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Monday, October 1, 1990

A Reviewers Notebook: The War of Ideas

John C. Goodman of the National Center for Policy Analysis, in company with Ramona Marotz-Baden of the Foundation for Research on Economics and the Environment, are doing their best to keep up with changing ideas as they affect Latin America. They continue to have theft troubles.

As their new book, Fighting the War of Ideas in Latin America (National Center for Policy Analysis, 12655 N. Central Expressway, Suite 720, Dallas, Texas 75243, 252 pages, $6.95 paper), went to press, the very first page of theft introduction demanded drastic footnoting.

Goodman and Marotz-Baden had quite innocently stated that a free enterprise candidate had defeated a traditional socialist for the presidency of Brazil. They had followed this by saying that in Peru, the leading candidate for the presidency is a former socialist who now strongly endorses free markets. But after their writing, the president of Brazil revealed himself as a currency freak. His constituents woke up to the fact that they could not put their hands on 80 percent of their money. The repercussions of the Brazil situation were quickly felt in Peru, where the popular novelist Mario Vargas Llosa was supposed to be a shoo-in to succeed Alan Garda as president. Vargas Llosa had indicated sympathy for the decision that had so drastically curtailed the Brazilian money supply. When news of this got abroad there was a quick rush to abandon Vargas Llosa. It is all a great mix-up. The upshot of the business has been most peculiar: a son of Japanese immigrants, Alberto Fujimori, beat Vargas Llosa in a runoff. He did it by working out of a store front in Luna, with no money, capitalizing on the deep-rooted fear that no government could be trusted with a people’s savings.

If the whole of the Goodman/Marotz-Baden entries had to be subjected to such footnoting, it would not be worth much as information. Goodman and Marotz-Baden do much better when they stick to trends. Their various case studies are all on the upbeat side insofar as hopes for a free enterprise hemisphere are concerned. Chile has created a workable private social security system. In Guatemala, Manuel Ayau, a former president of the Mont Pelerin Society, is in the running for the presidency of his country. Two decades ago he started the free enterprise Francisco Marroquín University, whose graduates are now playing constructive roles in Guatemalan politics. Ayau has brought many Mises and Hayek scholars to his campus, including Milton Friedman, a three- time lecturer. It costs more to study at Francisco Marro-quín than at state schools, but voluntarists have raised the necessary supplementary funds for scholarships. The university has, according to Goodman and Marotz- Baden, “home grown nearly 40 of its 200-plus faculty members, including its Dean of Economics. Recently, its Theology School opened satellite schools in Costa Rica, Honduras, El Salvador, and even Nicaragua.”

We have touched on Peru, where Hernando de Soto’s El Otto Sendero (The Other Path) battles with the terrorist organization incongruously titled “El Sendero Luminoso” or “The Shining Path” for adherents. The underground—or “informal”-economy in Peru, which has constructed $8.3 billion worth of houses in 20 years in comparison to the government’s $174 million, will go with Alberto Fujimori in easy preference to tougher taskmasters who would force a waiting time of many years to get legal title to land. Fujimori has announced that Peru, which has stopped paying on its international debts, will “rejoin the world economy”-meaning that it will develop a plan to stabilize its economy with the help of the International Monetary Fund.

Venezuela and Mexico offer little puzzlement to Goodman and Marotz-Baden. The oil bonanza of 1974-83 might have put five important Western nations on Easy Street. But Venezuela and Mexico, which had high- priced oil to sell along with Norway, Holland, and Great Britain, muffed a glorious opportunity. Instead of paying off debts, all five of the oil-possessing nations immediately increased public expenditures.

“In Venezuela,” we are told, “government spending as a percent of GDP [Gross Domestic Product] varied between 30 and 35 percent from 1962 and 1972; yet government spending climbed to 57 percent of GDP by 1984.” In Mexico, public spending peaked at 61 percent of GDP. Holland hit 62 percent, Norway 48 percent, and Britain 46 percent. The oil-money spending went for all sorts of public projects, and it was accompanied by increased government borrowing for parallel expenditures. “In all five countries, the rationale behind these government policies was the belief that public spending would create and distribute wealth. In each case the opposite occurred. As resources were diverted from the productive private sector to the inefficient public sector, the consequences were devastating. In many cases the increased spending took the form of acquiring, expanding, or starting government-owned enterprises. Invariably, these firms incurred losses, which required even more government subsidies. As the subsidies to inefficient state-owned enterprises grew, efficient companies in the private sector were starved for capital.”

The Mexican economy, despite its abundant natural resources and its industrialization after 1949, has turned into a nightmare. The runaway inflation “has resulted in a tremendous outflow of capital in the last ten years. An estimated $60 billion in private Mexican money has poured into the U.S. and at least another $8 billion has been identified in Swiss bank accounts. What went wrong?”

The editors tell us about the ejidal system of landholding, under which !and was split into parcels too small for the peasants to eke out a subsistence living, let alone produce food for sale. To give up the ejidal system would require a tremendous rejection of one of the Mexican revolution’s most cherished traditions.

But, say Goodman and Marotz-Baden, “As this book goes to press, there is mounting evidence that President Salinas is serious about free market reforms—that he favors real reform, not merely cosmetic changes designed to appease international lenders.”

Salinas has announced his own conversion to the cause of privatization. If we could establish a genuine free trade area from Canada and Alaska to the Panama Canal it would be a tremendous victory for freedom. But the problem of Castro, who keeps pouting arms into Central America, would remain. And there is the warning attributed to Jack Kemp: “The International Monetary Fund is a greater threat to Central America than the Sandinistas.” Fujimori, though Peru is not in Central America, should take note of Kemp’s general reasoning.

  • John Chamberlain (1903-1995) was an American journalist, business and economic historian, and author of number of works including The Roots of Capitalism (1959). Chamberlain also served as a founding editor of The Freeman magazine.