What is wrong with Bolivia?

by on January 18, 2006 at 8:07 pm in Economics | Permalink

James Surowiecki writes:

Neoliberalism failed in Bolivia because a macroeconomic checklist is
not enough to make an economy work. Incorporating a new business in
Bolivia, for instance, takes fifty-nine days, entails fifteen separate
procedures, and costs twice as much as the average person earns in a
year. So, according to a recent World Bank study, most of Bolivia’s
businesses remain “informal,” which means that they have no legal
protection, and limited access to credit markets. Corruption is
rampant–a survey in 2000 found that it was a greater problem in Bolivia
than in about ninety-five per cent of other countries surveyed. And the
state bureaucracy has been more interested in patronage and clientelism
than in good policy.

Even if Bolivia got the big picture right, it got the details all
wrong. And it’s increasingly clear that when it comes to development
God really is in the details. A country’s history, institutions, and
power structures have a profound impact on whether reform can work.

Read the whole thing.  Elsewhere in The New Yorker, here is an article about Battlestar Galactica; season two showed up on my doorstep yesterday.

1 Foobarista January 18, 2006 at 8:42 pm

Land reform in these poor countries, particularly ones emerging from basically feudal arrangements like most of Latin America, is the “big gotcha” on the road to neoliberal reform. It almost seems that it takes a dictator to come in, strip the old landed aristocracy, and then conveniently die childless – hopefully well after the land has been redistributed. Only then can free market reforms start to work – otherwise, the old barons will just buy the privatized companies and prevent a new economy from emerging.

2 dearieme January 18, 2006 at 10:17 pm

You don’t need to steal land from the the old aristocracy: just forbid “entail”, introduce an inheritance tax, and let fast women and slow horses do their work.

3 Jimmy January 19, 2006 at 12:01 am

The blame for the failure of neoliberal reforms on inept business regulation does not satisfy me. If you check the Doing Business report produced by the World Bank, Bolivia actually ranks higher than India for overall ‘Ease of Doing Business.’ Yet, the performance of the Bolivian economy cannot compare to the performance of the Indian economy. This indicates to me that there must be more significant factors that cause economic growth than sound institutions.

4 DK January 19, 2006 at 10:43 am

Foobarista, do you have an example land-reforming dictator or country in mind? Did Pinochet or Allende accomplish land reform? The only example I know would be Japan under MacArthur.

Re: Bolivia, IMHO neoliberal reform will never work in the absence of the political stability and/or social acceptance to ensure that reforms last. Would any investor (other than Hugo Chavez) looking at Bolivia 5 years ago think that their money would be safe from outright expropriation?

Bottom line: never invest in a country where regaining land lost in a past war is a significant factor in elections.

5 Foobarista January 19, 2006 at 12:46 pm

I had in mind most of the East Asian countries, particularly Taiwan under Chiang Kai-shek and South Korea. Both of them did rather radical land reforms, which broke up local gentries, and both were unpleasant dictators. Park died and passed power onto another general. CKS managed to pass power to his son Jiang Jingguo, who ended up being an effective “reforming” dictator in the Deng Xiaoping mold – and didn’t try to pass power along to his family. Both countries ended up being successful capitalist democracies.

Of course, both also had rather close American “tutelege” and were “dictators of the right” (like most non-communist Asian dictators), which seem more likely to evolve democracies than “dictators of the left”. But they also had extensive land reform. This is in contrast to the Philippines, which had all the above but no land reform.

6 Patrick January 19, 2006 at 8:15 pm

Other examples of historical land reform leading to industrial countries are rife: Dissolution of the monastries in England, followed by enclosure acts and finally the inheritance taxes.
The French Revolution of course. And maybe the communist revolutions in China and Russia, but they have to ensure that things don’t go back to the way they were when the lands are privatised.

Possibly include the breaking of the large plantations after the USA civil war

7 DK January 20, 2006 at 9:02 am

FYI, wikipedia has a nice page with an overview of historical land reforms, including the East Asian examples mentioned above, one led by Hernando DeSoto in Peru, and past efforts in Bolivia: http://en.wikipedia.org/wiki/Land_reform

IMHO, the big role of land reform is in its relation to political stability — i.e. do you need a large, property-owning middle class to make neoliberal reforms stick, or can you go neoliberal while 90% of your population are tenant farmers? I accept all the neoliberal principles in theory, but in practice I think you do more harm than good when you try short-lived unpopular reforms and then trigger an antiliberal backlash. Neoliberals and neoconservatives both seem to have trouble anticipating the backlash.

Another random question inspired by the Wikipedia article: I wonder if Castro’s death will lead to the US forcing Castro’s land reforms to be reversed. A lot of the US sanctions laws refer to Castro’s expropriation as something that must be reversed for sanctions to end — and the political constituency for those laws is mostly the former owners of Cuban land.

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