Javier Milei and the Future of Latin America | Podcast Highlights

Chelsea Follett interviews Daniel Raisbeck about the recent election of Javier Milei and what it means for the future of Argentina and the rest of Latin America.

Daniel Raisbeck — Jan 10, 2024

Listen to the full podcast episode or read the full transcript here.

What are some of the most promising events in Latin America today?

Of course, the election of Javier Milei. He took office on December 10th, and it’s all quite encouraging. He had a large decree that repealed many laws and modified others to liberate the Argentine economy, which is currently one of the most regulated economies in the world.

It will depend, of course, on congress and the courts which can potentially block many of his initiatives. Here at Cato, my colleague Gabriel Calderon and I have focused on his main proposal: the dollarization of Argentina’s economy. In general, we think it’s a very good policy, but in that respect, I’ve been disappointed with the beginning of Milei’s government. We can discuss that further if you like.

First, let’s set the stage. Could you describe the situation in Argentina before Milei?

Well, the main problem was inflation, which was around 140 percent at the time of his election in November. And, of course, this is caused by the central bank. Argentina’s central bank is particularly irresponsible even within a Latin American context. Argentina also has one of the most regulated economies in the world. Forty percent of the population is living in poverty, and its economy hasn’t grown in over a decade.

This is especially sad because Argentina was incredibly successful in the 19th century. Its 1853 constitution was drafted based on the ideas of a classical liberal author called Juan Bautista Alberdi, who basically called for free trade, unrestricted industry, free immigration, and infrastructure to connect the country. And that’s what they did. It wasn’t immediate; it took a few decades, but from 1880 to 1916, you had this very successful export model that made Argentina into one of the richest countries in the world. Then, in 1916 and 1920, with everything that was happening in the world, nationalism took hold in Argentina and eventually morphed into Peronism, which is the standard, prototypical Latin American corporatist ideology. There has been a very clear decline ever since.

Could you talk more about Milei’s political beliefs?

Milei describes himself as a classical liberal or a libertarian and even as an anarcho-capitalist. He was actually trained as a neoclassical economist, but he relatively recently became an adherent of the Austrian School. And he’s been very open about it. He has never tried to soften his stances to appease some section of the electorate. He is also very talented at explaining economic concepts like the causes of inflation or the effects of regulation in a way that the public can understand.

Can you talk a little bit about the classical liberal tradition in Argentina?

Argentina has many classical liberal economists. At a per capita level, it’s probably the highest percentage in Latin America. They also have a long tradition of think tanks beginning in the 1950s. One particular think tank was started by a gentleman called Alberto Benegas Lynch, who corresponded with Ludwig von Mises and Friedrich Hayek. So, Argentina has a rich intellectual tradition in the Austrian School.

You mentioned dollarization. Could you talk more about this policy?

Dollarization means granting the US dollar legal tender or at least getting rid of exclusive legal tender for a national currency. Panama was born dollarized in 1904, and more recently, Ecuador dollarized in 2000 amid a crisis similar to what Argentina is facing now. El Salvador dollarized in 2001 after facing a similar crisis the previous decade.

When you dollarize, you end up with inflation levels akin to those of the United States. That might seem high from a US perspective after the last few years, but when you have 140 percent inflation in Argentina, 7 or 8 percent isn’t so bad. And even with all the problems with the US Federal Reserve, when you compare that to other countries, the dollar is a good option. By taking away the power of local politicians to interfere in the monetary sphere, you get rid of a huge problem. Now, that doesn’t solve all other problems. The governments can still run deficits and have debt problems. But when you have dollarization, those debt problems don’t really affect the private sector and regular citizens. Whereas with a national currency, a debt crisis usually leads to the deterioration of the currency and a loss in purchasing power.

Maintaining that purchasing power is why nobody is thinking about dedollarizing in these countries. Even in Ecuador, when the left-wing strongman Rafael Correa was at the peak of his power and popularity, with 60 percent or above in approval ratings, the dollar was always more popular than he was. That’s also why we think it’s important for Milei to dollarize and dollarize quickly. If the Peronists come back to power, they could overturn a lot of his deregulatory measures, but dollarization would be very difficult for any future government to reverse.

How hopeful are you that he’ll be able to implement dollarization?

Milei had to join forces with former President Mauricio Macri’s party to win the election, and many people in that party do not favor dollarization. Luis Caputo, the person that Milei put in charge of the finance ministry, who was also one of Macri’s finance ministers, has previously spoken out against dollarization. More recently, he has taken the view that the fiscal issue is more important and that dollarization will be a consequence of stabilizing the economy.

Caputo’s plan involves liquefying the debt through inflation. But the thing with liquefying the government debt is that you’re also liquefying everyone’s savings and salary. So, it’s a bold and even dangerous alternative. I also think that dollarization involves a similar process because once the market realizes you’re serious about dollarizing, the obvious thing would be for inflation to begin to fall and for interest rates to come down, but without destroying purchasing power even more. And I think that would be the better scenario.

