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Liberty for Latin America
May 3, 2005
Alvaro Vargas Llosa


David Theroux
President, The Independent Institute

Good evening, ladies and gentlemen. My name is David Theroux and I am the president of the Independent Institute. I’m delighted to welcome you all to our evening event. Our program is called the Independent Policy Forum. I see many familiar faces.

For those of you who are new, we hold events here at our conference center in Oakland on a regular basis. They include lectures, debates and seminars on many different major issues, and we’re delighted this evening to host one of our senior fellows, Alvaro Vargas Llosa, who will be speaking based on his new book, called Liberty for Latin America. And I hope that everyone here will get a chance to pick up either the English edition or the Spanish edition, which is called Rumbo a la Libertad.

For those of you who are new to the Institute, hopefully you got a packet about our program. The institute itself is a non-partisan public policy research institute. We produce many books, like Alvaro’s book. We also have a quarterly journal called The Independent Review. This is the current issue, and I’m sure all of you will be anxious to subscribe after our program is over. I think you’ll find it to be enjoyable and challenging and provocative.

The institute itself is a bit different from the public-policy field or the so-called think tank world. We are an academic research institute. There’s no issue we might not address. There’s no area of government policy we might not address, but fundamentally we’re interested in trying to get to the truth of the nature and impact of government policy and how best to resolve major social and economic issues. We invite you to visit our Web site. You’ll find a treasure trove of articles and studies on our Web site. It’s constantly changing, and also announcements of upcoming events and media projects.

As many of you know, just a few years ago, Latin America was thought to be moving toward prosperity. But the euphoria shortly lived out its welcome, you might say. From Patagonia to the Rio Grande, the sweeping reforms that promised economic growth had borne little fruit in most part of Latin America.

The question to ask is, why did the reforms of the late 20th century—the 1990s, essentially—which were seen to be a universal model, not live up to the expectations? Why do Latin America’s democracies seem to act in many respects like dictatorships? Why do private enterprises seem to be acting as government bureaucracies, or government monopolies? What principles must be adopted to bring prosperity to the region and to other regions that are suffering from abject poverty and less development?

This evening we’re delighted to have Alvaro here to diagnose Latin America’s deep-seated malady and to propose genuine reform, liberalizing, decentralizing its institutions, and empowering its 500 million people.

Alvaro, as I mentioned, is a senior fellow at the Independent Institute. He’s director of a new program that we actually have not formally announced, called the Center on Global Prosperity. The Center is going to focus on the enormous problem of abject poverty in most countries of the world, including Latin America.

More specifically, Alvaro joined with us a little over three years ago after having to flee from his native Peru with his family as a result of a persecution campaign by President Toledo to smear and silence Alvaro for his having exposed in the media the corruption of the then newly elected Toledo regime. I was contacted by a friend, a mutual friend, about Alvaro’s situation and asked if there was anything that we could do. Fortunately, within just a matter of days, we were able to arrange for a special fellowship that enabled Alvaro to come to Oakland and join with us as a fellow and begin work on the book that we’re featuring tonight and other work that he’s done for the Institute.

I’m very pleased that the man who made this possible is with us tonight, and I want to point out and have him stand up, if you would. Peter Howley. Peter is a member of our board of directors. [applause] Peter has literally been a godsend. He is an entrepreneur, and he understood from the very beginning the really unique importance of Alvaro’s work. Peter is a true visionary and we’re very grateful for his assistance. None of this would have been possible without Peter.

Starting with the release of the Spanish edition of his book this past September, Alvaro has been on extensive tour for us to Latin America, and the response, quite simply, has been astounding. In city after city, in country after country, he’s received major coverage in virtually every newspaper, every magazine, every TV and radio program that has news or public affairs, as well as speaking at all kinds of different events. The result is that the book has become a bestseller in some Latin American countries. The publisher is having difficulty keeping it stocked in some places.

With the recent release of the English edition, just about a month and a half ago, we’re now seeking the same thing in the U.S. Most recently some of you may have seen him on The News Hour on Friday. There’s going to be a feature article in the Chronicle within about a week and a half, also in the L.A. Times, and reviews are expected in the New York Times and many other places.

He received his bachelor’s degree in economics from the London School of Economics. He’s been on the board of directors of the Miami Herald Publishing Company. He was also an op-ed editor and columnist for the Herald. He’s been a contributor to many newspapers and magazines in the U.S. and around the world.

He was host of a weekly TV program called the Planeta Three that was aired in 15 countries. He’s been a columnist for many papers. He’s the author of eight books, including a bestseller called—and I think some of you have read the book—called Guide to the Perfect Latin American Idiot. [laughter] And he’s the recipient of numerous awards, most recently the Freedom of Expression award from the Organization of Ibero-American Journalists, and this is a turn of the events, starting from his persecution in Peru, when it turned out that everything he said was not just validated, but the legal profession and then the journalist profession came out very profoundly on his side. So I’m very pleased to introduce Alvaro Vargas Llosa.

Alvaro Vargas Llosa

Thank you, David, and thank you for being here. I came here about three years ago, slightly more than that, almost as a rafter. I was a political refugee, seeking protection and help so I could pour down some thoughts and reflections on Latin America on paper. I had been a man of action, basically, and I thought it was about time I put down some of those conclusions and thoughts and inspirations I had received from all of those years of action.

And in a most unexpected way, a surprising way, the Independent Institute came to the rescue. So I will always be grateful to David and to Mary Theroux for the incredible help they gave me. Their protection and inspiration and example have been a source of inspiration for me.

My wife, Susanna, and I always thought we had the perfect marriage until we met David and Mary—and they have the first claim to that, and they have been also a source of inspiration to all of us. Anybody who values the institution of marriage and knows David and Mary is perfectly aware of how much they have contributed to that wonderful institution. So thank you, David, and thank you, Mary, also.

Well, I’m here to talk about Latin America, and I’m sure the very expression “Latin America” conjures up all sorts of funny expressions, and I’m sure many of you are aware that some of the most salient traits of Latin America have to do with the monumental growth of the state, with patronage—political patronage—with authoritarianism, with demagoguery, with all sorts of political abuse of power. And you would be absolutely right in thinking that. That’s exactly the story of Latin America. And it’s not an unfair image. It reflects perfectly what’s been going on in Latin America for the last hundreds of years.

We’ve had very interesting characters in positions of power. We had a president who said that to live outside of the national budget was to live in error. We had a president who was forced to combat an epidemic of scarlet fever. And you know the manifestations of scarlet fever have to do with red spots all over your body. And we had a president who decided to combat scarlet fever by wrapping all the electric towers and cables in his country with red paper. [chuckles]

We’ve had a president, Alvaro Obregon, in the days of the revolution in Mexico, who expressed corruption in these terms. He said, well, there’s no living general who could resist a five or 50,000 pesos cannonball. And of course, that was absolutely an exaggeration, because today you could buy three or four generals for that money [laughter] as we discovered in Peru in the 1990s.

We had a Mexican president who glorified power so much that he decided to hold a state funeral for his own leg, a leg he had lost in a war, and then decided to bury that leg with military honors. And believe it or not, there were a million people in the public square who followed him for that.

So we’ve had some very interesting characters in 200 years of republican history, since we gained independence from Spain and Portugal. We’ve had basically a history of tremendous state power, of authoritarianism, of the belief that authority could solve people’s problems, and we basically delegated the responsibility for solving those problems on those who held power.

And the result of that has been, of course, that half of the population in Latin America lives in poverty, and we need to confront this myth head on, unless we want to continue for the next few decades to live under the misguided impression that the government is there to solve people’s problems.

