Friday, December 13, 2002

In addition to several rankings of countries' economic freedom (Canada's Fraser Institute, US' Freedom House and Heritage Foundation, compared to each other by Cato), there is now a major study of American states that shows the same correlation. The new study is by the National Center for Policy Analysis and the Fraser Institute.

These indexes reflect some new thinking among major economists. In the 1980's and 1990's prescriptions for national economic success included mostly privatization and inflation control. Now there are also concerns about property rights, rule of law, labour market flexibility, and ease of compliance with regulations. Milton Friedman says:

I used to be asked a lot: “What do these ex-communist states have to do in order to become market economies?” And I used to say: “You can describe that in three words: privatize, privatize, privatize.” But, I was wrong. That wasn’t enough. The example of Russia shows that. Russia privatized but in a way that created private monopolies—private centralized economic controls that replace government’s centralized controls. It turns out that the rule of law is probably more basic than privatization. Privatization is meaningless if you don’t have the rule of law.

Hernando De Soto emphasizes the cost of retrograde regulations and undocumented land ownership in any of several interviews:

One main reason why the informal sector has not become formal is that from Indonesia to Brazil, 90 percent of the informal lands are not titled and registered. This is a generalized phenomenon in the so-called Third World. And it has many consequences. One is that the price of land drops because it is not legally registered as private property. In Peru, when we title these lands, the market value doubles the same day. After 10 years, it goes up nine times. The principal reason is that it is easier to trade the land once the property rights are clear and established.

No comments:

Blog Archive

Creative Commons License
This work is licensed under a Creative Commons Attribution 3.0 Unported License.