At a conference organized at CEMA by Libertad y Progreso, the Naumann Foundation and Atlas Network economists Fred McMahon (Fraser Institute) and Martín Krause (UBA) noted that the great obstacles to economic development in our country are a gigantic State and public spending.
“The mother of all battles for Argentina is the size of the state and public spending” Martín Krause and Fred McMahon highlighted during the presentation of the Audit of Economic Freedom in Argentina, based on the Fraser Institute’s Index of Economic Freedom Around the World.
“Freedom can be measured through 42 different variables, one of which is the Size of the State. Argentina has one of the largest States among the countries in our index. But its case is worse than most because it shares the table with very rich countries, like those in Scandinavia, that have large States but have freedom to do business and hence they generate the necessary wealth to afford a big State. Argentina is the only developing country in that State and cannot afford such a bureaucracy. It can’t pay it.” McMahon explained. “If a Swedish or Norwegian citizen saw such a large State and this level of spending s/he would think Argentines aren’t being advised properly or are crazy” he continued.
Meanwhile, Krause added that the relationship between public spending and our countries GDP (47%) is high even when compared to the relationship existing in rich countries. “Public spending in developed countries is around 42% of the GDP and even if this number is high, they can afford it. The average spending for Latin American countries is 35%. Here it is 47%. It is not viable” he pointed out.
Then, regarding the size of the State, the investigator and UBA economist illustrated the evolution of the Argentine State: “In 1940 we had 8 ministries and 1 sub-secretariat, by 2008 we had passed from 10 to 16 ministries, from 70 to 87 secretariats and from 162 to 207 sub-secretariats. Today we are at an even higher level. Our government has 21 ministries, 87 secretariats, 207 sub-secretariats, 687 directorates and 122 other entities” he said. “And there are ridiculous situations, like the existence of one Secretariat for Macroeconomic Planning and another for Microeconomic Planning, or the creation of a Secretariat for Food and Drinks. Are we in 1980s East Germany?” He added.
Next, Mc Mahon showed a series of numbers illustrating how the world’s most economically free countries are also the ones in which citizens are more prosperous. “The segment comprising the economically free countries has a per capita income of $ 40,000 per year, the smallest education gap between men and women, the longest life expectancy, is the least corrupt in international indices, and guess what? They are also largely the countries whose citizens claim to be happier with their lives. Apparently, to be free to choose their work or develop their entrepreneurship makes people happy. Who would have guessed it?” quipped Mc Mahon.
Regarding inequality, Mc Mahon said that while economic freedom does not improve inequality, it doesn’t promote it either “and if we compare the poorest quartile of the freest countries with the poorest quartile of the non-free countries, the income of the poorest people in the economically free countries is 10 times higher than the income of the poorest people in the countries that are not free. Economic freedom will not correct inequality but it is very good at solving poverty” he said.
According to Mc Mahon, the work organizations like Libertad y Progreso or Naumann do regarding education and awareness is very important to make people understand that well-being increases with economic freedom. “These ideas have to be explained and that takes courage. It is crucial for people to look at the countries in which people are more prosperous, which are also the ones that have more freedom. You have to teach people to differentiate reality from fantasy so that when a President tells them that Argentina has less poverty than Germany or is more developed than Canada they know they are being deceived” said Mc Mahon.
THE LOCAL CASE
The Economic Freedom Audit presented by McMahon and Krause points out that, since December 2015, the government of Mauricio Macri has advanced important reforms aimed at improving the existing degree of freedom. Among them we can include the important cuts in export retentions and other taxes, a modest advance in the adjustment of tariffs, the elimination of the exchange rate control, increasing the taxpayer base by a fiscal amnesty, improving the perception of the respect towards property rights in the country, the will to carry out a fiscal reform, advances in curbing inflation, the recovery of the Central Bank’s independence and the progress done regarding free trade agreements.
Among the issues to be resolved, the study highlights the need to correct the deficit and substantially reduce the size of the State, the need to reduce “the unsustainable level of taxes at a national, provincial and municipal level“, the need to stop the increase in the number of ministries, secretariats and national secretariats, the unwillingness of provinces and municipalities to lower taxes, the “bad habit of bailing out bankrupt companies and maintaining 42 state-owned enterprises of which only 8 were profitable in 2016”, the existence of excessively restrictive labor laws and the fact that inflation remains high despite the government’s efforts to stop it.
Fred McMahon is a resident investigator at Fraser. He holds a bachelor’s in economics from McGill University. He manages the Economic Freedom Index and coordinates the Economic Freedom Network, an international alliance between over 100 think tanks in 100 countries. He specializes in economic development, commerce, government and economic structure. He is the author of several books, including Road to Growth: How Lagging Economies Become Prosperous and Retreat From Growth: Atlantic Canada and the Negative-Sum Economy. He publishes regularly in the Wall Street Journal, the National Post and Canada’s Times. He received the Sir Anthony Fisher International Memorial Award for his advances in public policy.
The Fraser Institute is a libertarian Canadian research center. It defines its mission as “measuring, studying and communicating the impact of competitive markets and government intervention on the well-being of individual”. It has offices in Vancouver, Calgary, Toronto and Montreal. In 2011 he was ranked as the most influential think tank in Canada and the sixteenth in the world according to U Penn’s Global Go-To Think-Tank Index.