Marian Tupy: Today, I’m talking to Ian Vásquez, who is a Vice President for International Studies at the Cato Institute and a Director of its Center for Global Liberty and Prosperity. Ian is a colleague of 18 years. 18 years we’ve been working together without murdering each other or anything like that, and we’ve been having a lot of fun. I don’t think we’ve done a podcast before, but the reason why I wanted to talk to Ian today is because of his specific interest in Latin America, Ian is obviously one of the best known analysts and commentators on what is happening in Latin America, and Latin America is not doing all that hot these days, we are seeing a lot of turmoil, political and economic, and that has bearing on human progress, whether societies grow economically or stay politically stable is obviously deeply connected to whether societies flourish. So I thought that we could take an hour or so to talk about the state of Latin America, and the first question that I want to ask you Ian is, how does the current political and economic situation in Latin America, with everything that we see in the news, how does it compare to, let’s say the last 50 years or a century of Latin American history, are we seeing an unprecedented amount of political and economic turmoil, or is this something cyclical that just comes by every few decades or so?

Ian Vásquez: Well, you said… Thanks, by the way, for inviting me.

Marian Tupy: My pleasure.

Ian Vásquez: Well, you said that the region is currently going through turmoil and… Yes, that’s right. Latin America has seen better days. We now have three dictatorships in the region, Cuba, Venezuela and Nicaragua, and we have the rise of authoritarian populists who are in charge of countries, including in Mexico and in Argentina, and we even have countries that have been by every indicator success stories that are on the verge of populist politics and possibly authoritarian in nature, those include Peru and Chile, and that’s worrisome in and of itself, but one of the reasons it’s worrisome is precisely because there has been notable progress in Latin America since the 1970s and 1980s. Remember that in the ’70s and in the beginning of the ’80s, all of the region was… Virtually every country was a military dictatorship, and then the region started to democratize, which I think is a form of progress.

Ian Vásquez: So they liberalized politically, but they didn’t liberalize economically, in fact, these democracies had the worst economic policies on record, and that led to the third world debt crisis, that was really a Latin American debt crisis, and what we call the lost decade of the 1980s, that was just disastrous economically, hyper-inflation and so on, Peru had hyper-inflation rate of 7000% in 1990. And then with the collapse of the Soviet Union and the Berlin Wall and central planning all around the world, the region finally in the late ’80s and early ’90s implemented market reforms, it started opening up and so it started to liberalize economically, and it’s at that point that you really start to see the big changes in Latin America. A region that had closed itself off for 50 or 60 years from the rest of the world joined globalization, opened itself up in many ways, economically, politically, and so on, and that’s where you really see these increases in indicators of human well-being and per capita income, and so on.

Ian Vásquez: And obviously, some countries did much better than others, some countries ended up not doing so well, the most obvious case is Venezuela, but today, the region is a much, much more diverse place in terms of its politics, its economics, its income levels and human well-being levels than it was in the 1970s and in the 1980s, you have countries that have really progressed much more than others, but as a region, generally speaking, there’s been notable progress, and yet there are a few cases that really stand out as exceptions to that, and as I say Venezuela is one of them, Cuba is another one of them.

Ian Vásquez: So that’s what worrisome about the trend today, despite all this progress, including in countries that are just clear success stories in world history, you are seeing these setbacks, which is a reminder for all of us who believe in liberal democracy and in human progress itself, that we can’t take it for granted. And that there are a lot of factors, probably in Latin America, ones that you could generalize to try to explain what has happened, and also you really have to look at each particular country to fill out the story as to what are the factors that explain those setbacks in those countries.

Marian Tupy: Yeah, I definitely want to get more granule and talk about individual countries, but let’s just stick at the regional level first, and let me ask you this, how much of the changes economic and political in the 1980s and the 1990s was because socialism as a respectable alternative to economic development simply lost its luster. How important was the fall of the Berlin Wall, or was the dissatisfaction with over-regulated economy sort of domestically generated, in other words, was the push toward political and economic liberalization something that Latin Americans did of their own, something they felt they had to do because their system wasn’t delivering or was it an external impetus?

Ian Vásquez: It was mostly an internal impetus, but there’s no question that the collapse of socialism had a big impact on the policy debate, on the ideology that was predominating. If you look at the 1980s in Latin America, it really was disastrous. In some countries, entire rebel groups were taking over huge parts of the country. In Peru it looked like they were going to actually take over the whole country at one point. Society, it was collapsing. Money didn’t work. Nothing was working in a lot of these countries. And these were countries that had tried every other kind of policy, right-wing policies… Fascistic kind of policies, military dictatorships of the right, military dictatorships of the left, socialist type policies, what came to be known as heterodox policies, just a combination of a mishmash of all policies, and none of it worked. So by the end of the 1980s, there was nothing else left to do but to actually finally try market reforms, and some countries, as I say, did it in a much more coherent and far-reaching way than others, those tended to be the more successful ones.

