out everyone with the applause over Brazil, there are some inconvenient facts that we need to put on the table - before the myth-making evolves into established facts.

Many might not know this, but the World Bank's 2009 Doing Business index ranked Brazil as low as 125th out of 181 countries in terms of ease of doing business, while Chile was ranked 40th. Now the private sector should hear this: In dealing with licences, Brazil is ranked 108th, and in terms of the private sector's ease in employing workers, it is ranked 121st, and in terms of registering property, 111th.

Indeed, Brazil is ranked below 100 in seven of the 11 categories in the data set.

The average business person finds Brazil highly inefficient. It takes 152 days to obtain licences and permits to start a business - compared to 27 days in Chile. In Brazil, it takes 616 days to enforce a rental contract and 480 days in Chile. (Yeah, we thought only in Jamaica we have problems with bureaucracy!)

In the Global Competitiveness Report 2008-9, put out by the World Economic Forum, Brazil was ranked 64th out of 134 countries, while Chile was ranked 28th - ahead of China, India and Russia - hence ahead of all the celebrated BRICs.

In the critical area of protecting investors, Brazil was ranked 70th, compared to Chile's 38th.

Data from the Fraser Institute on the quality of institutions show that Brazil also has to do some serious institutional strengthening to fully exploit its potential. On a scale of 1 to 10, Brazil got a score of 3.6 for independence of its judiciary, in comparison to Chile's 5.4. For legal enforcement of contracts, it got 4.8 to Chile's 5.5, and for protection of intellectual property, Brazil copped 5.2 to Chile's 7.0.

We are not done. In terms of trade openness, Brazil is also behind Chile.

In Brazil, it costs an average of US$1,240 to export a container of goods, while in Chile, it costs US$745. But perhaps more stunning of all is that in the Foreign Policy journal's Globalisation Index, Brazil has been ranked 67th out of 72 countries. There are certain paradoxes in economic development.

For example, robust economic growth does not always result in better health and education outcomes. This year's Human Development Report, the 20th, makes fascinating reading - as do all of them, indeed. The Human Development Report 2010: The Real Wealth of Nations: Pathways to Human Development, says: "One of the most surprising results of human development research in recent years, confirmed in this report, is the lack of significant correlation between economic growth and improvements in health and education."

The Human Development Report is careful to make the point that income and growth remain vital, "nor do our results negate the importance of higher income for increasing poor people's access to social services." But it goes on to make the important point which progressives have always stressed - that "the analysis in this report sheds doubt on whether economy-wide income growth is sufficient to further health and education in low and medium Human Development Index countries."

And there are also some other counterintuitive facts. For example, Tunisia - which many people have never even heard of - a girl born today can expect to live to 76 years, longer than a girl born in China. In 1970, that girl could have expected to live to only 55 years, while in China a girl born in 1970 could live to 63.

In 1970, too, only 52 per cent of Tunisian children were enrolled in school, while today gross enrolment is a whopping 78 per cent - higher than China's 68 per cent. So an economic dwarf outperforms the economic giant in social indicators.

In Jamaica, many still hold the naive view that all we need to do is to grow the economy and free up the private sector. Nonsense. There is a lot of jobless growth and growth without development. It is important for us to have the cross-country and comparative economic data to inform our discussions on which path our political parties should pursue, and how we ought to vote intelligently and not be open to political manipulation and soothsaying. There is any number of politicians eager - and able - to trade in our ignorance.

Cuba has not had the spectacular rates of GDP growth that some capitalist countries have, but it has far superior results in terms of social services and improving the living standards of the broad mass of the people (though it remains scandalously deficient in human rights). Iran, Venezuela and even the small nation of Togo have experienced income declines since 1970, yet they have all added 14 years to their life-expectancy ratios since then and have increased school enrolment by an average of 31 per cent.

Development strategies

We need a serious, informed discussion on development strategies in Jamaica. Our obsession with simply "creating wealth" is a myopic, misguided and unbalanced. Says the 2010 Human Development Report, the annual bible on development issues: "Some development strategies have concentrated on expanding wealth, seeing possible adverse consequences of human development as necessary 'social costs'. But more inclusive development strategies have greatly improved material conditions without neglecting other dimensions."

A very useful primer on economic development strategies, though from a more conservative perspective, is UCLA's Henry Ford II Professor of International Business Economics, Sebastian Edwards', 2010 book, Left Behind: Latin America and the False Promise of Populism. It provides both an excellent economic history and contemporary experience perspective on Latin America as well as a useful discussion on economic strategies. Many of the issues we are debating in Jamaica have been debated elsewhere - and have been answered by the concrete experiences of other countries, including those in our own Latin American region.

One of the most interesting things about Chile's economic path is that it has adopted heterodox policies and not stuck to orthodox Washington Consensus dogma. Chile is noted for its pragmatism, its efficient sequencing of policies and its dynamic, non-doctrinaire approach. No poster child for neoliberalism, though it boasts many of the features of neoliberalism. But Chile has been spectacularly successful.

In 1975, Chile's income per person was 25 per cent of the United States', but by 2006 it had jumped to 40 per cent. Income per capita in Latin America itself in 2006 was just 19 per cent. Between 1990 and 2007, import duties in Chile were reduced to an average three per cent. For more than two decades, Chile's exports have grown by double digits. The number of people living below the World Bank's poverty level declined from 24 per cent in 1989 to five per cent in 2003. The Gina Coefficient, the critical index measuring inequality, declined from 0.59 in 1989 to 0.55 in 2003 - in a region known for its gross inequality ratios, the worst in the world.

Chile has not left out the poor in its capitalist revolution. The social safety net has been widened and transfers to the poor, particularly the elderly, have been increased. University scholarships to poor students have also been increased.

Chile has learnt from its own grievous history. (A number of Jamaicans remember the Pinochet dictatorship which followed the CIA-inspired coup against the socialist Salvador Allende.)

We need to study what other countries are doing well and see how best practices can be adapted to our own local conditions.

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