Promoting Prosperity in Latin America

How should Latin America's leaders promote prosperity? Adopt the populism of Bolivia, Equador and Venezuela, or the pro-globalism of Uruguay, Brazil and Chile?

The Legatum Institute's just published Prosperity Index helps to answer the question. Legatum is an independent research group based in London and its Index measures the performance of 104 countries, representing 90 percent of global population. Legatum assesses the drivers of growth, such as how long it takes to establish a business and how well contracts are enforced, as well as social indicators such as health measurements and safety and security concerns. It therefore provides an overall holistic picture of a countries well-being.

Finland comes top followed by Switzerland and other small European nations, USA is 9th, being the most prosperous of the world's large nations, with Britain in 12th, Germany 14th, Japan 16th and Spain 18th.

The view is far rosier in the nations which have welcomed global trade, personal freedom and democracy.

In Latin America the populist countries do very badly. Venezuela ranks 74th, Bolivia 73rd and Ecuador 71st out of 104 countries.

It is not surprising they do so badly. For example, Equadorean President Rafael Correa makes bilateral deals with Chavez's Venezuela but has cut off all trade negotiations with the United States and is a force for harm at international negotiations. Furthermore, his administration has ignored environmental contamination from his own oil producer PetroEquador even against the advice of former international partners, such as Chevron, which undermines the rule of law and greatly concerns investors. In fact Chevron is now being sued by Correa's Government for billions of dollars for contamination which PetroEquador caused. The Correa regime also imposes costly restrictions on business, and increasingly undermines social networks.

Venezuela does even worse due to wholesale nationalization of industries from oil and steel to banking, which means entrepreneurial activity and economic progress is weak, placing the country alongside African nations in economic sub-index rankings. Where Venezuela does even worse than most African nations is in terms of public perceptions of Governance, where it is near the bottom of all countries, next to despotic Zimbabwe. It seems that where they are able to respond to confidential surveys Venezuelans are not happy with the special powers that the autocratic Chavez has awarded to himself. The result of the general lack of trust in the administration is that Caracas is one of the most dangerous cities the Americas.

Bolivian President Evo Morales has followed in Hugo Chavez's footsteps, impoverishing further the poorest nation on the continent, making his people less safe and less free.

The view is far rosier in the nations which have welcomed global trade, personal freedom and democracy. And although none of these countries make the top 30, which is dominated by rich nations, some do very well in comparison with other rapidly developing nations.

Brazil is top of the so-called BRIC nations, coming in at 41st overall, outstripping Russia (70th), India (45th) and China (75th). Like India, Brazil has well rounded social democracy, with reasonable economic performance. Uruguay, at 33rd, is the highest ranked Latin American nation on the Index. The country's moderately free trade stance, its well-educated workforce, and lightly regulated business environment have encouraged foreign direct investment. Although like other countries it has suffered in the financial crisis its real growth rate has been robust through much of the past few years and is forecast to continue to grow.

Chile, at 36th, has achieved success through similar means and acted as something of a model for Uruguay. For 30 years the economy has followed open trade, with limited tariffs and quotas, and was a market leader by privatizing its social security system. While these moves have not been universally appreciated, especially by politicians in other Latin American countries, poverty fell, and on most measures its people are prosperous.

Of course, Uruguay, Chile and Brazil can do better, as can other countries which are lower down the Legatum rankings, notably Argentina. But there is no doubt that the Latin American successes demonstrate that freedom is essential to prosperity. The Legatum Index shows that if Latin American countries want to become more prosperous, they should reject populism, and allow democracy, markets and the rule of law to flourish.

Roger Bate is the Legatum Fellow in Global Prosperity at AEI.

This article has been translated from Spanish.

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