Daily Archives: February 3, 2014

Inefficiency of the forced industrialization

Armando Mendez writes in Pagina Siete:

Inefficiency of the forced industrialization

Armando MendezInterventionism and State interventionism is a fact that was firmly in the past. It began in Europe, with what is called mercantilism and dates from the 1500’s.

Before in the economy, there was no per capita growth. Production increased as the population increased, equal work, but the per capita product remained constant.

At that time the State began to play an important role in the economy. The first banks in Europe were State-owned. The State gave the rights to the private to produce certain goods, while banning its import, so, in this way, the expansion of the nascent industry took place.

The mercantilist mindset is characterized to see exports which allow to accumulate gold to a country, but not to imports as a positive development. Without a doubt, this intervention helped to start slightly grow the product per capita.

After the first world war and with force from the great depression of the thirties of the twentieth century, intensified interventionism and economic dirigisme in rich countries today, each of them looking for their own interests, which were the dominant social groups.

The States sought to encourage its industrial activity by imposing import tariffs, even banned them. Also were given the creation of State-owned enterprises and the freezing of prices for certain goods and services.

In the short-term, these attitudes could generate some economic bonanza not maintained over the long-term, why?

Economic growth inevitably goes beyond national borders and economic efficiency requires that, as well as individuals specialize in what they know best, the same has to happen with countries: should produce things that are more efficient, not only for the domestic market but for the world, and get the world’s goods and services requiring, also by means of economic exchange.

Economic science discovered this fact and therefore managed to nearly eliminate the import tariffs and subsidies to exports in the world and is still looking to achieve the ideal of “global free trade”.

It was learned that it is negative to promote industrialization where a country does not have the structural conditions for that. That is, when you have no capital, the technology, the knowledge and the right people to develop a particular industrial activity.

When this is unknown and is pushed to a determined industry, on the basis of subsidies and bans on international competition, the only thing that is done is to create artificial economic activity, that has to face the global competition, a moment in which collapses.

Which shows that the only thing that has been done is to punish domestic consumers, paying higher prices for similar products that could be imported.

Today, industrial activity has ceased to be the most important in the economies of the world, the dominant are the services. The industry is no longer the main job seeker, is the activity of services.

What sense does today seek to force the industrialization? It’s just wasting scarce economic resources, because at some point in time reality will sink in, will be demonstrating that industry is artificial and has to break.

What is going on in the country? A good economic period is going through. In the eight years of the Government of President Morales, the GDP had an annual growth rate in the order of 5%.

It is not the best. The best rate was in the period 1962 to 1977 (16 years), which reached almost 6%. But both periods have much in common. Intervention and State intervention of the State on the economy. The objective: the industrialization.

State-owned enterprises were created in both periods. In the first there were some 75 public companies. Its importance, practically disappeared by the time in which President Morales took over the Government, point where they only accounted for 1.3% of the GDP. For the year 2012, represented 28% and currently there are 36 public enterprises, as a result of the “nationalization” and the creation of new companies.

Both periods are also characterized by State dirigisme on private enterprises through the freezing of prices and control over imports. With the new law of the financial system, the Government of Morales also returns to control interest rates and the policy of selectivity of the credit, that characterized the period 1962-1977.

Armando Mendez Morales is a member of the Bolivian Academy of Economic Sciences.

http://www.paginasiete.bo/opinion/2014/1/28/ineficiencia-industrializacion-forzada-12446.html

Great economic lecture which should be read and applied by current, transient Bolivian ochlocracy.