Bad government policy, poverty and Kirchner’s folly!

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!

  • Im surprised aboutyour article. I think, sincerely, that you have no idea about the situation in Argentina. During the Kirchner`s administration, the the economy have rise about 30% in three years ( only comparable with China`s rates).
    I would like to say something about the peronism. Peronism is a very complex social movement that have been studied for a lot of people (like R. Potash). So,I am surprised that you have resumed in a few words and about your unfortunates definitions.
    With respet.

  • Concerning Venezuela, it’s interesting to note that although it IS an oil rich country, apparently that wealth is not reflected in the quality of public services, in particular those for the poor – for example, Venezuelan public hospitals are in a deteriorated state, with very little resources, and getting worse every year. Hardly a sign of an “oil rich” country with populist policies!

    Note: this is anecdotal information from conversations with Venezuelan doctors in a recent personal visit to Caracas. If I had a link with “official” infomation, I’d provide it… 🙂

    So, to add to your general point, bad government is bad government – no matter the budget!


    PS – one often wonders where all those petrodollars go…

  • I aggree 100% with the author of this post and disaggree 100% with the comment of Matias.

    This Kirchner administration is a mirage and will collapse when the right time comes.

    Unluckily we argentinos will suffer, as we have always after every peronist caused crisis.

  • I fully agree with Fabrice´s post. It is astonishing that in the XXIst Century a government like Kirchner repeats gross economic mistakes based purely on a confused ideology.

    Sustainable and successful countries open up to the world, focus on pushing exports, generate a good environment for competitive business development, respect the rule of law above everything.

    Kirchner does the exact opposite. Attacks exports with taxes and even limits them (beef example), shows no interest at all in developing businesses, and is constantly ignoring the rule of law. Only last week, Kirchner got power from congress to modify the national budget without passinhg through congress. He also attacks the free press daily and named 5 of the 7 members of the supreme court.

    The only reason Argentina has grown 30% with Kirchner -Matias comment- is because it had had 4 years of recession before Kirchner came to power combined with an incredibly favorable international context both on the revenue side(highest commodity prices in 45 years)and on the expense side because Argentina is not paying its debt because it defaulted…

    The icing on the cake, today Kirchner is having a business lunch with role models Castro (Cuban dictator for over half a Century)and Chavez (who already said he plans to stay in power until 2021).

    Lastly, FYI, Kircher “lost” 500,000,000 USD of public money a decade ago from his province of Santa Cruz plus the 12 year interest (approximately amounting to 1,000,000,000 USD now) and has never returned it to Argentina. The money was transferred out of the country and never returned. The bank account where this money is has not been disclosed to the public in 12 years.