Article by John Blundell in The Business

I HAVE just returned from an exhilarating trip to Guatemala in Central America. I was visiting the Francisco Marroquin University, a 35-year-old private college which is pulsating with success and dynamism. Its founder, Manuel Ayau, is one of the most brilliant people I have met. He is now in his 90th year and recently qualified as a helicopter pilot.

Yet I left my happy visit to Central America in some alarm at the peculiar leftward lurches in the politics of the Spanish-speaking nations. Venezuela has elected a politician of comical populist prejudices. Bolivia has selected a man with comparable gravity-defying views. Chile chose a left-leaning head of state last week. In so far as the electoral processes seem fairly honest what right has anyone to express doubts?

Hugo Chavez, President of Venezuela, seems to regard impoverished and oppressed Cuba as a role model. Perhaps he should also visit North Korea. He is better placed than Fidel Castro. Instead of a sugar-fuelled economy he has vast reserves of oil. Yet every announcement he makes implies a future of oppression and poverty. His wheeze of nationalising coffee has never been a triumph wherever it has been tried. Has the nationalising of any industry ever been less than an expensive fiasco ?

Yet Latin America’s predisposition to induce misery and poverty seems more than just an accident of the moment. The Spanish crown never seems to have operated an enlightened policy towards its territories. It was initially merely royal theft. They bleached the Aztec and Inca empires of their treasures. Expropriation remains a dominant idea in the Hispanic mind.

Chavez may be a fool but I don’t doubt he would like to see his nation rich and his people happy. We might agree that Castro had honourable aims but communist ideals decay into ragged brutality. Expropriating capitalist oil companies or coffee corporations is the best he can think of. I can see the opulence of the United States is exasperating and baffling to those nations to its south but I believe Latin America’s economic failures are explained more subtly than stale notions of exploitation by gringos or yankees.

I have two Hispanic heroes. They are Alvaro Vargos Llosa and Hernando de Soto, both Peruvians. In their descriptions of their blighted continent (including the republics of Central America) they explain that what they failed to inherit from Europe was the rule of law and free trade. Most of these poor communities erect trade barriers against each other. Most have unjust, corrupt and capricious courts.

De Soto observes how all of Latin America has a system of absurd, oppressive and intrusive regulations that bar all but the elite from property rights. It is all but impossible for a citizen of Paraguay or Bolivia or Honduras to exercise the simple rights we take for granted.

The conventional and fallacious wisdom is that these basket cases need more “aid”. This is wrong. Nourishing the tyrants and their military buddies is expressly not what is needed. Gifts harm, they do not aid. If I was to nominate one reform that I would prioritise – and you may think this eccentric – it is effective small claims courts. A wealthy Argentine or Costa Rican can resolve disputes in a court (only in the capital cities). To those on modest incomes or none and outside the little islands of 21st century facilities disputes cannot be settled. This is another way of explaining property rights are undefined or hazy or belong to bogus abstractions such as agencies of the state.

Varga Llosa asserts Latin America can be understood only by appreciating what he terms the “five principles of oppression”. He cites them as: corporatism, state mercantilism, privilege, wealth transfer and politicised law. I trust his judgment and experience. Llosa also attributes a malign influence from the colossus to the north. The willingness of Washington to back the baddies with lots of gold braid and machine guns because they were anti-communist has been a camouflage for repression. It has forfeited the ability to engage loyalties or trust.

There have been moments of hope. Chile experienced a liberalisation of markets. Mexico too had a bout of attempting the Anglo-Saxon virtues. Yet both have relapsed too far. Llosa says privatisation was merely the gifting of assets to the regime’s friends. He terms it all “a cultural and moral abyss”. Those of us who wish the continent prosperity and peace can only agree. Nothing seems to be secure or prosperous despite rich soils, friendly climates, huge mineral resources and all the other tangible aspects of wealth. It is the intangible that seems not to work. It is the repertoire of ideas that are flawed.

I think the policy prescriptions are easy. They need to relax their grotesque and complex tariff barriers. The price of goods and services would tumble. They would learn what was profitable instead of patriotic. They need to grant property rights to their citizens with urgency. Even the most humble favella shacks in the shanty towns are worth so much more if they are tradable by its occupants.

Readers of this newspaper have a wide spectrum of property rights … not just real estate but share certificates or pension funds. It needs a huge leap of imagination to realise how stunted our lives would be without these rights.

My hunch is that after the death of Castro, Cuba will open up to the world and we will see how unsuccessful is the application of socialist ideas symbolised by all those 1950s cars in Havana – when economic life was frozen in the revolution.

John Blundell is Director General of the Institute of Economic Affairs.