One State in Palestine

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Seldom am I inclined to support a member of the Obama administration, but Secretary of State Kerry deserves defense against abuse for mentioning the unsatisfactory alternatives to a two-state solution in Palestine. If the single state allowed equal political rights to all its inhabitants, the Arabs would outvote and outbreed the Jews and deprive the state of its distinctively Jewish character.

Isn’t that obvious and worth recognizing? Kerry was arguing for two states, not a single state with apartheid.

The word “apartheid” may be an unfortunate term for inequality of rights. If so, let the critic suggest a better one. Meanwhile, we should recognize that words often do get applied beyond their original uses. This stretching can be forgivable and even useful, as it is in Kerry’s case.




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The Political Philosophy of the Crimean Crisis

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I tried to resist, but I can’t. At the risk of being accused of pro-Soviet tendencies, I have to comment on a bizarre but real report in The Telegraph (March 6):

As European leaders [who else?] met in Brussels [where else?], President Barack Obama denounced plans for a referendum on whether the occupied Crimea region should join Russia as a “violation” of international law.

A violation of Ukrainian law, doubtless; but how does international law get into it? And just who is it that deliberates on international law, passes it, and provides for its amendment? Doubtless “European leaders.” So can they decide that Crimea should be part of Ukraine, despite all evidence that the majority of its population doesn’t want things that way? But to continue:

“We are well beyond the days when borders can be redrawn over the heads of democratic leaders,” he [President Obama] said.

I can’t make sense of that. Can you? Apparently, borders can be redrawn; that, in fact, is what he’s objecting to.

Now, there are strong arguments that borders should not be redrawn, no matter what. No matter what nationalisms are involved, no matter what petty religious or historical or linguistic disputes are available, the peace of Europe demands, or at least requests, that changes not take place in the continent’s frequently arbitrary borders. (I note, as I have before, that the Crimea became part of Ukraine by fiat of the Soviet dictatorship. So much for “law.”) Any people that wants to institute the kind of political changes that will bring it the blessings of prosperity would do well to drop its more exuberant forms of nationalism, accept whatever borders have been dealt to it, and think in terms of freedom for the individual, not vengeance for the ethnos.

None of this is a rational political philosophy. It’s just a dumber form of the old statist shell game.

But that’s not what Obama is saying. He’s saying, or seems to be saying, that “leaders,” who are also supposedly “democratic,” get to decide. Does that mean Putin? Apparently it must — though that’s not what Obama wants his words to mean. And how about the Ukrainian president, the one whom Ukrainian revolutionaries just kicked out? Also a democratic leader. Should he decide the fate of the Crimea? But what about the people who are being led? Do they get to say anything? No, they don’t. Not according to Obama. He wants no referendum. Does he suspect that it would be about as democratic as an election in Chicago? Or is he offended that he, the biggest of all democratic leaders, would have no say in its results?

None of this fits. None of it holds together. None of it is a rational political philosophy. It’s just a dumber form of the old statist shell game, in which the principle of legitimacy passes from “the people” to “the leaders” and back again, over and over, and where it lights is simply the place on the sidewalk where the politicians squat in a circle and play their games according to the rules they make up.

And what rules can we expect from a president who suggests, according to the same news report, that the Crimean crisis can be “resolved diplomatically in a way which would satisfy Ukraine, Russia and the international community.”

Satisfy them? Satisfy them all?




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How Much Ruin, Exactly?

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“There is a great deal of ruin in a nation.” It’s a remark Adam Smith made to a young colleague, John Sinclair, who worried that the cost of quelling the American rebels might lead to the downfall of Great Britain. It’s also a remark Liberty’s founder, Bill Bradford, quoted back to me on several occasions, whenever I was doom-and-glooming about how some country or another was on the road to ruin.

It’s a remark that comes to mind often still, whenever I’m agitated about governmental stupidity or malfeasance. Foolish wars in the Middle East have not ruined the US, and neither have decades of profligacy, proliferations of acronymic agencies, or a succession of villains in our highest offices. Communism did not ruin Russia, and has not ruined China; even Nazism could not permanently ruin Germany, though it did succeed in splitting it for a while.

It’s a familiar feedback loop: the more that’s seized, the worse the economy gets; the worse the economy gets, the more can be seized.

Nonetheless on occasion I read of some insane diktat in one or another corner of the globe and wonder just how far that corner’s leaders are prepared to stretch the maxim. Sovereign debt will likely not ruin Spain, or Portugal, or even Greece, though the EU seems intent on testing that out a while longer yet. Debt (again) and a shrinking population will probably not ruin Japan, but its prime minister Shinzo Abe, with his “Abenomics”—a reheated and desperate Keynesianism—is trying his hardest to make things worse. Unemployment and labor unrest will certainly not ruin France, but French president François Hollande, meanwhile, has yet to pass up a chance to kill off jobs and push companies abroad.

And then there’s Venezuela.

Venezuela, of course, was one of the great experiments: Hugo Chávez’s “Bolivarian Revolution” was supposed to prove the superiority of socialism (economic, of course; its moral superiority was assumed long ago), provided only that said socialism is backed up by seemingly inexhaustible national resources. Chávez, wasting no time after his election in 1998, set about “redistributing income” through land grabs and price fixes, threatening hesitant businesses with expropriation and then often following through on that threat. Under “Chavismo,” Venezuela assumed ownership of much of the nation’s construction, telecommunications, utilities, and food production industries, insisting at each step of the way that the takeovers were necessary to combat the predation of profiteering capitalists.

This sets up a feedback loop familiar to anyone who’s given even the slightest attention to modern government, where every gain (however temporary) is attributed to the extraordinary wisdom and foresight of the government agents, while every loss (all too often permanent) is attributed to the greed of speculators and other enemies of the people. Naturally, the more that’s seized, the worse the economy gets, but on the other hand, the worse the economy gets, the more can be seized. It’s brilliant, really—at least until the shortages of basic goods become too great for anyone but an ideologue to ignore.

Say this in Chávez’s favor: his policies—and those of his successor, Nicolás Maduro—have encouraged innovation in the Venezuelan people; for instance, consider the smartphone app created to help them find toilet paper, in perpetually short supply thanks to price controls. But, as with the more traditional example of broken windows, this innovation isn’t going toward the sorts of things that would convince anyone of Chavismo’s superiority. And as other nations, especially the United States, Canada, and Brazil, have become more energy-independent, Venezuela and President Maduro are finding fewer buyers for their one undoubted asset, while the state-owned oil industry has become ever more wasteful and unprofitable.

With revenues plummeting and prices held artificially low, inflation has, inevitably, kicked in. And here’s where the “ruin” starts coming in: Maduro’s response (other than continuing to threaten or outright seize businesses) was to devalue the currency, and impose controls on currency exchange. As account holders desperately tried to get their money out of the country ahead of impending hyperinflation, Maduro doubled down by devaluing further, attempting to cut off foreign travel. Finally, he enacted a “Law on Fair Prices,” prohibiting profit margins of over 30%—which is to say, no profit, for anyone running an import business—while at the same time enacting long jail terms to punish “hoarders,” or, less insanely, anyone refusing to sell at a loss.

The socialist policies have certainly encouraged innovation in the Venezuelan people—take for instance the smartphone app that helps them find toilet paper.

Now, I’m no expert on Venezuela. I’ve never been there, I don’t know anyone from there, and I can’t get more than the barest sense of any articles written in Latin American Spanish. But I can’t imagine any experience of the place that would convince me that those Venezuelans who protest Chavismo are just, in the words of professional useful idiot Oliver Stone, “sore losers”—though they certainly aren’t winners, either, not while they’re getting gunned down for demonstrating against the ongoing depredation and repression. And so long as the government is willing to arrest the opposition leader, or expel consular officials for so much as meeting with protesting students, things don’t seem likely to improve.

