November 10, 2018


Can Brazil's Bolsonaro Replicate the Chilean Miracle? (Daniel J. Mitchell  , 11/09/18, FEE)

Brazil appears to be a tragic example of what happens when societal capital erodes (or never gets established in the first place) and too many people in the country see government as a vehicle for redistribution. That environment leads to statist policies. 

This presumably helps explain why Brazil is ranked #144 in the Economic Freedom of the World report. That's not as low as some of its neighbors, such as last place Venezuela (#162) or close-to-last Argentina (#160), but it's still miserable. The country definitely deserves to be in the "Least Free" group. [...]

[I]t looks like Brazil is about to have a very good finance minister.

The UK-based Financial Times has an encouraging report:

For Brazil's new finance minister Paulo Guedes, the government of far-right president-elect Jair Bolsonaro could represent a "Pinochet" moment for Latin America's largest economy. Mr. Bolsonaro, who won elections last Sunday, ending almost 15 years of left-wing rule, will take over a moribund economy burdened by a bloated public sector when he assumes office on January 1. ...The Chilean dictator's solution was a dose of Milton Friedman-style free market economics from University of Chicago-trained academics. Mr. Bolsonaro is considering the same medicine in the form of Mr. Guedes, who has a doctorate from Chicago... For supporters of Mr. Bolsonaro, the 69-year-old Mr. Guedes' uncompromisingly free market view of the world is the only answer. "Liberals know how to do it," Mr. Guedes once said.

Since pro-market reforms turned Chile into the "Latin Tiger," let's hope Guedes is serious.

He definitely has a pro-growth agenda:

Mr Guedes--who first considered joining Mr. Bolsonaro's campaign only last year--has repeatedly said his priority is to end Brazil's 7 percent fiscal deficit through privatizations of the country's 147 state-owned enterprises. ...Mr Guedes' other plans include a radical simplification of Brazil's tax system, one of the world's most convoluted, and reforming the country's costly pension system, which is threatening to overwhelm the budget.

Sounds like Guedes has the right ideas. Assuming Bolsonaro does what is right for his country (such as enacting much-needed pension reform), Guedes could be the Jose Pinera of Brazil.

Here's a chart from Economic Freedom of the World. It shows how economic liberalization produced a dramatic increase in freedom between 1975 and 1995. Chile is now ranked #15 for economic liberty. Brazil, by contrast, has slowly lost ground since a period of pro-market reform between 1985 and 2000.

Posted by at November 10, 2018 6:44 AM