Five Principles of Oppression and Stagnation

So let me give you a basic idea of where I think this is coming from. Many of my colleagues here have heard me many times talk about the five principles of oppression, so I’m going to apologize if I have to go into this once more, but it’s extremely important to understand where this is coming from.

There’s been a great deal of stability in Latin America. Most people think that Latin America has been a land of instability, where everything is very chaotic and where institutions don’t last very long and governments don’t last very long. But my point is exactly the opposite, that beneath that very chaotic surface, what there has been is a great deal of stability. We have gone from pre-Columbian to colonial times, from colonial times to 200 years of republican life. And within those 200 years, of course, we’ve gone from the Left to the Right, from the Right to the Left.

And my basic point is we’ve preserved the same way of doing things, of organizing society, organizing power, organizing institutions, so that all these changes and all that instability is extremely superficial. What we really have is a basic structure of incentives, a basic structure of organizing human interaction that has survived all these apparent changes of government and institution and structure.

What are those basic fundamental structures? Well, I choose to call them corporatism, state mercantilism, privilege, wealth transfer and political law. Now let me briefly explain what I mean by these.


Corporatism is when you look at society not in terms of individuals but in terms of groups. A very famous Austrian economist called Mises talked about this somewhat differently. He talked about politicism. It’s an expression he borrowed from a guy called Michael Polanyi. And the basic idea was that individuals didn’t act according to their own personal, individual logic, that what they did was they acted according to the group logic. In other words, according to what group they belong to in society. This could be a race, a nation, a class, whatever, or even a smaller type of group. But whatever they did and thought, and whatever motivated them to act was basically something that was structured by the group, the corporation they belonged to.

Well, this is an extension of that idea. In Latin America, we’ve always believed that individuals have no individuality. They basically respond to whatever group they belong to. And that makes it very easy for governments because that’s a very easy way to organize property rights and other types of rights. If you believe that people don’t react and act and behave according to their own individual aspirations and ideals, then of course you’re going to pick certain groups and certain corporations above the rest, and that’s how we have organized property rights in Latin America, in pre-Columbian and colonial and republican times. We have chosen to organize society so that certain corporations would have certain privileges above the rest of society.

In pre-Columbian times, of course, nobles and priests had certain rights that serfs and laborers didn’t have. Why? Because those people were in a position to give back to the state certain funding that ordinary people were not in a position to give back. And in colonial times, 300 years of colonial life, from the 16th to the 19th century, we had exactly the same thing in Latin America, a system of government whereby the state simply chose to negotiate with the most powerful corporations certain rights.

So in colonial times it was the owners of sheep in Spain who had a lot of money and a lot of power and they were in a position to exercise influence on government, so they got privilege from government in exchange for funding. And of course, the Spanish state needed to fund some of its wars in Europe. So everybody else in the colonies, from Mexico to Patagonia, from Mexico to Argentina or Chile, was simply excluded from those rights.

That was corporatism, and that’s still a very salient trait of life in Latin America today. If you look at, for instance, what happened in the 1990s in Mexico, you will find that certain corporations were in a much more powerful position than the rest of society. For instance, if you were a bank owner, and you had been given a license by the government to own a bank, and take part in that market, you had certain privileges.

Mexican bankers had a very unique position in the 1990s that led them to behave in a very irresponsible way. And that, in turn, led to a financial crisis, which cost taxpayers in Mexico about $70 billion, which is about all of what Peru, which is a country of almost 30 million people, produces in one year—a huge financial hole that had to be of course covered by Mexican taxpayers.

Why? Because this was a particular corporation that was in the position to exchange favors, to trade favors, with those who were in a position of political power, just as the Mesta, which is the corporation that was made up of the owners of sheep in Spain in the 16th Century, many centuries before, was in a position to trade favors with the colonial power back then.

So we’ve been basically perpetuating a way of doing business in Latin America that’s been extremely corporatist. In other words, no individual property rights. Property rights were essentially corporatist. It depended on what group or corporation you belonged to. And according to what group or corporation you belonged to, you were or were not in a position of power to force the government to recognize some of your rights.

State Mercantilism

The second principle of oppression is what I call state mercantilism. That’s when competition doesn’t take place in the marketplace. In other words, in the economic sphere. It takes place in the political sphere. You simply compete for influence over the government, for power over the government. Those who are most successful in Latin America are usually those who are closest to power. They have no merit of their own, at least not in the economic sphere. They have not been able to offer a better service of a higher quality, or better prices. They are simply people who have been able to extract from government certain recognitions, certain concessions according to how much influence they were able to exercise.

So competition is not an economic concept. It’s essentially a political concept in Latin America. I know this takes place here. It takes place everywhere. There’s political competition everywhere. In Latin America, this is the norm. It’s the rule. This is how most people go about business.

What you learn in university, if you go to college and then to university and so on, is not—if you are in this field—is not how to conquer and seduce consumers. It’s essentially how to conquer and seduce the smile of a minister. It’s very important in Latin America to be close to power for you to succeed.

So this was the situation, for instance, in colonial times, when Spain was the only country that was allowed to trade, to engage in commerce with Latin America for 300 years. Can you imagine that? And then in 200 years of republican life, that’s exactly what happened.

Just a few years ago, in the 1990s, when Latin America decided to privatize many of its state concerns and government-owned companies, that is exactly what happened. We decided to privatize those companies according to, well, how much influence certain private groups were able to exercise on government, so that we created certain private monopolies.

So some of these companies went from being state monopolies, with government monopolies to private monopolies. All the utilities, water and electricity, etcetera, etcetera. Many commercial entities. All sorts of services, and even hotels. I mean, you name it.

Mexico privatized about 1000 companies. Chile privatized more than 500. Peru privatized more than 200. Brazil privatized hundreds of companies. Telebraz, which was the telecommunications concern, was sold for about $18 billion. So lots of money was made from those transactions.

Of course, that’s money that was received from the government in exchange for something, and that something was monopoly. Those who were paying $18 billion for a company in Brazil were forcing the government, or asking the government, to give them in exchange for that, monopoly powers. In other words, nobody else had a right to enter that market, to compete in that market.

And so although the service became a little bit more efficient, because any private company is usually more efficient than any government owned company, in general, the population received from those corporations and companies OK service for a very high price, very high tariffs.

And so what we had two, three years after that was great disillusionment with the idea of privatization. People tended to associate privatization with crony capitalism, with very corrupt transactions between government and certain corporations. The consumer was not the almighty power. The consumer was basically robbed of all his power and wealth. And what happened was certain corporations were in a position of exceptional power and influence in that society, and so people tended to associate privatization with privilege.


And that’s the third principle of oppression, privilege. Privilege, of course, is a word that we use very loosely to describe different types of positions in society, but the purpose of this book, in part, is to persuade you that privilege is a condition generated by government or state power. Privilege would not exist if government did not exercise privilege through its legal system in society.

In other words, in Latin America, we had in pre-Columbian times a system of privilege, of course, whereby laborers and serfs were forced to work certain hours of the day in the lands owned by the nobles. Well, that was something that was only possible because the legal system forced those people to do so.

In colonial times, the government would simply distribute land among its cronies, land that was owned by peasants, indigenous peasants in Latin America, and then it forced some of these laborers to work some hours of the day or the month or the week in those lands. And therefore through the use of coercive state power, it forced people to redistribute wealth to those who were in a position of power.

