WEBVTT NOTE Free Enterprise or Decline? The Future of Latin America 1 00:00:00.000 --> 00:00:08.000 Successful public life and also at the same time held strongly to free market principles. 2 00:00:08.000 --> 00:00:16.000 The public life extends, or I should say starts, when he was ambassador to the Netherlands. 3 00:00:16.000 --> 00:00:19.000 He's also served as secretary of the Navy. 4 00:00:19.000 --> 00:00:27.000 Ambassador Mittendorf was also the U.S. representative to OAS and was recently named ambassador to 5 00:00:27.000 --> 00:00:30.000 to the European Economic Community. 6 00:00:30.000 --> 00:00:39.000 As you probably know, he's also had a remarkably successful career in business in the financial and banking community. 7 00:00:39.000 --> 00:00:45.000 On the private side, although my knowledge is somewhat limited, Bill, 8 00:00:45.000 --> 00:00:52.000 I know that you're an art collector and connoisseur and also a composer. 9 00:00:52.000 --> 00:00:59.520 We thought we would have a small band here and have a march, but given the space constraints, 10 00:00:59.520 --> 00:01:00.520 we couldn't do that. 11 00:01:00.520 --> 00:01:07.400 So with that, let me allow you to begin your talk on free enterprise or decline in the 12 00:01:07.400 --> 00:01:08.880 future of Latin America. 13 00:01:08.880 --> 00:01:14.160 Yes, well, I appreciate it, Steve, and you know, what we need in addition to the Ludwig 14 00:01:14.160 --> 00:01:20.280 von Mises tie is a Ludwig von Mises march, a victory march, an upper march, yeah. 15 00:01:20.280 --> 00:01:21.280 That isn't a bad idea. 16 00:01:21.280 --> 00:01:26.280 I could probably write one like that, but it would have to be joyous, wouldn't it? 17 00:01:26.280 --> 00:01:33.280 Because he believed in principles of growth and the only true foundation of any kind of growth, actually. 18 00:01:33.280 --> 00:01:39.280 Like all of us, I knew von Mises at New York University, and he was a very modest man, 19 00:01:39.280 --> 00:01:46.280 and his wife is still such a great asset and supporter. 20 00:01:46.280 --> 00:02:15.280 And I had the privilege of studying at Harvard under, well, one of my professors was Schumpeter who gave a graduate course in the summer of 45 and 46, rather, and I enjoyed taking his course because he was, he had opened my eyes to a lot of economic principles that were not taught in ECAA at Harvard, which was primarily and almost entirely a Keynesian course. 21 00:02:15.280 --> 00:02:29.280 The whole idea was that the business cycle would improve and you would cut deficit spending, 22 00:02:29.280 --> 00:02:33.200 and then it would decline and then you would increase deficit spending. 23 00:02:33.200 --> 00:02:40.640 But somebody forgot to turn the spigot off and deficit spending went on both times. 24 00:02:40.640 --> 00:02:44.680 In practice, Keynesianism, it doesn't work, or it works too well. 25 00:02:44.680 --> 00:02:55.680 I mean, it's always, the spigot is always open, and so all the theories that we had at Harvard were going out to solve all the problems of the world, it just didn't work out too well, and now we run these huge deficits. 26 00:02:55.680 --> 00:03:03.680 Anyway, can I assume that everyone here is a friend of the Austrian School of Economics? They're all libertarians. 27 00:03:03.680 --> 00:03:10.240 I was reading about some of the material that you or Murray had sent me recently, and reading 28 00:03:10.240 --> 00:03:17.680 about Carl Menger's seminal work in 1873, when he really laid the groundwork for the 29 00:03:17.680 --> 00:03:22.520 whole Austrian school, it seems to me. 30 00:03:22.520 --> 00:03:30.200 And from which he didn't enunciate it as clearly as it was later enunciated, but he at least 31 00:03:30.200 --> 00:04:00.200 and so that at least people could begin to talk about that, quote that, rather than Marx and Keynes and all this other nonsense that people, you know, and fashionable cocktail parties are sending, Nismo, and all these fashionable things that people like to talk about, and the trendy left, right? We've got to get some trendy right stuff going, and we don't have enough heroes, and we don't have enough heroes, and we don't have enough heroes. 32 00:04:00.200 --> 00:04:16.200 And we've got to build up our heroes, have we? We've got to build up our heroes. And people in cacti, our parties, like to talk about, you know, major works and when they might have occurred that might have laid the groundwork, what makes it look like they're on the inside, coupled with the tie and the march. 33 00:04:16.200 --> 00:04:22.560 So, at any rate, my talk today is free enterprise or decline, the future of Latin America. 34 00:04:22.560 --> 00:04:25.800 I think one of the things I've learned in my travels around Latin America and the Western 35 00:04:25.800 --> 00:04:32.400 Hemisphere under the carrying this activity with the Organization of American States is 36 00:04:32.400 --> 00:04:37.800 the majority of the countries in the hemisphere are a long way removed from free enterprise 37 00:04:37.800 --> 00:04:38.800 economies. 38 00:04:38.800 --> 00:04:45.760 So, Hernando de Soto, who all of us know here and worked with, and he's with the Institute 39 00:04:45.760 --> 00:04:49.880 for Liberty and Democracy in Peru, and I think we all know his studies on the informal society. 40 00:04:49.880 --> 00:04:54.640 He said the best it can be said for the majority of the countries in Latin America is that 41 00:04:54.640 --> 00:05:00.400 they have some combination of Colbertism and mercantilism, the mercantile system. 42 00:05:00.400 --> 00:05:06.080 Colbertism, I had to look up, is defined as the policies of Colbert. 43 00:05:06.080 --> 00:05:07.080 Some of you may know about him. 44 00:05:07.080 --> 00:05:14.000 He was a minister of Louis XIV in the 17th century, and he called for the support and 45 00:05:14.000 --> 00:05:20.240 and Establishment of Industries by State Aid or Protective Tariffs and the Creation of Monopolies. 46 00:05:20.240 --> 00:05:24.420 And the mercantile system had the idea of a country exporting the largest possible quantity 47 00:05:24.420 --> 00:05:29.640 of products while importing as little as possible in an effort to achieve a nation's supremacy, 48 00:05:29.640 --> 00:05:34.840 sort of an extension of war, over other states as a central policy ingredient. 49 00:05:34.840 --> 00:05:39.760 So we had cobertism and mercantilism, which dominate the Latin American psyche at the 50 00:05:39.760 --> 00:05:42.060 moment, economic thinking. 51 00:05:42.060 --> 00:05:47.720 This having been said is not a question of decline from free enterprise, since it never 52 00:05:47.720 --> 00:05:53.060 has really been established in Latin America, except sporadically and in pockets, primarily 53 00:05:53.060 --> 00:06:00.440 in Central America. One must presume that the often avowedly socialist or Marxist proponents 54 00:06:00.440 --> 00:06:04.980 of covertism and mercantilistic policies in Latin America have never read Marx's glowing 55 00:06:04.980 --> 00:06:08.900 advocacy of free world trade in the opening page of the Communist Manifesto, curiously 56 00:06:08.900 --> 00:06:14.260 One of the enduring contributions of the Austrian School of Economics has been its advocacy 57 00:06:14.260 --> 00:06:18.260 of private property and its cornerstone role for free enterprise and democracy. 58 00:06:18.260 --> 00:06:22.000 I think what most people take for granted in this country is private property and private 59 00:06:22.000 --> 00:06:23.540 property rights. 60 00:06:23.540 --> 00:06:28.940 This is not an overriding right in Latin America. 61 00:06:28.940 --> 00:06:36.280 In fact, you go back to the Barbarossa influence, that the property below the ground does not 62 00:06:36.280 --> 00:06:37.280 belong to you. 63 00:06:37.280 --> 00:07:07.280 Mr. Anthony Fisher, founder of the Institute for Economic Affairs in London, has been credited by Mrs. Thatcher and the press for creating the climate of opinion which made her election possible, and he recently wrote 64 00:07:07.280 --> 00:07:11.220 Democracy tends not to work because people don't understand that there's a law of economic 65 00:07:11.220 --> 00:07:13.320 cause and consequence. 