It’s impossible to know where it will all end, or whether it could be enough to ruin Venezuela. I suspect not: prior to Chávez, Venezuela was no more or less stable than any other Latin American nation since the time of Bolívar himself. Oddly enough, in this era of globalization, the idea of a nation may be more susceptible to ruin than individual nations themselves. Those that are nearest ruin are those that were highly unstable and unwanted to begin with: Somalia, Iraq, Yugoslavia—lines drawn on a map as a convenience to colonial invaders or international do-gooders (if you can tell those apart). Yet even those fictions hold up longer than one might expect—just look at Zimbabwe.

So yes, there is likely a great deal of ruin still in Venezuela. But it is a shame, and likely will be a tragedy, to see the depths its rulers are willing to plumb before they hit bottom.



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Why India Doesn’t Change

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Recently, a federal cabinet minister in the Indian government, Pawan Kumar Bansal, was charged with taking a bribe of $160,000, via his nephew. The bribe was allegedly paid by an official of his own ministry. Were Bansal, within his own limited sense, rational, he would have started mobilizing his friends and bribing the news agencies, to avoid legal entanglements. Instead, he was found feeding a goat that was about to be sacrificed. It was a ritual to seek divine intervention.

To be elected a member of Parliament, Bansal must have been well perceived in his constituency, which is among the richest and most educated in India. The voters must have found him rational enough to be their representative. To be elected a top-level minister, he must have found acceptance among the majority of his political party, which rules the lives of 1.2 billion people. The prime minister must have found him charismatic, influential, and intelligent enough, or at least powerful enough to be a top-level minister, working daily on issues with serious influence on the direction India may take. Rising to the top in politics requires one to pass through umpteen filters. The fact that Bansal attained such a high position gives a glimpse of the psychology and character of the Indian body politic, its irrationality and medieval thinking.

I have almost never met a public official in India who did not ask for a bribe. But only a very rare public servant ever gets into trouble, and that happens mostly because of extreme stupidity or sheer bad luck. The investigative agencies are themselves totally corrupt, so they must find themselves cornered before they do anything. Even when the evidence is obvious, court cases simmer for several decades: eventually people die, or forget; witnesses change their stories, either because they are tired and want to end their court visits or because they lose their sanity under the pressures of an insane system; and prosecutors and judges keep changing. This is not just a result of financial corruption. The roots go much deeper.

There were riots in India in 1984, after the assassination of Indira Gandhi. The cases against the alleged culprits are still going on. Among people in government, there is apathy and lack of passion for what one does. Most of the job “satisfaction” public servants get is not from doing their job but from showing off their power, using it to obstruct and create problems for people. It is a very warped mentality that is not just about bribes (which in a narrow way is still a rational expectation) but is mostly a result of deep-rooted irrationality and the demands that irrational minds create. Indeed were bribes the only problem for India, it would have merely added a layer of cost to society, not made it stagnate or simmer in perpetual wretchedness.

Only a very rare public servant ever gets into trouble in India, and that happens mostly because of extreme stupidity or sheer bad luck.

I believe that the state is simply a visual symptom of the deeper social problem. The “anti-nutrients” come from the surrounding society. The underlying morality of this society — seen from the perspective of my own experience — is not that of “right or wrong” based on reason and evidence. Instead, motivations are often driven by astrology, circular thinking, superstitions, narrow tribal affiliations, and a completely erroneous understanding of causality, an understanding that results from medieval thinking with little or no influence by the scientific revolution. When I was in engineering, it was not uncommon for hordes of students to travel long distances to visit exotic temples or enact weird rituals to help them pass examinations. One must ask what happens elsewhere in society, when the top engineering students are so superstitious.

Industrialization was imposed on India before the country had time to go through a phase of the age of reason and enlightenment. Partial acceptance of reason has made Indians extreme rationalists, solidifying their superstitions. For example, a very good electrical engineer recently told me that touching the feet of the idol in a temple results in a flow of electricity through your body that is extremely beneficial to you, transferring to you the wisdom of the god by electrically changing the connections of your neurons. Educated people often take extreme pride in how our ancestors — the ancestors of Indians as expressed in Indian mythologies — had airplanes and time machines.

What about Indian spirituality and religiousness? Don’t they control people’s corrupt behaviour? I am an atheist, but I do understand those who see religion as a means of spiritual solace. But for Bansal, and a lot of other people in India, religion has nothing to do with philosophy or spirituality. It is about rituals conducted for material benefits, either in this life or in the next. It is about materialism, materialism, and materialism.

Recently a group has gained very high visibility in fighting against corruption. This group has been asking its followers not to pay their electricity and water bills, to force the government to reduce the charges. No thought is given to where the loss-making public sector company will get its money from. These people should have fought for the public electricity company to be privatized and to allow competition to work. But that is too much for their feel-good fight against corruption, in which some obscure fountain of wealth will provide for the shortfall. Visible, financial corruption is truly the tip of the iceberg. It is deep-rooted irrationality that is the true problem.

Most of my Indian acquaintances talk against corruption. But in their private lives not only do they pay the bribes they have to pay to conduct legitimate business, but they are more than happy to pay to get an unjust advantage over others. Despite the rhetoric, financial corruption has actually increased in India. And it has much deeper roots than most people realize. If he were truly rational, the hapless Bansal would certainly not have wasted his time on the goat, but the age of reason has not touched his thinking.

India’s problem is not just a lack of personal ethics among those in government. By itself, financial corruption would add only a certain, limited cost to the economy. It is the fundamental irrationality that keeps India from gaining traction, from being able to build its way out of wretchedness.




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A Sincere Change of Heart?

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The old adage wisely instructs us to “give credit where credit is due.” I am about to give credit to someone to whom I have given extremely scant credit before: our current president. Obama is apparently doing something I want him to do: he is advocating more FTAs — free trade agreements.

This is a surprising — nay, mindboggling — reversal of the course he took during his first four years. In his first term, he started trade wars with Mexico, Canada, and other places. He stalled, until late in that term, any action on the three residual FTAs that President Bush had left him (with Colombia, Panama, and South Korea). And he generally mouthed the labor union line that free trade “steals” “American” jobs.

But shortly before his reelection, he caved. In the face of a clearly stagnant economy he signed the three FTAs. He has now gone farther. In some of his recent speeches, he has advocated two new large FTA deals — one with the EU, and one — initially proposed by Bush — called the Trans-Pacific Partnership (TPP). He is in favor of concluding those deals quickly. (The US started participating in the TPP negotiations under Bush in 2008.)

Obama backed the notion of an EU deal in his state of the union address, saying, “Tonight, I’m announcing that we will launch talks on a comprehensive trans-Atlantic trade and investment partnership with the European Union . . . because trade that is fair and free across the Atlantic supports millions of good-paying American jobs.”

Of course, free trade with anywhere supports millions of “good-paying” jobs. This proposition has been urged by mainstream economists ever since the debacle of the Smoot-Hawley tariffs — or for that matter since Adam Smith. It has recently been brilliantly explored by Daniel Griswold in his primer on the subject, Mad about Trade (which I have reviewed for these pages). Obama is, it seems, only just learning this.

The trade deal with the EU would be huge. The economies of the EU and the US together constitute over half of world GDP, and the trade between them already accounts for one-third of all trade flows.Not commonly known in the US, but explored in detail in Griswold’s book, is the fact that as of 2010, US private investment in France and Belgium (combined) exceeded US private investment in China and India (combined). According to some estimates, an EU-USA FTA would likely add as much as 1.5% to GDP growth in both regions.

Of course, free trade with anywhere supports millions of “good-paying” jobs. President Obama is, it seems, only just learning this.

Concluding the TPP would also be huge. It would greatly expand the current, modest FTA called the Trans-Pacific Strategic Economic Partnership (“P4” or “TPSEP”), which includes Brunei, Chile, New Zealand, and Singapore. The proposed TPP would embrace Australia, Canada, Malaysia, Mexico, Peru, Vietnam, and us. Japan has just announced that it will join the TPP talks as well. Obama hasn’t commented on the Japanese dimension, but he has indicated that he favors the TPP, viewing it as his “pivot” toward Asia.