It’s not clear if this decision was made out of political necessity or if Milei actually believes in what Caputo is doing. Dollarization is a niche policy that only three small countries have accomplished. Even though it’s been terribly successful, especially in bringing down inflation, relatively few economists understand dollarization and how to bring it about.

What other policies has Milei proposed?

His decree and omnibus law aim to deregulate broad swaths of the Argentine economy. One example is they got rid of price controls for rents that dated back to the 1970s. Another one is the Open Skies policy, which allows airlines from abroad to enter the market and even control flights within the country. Previously, they had a scheme to undercut the low-cost airlines in favor of the national airline, which is heavily subsidized. Milei even said he is privatizing the national airline by handing it over to the workers and cutting subsidies. But there’s a wide scope of reforms. These are just some highlights.

Let’s talk about Latin America as a whole. What are some of the biggest obstacles to the region becoming more prosperous?

One that is not well known is the lack of trade within the region. There is a mostly common language and very similar institutions and historical backgrounds, so you would think Latin America is an ideal region for trade. But trading between countries is very difficult. It’s also very difficult to migrate from one Latin American country to another. For instance, Colombia, where I’m from, restricts how many foreigners companies can hire. And this is standard across the region.

Another major problem is that there hasn’t been a very strong classical liberal element in Latin American politics. In the Anglosphere, you had Thatcherism and Reaganism and these types of movements, but the Latin American right has traditionally been very protectionist and corporatist. A right-wing government in Latin America, especially after the era of military dictatorships, might not bring about a humanitarian collapse like in Venezuela, but at the same time, these governments don’t allow their economies to grow. And, of course, if you don’t grow, you won’t be able to lift people out of poverty. That’s the big problem in Latin America: anemic economic growth. And it’s a question of how conscious people are that you need freedom to have that economic growth.

So that’s also why Milei is interesting. He is, of course, breaking from the leftist model but also from the crony capitalist, protectionist, and interventionist right.

We usually try to end on a positive note. What are you the most optimistic about concerning the region’s future?

I’m not going to be terribly original here, but five years ago, if someone had told me that, in a few years, there would be an openly libertarian or anarcho-capitalist president of Argentina, I wouldn’t have believed them. And this is where we are. And I think the lesson is that sometimes it might seem very difficult to enact freedom-oriented reforms, but it can be done. It is being done now. And it’s being done by someone who was very radical in his approach. He wasn’t moderating his principles to convince centrists. He was straightforward. And I think that’s a very positive example to follow.

The Economist | Macroeconomic Environment

America Is in the Midst of an Extraordinary Startup Boom

May 14, 2024

“Last year applications to form businesses reached 5.5m, a record. Although they have slowed a touch this year, the monthly average is still about 80% higher than during the decade prior to covid, compared with just a 20% rise in Europe. Startups normally play an outsized role in creating employment in America, as elsewhere. By definition, every startup job counts as new, whereas mature companies have more churn. That difference has become even starker. In the four years before the pandemic, established firms added one net job for every four created by startups; in the four years since the pandemic, established firms have actually lost one job for every four created by startups.”

Perhaps even more important than the numbers is the kind of ventures that are being created. In 2020 and 2021 many startups catered to the working-from-home revolution. These included online retailers, small trucking firms and landscapers. Since mid-2022, however, the baton has been passed to technology firms, according to Ryan Decker of the Fed and John Haltiwanger of the University of Maryland. A paper published in March by the Census Bureau found a particularly sharp increase last year in business applications based around artificial intelligence. For researchers, this carries echoes of the 1990s, when computers and the internet took off.”

From The Economist.

The Human Progress Podcast | Ep. 46

Daniel Raisbeck: Javier Milei and the Future of Latin America

Daniel Raisbeck, a policy analyst on Latin America at the Cato Institute’s Center for Global Liberty and Prosperity, joins Chelsea Follett to discuss the recent election of Javier Milei and what it means for the future of Argentina and the rest of Latin America.

Chelsea Follett — Jan 10, 2024

Go To Episode

Blog Post | Economic Freedom

Xiaogang: How a Village Went Forward While China Went Back

Mao’s “Great Leap Forward” caused widespread famines. The small village of Xiaogang had suffered enough under communist principles, so residents decided to implement private property—and the results of this experiment changed the whole nation of China.

Paul Meany — Dec 8, 2023

This article was originally published at Libertarianism.org on 11/17/2023.

In 1981, 88 percent of the Chinese population lived in extreme poverty. Today, this figure is less than one percent. In a country composed of nearly 1.5 billion people, that means hundreds of millions of people became more prosperous than ever over about four decades—hardly any time at all compared to China’s 3,500-year history.

Classical liberals and libertarians have observed throughout history that cities are disproportionately the centers of technological and economic development. However, for every rule, there is an exception. The rural village of Xiaogang in China, though small, is that exception: one that transformed not only China’s economy but, inadvertently, the whole globe’s.

The Great Leap Forward and Mass Starvation

A devout advocate of communism, Mao Zedong implemented a state-run economy. Bureaucrats decided what workers produced, who to hire or lay off, how much to invest, and what workers were paid. State-owned enterprises, where the only “enterprise” to be found was in the name, were dead weight on the economy and chronically underperformed.