Ian Vásquez: But there is no question that the collapse of socialism worldwide, played a big role in helping to legitimize those free market policies, because after all, if you remember, Chile stands out in the story as being unique, it was in the 1970s, 1975, actually that it began its free market reforms and it was successful, and yet the rest of the region didn’t look to it as a model, partially because it was implemented by a military dictatorship, and most other military dictatorships, virtually all of them actually in the history of Latin America, didn’t actually liberalize much and implement a successful market economy that increased people’s choices in the economic sphere, did a lot of bad things in the other sphere, and so that legacy sort of tarnished the idea of market reforms for a lot of Latin America, who still believed that the market just wasn’t the way forward for underdeveloped countries, but by the end of the ’80s, the evidence was just pointing in one direction and even Chile itself democratized. So both political liberalization and economic liberalization came together in the early 1990s in the region, and that’s when you started seeing the big changes.

Marian Tupy: Obviously, I want to talk a lot more about Chile, but before going there, let me ask you, certainly by the 1990s, it’s obvious that Chilean model is succeeding, the country has also democratized, why is it so difficult for other Spanish-speaking Latin American countries to look to Chile as an example to follow? I realize that it’s a strange question right now because Chile seems to be moving in the opposite direction, but there is a period between 1990 and say, 2010 when, perhaps even earlier, when it’s obvious that the Chileans are doing something right. Why is it so tough to learn the good lessons from Chile, and for that matter, why is it tough to learn the bad lessons from Venezuela and Cuba, there doesn’t seem to be much learning going on, or am I wrong on that?

Ian Vásquez: I think you’re partially wrong on that, there’s been a lot of learning going on in Latin America, I would characterize most of the period after 1990 for most of the region as one of not just material progress, not just progress in a lot of indicators of human well-being and not just for the majority of countries, an increase in all sorts of freedoms compared to the 1970s and even the 1980s, but one in which lessons were learned. It used to be that inflation was a huge problem in Latin America for decades. It wasn’t just something of the 1980s, we saw hyperinflation in the 1980s, but we also saw high inflation rates consistently in the past, and yet after the 1990, early ’90s, in the era of reform, that really was an area that pretty much got under control in most countries. Now we’ve seen that Venezuela has totally broken that pattern, but it’s an exception to the rule, it’s had hyperinflation and it’s totally mismanaged its monetary policy. Argentina is also another example. It’s not nearly as bad as Venezuela, but it’s high inflation, that’s a chronic problem for Argentina, but for most of the rest of the region, we start worrying in Latin America when the inflation rate is still in the upper single digits, and that’s something that most of the region wants to avoid too, but that’s progress, because that didn’t used to be the case.

Ian Vásquez: Most of the region is much more open than it used to be, so those things did occur and in many cases, in some cases they’ve been rolled back, but in most cases they’ve held up now, we’ll see how long they’ll hold up, so there has been learning, I think that the very fact that there are five million Venezuelan refugees spread out over South America is a pretty good indicator to people that that’s a model that you don’t want to follow. I do think that nobody in Latin America, nobody wants to follow the Venezuelan model. There was a time when it was kind of appealing when oil prices were high and Hugo Chavez was in charge, and he seemed to be on top of the world financing all sorts of things and spending like mad, and the growth kept up over there but it was an illusion. That country has completely collapsed, 75% contraction in the economy since just in the last seven years, it’s a disaster, 79% poverty rate. Most Latin Americans were well aware that they do not want that but that doesn’t stop some political leaders and intellectuals from criticizing the market model, and so that still happens, that happens in the United States, that happens everywhere, and I think it will always happen. Well, there’s no question…

Marian Tupy: That’s a great segue to talking a little bit about Chile. So Chile in the mid 1970s starts liberalizing, and if my facts are correct, it was the second poorest nation in Latin America and it is now unquestionably the richest country in Latin America, is that correct?

Ian Vásquez: It was a very poor country but it was also, according to the Fraser Institute’s Economic Freedom of the World Index, the second least free economy at the time, and now of course, it’s the freest economy in Latin America by far, it’s also the freest country in Latin America according to human freedom, and that takes into account other freedoms, personal freedoms as well.

Marian Tupy: Okay, so can you give us just very briefly, a sort of, an idea about the great success of Chile? You already mentioned more economic freedom as one of the reasons for the success of Chilean economy and society, so Chile obviously liberalizes… And what are the main accomplishments as we enter, let’s say the COVID pandemic, where does Chile… How would you quantify the success of the Chilean economy and society?

