The Herald’s Oppenheimer on Chavez, free trade, and human capital

Andres Oppenheimer, The Miami Herald‘s Latin America columnist, offered some interesting insights into the Venezuelan referendum and other regional matters, in an online forum prior to the vote.  Two of the most insightful exchanges were in Spanish, so following are translations.

One questioner asks about the rise of Chavez as part of a greater trend.

Q: Good morning, Mr. Oppenheimer. I would like to know your opinion about the reach of the explosion of populism in Latin America led by Venezuela’s President Chavez, its potential limits, and what countries threatened by this tendency, including the United States, can do. — Fidel Diaz, Key Biscayne, 11/29/07

A: Fidel from Key Biscayne: The populist wave we are witnessing is a recurring phenomenon that occurs whenever commodity prices spike. Whenever there is a rise in the price of oil, wheat, etc., there arise populist leaders who set out to dole out cash via subsidies, instead of building up industries that could create jobs and exports over the long term. Then, when the cycle comes around, and there is no more money to dole out, they fall, but are later remembered as great benefactors to the poor. And the presidents who come in their wake, who must clean up the mess left behind, are then attacked as enemies of the poor. Many countries have been unable to break out of this vicious circle. Fortunately, there are signs of a new democratic stability in countries like Chile, Brazil, and Peru, which have left-leaning governments that are following responsible economic policies, which in the case of Chile have reduced poverty more than in any other country in the region, from 40 down to 15 percent of the population.

Another question concerns how to maximize the benefits of open trade.

Q: Mr. Oppenheimer: You have discussed the benefits of free trade, which I do not doubt. However, what can be done to improve Latin American income levels? In Mexico, the minimum wage is very low and little can be done to raise it, since multinationals then “get scared” and leave the country, which leads to greater unemployment. If employment truly is a measure of economic health, the truth is that our buying power is very low. What do you think? Can “free trade” solve this problem? — Robert, Ciudad Victoria, Mexico, 11/29/07

A: Roberto, free trade is a tool for opening markets, but by itself is serves little if not coupled with competitiveness. In other words, Mexico can have an agreement that grants it access to the biggest market in the world (the United States), but if it cannot compete with India, Eastern Europe, or other countries exporting goods of greater added value, free trade doesn’t help it much. Then the solution is to produce more value-added goods and use the free trade regime to sell them. And to produce greater-value-added goods, better education is needed….Example, the UNAM [National Autonomous University of Mexico] was just ranked 198 on a list of the 200 best universities in the world, a rank that should be much higher, considering the size of Mexico’s economy.

Indeed, free trade is but one of several policy building blocks that make for a legal environment of true economic freedom, which, by allowing for better allocation of individuals’ abilities, can best improve a nation’s human capital. And too many Latin American countries continue to chafe under ossified, centralized, state-directed education systems.