There would be great advantage to including Japan in a large free trade zone with the US. The other nations with whom we are negotiating either have FTAs already (Australia, Canada, Chile, and Mexico), or are very small potatoes economically (Brunei, New Zealand, Malaysia, Peru, and so on). Japan, by contrast, is a country with which we have no FTA, and is the third largest economy on earth.

But as happy as I am that Obama seems to be seeing the light, I find myself filled with doubts.

Start with the fact that the president is a notorious liar and dissembler. As a senator, he feigned support for immigration reform but covertly helped kill Bush’s bill, and in the two years in which his party controlled both houses of Congress he refused to introduce a bill of his own. Yet he campaigned for reelection promising — comprehensive immigration reform!

Similarly, as a senator and during his first term (to which he was elected with enormous contributions from union funds) he fought off or stalled all free trade measures. Now he favors free trade? One can be forgiven for wondering whether his conversion is sincere.

Doubt also arises from the question of how persuasive Obama can be on the issue. The opponents of the new FTAs will use his own past arguments against him — the canards about free trade costing jobs, about its resulting in the famous “race to the bottom,” and so on.

Most importantly, the new FTAs are fraught with special difficulties. Let’s begin with the EU. The problem lies with countries such as France, which is highly unlikely to open its domestic manufacturing sector to true competition. The French are notorious for protecting their film and other “cultural” industries by import quotas and direct subsidies. They are famed for their inventiveness in erecting “non-tariff barriers” to trade. And they just elected a Socialist government that loathes free-market economics (which leftist Europeans disparagingly call “neoliberal economic theory”).

The opponents of the new free trade agreements will use Obama's own past arguments against him — the canards about free trade costing jobs, about its resulting in the famous “race to the bottom,” and so on.

Especially contentious is the issue of agricultural imports. America has always been an agricultural hyperpower, thanks to the vast expanse of its arable land and the incredible productivity of its farmers. American farmers have been at the forefront of agronomic invention, from the use of tractors to the use of GPS (global positioning satellite location finding) to the genetic manipulation of grains. France, in particular, and Europe, in general, oppose the sale of genetically modified foods, and are lavish in their subsidization of their farmers.

With unemployment running high in many EU countries — especially Greece and Spain, where it approaches 25%, or about what the US suffered during the Great Depression — an FTA with America will be a tough sell. The average European is as much a believer in populist economic fallacies as the average American, and especially in the myth that free trade costs domestic jobs. (It’s always funny how opponents on both sides of an FTA can argue that it will send jobs over to the other side).

You can catch a glimmer of the difficulty in clenching this deal when you hear Karel De Gucht, no less than the EU trade commissioner, who is pitching an FTA with the US to lower the automobile tariffs that make cars so expensive in Europe, hasten to assure France that it would never be required to dismantle its subsidies and quotas on cultural industries.

Even more problematic will be an FTA that involves Japan. The Japanese certainly want the benefits an FTA with America would bring, such as an end to the tariff we impose on their automobiles — a tariff that runs as high as 25%. If these tariffs were eliminated, Japan’s auto imports alone would jump by perhaps 6%. (No doubt this is why the UAW, the AFL-CIO, and the domestic automakers are alarmed at the very idea of ending those tariffs). But Japan is erecting large obstacles to an early deal for true free trade. They are aggressively “pulling a Bernanke,” that is, weakening the value of the yen, so that Japanese manufactured goods will drop in price compared to American goods. This would rather quickly reduce the impact of our tariff barriers.

An even more significant problem is the fact that a real FTA that included Japan would immediately open Japanese farmers to massive competition by America’s vastly more efficient agriculture. To cite one example: Japan imposes a stunning 778% tariff on imported rice. In other words, Japan’s rice farmers are so comparatively inefficient that they need to be protected by a tariff of nearly eight-fold the American price — a whole new meaning for the Eightfold Way!

Japanese Prime Minister Shinzo Abe, who decided to join the TPP talks, already faces opposition to his move, and has promised, “I will protect Japan’s agriculture and its food at all costs.” That doesn’t make it sound as if there were much chance of a major deal to open trade on both sides.

Over the long term, of course, competition would be good, very good, for Japan. Its citizens would get cheaper food, enabling them to buy more of other things or save more capital to create or expand competitive industries. Free trade would free up people from the farms, enabling them to work more creatively and productively in knowledge-based industries. This would be a major advantage, given that Japan’s population is aging rapidly.

But economics is not the same as culture. In a nation as socially cohesive and static as if Japan, it will be very difficult to convince people to allow their farm industry to shrink. Yet you don’t need to be Japanese to succumb to the myths of protectionism. Populist economics is popular all over the world because, well, the populace is basically the same all over the world. As Hayek noted, our evolution from hunter-gatherers has left us with instincts that are often counterproductive.

If Obama really has seen the light — about which, again, I am skeptical — he would do better to emulate Bush. Go for bilateral FTAs with countries with whom we have a better chance of success. I would urge him to focus on just two countries: Brazil and India. I will be brief here, having discussed the possibility of an FTA with Brazil elsewhere.

Start with the fact that bilateral FTAs are inherently easier to negotiate, since the special interest groups, those omnipresent rentseekers, are easier to hold in check, being fewer than those aroused by action on a broader front.

In a nation as socially cohesive and static as if Japan, it will be very difficult to convince people to allow their farm industry to shrink.

Second, note that while countries such as Japan and France are very culturally homogeneous, Brazil and India are, like the US, ethnically and culturally diverse. Such diversity tends to lessen (though not to eliminate) the tribalist-populist impulse to fear trade with the Other.

Third, Brazil and India are big countries. Brazil, with 200 million citizens, is the fifth largest country in population, and India is the second largest. Unlike Japan and most of Europe, Brazil and India are still growing in population, so they will have a young labor force for decades to come. They are likelier than other countries to allow the importation of food, and more eager to gain access to our manufactured goods markets.

Finally, both countries are growing economically at a fast clip. Brazil already has the world’s sixth largest economy. Both are nations whose greatest economic growth lies in their future, not their past.

They seem altogether better bets than those the administration is pursuing. Maybe — my recurring skepticism whispers — that is why the administration isn’t pursuing them.

ldquo;race to the bottom,

ldquo;race to the bottom,




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A Living Wage?

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Ever since Fidel Castro’s retirement from all official positions of power in Cuba in 2008, and his brother Raul’s accession to the presidency, the island and its concerned neighbors, trading partners, assorted NGOs, and inquiring observers have been atwitter with the possibility of “hope and change” erupting.

Throughout this period, dominated by much informed speculation about the course of future events but overshadowed by the ever-present ball-and-chain of the still-living Fidel — the "conscience" of the Revolution — I have tried to separate the wheat from the chaff for Liberty’s readers. The winnowing has included accounts of the official transfer of power, the character of Raúl (according to his sister’s memoir), quotidian life on the island, the role of corruption, evolving US policy, and even Fidel’s admission, in a Gramma editorial, that yes, mistakes had been made.

But the big news has always been the projected microeconomic reforms and the ministerial-level reforms where grandiose plans for investments through joint venture agreements between foreign corporations and the regime are being concocted.

Well, Gallus economicus is slowly slouching homeward, with an eye to roosting.

Self-employment in over 180 professions is now legal — though with some restrictions and paperwork. Last month, the buying and selling of homes and cars also became legal (as per above). The biggest splash is being made by the 3,000 executives from over 60 countries, prospective joint commercial enterprisers, at Havana’s annual trade fair last month. But that splash has overflown the verge of the little pool and is soaking an awful lot of people.

According to The Economist, several foreign managers have been arrested and three joint ventures have been closed. One British and two Canadian executives have been held for questioning without charge, the former for over one month and the other two for several months. “Perhaps,” the article speculates, “because some of these steps are controversial, he [Raúl] is also cracking down on corruption, which the cash-strapped state can no longer afford to fund.” Since the government never set up tender guidelines for its corporate partners, kickbacks for contracts are rife. But rumors of the allegations extend way beyond bribery and push the definition of "corruption" into territory it is only now exploring.

