Dear Dr. Ha-Joon Chang and colleagues,
We decided to write you, given that you have decided to defend the
Ecuadorian case under Rafael Correa and rallied 50 economists to write a
warning “Against Neoliberalism’s return in Ecuador”.[1]
We were not wrong. In less than
three years, they had attempted three industrial policies, with three different
ministers of Industries and other three ministers coordinating Production.
Popular renderings against Neoliberalism aside, it was clear that neither the
President nor the ministers in question had –at a minimum– read your 1993
seminal study of South Korea’s industrial policy and even less Robert Wade’s
1990 or 2006 Governing the Market.[2],[3]
To be sure, they had already implemented
Import Substitution Industrialization Policies 2.0 as a long list of
tariff-protected items along with another list of exemptions by 2009. However, there was no clarity about which agency
or minister was in charge of industrial transformation; there were feuds
infighting inside and an increasingly adversarial relationship with the private
sector. Surprisingly to your academic
concerns, the economic groups not alienated by the government were major
importers who benefited from selective exemptions from the new tariff
protection schemes. Industrial policy
had become a list of national champions that changed as often as the ministers
in charge of the different versions of the same policies.
So, I invited you again to visit Ecuador in 2009. This time, I asked minister Nathalie Cely to
sponsor the invitation to make sure that the President and his team actually
listened to you. I still remember that,
when I asked you if President Correa had a better idea of how to proceed with
industrial diversification, your answer was NO. That was the last time we saw each other because
you gained your own direct channel to Ecuador and Rafael Correa through Nathalie
Cely and the many advisory opportunities that he had with you.
As for myself, I embarked in a wonderful journey to find by myself the
origins, evolution and explanatory causes of failed industrial policies in
Ecuador and Peru. I devoted myself six
years to that endeavor and finding –to my surprise– protective industrial
policies as far back as 1906 in the case of Ecuador. In fact, I found that infant industry
protection with the best perks, benefits, and state sponsored subsidies had always
been in place until 2006. Ecuador’s
failure has –paraphrasing Douglas North– everything to do with failed
economic institutions.[4]
Back to your spirited “warning against neoliberalism” in the wake of
April 2nd presidential elections, I am afraid that you and your partners have
also been prey of the proliferation of misinformation and misunderstandings
about Ecuador’s economy. That is why my fellow academic friend Manuel González
and I felt it necessary to correct the record.
We are not here to defend neither Neoliberalism nor the opposing
presidential candidate. But we, as
academics, are appalled by blatant misconstruction of Ecuadorian history and
plain facts. Washington Consensus
policies were not fully applied until 1992, when a conservative government won
the presidential elections that year with precisely that agenda. Even then, the indigenous movement was so
powerful and mobilized so forcefully that, besides some price corrections
(mainly gas and electricity) and some reduction in public servants, no
privatization scheme was ever possible.[5]
The liberalization of the financial system during those years did harm
the economy some years after in 1999 but the limited investment in health and
education services was mostly determined by the extremely low prices of oil.
As Manuel, who also signs this letter, has already pointed out to MarkWeisbrot without any rectification from his part, it is very arbitrary to take
the prior 26 years to compare the performance of the economy to the years under
Rafael Correa. First, the economy before dollarization (year 2000) was very
different to the economy afterwards. Also, there are 11 years in the
period "2006-16", and one of them does not belong to the government
of Rafael Correa: 2006. Rafael Correa’s inauguration was on January 15th 2007
and not one year before. The correct comparison is between the years 2000-2006
and the years 2007-2016, although, for 2016 there is still incomplete
information: there is no GDP estimate yet, for example.
Second, let us take the per capita GDP in constant dollars adjusted by
purchasing power parity of the World Bank. The average growth rate of per
capita GDP between 1990 (there is no information prior to this year) and 2006
is about 1% per year, whereas it is about 2.3% between 2007 and 2015, which is
indeed higher than the period before. However,
if one considers the growth rates between 2000 and 2006 (the post-dollarization
period) of the indicator of per capita GDP above, the average is about 3% per
year, which is higher than the average growth rate under Rafael Correa.
Third, in the same period, 2007-2015, Chile's average per capita GDP
growth rate is 2.5%, Colombia's average is 3.2%, while Peru's is 4.3%, all of
them higher than Ecuador's.
About the supposedly poverty reduction, it is enough to say that the
poverty rate between 2007 and 2015 declined from 37.6% to 23.3%, about 14
percentage points or 38%. But the
poverty rate declined from 64.4% to 37.6%, about 27 percentage points or 42%,
between 2000 and 2006. If we consider
the headcount poverty ratio in constant dollars adjusted by purchasing power
parity of the World Bank, Ecuador reduces its poverty rate by 62% between 2007 and
2015, whereas Peru reduces it by 69%. Colombia is less successful (45%),
whereas Chile basically halves it, though to a level that is about one third
that of Ecuador.
And above all, it is not true that poverty reduction was larger than in
previous decades. First, reliable
poverty rates going back to, say, 1996 or 1997 (the "previous
decade") are very scarce. The World Bank provides scattered
information about poverty rates based on constant dollars adjusted by
purchasing power parity. Those show that the reduction in poverty between
1994 and 2006 is about 46%, which is not "many times" smaller.
Again, the same measure shows that between 2000 and 2006 (the post
dollarization period), poverty was reduced by 67%, higher than the 62% achieved
in 9 years of the government of Rafael Correa.