And in republican times, we’ve had exactly the same type of situation. We even have it today. For instance, labor laws in Latin America, all over Latin America, from Mexico to Argentina, are laws that essentially entrench privilege. If you go to Argentina, you will see that there are laws of collective bargaining that force you to imitate some of the laws that were passed by Mussolini in Italy half a century ago or even more than that.

For instance, if you produce or manufacture submarines in Argentina, you have to follow exactly the same rules as if you produce nails. Why? Because there’s collective bargaining by trade, and anything that has to do with metal, according to them, has to be bound by exactly the same rules.

So there’s no individual relationship with the company. There’s no transaction between or negotiation between an individual and the employer or the company he or she works for. There is basically a bureaucratic system under which anything that has to do remotely with that type of trade is bound by the same laws, not that bureaucrats produce or create it today, but created 50 or 60 years ago.

So you have a system of privilege which of course leaves out of the market millions of Argentineans. That’s why unemployment is so high in Argentina. Even in the 1990s, when $100 billion were invested in Argentina, $100 billion of American and European money were invested in Argentina; Argentinean unemployment was about 18 percent to 20 percent. How come? If $100 billion are being invested in Argentina, which is about as much as Argentina produces today in one year—it’s a lot of money—how come there was so much unemployment?

Well, because labor laws created an entrenched privilege. And of course, in doing so, they discriminated against, they excluded from opportunity, most Argentineans. And so privilege has been another extremely important pillar of oppression in Latin America.

Wealth Transfer

The fourth principle of oppression is what I call wealth transfer, and that consists basically of decoupling distribution from production. This is, of course, something that also happens here. It happens everywhere. Politicians and states and governments think that these are two different processes. We produce wealth and then we distribute it so that it’s a fair society. It’s a society that’s equalitarian, that’s in a position to overcome some of these unjust forms of distribution that the capitalist system produces.

However, if you dissociate, if you decouple the system of production from the system of distribution, what you’re going to do is you’re going to kill distribution. You essentially are going to create a system of disincentives that are going to expel producers from your country.

And that’s why in that America in the 1980s, about $250 billion worth of capital fled the continent, which is about four times as much money as the IMF was handing out to the entire developing world in that decade.

So it gives you an idea of how utterly inefficient and absurd the whole idea of foreign aid is. Foreign aid pouring into Latin America—which is money probably paid from your taxes, pouring into Latin America—that money was going out the back door because people simply didn’t think those laws and institutions and systems of government were conducive to a prosperous economy, an economy that would secure some of your property rights and allow for accumulation of capital.

So we have a system of distribution that in essence kills the whole purpose of distribution, because it doesn’t allow for the continuous production of wealth, and therefore the accumulation of wealth that will eventually allow for that wealth to be distributed throughout society. It simply defeats its own purpose.

And again, that was a way of redistributing wealth, but not from the top down, as demagogues usually promise, but exactly the opposite way, from the bottom up. People who were very poor were giving up their energy and work time and imagination and creativity for the sake of those who were in a position of power who owed their wealth and position, not to their merits but simply to the power of the state.

Well, today we have exactly the same situation in Latin America. We have a system that redistributes wealth from the consumer to—not to all the producers but to a very small group of producers. For instance, if you live in Brazil or Uruguay or Argentina or Paraguay, well, you saw some of your tariffs go down in the early ‘90s, which was not a bad thing. They were trying to open up trade. And then you saw very soon those tariffs go back up again. Why? Because these governments created regional blocs. We created the South American Common Market, and the Andean Common Market, and the Central American Common Market, and so on and so forth. The governments chose to redistribute wealth, not from the top down, but exactly the opposite way, from the bottom up.

And so in Argentina, for instance, 71 out of 97 different groups of items—in other words, most of the economy, saw their tariffs go up. So huge protectionism in Argentina, just as glossy magazines in the U.S. and Europe were hailing Argentina as a big example of free market economy. And so they were not really at all aware of what was going on. They didn’t realize that the government in Argentina was growing at a huge, unsustainable rate.

In the 1990s, public spending Argentina grew by about 100 percent. The economy grew about 40 percent, not bad. But public spending grew about 100 percent in the 1990s, and everybody in the world was saying: “Argentina’s government is shrinking. This is the end of government. They’re doing away with the state. This is anarchism or anarchy.” Well, it wasn’t true. Argentina’s state was growing and growing and growing. And what was the consequence of that? Well, at the end of 2001, they defaulted on their debt. Big chaos.

And so today, we have a situation in which Argentina has decided not to pay back its debt. The U.S. has no choice but to simply accept that. The IMF, the World Bank, everybody’s accepting that as a fact of life, but the origin of that was the growth of the state in the 1990s just as everyone in the world thought the Argentinean state was shrinking.

So that was wealth transfer, a system of complete delusion in which we all think we are distributing wealth to the poor and really what we’re doing is exactly the opposite. We’re taking away from the poor their wealth, their creativity, their spirit, really. And we’re simply channeling that towards a small group of people that are very close to power.

Political Law

And then, finally, we have the principle of political law. And this is really what makes the other four principles of oppression possible. Political law is a system which basically makes whoever is in a position of power the origin of the law. In other words, the law is not above the government, above the state. There’s not a general abstract principle to which every government is subject, but whatever the government chooses it to be. And that was the story of pre-Columbian times, of course. Incas and Aztecs in Mexico, in Peru, decided that the law was whatever they thought it was. Their whims were the law.

In colonial life, we had a million laws passed by Spain. Literally a million laws in 300 years. Can you imagine that? A society governed by a million laws. Of course, those laws were contradictory. If I told you, you have to abide by a million laws before you came into this room, it would be impossible for you to pay any attention to what I was saying. You would spend most of your time trying to figure out what the law was, and you would realize the law was totally chaotic, contradictory, absurd. It dealt with the most minute details of your life. Well, that was what the law was like in colonial times. It was very interesting. A divorce took place between the official institutions of government and real life.

So even the people who were supposed to enforce those laws came up with this wonderful saying, and they said, “I will obey but not comply with the law.” What does that mean? [laughter] Well, I don’t know what that means, but that was a saying that was very famous during colonial times. “I will obey but not comply with the law.”

Well, that is still the case in Latin America today, because we got rid of Spain and Portugal in the early 19th century, but since then, we have passed another half million laws in most countries in Latin America. Two hundred years of republican life, half a million laws. Can you imagine that? On top of a million—of course, we didn’t repeal the million laws that were passed before that. It’s a new layer of normative production. So we simply don’t know what the law is. We have no idea, not a clue what the law is.

And so, people today still think we need to “obey but not comply with the law.” What’s the consequence of that? The informal economy. Sixty percent of the workforce in Peru produces in the shadows outside of the law, of the legal system, a certain amount of wealth. They only produce about 25 percent, 30 percent of the wealth, because it’s not very productive. Of course, if you operate outside of the law, it’s very hard to be productive. You don’t have the protection, the security of the law. But it simply means that most of the country is operating outside of the legal system.

You have a situation in which, in Brazil every year, half a million people are leaving the Catholic Church and moving on to different evangelical cults, Protestant churches, because they think the Catholic Church is part of the legal system. You have a situation in which in almost every election in Latin America today, there is an outsider, a dark horse candidate who, in the last few weeks of the campaign, emerges as a very strong candidate. Nobody knows where he or she is coming from. Usually it’s a he, but soon it’ll be a she, I’m sure. Nobody knows where they’re coming from. They have no political party, no history. It’s simply a rebellion on the part of the people against state power.

Of course, this can turn out very sour, as we learned in Peru in the 1990s with Fujimori. He was a dark horse candidate. He came out of nowhere. He won the elections, and he became a dictator. He engineered a coup, and we have never had as much corruption as we had in the 1990s.