Ian Vásquez: Well, without any question, it’s the most successful country in Latin America. It’s the one that has consolidated democracy the most. It’s the one that has become the wealthiest, it’s the one that has become the freest on all indicators of freedom, not just economic freedom, but personal freedom. Chile was really innovative and a pioneer in economic reforms in that regard, remember these reforms started in the 1970s, privatization started at that time, even before Margaret Thatcher started doing it, or even before the Berlin Wall fell and it became common for countries around the world to privatize and do that, Chile was a leader in that. Chile completely innovated the private pension system, which actually has been a huge success in the country, and so its reforms and reform ideas have been exported to the rest of the world afterwards and they have been, Precisely because they’ve been successful in Chile, what happened in Chile?

Ian Vásquez: The country is now four times richer on a per capita basis than when the reforms began, there is this leftist narrative that has taken hold and exists in Chile that somehow this has not been good for the poor or for the majority of the people, because the rich have gotten most of the gains and that’s also not true if you look at inequality in Chile, income inequality using the Gini indicator and a lot of other types of indicators, you see that there’s this notable fall in inequality in Chile. Chile is less unequal than the Latin American average, and this happened after these reforms were done, you see the poverty rate just plummet and so there is less poverty in Chile than in any other country in Latin America.

Ian Vásquez: You see all sorts of indicators of a transformation of a country that used to be poor and highly unequal, it’s still unequal, but that’s continuing to go down. You see it is on the verge of becoming a developed country by per capita income measures, it is a middle class country now, and so you’ve had tremendous development, tremendous progress in a very short period of time, and that has created probably a lot of expectations in Chilean Society, some of which in a country that’s reforming so quickly have gone unfulfilled, especially when there have been years of lower growth, when there’s a pandemic and that kind of thing, that certainly influences politics and radicalization of politics in Chile during the last 10 years has certainly influenced the situation there, but there is no question that by virtually any indicator that you look at, Chile has been a tremendous story of progress that has benefited all sectors of society, this is widely shared progress.

Marian Tupy: Okay. And then so about 18 months ago, maybe it’s a little longer, maybe it’s a little less, I can’t remember, but suddenly there is this massive outpouring of anger and protests in the streets of Santiago and a lot of violence, a lot of property damage. And the protesters seem to coalesce on a desire or around a set of demands, the most important one of which is the re-writing of the Constitution, which was drafted during the Pinochet years but it was then passed in a plebiscite and it was amended many, many times under democracy, to make the Constitution, more reflective of the desires of the populace. But you have this Constitution, this political setup, which allows the economy and the society to flourish, then suddenly you have an outpouring of anger and protests, and the protesters demand re-writing of that Constitution. Can you tell us a little about where did those protests start, why did they get out of hand, why did the protesters focus on the rewriting of the constitution, and then we’ll get to the process. But let’s just talk a little bit about the Constitution itself and the protests and what happened there, then we’ll talk about what will happen in the future.

Ian Vásquez: Well, the sort of the spark of these protests a couple of years ago was that the government raised the price of the metro fares, which was always something that it did, it was something that was scheduled, it wasn’t any political thing, by a few percentage, by a very small amount. I don’t know how many cents, anyway, it wasn’t very much. Immediately, there were a number of metro stations all over Santiago, the capital, that were burned in what was no doubt a coordinated fashion, well planned out fashion, and in a way that was very sophisticated, which then paralyzed the entire city. That had the effect of mobilizing a lot of discontent that was already building up in Chilean society, and so then the question is, how did these two forces, one which was sort of a driving radical force, and there’s radical politics behind that, combine with the broader sentiments of discontent that were building up in Chilean society to produce these protests? The majority of the protests, the majority of the people in protests, were peaceful, but this turned violent by a small group of Chileans who were very well-organized, especially in evening and so on, when they destroyed a lot of property and so on and so forth.

Ian Vásquez: And I think that part of the explanation is that, at the time, President Pinera, who was a center-right conservative president, or at least that’s how he is viewed, had been elected on the heels of the previous socialist president, Michelle Bachelet, who had explicitly stated she wanted to undo all of these big reforms that had been successful and inherited from the military regime, and which every government until then, which had been center-left governments, including socialist governments, had upheld without questioning. It was, up until then, Chilean politics was very reasonable, very moderate to the left, and the left coalition that governed the entire time up until President Pinera’s first presidency about 10 years ago, and then she came, was supportive of these policies, these were very moderate. But then she started to become much more aggressive after Pinera’s first presidency and politics on the left became much more radical. This was rejected by the majority of the voters, and that’s how they elected President Pinera, who’s still in power today, who was advocating market solutions and reverting what she had done. Well, when he got into power, he didn’t do any of that stuff. Growth had already been declining as a result of Bachelet’s policies before, but he was ineffective in actually promoting what he was saying, and growth stayed very low.

