Bad government policy, poverty and Kirchner’s folly!

July 13, 2006

According to an OECD report bad governance is the number 1 cause of poverty around the world – further reinforcing my analysis that governments rarely help the people they supposedly serve and can often cause terrible damage.

A number of economists looked at all the possible factors of low GDP / capita both in terms of growth and in terms of absolute level and found that the strongest determinant were the number of days it took to incorporate a company and the percentage of your annual salary it took to incorporate a company.

You won’t be surprised to hear that in Zimbabwe it took something like 3 years of paperwork and 2 years of salary while in the U.S. it took 1 day and $250…

In a similar vein, I meant to write earlier about a ridiculous policy that Kirchner, the president of Argentina passed a few months ago. In line with some of the increasingly populist policies in Venezuela and Bolivia, Kirchner decided to fight increasing inflation by imposing price controls and banning beef exports – one of the country’s largest exports! Prices dully fell in the short run as the supply of beef increased in Argentina, but as the incentives for investing and growing livestock in Argentina have now completely disappeared the entire beef industry is now at risk! With policies like this, don’t be surprised if Argentina heads into another crisis in a few years!

I abhor these type of populist policies, they end up hurting the poor the most, the very people they claim to be helping! In a country like Venezuela with plenty of oil money, their damage may be partially mitigated, but Argentina can ill afford those!

For all those tempted by the mirage of populism remember this: Argentina was one of the richest countries in the world in the beginning of the 20th century until Peron destroyed the economy with mass nationalizations and outrageous government expenditures!

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