But I’m not getting at that. The point I’m getting at is it’s a way in which society expresses its total aversion to, repulsion against, the state, the law, official institutions, anything that represents or claims to represent society. It’s the way we have chosen to take revenge on the institutions of government after 500 years of oppression.

And so although these are expressions that reveal a very sinister and, of course, very awkward state of mind, they are also extremely genuine. It’s what people have chosen to do, simply to survive and to rebel against that oppression

However, the result of all of this is poverty. That’s why Latin America today is a poor continent. Half the population is in a state of poverty.

We have a situation in which if you look at history, you will realize that 100 years ago, Latin America had a per capita income that was about the equivalent of 29 percent of the per capita income of the United States, if you take into account purchasing parity. And today, it’s about the same. We’ve made no progress in 100 years.

And in some cases it’s even worse. Argentina in the early 1900s was a very developed country. It’s a country into which many Europeans migrate. Their per capita income was about the equivalent of 70 percent of the per capita income of the United States, not bad at all. It was a country that was one of the 11 or 12 most developed countries in the world. And that country has today a per capita income that is about the equivalent of 24 percent, 25 percent of the per capita income of the United States. So can you imagine from almost 70 percent to 24 percent?

Venezuela in the 1950s, because of oil, mainly, but still, had a per capita income that was almost 70 percent of the per capita income of the United States. Today it’s about 24 percent.

So we have a situation in which most countries have stayed exactly the same and others countries have gone down. And today, Latin America is one of the poorest areas and regions of the world. We have a per capita GDP that is three times higher than China’s, six times higher than India’s, and still we equal the world average in terms of poverty, which means that we have half the population in a state of poverty.

How is that possible if we have a higher per capita GDP than China and India, which are huge countries that are factored into this equation? How come we equal the world average, which also includes Africa, of course?

Well, it simply means that any progress there is in Latin America only benefits a very small proportion of the population, a very small section of the population that is globalized, that is in a position to import much of the technology and the capital that is around, and then the rest of the population simply has no access to that world.

Today, in a country like Peru, 2 percent of all corporations and companies produce about 65 percent of the wealth. So can you imagine that 98 percent of the corporations and companies, mostly small and midsize companies, produce about 30 percent, 35 percent of the wealth. So they don’t produce very much.

That’s why a country like Argentina, an extremely educated country, probably the most educated country in Latin America, more educated than most European countries, I believe, produces eight times less than Spain. They have about the same population, almost 40 million people, and they produce today eight times less than Spain. And if you talk to any Argentinean in the streets, they’re probably more educated than the average Spaniard. Why? Because they have an institutional system that is simply not conducive to prosperity.

What are institutions? They’re basically systems that help to structure human interaction. Human interaction always, of course, has a certain framework, a certain structure. And that framework, that structure, either helps or doesn’t help the creation of wealth. It’s the system of incentives or disincentives.

In Latin America we have a system of disincentives. Everything that we do, at least that we do from a position of government, tends to do exactly the opposite of what it purports to do. It creates a system of disincentives whereby anybody who’s in a position to create anything, to contribute anything to society, is immediately dissuaded from doing so, because the system is corporatist, and mercantilist, and privilege ridden, and wealth transferring, and is dominated by political law. The only way to move ahead in society is to be close to power, to be in a position of privilege, to exclude others from competition, from entry into any market.

Undo 500 Years of State Oppression

And so I think it’s about time to look at Latin America not as a place where the Left and the Right have been fighting over big important ideological issues, but as a continent where both the Left and the Right have contributed to poverty, where it’s about time to undo and dismantle much of what has been done.

To finish off, there’s an example I always bring up from history, which I think is extremely inspirational. In the 18th Century in Britain, there was a system in place, which was similar to the one that’s in place in Latin America today. And a very, very enlightened group of people called the Whigs—you’ve probably heard of them, the British Whigs. Not the Whigs here in the 19th century but Whigs in Britain in the 18th century, decided to do something extremely courageous. They decided to repeal four-fifths of the legislation that had been passed since Henry III in the 13th century. Almost half a millennium, almost 500 years of laws and norms, etcetera, etcetera, and they simply repealed them. And they liberated the energy of the people.

And the result of that was the Industrial Revolution, which historians look at today with admiration. And there was an extraordinary phenomenon from which this country benefited. Much of what happened in the 19th century in this country was a byproduct of that extreme act of courageousness and courage.

And I think it’s time Latin America went along that route, and I think it’s very important to understand that real reform is about repealing and undoing and dismantling much of the legacy and heritage of corporatism and state-mercantilism and privilege and wealth transfer and political law. Once we have the courage to do that, we will liberate the energy of the people. And God knows what the result will be, but it will certainly be a lot better than it’s been in these last 500 years of very depressing history.

Thank you very much. [applause]

David Theroux
President, The Independent Institute

Thank you, Alvaro. We have time for questions. Before we do so, there’s another person here who I also want to thank. And she’s Alvaro’s partner and wife, Susanna, who we’ve had the privilege of getting to know. You can imagine the kind of difficulty it is to relocate, and the uncertainty, especially with a young family. So the courage and the support and the integrity and flexibility of Susanna have been indispensable, and I want to thank her for that. [applause]

So Carl has the microphone and I’ll turn it over to Alvaro to field. If you keep your point to a short question, and also hold the microphone horizontal, you get more reception. Stand up.

Audience Member

Hi. Thank you for your talk. It was very informative. Let me just say I’m an active Catholic in an American mold, which is not the typical mold, I’m sure you realize. How much do you equate the conservative Opus Dei wing of the church association with the traditional powers and the damping down on liberation theology and things like that, with a couple of exceptions like Oscar Romero, with the passive acceptance of what goes on with the governments in Latin America?

Alvaro Vargas Llosa

Well, that’s a very loaded question. [laughter] The Catholic Church has been part, I think, part of the problem in Latin America. It may be part of the solution, too.

As most of you know, Vatican II many decades ago was an attempt to bring the church up to date. The Catholic Church was considered to be very outdated. It was very conservative and orthodox type of church, and society had moved on. There had been the counterculture movement in this country. And so it was a big attempt to bring the Catholic Church up to date.

The result of that in Latin America was not an updating of the Church. It wasliberation theology. It was a Marxist interpretation of religion. And so it was another way of doing exactly what we had been doing, which was to concentrate political power in the hands of the few, and to expropriate the interpretation of whatever salvation was, so that a very privileged elite of people, who were in a position of power, could interpret that and enforce that on everybody else.

And so what was interesting, it was there was a kind of split in the church between the liberation theology people, the Left wing of the church and the Opus Dei or the Right wing of the church. And my argument is they had more in common than they were prepared to accept. Both were very authoritarian wings of the church, extremely, of course, vertical and authoritarian, and unable to understand that religion needs to be a very flexible and open concept so that individuals can relate to it in whatever ways they think they need to relate to it.

And so, the result was an open war between them in Latin America, and little by little they started to lose influence, and even legitimacy. And that’s why many people have been moving to other types of cults and religions, evangelical cults, Protestant religions. In my own country, in Peru, that’s a huge phenomenon. In Guatemala, a third of the country is now declaring itself Protestant. Brazil, half a million people. I’m sorry?

Audience Member

Is that good or bad or—

Alvaro Vargas Llosa

Oh, I have no idea. We don’t know that.



Alvaro Vargas Llosa

I deeply respect people’s beliefs and religion. I mean, who am I to say that. Nobody is in a position to say whether that’s good or bad. It’s a political and social phenomenon we need to take into account, and I hope the Catholic Church takes that into account.