66 00:07:13.320 --> 00:07:15.600 To help the poor, you must have economic growth. 67 00:07:15.600 --> 00:07:19.360 Simplistic, well-intentioned hope that government can improve the lot of the poor has been the 68 00:07:19.360 --> 00:07:23.000 main reason for government's self-defeating disastrous growth. 69 00:07:23.000 --> 00:07:28.640 To make democracy work, he says, it's necessary that the public be better informed. 70 00:07:28.640 --> 00:07:32.880 And the von Mises Institute continues to make its contribution for informing the public 71 00:07:32.880 --> 00:07:47.760 In 1984, economic activity in Latin America and the Caribbean expanded by 3 percent, and 72 00:07:47.760 --> 00:07:55.240 this was in sharp contrast to about a 1 percent decline over the prior two years, 1 to 3 percent 73 00:07:55.240 --> 00:07:56.240 decline. 74 00:07:56.240 --> 00:08:01.640 Nevertheless, the 3 percent last year is only half of the growth rates that were recorded 75 00:08:01.640 --> 00:08:05.680 in the Decade of the 1970s, during that period of the whole $100 recycling period when they 76 00:08:05.680 --> 00:08:11.160 were borrowing heavily from the banks and to finance their growth, the import of capital. 77 00:08:11.160 --> 00:08:15.360 More of the growth rate of 1984 slowed down or dropped in eight countries of the region 78 00:08:15.360 --> 00:08:19.840 and nearly half of these eight have been unfavorable for two or three years. 79 00:08:19.840 --> 00:08:25.620 I would also like to add that the recent economic growth was not matched by any per capita 80 00:08:25.620 --> 00:08:29.920 growth because of the high population growth rates, that's another thing that's often 81 00:08:29.920 --> 00:08:42.920 In Latin America this tremendous population explosion will see a doubling of the city of Mexico City to 31 million by a little after the end of this century. 82 00:08:42.920 --> 00:08:51.920 It will be the largest city in the world by a margin, I would suspect, and a doubling of the population of Mexico by, what is it, John, the year 2010. 83 00:09:21.920 --> 00:09:30.920 The Peso has gone from less than a hundred to the dollar to, what is it now, it must be 800,000 to the dollar in four years. 84 00:09:30.920 --> 00:09:34.920 Inflation is something like 8,500%. 85 00:09:34.920 --> 00:09:36.920 And that's world-class inflation. 86 00:09:36.920 --> 00:09:47.920 People don't recognize that what that's done is that even makes the German inflation or the fiat money inflations in the past look like amateur night, doesn't it? 87 00:09:47.920 --> 00:09:55.920 And, of course, that's what it's done, is it absolutely eroded, if not destroyed, the standard of living and per capita incomes of the Bolivians. 88 00:09:55.920 --> 00:10:00.920 I would say it's down to $100 a year now, something like that. It's got to be the poorest country in the hemisphere right now. 89 00:10:00.920 --> 00:10:05.920 And yet, it should be one of the richest when you analyze their resources. 90 00:10:05.920 --> 00:10:11.920 Isn't that right, John? I mean, they probably have more per capita potential resources than any other country in the hemisphere. 91 00:10:11.920 --> 00:10:20.040 So, the economic growth in the region in 1984 was mostly determined by foreign demand, principally 92 00:10:20.040 --> 00:10:21.400 exports to the United States. 93 00:10:21.400 --> 00:10:29.800 We took 96% of the growth of exports from Latin America in 1983 and 56% of all the growth 94 00:10:29.800 --> 00:10:32.200 in exports from Latin America last year. 95 00:10:32.200 --> 00:10:38.840 So we, because of our growth here and our huge trade deficit have absorbed and last 96 00:10:38.840 --> 00:10:43.800 In the last year, we had a $22 billion trade deficit with Latin America, and that figure 97 00:10:43.800 --> 00:10:50.320 will be higher this year, and characterized by underutilization of installed domestic production 98 00:10:50.320 --> 00:10:51.320 capacity. 99 00:10:51.320 --> 00:10:54.040 I should note that the vulnerability of this type of growth is very obvious. 100 00:10:54.040 --> 00:10:58.920 On a per capita basis, gross domestic product in Latin America and the Caribbean declined 101 00:10:58.920 --> 00:11:04.440 10% over the last two or three years to approximately the 1977 levels, so they retraced all the 102 00:11:04.440 --> 00:11:05.440 way back. 103 00:11:05.440 --> 00:11:15.440 For the reason as a whole, average domestic prices were up 170% last year after registering 130% the year before and 80% the year before that. 104 00:11:15.440 --> 00:11:28.440 And so these developments are undoubtedly the result of these countries' efforts to prevent a sudden drop in economic and employment activities by means of excess creation of fiat money, the old pattern, fiat money inflation. 105 00:11:28.440 --> 00:11:34.960 Earlier this year, for example, Bolivia closed its banks because it couldn't print any more 106 00:11:34.960 --> 00:11:39.640 money. Why couldn't it print money? Because it cost more. They couldn't pay the printers. 107 00:11:39.640 --> 00:11:43.960 They didn't have any money to print the printers in England. They just didn't even have the 108 00:11:43.960 --> 00:11:49.840 money to pay for the paper. It was tragic. And I was recently informed by a member of 109 00:11:49.840 --> 00:12:15.280 The most positive feature of the region's growth in 1984 was the strengthening of the 110 00:12:15.280 --> 00:12:19.000 external accounts last year. 111 00:12:19.000 --> 00:12:26.440 They increased their balance of payments surplus on a merchandise basis in 84 by 25% over the 112 00:12:26.440 --> 00:12:32.000 $30 billion surplus worldwide that they recorded in 83, reducing their current account deficit 113 00:12:32.000 --> 00:12:39.680 to a fraction of the amount at the beginning of the decade and closed the year with a strong 114 00:12:39.680 --> 00:12:43.000 international reserve buildup of nearly $11 billion. 115 00:12:43.000 --> 00:12:48.440 Nevertheless, the region still hasn't retained the international reserve positions it had 116 00:12:48.440 --> 00:12:53.440 before the debt crisis hit, which of course is a salient factor since one of the measures 117 00:12:53.440 --> 00:12:57.240 of credit worthiness is the number of months of imports that could be financed out of foreign 118 00:12:57.240 --> 00:12:58.740 exchange reserves. 119 00:12:58.740 --> 00:13:04.920 The surplus on mercantile merchandise trade of $38 billion generated in 1984 resulted 120 00:13:04.920 --> 00:13:09.480 from a combination of growth in the value of exports and a moderate 4% growth in the 121 00:13:09.480 --> 00:13:11.400 total value of imports. 122 00:13:11.400 --> 00:13:14.800 The imports in effect haven't been growing at all. 123 00:13:14.800 --> 00:13:20.020 And most of the growth over the last two years in the external account has come from increasing 124 00:13:20.020 --> 00:13:25.880 exports or maintaining exports and reducing to very little if nothing their imports. 125 00:13:25.880 --> 00:13:31.100 The level of imports recorded in 1984 represented a drop of nearly 40% from the level at the 126 00:13:31.100 --> 00:13:33.360 start of the decade. 127 00:13:33.360 --> 00:13:39.520 Nevertheless in 1984 the region still had a nearly almost an $800 million deficit in 128 00:13:39.520 --> 00:13:44.500 the balance of payments account even though they added $11 billion to their reserves due 129 00:13:44.500 --> 00:13:50.740 due to the transfer abroad of $39 billion primarily related to debt service expense. 130 00:13:50.740 --> 00:13:57.700 Thus, the $11 billion increase in international reserves resulted from a net capital inflow 131 00:13:57.700 --> 00:14:03.960 to the region of $11.8 billion primarily associated with so-called forced lending under IMF auspices 132 00:14:03.960 --> 00:14:07.220 in relation to debt restructuring, that is, when the Citibank Chase run around and get 133 00:14:07.220 --> 00:14:12.020 these regional banks in and everybody goes back and lends them the interest. 134 00:14:12.020 --> 00:14:15.200 That's how they added to their reserves last year. 135 00:14:15.200 --> 00:14:20.380 That accounts for the entire $11 billion increase in their reserves last year in Latin America. 