What Cues Can South America Take From Europe?

Over the past few years Greece has probably made the news more than ever before. Whether it be protesters in the streets, election results, or the announcement of some new government policy, whatever happens in Greece seems to be written about in all corners of the world. Just recently the fierce rhetoric of a relatively obscure populist left-wing party made international headlines and fueled new speculations about the future of one of the world’s major currencies, if not the world economy and financial markets. The eventual ascent of that same party, Syriza, to Parliament has all eyes both on the Old Continent and across the world focused on its plan of action. Mind you, we are talking here about a country whose GDP represents less than 0.4% of the world economy.

In the meantime, incessant government intervention into the economy has caused major upheaval in several countries in South America. Venezuela is currently experiencing the worst depression in decades, Argentina’s economy is in shambles once again on the heels of its most recent default, and since the World Cup bubble popped Brazil has equally dipped into recession. These countries dwarf Greece in terms of population as well as contribution to world GDP, and some of their resources make them important players in global commodity markets. Yet aside from some news outlets’ reporting on Venezuelans having to stand in line for hours for even the most rudimentary items or the mysterious death of a federal prosecutor in Argentina, major media are hardly paying attention.

The latter, far from being the result of a massive media cover-up, reflects a general sentiment in South America. Here in Chile, for instance, nobody in their right mind would dream up some theory about the aforementioned woes causing a spillover effect that might bring the entire continent to its economic knees. Unlike in Europe, xenophobia has not been on the rise here, nor have there been any incidences of heads of state being compared to blood-thirsty dictators. As much as some populist leaders like to speak of a “Latin American brotherhood”, in truth the misery even in neighboring countries is hardly discussed except in case of any personal ties.

While it would clearly not be a fair comparison to put the South American economy on equal footing with that of Europe, the events that have unfolded in recent decades can certainly serve as valuable lessonsEurope-SouthAmerica for the continent. The mere suggestion that one day, Europe’s economic fate would seemingly come to hinge on the outcome of Greek elections would have seemed outright preposterous as recent as the nineties or even in the early 2000s. Indeed it would be like predicting that two decades from now, all of South America would be trembling at the prospect of a severe recession in Guyana.

Still, a lot more can be drawn from European history than simply a long list of don’ts. Going further back just a few centuries can literally provide a blueprint for sustainable growth and pave the way for prosperity on a continent too long haunted by the destructive and backward forces of socialism. Historians and other scholars have written extensively on “the European miracle” and its foundations. As it turns out, the terminology belies an astonishingly simple recipe; defense of property rights and decentralized power structures limited by competing jurisdictions in their ability to intervene in and expropriate resources out of the market.

Whilst academia and politicians would have us believe economics is an incredibly complex field of study that should be left safely and exclusively in the hands of the “experts”, historical evidence proves them utterly wrong. In fact, the more power is centralized into the hands of these conmen, the lower the odds of the kind of sustainable economic growth that has permanently lifted millions out of poverty, and continues to do so to this day.

Political leaders and their outdated and misplaced allegations of imperialism cannot be allowed to stand in the way of free people and free markets in South America. In the words of Ron Paul: “An idea whose time has come cannot be stopped by any army or any government”!

What’s Really Growing in Argentina?

Traveling through Argentina recently I was taken aback by the abject depression that seems to have taken the country and the people in its grip. Even after spending barely two days in the country I left with a negative taste in my mouth. More than the many buildings, modes of transport, streets and sidewalks in severe states of disrepair the overall feel of the place really stood out in my mind. And it is not that I was expecting to see a prosperous, bustling country either.

Moneda_ArgentinaFor some time now it has been clear that the Argentine economy is rapidly disintegrating. The people are struggling to cope with an estimated inflation rate of over 50 percent, a rate the Kirchner administration has been stubbornly underreporting to the point to where international authorities have openly questioned the numbers. Other persistent problems include seemingly permanent fiscal deficits, international reserves drying up, and the ongoing devaluation of the peso. Government spending as a percentage of GDP now hovers around 50 percent, contributing to last month’s second sovereign debt default in a mere 13 years. Meanwhile the previous one is still haunting the state budget.

In late 2001 the Argentinian government declared the world’s largest sovereign default, triggering the worst economic recession in history. Unemployment spiked to 20 percent causing widespread riots and looting, not to mention political instability– five different presidents held office in a mere two weeks. Eventually the debt was restructured and most bondholders agreed to a debt swap even if the new bonds were worth only 35 cents on the dollar. A small minority holding some 9 percent of Argentine debt did not take the deal. Consequently these hedge fund “holdouts”, in Argentina less affectionately referred to as “vultures”, have been involved in a legal battle with the government that has gone all the way to the U.S. Supreme Court.

