Rómulo López says that it would be interesting to make this analysis at an international level in Latin America and compare how regulated we are in different areas, not only at an occupational level, to see if in this way politicians understand that the solution to underdevelopment lies in deregulation.
Image: Mirada Sur
A few days ago, Jeff Bezos the creator of Amazon and one of the richest men in the United States, offered to support the new Trump administration's plans to restart economic growth in the United States. Jeff Bezos believes that the path to restart growth in the United States requires an increase in GDP to balance the government's books. I was saying this in my commentary last week, that debt is measured as a percentage of a country's GDP. The higher the economic growth, the smaller the debt ratio or percentage of a country's debt becomes making, in his view, for the next administration the need to reduce spending or borrowing irrelevant. What’s more important is the elimination of regulations and he is not as concerned about spending for this reason.
Jeff Bezos presents an alternative to the DOGE (Department of Government Efficiency) proposal that seeks to streamline government administration by reducing the bureaucracy and administrative processes that currently plague the U.S. government but also includes large reductions in spending. In my opinion the two positions are not mutually exclusive but rather complementary. I believe that, if the United States and any country in the world wants to get out of the economic crisis, it needs both positions, reduction of government spending and more efficient processes and on the other hand less regulations. Reducing spending and making the government more efficient would not necessarily be enough to get out of the crisis, we must definitely bet on a more competitive posture in the private sector and more growth to get ahead and that can only be achieved with a reduction in regulations. The more open the regulatory framework is and the less government intervention there is, the more opportunities there will be for private sector action. If something is really important and there are no entry barriers in the market, the private sector tends to get into those uncovered niches to offer a service motivated by the profit motive. Many times, the entrepreneurs who discover unsatisfied needs, which even the consumer is not aware of, and which are covered by the private sector if the conditions are open enough for someone to supply that need.
Another advantage of greater private participation in the economy is that when mistakes are made, it is the entrepreneurs and their investors who suffer the losses, and not everyone through taxes or excessive government spending. Human beings are not perfect, contrary to the famous misconception of perfect competition, because there is no such thing, and we make mistakes all the time. Many people draw the erroneous conclusion that because there is not perfect competition the government has to intervene. Precisely because it is not perfect, there must be more competition from entrepreneurs and less government intervention, and in this way, losses are minimized and bad entrepreneurs in the market quickly disappear. When there is too much intervention to “protect” the consumer, the opposite effect occurs, and the bad entrepreneurs remain active selling products of poor quality or too expensive. That is why mediocre entrepreneurs and corrupt and irresponsible public policy experts who claim to believe in the importance of private profits, at the slightest mistake or loss of money in the market, when sooner or later there are mistakes, want to socialize the losses and seek government protection, so as not to “lose” jobs or to protect the consumer. These “protections” are only euphemisms used to justify the transfer of losses to all citizens via financial bailouts or nationalizations.
Friederich Hayek (1899-1992), winner of the 1974 Nobel Prize in Economics, explained this 50 years ago in his speech given at the award ceremony, “The Pretension of Knowledge”. It is worth rereading his speech on this anniversary (December 11, 1974), because among other things he criticized the idea that economic science and public policy specialists believe that they have the necessary knowledge to achieve a certain result if more is invested here or there, in this or that area. In Hayek's opinion, economic science faces complex problems with individuals acting independently and therefore it is impossible to apply the principle of the natural sciences of making observations and deducing possible results by means of statistics. Social science problems are complex problems whose outcome is difficult to foresee. The human being, lacking omniscience, since he is not a god, does not have the capacity to know all the possible results of an action and is condemned to make mistakes. These mistakes can therefore only be solved or minimized if there is not only one solution offered, but many and varied solutions available. Only those who openly and freely make profits and prevail in the market will be able to find the most efficient solution, until someone else comes along with a better idea of how to do things in a better way. This is how progress happens, discovering better and more efficient solutions through this trial and error process. The persistence in a market of erroneous or inefficient solutions to a problem or a market is only possible when government intervention is involved to protect bad solutions or bad entrepreneurs from competition or alternative solutions that improve consumer welfare, or worse, they are the only “authorized” ones to offer the solution or the product. The only public policy compatible with this idea of intellectual humility and the limit of human knowledge is the old idea of the French liberals of the 17th century, laissez faire. Since our knowledge is limited, the only thing we can do is to allow as many solutions as possible and let the entrepreneurs, who offer those solutions, be the beneficiaries of winning or losing if they are wrong and therefore of the economic benefits or losses of their decisions.