Audience Member

How would you compare Latin America to Africa, then, and who do you think is going to climb out of their mess faster, Latin America or Africa? Where are the Taiwans of the future, shall we say?

Alvaro Vargas Llosa

That’s a very good question. Well, there’s a Venezuelan writer called Carlos Rangel, spelled “Rangel,” who in the 1960s wrote about that and he came up with a concept which he called Third World-ism. And that was basically a word that explained what was happening in both Africa and Latin America.

And what was happening was some of our ideologues were trying to export Marxism to Africa and Latin America in such a way that it would basically create a sort of outlet for ideology that had been proven wrong in Europe. [laughter] As you know, Marxists had predicted the fall of capitalism in Europe, so on and so forth. That had proven to be absolutely wrong. Capitalism was prospering in those countries despite many manifestations of state power. But that’s the wonderful thing about liberty. You give a little bit of leeway and room and it will create wonders and miracles for you.

But it is true that Marxists needed—desperately needed—an outlet. And so that’s what they came up with. They came up with this idea that then there would be no class struggle within a particular country but that there would be a class struggle on an international scale. And so it was going to be a struggle between poor countries and rich countries. And so Africa and Latin America were supposed to be the poor countries struggling against the rich countries, and we were supposed to overcome capitalism. A hundred years have passed and of course that has not been the case.

One of the offshoots of that theory was what I call in my book “structuralism.” For about 60, almost 70 years in Latin America, we were governed by that basic idea, the idea that we had to correct the unjust terms of trade between the poor countries and the rich countries, by creating all sorts of barriers, and nationalizing companies, and creating tariffs, and just basically isolating ourselves from the rest of the world. And that has only created more poverty for both Latin America and Africa.

So I’m not in a position to say which of the two regions of the world will wake up to reality sooner. There are some very edifying and important examples in Africa, Botswana being probably the best one. There are some good examples in Latin America, Chile being a very good one in the last decade or so. Chile, even under a socialist government, has reduced poverty by about 50 percent. Only about 18 percent of the population in Chile today is considered to be poor, which is not a bad thing for a Latin American country. It’s completely surrounded by lunatics in Latin America [laughter] and it’s doing pretty well.

So I don’t know which one will come out of poverty before and will embrace the idea of liberty before, but certainly both have been the victim of this notion that poor countries owe their poverty to the wealth of rich nations, which doesn’t mean that rich countries have not engaged in very stupid endeavors and very wrong types of foreign policies. But I refuse to believe that the poverty of poor countries is really a consequence of those policies. I think the poverty of these countries is a consequence of their own inadequacies and mistakes, and therefore it’s perfectly possible to reverse that course if we make the right types of choices. Please.

Audience Member

I appreciate very much both your book and your talk.

Alvaro Vargas Llosa

Thank you.

Audience Member

And as a generalization of Latin American conditions, you described it very, very well. However—

Alvaro Vargas Llosa

I was waiting for that “however” or “but.” [laughter]

Audience Member

Here’s the however.

Alvaro Vargas Llosa

Thank you.

Audience Member

However, I think that you are basically upbeat—and looking for positive examples of success in economic development and economic development reform. And just a moment ago you mentioned Chile to be at least partially successful.

And my wife and I recently visited Costa Rica and we were surprised to learn that since 1948, they abolished the army. And of course, they later—same thing with the socialism, and so on. But there must be different degrees of success and failure. Would you give us some hope to see where the successes are?

Alvaro Vargas Llosa

Absolutely. That’s a very good question. I am extremely optimistic. I n my lifetime, I have seen New Zealand come out of poverty, because there was a guy, a finance minister called Roger Douglas, who had a very simple, clear and truthful idea. And he said the objective is really to abolish privilege.

He has been asked time and time again what’s the secret of New Zealand’s success and he said we simply decided to abolish privilege. We went into every single market and decided, well, this is where the state is creating privilege. This is where the state is discriminating against certain people. This is where the state is creating barriers to entry. This is where there isn’t real completion. This is where the consumer is not the almighty power. And he abolished privilege in one market after another.

He has not, of course, gotten rid of government all together, but he’s gone a long way towards liberating the people from the dead weight of government. And the result is that in every statistic in the world New Zealand is one of the most prosperous countries. That’s a huge achievement. It was done in one generation. A hundred years ago, that would have been impossible. In today’s world, it’s possible for a generation to achieve that result in 15 years.

The Czech Republic, 15 years ago, it had gone through the experience of Communism. Very few Latin American countries have gone through that experience, of course. Very few. And it’s humiliating for Latin Americans today to learn that almost every single former Communist country in Central and Eastern Europe has an economic situation which you can measure in different ways including per capita income that is way above the average Latin American situation.

The Czech Republic is one case in point. Slovakia. Do you remember when the Czech Republic and Slovakia split up? Most people said the Czech Republic is going to do well. Slovakia is going to go down the drain. Well, today Slovakia is a country that’s being spoken of with admiration throughout the world.

Do you remember Ireland? The only thing they exported was people. [laughter] That’s all they exported—people. This country was made up in part by Irish people. They export everything today. I mean they are really in an incredible situation. It’s a revolution I guess, but they have a long way to go. I mean, the government is still interfering with society, but in the last 50 years, Ireland has removed many of the barriers, and they’re doing pretty well.

So Estonia is a country that decided in 1990 they were going to go for radical trade reform. They didn’t need to sign treaties like the NAFTA treaty, which is about 1,000 pages long. You know what they did? They signed a treaty that was one line: “We’re going to repeal every single tariff we have.” It went down to zero. Not 1 percent, 2 percent. Zero percent. And the consequence of that is 8 percent, 9 percent growth every single year since then. And Estonia today is one of the beacons of liberty in the world. I wouldn’t say they have gone all the way, but I would say they have gone a lot further than Latin America.

So there are many wonderful examples in today’s world of free-market reform. It needs political courage. It needs intellectual awareness. It needs to really know where the problem is rooted. And that’s what I think we’re lacking in Latin America.

My ideal is to simply do away with all sorts of barriers and tariffs. However, we live in the real world. The real world is a world in which we move in baby steps. And so, if you can persuade me that those deals generate more trade than the previous situation, then I guess it’s something that needs to be supported.

Some of these trade deals have not generated more trade in Latin America. I just quoted in my talk the South American common market, where we had exactly the opposite situation. Most of these countries in South America—Argentina, Paraguay, Uruguay, etcetera—in the early ’90s got rid of some of these tariffs, and because of the South American common market, those tariffs have come back up again.

So I do believe CAFTA probably does away with more tariffs than it creates or raises. However, I do think the problem today is not so much in Latin America but here. There is a protectionist sentiment. People are very paranoid with China. They’re very paranoid with India. They’re extremely protectionist against Latin America. And so it’s going to be very tough.

I think many Democrats, but also many Republicans in Congress are very scared, and they won’t necessarily approve of CAFTA. And if they don’t, it’s certainly impossible for the Free Trade Area of the Americas, which is what you were referring to, to come into existence.

However, we really should not lose sight of the final objective, which is really to do away with trade barriers. Trade is good per se. It’s not good because it’s located in a certain region. It’s not good because it simply creates better political relations between certain neighbors. Trade is good per se.

The ideal situation in the world would be for every country to import everything and have to export absolutely nothing. [laughter] It would mean getting everything for free. Of course, in the real world it doesn’t work like that. We need to export something in order to generate the money, the revenue to import.

