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| Mexican flag on a pole Photo by Ricardo Esquivel from Pexels |
Augusto Lopez-Claros served for several years as Director of the Global Indicators Group at the World Bank. An experienced international economist, Augusto Lopez-Claros was a frequent speaker while at the World Bank and has written at length on topics that range from private sector development and investment climate, to questions of corruption, gender equality and global governance. In a recent piece on the current economic, political and social crisis in Latin America he highlighted the respective roles of corruption and inequality, saying that governments needed to do more to improve the structure of government spending.
Whatever revenue is collected needs to be better deployed. The problems—he said—are multiple and insidious. In some countries too much is spent on wasteful government subsidies which, in the case of energy, go largely to benefit the upper income groups, who drive their cars in polluted cities and own the bigger houses. Subsidizing energy worsens income distribution and accelerates climate change; it is, in fact an idiotic public policy, followed gleefully in many countries in the region, with huge opportunity costs in terms of schools not built, hospitals not modernized, old-age pensions not boosted to more dignified levels. Other countries have tied their hands in senseless ways, by embedding in their laws various restrictions on the structure of spending which seriously limit the ability of governments to redirect resources to more productivity-enhancing areas.
Latin American countries spend annually US$64 billion in their various military establishments, and that in a region of the world where the last major interstate conflict took place more than 80 years ago. The IMF calls military spending “unproductive expenditures,” to highlight the well-known fact that there is not much to be gained by, say, modernizing the air force, when airplanes will actually hardly ever be used, other than to occasionally impress the populations on national independence day and the associated military parades. More countries should imitate Costa Rica, where military spending is zero and the government instead has focused on human capital development and, yes, having a well-trained policy force to enforce the law, deter crime and ensure appropriate levels of safety within national borders. Using tax and expenditure policies to address issues of income inequality will be easier if governments are credible and citizens and the business community are convinced that higher taxes will not be stolen or otherwise wasted, but will be reflected in better schools, better quality infrastructure, improved public health services, and so on.
The EU has a formal mechanism, embedded in EU law, which channels resources from members with higher incomes to members with incomes below the EU average. These resources are channeled through the EU budget and have had vast implications for the poorer members. Latin America, regrettably, does not have in place such an ambitious program of economic and political integration, and has paid a heavy price for not creating an integrated economic space that might lead to economies of scale and improved efficiency.
Whatever revenue is collected needs to be better deployed. The problems—he said—are multiple and insidious. In some countries too much is spent on wasteful government subsidies which, in the case of energy, go largely to benefit the upper income groups, who drive their cars in polluted cities and own the bigger houses. Subsidizing energy worsens income distribution and accelerates climate change; it is, in fact an idiotic public policy, followed gleefully in many countries in the region, with huge opportunity costs in terms of schools not built, hospitals not modernized, old-age pensions not boosted to more dignified levels. Other countries have tied their hands in senseless ways, by embedding in their laws various restrictions on the structure of spending which seriously limit the ability of governments to redirect resources to more productivity-enhancing areas.
Latin American countries spend annually US$64 billion in their various military establishments, and that in a region of the world where the last major interstate conflict took place more than 80 years ago. The IMF calls military spending “unproductive expenditures,” to highlight the well-known fact that there is not much to be gained by, say, modernizing the air force, when airplanes will actually hardly ever be used, other than to occasionally impress the populations on national independence day and the associated military parades. More countries should imitate Costa Rica, where military spending is zero and the government instead has focused on human capital development and, yes, having a well-trained policy force to enforce the law, deter crime and ensure appropriate levels of safety within national borders. Using tax and expenditure policies to address issues of income inequality will be easier if governments are credible and citizens and the business community are convinced that higher taxes will not be stolen or otherwise wasted, but will be reflected in better schools, better quality infrastructure, improved public health services, and so on.
The EU has a formal mechanism, embedded in EU law, which channels resources from members with higher incomes to members with incomes below the EU average. These resources are channeled through the EU budget and have had vast implications for the poorer members. Latin America, regrettably, does not have in place such an ambitious program of economic and political integration, and has paid a heavy price for not creating an integrated economic space that might lead to economies of scale and improved efficiency.
