by L.F. Brown
24 August 2004
The devil made him do it. That's about the gist of Andrew Reding's op-ed piece ("US should form Marshall Plan for Latin America," Christian Science Monitor, 23 August) written after the failed recall effort against Venezuelan President Hugo Chavez. The "it" Mr. Reding is referring to is Mr. Chavez's populist "revolution," which caused the recall campaign. The "devil" is the free market. There were, however, few details.
Mr. Reding, a "senior fellow for hemispheric affairs" at the ominously-titled World Policy Institute, while upbeat about the result, which was a "testament to democracy," was worried about the attending "dangers of class polarization throughout the hemisphere, including the United States" that the referendum result pointed to.
He then went on to detail some of the charges brought against Mr. Chavez by "Venezuelan elites," the "rich," the "middle class," the "Bush administration" and "political commentators" of all stripes:
"Another argument against leftist populists like Chávez is that their initiatives inevitably lead to a decline in per capita income. There is no question about that. Many of the rich flee with their wealth to places like Miami. Others send their capital abroad to safer havens. Foreign investors understandably steer clear of the country. Still, Chávez's use of oil wealth to offer some measure of relief to the poor can hardly be blamed for his country's economic inequality. The real cause lies with unfettered free markets. Acting by themselves, free markets generate a lot of wealth, but they also concentrate that wealth."
This is when his hostility to free markets gets the better of him, with the stated objection to the ill effects of intervention into the economy as a whole now being morphed into an argument for why there is economic inequality. And as soon as you can say "Bolivarian Circles" he is face-to-face with the dreaded free market. Or at least his version of it. For his argument to work he would have to prove that Venezuela has been in the vice-like grip of "unfettered free markets." But instead he states it as a fact, with no evidence put forward. Thankfully we can look elsewhere.
Every year the likes of The Fraser Institute, The Heritage Foundation and the Cato Institute publish "economic freedom" reports that evaluate each country in the world according to several "free market" indicators like personal choice, freedom to compete, sound money (although the lack of a gold standard is not seen as a problem) and protection of person and property. Countries are then ranked accordingly. Contrary to Mr. Reding's pronouncement, Venezuela is right near the bottom of the world's list and has been on a downward spiral for decades. While Mr. Chavez has certainly made things worse, his ascension to power was by no means the beginning of the turn away from free markets. Hong Kong, incidentally, is at the top, yet no one is suggesting a Marshall Plan for Hong Kong.
While such studies are not perfect, they are useful for understanding general trends. And they are certainly far better judges of which countries are more free market orientated than others, because the originators of the studies generally do favour free markets, as opposed to the likes of Mr. Reding who seems to have a very superficial grasp on free market principles and no commitment to their accurate portrayal.
His article attests to this frequently:
"The relatively egalitarian advanced democracies in Europe, North America, East Asia, Australia, and New Zealand came about only through such government interventions as guaranteed minimum wages, quality public education and, in many cases, medical care, antitrust legislation, and other means of ensuring that the benefits of economic development were widely distributed."
He can only see the world through the prism of egalitarianism, with the level of inequality being the major judge of an "advanced" society. But this doctrine, taken to its logical conclusion, would accept the impoverishment of all, as long as everyone was equally impoverished. The free market is quite capable of providing for all, although inequalities will naturally exist. And intervention is counterproductive, as explained by the Austrian economist Ludwig von Mises:
"The interventionist doctrine fails to comprehend that the two systems—the market economy of consumers' supremacy and the government directed economy—cannot be combined into a practicable composite. In the market economy the entrepreneurs are unconditionally subject to the supremacy of the consumers. They are forced to proceed in such a way that their operations are approved by the purchases of the consumers and thus become profitable. If they fail in these endeavors, they suffer losses and must, if they do not succeed in amending their methods, go out of business. However, even if the government prevents the entrepreneurs from choosing those projects that the consumers wish them to execute, it does not attain the ends it wanted to attain by its order or prohibition. Both producers and consumers are forced to adjust their behavior to the new state of affairs brought about by the government's intervention. But it may happen that the way in which they, the producers and consumers, react appears as still less desirable, in the eyes of the government and the advocates of its interference, than the previous state of the unhampered market that the government wanted to alter. Then if the government does not want to abstain from any intervention and to repeal its first measure, it is forced to add to its first intervention a new one. The same story then repeats itself at another level. Again the outcome of the government's intervention appears to the government as even more unsatisfactory than the preceding state that it was designed to remedy."
