LATIN AMERICA'S UNDERGROUND ECONOMY KEEPS BOOMING - LA ECONOMIA SUBTERRANEA SIGUE CRECIENDO
The new Nobel Peace Prize for Bangladeshi economist Muhammad Yunus and his bank for the poor should help draw attention to an explosive problem in this part of the world: the virtual exclusion of Latin America's poor from the capitalist system. By most estimates, more than half of Latin Americans operate within the so-called informal economy. A recent study of 12 major Latin American countries offers some alarming figures. Read the full column and let us know what YOU think.
posted by Andres Oppenheimer at 11:53 AM
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7 Comments:
from Paul Thorsen
PThorsen240@aol.com
Kudos to Andres Oppenheimer for providing insights into Latin American society.
Don't anyone be fooled into thinking he has Cuba ancestral ties, he does not. His family came to the USA from Arhentina. But I think he wants people to believe his family came from Cuba so they will buy his books on Cuba.
Andres
It was a great news the Nobel to Yunus, and your article is welcomed in that sense.
But, these millons of people are not only out of the formal economy. Most of them are unregistered and therefore they haven't civils rights.
One of the most importants changes introduced by Chavez in Venezuela was the registration of more than a millon of people. These persons have recently voted for the first time.
Unfortunatly in Latin America these kind of decitions are only taken for leftist goverments. Right wing politicians are usually worried for the markets forgetting the rest of the real world.
Greetings
Ruben P.
Rosario – Argentina
Chavez registering people is for no other reason than political opportunism. While bleeding hearts keep looking at Latin American illegal immigrants as victims, they overlook how illegal immigration only helps perpetuate the neo-oligarchies in Latin America.
It seems Yunus is the first nobel prize winner everyone agrees with. I won't rain on the parade, except to say that the idea is not new. The fight is about land, water and decent housing. Yes, the basis of a capitalist system is property ownership, but the real key is governments. They must provide services and do the work to survey, document and (in some cases) take on the "official" owners. (like the Urban Land Committes in Venezuela). Plus if water is privitized many poor Andrean families will not get access regardless of their land ownership...
Yunus' micro loan approach might not work as well in Latin America, compared to ultra-poor and dense Bangladesh. A $20 loan is not going to do much to start a business in most places. But I certainly support lending to the poor in all amounts and at the same interest rates as the rich (Yunus has shown the poor repay the $).
If consertives support the type of anti-market proposals by Yunus (the rest of the world's banks don't offer such loans) and Hermano de Soto (inventing ownership rights by right of having built there) - why don't they support Chavez giving ownership rights over their workplace?
Dear Andres:
I enjoyed your article very much not only because it contributes to spread the economic gospel of my good friend Hernando De Soto, but indeed because it raises some interesting questions. Let me be a little more specific!
Question # 1: If a so called legal economic system is embraced only by a fraction of the population and the rest favors an “extra legal” system, which one is the real formal economic system?
Further, an economic system that has proven not only resilient but indeed that has managed to grow and flourish without any government intervention up to the point of overcoming the legal system is not merely an ‘extra legal” system; it is indeed an economic jewel. It is what Adam Smith called a “Market of Perfect Competition” and the holy grail of economic theory.
Contrary to common believe, the “extra legal” economy is not a “de facto” system without rules. It is a system where the market and the economic agents, as opposed to the government, set their own rules. Rules that may not be aboslutely fair but that seem to be far wiser and efficient than the ones set by the governments since, otherwise, the legal system would have flourished and the “extra legal” system perished.
Latin America’s “extra legal” system is by every measure fascinating. In his book, Hernando De Soto explains how “extra legal” real state companies in Lima, Peru and Cairo, Egypt rent spaces in public streets, that they obviously do not own, to “informal” merchants that sell everything from T-shirts to house appliances. Talk about creating value out of thin air!
The “extra legal” economy in Latin America is a living proof of the tremendous potential, imagination and inventiveness of the poor and their willingness to embrace a market economy. A market economy though, with little government intervention and/or where the role of government is to promote and support as opposed to police and control; I wonder if the legal economy would favor the same kind of rules for them.
Question # 2: Could it be that the poor “extra legal” entrepreneurs of Latin America are the ones behind the surprising election results in Peru, Mexico, Brazil and recently Ecuador?
In every case the vote in the major cities, home of the “extra legal” economy, has favored the “conservative” candidates. By doing so the poor have indicated that they favor stability over improvisation and idealism. That, by the way, is the thinking of businessmen and entrepreneurs all over the world.
Maybe the poor in Latin America are sending us a very clear message. Leave us alone, get your hands out of our business affairs and we will eliminate poverty ourselves.
By the way Andres, I agree with you that Hernando De Soto deserved at least to share this year’s Nobel Peace Prize. He is not only fully committed to the personal quest of eliminating poverty and improving the lives of the poor in his country, Peru, but in fact he is working with governments throughout the world to do the same in their countries as well.
The scope and impact of his work is without doubt global. Further, De Soto does not profit from his work.
Dear Mss. Darville, Mr. Miller and Mr. Wilson:
While I am not a renowned journalist as Mr. Oppenheimer I would very much appreciate if you could give me the name of the book you have published. I would like to buy a copy and of course, read it.
It would be over simplistic to believe that property titling alone will solve Latin America’s poverty problems. In Confucian terms property titles would be the first step on a long economic journey. A suitable and imaginative financing structure to leverage the new wealth generated by property titles seems to be the necessary second step to continue on that journey.
In order to accomplish this though, Latin America will have to revamp their banking laws. In most of Latin America banks operate on a national scale and this seems to favor siphoning savings and deposits from all over the country and concentrating credit in the capital city.
Latin America has to figure a way of encouraging banks to operate on a regional level where savings and deposits generated in a region have to be used to provide loans and credit in the same region.
Perhaps a way to do this would be to reduce the “encaje bancario” for regional banks as long as the resources are used to increase business credit within the region.
Further, regional banks should be encouraged to act as investment bankers by participating as minority investors in the businesses they finance, appointing board members, providing networking and professional support services, etc.
More than money, Latin America is in need of imagination and leaders who are willing to take risks.
Excellent discussion.
I agree with Mr. Oppenheimer and some of the bloggers: micro loans and other projects to facilitate economic advancement need to be pushed forward by politicians with imagination and guts.
In Venezuela, Chavez introduced many people to the idea of micro credits - but only to transform it into a political "chantaje" or a breeding ground of corruption and mismanagement.
Read more about the Venezuelan informal economy here:
http://lopezfactor.blogspot.com/2006/09/buhotropolis.html
Un saludo,
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