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May 10, 2008
Peru, Trade, and Growth
Don Boudreaux
The Wall Street Journal's Mary Anastasia O'Grady is always worth reading -- and this recent essay that she penned is no exception to this rule. It's entitled "Peru Takes the Other Path." Here's a selection:
Yet price stability on its own would have left the country [Peru] well below its potential. Far more impressive is the restructuring of the economy, which has led both to growth and to a more equal distribution of opportunity. While a boom in commodity prices has certainly fueled development of late, Peru is also sprouting entrepreneurs in a variety of nontraditional industries. And these innovators are making their way onto the global stage.
The key reform that has made all this possible is the opening of the economy, which until 1990 had very high tariffs designed to protect local industries.
Peruvian journalist Jaime Althaus documents the effects of the opening in his 2007 book (Spanish only) titled "The Capitalist Revolution in Peru." Far from "deindustrializing" the country, Mr. Althaus argues, trade liberalization has strengthened Peruvian manufacturing. Under high tariffs, the industrial sector served mainly as an auto and electronics assembler, using inputs from abroad. But when protection ended, local manufacturing began to discover its comparative advantages.
There were plenty. High growth rates – averaging 11% a year from 1990-2002 – have occurred in sectors that make china, porcelain, knitted fabrics, plastic products and basic chemicals, to mention a few.
The story of the "cluster" of small metallurgical companies that has emerged in Lima is especially compelling. In recent years, these entrepreneurs have been competitive in bidding for work that was previously dominated by important international firms. They have also become exporting powerhouses.
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Comments
certainly an interesting read. There's only one thing that a find a little depressing about south america, I, being chilean know a lot about the south american mentality when it comes to popular economics, it certainly doesn't distance itself from the "racional ignorance" among the general public that is so common in europe and the united states, but in South America there is a LOT of sceptisism and hostility towards more integrated economic regions. I personally think that both Peru and Chile would gain a lot from more economic cooperation and less protectionism. Sadly there is still a grudge between these two countries because of the war in the 19th century. But i could be wrong, anyways, it is great that peruvians have started to use the gains from freer trade to improve their lifes.
Posted by: mauricio flores | May 11, 2008 6:05:18 AM
Any bets on how long it will take some group of socialists to try to confiscate the economic advances made to redistribute them more "fairly"?
Posted by: Keith | May 11, 2008 1:39:59 PM
mauricio flores
Sir, I for one would love to read your viewpoint or opinions on the subject of where Chile would be today if Allenda had not been overthrown by the junta led by Pinochet; and as a neighbor of Peru, what your opinion is of where Peru would be today if Abimail Guzman had not been captured and had been successful in overthrowing the government of Peru and seizing power for his rabid Maoist group, Luminoso Cendero (Shining Path).
If you want to pass, that is okay too. We don't have frequent opportunity to receive input from people "on the ground" in areas of interest.
Posted by: vidyohs | May 11, 2008 2:15:10 PM
there is no way i could say what could have happened, certainly people in countries when they're pushed to the limit do different things. I personnaly feel that hadn't allende been overthrown , the country would have slipped into a Zimbabwe like hyperinflation, that would have destroyed the fundations of the economy, causing famine and the like. Certainly whatever that was done there after Allende was overthrown also had a certain moral hazard (political prisoners, torture, summarian executions)but at the same time the results of the reforms under the dictatorship have been so amazing and have lifted so many people from poverty. Enough has been written about the chilean economy over the years, but there are still many problems, interest groups have been gaining ground and trying to give the goverment an even bigger role in the economy. The goverment right now is spending solidly (constrained by the economy minister to some degree). the worker's unions have become more radical over the years, and there is a more conflictive atmosphere between unions and companies than there was before.But overall i think that there is a certain concensus about what has been gained, and what can be done to avoid losing it. my family was not politically involved but they certainly were happy (in a way) when all of a sudden merchandise was back at the stores overnight, because Allende's price controls had been lifted. It's all about the insentives, and those were not there under the Allende regime. In Peru it is a different story, there is a completely different political structure than what there is in Chile. the economy is also way less nimble than Chiles, sadly, and even more back when shining path was fihhting the army. the army did a pretty good job fighting the insurgency, but i believe that peruvians are natural entrepeneurs and that given the opportunity to engage en free exchange, they will thrive and become prosperous, no doubt.
Posted by: Mauricio Flores | May 12, 2008 3:22:17 AM
MF,
Thank you sir.
I had reason to research (somewhat) the Chilean history (1970-1995) in order to debate a left leaning individual.
That research caused me to look at the Shining Path and Abimal Guzman and the affect of his movement on Peru.
I was astounded to a degree beyond belief when I did internet searches on Guzman and compared them to those on Pinochet.
There were literally thousands of sites supportive of Guzman and none in outright condemnation; while the opposite was true of Pinochet, thousands in condemnation and none in outright support.
Yet comparing the affect on their respective nations of their actions revealed that Guzman is as much of a monster as Stalin or Mao and equally willing to kill innocent people in order to create that climate of terror in the countryside.
Now, the surprising part of all this to me was that the thousands of sites I mentioned all seemed to originate in the USA, the supposed capitalist land of the free.
I concluded that Pinochet was hated to the intense degree shown because he was successful in proving socialism wrong by actions "on the ground" in the real world.
Again, thanks for taking the time to reply, and we can hope that the small successes being shown in Peru now will grow to larger and even more widespread success in the future.
Posted by: vidyohs | May 12, 2008 6:34:02 AM
It is beechnuts competing what effect what effect for the
Posted by: petsredstude | May 12, 2008 8:45:33 AM
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