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Commentary

The Poverty of Statistics


     
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In many countries, positive economic statistics have oftentimes reinforced underdevelopment. They have encouraged decision makers to focus their efforts away from the real thing or created the mirage of progress where there was none, discouraging reform. The latest and much-publicized United Nations report on Latin America falls into this category.

Much like it did last year, the Economic Commission for Latin America and the Caribbean (ECLAC) has issued an avalanche of statistics that paint a rosy picture of the region’s economy. The report projects a 4.3 percent rate of growth for this year, with countries like Argentina, Venezuela, Uruguay, Chile, Peru, and Panama exceeding the average. It also plays up the region’s current account surplus for the second year running (totaling the equivalent of 0.9 percent of its GDP). Other statistics, such as the growth of fixed investment, are also brandished as very positive signals.

All of this misses some essential points. In the thirty years between 1950 and 1980, Latin America experienced an average rate of growth higher than today’s. Considering that half the population was in poverty at the end of that period, statistical growth clearly did not spell development. By contrast, in the last thirty years, East Asia has gone from having half the per capita income of Sub-Saharan Africa to doubling it. Concerts are no longer held to fight poverty in India, but in Africa. In this same period, every Latin American country’s per capita income except Chile’s has fallen as a proportion of U.S. income per head, while Thailand’s and Indonesia’s have risen by more than 40 percent.

The U.N. report trumpets Latin America’s current account surplus, just as it used to decry current account deficits before. This, again, misses the point. A current account deficit is offset by a capital account surplus, and vice-versa, to the effect that they balance each other out. These statistics don’t tell us anything about how a country is doing. (Free-market economist Murray Rothbard was right: more nonsense has been written about the balance of payments than virtually any other aspect of economics.) Yes, the increase of Latin America’s exports over its imports has led to a current account surplus. But there has been a net outflow of capital (just as in 2004, when the net transfer amounted to $77 billion). The United States ran a current account deficit during most of the 19th century—the period when it became the most powerful economy in the world.

Finally, Latin America’s statistics cease to be good when compared with other developing regions. China’s annual rate of growth doubles the Latin American rate of growth. The sum of its exports and imports totals 75 percent of its GDP, whereas the sum of Brazil’s trade, for instance, represents less than one third of its GDP. Last year, foreign investment in Latin America grew at half the world rate. Investment levels in general hover around 16 percent of GDP in most countries of the region, a small figure compared to those newcomers—in East Asia, Southern Europe, Australasia, and Central Europe—that have in recent years made an impact on the world stage.

What ECLAC should be looking at instead is the lack of reform since the end of the 1990s. Latin America is content with a temporary 4 or 5 percent rate of growth due to low interest rates, low inflation, and the very high prices of its commodities -from oil to minerals to soybeans. While a country like Estonia adopted a low flat tax a decade ago and was quickly followed by countries like Latvia, Lithuania, and, later, even by Russia and Ukraine, in Latin America taxes have gone up because of the obsession with fiscal revenue. The de-nationalization of society and the de-politicization of the judiciary have been put on an indefinite hold.

Latin Americans were traumatized by 1990s-style reform, when poorly structured and corrupt privatization failed to produce results. It is time to get over this paralysis, especially now that authoritarian populism is back. Commerce is still heavily hampered by regional trading blocs, a labyrinth of taxes encourage a two-tier economy, the judiciary is still subservient to political or economic power, and it is almost impossible to operate legally in any kind of activity without engaging in cronyism.

Latin Americans have at their disposal the necessary information about the causes of poverty. A recent study by the World Bank showed that in underdeveloped countries, including in Latin America, the cost of doing business is three times higher than in other nations, while property rights are less than half as secure. Whereas in Brazil it takes 152 days to register a start-up company, in Thailand it takes about one month. With the exception of Colombia, where some reform has taken place of late and there has been an increase of 16 percent in the number of new companies in the last couple of years, no Latin American country is in the “top 20” list for doing business. Even Chile has been losing ground to Korea, Malaysia, South Africa, and others.

These are the realities that ECLAC should be exposing across the region. Reports based on purely macroeconomic statistics such as those mentioned in this article do not help the cause of reform.


Alvaro Vargas Llosa is Senior Fellow of The Center on Global Prosperity at The Independent Institute. He is a native of Peru and received his B.S.C. in international history from the London School of Economics. His Independent Institute books include Global Crossings: Immigration, Civilization, and America, Lessons From the Poor: Triumph of the Entrepreneurial Spirit, The Che Guevara Myth and the Future of Liberty, and Liberty for Latin America.


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