But if you have that idea in your mind, the idea that the objective of trade is not to export but to import, you will realize that the important thing is not to force your partner to do away with his tariffs, but to do away with your own tariffs. It’s, of course, much better if your partner also does away with those tariffs. The important thing with trade is to do away with tariffs, and those trade deals that create more barriers than they do away with are certainly not good.

Audience Member

Relative to tariffs, I’m of the opinion—and I’d like your interpretation—that our President is caught between a rock and a hard place relative to border movement, particularly at the border with Mexico. And I think in his mind he envisions this unification of South America, Central America, and North America, and one of the vestiges of that would be more of a free-border movement. He’s been resistant to closing the borders with severe barriers.

And I really think that in the deep recess of his mind this is what’s at stake for him, the whole movement, and the movement towards a unification of open trade with South America, Central America and North America. This, of course, to compete on the world market with the European Union, China, which has been very, very successful, and India, which is going to come on to be strong as sort of a bloc.

So I would like some of your thoughts about this. I believe that the movement of peoples is important, and if they have security problems, these should be dealt with as a separate matter, but not of the closing of the borders.

Alvaro Vargas Llosa

Well, I don’t know if you remember, but when President Bush came into power, the first thing he did in terms of foreign policy was to go to Mexico and to signal that he was moving towards some type of legalization of, or maybe just giving any sort of amnesty to Mexicans living here who were in an illegal status.

And that created a very interesting situation in Latin America. Many people thought that this country was moving towards open borders, at least partially, and that could be the kind of first step towards a more general situation. And then, of course, 9/11 took place, and that blew everything away. I mean, Latin America just completely was blown off of the radar screen, and nobody took any notice of Latin America until a few months ago, when Chavez became an issue. And now, again, the U.S. is focusing on Latin America because Chavez is an issue.

And so that’s important, because Latin Americans relate to the United States according to the signals the United States sends to Latin America. And so the idea is that we were given a signal or promise that was simply not fulfilled.

What is happening today is a very complicated situation. I think the government perceives there is a large—I don’t know if it’s a majority of people here, but maybe a very, very large and influential section of society that is totally against anything remotely to do with opening the borders and letting immigrants in, etcetera. So I think it’s going to be probably very hard for President Bush, or whoever comes into power next, to open the borders.

I think it’s a mistake. I am in favor of free immigration. I know it’s a delicate issue from a purely Libertarian point of view, because, really, the purely Libertarian point of view should be that anybody should be allowed to bring an immigrant into their property, but not necessarily into public property, because public property by definition is the property that the government has expropriated from others, and therefore, why should we have to pay taxes to sustain immigrants coming into public parks, or whatever, roads, or circulating in roads.

But in general a government—or a nation-state to be more precise—that creates barriers against immigration is probably a state that is authoritarian, that is imposing on its own people choices that those people have not made for themselves.

So even though it is true that immigrants coming in and treading on public property are probably the direct beneficiaries of government action that people have not chosen, it is probably worse to simply not let people in, because that creates a form of state power, an imposition on people who are living within that country, that is even worse.

But it’s a very tough issue. I don’t think this country’s going to move in the right direction, at least in that respect, for a long time. People see immigrants as the enemy. They see immigrants as people who are taking away from them, not only jobs, but even more importantly, their identity.

I don’t know if you’ve read Samuel Huntington’s stuff. He’s a professor at Harvard, very famous guy. He wrote The Clash of Civilizations, and he’s been writing books, and he wrote a book recently called Who Are We. And he makes the argument that Latins who are migrating to the United States are hurting the identify of the United States, because previous immigrants were of an Anglo-Saxon origin, mainly, and they had, of course, certain values that these Latin immigrants are, in some ways, hurting and threatening. And so I think there is some of that in people’s minds. Yes?

Audience Member

There is a thrust in Washington to bring about the Free Trade Area of Americas, the FTAA, as well as you mentioned CAFTA, and establish a globalism type of regional government and regional trade.

My question is that every one of the five principles of oppression that you’ve discussed tonight, it seems like they would be enhanced and established in the United States through the FTAA, because it’s not a free trade, it’s a controlled trade. It’s a regulated trade. It’s a trade of privilege. I’d like your comments on that.

Alvaro Vargas Llosa

Well, if that is true, I’m with you. Anything that creates more privilege, that creates more wealth transfer, that creates more corporatism needs to be opposed. That’s why I said some of these trade deals usually do the opposite of what they purport to do, the case in point being the South American common market. I’ve given many examples today of how that became a form of hampering trade rather than engineering a greater free trade.

I think FTAA is not going to be possible for the time being. I think Brazil, maybe Argentina also, but especially Brazil is resisting that, because Brazil thinks that that is something that is going to be controlled by the United States, and Brazil thinks it should dominate the South American common market and therefore create a sort of counterweight to the United States, and so have two big trading blocs in this hemisphere, the NAFTA and then the South American common market. That’s really what Brazil is pushing for.

So in that context, I don’t really see how is going to be possible for the United States to push for FTAA in any effective way.

I think both sides are probably wrong, in the sense that the best way is really to simply eliminate trade barriers. I mentioned Estonia a moment ago. Other countries in this world, small countries, have simply done away with barriers unilaterally without expecting anything in return, and the result has been growth.

But the truth is, we’re a long way from that in this hemisphere. We see trade as essentially a zero-sum game, and we see trade as an extension of power politics. And while we continue to see trade as that, it’s going to be very hard for countries to realize that the objective of trade reform is not to extract concessions from your partner, it’s simply to eliminate your own barriers. Yes?

Audience Member

I also have a “however” here. [laughter] As a Peruvian, I couldn’t agree more with your conceptualization of the nature of the problems in Latin America. But as a practicing physician in the Bay Area, I believe that the healthcare system in this country’s a disgrace. It’s an embarrassment. Forty-six million people are uninsured. It’s the most inefficient system in the world. And I think it’s a prime example of the failure of the market system. I think, it’s basically because of the healthcare industry, the healthcare insurance companies are totally unregulated, and because greed is a very powerful force. So I wonder if you see any role for some sort of government regulation at all to prevent this kind of situations.

Alvaro Vargas Llosa

No. [laughter] [applause] I’m not going to go into that. I’m not an expert in that. We have many experts in that.

David Theroux

In your packet there’s a catalog, and one of our books, it’s a book called American Health Care, and you might take a look at that, because it shows the pervasive effects of government policies in healthcare.

Similar to what Alvaro has been saying, you have this system of pervasive involvement, contradictory policies, essentially redistributing costs to the public and redistributing profits to those who have political influence. So it’s not unlike what Alvaro’s saying, and the image of all this is that somehow it’s a market. It’s not a market.

Alvaro Vargas Llosa

A very important American Libertarian called Albert J. Nock said many decades agothat the objective of free-market reform should not be to destroy government, but to destroy the prestige of government.

And what you just said is a case in point. I mean, what we have here is a big myth, the idea that government is a solution to problems that markets create, and it’s exactly the opposite. Markets are a solution to problems the government creates.

What you stated today is the consequence not of government lack of intervention, but of government intervention. And I deeply believe that if we did away with some of these intrusions on the part of government that people could create a much better health system.

I lived in Britain for many years. They have a completely nationalized healthcare system, and believe me, it’s a complete disaster. And if Tony Blair loses the elections in a few days’ time, it’ll be probably in part, not only because of Iraq, but also in part because of that. He promised when he came into government to restore the prestige of the healthcare system, which he called the National Healthcare System in Britain. And it’s been impossible, because the nature of the beast is the problem, not people that manage it or take care of it. Yes?