Ian Vásquez: At this point, you have a country that had been used to the high growth, real fast progress for decades, now experiencing years of low growth, radical politics on the left, increasing turmoil, and a president who promised to reverse that and didn’t do it. And that combination of things, I think, really did help to explain the outburst that came out of that. And I’ll add one more element that I think is important in this story, which is the role of ideology. The reformers in Chile were very successful at what they did.

Ian Vásquez: It’s the first country that I know of that… In which the reformers set out to create a free society, one in which there would be a truly free market, not just economic reforms in trade or in agriculture or technical fixes here and there, but across the board in a very coherent fashion, not only in order to create a truly free market, but also to create a truly free society, one that is based on liberal democracy. They set out to do that, and in fact, that’s what ended up occurring. And so once they accomplished that there was a sort of sitting back on the success of the country, a lot of these were performers who were actually economists and they were technical, there weren’t that many defenders of the system as morally superior to the alternatives, and so what happened in the interim was that the leftist narrative that the market itself is unfair.

Ian Vásquez: That the entire system, because of its origin and whatever results they would point to is unfair, should be reverted, that narrative took over all of the cultural institutions in Chile and there weren’t defenders on the, let’s call it classical liberal side, who were making the persistent strong case, I can count them on one hand, maybe one or two or three people who would say, “No, this isn’t just a technical thing, this is not just an economic thing,” Chile is actually the most free society in Latin America, one of the most free societies in the world as a result of this, you would never know that from listening to what professors at the universities were saying, what these… Certainly what the labor unions were saying, you wouldn’t even know that from listening to the business leaders who were buying into that kind of rhetoric and not actually understanding well or even defending the big transformation that occurred in Chile, and so that when President Pinera became president, I think that created a lot of damage to the society because he never, in my view, understood or believed fully in these ideas, and he certainly didn’t defend them.

Ian Vásquez: He started using the rhetoric that critics of the market were using in order to gain popularity, and so he was the first center-right President after the military regime, and he started competing with the left on their own terms, whether that made the left go farther to the left, and all of politics in Chile shifted to the left because of that. I think that that helps explain in large part why the politics became more radicalized there and that in part helps explain the political climate and the debate in Chile, which led to these protests into the current situation.

Marian Tupy: Right, so thanks for that, it’s very interesting and the biggest concession that Pinera gave to the protesters was the rewriting of the Constitution. So to bring the listeners up to speed, there was a referendum, first of all, do you want to rewrite the Constitution, and the majority of Chileans said yes, then there was a second round of voting where the Chilean people have elected a representative assembly or a constitutional assembly, which is going to write the Constitution, new Constitution. What are the dangers for Chile, Ian? Tell us a little bit about the modalities or the practicalities, how the Constitution is going to be written, how the different articles are going to be passed and then tell us about the dangers of the final product.

Ian Vásquez: Well, I should say that in Latin America, there’s this fetish with Constitutions, this idea that whenever there’s a problem in politics or in society, the answer is we need to write a new Constitution and that will solve all of these problems, and so that’s one of the reasons why Latin America is the continent with the most Constitutions by far of any other region in the world. The Fundación Para El Progreso, which is a think tank in Chile, did a study and found that Latin America has had nearly 200 Constitutions, that’s about an average of more than 10 per country. I think Venezuela has had 26, [laughter] Dominican Republic more than 30, it’s really bad, and there isn’t any evidence that once you get a new Constitution, somehow things all of a sudden get a lot better, those cases are far and few in between, and what’s also happened with these Constitutions in Latin America is they become longer and longer and longer and longer, full of all sorts of promises and contradictions and so on, and they’re certainly not models to be followed by countries around the world. Well, recently, I would say, in the past 20 years, we’ve seen a lot of countries doing this in the same process that Chile is about to get into, they decide to have a Constituent, as they had a referendum, they’ve decided to have a constituent assembly.

Ian Vásquez: They rewrite the Constitution and the governments that lead that process claimed to re-found the country. This happened in Venezuela, it happened on Bolivia, it happened in Ecuador and the left that led all of those initiatives seems to be leading the initiative in Chile as well, it doesn’t just seem to be, it is leading it, and if we are going to be guided by those experiences, then there’s a lot to be worried about because what happened in those countries is that they basically wrote very socialistic type Constitutions that promised all sort of things that recognized virtually no limits to the power of government, and that entrenched these regimes in power to a large extent.

