The State of Freedom in Chile

Perhaps one would not know it for some of the articles that have appeared on this website, but libertarians have plenty of reason to be optimistic about Chile. The country’s economy consistently ranks as by far the freest in Latin America, reaching tenth place in the world in the most recent ranking. Free market type policies have lifted millions of Chileans out of poverty over a time span of mere decades while making its capital city a major hub for international business. And despite recent allegations of large-scale corruption regarding political campaign contributions, on the whole corruption is virtually unheard of.

FreedomSuch a success story literally sets Chile apart from every other nation on the continent, as evidenced by the fact that it is set to become its first developed country by the end of this decade. Yet its unrivaled success has all but silenced critics. On the contrary, it seems like the very prosperity that made Chile the envy of Latin America has lulled some would-be free market advocates to sleep, while proponents of state intervention are running on all cylinders. “Free” education and healthcare and Keynesian economic stimulus – read: more wealth confiscation – are just some of the talking points among those aiming to perfect society by way of scribbling words on pieces of paper.

Last March an OECD report made the headlines in Chile for categorizing the country as among the most unequal in terms of income distribution. Such reports provide the kind of ammunition used by interventionists to beat the drum for all manner of reforms, including the recently approved educational reforms. Given the relative lack of government meddling in daily Chilean life – at least on the scale people in most developed nations have become accustomed to – some are eager to seize every opportunity to promote the supposed virtues of government planning.

To be fair, much of this sentiment stems from resentment against the iron first with which economic reforms were implemented by Augusto Pinochet’s military junta. Looking to break with the socialist policies pursued by his predecessor Salvador Allende and its disastrous consequences, the commander and his ilk considered “the Chicago Boys” to be the only group of economists worthy of their trust. Taking his cues from them, the policies subsequently introduced succeeded in reversing the downward trend and revived an economy previously characterized by soaring inflation and deficits coupled with plummeting saving and investment rates.

Since its return to democracy in 1990 Chile has almost exclusively seen left-wing administrations. For the better part of this era, however, economic policies have generally favored the free market over central planning. It is precisely this trend that is a thorn in the side of those who wish to see more top-down decision making, their main spokesperson being Michelle Bachelet. Fortunately their rhetoric does not go so far as to demonize international trade or private property, but it does tend to blame the free market for inequality in just about every aspect of life. This flawed line of thinking is most prominently and frequently used to justify more state control of healthcare, education and the labor market.

The latter, of course, can hardly be said to be a uniquely Chilean phenomenon. Still, it is imperative to the cause of freedom to promote this understanding of the philosophy of liberty; that rather than foster inequality, voluntary trade has historically been – and still is – the most powerful force against it. Not to mention the fact that trade, not coercion, is simply the morally preferable thing to do.


A Critical Look At a World Famous Welfare Program

Hailed by The Economist as a “much admired and emulated anti-poverty program”, the signature legislation of Brazil’s last president Lula da Silva was the Bolsa Família (Family Allowance) program. Aimed at alleviating the misery of the poorest segments of the population, the program provides financial aid to families and free education for children whose parents cannot afford to send them to school. The largest conditional cash transfer in the developing world comes with strings attached, though.

The eleven million families receiving the financial aid – on average $35 per month – commit to keeping their children in school, adhering to the government’s vaccination schedule, and taking them for regular health checkups. In a country plagued by persistent inequality and poverty widely blamed on an unjust system, the popularity of a program of direct wealth transfers to the least privileged should be no surprise. Still, might the superlatives expressed by the likes of The Economist have been a little overdone?

At first glance the numbers seem impressive; extreme poverty has been halved from nearly 10 percent to just over 4 percent, income inequality has fallen, and about one fourth of the population has benefited from the program. In addition, the initiative has been touted for its decentralized nature and target accuracy in reaching those in the most dire of circumstances. As Henry Hazlitt might have pointed out, however, there is more than meets the eye.

The National Congress in Brasília

It does not take a genius to understand that since the government has no money to spend it has to fund its operations through taxation, the printing press, or by going into debt. In the long term, therefore, the Bolsa Família program cannot be said to contribute to real wealth creation. Worse yet, regardless of the preferred means of funding itself these government programs necessarily extract wealth from the private sector, thereby making society poorer in the long run. Any consumption whose origin is found in the artificial creation of illusory wealth only contributes to a reduction in living standards due to the absence of an increase in general productivity. Sooner or later the market corrects the unsustainable boom, and it’s back to square one.

The irony of government intervention, as famously pointed out by Ludwig von Mises in his critique of interventionism, is the invariable snowball effect of piling on new interventions aimed at solving the problems created by previous ones. History tells us this endless game of government whack-a-mole invariably leads to an economic and humanitarian catastrophe. But in the case of Brazil there is plenty more reason for skepticism besides the objections raised from a more academic standpoint..