While this year’s default differs from 2001 in many ways it is impossible to truly grasp the former without understanding the far-reaching ramifications of the latter. Former Economy Minister Roque Fernández even goes so far as to argue the government has effectively been in default since 2001 as it never resolved that situation. Whatever the case may be, the common denominator is the victim: the Argentinian people. Historical evidence of its many defaults suggests they typically result in at least a 10 percent drop in GDP.

Nonetheless, the Kirchner administration has had the audacity to place signs at sites of taxpayer-funded projects proclaiming “Aquí tambien la nación crece” (here too the nation is growing). The sad truth is the only indices indicating growth in Argentina are the ones that should show the opposite; think government spending, the money supply, and the fiscal deficit. Unfortunately the Kirchner administration has been too busy childishly denying reality and trying to shift the blame for the economic malaise on the “vultures” to do anything constructive for the people they claim to represent.

But there is hope. In the midst of all the chaos Bitcoin is making headway as an inflation hedge. A Subway franchisee in Buenos Aires recently decided to start taking Bitcoin, and the country’s first Bitcoin ATM is now a reality. The old adage holds true in Argentina today: you can fool some people sometimes, but you can’t fool all the people all the time. Especially in the information age.

Privatize Water!

In recent days reports have been coming out about authorities’ struggle to battle a water shortage in Brazil’s two major cities of Rio de Janeiro and São Paulo. Ostensibly caused by a severe drought, the crisis has even sparked fears of an impending “water war”. Measures taken earlier this month to reduce the water flow at a major dam were unsuccessful to say the least, cutting off running water to families in some neighborhoods for as long as 12 hours a day.

Unsurprisingly, the vast majority of the water system is government-run without much debate. After all, for all its ubiquity, government incompetence does not always overtly affect people’s daily lives. Now that it does, it might bOLYMPUS DIGITAL CAMERAe an opportune time for Brazilian freedom advocates to voice their opinions.

While some market reform has taken place in recent years, the process has been severely stifled by jurisdictional conflicts fueled by Constitutional as well as other regulations. Besides establishing a national system of water resources management the Constitution also defines criteria for granting rights of use, and it regards surface water and groundwater as property of the states. The National Water Resources Policy even specifies many uses of water that require government permission.

A World Bank publication analyzing market reform in urban water supplies in Santiago de Chile found “surprisingly large” net benefits in economic welfare despite significant price hikes. After years of losses largely imposed by regulatory obstacles the Santiago Metropolitan Works Enterprise had become so underfunded it could no longer perform basic maintenance on its systems. Some of the positive results included almost 100 percent coverage of expanding demand, better water pressure, fewer interruptions of service and higher wages for employees. The outcomes were so positive, in fact, that full privatization of the entire urban water supply and sanitation sector was eventually implemented.

Studies on market reform of the water sector in other South American countries have also found positive results. In Argentina the privatization of local water companies – covering approximately 30 percent of the country’s municipalities – reduced child mortality on average 5 to 7 percent, preventing 375 child deaths per year. It is worth noting also that the effect was most pronounced (24 percent) in the poorest areas, offering empirical evidence that runs contrary to oft-heard claims about increased inequality. Overall the number of households connected to the water network increased by nearly 12 percent.

In Bolivia privatization was shown to increase water access relative to both the existing trend and the non-privatized areas. The results also concurred with the aforementioned that the relative benefits of were larger for the poorest segments of the population, who gained from the largest increases in access. Some of the same findings have been reported in Brazil, if only on a small scale.

Notwithstanding those positive results generated by market reform, the current legal framework is a severe impediment. These obstacles will have to be dealt with if Brazilians are to reap the full benefits of voluntary – rather than compulsory – human action in the provision of such a basic need as water. Empirical evidence clearly confirms it can be done, giving liberals and libertarians plenty of arrows in their quiver to build a convincing case for liberty and against statists’ fear mongering. If successful that could be a big step toward a freer Brazil.






Do You Have the Right to Know What’s in Your Food?

It will have escaped few people’s attention that this Tuesday November 6th, Americans will be voting on who will be their next president. While the outcome of the elections is unlikely to make a real difference, on that same day Californians will be able to vote on something that has much more potential to elicit real change: mandatory labeling of genetically modified organisms (GMOs) in their food. Being the 8th largest economy in the world, what happens in California has far-reaching implications on a national and even international scale. The same will likely be true for what is officially known as Proposition 37.

