Fred McMahon, Senior Investigator at Canada’s Fraser Institute, was invited to Argentina by foundations Libertad y Progreso, Naumann and Atlas. During his conferences, he said one of the problems Latin America faces is that they believe the crony capitalist system that they lived throughout most of their history is identical to a market economy. “In Venezuela or Argentina citizens have suffered the consequences of a crony capitalist system, without a real competition by businesses to give better services, and believe this was a free market or capitalist economy. However, this has nothing to do with a free market economic system. In the social dynamic of a true market economy, a partner or relative of whoever is in power does not receive concessions for public projects, there are no monopolies, everybody competes to give a better good or service and businessmen do not get rich at the expense of the people” Mc Mahon, an economist from McGill University, highlighted.
McMahon came to Argentina to present the results of the General Audit of the Argentine Economy in Buenos Aires and Tucumán. The audit was realized by economist Martín Krause along with Libertad y Progreso, Atlas and the Naumann Foundation and is based on Fraser’s Index of Economic Freedom Around the World. According to McMahon, if Scioli would have won in 2015 the Argentine economy would have suffered the same destructive process the Venezuelan economy went through. “The measurements of our Economic Freedom Index , that measures 40 different variables, show that Venezuela since 2000 and Argentina since 2003 took the same path towards a collapsing economy, with identical curves. A Kirchnerist victory in 2005 would have resulted in a complete destruction of the Argentine economy within 10 years” he claimed.
According to Mc Mahon the main diference was that, before Hugo Chavez, Venezuela suffered though decades of crony capitalism that prepared the terrain for the decay that followed. “The worst part is that Venezuelans believe that before Chávez they were living in a market economy, when in reality they were living in a crony capitalist system which is the worst thing that could happen. Something similar happens in Argentina when people discuss the years that preceded the 2001 crisis. That was not a market economy, it was crony capitalism, but people tend to confuse that with libertarianism or neoliberalism” McMahon explained .
On the other hand, McMahon indicates, in line with this document, that even if economic freedom in Argentina improved with the current government there are still important pending subjects such as reducing the size of the State. “The Size of the State is one of the 40 variables that we measure at Fraser to calibrate the level of economic freedom in a country and Argentina is the only developing country with such a big State. A big State is expensive but Sweden or the UK can afford it. In Argentina, on the other hand, it is ridiculous. If a Swede saw this s/he would say that this is a completely irresponsible behaviour” he pointed out. “People tend to believe Swedes and Norwegians are socialists, when in reality they have gigantic States but in everything else they are oriented towards markets and free trade. If they saw the lack of freedom in Argentina they would be highly critical” he insisted.
THE MACRI ADMINISTRATION
The audit regarding the level of economic freedom in Argentina carried out by Krauze and presented by McHanon indicates that, since December 2015, Macri’s government advanced important reforms that tended to improve the level of freedom existing in our country. Among those highlighted as positive we include significant cuts in export retentions and other taxes, a modest advance in the adjustment of tariffs, the elimination of the exchange rate, the increase in the base of those who pay taxes after the fiscal amnesty, a better perception of the state of property rights in the country, the will of the Government to carry out a fiscal reform, the advancement in curving inflation, the recovery of the Central Bank’s independence and the advances done towards free trade agreements.
Among the problems that are still to be resolved, the study highlights the need to correct the deficit and schink the size of the State substantially, the need to reduce “the unsustainable level of taxation at federal, provintial and local level”, the increase in the number of ministries and national secretariats and sub-secretariats, the lack of will to lower taxes in provinces and municipalities, “the bad habit of rescuing failing businesses and mantaining 42 state-owned enterprises of which only 8 were profitable in 2016”, excesively restrictive labor laws and an inflation that remains high in spite of the governments best efforts to curve it.
Fraser’s Index of Economic Freedom Around the World measures the level of support promotion of economic freedoms receives from policies and institutions. The pilars of economic freedom are freedom of choice, respect for voluntary exchanges, competition and respect for private property. 42 variables are used to build a global index and measure the state of economic freedom in 5 larger areas: Size of the State, Rule of Law and Property Rights, Sound Money, Free Trade and Regulations.
Since the first time the index was published in 1996 many studies have used the date it provides to examine the impact of economic freedom on investment, economic growth, income levels and poverty. Without exception, this studies have found that countries whose policies and institutons are consistent with economic freedom receive more investments, have economies that grow quickly, posses a average higher income level that others and reduce poverty quickly. The Index of Economic Freedom Around the World covers 152 countries and territories.
Fred McMahon is a resident investigator at Fraser. He holds a bachelors 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 speciliazes in 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 at 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 individuals“. 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 UPenn’s Global Go-To Think-Tank Index.