In an era when foreign corporate investment in third world countries is subject to the scrutiny of such fuzzy concepts as “a living wage” and “social justice,” used to criticize pay scales based on local customs (pay scales that often provide income for people who might not otherwise be employed, that are perfectly legal and welcome, and that produce a product affordable to a wider audience), Cuba is adding a new and thought-provoking twist to the debate.

Some of Cuba’s new foreign venture partners, in an effort to attract dedicated employees and avoid meddling outside criticism, are sweetening employee contracts with bonuses and perks, such as extra-tasty lunches. Unfortunately, the Cuban government requires firms to hire workers through a state employment agency that pays meager salaries. Any remuneration above state mandated levels is considered corrupt. Some of the foreign managers’ arrests and joint venture closures, according to the rumored allegations, are attributed to the "overcompensation" of employees.

If you truly want to help the poorest coffee growers, stick with the “exploitation coffee.”

But the door swings both ways. Cuba’s comptroller general has had dozens of employees in the sugar, mining, telecom, and tobacco industries jailed for graft. For Castro, developed world market wages are a step too far. One European businessman, who pays bonuses to his entire local staff under the table, says, “My people help run a business which brings in millions of dollars to Cuba. I need to pay them a salary which is rather more than the price of a taxi ride home.”

Aside from the health consequences of exercise vs. smoking, which is the greater evil: Nike's legal and welcome $1.25-a-day Indonesian wage to sub-adult employees for the manufacture of athletic shoes, or another international corporation’s illegal and prosecuted near-first-world compensation to Cuban tobacco workers?

One irony is that the debate about "sweatshop" economics has mostly been settled. Even Nobel prize-winning economist Paul Krugman states in a 1997 article for Slate that “as manufacturing grows in poor countries, it creates a ripple effect that benefits ordinary people. ‘The pressure on the land becomes less intense, so rural wages rise; the pool of unemployed urban dwellers always anxious for work shrinks, so factories start to compete with each other for workers, and urban wages also begin to rise.' In time average wages creep up to a level comparable to minimum-wage jobs in the United States.” Similarly, economist Jeffrey Sachs said, "My concern is not that there are too many sweatshops, but that there are too few."

More controversially, Tyler Cowen, in Discover Your Inner Economist, tackles “fair trade” goods:

“Fair trade (coffee) sells a premium product at a premium price, under the premise that the workers are treated better and paid more. It sounds so nice. But will those purchases benefit the poor?

“It depends. How about a product called “exploitation coffee”? You pay less, and they promise to treat the workers especially poorly. That wording is a less effective marketing ploy, but that is what the concept of fair trade boils down to. Whether we upgrade one option or downgrade the other is just semantics. We can either have two classes of coffee (and workers), or one class of coffee and workers. Splitting up the market into classes is good for the workers at the higher end, but it does not always help workers at the lower end. In fact it may hurt them. The jury remains out on this idea.”

My idea is, if you truly want to help the poorest coffee growers, stick with the “exploitation coffee” (without promising to treat them "especially poorly"). The more you buy, the more they earn. The greater the demand, the higher the price will rise and the better off they’ll become.

But the biggest irony in the Cuban government’s wage depression and generosity prosecution is its complete obliviousness to basic and current economic theory. It is truly pushing the dismal science’s frontiers into terrain that no one has ever explored before.




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Confessions from China

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I must start with a bit of history. Two years back, I drove a van that I later sold for $150, yes, one hundred and fifty dollars. It actually ran very well, and I never saw a reason to sell, until one person I went to pick up in it almost jumped out. Another person never returned my phone calls.

I discovered that I might have the oldest van in downtown Vancouver. Rusted pieces fell off quite frequently. But it never gave me problems during the four years it was mine. I still regret that I sold it. I realized, however, that I had to go for a better car.

By the time I finally did the purchase, the target vehicle was no longer a new car, but a secondhand one bought after much depressing Indian-style negotiation. It is still a swanky gas guzzler. Nevertheless, I bought it not to show off — who cares about showing off to mindless consumerists? — but to irritate environmentalists who like to tell me how I should live.

Then I thought I must buy a nice watch — I owned none until then. I did that on eBay after hard negotiations. I knew that what eBay was offering had the lowest price when I received the eBay version of "f**k off." I still regret wasting money on that watch.

Anyway, I realized that I was cheap, so I made no more large material acquisitions. Why one should buy things is actually beyond me. I haven't bought a suit for 12 years, and I have just one of them. My formal shoes were bought eight years ago.

I also realized that my cheap van had done a lot of self-selecting of friends for me, and I didn't want people to befriend me because of my swanky car. I am indeed an ascetic by instinct. It's a family tradition. Asceticism is important in Jainism, the religion of my family.

Anyway, my expenses did go up quite a bit after I met a couple from St. Kitts, who taught me to buy high-quality, low-carbohydrate, organic food. I haven't eaten those $1.50 pizza slices for a long time now, and I'm not sure whether to thank the couple or blame them about the food. I do thank them for is the many other benefits their friendship has brought to my life.

When I do personal traveling, I always stay in youth hostels, paying $20 or less a night. That doesn't make me hypocritical when I spend $500 a night when I travel on business — I have told my company that I'm happy with cheaper accommodations, but they still put me up in expensive ones. Ironically, I find low value in expensive hotels, because I want to be able to meet people informally.

A couple of years ago my mom gave me a long lecture on budgeting. I started to budget, but soon stopped. I didn't need it. My real problem isn't saving; it's never spending money. I once tried to force myself to spend by putting half my salary into my checking account, but the money remained unspent. Eventually I had to start transferring it back to my trading account.

I am just not made to spend. This week, I realized that the stupid Canadian government spends several times more of my money (on killing Libyans and other projects) than I do myself. Am I an accomplice in murdering people?

Now I am on a trip to China, my third in six months. I will be here for a month.

I'm currently in Beijing. Before I left, I told myself I must start living like a grown-up. I decided that I did not want to stay in a youth hostel this time. So I booked myself a five-star hotel. The problem is that it is hard to get rid of one's cheapness. I looked for a nice hotel on Expedia, but when I finally got here, I realized that by trying to pay too low for my room, I had found a hotel that's in the middle of nowhere, among the ruins of what was recently Olympics frenzy. It is very posh, but I must take a taxi for everything. No one speaks a word of English.

I continue to believe that in the larger scheme of things this over-building is just noise. China's growth is unstoppable, for many future decades.

But in terms of service it is a true Shangri-la. No non-Chinese face exists here. When I go the gym, I get a huge amount of attention from the servers. They all try to speak whatever one or two words of English they know. I get a cup of warm tea, which keeps getting filled up. But I have decided not to explore the hotel thoroughly. Some of the hostesses are dressed like sluts and there is a lot of drinking going on in the club. I feel self-conscious when two of the skimpily dressed girls escort me around. But then I don't know. . . Chinese do over-drink anyway.

Today I saw a lot of government officials, military personnel, etc., arriving in their Audis and limousines. I laugh at the robotic way these military-men and bureaucrats walk, and I wonder why some people get so impressed. Hope they don't know that there is a Misesian snoop staying here.

I have met a lot of people. The only exposure that many tourists have to China (or any other country) is to touts, pimps, and prostitutes in busy touristic places. I go to none of them except briefly. (To digress, I actually like those touts. They are entrepreneurial people and once in a while I even strike up a conversation with them. It is the losers in governments, who have never done a day of honest work, and who disrupt the free market, who convert those entrepreneurial people into touts.) The Chinese I have met in non-touristic places are friendly and helpful. Unlike other visitors, I find genuine honesty and conscientiousness.