136 00:14:20.380 --> 00:14:24.180 In recent developments, if anything, the foregoing should indicate to the most casual observer 137 00:14:24.180 --> 00:14:27.660 that the problems associated with the debt crisis are very far from being over. 138 00:14:27.660 --> 00:14:30.420 Now, there have been some pundits that have said the debt crisis is over. 139 00:14:30.420 --> 00:14:33.340 I mean, I've seen a couple of New York Times articles and what have you. 140 00:14:33.340 --> 00:14:36.040 Well, who in this room would believe that? 141 00:14:36.040 --> 00:14:37.040 For goodness sakes. 142 00:14:37.040 --> 00:14:43.600 Mexico, for example, cut its oil prices last week in an effort to boost the sales, which 143 00:14:43.600 --> 00:14:51.560 account for about 7% of export earnings. June exports were only half of the million and 144 00:14:51.560 --> 00:15:00.960 a half barrels a day exports that they had a year or two back. In addition, revenue from 145 00:15:00.960 --> 00:15:06.480 non-oil exports has declined from a year earlier. Capital flight is on the rise again, and that's 146 00:15:06.480 --> 00:15:12.720 Inflation is exceeding government projections as a result, largely due to the accelerated 147 00:15:12.720 --> 00:15:18.120 deficit spending financed by accelerated monetary emissions just prior to the recent elections. 148 00:15:18.120 --> 00:15:20.160 Now this is very ominous. 149 00:15:20.160 --> 00:15:34.000 Last weekend in Otapec in Mexico, it's a little resort town near Mexico City, I understand, 150 00:15:34.000 --> 00:15:38.640 At the invitation of President de la Madrid came together ten of the Latin American countries 151 00:15:38.640 --> 00:15:41.600 for the purpose of discussing how to handle the external debt. 152 00:15:41.600 --> 00:15:47.480 Now, this is sort of a continuation of the Cartagena process. 153 00:15:47.480 --> 00:15:54.040 Now, I think from some of the reports I read in the Wall Street Journal that came out of 154 00:15:54.040 --> 00:16:00.720 it and some of the other reports I had, this is not necessarily a plus because I think 155 00:16:00.720 --> 00:16:09.720 I don't have any documentation on this yet, was the possibility of setting up some sort of a debtors cartel. I think this could be ominous. 156 00:16:09.720 --> 00:16:20.720 Ominous because several countries can pay and will pay and should pay. Some countries like Venezuela have $12 billion in reserves and they're increasing. 157 00:16:20.720 --> 00:16:27.720 Ecuador is back on the upswing. Colombia is on the upswing. They can pay. 158 00:16:27.720 --> 00:16:37.920 Paraguay has done very well, very little debt. Central American countries, God knows, were 159 00:16:37.920 --> 00:16:41.920 pumping enough dough in there, they're in a position to pay, with the exception, obvious 160 00:16:41.920 --> 00:16:46.560 exception of Nicaragua, of course, which even if it could pay, wouldn't probably want to, 161 00:16:46.560 --> 00:16:53.440 following the Castro line. Speaking of Castro, speaking of the Castro line, the most hypocritical 162 00:16:53.440 --> 00:17:00.700 Advice on how to evade economic consequences on the debt problem is coming from Fido, calling 163 00:17:00.700 --> 00:17:04.760 for a debtors' cartel assumption of the debt by the U.S. government. 164 00:17:04.760 --> 00:17:08.320 Why doesn't the United States monetize the debt, he says. 165 00:17:08.320 --> 00:17:13.840 This advice is hypocritical in the extreme, not only because this advice is coming at 166 00:17:13.840 --> 00:17:18.760 a time in which he's attempting to reschedule his own debt, but also because Cuba's own 167 00:17:18.760 --> 00:17:21.840 debt is among the most onerous in Latin America. 168 00:17:21.840 --> 00:17:31.840 The Soviet Union's hard currency debt is $3.4 billion, and that's five times its hard currency exports, including re-exports of Soviet oil. 169 00:17:31.840 --> 00:17:36.840 They buy some of its cheap Soviet oil and export it around to make a hedge profit. 170 00:17:36.840 --> 00:17:42.840 Cuba also owes the Soviet Union $22 billion. 171 00:17:42.840 --> 00:17:48.840 As you know, the Soviets are pumping in there a little over $4 billion a year, $10 to $12 billion a day. 172 00:17:48.840 --> 00:18:01.840 Soviet willingness to reschedule this data is part of an overall social relationship between Moscow and Havana, which involves the provision of non-economic services to Cuba, the type which few countries would be willing to grant. 173 00:18:01.840 --> 00:18:10.840 In short, the Soviet proxies of Cuba have become the Hessians of the 20th century in support of international terrorism and narco-terrorism. 174 00:18:10.840 --> 00:18:20.340 International Tyranny and Narco-Terrorism, as you know, in Ethiopia, Angola, their Hessian forces are everywhere, especially in Nicaragua. 175 00:18:20.340 --> 00:18:28.840 While this overview of the Latin economic situation may help us to understand the status quo, i.e. the economic consequences of past policies, 176 00:18:28.840 --> 00:18:37.340 it does little in terms of helping us understand the economic causes so that we can better the economic policies for the future. 177 00:18:37.340 --> 00:18:49.740 The problem with it's becoming more and more obvious throughout the hemisphere that without 178 00:18:49.740 --> 00:18:55.540 a free dynamic, free enterprise system, governments can neither stimulate nor sustain economic 179 00:18:55.540 --> 00:19:00.540 growth nor diversify their economies to foster economic development. 180 00:19:00.540 --> 00:19:06.780 What they did in the past was they papered over the socialistic, mercantilistic programs 181 00:19:06.780 --> 00:19:12.680 by borrowing the money from abroad. The borrowed 361 odd billion dollars, or whatever it is, 182 00:19:12.680 --> 00:19:20.180 as the old countries had built up these substantial surpluses on a short-term basis in deposits, 183 00:19:20.180 --> 00:19:25.420 demand deposits in the banking system of Germany, the United States, Japan, Britain, etc. Those 184 00:19:25.420 --> 00:19:32.260 monies in turn were lent out after 1973 at longer and longer credits to the Latins and 185 00:19:32.260 --> 00:20:02.260 in the United States. 186 00:20:02.260 --> 00:20:12.260 Worthwhile Projects, many times they put it into, after 1979 in particular, they put it into balance of payments, shortfalls, maintain the capital income standard living as they hoped. 187 00:20:12.260 --> 00:20:26.260 Too often in the past one heard the truism that first must come a proper infrastructure when it comes to aid or financial support for a country, and that's a truism. 188 00:20:26.260 --> 00:20:29.460 When you hear that over and over again, you've got to first develop the infrastructure. 189 00:20:29.460 --> 00:20:34.060 But that led to vastly overblown bureaucracies of government-owned means of production far 190 00:20:34.060 --> 00:20:38.300 beyond such basic infrastructure requirements as roads, utilities, and communications. 191 00:20:38.300 --> 00:20:43.820 I see where the Mexicans are now selling off a number, are trying to sell off a number 192 00:20:43.820 --> 00:20:50.540 of parastatals, they're in the hotel business, travel agency business, you name it, I mean 193 00:20:50.540 --> 00:20:58.940 And it has nothing to do with the infrastructure, restaurants, bars, what have you, there's 194 00:20:58.940 --> 00:21:04.420 hundreds and hundreds of these parastatals that the government has gotten into throughout 195 00:21:04.420 --> 00:21:05.420 Latin America. 196 00:21:05.420 --> 00:21:10.660 I might say that 70% of the industrial production of the major debtor countries is owned by 197 00:21:10.660 --> 00:21:11.660 the government. 198 00:21:11.660 --> 00:21:19.460 If you take Argentina, Brazil, Bolivia, Mexico, I had a debate with a professor down in Texas, 199 00:21:19.460 --> 00:21:24.020 Professor at the University of Texas in Austin, who claimed that it couldn't be possible 200 00:21:24.020 --> 00:21:29.820 that Mexico could have more than 25% of their industrial production owned by the government. 