Monday, March 27, 2017
Carta a Ha-Joon Chang y los 50 economistas sobre el regreso del neoliberalismo en Ecuador
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”.
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., 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.
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.
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. Among indigenous peoples, poverty is still prevalent in 89% of households. 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.
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.
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.
 Chang, H. J. (1993). The political economy of industrial policy in Korea. Cambridge Journal of Economics, 17(2), 131-157.
 Wade, R. (2006 2nd. Ed. or1990). Governing the market: Economic theory and the role of government in East Asian industrialization. Princeton University Press.
 North, D. E. (1990). Institutions, Institutional Change and Public Performance.
 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.
 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/
 SIISE (2015). Pobreza por necesidades básicas insatisfechas. Indice, 5 (p. 10) Retrieved from: http://www.siise.gob.ec/siiseweb/PageWebs/pubsii/pubsii_0040.pdf
 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.