I might change that statement tomorrow. . . I met a Chinese couple yesterday. They are taking me out to show me the Great Wall. Are they going to ask me for money? Am I taking too much risk? I will see, but I guess I know how to discern who is good and who is not. And if I have failings in this area, I must pay to learn. That reminds me that I have only once been swindled out of real money — in Zurich, Switzerland, of all places.

During my several trips to China I have seen hundreds of empty buildings, even towns. But I continue to believe that in the larger scheme of things this over-building is just noise. China's growth is unstoppable, for many future decades. There is truly an ethical and cultural revolution taking place, though not the Maoist kind. The new generation is much more enlightened and confident than their parents — as the result of widespread information technology, as I have witnessed in many other developing countries. I don't care about economic numbers (which are fleeting) but about the changes taking place in the character of the people. This is what will give China a sustainable growth rate. I recognise increased snobbishness and consumerism, but this is part of growing up. I intend to make a huge amount of money from Chinese growth.

It's true that by investing in real estate, the Chinese may be wasting resources, but investing in inflated housing is still a trillion times better than consuming inflation-priced perfumes. Also, it is better that a government should build more roads, even if they lead to nowhere, than distribute free money to losers, thus creating a cascading moral problem. China is an economy of savers. Many people whom I have met share a room with six or seven other people. To a modern-day economist this sounds bad. My grand-mom, a much better economist, though uneducated, would have said that it's a recipe for significant future wealth. I follow her teachings and will bet on China and its commodities.

But this is not just the story of one country. In my travels in the developing world, I see many changes happening in real time, and many cultures opening up. The developing world is indeed at a cusp of a revolution.

On Sunday, thanks to Facebook, I will meet a whole bunch of anti-statist American runaways in a Beijing restaurant. Contrary to outsiders' perceptions, this is possible without any major fear. I will let you know if I get arrested, though in my view some of the worst governments are democratic ones. I find Chinese governance very good in many ways, at least for me as a tourist. Policemen stand in a corner like statues, non-intrusively. I'm able to make out a customer satisfaction survey whenever I cross Chinese immigration or interact with a bank teller. That is true capitalism.

I'm very fortunate to be able to visit overseas several times a year without any worry about money or about the time I must take off from work. I work as I travel, and even if my expenses weren't taken care of as well as they are, I wouldn't be inclined to spend much. I've explained that. But I also want to explain that I am thankful to my family, who not only made me cheap but also gave me the super-concept of compound interest. And I'm grateful to the many people (Doug Casey, Rick Rule, Frank Holmes, and others) who influenced me with their speeches and writings.

Now I am off to my gym and then for a walk to the business district to watch rich Chinese women wearing very short skirts and buying junk. Not long ago, Chinese women were wearing Mao jackets, and there wasn't a lot of junk to buy.




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Latin America: Autumn of the Antipodes?

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In response to last November’s flooding, mudslides, and destruction of homes that left tens of thousands of Venezuelans destitute in makeshift shelters, Hugo Chávez went camping to show solidarity with his people. The luxurious tent was a gift from Libyan strongman Muammar Gaddafi. Piling insult atop bad grace, Chávez was photographed inspecting the devastation in a Cuban(!) military uniform. He is not one to dwell on the negative. Instead of looking grave, concerned, and statesmanlike, he pursed his lips and spread his cheeks in a smirk that bordered on the manic, sticking his head out the window of a Jeep like a dog without good sense. Not since Mexican President Antonio López de Santa Anna (he of the Alamo) buried his leg with full military honors has a Latin American leader been this much fun.

But for Chávez, the bigger crisis is his impending loss of power. Though the 2010 parliamentary elections netted his United Socialist Party 95 seats, the opposition, successfully united, won 64 seats, thus depriving Chávez of the two-thirds and three-fifths majorities required to pass organic and enabling legislation or fiddle further with the constitution. But never mind, Hugo has a plan.

He requested that the lame-duck legislators grant him unlimited powers to rule by decree for 18 months, limit legislative sessions to four days a month, turn control of all parliamentary commissions over to the executive branch, limit parliamentary speeches to 15 minutes per member, restrict broadcasts of assembly debates to only government channels, and penalize party-switching by legislators with the loss of their seats. The lame duck legislators dutifully complied. Vice President Elías Jaua says the powers are necessaryto pass laws dealing with vital services after the disaster and with such areas as infrastructure, land use, banking, defense and the “socio-economic system of the nation.” For good measure, the lame-duck Chavista legislature also passed a law barring non-governmental organizations such ashuman rights groupsfrom receiving US funding; another law terminating the autonomy of universities; more broadcasting and telecommunications controls; and the creation of “socialist communes” to bypass local governments.

Not since Santa Anna buried his leg with full military honors has a Latin American leader been this much fun.

Opposition newspaper editor Teodoro Petkoff called it a “Christmas ambush,” writing in his daily Tal Cual that Chavez is preparing totalitarian measures that amount to “a brutal attack . . . against democratic life.” Chavez’s end-run around the new National Assembly, which convened on January 5, was blatantly illegal, as such emergency powers can only be granted by the legislature to cover a period within the term of the legislature in office. Chávez demanded powers that extend well beyond the previous legislature’s term and effectively emasculate the new legislature, which would never have given him the two-thirds vote he would need, since 40% of its members are in opposition. Venezuelans have reacted with roadblocks and peaceful but energetic massive resistance. Security forces and government thugs have counter-reacted violently. Many people have been injured, not only physically, but economically as well. On New Year's Eve the Bolivar was halved in value, from 2.6 to the dollar to 4.3.

The most infamous precedent for this maneuver was the German Reichstag’s March 1933 enabling law granting Adolf Hitler the right to enact laws by decree for four years, making him dictator of Germany. No doubt the affair will end up in court — decided by Chávez-appointed judges. Still, it’s only a matter of time before the ship of state either turns or crashes.

By contrast, Sebastián Piñera, Chile’s new president, responded to the March 2010 earthquake with grace and alacrity; and six months later rallied the country behind the 33 miners trapped for 70 days in a deep mine cave-in. Unlike President Obama, in his autarkic response to the BP fiasco, Piñera requested and received international assistance. But Piñera is perhaps more notable as the poster boy of a subtle, newly evolving trend throughout Latin America, a trend only now being recognized: the “normalization” of its politics.

Normalization means the peaceful alternation of center-left with center-right governments, which is the status quo in most developed, liberal democracies. Piñera, a center-right candidate, followed two decades of center-left government.

By definition, normalization is dull, boring, and bereft of transformational ideals. But it is nonetheless great news, especially when compared to the radical swings of the past, when left-wing revolutions followed right-wing golpes de estado (or vice versa). The inevitable mayhem, war, and death were always followed by authoritarian regimes.

Chávez demanded powers that extend well beyond the previous legislature’s term and effectively emasculate the new legislature.

In Chile, the Marxist government of Salvador Allende, which had begun to forcibly expropriate property, was overthrown by a military coup after inflation exceeded 140%. To restore order, General Augusto Pinochet brutally imposed a right-wing authoritarian regime. To his credit, however, he laid the groundwork for the political and fiscal stability Chile now enjoys. He invited the so-called Chicago Boys — Milton Friedman and his acolytes — to design a stable and prosperous economic framework, and he relinquished power slowly and honestly by means of a new constitution and open plebiscites. In 1989, Pinochet lost an election to the Concertación, the center-left coalition that would hold power until Piñera’s election.

As Fernando Mires, a Chilean political science professor at the University of Oldenburg, Germany, has observed, “Everything that does not directly deal with war and death, is a game.” Politics is a game, and games require rules. Once war and death enter the scene, the game of politics is over. Latin America is now anteing up to the table. Though not always perfectly correlated, political stability goes hand-in-hand with some degree of fiscal and institutional stability — preconditions for people’s ability to lead healthy, productive lives.

