Why Latin nations are poor

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Mary Anastasia O'Grady in the Wall Street Journal (WSJ-version, free-version):

It's been 20 years since Hernando de Soto's Lima-based Institute for Liberty and Democracy published "The Other Path," documenting the burdens that the Peruvian state was heaping on the backs of the struggling underclass. But in two decades little has changed in a region mostly known for caudillo government and its capacity to disappoint. More than ever, the Latin predatory state is driving entrepreneurs underground and forcing the most industrious citizens to emigrate, mostly to the U.S.

She is a big fan of our Doing Business report:

The correlation between economic freedom and prosperity is clear from reading the World Bank [Doing Business] ratings. As one would expect, overtaxing and overregulating economic activity stunts growth, as do weak property rights. Much of the region's stagnation is attributable to burdens inflicted by government.

But why hasn't democracy in Latin America produced change?

The answer can be found in public-choice theory… [which] views politics as a market, where the highest bidders have the power to "purchase" what they want. Deregulation may be best for the majority, but politicians don't have an incentive to do it when their most powerful, best-organized constituents -- the ones who put them in office -- prefer the status quo. That includes not only labor unions but rich, established oligarchs and government bureaucrats. Most Latin countries don't have large enough middle classes to counter these oppressive forces, thanks to the twin curses of overregulation and weak property rights.

The next 12 months will be key to the future of much needed Latin American reforms, with no less than a dozen presidential contests and 13 legislative elections over the coming 'year of the vote.'

Latinamericaelections_3For more, see the excellent Latinobarómetro poll or the Doing Business press release for Latin America (also in Spanish and Portuguese).

Note: The above map is from The Economist. It is not an officially endorsed World Bank Group map.

Addendum: See Spanish summary by José Carlos Rodríguez.

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