201 00:21:29.820 --> 00:21:33.640 Well, he sent him some figures and he was shocked and he's been an economic professor 202 00:21:33.640 --> 00:21:38.620 and a brilliant man, of course, but just hadn't focused on that issue and I find it shocking 203 00:21:38.620 --> 00:21:43.740 to think that the parastatal approach and mentality has gone up by such orders of magnitude 204 00:21:43.740 --> 00:21:45.340 in the last decade. 205 00:21:45.340 --> 00:21:48.780 Some of it heavily financed by this borrowed capital that they forget. 206 00:21:48.780 --> 00:21:53.180 Some of it has had its genesis back to the Alliance for Progress, when we exported socialism 207 00:21:53.180 --> 00:21:54.180 to the hemisphere. 208 00:21:54.180 --> 00:21:58.220 We did a lot of good things, we did a lot of bad things with that. 209 00:21:58.220 --> 00:22:02.380 We made money too easy, and they were able to afford to get away from the free enterprise 210 00:22:02.380 --> 00:22:09.780 and the free market approach, and all because we had good intentions. 211 00:22:09.780 --> 00:22:13.980 We talked about infrastructure and building all these projects for them, and they got 212 00:23:13.980 --> 00:23:18.920 accepted and enforceable property rights with the ability of individuals to enjoy the fruits 213 00:23:18.920 --> 00:23:24.020 of their labor without confiscatory systems of taxation or arbitrary seizure of power. 214 00:23:24.020 --> 00:23:28.860 360 major expropriations in Latin America since 1960. We've made some studies of all 215 00:23:28.860 --> 00:23:34.400 the heavy energy companies and what have you. And just a shocking figure. And I would say 216 00:23:34.400 --> 00:23:40.700 that the average compensation was far below the investment value, the true market value. 217 00:23:40.700 --> 00:23:48.700 In some cases, they were pleased with the results, glad to get out, but I would say, in most cases, not. 218 00:23:48.700 --> 00:23:57.700 So, once burnt, twice shy, we had 50% of all of our overseas investments in Latin America right after World War II. 219 00:23:57.700 --> 00:24:05.700 And because of the Calvo Doctrine, the Indian Pact Decision 24, and so many of these other disincentives for foreigners to invest, 220 00:24:05.700 --> 00:24:09.700 foreign exchange controls, inability to take money back out again, what have you, 221 00:24:09.700 --> 00:24:15.700 That figure has dropped from 50% of our overseas investments to 13% and that's going south. 222 00:24:15.700 --> 00:24:20.700 Is it preordained that we should just be avoiding that hemisphere and putting all our money into the Pacific Basin 223 00:24:20.700 --> 00:24:28.700 when we go overseas or into Europe where there's a more favorable climate towards investment and property rights? 224 00:24:28.700 --> 00:24:34.700 And who's shooting who in the foot? Is it all because the gringo is such a bad guy? 225 00:24:34.700 --> 00:24:39.580 or is it because these folks have made the climate not only unattractive for us, or the 226 00:24:39.580 --> 00:24:46.300 Europeans or the Japanese investors, but unattractive, especially for their own people? And that comes 227 00:24:46.300 --> 00:24:51.220 to the whole question of flight capital, it goes with it. And I'll mention the vast amounts. 228 00:24:51.220 --> 00:24:54.720 In fact, so much of this money that's gone in there has gone right out again. And I'll 229 00:24:54.720 --> 00:24:57.540 document that in a moment. 230 00:24:57.540 --> 00:25:03.300 So when the government owns so much of the means of production and pursues policies that 231 00:25:03.300 --> 00:25:07.600 significantly distort free market decision making. The overall economic growth suffer 232 00:25:07.600 --> 00:25:12.860 and the international commerce goes with it. Latin America must work toward a better balance 233 00:25:12.860 --> 00:25:17.340 between the government and free enterprise, so heavily skewed toward state ownership. 234 00:25:17.340 --> 00:25:22.420 Unfortunately, we seem to be losing the semantic battle in the minds of Latins when we extol 235 00:25:22.420 --> 00:25:29.620 the virtues of free enterprise. I've been to all 31 countries. I've talked to, I guess, 236 00:25:29.620 --> 00:25:52.980 The problem is that it starts at the schools. The Marxist teachers have infiltrated the 237 00:25:52.980 --> 00:25:59.280 primary schools in many Latin countries. And from that key position, they take advantage 238 00:25:59.280 --> 00:26:08.080 Marxism is the natural state of affairs in any society. Therefore, anyone who is opposed 239 00:26:08.080 --> 00:26:13.480 to it must be against humanity. Each one of us has at one time or another felt a guilt 240 00:26:13.480 --> 00:26:19.880 trip for being for a free enterprise or for, quote, capitalism, end quote. How many of 241 00:26:19.880 --> 00:26:27.120 us feel a little bit like we're out of step with humanity sometimes in a dialogue, one 242 00:26:27.120 --> 00:26:50.320 Foreign-private direct investment becomes economic imperialism in the Marxist-Leninist 243 00:26:50.320 --> 00:26:56.320 lexicon and this economic imperialism opposes, quote, a new international economic order 244 00:26:56.320 --> 00:27:13.320 In the Marxist lexicon, we are in a zero-sum game where, if one group is to attain greater wealth, another group must lose it. 245 00:27:13.320 --> 00:27:24.320 None of this helps to encourage the much-needed new capital to come in to create the jobs so desperately needed in countries with unemployment levels ranging up to 30% to 40% or higher. 246 00:27:24.320 --> 00:27:28.840 In fact, one wonders if Marxists in countries with non-Marxist governments don't hope to 247 00:27:28.840 --> 00:27:32.960 keep unemployment levels high in the hopes that the resulting unrest helps bring them 248 00:27:32.960 --> 00:27:33.960 to power. 249 00:27:33.960 --> 00:27:40.440 And I might add, once they get to power, there's a greater incentive to implode the economy 250 00:27:40.440 --> 00:27:42.320 much further down. 251 00:27:42.320 --> 00:27:43.320 Why? 252 00:27:43.320 --> 00:27:48.840 First of all, nobody can object because they have the police statement and they have control 253 00:27:48.840 --> 00:27:52.740 of the guns, the block committee system, the East German model comes in and takes over 254 00:27:52.740 --> 00:27:55.780 for each state and the total right of assembly is gone. 255 00:27:55.780 --> 00:27:58.540 So there's no counterrevolution that could ever come about 256 00:27:58.540 --> 00:27:59.700 in a Marxist system. 257 00:28:01.220 --> 00:28:03.740 It hasn't been one since 1917, never will be one. 258 00:28:03.740 --> 00:28:06.460 It's false optimism to say because the communists 259 00:28:06.460 --> 00:28:08.300 have taken over now and the economy goes bad, 260 00:28:08.300 --> 00:28:09.740 the people will rebel and object to it. 261 00:28:09.740 --> 00:28:11.260 That's absolute sheer nonsense. 262 00:28:11.260 --> 00:28:14.180 And if anybody's ever lived in or visited a communist country 263 00:28:14.180 --> 00:28:17.980 for more than a weekend and not been just exposed 264 00:28:17.980 --> 00:28:21.060 to the propaganda of the literacy in the hospitals 265 00:28:21.060 --> 00:28:24.740 And all the wonderful things that Marxists talk about when you come in there as a guest 266 00:28:24.740 --> 00:28:27.900 for those countries and you see just a little fringe at the top of the 5% who are living 267 00:28:27.900 --> 00:28:33.620 high on the hog at the expense of the 95% who are living in far greater poverty than 268 00:28:33.620 --> 00:28:34.620 they did before. 269 00:28:34.620 --> 00:28:38.820 It doesn't mean that they weren't well-meaning in bringing in the Marxists or helping to 270 00:28:38.820 --> 00:28:43.380 bring in the Marxists as they did when they threw out Somoza or threw out Batista. 271 00:28:43.380 --> 00:28:46.980 They were well-meaning people, including a number of friends of mine, because I was in 272 00:28:46.980 --> 00:28:52.860 and Business in Cuba in the fifties, but I found out one thing that all revolutions first 273 00:28:52.860 --> 00:28:58.380 eat their young, and all those friends of mine, including Larry Lunt and others, either 274 00:28:58.380 --> 00:29:03.780 were killed or spent fifteen, sixteen years in the slammer under the greatest, unique 275 00:29:03.780 --> 00:29:07.380 amounts of torture, and they were the ones that brought Castro to power, they were the 276 00:29:07.380 --> 00:29:14.060 intellectuals, they were the dreamers, and because he was tough and he recognized they 277 00:29:14.060 --> 00:29:20.460 And he figured they were damn fools enough to be for me on an ideological basis and I 278 00:29:20.460 --> 00:29:23.900 don't want them around the day after I take over because they'll be damn fools enough 279 00:29:23.900 --> 00:29:28.060 to go for the next guy, against me, and he put them in the slammer. 