Independence and Chaos

When Father Miguel Hidalgo’s Grito de Dolores declared Mexican independence from Spain on September 16, 1810, it began a protracted independence movement throughout the continent. Two days later, Chile, at the other end of Latin America, instituted de facto home rule. To be sure, Haiti had already defeated Napoleon in 1804 to gain independence, and Cuba would throw off Spanish rule with US help as late as 1898 (and, some would argue, didn’t actually achieve full independence until the Castro regime nullified the Platt Amendment, which gave the US Congress a veto power over foreign affairs). But the main course of events took place within two decades.

In 1821, Spain recognized Mexico’s independence. By 1823, after it had recognized the independence of much of the rest of Latin America (with Portugal ceding Brazil in 1822), US president James Monroe felt comfortable enough to declare the Americas a European-free zone, in spite of Spanish forces still holding out in what was to become Bolivia.

Latin American independence movements were products of the Enlightenment, influenced by the US Declaration of Independence and subsequent constitution — in the context of the times, left-wing revolutions. But, as Marxist commentators never fail to decry, the American revolutions were not “true,” social revolutions, but rather bourgeois realignments. The original Spanish conquest had left most of the basic indigenous structures of authority intact, replacing Moctezuma and Atahualpa with the throne of Madrid. Latin American independence movements recapitulated that strategy, replacing the Spanish aristocracy with homegrown landed gentry.

Meanwhile, a new model of revolution had emerged: the French Revolution, in which the ideals of the Enlightenment metastasized into a nightmare. The monarchy was decapitated; the ancien regime gone; an empire was founded. Traditional concepts of how societies ought to be organized had been put aside.

In Latin America, would-be liberators, criticized from both Right and Left, became disillusioned and turned away from democracy. Up north, Agustín de Iturbide, the Mexican heir of a wealthy Spanish father, switched sides to fight for Mexican independence and declared himself emperor of Mexico; Santa Anna, another side-switcher, overthrew him and established a republic, then a dictatorship. Santa Anna ended up ruling Mexico on 11 non-consecutive occasions over a period of 22 years. Asked about the loss of his republican ideals, he declared,

It is very true that I threw up my cap for liberty with great ardor, and perfect sincerity, but very soon found the folly of it. A hundred years to come my people will not be fit for liberty. They do not know what it is, unenlightened as they are, and under the influence of a Catholic clergy, a despotism is the proper government for them, but there is no reason why it should not be a wise and virtuous one.

This general sentiment came to be shared by most of Latin America’s liberators.

Meanwhile, Central America (including the Mexican state of Chiapas but excluding Panama), and known as the Captaincy General of Guatemala, seceded from Mexico, becoming “The Federal Republic of Central America” after a short-lived land grab by Mexican Emperor Iturbide who pictured his empire extending from British Columbia to the other Colombia. The Federal Republic didn’t last. In the 1830s Rafael Carrera, led a revolt that sundered it. By 1838, Carrera ruled Guatemala; in the 1860’s he briefly controlled El Salvador, Honduras, and Nicaragua as well, though they remained nominally independent.

Not one to be left behind, the Dominican Republic jumped on the bandwagon in 1821, but was quickly invaded by Haiti. Not until 1844 was the eastern half of Santo Domingo able to go its own way. Sandwiched between Cuba and Puerto Rico (both still held by Spain), in 1861 the Dominican Republic — in a move unique in all Latin America — requested recolonization, having found the post-independence chaos untenable. Spain gladly acquiesced. The US protested but, mired in its own civil war, was unable to enforce the Monroe Doctrine. In 1865, the Dominican Republic declared independence for a second time.

Sebastián Piñera, Chile’s new president, represents a subtle trend only now being recognized: the “normalization” of Latin American politics.

South America fared no better. Simon Bolívar, after a series of brilliant campaigns that criss-crossed the continent, created the unstable Gran Colombia, a state encompassing modern Colombia, Panama, Venezuela, and Ecuador, with himself as president — a model Hugo Chávez aspires to emulate. Bolívar then headed to Peru, to wrest power from Joséde San Martín, its liberator. Bolívar was declared dictator, but the Spanish still held what is now Bolivia. He finished San Martín’s job by liberating it and separating it from Peru. The new state was christened with his name. By 1828, Gran Colombia proved unmanageable, so Bolívar declared himself dictator, a move that ended in failure and more chaos.

Southern South America was liberated by San Maríin and Bernardo O’Higgins, with Chile and Argentina going their separate ways. In Chile, Bernardo O’Higgins turned from Supreme Director into dictator, was ousted, and was replaced by another dictator. A disgusted San Martín exiled himself to Europe, abandoning Argentina to a fate of civil war and strongmen. Uruguay and Paraguay carved themselves a niche — but only after Uruguay’s sovereignty had been contested by newly independent Brazil. In Paraguay, José Rodriguez de Francia, Consul of Paraguay (a title unique to Latin America) became in 1816 “El Supremo” for life. An admirer of the French revolution — and in particular of Rousseau and Robespierre — he imposed an extreme autarky, closing Paraguay’s borders to all trade and travel; abolishing all military ranks above captain, and insisting that he personally officiate at all weddings. He also ordered all dogs in the country to be shot.

Strongmen and Stability

The Latin American wars of independence were succeeded by aborted attempts at unity or secession; wars of conquest, honor, and spite; land grabs, big and little uprisings, civil wars; experiments in democracy, republicanism, federation, dictatorship, monarchy, anarchy, and rule by warlords or filibusters; and even reversion to colonialism; all with radical “left-right” swings — in a word, by every imaginable state of affairs, none long lasting. It all culminated in the era of the caudillo: a populist military strongman, usually eccentric, sentimental, long-ruling, and (roughly speaking) right-wing.

In his novel Autumn of the Patriarch, Colombian author (and confidante of Fidel Castro) Gabriel García Márquez offers a profile of a caudillo that has yet to be surpassed. The stream-of-consciousness, 270-page, 6-sentence prose “poem on the solitude of power” was based on Colombia’s Gustavo Rojas Pinilla (1953–57) and Venezuela’s Juan Vicente Gómez (1908–1935), with dashes of Franco and Stalin thrown in. But its indeterminate timelessness, stretching from who-knows-when to forever, also evokes Mexico’s Porfirio Díaz (1876–1911), Paraguay’s Alfredo Stroessner (1954–89), the Dominican Republic’s Rafael Trujillo (1930–61), and Nicaragua’s Anastasio Somoza (1936–56). It could also easily include Brazil’s Getulio Vargas (1930-54), Argentina’s Juan Perón (1946–55 and 1973–76), Haiti’s “Papa Doc” and “Baby Doc” Duvalier (1957–86), and, yes, the longest ruling military strongman of all — Fidel Castro (1959–201?).

The caudillo period had no specific time frame; it was rather a response to instability (or injustice, in the case of left-caudillos) that varied over time, country, and cultural conditions. Take Mexico for example. Besides the usual post-independence chaos, it also suffered invasions from the US and France. So, in 1846, Porfirio Díaz, an innkeeper’s son and sometime theology student, left his law studies to join the army — first, to fight the US, then to fight Santa Anna in one of the latter’s multiple bids for power, and finally to fight the French-imposed Emperor Maximilian.

Politics is a game, and games require rules. Once war and death enter the scene, the game of politics is over.

In the war against Maxmillian, Díaz rose to become division general under Benito Juárez’ leadership but retired after Mexican forces triumphed and Juárez assumed the presidency in 1868. It didn’t take long for Díaz to become disillusioned. One principle that had developed in Mexican politics and ironically — especially considering the nearly 35 years in power that Díaz would enjoy — became institutionalized, was one-term presidential term limits. So when Juárez announced for a second term in 1870, Díaz opposed him. Losing, he cried fraud and issued a pronunciamento, a formal declaration of insurrection and plan of action accompanied by the pomp and publicity emblematic of Mexican politics. After another pronunciamento and additional revolts much politicking, and a term in Congress, Díaz succeeded in ousting his adversaries. He was elected president in 1877. Having based his campaign on a platform of “no reelection," he reluctantly stepped aside after one term and turned over the presidency to an underling, whose incompetence and corruption ensured Díaz’s victory in the 1884 contest.

