Costa Rica and Liberalization

This is an excellent cautionary tale for those who jump to conclusions about privatization and liberalization.  Costa Rica has benefitted enormously from pulling the State back from a dominant role in the economy, allowing it to develop high tech and tourism industries that make it one of the wealthiest countries in Latin America.  Inequality is rising however and before the country as a whole has gotten rich.  What the author demonstrates is that cronyism and incomplete liberalization have caused this to take place.  Artificially depressing the currency for too long has eroded savings and made the cost of imports far too high. Similarly, export-led agricultural policies have made basic foodstuffs far more expensive in Costa Rica than in the developed world; the estimate of a 29% tax on the poor, due to these policies is astounding.  Lastly, export led policies can lead to to a stifling of the national business sector, as national champions have little desire to see competition.  We still see this effect in East Asia even in Korea and Japan.  It’s pretty clear that renationalization is not what Costa Rica needs – it’s a dismantling of the regulatory barriers and policies that keep the poor poor.

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