280 00:29:28.060 --> 00:29:32.620 And that's what happened to my friend Larry, who sold me a farm in Rhode Island and a lot 281 00:29:32.620 --> 00:29:35.500 of combined efforts of Congressman Gilman, Claver and Pell, and a lot of us, we finally 282 00:29:35.500 --> 00:29:36.740 got the guy out of the slammer. 283 00:29:36.740 --> 00:29:42.340 But it was a tragic, tragic case, a broken family and everything else, an American. 284 00:30:12.340 --> 00:30:19.340 In the 1960s and during the same period, total government spending as a percentage of GDP doubled from 23% to 46%. 285 00:30:19.340 --> 00:30:29.340 And then came the famous bank nationalization of Lopez Batillo, for which they were going to build a statue, if you recall, in the square there in Mexico City. 286 00:30:29.340 --> 00:30:36.340 He trumped up these crowds. I hadn't been there that time. They trumped up these crowds, running around screaming, 287 00:30:36.340 --> 00:30:43.340 The greatest terror they ever saw, nationalized banks. It was a very popular, populist type of thing to do. 288 00:30:43.340 --> 00:30:51.340 But my goodness, it absolutely destroyed Mexico, because the 24% of the industrial production that those banks controlled 289 00:30:51.340 --> 00:30:59.340 were the profitable companies left in Mexico that had not had flight capital, and they had modernized, what have you. 290 00:30:59.340 --> 00:31:04.340 And of course, once the government took over with all this bureaucracy and layering, that was the end of that game. 291 00:31:04.340 --> 00:31:09.680 Following 1982 and the bank nationalization, the great majority of Mexico's major industries 292 00:31:09.680 --> 00:31:14.980 were under government control, and the government share of total capital formation had already 293 00:31:14.980 --> 00:31:20.820 reached 50%. The good sign for positive change is that some of the empirical research that 294 00:31:20.820 --> 00:31:25.940 has been conducted on the macroeconomic consequences of status solutions so long favored in most 295 00:31:25.940 --> 00:31:30.620 of Latin America is beginning to receive wider publicity and beginning to affect the thinking 296 00:31:30.620 --> 00:32:00.620 Andrew Feltenstein and Kei-Chung Chu, relative price distortions and inflation in the case for Argentina, 1963-76, published by the International Monetary Fund, for example, estimated that in Argentina, government transfers to cover public enterprises' losses, the losses from government enterprises, were proportionally ten times as inflationary as the financing of private enterprises. 297 00:32:00.620 --> 00:32:05.820 100% of the state's enterprise's losses through commercial bank borrowings, 10 times as inflationary, 298 00:32:05.820 --> 00:32:09.740 primarily because it's assumed that only in the former case are the losses translated into 299 00:32:09.740 --> 00:32:13.840 high powered money through central bank financing or the government deficit. 300 00:32:13.840 --> 00:32:19.980 Because the state of Argentina owns the vast majority, 60, 70% of the state owned enterprises' 301 00:32:19.980 --> 00:32:25.660 industrial production, and since most of these enterprises operate enormous losses which 302 00:32:25.660 --> 00:32:30.820 which only the government printing presses can make up, inflation rate there last year 303 00:32:30.820 --> 00:32:31.820 was 700%. 304 00:32:31.820 --> 00:32:38.060 There's this coal company down there on which a half a billion dollars has been invested. 305 00:32:38.060 --> 00:32:42.460 It had revenues last year of 30 million and overhead of 90 million. 306 00:32:42.460 --> 00:32:48.020 And I'm sure it's layered with every general's ex-cousin in there. 307 00:32:48.020 --> 00:32:52.580 That's just one of 330 such enterprises down there, and when I see the IMF putting the 308 00:32:52.580 --> 00:32:58.460 in the hair shirt on Argentina. I can't be optimistic. Yes, it's a plus, but I can't 309 00:32:58.460 --> 00:33:02.220 be optimistic until they start selling off some of the parastatals, because as long as 310 00:33:02.220 --> 00:33:06.120 they're running these huge deficits, I don't know if any of them, do you know if any are 311 00:33:06.120 --> 00:33:13.140 making money? And as long as that hemorrhaging is taking place and they're going to have 312 00:33:13.140 --> 00:33:19.100 to continue the presses to pay for those, well where is the balance going to come in 313 00:33:19.100 --> 00:33:24.060 and the Future. Other devastating, equally devastating findings are discussed in public 314 00:33:24.060 --> 00:33:31.260 enterprises in mixed economies by Robert Floyd and Clive Gray and H.P. Short. For 25 developing 315 00:33:31.260 --> 00:33:36.740 countries for which data was available, Short estimates the average overall public deficit 316 00:33:36.740 --> 00:33:43.740 before reduction of government transfer payments, current transfers, at 5.5% of GDP through the 317 00:33:43.740 --> 00:33:48.660 in the 1970s. He further estimates that the overall deficit in developing countries increased 318 00:33:48.660 --> 00:33:56.140 by 2.5 percentage points of GDP between the late 1960s and the mid-70s. Defining budgetary 319 00:33:56.140 --> 00:34:00.700 burden of public enterprises, the residual of government transfers and loans, less the 320 00:34:00.700 --> 00:34:06.700 loan service payments by the enterprises, Short estimates this burden to average 3.3% 321 00:34:06.700 --> 00:34:13.460 of GDP for 34 developing countries. It's unbelievable. That compares with the 4.4% estimate for the 322 00:34:13.460 --> 00:34:28.660 In spite of these trends, which amount to a fight for survival on the part of free enterprise 323 00:34:28.660 --> 00:34:32.260 in many parts of Latin America, there are several counter-trends. 324 00:34:32.260 --> 00:34:40.380 A good example was seen in Peru by the studies by Hernando de Soto where you're seeing the 325 00:34:40.380 --> 00:34:51.380 The Informal Society spring up on a rapid scale. He estimates that it takes a person six months to set government approval instead of a simple business in Peru. 326 00:34:51.380 --> 00:35:03.380 An informal economic system has grown up to rival the more traditional business. According to De Soto, an informal economy developed and grew despite the tremendous handicap of being illegal. 327 00:35:03.380 --> 00:35:10.240 He estimates that the informal economy of Peru now accounts for 90% of Lima's garment 328 00:35:10.240 --> 00:35:15.700 industry, 25% of its furniture industry, 60% of housing, and even a good part of the automobile 329 00:35:15.700 --> 00:35:16.700 and truck industries. 330 00:35:16.700 --> 00:35:18.900 All illegal. 331 00:35:18.900 --> 00:35:23.300 The informal Peruvian economy, says the study, has grown so fast that it now accounts for 332 00:35:23.300 --> 00:35:29.220 60% of the overall total Peruvian economy, and almost none of this output is counted 333 00:35:29.220 --> 00:35:33.940 in the official $22 billion figure for their GDP. 334 00:35:33.940 --> 00:35:37.740 Perhaps most important is the free enterprise system's ability to create jobs in Peru. 335 00:35:37.740 --> 00:35:44.420 An estimated two out of every three jobs are now in the informal illegal society. 336 00:35:44.420 --> 00:35:48.620 Another factor De Soto points out is that the South American economies often have two 337 00:35:48.620 --> 00:35:53.780 kinds of private sectors, one that is seriously burdened by excessive regulation hampered 338 00:35:53.780 --> 00:35:56.740 by the bureaucratic inefficiency, but is officially sanctioned. 339 00:35:56.740 --> 00:36:19.740 The second, which is by far more in accord with free market principles, but whose existence is barely acknowledged, almost illegal. 