Sunday, March 06, 2005

Economic liberalization and its critics

The Washington Post's Marcela Sanchez writes about the disappointment that residents of Colombia's Caribbean coast, in particular Cartagena, feel in the wake of liberalization. They have access to things like sewers and running water, but they have to pay for it and employment is scarce.
Contreras, 44, and her husband, Luis, struggle to pay for this luxury of running water, not to mention the other expenses necessary to keep their household of six functioning in its two-room concrete-block home. This week they scrambled to find their 18-year-old son a pair of black shoes to comply with the public school uniform. At least this year the cost of school registration is the lowest it has ever been, but work remains irregular and scarce and so Contreras considers leaving her family and her country for work that seems, to her eyes, so abundant abroad.
I agree. There is much more to be done, but does this represent a failure of economic liberalization, or does it represent the failure of something else? It is easy to point out the dire living conditions and the lack of employment, but before blaming economic liberalization, and proposing protectionism as a solution, we should ask a few relevant questions:
It is easy to point to Cartagena's poverty and say "liberalization doesn't work", but it is just as easy to point to India's poverty and say "protectionism doesn't work."

Sanchez also points to decentralization of spending as a result of the drive toward liberalization, but the true story is more complicated than that. Decentralization was a result of a political process that culminated in Colombia's 1991 constitution, where Colombians debated the role of the center versus the role of the states. Unfortunately, the result was the transfer of revenues to the provinces without a corresponding transfer of responsibilities or even technical ability to spend these revenues on welfare-improving projects. Much of the central government revenue that goes to these provinces is wasted or, more often, stolen. This has nothing to do with orthodox versus unorthodox economics, but rather with plain old corruption, and with distorted incentives.

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