Audience Member

You’re opening with some quotes of Latin American Presidents, so I’m going to use the same thing, if you’ll allow me. Porfirio Diaz last century, he says, “Poor Mexico, so close to the U.S., so far away from God.” Then Mr. Monroe came and said, “America for the Americans.” Then in Mexico we have the saying that when the U.S. gets a flu, we get pneumonia. [laughter] And you talk about all this. All that corruption came from Spain, that’s in every single book. Even Spain’s admitted.

Anyway, what’s the positive and negative—especially—of the influence of the U.S. in the rest of Latin America, and how, if it’s true or not, that has stopped our economicdevelopment in Latin America.

Alvaro Vargas Llosa

I don’t think the United States is responsible for the underdevelopment of Latin America. If that were true, Hong Kong would not be a powerful region of the world today. It was a colony. We’re not a colony. We’re under, of course, big influence from the United States, but they were actually a colony of Britain. And because they exercised the right kind of policies and cultural attitudes, they were able to become incredibly prosperous—so prosperous that today, despite China being in control of Hong Kong, they are still very prosperous.

However, the United States has made many mistakes in Latin America. Of course, they have. We’ve gone from direct interventionism, to what I call condescension --the whole idea of good relations with the southern neighbors on foreign aid, and that simply didn’t work.

In the ’70s, billions and billions and billions of dollars of foreign aid poured into Latin America, and the result was, the level of investment was very small, about 16 percent of GDP. Growth was about 0.5 percent in per capita terms, per head. In the ’80s, as I said, capital went out of Latin America at a much faster rate than it went in because of foreign aid. And so both intervention and condescension have been totally useless.

Today we have a sign in which there are a few manifestations of U.S. power in the region that, I think, are not very good. The drug war, I think, is a complete disaster. I think we’ll have to wait a few decades before people realize here what a disaster it is, just as it took a few decades for people to realize prohibition was a disaster. These things take time.

I think the U.S. could do a lot more for Latin America just simply by opening up trade in this market, getting rid of all those barriers that are an obstacle to trade, to exports from Latin America to the United States. But still, the bottom line is, if we do the right thing, even considering the inadequacies of U.S. policy, we can still move ahead. We can still prosper as other countries have done. That’s why I never place the blame for Latin America’s underdevelopment on the United States.

Audience Member

You’ve mentioned 500 years, and probably more, counting the Aztecs and the Incas, that people have been imbued with the kind of a structure that you’ve talked about tonight. If all of a sudden all of the ministers and the presidents of all the countries in Latin America were populated by people like yourself, with your beliefs, how long do you think it would take to change the structure in Latin America?

Alvaro Vargas Llosa

OK, that’s an impossibility, [laughter] but it doesn’t take very long for a country today, in today’s globalized world to prosper. I think it’s true of any era that a country that did the right thing would eventually prosper.

In today’s world it’s very quick. I mean, even Chile in the ’70s—I’m talking about before Pinochet era, under Allende and all these people—it was a complete disaster. More than half the population was under the poverty line. It was a country that people simply wrote off completely. And in one generation it has become a country that everybody talks about as a model of reform.

And I think that shows. And they have Hispanic heritage, they have pre-Columbian heritage, they have migration from all sorts of places. I mean, they’re really are a microcosm in today’s world. And they have much fewer natural resources than Argentina, Peru, Bolivia, all the countries that surround Chile. They have a population of 15 million people, almost half of my own country. And they’re doing so much better. Why? Because today’s world allows any country that does the right thing to prosper, as long as you do the right thing.

You need a consensus, certain amount of consensus in society, at least among the leadership, and you need a lot of political vision and courage. And they had that at the right time, and they’re moving ahead.

They need to do a lot better than that. They’re not yet there. But I think it simply shows that it’s possible for any country in Latin America, given the heritage, given the geographical, natural resources, given the historic period that we’re in, to achieve success. It’s a very encouraging story.

David Theroux

How about two more questions?

Audience Member

Staying on Chile for a second, that seems to be the only real example of rapid progress in Latin America, and it was essentially imposed by, what a lot of people would consider to be, a very brutal dictatorship. So my question to you is, do you think that’s the only way towards a market approach, or can a democratic process produce the same kind of results?

Alvaro Vargas Llosa

No, I don’t think that at all. In fact, Chile is doing much better since it got rid of Pinochet in ’89. I don’t like the idea of democracy as majoritism, in the sense that whatever the majority thinks is right should be imposed, but I think as a contrast to the very authoritarian regime of Pinochet, it’s an interesting example, has done much better than the dictatorship.

You’ve had a monumental reduction in poverty in Chile, not under Pinochet, but under either Christian Democratic or Socialist government, not because they were Christian Democratic or Socialist, but because simply they were a lot more in favor of free markets than most other Latin American nations.

So, no, I don’t think you need to go through Pinochet, which is exactly the opposite of what you need to have freedom. What was Pinochet about? He was about concentration of power, about the abolition of civil liberty. He was about the invasion of people’s sovereignty. He was all about expropriating decision-making power from individuals, except that he had not even the vision. He simply had the luck to have advisors that knew a lot more than he did about the economy and opened up certain spaces in the economy. And so that generated a lot of wealth.

That’s the wonderful thing about liberty. Even if a tyrant opens up a few spaces for liberty, people will immediately react. That’s what happened in Singapore. That’s what happened in South Korea. All of those were dictatorships, and brutal dictatorships. They’re not any more. They have gone towards more civilian types of government. But even under Communist China today, we have a good portion of the population that is responding in positive ways to the new spaces that have opened up to them.

So does that mean that dictatorships work? No. It means that people work despite dictatorships. It means that even if you have a brutal system that violates human rights, and kills people for what they think, and that suppresses freedom of opinion, even if that type of government leaves people enough space to conduct their own affairs, at least in the economy, in the way they see fit, then that will produce results. That’s a testament for freedom, not for tyranny. Yes?

Audience Member

The way I understand it, a group of free-market economists from the University of Chicago went down to Chile, and essentially taught the people running the government how to set up a free market system. And what do you think of the idea that, instead of all this NAFTA, CAFTA, FTAA and the rest of this socialist stuff, we have free-market groups like the Independent Institute going into various Latin American nations, to the governments, and just teaching them how to set up a free-market system in their own nation?

Alvaro Vargas Llosa

Well, yes, the Chilean system—what they did is they imported some scholars from Chicago, except that it wasn’t quite that way. What happened was the socialist system just simply collapsed. There was hyperinflation. I’ve lived under hyperinflation in Peru, and I can tell you, it’s a very desperate state of affairs. They lived under a situation in which nobody was at all secure in their property or anything. Nobody could take for granted absolute anything, I mean, just from one day to the other.

So under that type of chaos, it’s, of course, understandable that even Pinochet would call people and say, well, if you think you know what you’re doing, then go ahead. And then, that was a unique case in history, in which people like José Piñera, who’s around today giving lectures on the privatization of the state pension system and so on, had a chance to do some of their stuff.

But I think it’s very important to understand that dictatorships in Latin America have not usually achieved these results. They have achieved exactly the opposite results.

About the Independent Institute advising Latin American governments—well, that’s what we do. We put out all sorts of literature. We put together events like these. And hopefully these ideas will catch on, and—

David Theroux

You’re going on tour.

Alvaro Vargas Llosa

Well, my little tour around Latin America, and hopefully one day these ideas will be there when people have become very desperate, and they look around and say, well, we’ve tried almost everything. Hopefully they will look at these ideas and think, well, maybe we need to give them a chance.

