Quick, a post about anything other than Thatcher: Ecuador’s performance is even more impressive that you realise

No preprepared obituary for her Toryness here, no siree, instead something completely irrelevant (or timelessly more relevant) about Ecuador.

So, first things first, I’ve always had a soft spot for Rafael Correa.

Firstly, because he also went to LSE, secondly for actually going ahead and repudiating the odious debt built up by past kleptocracies, thirdly for running a relatively effective industrial policy and finally for this truly brilliant, hollywoodesque sequence during an attempted coup:

President Correa went to the police barracks in Quito where he arrived at 11:00 A.M. (GMT+5); after being ill-received — an honor guard was not assembled — he first tried to have a dialogue with the police and criticized their actions as treason to “the people and the country”, but after hearing hostile police chant “Lucio presidente, Lucio presidente” he screamed “‘If you want to kill the president, here he is. Kill me, if you want to. Kill me if you are brave enough!”

So when I see someone ripping on Ecuador and Rafa, I get a little peeved, especially when the criticism is so bizarrely weak. Timmy highlights this paragraph from a glowing guardian write-up of Ecuador.

By rejecting the neoliberal recipes of privatisation, structural adjustment and curtailed demand, we have grown by 4.3% over the last five years despite the global slowdown. Central to this growth, and to the reduction of unemployment to the lowest rate in the region, has been public investment, which at 14% in 2011 is the highest in Latin America.

He comments:

Dear God. Sub-Saharan Africa is growing by 5.5% a year without much if any public investment in anything.

With 14% of GDP in said public investment Ecuador should be roaring away at a much higher rate than that. They’re boasting about the figures that show what a poor job they’re doing.

This is bizarre on so many levels. Where to begin?

Well first I should not that Ecuador is much wealthier than Sub-Saharan Africa, seven times wealthier! [src src] As countries get wealthier it gets harder to grow rapidly.

Logically it could be no other way, as poor countries get richer amongst other things they have to stop borrowing ideas and technologies and come up with their own. That’s much harder and growth slows.

Africa has had the advantage of being really poor and violent and one of the best ways to grow rapidly is to stop killing people all the damn time.

Ecuador has the much harder task of seeking export led growth. This sort of development is the only really tried and tested model we know of to take a country sized economy from the idiocy of rural poverty to urbanised development.

But there’s a catch. It seems not everyone can get rich this way at the same time. It seems that pockets of development and successful export led growth move about. First the UK, then to continental Europe and North America then to a cluster focussed on Japan (including South Korea and Taiwan) then another focussed around China. The pattern is rock solid, but it’s pretty good.

So, Ecuador is not just trying to pull of this most difficult of feats cut off from much of the world’s financial markets (that debt repudiation thing mention earlier), it also has to compete with China, Destroyer of Worlds. I’ll let Karl explain this one:

China at some points has had investment rates of in excess of 40% of GDP…. For super-geeks this exceeds the Ramsey Rule at a zero discount rate. For non-geeks it means that there is no investment strategy under which this is the profitable thing to do.

Its always hard to tell but on balance I think the Chinese government is aware of this, yet is willing to lose money on its capital investments in order to provide jobs for people moving to the city. This is a smart move if you think cities produce agglomeration effects.

With apologies to the less wonkish, China is using physical capital as a loss leader in order to grow cities that will produce network effects will in turn foster the human capital that really makes a country rich.

Ecuador is competing with this, and is geographically cut off from the major global growth cluster of our time and is still growing at a reasonable pace. I’ll concede a lot of the growth appears to be oil driven, but so what. They are selling their capital stock of oil and investing it in a different sort of capital stock of public services. Sounds like a reasonable plan to me.

Advertisements