340 00:36:19.740 --> 00:36:31.740 This difference is made clear by an experiment documented by a study group from De Soto's Institute for Liberty and Democracy in which he tried to set up a legal garment firm without easing the way with bribes. 341 00:36:31.740 --> 00:36:43.740 And it took a lawyer and three others 301 days of full-time work dealing with 11 government agencies to complete the paperwork, which, when laid end-to-end, measured 102 feet. 342 00:36:43.740 --> 00:36:48.740 One of the researchers then tried the same experiment in Tampa, Florida. It took three and a half hours. 343 00:36:48.740 --> 00:36:54.740 But the awkward thing is, nobody gives a damn. 344 00:36:54.740 --> 00:37:01.740 I mean, you can't go to some high official and say, look, it's taking forever to get through the bureaucracy here and we could bring in jobs. 345 00:37:01.740 --> 00:37:04.740 Nobody gives a damn. That's the problem. 346 00:37:04.740 --> 00:37:11.880 A friend of mine from Occidental Petroleum, Bob Mahaney, a friend of John's and mine, 347 00:37:11.880 --> 00:37:18.180 we went to, and Dave Martin, we went to President Celia Suasso early on in his administration, 348 00:37:18.180 --> 00:37:22.340 and they were willing to, Occidental Petroleum offered to spend hundreds of millions, approaching 349 00:37:22.340 --> 00:37:30.100 a billion dollars, Bolivia, for oil exploration and what have you, and to work for the pipeline 350 00:37:30.100 --> 00:37:31.780 into Brazil and what have you. 351 00:37:31.780 --> 00:37:37.380 The project was nixed because there were two communists in the administration who felt 352 00:37:37.380 --> 00:37:42.740 that this would be very bad to give away, quote, the national patrimony to the big gringos 353 00:37:42.740 --> 00:37:47.940 from the north or whatever, some such perception. 354 00:37:47.940 --> 00:37:51.860 And so sometimes you wonder if anybody gives a damn about helping the people. 355 00:37:51.860 --> 00:37:55.660 What would a billion dollars in that bankrupt country would have accomplished? 356 00:37:55.660 --> 00:37:58.220 Think about it. 357 00:37:58.220 --> 00:38:00.660 And you thought somebody would have cared. 358 00:38:00.660 --> 00:38:16.660 The Mexican government, under the leadership of President de la Madrid, also has taken 359 00:38:16.660 --> 00:38:22.140 steps so late to deal with excessive government involvement in the economy. 360 00:38:22.140 --> 00:38:27.300 In the last issue of Reason Magazine, Mexico continues down a denationalization road the 361 00:38:27.300 --> 00:38:31.260 The trend began last fall when over 100 state-owned firms were sold back to the private sector. 362 00:38:31.260 --> 00:38:35.740 In February, the federal government stock took another step when it announced the sale 363 00:38:35.740 --> 00:38:40.020 of 202 more firms, and closing in on 332 more. 364 00:38:40.020 --> 00:38:44.900 That's about a quarter of the firms owned by the government so far. 365 00:38:44.900 --> 00:38:49.340 Of course, the hard nuts are going to be the big ones, because so often when I talk to 366 00:38:49.340 --> 00:38:54.100 the Latins and my friends, they say, sure, we agree with you, Bill, we'd like to sell 367 00:38:54.100 --> 00:38:55.100 off these parastagals. 368 00:38:55.100 --> 00:39:00.100 Do you want to buy a steel mill that's losing 30 million a year? We'll give it to you, right? 369 00:39:00.100 --> 00:39:03.100 Not give it to you, but you can let it go for very little. 370 00:39:03.100 --> 00:39:08.100 Who's going to buy it? That's the problem. 371 00:39:08.100 --> 00:39:16.100 So Latin America needs vast amounts of capital for progress or indeed to maintain the present standard of living. 372 00:39:16.100 --> 00:39:19.100 Otherwise, they're going to be in a free fall. They are in a free fall. 373 00:39:19.100 --> 00:39:22.100 According to the IDB study, between now and the year 2000, 374 00:39:22.100 --> 00:39:28.300 in Latin America and the Caribbean will have to create 100 million new jobs since half 375 00:39:28.300 --> 00:39:34.340 the population is under 20. And the birth rates are running at 3% with Mexico is up 376 00:39:34.340 --> 00:39:40.780 to almost 6%. So the average cost for creating a new job in the region is estimated, what 377 00:39:40.780 --> 00:39:47.500 would you say, $12,500 maybe compared to say $50,000 or more here, but still $12,500 cost 378 00:39:47.500 --> 00:39:54.020 to create a new job. That leads to an approximation of one and a quarter trillion dollars in capital 379 00:39:54.020 --> 00:39:59.840 will have to be generated in the next 15 years. One and a quarter trillion. That's in order 380 00:39:59.840 --> 00:40:03.220 for them to maintain the present standard of living with 100 million new jobs going to 381 00:40:03.220 --> 00:40:08.100 be created because of this population explosion right in America. Now, how does that figure 382 00:40:08.100 --> 00:40:14.420 compare to all the money that came in, all that free almost huge volume of lending over 383 00:40:14.420 --> 00:40:22.380 For the last 10 or 15 years, following the oil shocks of 1973 and 1979, how would you 384 00:40:22.380 --> 00:40:25.860 guess that compares, that one and a quarter trillion? Well, that's at least double if 385 00:40:25.860 --> 00:40:30.220 not triple all the money they've been able to borrow in the borrowing splurges of the 386 00:40:30.220 --> 00:40:36.940 1970s. Is it possible when that credit is gone? How many of you are going to send your 387 00:40:36.940 --> 00:40:44.380 savings out from the First American Bank down there to invest in any of those countries 388 00:41:44.380 --> 00:42:12.540 The Decade of the 1970s was the decade of commercial bank lending, nearly $300 billion, 389 00:42:12.540 --> 00:42:17.500 in that decade, then the decade of the 1980s must be the decade of foreign direct investment. 390 00:42:17.500 --> 00:42:24.180 That's the solution. They must take in partners, investments. They've got to start developing 391 00:42:24.180 --> 00:42:29.980 equity interests. Why? Because regarding future prospects for official aid, it's not going 392 00:42:29.980 --> 00:42:36.940 to come. The World Bank, I mean, there are going to be incremental support coming from 393 00:42:36.940 --> 00:42:40.340 obviously they're going to continue to be lending from the, but not on the scale that 394 00:42:40.340 --> 00:42:45.380 that we saw in the 60s from the International Monetary Fund and the other big multinational 395 00:42:45.380 --> 00:42:52.860 lending institutions. Is Citibank and Chase and Riggs Bank going to make the kind of bank 396 00:42:52.860 --> 00:43:01.740 loans they made in the 70s? Is that lending potential there? No, absolutely not. In 1980, 397 00:43:01.740 --> 00:43:06.340 the United States institutions, the United States had a transfer of capital abroad of 398 00:43:36.340 --> 00:43:41.340 The United States are grappling with the issue of controlling their own government deficits right now, unlike in the 70s. 399 00:43:41.340 --> 00:43:46.340 We're running not only huge deficits here, but huge trade deficits. 400 00:43:46.340 --> 00:43:49.340 And that's got to come to an end. And it's beginning to. 401 00:43:49.340 --> 00:43:55.340 The Congress has been to talk about protectionism. I see it everywhere. 402 00:43:55.340 --> 00:43:59.340 Not only against Japan, but in other areas. It can spill over. 403 00:43:59.340 --> 00:44:05.340 But also they're talking about reducing, eliminating, reducing at least the budget deficits. 404 00:44:05.340 --> 00:44:18.340 It's unlikely that the industrialized country central banks will be accommodating as accommodating towards these deficits as they were in the 1970s. Probably the classic understatement of all time, wouldn't you agree? 405 00:44:18.340 --> 00:44:27.340 Furthermore, it's now widely recognized that Latin America will not... will just only be able to service... 