Some opposed the Soviet-style model of economic planning being implemented in China, such as Gu Zhun and Sun Yefang. In 1956, Gu argued for the importance of the market even in a socialist economy. For his writings, he was denounced as a “rightist” and spent most of his remaining life behind bars or in re-education centers. Sun observed that state-owned enterprises lacked autonomy, they could not adapt to local circumstances. For his ideas, Sun was labeled a “revisionist” and was imprisoned for seven years during the Cultural Revolution.

Though behind bars, the observations of Gu and Sun proved prophetic after the disastrous policies of Mao’s infamous Great Leap Forward.

The Great Leap Forward was a large-scale social and economic campaign initiated by the Chinese Communist Party in 1958 to rapidly transform China from an agrarian to a socialist society through industrialization and subsequent collectivization. The chronic underfunding of agriculture and the glaring inefficiency of collectivization led to critical declines in food production. Historians estimate tens of millions died from starvation through mismanagement by the state during this period.

After the death of Mao Zedong in 1976, fervor for a state-run, collectivized economy fizzled. By December of 1978, the Third Plenary Session of the 11th Central Committee of the Communist Party of China (CPC) was held in Beijing, an event recognized as the beginning of China’s economic reforms and the opening up of its economy. The ensuing market liberalization propelled China from a stagnant socialist society to a dynamic economic powerhouse that has since shocked the globe.

But before politicians in Beijing relaxed their grip on the economy, large parts of rural China had been ignoring state policy for years. Xiaogang’s villagers drafted the blueprints for China’s meteoric rise.

Xiaogang Goes Rogue

The Great Leap Forward and misguided collectivist policies had the worst impact on provinces like Anhui. In the winter of 1978, in the province of Anhui, the impoverished villagers of Xiaogang gathered together for a group meeting about their future survival. Recent harvests under collectivization were yielding worse and worse results. The villagers decided that rather than farming as a collective, each family would tend to their own plot of land, keeping the fruits of their labor.

Eighteen heads of households signed a document that formalized some simple rules. Each signatory took an oath of silence and pledged to look after one another’s children if anyone was killed or arrested for breaking collectivist policy. The document was hidden inside a piece of bamboo on the roof of a farmhouse.

With villagers now autonomous, and responsible for their individual profits and losses, Xiaogang quickly became successful, producing a greatly increased crop only a year after the secret agreement was made. Understanding the plight of farmers, local state officials stayed quiet and allowed Xiaogang to continue. Though kept a secret, the example of Xiaogang spread, and other villages encountered similar successes. The peripheries of China were experimenting with the cornerstone of the future market economy: private property.

While the state stalled, real change occurred where state control was weakest. On the margins of China, a series of quiet revolutions paved the way for markets to flourish. Before politicians in Beijing relaxed bans on private farming, farmers had already adopted the practice throughout rural China, especially Anhui. Private property proved to be an economic tonic worth every drop. State officials began to notice marked improvements from what were formerly the poorest areas. The Chinese government softened its policy, admitting that markets and private property would be necessary to a prosperous, modernized China.

China’s Future

The Third Plenary Session which reformed the Chinese economy is now recognized as a pivotal turning point in China’s economic miracle. It was influenced by the example of a small group of farmers. Over the following three decades, the world’s most populous country transformed from a poor, stagnant, socialist economy into an economic powerhouse. Villages like Xiaogang rediscovered the benefits of private property. Farmers could make their own decisions and for the first time in decades their potential was unleashed.

The turn to private property and individual responsibility in the midst of Mao’s disastrous experiments in collectivism was not inconsistent with aspects of Chinese tradition. In the Tao Te Ching, the 5th century BC philosopher Laozi argued the state should rarely interfere with people’s lives, writing, “Governing a large country is like frying a small fish. You spoil it with too much poking.” Mencius, a student of Confucius, believed in free trade, and when describing a well-run state to King Hsüan of Qi, he explained that good kings kept taxes low, promoted trade, and raised no tariffs or levies on goods. The 17th-century scholar Huang Xongxi advocated for a constitutional system with a separation of powers and strong protections on private property. The Chinese people are by no means innately collectivist.

Xiaogang is evidence that prosperity does not come from state action, but rather arises out of the humble efforts of everyday people to make the world a better place. World history is shaped by great political leaders and powers but Xiaogang also shows us how unlikely people can find themselves at the head of a quiet revolution.

Though private property is no longer illegal, China is nowhere near being a liberal society. China tragically remains an authoritarian country. But when a country of over a billion people leans towards the market, the entire globe feels its weight shift. China did not become a laissez faire society overnight, powerful barriers to liberty remain. The Third Plenary Session did not plan for a “Great Leap” to capitalism, only a small step—but there is no step towards liberty too small to be celebrated and applauded.

Video | Institutions

New and Improved: The LLC

We go through life with the almost unquestioned premise that no matter our circumstances, we’re just one brilliant idea away from fame, fortune, and the chance to change the world. This is the power of the LLC.

Johan Norberg — Apr 13, 2022