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Bill Black: How Ecuador Won By Defying Neoliberal “Washington Consensus” Playbook

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By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Cross posed from New Economic Perspectives

Heritage Foundation is run by Jim DeMint, the former Tea Party legislator. Heritage promptly demonstrated the impact of its new leadership with its purported study of the benefits and costs of immigration that ignored the benefits and inflated the costs. Even other conservative groups were appalled – and that was before one of the co-authors of its studies’ past writings on the inferiority of certain minorities that purportedly made assimilation fail became public. Heritage is one of many anti-think tanks where anyone with a progressive thought is shown the door.

I wondered how the new Heritage was handling Ecuador. Ecuador is a particular problem for entities like Heritage. Heritage has an “economic freedom index.” “Freedom” has a specialized meaning to Heritage – financial regulation and regulation to protect workers’ health and safety tends to be treated as a decline in freedom. Simply having the government spend money – even if the spending dramatically increases health, safety, and education – can be treated by the index as making a nation less “free.” Like the competitiveness indices created by the World Economic Forum, the Heritage indices represent faux empiricism in the service of ideological dogmas.

Heritage sculpted its index to attempt to support its view that regulation and government spending reduce economic growth. Nations like Ecuador expose the fallacies of Heritage’s index. Heritage’s index has a “quick facts” component that reports that Ecuador’s economic growth was 7.8% and unemployment was 4.9% (unemployment is now down to 4.1%, the best in Latin America).

As I have explained in prior articles, Ecuadorian President Rafael Correa has dramatically increased spending in precisely the categories that the Washington Consensus claimed Latin American governments should concentrate their spending – health, education, and infrastructure.

A million Ecuadorians have been brought out of poverty (in a nation of 15 million) under the Correa administration. The enormous emigration of Ecuadoreans prior to his leadership has been replaced by net immigration.

Ecuador poses existential threats to Heritage’s index and ideology. First, President Correa is a top economist whose policies are based on the view that Heritage’s proposed policies are self-destructive, immoral, and economically illiterate. Correa’s policies are working brilliantly and are exceptionally popular in Ecuador. Better education, health, and infrastructure are essential to spur economic growth, but they are also steps that dramatically reduce human misery and powerlessness and expand freedom. Polls showed Correa had the highest approval rating of any head of state in the Americas.

Second, the three areas of government spending that President Correa has dramatically increased are the areas that the Washington Consensus said should be Latin America’s top priorities. This reveals how extreme the ideological dogmas are that shaped Heritage’s faux “freedom” index. The Washington Consensus, taken as a whole, is an exceptionally anti-governmental product of conservative neoclassical economic theories. Heritage, however, treats important aspects of the Washington Consensus as if they were the Communist Manifesto.
Third, Correa’s policies have proven so successful not despite Ecuador receiving a terrible rating in Heritage’s fake freedom index, but because Ecuador did so. Heritage ranks Ecuador as 159th in the world, and falling, and classifies it as “Repressed” – its lowest category. It is a mistake to see Ecuador and Correa as clones of Venezuela and Hugo Chavez. Correa and Ecuador have demonstrated that deliberately adopting policies that produce a lower Heritage score can increase growth, add dramatically to the quality of life, and expand the citizens’ freedom.

Heritage responds by disparaging Ecuador’s success. In its narrative accompanying its index, Heritage claims that Ecuador’s “economic growth has been moderate.” A 7.8% growth rate is “moderate?” I found Heritage’s description of Ecuadorean growth dubious so I looked to see what descriptors they used to describe growth rates for Heritage’s ideological allies. Heritage published an article trying to give Republicans credit for spurring economic growth by forcing a tax cut on President Clinton during his second term. Heritage claimed that the result of the tax cut was “spectacular growth” – “the economy grew at an annualized rate of 4.4 percent.”

Heritage considers 4.4% annual growth “spectacular” when Republicans (allegedly) produce it, but a 7.8% annual growth rate is only “moderate” if Correa produces. A conservative website notes our economy grew at an average annual rate of 3.4 percent under President Ronald Reagan.

