Economics

Take heart from Latin American capitalists showing the way

BY Liz Truss | tweet trussliz   /  23 April 2018

Anyone shaking their head in despair, thinking that capitalism is in retreat, needs to get themselves to Latin America. Last week I did just that, and travelled to Brazil and Chile to meet business and government to strengthen links with these economies and important allies.

Once run by left wing, or in some cases brutal regimes, the thrum of freedom is getting louder and louder across this cosmopolitan continent.

And in these countries Britain is seen as a trailblazer of free trade, enterprise and the privatisation of utilities. It reminded me that we must not lose our nerve about the central importance of a free economy; instead we need to work with like-minded allies to spread the message across the world.

In Brazil I found a nation bursting with promise. Sao Paulo is an energetic city of 25 million people. A megalopolis which has benefited from the absence of planning laws.

São Paulo boasts huge Smartphone use and an informal economy that loves Uber, AirbnB and everything the shared economy has to offer. I felt at home in the unofficial Instagram capital of the Southern Hemisphere. And I learned São Paulo has more Uber trips in a day than New York.

Although it has grown to become the eighth largest economy in the world, the brightest in Brazil have historically been held back by closed economic thinking. The public sector has exerted suffocating control over most industries, with private enterprise too often ignored. Unions and vested interests dominated the labour markets, leaving bureaucrats in charge of the workforce.

But free-thinkers like the people at the think tank Instituto Millenium are helping to change the culture. The next generation of so-called “cabeça pretas” (black hairs) are turning against big government which has had corruption problems. They want more Brazilians to have the opportunity to make their own money and shape their own lives. People there are talking about lowering barriers to trade and opening the economy. They’ve realised that high taxes kill companies and destroy jobs. And what was once taboo is now common currency: discussing privatisation of utilities and the use of private companies to fund infrastructure is now as acceptable as talking about futebol.

Investment in Brazil’s infrastructure currently hovers around 2 per cent of GDP, down from 5 per cent in the 1980s, and well below the level of most comparable countries. The result has been poor transport networks, hospitals, and schools – unfit for a burgeoning world power. But now Brazil has woken up and embraced private investment.

Chile is a more open economy than Brazil. Indeed, Chile is the most open on the continent, and has transformed itself into a thriving democracy. It is now an enterprise hotspot with more accelerated start-up investment than anywhere else in the world except the US and the UK. The Start-Up Chile programme offers visas to those with the best ideas around the world. It’s part of a larger trend in Latin America, where international investment in start-ups has more than doubled since 2013.

As well as their entrepreneurial spirit, Chile’s openness to trade is a model for the region to follow. And its leadership within the Pacific Alliance bloc will help Latin America strengthen its trade links with Asia, and the rest of the world.

I had a severe case of fiscal envy as I perused the figures at the Hacienda (the Ministry of Finance – not a Manchester nightclub) to find their national debt is just 22 percent of GDP, as opposed to nearly 90 per cent in Britain.

They recognise the value of keeping control of public finances to maintain a strong economy and to stop the state growing too big and crowding out private investment. This isn’t just a wishy-washy ideal; it’s written into their laws. Since the turn of the millennium, Chile has enforced a fiscal rule, which limits public spending to projections of how much money will be generated by growth and hence taxes. It’s simple, but it makes sense: they only spend what they can afford.

But what does it all mean for us? Well, Britain stands to benefit from stable friends. Latest figures show that bilateral trade between UK and Brazil is worth £5.4 billion a year, and £1.6 billion with Chile. And both countries told me of a desire to trade more with Britain post-Brexit. But more than that I saw nations who are working hard to keep control of their public finances, keep taxes low and refuse to bow to the idea that business and free enterprise is the enemy.

Yet, incredibly in Britain, a country that has for years benefited from an enterprise economy we have an Opposition seeking to foment a revolution against the very foundations of our success. They look to Venezuela as their model, where politicians control the economy, using high taxes and strict regulation to shackle anyone with the ambition to shake up the market.

Other South American countries are seeing an influx of Venezuelans as their citizens seek to leave this economic car crash. Brazilian politicians I spoke to despair of this “bad neighbour” and are gobsmacked that anybody would seek to emulate their policies.

It is vital that we fight this with renewed vigour. It would be utterly ludicrous and hugely damaging if Britain, which has led the world in free-trade, privatisation and private finance, loses the faith. It is not inevitable as some claim that we are headed for higher taxes or more regulation.

We need to continue to make the case for free enterprise and take heart that on the other side of the globe there are others who share those convictions.

Liz Truss is the Chief Secretary to the Treasury.


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