What’s Driving Bolivia’s Booming Economy by Simon Wilson, Mises Institute
To the surprise of many, Bolivia is now Latin America’s fastest growing economy. At a 5 percent growth rate it now outstrips once dominant but now stagnating regional competitors like Brazil and Peru. Furthermore Bolivia boasts some very impressive macrofundametals: its level of international reserves are the highest in all of Latin America, it has slashed its government debt, and its inflation rate stands at a respectable 5 percent. This accompanies a 307 percent increase in average income and a 25 percent reduction in the poverty rate since 2001.
For those who have watched the demise of Venezuela and Argentina — the paragons of Latin American “21st century socialism” — Bolivia’s undeniable economic improvement appears to confound the expectation that socialism inevitably leads a country to ruin. Indeed the socialist policies of Evo Morales, Bolivia’s president since 2006, are based on exerting state control over natural resources and increased welfare spending. But, he’s credited with bringing about the turnaround.
Has the “Third Way” Worked in Bolivia?
Should the naysayers therefore reexamine their beliefs, and accede to the possibility of a “third way,” where a managed economy run by nice guys like Evo can bring about a positive outcome in people’s lives? Is Evo’s system superior to that which might prevail in an unregulated market?
Inflation has been a big focus of Wall Street in recent months, and it won't go away any time soon. But where do we stand with inflation? Has it peaked, or will it continue higher? Q2 2021 hedge fund letters, conferences and more Nic Johnson of PIMCO, Catherine LeGraw of GMO, and Evan Rudy of Read More
Well, there may not be any great mystery to Bolivia’s success, if we take into account the fact that it is actually riding high on the wave of a commodity boom, particularly in natural gas, which alone constitutes around 45 percent of Bolivia’s exports. Such is the reliance of Bolivia on this commodity that when the price falls, as has begun to happen this year, a rehash of the classic plot line of a Latin American government’s gravy train coming to a crunching stop would not be surprising.
Government bureaucrats will be laid off, social programs will be shut down, and civil unrest will ensue. The only question is whether it will play out as a short drama or a long telenovela of the Venezuelan variety, with the government first running down its international reserves and then resorting to creating currency out of thin air ushering in the grand finale of hyperinflation.
For some however, the very fact that Bolivia hasn’t played out like that in Venezuela and doesn’t seem likely to in the near future, would suggest that socialism is viable if it is well managed and trimmed of its more radical excesses.
In fact, Evo’s tenure has undoubtedly been one of pragmatism. It is true that since 2005 he has expropriated just over twenty companies, but the level of expropriations in no way compares to that taking place in the culture of government impunity rife in Venezuela where 1,168 foreign and domestic companies were expropriated between 2002 and 2012. The infamous nationalization of foreign oil and gas fields is not one of complete state control, but is rather about gaining a controlling share of the profits made by foreign companies which can then be diverted into various social programs.
All this would suggest, as the mainstream business press gleefully point out, that Evo is no old-style Latin American socialist. Instead, they claim, what he’s doing in Bolivia is really run-of-the-mill Nordic-style social democracy in a Latin American setting.
The business press narrative however, ignores the genuinely significant and even transformative things that have occurred under Evo’s presidency, which despite the rhetoric they are couched in, have nothing to do with socialism and everything to do with advancing true freedom and enterprise.
Rejecting US Control, the IMF, and the World Bank
First among these is Morales’s rejection of the international financial system and its pillars, the IMF and World Bank. In left-wing lore, this position is consistent with the continent-wide popular struggle against neoliberalism and “free-market fundamentalism” that brought Evo to power. But in reality, the IMF and World Bank interventions are about building an infrastructure of financial control and corporate patronage that is the complete antithesis of the free market.
The modus operandi of these institutions is to go to a developing country already struggling under a mountain of debt and, colluding with its domestic elites, sign it up for a loan, usually to fund a transport or utilities development. This strategy is a win for the lenders, the western corporations given the development contracts, and anyone else who can benefit from this web of state-backed international corporatism. It is a loss for the recipient country (i.e., the taxpayers) who must service the crushing interest payments and make “structural adjustments” to their economy which are stated conditions for providing the loan.
This is precisely what happened in Bolivia when by the early 80s its corrupt elites racked up around $3 billion in debt to foreign banks. The IMF stepped in offering a series of loans to cover the balance of payment crisis and “modernize” its infrastructure. Defenders of the free market might approve the fact that as a condition of the loans, over the next few decades, state enterprises were sold off to foreign corporations and government spending was restricted.
Though we can always expect efficiency benefits from a state-run industry being run as a private concern, morally speaking, the state has no right to sell its stolen property to third parties, especially when they are corporations with state enforced privileges inaccessible to private citizens like limited liability and even guaranteed rates of profit. There is also nothing free market about the way taxes were increased on the poor to meet the demands for deficit reduction, or the way the whole emphasis of the IMF’s plan in Bolivia was to develop it as a commodity exporting country. This meant recommending measures like currency devaluation and creating an artificial export infrastructure dominated by western corporations.
Morales’s Benign Neglect of the Informal Economy
Without the IMF, Bolivia now has the chance to develop on its own terms instead of under the rule of technocrats. Of course, government control of the commanding heights of the economy is hardly conducive to organic growth. However, we should keep in perspective the fact that there is a division between this higher productivity part of the Bolivian economy and an informal and semi-informal sector that provides the vast majority of economic activity and employment. These latter sectors are also made up of mostly indigenous Indians, and it is in these areas where the true significance of Evo’s presidency can be felt.
As Bolivia’s first indigenous leader, Evo Morales’s presidency has given the marginalized and poor a new found sense of pride. Refusal to cooperate in the US war on drugs and a decidedly laissez-faire attitude to informal and small-to-medium enterprise means that the state’s presence as an antagonistic force in the lives of ordinary people is at a historical low. This, in combination with a banking system flush with savings and low debt has been key to the bursting on to the scene of small enterprises run by indigenous entrepreneurs who have successfully leveraged their culture and trading channels to climb their way into the burgeoning middle class.
In Bolivia, like neighboring Peru, even the poorest of the poor have the means to turn a stall into a small business and a small business into something larger. Where once his ancestors were turfed off their land and forced to work it for their colonial masters, an indigenous Indian can now open a textile factory and attain a level of wealth that surpasses that of the descendants of those who expropriated his forefathers.
All over cities like La Paz, colorful mansions known as cholets (a term combining “cholo” the discriminatory term for someone of Indian descent, with the word chalet) are springing up, constructed in Andean style architecture, often five stories high, with the lower levels turned into businesses: living and breathing monuments to entrepreneurialism that have transformed the urban landscape.
The reaction of the eurocentric elite is one of barely concealed horror: seeing their positions of managers and administrators of an economy based on resource extraction and patronage of western corporations become vulnerable, they instinctively oppose Evo, and collate around a conservative opposition that favors clamping down on the “informal” economy, resumption of the drug war, and alignment with US foreign policy objectives.
Though it is right to oppose nationalization, it is hard to take seriously the argument that were Evo not in power, and Bolivia left in the hands of the “business friendly” opposition, the country would be necessarily better or conducive to genuine free enterprise. A great levelling of the playing field has occurred under Evo, not through forceful redistribution of wealth, but rather through standing back and letting freedom and entrepreneurialism of the people run unchecked. It is this that has made Bolivia a tangibly different country to what it was ten years ago, and it is the hope of all those who care about freedom, that this will be the enduring legacy of the Morales years, long after the commodity boom ends.
Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.