I also looked at how Heritage’s fake freedom index described growth rates in Latin American nations that came closer to sharing Heritage’s ideological dogmas. Heritage describes Peru’s annual economic growth rate of 6.9% as “strong.” Heritage characterizes a 6.9% growth rate for a (relatively) conservative nation as “strong” but a 7.8% economic growth rate for Ecuador as “moderate” because (a) it detests Correa and (b) ideology trumps facts and logical consistency.

In Ecuador, GDP growth under Correa is particularly important because it has reduced inequality and poverty and led to an improved standard of living for virtually all citizens. Another measure of economic growth is the growth in real (adjusted for inflation) wages. Heritage has presented a chart in which it endorses the application of the phrase “Rapid Growth Scenario” to an annual growth rate in real wages of 1.4 percent.

In 2012, the real growth in wages in Ecuador was 3.0 percent. That is over twice the growth rate that Heritage described as “rapid.”

Modern theoclassical economics has made an art form of fake empiricism produced by fake think tanks that shape their product to please their corporate founders/donors. The products may look like science, but it is simply dogma misrepresenting reality in an intellectually dishonest manner. President Correa drives entities like Heritage nuts because Ecuador has been so successful while he has been president because he championed policies they despise. It is time for the United States to embrace this success.

It is bizarre that the Obama administration, which purports to support most of Correa’s economic policies, shares Heritage’s implacably hostility to the Correa administration. The Obama administration is already acting like Ecuador’s grant of asylum to Julian Assange is a hostile act to the United States and there is great danger that it will become even more hostile towards Ecuador should Edward Snowden be granted asylum by Ecuador.

A Personal Plea to President Obama and Secretary of State Kerry

When you find you are taking your policies against Ecuador from Heritage’s playbook it should alert you of the need to stop, rethink, and reboot. President Correa was reelected by a huge margin on the basis of popular support for policies that he – and you – made the heart of your electoral platforms. President Correa has been able to put those policies in place to a far greater degree than you have Mr. President – and the results have been a spectacular success. You can disagree about some foreign policies while still being strong supporters of President Correa’s education, health, and infrastructure policies and the Ecuadorean peoples’ support for those policies, their President, and Ecuadorean sovereignty.

Yves here. If Edward Snowden succeeds in getting asylum in Ecuador, it’s a safe bet we will hear nary a nice word about Ecuador from anyone in the officialdom.

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23 comments

  1. ambrit

    Friends;
    I hope Pres. Correa doesn’t have many senior officers in his countries army who were trained at the “School of the Americas” in Ft. Benning, Georgia.

    1. Ray Duray

      ambrit,

      President Correa has good control of the Army. However, a couple of years ago he was nearly done in when he naively traveled to a police headquarters without a sufficient praetorian guard and was kidnapped for a short period by right wingers in that force. It was a pretty close call. I believe he learned his lesson.

      1. Massinissa

        Wasnt that the one where he had incredibly big balls, and dared the soldiers to shoot him, since it was in a crowded public area?

        Whatever Correa lacks, it isnt courage.

  2. Sandwichman

    “the Obama administration, which purports to support”

    The key word is purports. The curtain has parted and the real emperor has stepped out on stage — the vast, untamed national security apparatus. The “Obama administration” is a Potemkin facade. Meet the new boss, same as the old boss.

  3. Dan Kervick

    Washington is still fighting the Cold War in Latin America. Keeping our Monroe Doctrine hinterland safe for private US capital and out of the hands of socialists and democrats is a perennial beltway religious cause.

  4. Mr. Jack M. Hoff

    It all goes to show what that worthless teabagger Demint truly is about. He’s a racist ass, and it’ll be a blessing for the world when he departs…

  5. middle seaman

    Have no doubt that Ecuador has improved under Correa. Yet, the country is still very poor.

    1. Massinissa

      The same could be said of any south or central american country, with the exception of Chile and Argentina. And maybe one or two others Im forgetting (Brazil has high gdp, but has too much poverty and inequality to call the nation ‘rich’ IMO).

      Perhaps the problem is that youre trying to compare Ecuador to first world Western countries? Even in its dilapidated, decaying state, the USA is still richer than most of the world. For now…

      And the most important thing is that Ecuadors a hell of a fucking lot better than Columbia. Thank god. Need to go find out if those crazy Heritage ideologues find nice things to say about Columbian ‘freedom’. Im almost scared to, to be honest; I might have to die laughing.