Ian Vásquez: So I don’t think that the current process in Chile is very promising. Before the actual vote for the actual members of the constituent assembly which happened last month, there was the hope that, well, plenty of Chileans are gonna vote for people who do want to put limits on power. This is not Venezuela, this is not Bolivia. The Congress is made up of, at least a third of the Congress, that would sort of act like a veto power against really bad ideas. So there was a fully, this expectation that in order to pass anything you need more than two thirds. And so, if you can’t count on a coalition of moderates in the center or center-left moderates and center-right people and so on, then we shouldn’t be terribly worried about the Constitution that comes out of it. Well, unfortunately, the vote came out quite differently, and those moderates and center-right candidates didn’t get one-third of the vote. So they’re not going to be able to veto a lot of these bad ideas that are gonna come out of this Congress. It is gonna look like a Constituent Assembly, it is gonna look like… I’m afraid much more like the constitutions of Venezuela and the populist countries that have gone down this road than what we would have liked to see, and that is the danger.

Ian Vásquez: So you have, in the constituent assembly, members who are far leftists and people who are so-called independents, but they’re far… But most of them are to the left or far to the left, and over half of them believe that investments and trade with the rest of the world needs to be reduced, sometimes prohibited. This is the kind of idea that I’m afraid is going to sneak into a new constitution in Chile. Before, I was hopeful that it wasn’t going to be as bad, that probably the result was going to be a sort of welfare state-type constitution with limits to power and procedures of that kind. Now I’m not so sure that any of these kinds of checks and balances and real limits to power are going to make it into the Constitution, but we’ll see. There is a question about how the Constitution is going to be approved. Is… Does each amendment have to pass a certain level of votes, or will the entire Constitution be submitted to one vote that has to pass a certain threshold? I think that that’s not yet been settled.

Marian Tupy: Could you… Could you expand on that just a little bit?

Ian Vásquez: Well, there’s going to be all sorts of proposals about foreign investment, the independence of the Central Bank, whatever goes into a Constitution. Do each one of those things, in order to become part of the constitution, have to be approved by say two-thirds of the constituent assembly, or will it all be submitted as one package for one vote that needs to pass two-thirds?

Marian Tupy: Well, let me ask you this, because if it’s passed… Sorry, if it’s submitted as a whole, that could actually work in favor of Chile, of liberal democracy in Chile. Because by that time, so many people will be angry at different points in the Constitution, and they will see so many red flags of the things that they don’t like, that they might say, “Oh, bugger it, I’m not going to vote for the whole thing.”

Ian Vásquez: Yeah, I think you’re right. And so that’s something that I think it really does matter what they end up deciding on in that regard.

Marian Tupy: And then once they have the text which emerges from the constitutional assembly, does it have to go to the people for a final approval? And if so, by what majority?

Ian Vásquez: I’m not sure what the process is with that so I better skip the question.

Marian Tupy: So this is a good time and place to switch to another country, which I know is very close to your heart, and that’s Peru. What on earth is going on? There was a presidential election, there was a run-off, and it looks like the country voted 50% for a Marxist and a 50% for somebody else, but right now it’s not clear who is the winner. So could you perhaps start by… Before we talk about Chile and… Sorry, before we talk about Peru and its accomplishments, let’s start with the two candidates, the presidential election, and the current state of affairs.

Ian Vásquez: Yeah. So there was a vote, presidential vote, earlier this year, in which there were 17 candidates, none of them really good. And in Peru, you have to pass a certain threshold in order to actually win the election, and if you don’t, which none of them did, there’s a run-off election among the top two. Well, the top two ended up being one guy named Pedro Castillo, who is a leftist, and the other candidate, Keiko Fujimori, the daughter of the former President Fujimori, who is in jail now because he turned his government into a dictatorship, and they pretty much represent totally different views. Neither one of them is a good candidate, but I’ll start by describing how bad Pedro Castillo is and how he actually represents a radical break from everything that Peru has been doing in a way that Keiko Fujimori would not.

Ian Vásquez: He represents a party that describes itself as Marxist, Leninist. It has a platform with a government program that cites Lenin, Marx, Fidel Castro, Maduro from Venezuela, the party actually does look to Venezuela as an example. Pedro Castillo himself has said and is explicit about his view that Venezuela is a democracy, not a dictatorship. They do not believe in freedom of the press, they believe that as long as the press is in private hands, that’s some form of repression, so very Marxist view. They believe that Peru has been completely exploited by international capital and want to nationalize strategic industries, or at the very least tax them at punitive rates.