406 00:44:27.340 --> 00:44:57.340 Last year there were 38 billion dollars, an economist down there, who I respect, and he estimates that Argentine capital abroad is about 27 billion dollars, and that much of this capital left the country during the early 1980s, despite the fact that real interest rates, and you know, often they say we're decapitalizing the rest of the world with these huge capital inflows in the United States because our real interest rates are higher than theirs. The truth of the matter is that their real interest rates in their 407 00:45:27.340 --> 00:45:37.300 For the world's eight largest borrowers over the year 7482, calculations show an increase 408 00:45:37.300 --> 00:45:46.700 in debt of $317 billion, and while the current account deficit adjusted for changes in official 409 00:45:46.700 --> 00:45:49.420 reserves amounts to only $207 billion. 410 00:45:49.420 --> 00:45:56.460 Thus, there seems to be a capital outflow of $110 billion, the degree to which borrowing 411 00:45:56.460 --> 00:46:01.640 During finance, this capital outflow differs among countries. For Brazil, only 12% of 412 00:46:01.640 --> 00:46:10.320 the inflow was compensated by outflows. For Mexico, 45%. For Venezuela, almost the entire 413 00:46:10.320 --> 00:46:19.860 inflow was absorbed into outflows. In other words, 100% flight capital from Venezuela. 414 00:46:19.860 --> 00:46:24.720 And according to his figures, this trend has to be reversed in Latin America if it's to 415 00:46:24.720 --> 00:46:29.800 to grow at all. Unfortunately, too many of the Latin's economic policy makers are constantly 416 00:46:29.800 --> 00:46:34.840 surprised by the obvious. The solution to Latin America's problems with flight capital 417 00:46:34.840 --> 00:46:40.440 is very simple. It's that those policies of governments that have economic consequences 418 00:46:40.440 --> 00:46:45.600 must be in harmony with the criteria used by the rational investor. What are these criteria? 419 00:46:45.600 --> 00:46:52.440 The rational investor is interested, one, in a positive rate of return on an after-tax 420 00:46:52.440 --> 00:47:08.440 The policy areas that need to be tested for their degree of harmony with the rational investor's criteria are monetary policy, tax policy, and regulatory policy. 421 00:47:08.440 --> 00:47:17.440 Moreover, the relationships among the three broad policy arenas I've just mentioned must be tested for what is known in logic as the fallacy of composition, 422 00:47:17.440 --> 00:47:27.440 I.E. with the purpose of ensuring that the soundness of each policy considered in an isolation is additive or mutually reinforcing in a positive direction. 423 00:47:27.440 --> 00:47:38.440 The bold and courageous economic reforms, now in a way in Argentina, if adhered to, hold promise for an eventual solution to that neighbor's economic determination. 424 00:47:38.440 --> 00:47:43.440 The present monetary reform, for example, involves permitting only that level of monetary emission, 425 00:47:43.440 --> 00:47:54.240 Adherence to this policy is basically consistent with a non-inflationary monetary environment, 426 00:47:54.240 --> 00:47:58.560 which in turn would eliminate the perceived need for indexation, hopefully. 427 00:47:58.560 --> 00:48:04.080 But we all know that these policies have been tried before, and after six or seven months, 428 00:48:04.080 --> 00:48:05.760 timbers start to creak. 429 00:48:05.760 --> 00:48:06.760 Why? 430 00:48:06.760 --> 00:48:20.240 The kind of economic policy-making criteria I have just elaborated are, of course, at 431 00:48:20.240 --> 00:48:27.800 the heart of what the media has called, as labeled, Reaganomics. In fact, what Argentina 432 00:48:27.800 --> 00:48:32.240 is doing in the monetary sphere would appear to be consistent with the ideas of monetary 433 00:48:32.240 --> 00:48:44.160 Money is the creature of law, and the original issue of money should be maintained as an 434 00:48:44.160 --> 00:48:50.400 exclusive monopoly of national government. Money possesses no value to the state other 435 00:48:50.400 --> 00:48:56.920 than given it by circulation. Capital has its proper place and is entitled to every 436 00:48:56.920 --> 00:49:02.040 protection. No duty is more imperative on the government than the duty it owes the people 437 00:49:02.040 --> 00:49:07.560 to Furnish Them with a Sand and Uniform Currency and a Regulating the Circulation of the Medium 438 00:49:07.560 --> 00:49:13.460 of Exchange so that Labor will be Protected from a Vicious Currency and Commerce will 439 00:49:13.460 --> 00:49:17.920 be Facilitated by a Cheap and Safe Exchange. 440 00:49:17.920 --> 00:49:22.960 By the Adoption of these Principles, Lincoln said, the long-felt want for a uniform medium 441 00:49:22.960 --> 00:49:23.960 will be satisfied. 442 00:49:23.960 --> 00:49:28.040 The Taxpayer will be saved immense sums in interest, discounts and exchanges, the financing 443 00:49:28.040 --> 00:49:32.920 In the banking of all public enterprise, the maintenance of stable government and ordered 444 00:49:32.920 --> 00:49:39.160 progress in the conduct of the Treasury will become matters of practical administration. 445 00:49:39.160 --> 00:49:43.960 The people can and will be furnished with a currency as safe as their own government. 446 00:49:43.960 --> 00:49:44.960 Democracy will rise superior. 447 00:49:44.960 --> 00:49:49.260 In my opinion, the best way to make the currency safe as their own government is to have it 448 00:49:49.260 --> 00:49:50.760 gold-backed. 449 00:49:50.760 --> 00:49:53.320 And there's no reason why it shouldn't be gold-backed. 450 00:49:53.320 --> 00:49:59.240 In my opinion, we should go back to that policy that we had years ago here, and you can see 451 00:49:59.240 --> 00:50:07.640 that throughout the world the tremendous run-up of inflation is documentable to the period 452 00:50:07.640 --> 00:50:11.600 immediately after 1971. 453 00:50:11.600 --> 00:50:16.880 Borrowing is only one of the three types of international monetary transfers. 454 00:50:16.880 --> 00:50:20.800 The others are direct aid and government-to-government or multilateral and foreign direct investment. 455 00:50:20.800 --> 00:50:27.720 And I believe foreign direct investment is, which brings with it management skills and 456 00:50:27.720 --> 00:50:41.600 which brings with it in turn markets back up in the investing countries area and it 457 00:50:41.600 --> 00:50:43.200 creates jobs. 458 00:50:43.200 --> 00:50:53.380 To me, foreign direct investment should be the principal role of all governments to try 459 00:50:53.380 --> 00:50:59.840 to attract that capital. 460 00:50:59.840 --> 00:51:09.000 I see signs that some of our USAID programs are now encouraging more and more a climate 461 00:51:09.000 --> 00:51:11.480 for investment. 462 00:51:11.480 --> 00:51:16.560 I met yesterday with Jacques Delot-Rosier and he's doing everything he can to promote 463 00:51:16.560 --> 00:51:22.880 that concept, the IMF, and I see at the World Bank a lot of progress being made in that 464 00:51:22.880 --> 00:51:23.880 direction. 465 00:51:23.880 --> 00:51:26.640 President Reagan is certainly taking the lead on that. 466 00:51:26.640 --> 00:51:32.280 George Shultz has made a number of speeches, including the important speech that he made 467 00:51:32.280 --> 00:51:37.480 at the OAS General Assembly last November in Brasilia on this subject. 468 00:51:37.480 --> 00:51:46.640 And I see awakening in attitudes in Latin America in the four years that I've been exposed to 469 00:51:46.640 --> 00:51:48.640 Latin America, back with Latin America again. 470 00:51:48.640 --> 00:51:55.200 I mean, I remember the first CES meeting I went to, and I think John coached me on that. 471 00:51:55.200 --> 00:51:58.600 You know, the attack on the gringo was unbelievable. 472 00:51:58.600 --> 00:52:03.240 Everything, you know, we don't want to be exploited by the big gringo from the North. 473 00:52:03.240 --> 00:52:07.160 We don't want foreign direct investment, you know, and this type of thing. 474 00:52:07.160 --> 00:52:11.920 You know, that type of perception and the term exploitation, all those terms come out 475 00:52:11.920 --> 00:52:15.800 of the North-South dialogue, these new international order type discussions. 476 00:52:15.800 --> 00:52:18.320 But I don't see that anymore. 477 00:52:18.320 --> 00:52:20.520 I've seen that fade out. 478 00:52:20.520 --> 00:52:25.280 People are now talking openly about changing their domestic policies, getting rid of the 479 00:52:25.280 --> 00:52:26.280 Paris statals. 