In Latin America we have this vice of looking for solutions in the government first, everything is regulated and that is why it is so difficult in our region to grow and achieve development. There are positive things that we inherited from the Spanish era and there is a lot of black legend about how we lived in that period, which was in a certain way the opposite of what those who hate that period and like to say that it was a dark, extractive and without major advantages have made us believe. However, recognizing that it was not all shadows, we must also recognize that not everything was rosy and one of the negative things that we did inherit was that prurience to excessive government regulation that far from improving in the republican era and the current times rather became more accentuated. Independence was born as a rejection of that absolute king who was Ferdinand VII, controller, who refused to evolve to a constitutional and parliamentary monarchy, as was for two years the famous constitution of Cadiz, “La Pepa” for being approved on the day of San José March 19, 1812. When “La Pepa” fell with the return of the king after his French captivity by Napoleon Bonaparte, the definitive trigger was given to the civil war in 1814 and the independence of all Latin American countries, but we were far from building a true rule of law or a lesser regulation and presence of the state. We spent most of the 19th century in civil wars between liberals and conservatives. The parties eventually changed names, whites, reds, radical liberals, conservatives, nationalists, civilists, socialists but the result was always the same regardless of the side, all wanted in one way or another to regulate, but never dared to deregulate. While in Europe the Industrial Revolution arrived around 1840, starting in England with the abolition of the Corn Laws, Latin America and Spain remained stagnant in this excessive regulation that stopped economic progress and encouraged mercantilism, the protection of the national. As I have mentioned on other occasions, there were exceptions such as in Argentina between 1850 and 1930, but the norm in our region during that period was excessive regulation. As our countries have developed, regulatory power has not only been maintained but has increased and become more acute. Today, more than ever, the famous phrase “obeyed, but not complied with” is true. This expression arises in colonial times in Latin America and was to indicate the reality of our legal culture, that the legislators, the crown have filled us with rules that make all procedures complicated and twisted to follow, but there is a culture that because the laws are not fair or excessive citizens ignore them, do not comply with them, and no one dares to change or repeal them. It would be better not to have so many regulations and laws, but rather to have a culture of compliance with the law that is simple and clear to understand. This excess of regulation has resulted in a total lack of respect for the rule of law and therefore less economic development.
These problems are old in Latin America, and we should rather see the way to have a vision and a less regulatory society and not think about what regulation is necessary when new ideas or new products appear in the market. Believing that regulations are the way to development and economic growth is a mistake and Manuel Hinds explains it clearly in his Substack, America (United States) innovates, China replicates and Europe regulates. The Archbridge Institute in the United States among its projects has an Occupational Licensing Index, or a licensing index. The problem of hyper-regulation is not strange here in the United States, it also exists, although the legal environment is much less regulated compared to our region. Being a federal system, each state has its own regulations and there are states where there are more or less regulations to obtain a license to practice certain professional activities such as lawyers, doctors, plumbers, hairdressers. Archbridge published for the second year in a row the Ranking of Licensed Occupations in the States for 2024. What this index seeks to do is to show which states have fewer regulations in this regard and therefore demonstrate which states are better at achieving human flourishing, where there are fewer licensing requirements. In the long term, it would be interesting to make this type of analysis at the international level in Latin America and compare how regulated we are in different areas, not only at the occupational level, to see if in this way politicians understand that the solution to underdevelopment lies in deregulation and not in excessive regulation.
This article was originally published in Spanish in Mirada Sur.
