2
$\begingroup$

Nationalization of industries has always been anathema to foreign investment yet Bolivia now has the highest foreign direct investment despite Evo Morales' policies. Also not that it is always bad but in many countries like the Philippines, Korea, Peru and Chile, it was nationalization that stagnated their economies and it was privatization that saved them from stagnation and unlocked huge economic growth. In my simple understanding, this is because privatization removes the corruption inherent in nationalized industries as well as attract foreign investors that provide new capital. President Evo Morales' economic policies were the opposite of this. I even remember reading that he had a confrontation with foreign investors threatening to pull out of Bolivia because of his policies. Yet somehow and someway he was not only able to keep foreign investment but he was also able to increase it. Bolivian growth also experience widespread growth. This is in widespread contrast with Venezuela where similar policies under Chavez and Maduro is currently causing an economic crisis. How is Evo Morales and Bolivia achieving this growth contrary to Neoliberal and free market capitalism teaching?

$\endgroup$
0
$\begingroup$

This is what I gathered during my research of this topic:

Evo Morales' policies are more centered on economy than they appear. See, for example, an article from May 2017, which praises them for being fiscaly conservative and austere, despite socialist and anti-imperialist rhetoric.

Even though Evo Morales is a self-described socialist, and (in theory) one of the most left-wing of Latin America’s Bolivarian wave, it was a shock when the Bolivian president embraced fiscal discipline.

While the Morales government nationalized several oil and gas companies, they simultaneously developed a good enough relationship with the private sector. Overall, the government has been surprisingly fiscally conservative.

Institutions like the IMF and World Bank, of which Morales is a strong critic, have praised his austerity.

[...]

Even if Morales rails against neoliberalism, he is not moving the country toward a Marxist revolution. The fact is that he understands the role of the market in improving people’s lives, especially indigenous groups, since they are the most involved in informal economic activities.

[...]

In general, Morales has a better relationship with both business leaders and social movements than other governments in the region could dream of, proving he’s not as far left as many might think.

It should be mentioned, however, that the public spending increased over 750% from 2006 to 2017 (source). The crucial difference is that this effect was not solely dependent on the price of oil, as in case of Venezuela, and the budget was more balanced (Venezuela deficit grew up to nearly 20% of GDP in 2014, prior to drop in oil prices), but with other factors, like:

  • investments in increase in production from natural gas (hydrocarbon gas, polyethylene),
  • social bonds,
  • strengthening internal demand (increase in internal consumption).

On the other hand, Bolivia's growth of GDP is not that signifficant. In fact, the four quarters average of GDP growth does not exeede 2,5% (it dropped below 0% after 2015) (source). Bolivia's economy is much smaller than Peru and Chile (according to CIA World Factbook, Bolivia GDP is about 83 bln USD, while Peru GDP is 424 bln USD, Chile is 452 bln USD), so there is some kind of 'base effect' as regards measuring the GDP growth in relative values

All in all, the last ten years were preety good for the global economy. In the age of low interest rates the capital was looking for developing countries like Bolivia to invest in. The real test for the Bolivia economy will come, when the bull market ends.

$\endgroup$
0
$\begingroup$

I would dare say that Bolivia maintains its high economic growth not despite its economic policies, but because of them.

Nationalization of industries has always been anathema to foreign investment yet Bolivia now has the highest foreign direct investment despite Evo Morales' policies.

I don't think that nationalisation of industry is necessarily anathema. If the bulk of value is not added in direct production, but elsewhere, capital is not necessarily uncomfortable with nationalisation (think of outsourcing: companies do not shy from getting rid from activities that are less lucrative by contracting them with smaller companies. Other than political risk, why should they automatically reject such kind of transference to local State companies?)

Also not that it is always bad but in many countries like the Philippines, Korea, Peru and Chile, it was nationalization that stagnated their economies and it was privatization that saved them from stagnation and unlocked huge economic growth.

I am not familiar with the cases of Philippines, Korea, or Peru, but the Chilean case is more complicated than that and involved nationalisation or renationalisation of companies to put an end to the crisis the ultra-liberal first fase of Pinochet's dictatorship had caused.

In my simple understanding, this is because privatization removes the corruption inherent in nationalized industries as well as attract foreign investors that provide new capital.

I fear that corruption is inherent in any capitalist economy, regardless of nationalisation or privatisation. And to attract foreign investors, a country needs to have a reasonable infrastructure, which will not be developed by private companies - which, in conditions of natural monopolies, tend to be even more corrupt than public companies.

President Evo Morales' economic policies were the opposite of this. I even remember reading that he had a confrontation with foreign investors threatening to pull out of Bolivia because of his policies. Yet somehow and someway he was not only able to keep foreign investment but he was also able to increase it.

If foreign companies are investing in Bolivia, it must be because they are making profits there. Which means that Morales policies are providing an institutional environment favourable to that.

As an educated guess, I suppose that his policies have been deconcentrating wealth and consequently widening the internal market, resulting in a more attractive environment for foreign companies.

Bolivian growth also experience widespread growth. This is in widespread contrast with Venezuela where similar policies under Chavez and Maduro is currently causing an economic crisis. How is Evo Morales and Bolivia achieving this growth contrary to Neoliberal and free market capitalism teaching?

Well, a patient with a common headache will respond favourably to treatment with aspirins, while a patient with brain cancer will not. So even if the policies of Morales and Maduro are really similar, the results can differ widely if the initial conditions of each country are different. Notably, Venezuela's economy is much more dependent on a sole export commodity (oil) than Bolivia's. About 95% of Venezuela's exports are oil, which makes it a stronger possibility of Dutch disease than Bolivia. And so, even if the policies were otherwise the same, just paying more attention to keeping a diverse economy would probably result in different outcomes in each country.

$\endgroup$
  • $\begingroup$ That was very politicized comment. Could you cite your source for 'private companies - which, in conditions of natural monopolies, tend to be even more corrupt than public companies'? I agree that there is a causal link between Bolivia policies and economic growth, but the argumentation seems to be burdened with post hoc ergo propter hoc error. $\endgroup$ – Pawel Kam Feb 11 '18 at 1:35

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.