  6. Massinissa

    I hate to defend Heritage on ANYTHING but I do feel I need to make one comment.

    Considering that it gets progressively harder to get economic growth the larger GDP is, and considering that Chile has almost four times as much nominal gdp as ecuador, the case could be made that Chile’s slightly smaller growth rate is more impressive.

    Though thats hardly compensation for Heritage being a huge ass to… Well everyone, really, but Ecuador in particular.

    By the way, Im looking at that freedom index… Its pretty facepalm… How the heck is China more free than Argentina?! Argentina is placed 160th, one rank lower than Ecuador!! This is ridiculous!

    Oh, and for some reason Venezuela is below both the Democratic Republic of Congo, and also Burma. Bloody really, you mean to tell me venezuela is less free than BURMA?! A country that is persecuting its Muslims causing thousands of them to flee is more ‘free’ than Venezuela?!! (To be fair, Burma is 6th last on the list).

    Oh good fucking god. Colombia is 37th most free. In comparison, France is only 62. (I couldnt think of a better standard of comparison, and anyway I was sort of surprised how low it was, being one rank lower than thailand and all.)

    Yeah, Columbia being one of the most free nations on earth, that about sums up how BS this list is right there.

  7. Massinissa

    hate to defend Heritage on ANYTHING but I do feel I need to make one comment.

    Considering that it gets progressively harder to get economic growth the larger GDP is, and considering that Chile has almost four times as much nominal gdp as ecuador, the case could be made that Chile’s slightly smaller growth rate is more impressive.

    Though thats hardly compensation for Heritage being a huge ass to… Well everyone, really, but Ecuador in particular.

    By the way, Im looking at that freedom index… Its pretty facepalm… How the heck is China more free than Argentina?! Argentina is placed 160th, one rank lower than Ecuador!! This is ridiculous!

    Oh, and for some reason Venezuela is below both the Democratic Republic of Congo, and also Burma. Bloody really, you mean to tell me venezuela is less free than BURMA?! A country that is persecuting its Muslims causing thousands of them to flee is more ‘free’ than Venezuela?!! (To be fair, Burma is 6th last on the list).

    Oh good god. Colombia is 37th most free. In comparison, France is only 62. (I couldnt think of a better standard of comparison, and anyway I was sort of surprised how low it was, being one rank lower than thailand and all.)

    Yeah, Columbia being one of the most free nations on earth, that about sums up how BS this list is right there.

    Note: Lambert (or whoever), if I posted this multiple times, remove the other ones please. Was sort of an accident. Thank you kindly.

    1. Ray Duray

      Hi Massinissa,

      I note with some glee that Heritage has Hong Kong ranked #1 in their nation listing.

      Wanna bet on how soon they are demoted for harboring Edward Snowden? That surely must irritate the De Minted Ones.

      I’m surprised they give only a #28 rating to UAE. Surely in an emirate with no democracy, no press freedom, suppression of labor unions, slave labor wages and standards and total discrimination based on race they deserve a much, much higher Heritage rating! This is a classic anti-Marxist bosses’ paradise.

    2. Robert Dudek

      Does Haiti rank #1 of Heritage’s freedom list? It has basically no functioning government – truly a libertarian paradise.

      1. Massinissa

        Haiti is pretty low on the list actually, at 152, but thats still above Ecuador and Argentina.

        I dont think any real, unbiased person, who went to haiti and then went to Argentina, would come away with the idea that Haiti is more free than Argentina. Besides maybe Ayn Rand and Jim DeMint.

  8. digi_owl

    Seems i was right in distrusting the source when someone was using the Heritage Foundation to back up claims.

  9. casino implosion

    Quandoque bonus dormitat Billblackus: despite the fact that the immigration debate is cast in terms of “racism”, the neoliberals (ie our ruling elites on both sides of the isle) are the ones pushing for immigration “reform”. As the Rubio aide came right out and said, American workers are lazy and useless.

    1. jrkrideau

      Intersting article and I note that the author is well enough off to send their childred to a private school and has private medical insurance.

      Somehow this seems unlikely to put him in a class that is likely to be happy with some current policies.

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