He set out to establish a pax Porfiriana by (as he termed it) eliminating divisive politics and focusing on administration. The former was achieved by stuffing the legislature, the courts, and high government offices with cronies; making all local jurisdictions answerable to him; instituting a “pan o palo” (bread or a beating) policy, enforced by strong military and police forces; artfully playing the various entrenched interests against each other; and stealing every election. Porfirio Díaz opened Mexico up to foreign investment, built roads and public works, stabilized the currency, and developed the country to such a degree that it was compared economically to Germany and France.

Classifying caudillos as Left or Right is not always easy. Caudillos who focused on economic development, fiscal stability, and monumental public works are generally perceived as right-wing, while those who improved education, fought church privilege, or imposed economic controls are perceived as left-wing. Nearly all were initially motivated by idealism, followed by disillusionment with democracy and addiction to power. Nearly all lined their pockets. Venezuela alone, between 1830 and 1899, experienced nearly 70 years of serial caudillo rule, which, some would argue, continued intermittently to the present.

In Ecuador, 35 right-wing years initiated by a caudillo were followed by 35 left-wing years initiated by another caudillo. General Gabriel García Moreno had saved the country from disintegration in 1859 and established a Conservative regime that wasn’t overthrown until 1895, when Eloy Alfaro led an anti-clerical coup. Alfaro secularized Ecuador, guaranteed freedom of speech, built schools and hospitals, and completed the Trans-Andean Railroad connecting the coast with the highlands. In 1911, his own party overthrew him and further liberalized the regime by opening up the economy. The Liberal Era lasted until 1925. Altogether, Alfaro initiated four coups — two succeeded, and one finally killed him — that made him the idol of Rafael Correa, Ecuador’s present, left-wing, president.

One right-wing caudillo, the Dominican Republic’s Rafael Trujillo (1930–61), was prematurely Green, restricting deforestation and establishing national parks and conservation areas in response to the ravages in next-door Haiti. His successor (after a five-year, chaotic interregnum that included a civil war and US Marines) was Joaquín Balaguer, an authoritarian who dominated Dominican politics until 2000 and continued Trujillo’s conservation policies.

Some caudillos combined elements from both Left and Right, coming up with ideologies that were internally inconsistent but extremely popular. Argentina’s Perón absorbed fascism, national socialism and falangism while stationed as a military observer in Italy, Germany, and Spain. Back in Argentina he allied himself with both the socialist and the syndicalist labor movements to create a power base. In 1943, as a colonel, he joined the coup against conservative president Ramon Castillo, who had been elected fraudulently.

In Paraguay, José Rodriguez de Francia closed the borders to all trade and travel; abolished all military ranks above captain, and insisted that he personallyofficiate at all weddings. He also ordered all dogs in the country to be shot.

When Perón announced his candidacy for the 1945 presidential elections as the Labor Party candidate, the centrist Allied Civic Union, the Socialist Party, the Communist Party, and the conservative National Autonomous Party all united against him — to no effect. As president, his stated goals were social justice and economic independence; in fact, he greatly expanded social programs, gave women the vote, created the largest unionized labor force in Latin America, and went on a spending spree that nearly bankrupted Argentina (it included modernizing the armed forces, paying off most of the nation’s debt, and making Christmas bonuses mandatory). Perón also nationalized the central bank, railways, shipping, universities, utilities, and the wholesale grain market. By 1951, the peso had lost 70% of its purchasing power, and inflation had reached 50%.

During the Cold War, Perón refused to pick either capitalism or communism, instituting instead his “third way," an attempt to ally Argentina with both the United States and the Soviet Union. Today, Peronism remains a vital force in Argentina, with President Cristina Fernández at its helm.

Sandino Lives!

Not that caudillismo needed any intellectual justification, but the social Darwinism that developed during the late 19th century helped to rationalize many of the abuses committed under its aegis. Then, fast on its heels and in rebuttal to it, Marxism burst on the scene, invigorating the Left by advocating the forcible redistribution of wealth. The Left-Right divide widened, and conflict sharpened.

In 1910, old and ambivalent about retiring, Porfirio Díaz decided to run once more for president of Mexico. When he realized that his opponent, Francisco Madero, was set to win, he jailed him on election day and declared himself the winner by a landslide. But Madero escaped and, from San Antonio, Texas, issued his Plan de San Luis Potosí, a pronunciamento promising land reform. It ignited the Mexican Revolution.

The Zapatista Army of National Liberation now sells t-shirts and trinkets to finance its anti-capitalist jihad.

Though not specifically Marxist, the Mexican Revolution has been interpreted as the precursor to the Russian Revolution. Its ideologies — especially “Zapatismo” — are part of the progressive, Fabian, and socialist zeitgeist of the time. In fact, however, the Mexican Revolution — a many-sided civil war that lasted ten years — was so indigenously Mexican as to elude historians’ broader interpretive models. Yet it was the first effective and long-lasting leftist Latin American movement. Its successors are Cuban communism, liberation theology, Bolivarian socialism, and many others. Out of it coalesced Mexico’s Institutional Revolutionary Party (PRI), heir to a coalition of forces and ideologies that were, at last, fed up with fighting. The PRI, a member of the Socialist International, instituted de facto one-party rule, and controlled Mexico for over 70 years.

Other radical leftist revolutionary movements followed — some sooner, some later, not all successful — operating either by force or through the ballot. The earliest (1927) was that of the Sandinistas in Nicaragua. Augusto César Sandino identified closely with the Mexican Revolution. Although he was not a Marxist, his movement adopted that ideology after his death. Five years later, in next-door El Salvador, the Farabundo Martí National Liberation Front (Martí was a Communist Party member and former Sandinista) rose in revolt. Guatemala followed in 1944 with the Jacobo Arbenz coup, then Cuba in 1952 with Castro’s insurrection.

With Castro’s accession to power in 1959, the outbreak of Marxist revolts in Latin America intensified. During the 1960s the Tupamaros rose in Uruguay. In Peru, various groups, including the Shining Path, revolted. The FARC, ELN, and M-19 followed in Colombia. In 1967, Fidel’s own Che Guevara met his death while trying to organize a premature revolution in Bolivia. Then, in 1970, Chileans voted in — by only 36%, a plurality in a three-way race — the first elected Marxist regime in the Americas.

Venezuela was next. Hugo Chávez launched his first, unsuccessful coup in 1992. After a stint in jail he was pardoned, ran for president in 1998, and won.

In Bolivia, Evo Morales, a former trade union leader, and his Movement Toward Socialism won the 2005 elections with a majority.

Latin American Marxism, unlike the European sort, has little to do with the industrial revolution or conditions of the working class. Not only is it currently more tolerant of religious belief; it is more relaxed about ideology and — again, currently — lacks gulags and killing fields. It is more about land distribution and “Social Justice” — a term whose words, innocuous and benign in themselves, don bandoliers and carbines and become fighting words when capitalized.

Social Justice is the concept of creating a society based on the principles of equality, human rights, and a “living wage” through progressive taxation, income and property redistribution, and force; and of manufacturing equality of outcome even in cases where incidental inequalities appear in a procedurally just system.

The term and modern concept of "social justice" were created by a Jesuit in 1840 and further elaborated by moral theologians. In 1971 Peruvian priest Gustavo Gutiérrez justified the use of force in achieving Social Justice when he made it a cornerstone of his liberation theology. As a strictly secular concept, Social Justice was adopted and promulgated by philosopher John Rawls.

The Other Path

Mario Vargas Llosa is a Peruvian writer and 2010 Nobel laureate — pointedly awarded the prize for his literary oeuvre, as opposed to his political writings, but this from a committee that awarded Barack Obama a Peace Prize for nothing more than political penumbras and emanations. Vargas Llosa started as a man of the Left. His hegira from admirer of Fidel Castro to radical neoliberal candidate for president of Peru in 1990 is a metaphor for Latin America’s own swing of the pendulum today.