We salute always more social investment. Indeed that is something we praise from any
government. However, the amount actually dedicated to health and education is
much less impressive than the government claims. Official information shows that about 3% of
GDP was dedicated to public education and 1.4% to public health in 2008, for a
total of about 4.5% of GDP. Those numbers in 2016 are 4.5% for public
education and 2.5% for public health, for a total of about 7% of GDP.
This is an increase of about 36% in education and health services.
However, it is just not true that “government revenues have been
channeled into responsible state spending with impressive results” as you have
asserted. Far from a responsible social spender, President Correa has committed
to gigantic external loans under draconian conditions, including using oil
exports as collateral with China and interest rates above 10% for sovereign
bonds, when other comparable countries do not pay more than 6%. The bad indebtedness conditions have implied
that the percentage of GDP that the government dedicates to repay the public
debt (capital, interests, and anticipated sales of crude oil) are 5.1% in 2008
and 8.5% in 2016, an increase of 67%, much larger than the increase in
education and health. Isn’t slandering of public funds compromising social
spending for the future? Isn’t this dependency to external loans what you have
also criticize from Neoliberalism?
Lastly, it can be very easy to increase spending, especially when the
costs of the projects are not competitive and contaminated with corruption. It seems that you are not concerned at all
about the dramatic cases of corruption in Ecuador.
To sum up, even under your own standards, the heterodox economic program
of the Correa’s administration is a failure. Not only macroeconomic policy is missing the
mark, but sectorial policies, like our cherished industrial policy, has not
progressed beyond wonderful Powerpoint presentations displayed in impressive white
elephants like the Yachay University. If
you care about details, the situation was so dire, that Correa did have to sign
a Free Trade Agreement with the European Union just to save the current volume
of staple exporting commodities that keep the economy running.
Not that you care about democracy, which is the most important casualty
of this decade. If you care, it is
enough to say that in these ten years, the government has criminalized social
and political expression to the point where charges of terrorism have been used
even against indigenous peoples.[6]
Among indigenous peoples, poverty is still prevalent in 89% of households.[7] There
is no independence of the judiciary; and a dismal façade of fair and free
elections with state money pouring to support the incumbent candidate of the
revolution, even when Ecuador is under a recession trap, not acknowledged by
the Alianza Pais government until
this day.[8]
We acknowledge that macroeconomic policy is not neutral. But there are facts and common sense. We hope you can acknowledge how much there is
to know behind mere data threw as yet another propaganda weapon against good
faith. We lament that you have been misled
by them too.
We love our country deeply to care enough to correct the record and
discuss your decision to take part in the misinformation war. We also have strived and struggle to have a
better, inclusive country all our lives. And we can say that we share your last
paragraph indeed: “Ecuador
deserves leaders who will implement policies that benefit all Ecuadorians
―whoever they may be. It would be tragic for Ecuador’s next government to
return to a less prosperous, less inclusive past.” For now, the past is Alianza País and the heirs of Rafael
Correa.
Sincerely,
Grace Jaramillo, Ph.D. – Research Fellow at the Balsillie School of
International Affairs, University of Waterloo.
Manuel Gonzalez, Ph.D. – Professor at the Graduate Programs of the School
of Social Sciences and Humanities, Escuela Superior Politécnica del Litoral,
Guayaquil, Ecuador.
[1] Chang, H.J., Galbraith, J. et al. (2017, March
26th). “50+ Economists Warn Against Neoliberalism's Return in Ecuador”. CommonDreams. Breaking News and Views for
the Progressive Community. URL:
http://www.commondreams.org/views/2017/03/26/50-economists-warn-against-neoliberalisms-return-ecuador
[2] Chang, H. J. (1993).
The political economy of industrial policy in Korea. Cambridge Journal
of Economics, 17(2), 131-157.
[3] Wade, R. (2006 2nd.
Ed. or1990). Governing the market: Economic theory and the role of
government in East Asian industrialization. Princeton University Press.
[5] Andrade, P. A. (2009). Democracia y cambio político
en el Ecuador: liberalismo, política de la cultura y reforma institucional.
Corporación Editora Nacional or Andrade, P. (2009). La era neoliberal y el
proyecto republicano. La recreación del.
[6]
Amnesty International (2012). ‘So that no one can say anything’
Criminalizing the right to protest in Ecuador. Retrieved from: https://www.amnesty.org/es/documents/amr28/002/2012/es/
. HRW (2016). Examen Periódico Universal 2016. Retrieved from: https://www.hrw.org/es/news/2016/10/11/ecuador-examen-periodico-universal-octubre-de-2016
and CONAIE (2016, January 21st).
Criminalization of social struggle in the Amazon region of Ecuador. Retrieved
from: https://conaie.org/2016/01/21/criminalizacion-de-la-lucha-y-protesta-social-en-la-region-amazonica-del-ecuador/
[7] SIISE
(2015). Pobreza por necesidades básicas insatisfechas. Indice,
5 (p. 10) Retrieved from: http://www.siise.gob.ec/siiseweb/PageWebs/pubsii/pubsii_0040.pdf
[8] De la Torre, A. & Hidalgo, J. (2017, March). La
trampa que asfixia la economía ecuatoriana [The trap that is asphyxiating the Ecuadorian economy].
CORDES, Working Paper.
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