David Theroux

I might just add that the new center that Alvaro’s going to be directing is aimed at doing studies and having communications programs to demonstrate how enterprise-based approaches have this enormous track record in relieving abject poverty and creating wealth for people on the lowest rungs of society and all the way through society.

Audience Member

OK, I just have a question about South America and then a second question about economics.

In Argentina I think you’ve seen in the last two years about five presidents. And then in Ecuador they’ve had about eight presidents within the last 10 years. And then in Bolivia, they just changed presidents several times. And I just wanted to get your comments on that.

Also, it seemed like that didn’t really happen in Peru. It seems like we stayed with the same people in power. And I wanted to get your thoughts on that.

And then my last question on economics: When you go to the stores everywhere you see everything that’s made in China, and that’s really great, and it’s really great for Taiwan and everything, but do you think that maybe Latin America or Africa have not been given the opportunity to get into those markets to make basic things, like just combs and just anything?

Alvaro Vargas Llosa

Well, yes, we tend to change governments overnight, just for nothing, for no real reason. But my point is usually not about instability in Latin America, but exactly the opposite—stability. The important thing is to realize, these are all power struggles. It’s all power politics. Underneath, what you have is the same types of rules, the same types of institutions, and the same types of systems.

So let’s not be confused by these abrupt changes of government and sudden revolutions that seem to overturn everything. What we have is a basic structural system, a basic system of incentives, a basic system of structuring human interaction and human relations that is a complete disaster, and we need to get rid of that.

And these changes of government don’t even touch that. I mean, they are simply superficial power struggles. So let’s look beyond these.

As far as the U.S. market, well, yes, there have been a lot of barriers to Latin American exports in the U.S. when our own products are selling at home. And so these Chinese products are helping consumers, poor consumers in shantytowns, acquire good quality products, and they’re having some money left for other endeavors.

So I think it’s very important to realize that trade is never a zero-sum game. I know that it’s the tendency to look at trade as a war in which you either win or lose. Trade is always a situation in which you win even if you don’t export anything to that country. It simply means you’re exporting to other countries, you’re making money from that, and then you’re in a position to buy, from China, in this case, products that are very cheap and good quality. Yes, go ahead.

Audience Member

Would you ever consider going back to Peru and running for President? [laughter]

Alvaro Vargas Llosa

I have been there already, and it’s not worth it. [laughter] We need to win the battle of ideas before we can really make change possible. And it was a mistake on the part of many people who think like me to think that they could create change before we could win the battle of ideas. So this is where I am now. I’m much more comfortable here, and this is where I’ll continue to be for a long time.

David Theroux

How about one last question?

Alvaro Vargas Llosa

Back there.

Audience Member

I’ve learned so much from you, I’d like your opinion on Venezuela. It appears from a Leftist perspective that Hugo Chavez enjoys immense popularity among the workers and peasants. And three weeks ago, they held an international conference and they talked about oil. Now, Venezuela’s supposed to have the largest oil reserves in the world, and they will be selling to China and to India both.

And in the province of Agua Linda 18,000 hectares of idle land has been given to workers and peasants who wish to develop it. How do you see the prosperity? Also, Venezuela wishes to open a “Bank of the South,” as they call it, to counteract the World Bank, the IMF. What do you think the prospects are for a successful change in Venezuela with their Bolivarian revolution?

Alvaro Vargas Llosa

I thought I was going to be spared a question about Hugo Chavez. [laughter] I mentioned at the beginning of my talk some of these delusional Presidents in Latin America. I forgot to mention Chavez. If you ever go to interview Chavez, you will find out that in his office he has three chairs. And he sits in one chair, of course you as an interviewer would sit in the other one, in the second chair, and then there’s a third chair that’s left empty. And he says that’s for the ghost of Bolivar, who was the hero of Latin America’s independence in the 19th century. And he says Bolivar is watching to make sure that the interview is fair. So that’s how delusional this guy is. [laughter]

No, Chavez is not a left-wing man. He’s the most reactionary politician you can imagine. Let me tell you a little bit about Venezuela. Between 1958 and 1998, they had what they called a democratic system, a system in which people would elect a new government, and yes, there was a certain amount of power-sharing. Basically two parties. It was a system in which two parties had the control of the political system.

That was a system that depended on oil almost entirely. Throughout that period, Venezuela earned about $400 billion in oil money, which was a lot of money, and, well, they simply had a very mercantilistic, corporatist system based on privilege. And so the result was a lot of poverty. That country went from having a per capita income which was the equivalent of 70 percent of the per capita income in the United States—taking into account, of course, purchasing-power parity—to having half the population under the poverty line. So the result was Chavez , of course.

In the shantytowns around Caracas, where they’re called ranchos, Venezuelans took to the streets and said we want a change, we want revolution. And so Chavez came about. First he engineered a typical reactionary right-wing coup in 1992. He failed, he went to jail, he came out of jail, and he became a national hero. And he became president in 1998, he was elected in a democratic elections.

So what has he done since? He has done exactly the same that the previous governments did. He has relied on oil. When he came into power, the price of a barrel was $8. Now it’s over $50, so you can imagine the amount of revenue that’s coming into his coffers, and these are his personal coffers. This is not money for the Venezuelan people.

And so what is he doing? He is creating a system of huge political patronage. He’s buying off people here and there. I’ve been there many times since he came into power –I think five times. I was there in August during the recall referendum. I was there a few weeks ago again presenting this book.

So I know what I’m talking about. I’ve talked to people and he is simply doing exactly what was done before. Relying on oil money, persecuting the opposition, creating a system of fear, and buying off people, because he has a lot of oil money.

And so I think it’s very important to realize that beyond the rhetoric, what you have is a system in place that is simply reproducing some of the revolutions we had in Latin America before the Mexican Revolution at the beginning of the 20th century, the Bolivian Revolution in 1952, the Cuban Revolution in 1959, the Peruvian Revolution in 1968, etcetera, of course the Sandinista Revolution in Nicaragua in 1979 and all of these revolutions did exactly the same thing.

Now as far as taking land—“idle land,” he called it—and giving it to the poor, that is not quite true. He’s taking land that is owned by certain people. The last thing he did when I was there, he expropriated some very fertile land that belonged to a British company, and what he’s doing is not giving that land to the people, he is giving it to government bureaucrats under the guise of redistribution of land.

And the handling of that land by government bureaucrats will end up being sort of a repetition of what happened Peru in 1968 and Cuba in 1959 and Bolivia in 1952. It’ll be simply a way of destroying agriculture in that country, because there are no property rights, nobody is secure in his property. It’s a system in which there is no economic calculation. It is simply a tool for politicians to generate votes and to generate clientele, political clientele.

So let’s not fall into that trap. Chavez is not a left-wing revolutionary. He is a reactionary. He’s an extreme reactionary who is doing the most conservative thing you can possibly do in Latin America. If you understand the term conservative, that’s simply preserving the status quo. Thank you. [applause]

David Theroux

Thank you very much. I know that many of you have questions still for Alvaro and he will be here. We welcome you to come up and discuss them with him. To those of you who have not gotten either the Spanish or the English or both copies of his book, there are copies upstairs. We encourage you to do so, and he’d be delighted to autograph them for you.

Audience Member

And bring them back down and have them autographed?

David Theroux

Yes. He’ll be autographing them right here and the table right upstairs. I want to thank Alvaro again for his work. It’s been a real privilege to work with him and we look forward to many years of doing that in the future. And thank you all for joining with us in making tonight so successful. We look forward to your joining with us again. Thank you and good night.


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