In 1971 he condemned the Castro regime. Five years later, he punched García Márquez (patriarch of Marxist apologists) in the eye. Their rupture has never been fully healed (or explained), but it is attributed by some to diverging political differences. In 1989, when Peruvian economist Hernando de Soto published his libertarian classic, The Other Path (an ironic allusion to the Shining Path guerrilla movement), Vargas Llosa wrote its stirring introduction. He and de Soto advocated individual private property rights as a solution to property claims by the Latin American poor and Indians. Both the fuzzy squatters’ rights of the urban poor and the traditional subsistence-area claims of indigenous communities were being — literally — bulldozed by corrupt or insensitive governments; the two authors believed that the individual occupiers of the land should own it as their private property. This proposed solution did not sit well with the Social Justice crowd. To them, communal rights trumped individual rights.

But it struck a chord with the poor and dispossessed. So Vargas Llosa declared for the presidency in 1990 on a radical libertarian reform platform (the Liberty Movement). In Peru, the Shining Path guerrillas were terrorizing the country and the economy was a disaster, having been run into the ground by left-wing populist Alan García, who was now running for reelection. In the outside world, Soviet communism and its outliers were disintegrating, both institutionally and ideologically. Between García and Vargas Llosa in the three-way race stood Alberto Fujimori, the center-right candidate. Vargas Llosa took the first round with 34%, nearly the same majority that had put Allende into office in next-door Chile. But he lost the runoff, handing Peru over to the authoritarianism (as well as the reforms) of the Fujimori regime.

Latin American politics culminated in the era of the caudillo: a populist military strongman, usually eccentric, sentimental, long-ruling, and (roughly speaking) right-wing.

Without skipping a beat and less than a month later, Vargas Llosa attended a conference in Mexico City entitled "The 20th Century: The Experience of Freedom." This conference focused on the collapse of communist rule in central and eastern Europe. It was broadcast on Mexican television and reached most of Latin America. There Vargas Llosa condemned the Mexican system of power, the 61-year rule of the Institutional Revolutionary Party, and coined “the phrase that circled the globe”: "Mexico is the perfect dictatorship.” “The perfect dictatorship,” he said, “is not communism, not the USSR, not Fidel Castro; the perfect dictatorship is Mexico. Because it is a camouflaged dictatorship."

But the “perfect dictatorship” was already loosening its grip. Recent PRI presidents had been well-degreed in economics and public administration, as opposed to politics and law. They had already moved Mexico rightward, to the center-left, by privatizing some industries and liberalizing the economy — especially by joining NAFTA. By the 1994 election, the PRI had opened up the electoral system to outside challengers: the center-right National Action Party (PAN) and the strong-left Party of the Democratic Republic (PRD). In the 2000 elections the PRI ceded power to the PAN’s Vicente Fox, though not entirely.

The popular but hapless Fox ended Mexico’s last Marxist uprising, Subcomandante Marcos’ Zapatista Army of National Liberation (they now sell t-shirts and trinkets to finance their anti-capitalist jihad). But he was unable to further the rest of his reform agenda through the PRI-controlled legislature. So Mexico reelected the PAN in 2006. Today, in a move emblematic of Latin America’s change to European-style, alternating center-left/center-right administrations, the PAN and the PRD are exploring avenues of cooperation to pass legislation through the PRI-controlled Congress.

But Vargas Llosa wasn’t through yet. During one of Hugo Chávez’s marathon television tirades in 2009, he challenged Vargas Llosa to a debate on how best to promote Social Justice. When Vargas Llosa accepted, Chavez — in his most humiliating public move to date — declined.

Ho-hum

Peru’s increasingly discredited Fujimori resigned because of corruption, a questionable third presidential term, and the exercise of disproportionate force, once too often. He was followed by Alejandro Toledo, an economist so centrist and dull that he bored his people into not reelecting him. By the 2006 elections, Peru’s centrist politics were entrenched in the most ironic of ways. Alan García, the disastrous, populist left-wing ex-president, ran on a center-right, neoliberal platform — and won. And against all odds, he kept his word. In 2009 Peruvian economic growth was the third highest in the world, after China and India. In 2010 it remained in double figures. The 2011 elections won’t include García, as he can’t succeed himself. They are expected to be contested by the technocratic Toledo and the center-right Keiko Fujimori, Alberto’s daughter and leader of the Fujimorista Party.

It’s much the same — with few exceptions — in the rest of Latin America. Brazil’s widly popular, fiscally prudent, and social justice-sensitive center-left Lula da Silva administration was reelected, this time led by Dilma Rouseff, Brazil’s first female president. She has promised more of the same. In next-door Paraguay, the exceptionally long-ruling (61 years) Colorado Party ceded power in 2008 to the country’s second-ever left-wing president, Fernando Lugo, an ex-bishop and proponent of liberation theology. But Lugo has moved to the center, distancing himself from Chávez and tempering his social and fiscal promises by seeking broad consensus. GDP growth in 2010 was 8.6%.

In 2009 Uruguay elected as president José Mujica, a former Tupamaro guerrilla. But Mujica, described by some as an “anti-politician,” has moved radically to the ceemnter. The tie-eschewing, VW Beetle-driving president has promised to cut Uruguay’s bloated public administration dramatically. He identifies with Brazil’s Lula and Chile’s Bachelet rather than Bolivia’s Morales or Venezuela’s Chávez. After 6% growth in 2010, Uruguay is expected to level at 4.4% in 2011.

With the unexpected death of her husband and her disastrous left-wing populist policies (inflation is close to 30%), Argentina’s Fernández is not expected to win reelection in 2011. Reading the writing on the wall, she (unlike Chávez) is tiptoeing toward the center.

In Colombia, the feared authoritarian tendencies of Alvaro Uribe turned out to be wildly exaggerated; and his successor, Juan Manuel Santos, has moved even closer to the center. The two — Santos was Minister of Defense under Uribe — brought the FARC insurgency to its knees, reducing the guerrillas to little more than extortionists and drug dealers. With Colombia’s new-found safety, high growth, and low inflation, its tourist industry is booming.

El Salvador, long the archetype of extreme polarization between the now-peaceful FMLN Marxist revolutionaries and the ex-paramilitary rightwing Arenas coalition, elected Mauricio Funes in 2009. Funes, the FMLN’s surprise candidate, ran on a centrist platform and has stuck to it — throwing the Arenas coalition into disarray. He enjoys a 79% approval rating, which makes him Latin America’s most popular leader. Neighboring Honduras, after deposing a power-grabbing Chávez clone in 2009, elected the center-right Pepe Lobo, who promised reconciliation and stability. Even Guatemala shows signs of progress. The 2007 elections inducted Álvaro Colom, the first center-left president in 53 years.

Latin American Marxism, unlike the European sort, has little to do with the industrial revolution or conditions of the working class.

Costa Rica, long Latin America’s exemplar of democracy and moderation, is becoming ever more so. The 2009 elections turned Laura Chinchilla into Costa Rica’s first female president (one even more stunningly beautiful than Argentina’s Fernández). In spite of being socially conservative, she continues Óscar Arias’ vaguely center-left policies. With the traditional center-right and center-left parties always closely vying for power, the libertarian Partido Movimiento Libertario (PML), which retains a 20% popular vote base (and 10% of the legislature), has emerged as the policy power broker in the Congress.

Latin American politics’ move to the center is even mirrored in its ancillaries. The Cuban American National Foundation, largest of the Cuban diaspora’s political representatives, abjured the use of force after the death of its founder, Mas Canosa, and advocates a more open US policy toward Cuba.

Not all is good news. Though Cuba is showing microscopic hints of change (as reported in Liberty’s December issue), Chávez’ power play in Venezuela after his electoral defeat is yet to play out, and Bolivia’s Evo Morales holds steady after a barely avoided civil war, Nicaragua’s anti-capitalist tyrant Daniel Ortega is bound and determined to hold onto power come what may. But their days, too, are numbered.




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