Ian Vásquez: They believe in all sorts of nationalizations, and on and on with that kind of far left agenda. Now, most Peruvians probably weren’t aware of how far left that was until more recently and that made him come out and say, “No, no, we’re going to safeguard democracy, we’re not going to turn into a dictatorship, I’m not gonna stay here forever,” even though the head of the party and the founder of the party, who by the way would have been its candidate, but was disqualified because he was convicted for corruption and so on so he couldn’t run and he picked this other guy. He’s gonna be the real power behind the throne if he comes to power. He has said that once we come to power, we have to hold on to it forever because that is actually the extreme left view and that is exactly what has happened in these other authoritarian populists countries or at least they’ve tried as much as they can. That person, the head of that party was trained in Cuba for 10 years and he is just part of this tradition.

Ian Vásquez: In any event, the other candidate is Keiko Fujimori, who I think has been a bad politician for Peru, she’s been a perennial presidential candidate for the last whatever, 15 or more years, and she hasn’t been elected, she but all indications has ties to criminal activities and so on, she has a criminal case in the courts pending against her for corruption and so on, this has been suspended for the time being during this election, and of course, if she became President, it would be suspended during that time too, and yet she is promising to keep the Constitution, as opposed to what Pedro Castillo is promising. He want… He is calling, like in Chile, like in these other countries for constituent assembly, to totally rewrite the Constitution because after all, the Constitution is unfair and we cannot have, according to him, whatever his campaign slogan is, no more poor people in the country that is as rich as Peru, and so it gives this impression that there has been something going terribly wrong in Peru and especially for poor people during this last couple of decades, when in fact everything points to the contrary, and then they were like…

Marian Tupy: I want to get to that in a second, but… So how did the election end up?

Ian Vásquez: So they finally counted the… They finally finished counting the votes, and the vote is so narrow that the difference is 0.25 percentage points in favor of Pedro Castillo, the leftist candidate, and there is now some political turmoil going on because Keiko Fujimori’s camp is claiming that there is evidence of fraud, widespread fraud that the election authorities have to look into, and we don’t need to get into all sorts of technicalities, there’s different interpretations as to what counts for fraud and also whether they brought these complaints in on time to the election authorities or not, was it okay for them to bring it in at whatever, after 8:00 PM, but before 12:00 PM on the day that the Constitution says you have to have it in or not, and the problem here is that if she’s right, it would overturn hundreds of thousands of votes and change the election results, so in the balance is the future of Peru and it’s not just the difference between one candidate and another, it’s entirely difference between two models, one that would be Venezuelan style, and one that would continue to be, with all its flaws, a market democracy.

Marian Tupy: Not to mention that when you have a country which is pretty much a split down the middle, regardless of where those few hundred thousand votes go, how is that going to be resolved, assuming that she can change those results, or rather the courts can change them on her behalf? There’s still going to be 50% of the population, which are going to hate her and oppose everything she does and claim that the election was stolen, so this doesn’t sound very good, but I know that from your writings and from other interviews that you’ve given, how puzzling in a way the strong performance of Castillo is, because Peru is a not a basket case, it actually did have a very good couple of decades, so could you tell us a little more about why is this such a conundrum, why is it surprising? What is Peru like? Did it see progress?

Ian Vásquez: Peru is one of the great success stories of Latin America. After Chile, I would say it’s the one that has shown the most progress in the 1990s. In the early 90s, it was the one that implemented the most far-reaching coherent market reforms, and since then its per capita income has nearly tripled. Now, to put things in perspective, I mentioned that the 1980s were a lost decade and hyperinflation was destroying the country, and there was the Shining Path Rebels that were taking over much of the country and so on, but basically that resulted from many years of bad policies. In 1968, there was a military coup, but it was a military that implemented socialist policies, so it was a military that ruled from the left, and it had a lot of terrible policies that it took Peru a lot of time to get out of but looked like in 1980 when there was the transition to democracy, would start getting out of it, but as I say, bad economic policies continued and then in 1985, President Alan Garcia came to power with very socialistic agenda and things went even worse, so that by 1990, the per capita income was the same as 30 years before.

Ian Vásquez: That’s how far back these bad ideas set Peru, and it was only in 1990 when these market reforms began that you start to see this increase in per capita income, and it is quite clear. If you look at a graph, you see how well Peru has done on income and wealth after market reforms, a graph that could very easily be called the power of ideas, because what came before were all of these combination of bad ideas that were socialists, that were heterodoxic, were everything but market reforms and then the coherent application of market reforms, and ones that were, for the most part stuck to and deepened during this period of time, which also makes Peru a different story in Latin America because as you recall, a lot of countries in Latin America started out by doing reforms but then they committed huge policy mistakes that led to financial crises, you remember the financial crisis, the Mexico crisis of ’94 and ’95, that’s because of terrible monetary and fiscal policy that they follow. Peru didn’t commit those mistakes, it just kept on going, it started having more free trade agreements and so on. Argentina had the same problem in a different way than… A similar problem as Mexico, it had more than one financial crisis, what about Brazil…

Marian Tupy: What was that, the year? The year of four presidents?