The aforementioned fundamental problems are compounded by the fact that would-be contributors to real growth such as a good education system are still lacking. After all, boosting school attendance rates is one thing, creating an environment in which students can get a good education is another. In its Human Capital Report of last year the World Economic Forum ranked the Brazilian education system as among the 35 worst in the world, trailing such nations as Surinam and Botswana while just barely ahead of Bhutan and Kenya. Steady increases in government spending in the last decade have entirely failed to achieve a competitive education system even compared to other, poorer Latin-American nations.

Perhaps a cynic would call Lula’s program and his successor Dilma Rousseff’s support thereof a classical example of vote-buying through government handouts. That might not be so far off.

The Case Against the European Union (Part II)

For all the talk about cooperation in the context of this grand European experiment, the system as it has been set up clearly was not designed to serve as a means for collaboration. It is, however, a perfect instrument for top-down decision making. After all, if this was all about collaboration why would Brussels have to impose its will on 500 million people? That very notion is fundamentally non-collaborative; it is in fact oppressive.

At the root of this, then, it’s worth doing a little thought experiment by asking yourself this question: what gives a European Soviet Unionbunch of bureaucrats the right to tell people what to do or not to do with their bodies and property? Accepting that state of affairs relegates your status to that of a slave with those paper pushers as your masters. As long as no aggression is committed against another individual or property you should be free to live life as one sees fit. This is, in short, the argument of natural rights or natural law; the understanding that rights are not gifts from government but have been here as long as humans have lived and are way older than governments.

So what are the practical ramifications of this line of thinking? Rather than wander off into a debate of “limited government” versus no government, which could add several thousands of words to this article, let’s focus here on the decentralization of power. As it turns out, historical examples of this phenomenon are rampant, whether it take the form of outright secession or something a little more mild. Just consider the U.S. War of Independence, or in more recent times, the Irish’ fight against the British just a few decades ago. In 1905 Norway peacefully seceded from Sweden.

This concept has not been confined to “the West” either; the Koreans and Chinese fought off imperial Japanese forces in different eras, and Singapore peacefully seceded from Malaysia in 1965. Consider also the breaking up of Latin-America into many different nation states after the Spanish were defeated, or the plight of the people in Georgia and Chechnya battling an army that way outnumbers them to defend or gain their independence.

Though perhaps easily overlooked, contemporary examples of decentralization abound, too; Belgium is divided into Flanders and Wallonia, Spain has Catalonia, Basque Country spans parts of Spain and France and four different countries make up the United Kingdom – at least for now, while we await the Scottish referendum on independence.

In the United States talk of secession has been going on in different states including Maryland, Colorado, and Texas in recent years. Just over the border in Canada, Quebec has a more autonomous status than other provinces and in Asia Hong Kong, Tibet, Taiwan, and Sri Lanka come to mind. It all goes to show that decentralization of power has stood the test of time and is supported in different cultures across national borders and continents; not just some pie-in-the-sky idea dreamed up by a bunch of idealists.

A favorite among tyrants and statists alike, EU apologists will undoubtedly use the perceived threat of foreign aggression as an excuse to keep supporting the beast that is devouring our liberties. This kind of attitude was especially prevalent in the wake of the NSA scandal, fueling the argument that “we need a European superstate to defend against other super powers” like the United States. Never mind the fact that Dutch, German, and British intelligence agencies were caught exchanging data with the National Security Agency! Who wouldn’t feel safer if those agencies merged to form one giant European surveillance system that could track our every move?

Another oft-heard argument in defense of the European Union that stems mostly from misinformation and fear-mongering is the idea that it has brought peace. In making this argument it is conveniently forgotten that one of the leading causes of many a war, including the two World Wars, is economic nationalism. While it is true that we have not seen military conflict inside EU borders, this observation is not nearly enough to establish a causal relationship. After all, not every century saw massive military conflicts that left millions dead, and a major reason for that is the free circulation of goods, free offering of services, free movement of financial capital, and free migration that prevailed before the dawn of economic nationalism and socialism. Europe’s most peaceful century, between the Napoleonic Wars and WWI, was one characterized by free trade and one in which passports as used today were virtually unheard of (they didn’t start circulating until the early 20th century).

Given the interdependence that naturally resulted from such (economic) ties that went beyond borders, it only made sense for people to want the kind of stability only peace can bring. Yet today’s EU apologists would declare this impossible on a continent so “divided” it would allow for many independent cities (in Flanders, Germany, Northern Italy), small kingdoms (Bavaria, Saxony) and republics (Venice)! Nonetheless, their lack of historical knowledge and understanding should not keep the rest of us from making the case against the European Union.