As for the examples Mr. Reding cited, those countries have flourished despite the interventions, not because of them. It's obviously been a while since he visited public schools to see their "quality." Legislated minimum wages have the opposite effect from their intentions, with the poor and minorities the ones usually getting the kick in the teeth, because pricing someone out of work will simply mean that person gets no work. And government provided healthcare is creaky while antitrust legislation protects mostly large companies from competition, rather than promoting it.
Rather, we should keep our eye on the previously cited economic freedom studies which have documented that freer market conditions mean better growth. And a free market means that the rewards for satisfying consumer wants have more of a chance of being pocketed quite fairly by those who provided for them.
But despite not knowing what the actual problems are, Mr. Reding still has the solution:
"Postwar Europe became prosperous and democratic because the Marshall Plan's massive investment was aimed not just at rebuilding after the war but also at supporting social structures like labor unions, which in turn helped create middle-class majorities and a bulwark against Soviet communism. The US has never made a similar investment in Latin America. Instead, it has in the past chosen to prop up military dictators who kept the poor in check while giving free rein to US multinational corporations."
While the stated purpose of the Marshall Plan was to rebuild a shattered post-WW2 Europe and stymie the threat of communism from the Soviets, the real construction that went on was that of a US taxpayer-funded corporate welfare scheme for politically well-connected US companies. (See, for example, Jeffrey Tucker, "The Marshall Plan Myth," The Free Market, September 1997) And as George Mason University economist Tyler Cowen has shown, its financial effect was small, with the aid never reaching above 5% of the GNP of the recipient nations. Those countries that received the least aid outperformed those who received the most. What actually did the trick was the removal of economic controls, not their implementation.
That the over 50-year old Marshall Plan, and not any subsequent programmes of foreign aid, has been offered as a model is not surprising, since it is remembered quite fondly, albeit not accurately. The latter, with an outlay of billions and billions of dollars of taxpayer money, have been more obviously economically disastrous and rife with corruption.
But even if the Marshall Plan was as successful as Mr. Reding believes, he is still left with a key problem that needs solving. He is firmly committed to "stable democracy," which in the case of Venezuela, it follows, cannot come about without the cessation of opposition and foreign interference with the Chavez regime. Yet if Mr. Chavez stays ensconced in power and continues his policies, this will drive much needed investment out of the country. But how is he to square the circle? He can't and so ignores it. Because the plan he is laying out will necessarily contain political and economic interference in the affairs of Venezuela. If this transpires, those multinationals he likes to disparage will most certainly benefit from their new export subsidies and be given, I suppose, "managed rein."
But his contradictions do not end there. Talking of the US:
"Today, it pretends that free markets and free trade are the answer to all of the region's problems, when it is clear that laissez-faire globalization acts to increase the gap between rich and poor. It is therefore disingenuous to accuse Chávez of polarizing Venezuelan society. Chávez is a symptom of polarization, not the cause. In fact, much the same polarization, different only in degree, is now being seen in the US itself. Job flight abroad and the transfer of tax burdens onto those who can least afford it are thinning the ranks of the American middle class. As that happens, the US is gradually becoming Latin Americanized. Not surprisingly, political discourse in the US is becoming more strident, and elections are more hostile and disputed."
The disingenuousness of this passage is startling. He has turned reality on its head. Increasing US government intervention in the economy is the cause of job flight abroad and the thinning of the ranks of the American middle class. The more strident nature of political discourse is in large part due to the contentious issue of Iraq and issues arising from the implementation of post 9/11 government policies. And what portion of that stridency that can be put down to economic issues is a result of increased economic intervention, not a decrease. And his remark about the commitment of the US to free trade and free markets is galling, but telling. There is a curious but predictable dance going on between the alleged pro-market US establishment and its critics. As the US continues to step away from pro-market policies yet loudly professes its commitment to them, the critics concur with the patently absurd self-assessment. The free market is ultimately the whipping boy with all sides clamouring for the cane.
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