Ian Vásquez: But Peru is different.

Marian Tupy: Yeah.

Ian Vásquez: Okay, so if you look at growth, you see this clear thing going on, and you also see that during this time, for the first time, you see inequality start coming down quite notably in Peru, more people have opportunities, this is starting to benefit everybody and in a very widely shared way, and you see the poverty rate plummet. 15 years ago it was over 50%, and in 2019 it fell to 20%. This is a tremendous amount of progress, no where… At no time in the history of Peru did you see that, and it wasn’t just in the capital city of Lima or along the coast, as usually has been the case in the history of Peru, when there’s progress some people benefit geographically. It was very widespread in most parts of the country, in the interior, in the Andes, in the rural areas, in the urban areas, so you see that every sector of society has benefited in a way that has never been the case in the history of Peru.

Ian Vásquez: The growth rate in the interior of the country during this period of time was much higher than the growth rate along the coast, why? Because there was much more connectivity for the first time in Peru’s history, that is roads and telecommunications and so on, went alongside of these greater freedoms, it’s not like so many other poor countries that build roads and do all sorts of infrastructure spending that then don’t lead to development, because they don’t actually free up the country, and so people don’t buy motorcycles and start businesses and so on, and then you can’t even sustain and pay for the highways, they crumble and so on, at least the debt, not development.

Ian Vásquez: No, the opposite was happening in Peru. So Peru was completely transformed during this time, just this boom in exports, this boom in all sorts of industries, non-traditional exports are booming and Peru exports tens of millions of dollars of software, things that you would never thought of before, entire parts of the countryside and the coast that was desert is blooming green with all sorts of agriculture. Today, you go to the store in the United States and you can find at the grocery store, a lot of products from Peru, that wasn’t the case 15 years ago, and of course, as you know, when countries rely on their comparative advantage for development. Soon, other complementary kinds of development occur in services, in manufacturing, in banking, and that is the process of development that you have seen happening in Peru over all these years. So look at almost any indicator of human well-being, and if you just look at those indicators for the poor in Peru, you see how they have benefited tremendously.

Ian Vásquez: The percentage of slum dwellers improved and cut by half since the reforms began. The access to water in poor people’s homes has just shot up. Malnutrition has just collapsed. Almost anything that you look at, you will see these benefits. And if you just look at how the poor have fared, you will see their literacy rates go up, you will see almost every indicator, the type of floors in their houses are no… Which were commonly dirt increasingly are made of cement or wood. This is also a country that has become a middle class country because of these reforms also for the very first time in Peruvian history. So these are the kinds of tremendous transformations. Today Peru’s a completely different country than it was even 10 years ago, not to speak to 15 or 30 years ago.

Marian Tupy: Which brings up the obvious question, what on earth happened?

Ian Vásquez: Well, that’s a good question, and I would start out by saying that I don’t think that if Pedro Castillo gets elected, that is an expression of half of the country wanting socialist policies for the country. I don’t think that we can conclude that. If you looked at the polls in the weeks and months before the actual election, the first round of elections where there were 17 different candidates, every few weeks there was a completely different candidate heading… Being the most popular. For a while, it was another leftist candidate, then there was a guy that was from the far right who was very religious, and so on. And everybody thought, “Woop, he’s gonna be the next president no doubt about it.” And then somebody else came up, and it just so happened that as this list just kept changing, the election occurred when this Pedro Castillo guy’s turn was, and he got that vote. So that’s part of the answer. But I think that three things explain Peru situation. One of them is that even though the economy has been doing very well, generally over all these years, the political situation has become increasingly dysfunctional, and to the point that Peru has had five Presidents in the last, I don’t know, five years or so, and it’s been very unstable.

Ian Vásquez: The Congress and the President, they’re at each other’s throats. The president, under the constitution, can shut down the Congress after going through certain procedures. The Congress can impeach the president, and that didn’t used to happen so much, but it’s happening now a lot. Ironically, the candidate, the political leader who is very responsible for that kind of thing is Keiko Fujimori, the person who is the other candidate today. Because, during a previous presidency, she didn’t… During a previous presidency that she lost, she didn’t allow that president to govern. She had control of the Congress even though they had basically the same agenda, and it started off this process of instability. So that’s part of it, that dysfunctionality has left a real big bad taste in the mouths of most Peruvians who want somebody from outside the system, not the same old face. And Keiko Fujimori is viewed as part of the system, a corrupt person, and she’s associated with a lot of bad things in Peru. People… There’s a huge portion of the population that would never vote for her, and we’re seeing partially that. Corruption has also been something that has exploded in the news in Peru over the past several years as a result, especially, of the Brazilian Odebrecht case that ended up corrupting a lot of the political systems all over Latin America.