480 00:52:26.280 --> 00:52:30.320 President Alphonse Sine has made a number of good quotes on that recently, so has Mr. 481 00:52:30.320 --> 00:52:32.440 Madrid, and he's doing something about it. 482 00:52:32.440 --> 00:52:36.720 Brazil has set up a commission to explore the idea of setting up, of getting rid of 483 00:52:36.720 --> 00:52:43.680 of some of the parastatals if they can, think-fund buyers, and there is progress throughout the 484 00:52:43.680 --> 00:52:44.680 hemisphere. 485 00:52:44.680 --> 00:52:48.360 I don't know anybody now that is talking about expanding government ownership. 486 00:52:48.360 --> 00:52:51.680 On the other hand, new ideas have to be injected. 487 00:52:51.680 --> 00:52:55.880 The often quoted statement is, well, who's going to buy the stuff? 488 00:52:55.880 --> 00:52:57.400 Well, that isn't necessarily true. 489 00:52:57.400 --> 00:53:06.920 I believe that in some cases you can develop the ESOP programs on a modified basis, can 490 00:53:06.920 --> 00:53:10.280 be useful in selling to the employees. 491 00:53:10.280 --> 00:53:16.160 We saw the Whirton Steel case here, a bankrupt company in Pittsburgh, and you saw that when 492 00:53:16.160 --> 00:53:26.320 the employees took it over and made the necessary cuts, the effort took off and I think it became 493 00:53:26.320 --> 00:53:35.200 President Friedrich, the most successful, highest profit margin steel company in America, leading. 494 00:53:35.200 --> 00:53:38.040 In other words, what a turnaround. 495 00:53:38.040 --> 00:53:44.240 And I do believe that we saw the case in Guatemala, a number of cases down there. 496 00:53:44.240 --> 00:53:49.000 There are 50 now, employee stock ownership programs now down there, and the numbers should 497 00:53:49.000 --> 00:53:53.260 expand to 500 in a few years, companies. 498 00:53:53.260 --> 00:54:08.260 We saw there one of the plantations there that the employees owned had a share in agricultural 499 00:54:08.260 --> 00:54:14.380 production and along came the gorillas and the employees shot at them and chased them 500 00:54:14.380 --> 00:54:18.220 out because they didn't want to be taken over because they had a stake in the place 501 00:54:18.220 --> 00:54:28.260 And they even asked if they could have deducted from their payrolls some more guns because 502 00:54:28.260 --> 00:54:31.500 these guerrillas were all over the place. 503 00:54:31.500 --> 00:54:37.460 And the president even commented on that because it has been a very successful program, that 504 00:54:37.460 --> 00:54:38.460 particular one. 505 00:54:38.460 --> 00:54:43.000 And it shows that people will work and protect what they have if they know they have a stake 506 00:54:43.000 --> 00:54:44.000 in it. 507 00:54:44.000 --> 00:54:53.080 And I believe that throughout Latin America this whole idea of privatization through employee 508 00:54:53.080 --> 00:54:58.480 purchases is a very good possibility and it keeps them on their jobs and what have you. 509 00:54:58.480 --> 00:55:05.320 There are 8,000 corporations in America, some of the most successful companies here, almost 510 00:55:05.320 --> 00:55:09.440 10% of our workforce has already gone into an employee stock ownership program here and 511 00:55:09.440 --> 00:55:16.560 I see it expanding here and down in Latin America, just like the La Perla project that I mentioned, 512 00:55:16.560 --> 00:55:22.760 which is a 9,000 acre coffee plantation in Guatemala with about 1,500 employees and the 513 00:55:22.760 --> 00:55:23.760 families down there. 514 00:55:23.760 --> 00:55:27.600 I've got some details on it if you're interested in any of the background on that. 515 00:55:27.600 --> 00:55:32.320 I have some photographs of showing these folks with all their guns as these guerrillas attack 516 00:55:32.320 --> 00:55:33.320 on a regular basis. 517 00:55:33.320 --> 00:55:34.320 They're always attacking. 518 00:55:34.320 --> 00:55:46.320 And, at any rate, I feel that, in fact, I talked to Joe Rosinos, who's the representative of the Solidarity Union in Guatemala about this, and he said, 519 00:55:46.320 --> 00:55:55.320 he said, we can clearly see that the true message, what the true message of ownership and invested interest in the free enterprise system means in viewing the La Perla model. 520 00:55:55.320 --> 00:56:03.320 There's no greater significance to the concept of defending the free enterprise system than a worker laying down his life to defend the company in which he's a co-owner. 521 00:56:03.320 --> 00:56:08.320 If we want to prevent further Nicaraguas or El Salvador's, he says, the American government 522 00:56:08.320 --> 00:56:13.560 must address the problem of economic and social justice in Latin America. Promoting broad capital 523 00:56:13.560 --> 00:56:18.960 ownership is as an alternative to Marxist philosophy in Latin America. They are actively 524 00:56:18.960 --> 00:56:23.120 pushed now as foreign policy objectives. It can go a long way in giving people a vested 525 00:56:23.120 --> 00:56:28.320 interest in protecting the free enterprise system. And Norman Curlin, who's been very 526 00:56:28.320 --> 00:56:49.560 Marx and Engel stated that you can sum up the entire philosophy of Communism in a single 527 00:56:49.560 --> 00:56:52.320 sentence, abolish private property. 528 00:56:52.320 --> 00:56:56.960 The entire case of Marxist-Leninism disappears if we prove to the world that private property 529 00:56:56.960 --> 00:57:02.100 is essential for providing economic and social justice and for providing human dignity to 530 00:57:02.100 --> 00:57:08.120 people in the third world. Marx was wrong. However, we cannot simply attack him on the 531 00:57:08.120 --> 00:57:12.960 basis of the problems he was focusing on, but rather on the basis of the means that 532 00:57:12.960 --> 00:57:16.400 he would use. The solution is not to make enemies of the owners, but to make owners 533 00:57:16.400 --> 00:57:23.280 of the non-owners. And there's a simple litmus test for evaluating the economic reform efforts 534 00:57:23.280 --> 00:57:28.200 Research Now and Away in Latin America, and that is, do the proposed policy changes create 535 00:57:28.200 --> 00:57:34.160 the incentives and opportunities to acquire private property for all parts of our population? 536 00:57:34.160 --> 00:57:38.600 And the degree to which this question can be answered positively will determine whether 537 00:57:38.600 --> 00:57:45.600 or not Latin America is on its way to encouraging sustainable growth and recovery. 538 00:57:45.600 --> 00:57:47.560 So I see some trends in that direction. 539 00:57:47.560 --> 00:57:53.520 I think that this is something that we can, this is the greatest message of America, and 540 00:57:53.520 --> 00:57:59.640 we can export that. Why not? We're the greatest public relations operators here in the United 541 00:57:59.640 --> 00:58:05.900 States. You know, we can sell soap and toothpaste and all the rest. Why can't we sell the wonderful 542 00:58:05.900 --> 00:58:13.680 message of free enterprise and private property and dignity of the individual and the worker 543 00:58:13.680 --> 00:58:18.320 and Having a Stake in His Own Outfit. 544 00:58:18.320 --> 00:58:25.680 Why are we, the greatest media salesmen in the world, not able to combat the most bankrupt 545 00:58:25.680 --> 00:58:30.120 philosophy that the world has ever known, Marxism, Leninism, that's just spread throughout 546 00:58:30.120 --> 00:58:35.520 all the schools, most of the primary schools in Latin America and throughout a number of 547 00:58:35.520 --> 00:58:36.520 them in Europe? 548 00:58:36.520 --> 00:58:38.560 Why are we such lousy salesmen? 549 00:58:38.560 --> 00:58:41.040 We really are. 550 00:58:41.040 --> 00:58:53.160 And that's where I think Ludwig von Mises was like a light in a dark room, a beacon light. 551 00:58:53.160 --> 00:59:01.160 And that's where I think the von Mises Institute can be the light that becomes a light to light 552 00:59:01.160 --> 00:59:02.700 up the whole world. 553 00:59:02.700 --> 00:59:08.780 And I think there's a real exciting prospect ahead, not just following the liberalizing 554 00:59:08.780 --> 00:59:20.300 Thank you for listening. I hope you enjoyed it. I hope you enjoyed it. I hope you enjoyed it.