Genetically modified (GM) foods contain genes from other organisms that have been transferred into it by scientists in a laboratory. The technique was discovered in the mid-1970s when scientists inserted spider genes into goat DNA, cow genes into pigs, jellyfish genes into pigs, Arctic fish genes into tomatoes and strawberries and human genes into corn. The aim was to transfer genes from one species that had a specific desirable trait, i.e. tolerance to frost in Arctic fish, into the DNA of another species in hopes that it would develop the same trait(s). In addition, some crops have been genetically altered to be able to survive an otherwise deadly dose of pesticides. Farmers that choose to buy these crops are also required to buy the corresponding herbicide produced by the same company. Finally, there is a variety of GM crops that produce their own pesticide, called Bacillus thuringiensis or Bt, internally. So far only corn and cotton have been genetically modified for this end[1].

The GM seed industry is controlled by five companies: Monsanto, DuPont, Syngenta, Bayer CropScience and Dow. Monsanto is the largest player with 88% of GM acreage planted in 2005. The four major genetically modified food crops in commercial production today are soybeans, corn, canola and cotton. Other crops include zucchini, crookneck squash, papaya and alfalfa. GM tomatoes and potatoes were also introduced but consequently taken off the market[2]. As of last year genetically modified foods were grown in 29 countries with the United States planting by far the most, 69 percent. Other countries in the top ten included Brazil, Argentina, India, Canada, China, Paraguay, Pakistan, South Africa and Uruguay.

According to the biotech industry – the producers of genetically modified organisms – their crops have various benefits. They even go as far as to claim that GMOs will one day “feed the world” because they “lead to higher yields”, besides delivering “proven economic and environmental benefits”. They back up these claims with scientific research while omitting the fact that this research was either funded or conducted by – you guessed it – the industry itself. Independent studies, such as a 1996 study funded by the UK government[3], have found serious negative effects such as smaller brains and reproductive organs; enlarged pancreases and intestines; liver damage; impaired immune systems[4]; bleeding stomachs, kidney inflammation and increased blood sugar levels and even death. Agricultural laborers in six villages in India reported reactions of the skin, eyes and upper respiratory tract after handling genetically modified Bt cotton. Also, suicide rates among Indian farmers have gone up considerably since the introduction of GMOs in the country. As a result of a host of detrimental health effects, authorities in India are now expected to pull the plug on genetically engineered foods once and for all

Much more remains to be said about the safety of biotechnology. Entire books have been written on the subject, covering the health risks, corruption and pseudo-science surrounding the technology. The lay person should consider this, though: if a company was convinced of the superiority of their products, what would stop it from proudly labeling them to raise awareness among consumers? Given the fact that the biotech industry is fighting tooth and nail to stop Proposition 37, the industry apparently does not want people to know that their food has been created by them. What other industry or company has that kind of relationship with its customers? Imagine Nike removing the “swoosh” from their products, or the new iPhone 5 without an Apple logo. The idea sounds ludicrous yet that’s precisely what the biotech industry is doing. This should be a huge red flag to anyone who is still on the fence about this technology. And speaking of red flags, back in 1999 mainstream media reported that Monsanto’s own employees refuse to eat GMOs in the corporate cafeteria. Meanwhile the industry is throwing tens of millions of dollars at the No on Prop. 37 campaign to block labeling of their so-called “superior” products.

Let’s hope that will not dissuade Californians from voting Yes on Proposition 37 for the right to know what is in our food. .

N.B. For more information visit www.carighttoknow.org.

[1]  Smith, J.M. (2007). Genetic Roulette, The Documented Health Risks of Genetically Engineered Foods. Fairfield: Yes! Books. p. 7

[2]  Smith, J.M. (2007). Genetic Roulette, The Documented Health Risks of Genetically Engineered Foods. Fairfield: Yes! Books. p. 7

[3] Freese, W., Schubert, D. (2004). Safety Testing and Regulation of Genetically Engineered Foods. Biotechnology and Genetic Engineering Reviews, 21. Digital version available at http://www.centerforfoodsafety.org/wp-content/uploads/2011/05/BGER-PAPER.pdf

[4] Freese, W., Schubert, D. (2004). Safety Testing and Regulation of Genetically Engineered Foods. Biotechnology and Genetic Engineering Reviews, 21. Digital version available at http://www.centerforfoodsafety.org/wp-content/uploads/2011/05/BGER-PAPER.pdf