Ian Vásquez: But one of the virtues of Peru has been that, outside of Brazil, it’s been basically the only country where it has actually held top political leaders, from ex-presidents on down, accountable for the corruption that they were involved in. And so several ex-presidents have been in jail. One of them committed suicide. And there is plenty of evidence of all sorts of corruption that had been going on during this period of time. And so that also creates a sort of a rejection of what people view as the system that was put in place over the past several decades. And certainly the left has taken full advantage of that to create a narrative that says the free market system, which is so unfair, is consistent with this, when we know from academic studies that the more a government intervenes in an economy, the more corruption there is, and that’s true in Peru too. There’s probably been less corruption except in these exceptional cases than in the past, but it’s also a more transparent country and there’s kind of a better development of the rule of law by holding these guys accountable. So you have that as well, but I think that the pandemic is what helps push all of this over the top.

Ian Vásquez: When the pandemic occurred, Peru was one of the countries that was most extreme in its measures. And one of the first countries to lockdown in an extreme way. It shut down off lights, inside and outside, and told people to stay in their houses. It shut the country off from external contact, it put the military on the streets, it enforced it. And these are bad policies that extreme, I think in most countries, but in a poor country, it’s totally unsustainable. People have to work to survive, they have to go out of their houses. And what was the result? It led to more than 11% contraction in the economy last year. This is huge because they basically stopped the economy, and it had no effect, virtually no effect seemingly on COVID. COVID in Peru has one of the worst rates of contagion and mortality rates in the world. So it failed on all those accounts. Of course, the public health system, which was never reformed in Peru was a complete fail. It’s always been a disaster, and somehow that was again taken by the left as evidence that the free-market reforms were a failure for Peru. And so all of this discontent, which was associated with the government at the time, which was completely inept, is what a lot of Peruvians are rejecting.

Marian Tupy: Wow. Interesting. But also depressing at the same time. It seems to me that obviously both Chile and Peru are quite different. But in neither country, it seems to me there was a massive appreciation of the underlying factors that made human progress possible. In Chile, nobody was defending it. In Peru, it doesn’t seem like anybody was singing the praises of free market and liberal democracy. Maybe I’m wrong on that. But if progress is to be maintained. It seems to me people need to also understand what are the causes of progress and not to assign progress to the wrong ideas. So ultimately, it’s an ideological conflict. Would you agree with that?

Ian Vásquez: Yes, I think that ultimately it is. Part of the answer is to know the facts, and if people believe that the system is unjust and the facts don’t really matter, or they can ignore them, or what is happening too many times. They go with alternative facts, and then you have a real epistemic crisis, which is what I think is happening in a lot of the world today in the way that Jonathan Rose has explained it in his latest book. Where people can’t even agree what the actual objective truth is, much less that there is an objective truth. And both the extreme right and the extreme left engaged in that in different ways. And so that’s part of it, but I think in Latin America, or at least in these cases. Part of the problem is kind of the also the Tocqueville effect. This idea that as things get better and better, you get more social unrest because the things like child labor or stuff that was commonplace before and becomes less commonplace start to stand out, and people don’t like it.

Ian Vásquez: So they protest it, and you get the impression that things are not good. When in fact, things are getting better, but the bad things start standing out much more because they’re just less common. And I have this great quote from Tocqueville democracy in America where he talks… Where he says, “The hatred the men bear to privilege increases in proportion as privileges become fewer and less considerable. So that democratic passions would seem to burn most fiercely just when they have the least fuel. When all conditions are unequal, no inequality is so great as to offend the eye. Whereas, the slightest dissimilarity is odious in the midst of the general uniformity.” And that’s the Tocqueville effect. Peru and Chile are still highly unequal countries, but things have become so much better. That 20% of poverty in Peru is standing out more than when the majority of people were poor. And Pedro Castillo was pointing to that and say, “We shouldn’t have any poor people in the country, this rich. Let’s just reject all the policies and institutions that produced all of this progress.” It’s a non-sequitur, but that’s the narrative that he’s using that has gone some way with some portion of the population.

Marian Tupy: Ian, thank you very much for your time. This was absolutely fascinating, I hope the viewers like it, and we’ll see you soon.

Ian Vásquez: Thanks very much, Marian.