I have recently presented a series of talks and authored a series of articles on Ecuador’s and Italy’s leaders’ policy responses to their nation’s challenges.
Why is the failed Monti a “technocrat” and the successful Correa a “left-leaning economist”?
Note to Italy: Please send us more Saracenos
Ecuador: Bank Spreads, Taxes, Executive Compensation and Growth
In making presentations in Spain, Ireland, and Italy the most poignant conversations I have had were with parents whose children have emigrated or plan to emigrate upon graduation from university because of the high unemployment rates in those nations. Unemployment rates for those aged 15-24 are at Great Depression levels through most of the EU periphery. Emigration is depriving the periphery of its most precious endowment – its children. The young adults that leave the periphery are disproportionately their best and brightest. They are better educated and more entrepreneurial than their peers.
One of my recent articles explored the question of why the U.S. media treats Ecuador’s President Rafael Correa with hostility and Italy’s Prime Minister Monti with the greatest respect given the fact that Ecuador has experienced economic and social success under Correa’s leadership and Italy has experienced severe failures under Monti’s leadership. Correa is an official who has been elected and re-elected and has the highest popularity rating of any leader in the Americas. Monti has never been elected and is unpopular with Italians. Correa and Monti are economists, with doctorates from U.S. universities, but Correa has succeeded because he understands economics while Monti has failed because he still worships a series of dogmatic theories that were falsified decades ago. Monti’s dogmas have a consistent bias – they serve as apologies for economic, social, and political domination by the wealthy at the expense of the working class. Correa’s economic views have a consistent overlay of Catholic social justice teachings. Correa’s economics have also proven to work in the real world.
This article focuses on migration, which has played such a critical role in recent times for Italy and Ecuador. Correa inherited an emigration crisis. Ecuador went through a financial crisis driven by the failure of its largest banks in the late 1990s that caused catastrophic harm to the economy. The crisis prompted over 10% of Ecuadorians to emigrate, mostly to Spain and the U.S. (I play soccer here in Kansas City with three Ecuadorians, but the great migrations were originally to New York and New Jersey.) The Spanish and U.S. economies were experiencing the rapid expansion of real estate bubbles in the mid-2000s, but as a percentage of GDP the Spanish bubble inflated almost twice as much as the U.S. bubble. Emigration to Spain from Ecuador faced lower legal barriers so more Ecuadorians went to Spain than the U.S. Ecuador’s emigration rate was the highest in South America.
The Spanish, Irish, U.K., and U.S. property bubbles all stalled in 2006. Correa was first elected president in late 2006. As he came to leadership in 2007, many of Ecuador’s leading trading partners’ economies were slowing. By 2008, the U.S. and much of Europe were recognizing that they had fallen into the Great Recession. The fact that these nations were falling into recession made it less attractive for Ecuadorians to emigrate to Spain and the U.S., but it also reduced remittances and potential Ecuadorian exports. Remittances are Ecuador’s second largest source of external funds (after oil sales), so any reduction in remittances posed a serious danger to Ecuador’s economy. Spain and the U.S. are important trade partners of Ecuador, so their severe recessions were likely to drag Ecuador into recession. The combined effect of the recessions in Spain and the U.S. on remittances and exports was likely to lead to increased Ecuadorian unemployment. Increased unemployment could have increased emigration from Ecuador.
From the start of his presidency, Correa made reducing unemployment and emigration major priorities. Correa’s task was made much more difficult by the fact that Ecuador does not have a sovereign currency (it uses the U.S. dollar as its currency). This meant that it was exposed to the bond vigilantes and had vastly less ability to adopt the stimulus programs that could have reduced unemployment much more quickly. As an economist, Correa was aware of these facts and warned that the use of the U.S. dollar as Ecuador’s currency sharply constrained the nation’s policy options. Correa warned the nation about the risk but he is a pragmatist rather than a dogmatist and he recognized that readopting a sovereign currency was not politically feasible. He was a great proponent of the creation of a Bank of the South that could finesse some of the problems caused by Ecuador’s use of the U.S. dollar, but he realized that this was a long-term project. Correa realized that he would need to create immediately the ability to expand education and jobs programs. He also recognized that Ecuador’s sovereign debt added a crippling constraint to Ecuador’s ability to grow and reduce unemployment and migration through such programs.
Correa took the three essential steps to minimize this sovereign debt constraint. He repudiated the debt, repurchased the great bulk of the debt at a large discount, and he secured a large loan from China. The loan ensured that Ecuador would continue to have access to credit to fund investments that would increase jobs, increase social mobility and stability, and reduce emigration. This creative and just solution demonstrated the advantages of having a real economist not in thrall of failed dogmas as a national leader.
One of the programs Correa promptly adopted was the “Welcome Home Plan” to encourage emigrants to return to Ecuador. The program proved well-timed because of the Spanish and U.S. crises. The innovative program aids returnees start productive businesses in Ecuador, further reducing unemployment. The symbolism of making such a program a national priority was also highly useful. Ecuador has also adopted reforms under Correa that make it far easier to emigrate to Ecuador.
Correa’s task in reducing unemployment and emigration was difficult enough given all these difficulties, but fate conspired to make the task far tougher. Continuing violence in Colombia has led to large-scale emigration to Ecuador. The official numbers are large, but most unofficial estimates by experts place the number of refugees or émigrés at 200,000 – 300,000. That is a staggering burden for a nation like Ecuador and the northern portion of Ecuador, where the Colombians settle, already was less economically developed. This makes Ecuador’s success in avoiding recession and reducing unemployment, youth unemployment, and emigration all the more impressive.
The most recent figure I found for unemployment in 2012 was 4.6%. The most recent figure for unemployment of those 15-24 years old is from 2009 when it was 14.1%. In 2009, the overall unemployment rate was 7.3%, so it is likely that unemployment of those 15-24 years old has fallen materially. These are remarkable results, but it is astounding that a nation that was synonymous with severe emigration attained a negative emigration balance no later than 2009 (I do not have data for when the rate first turned negative) and has maintained it for several years. That means that more people move to Ecuador than leave it. Ecuador now ranks a spectacular 137 compared to other nations in this category. [My source for migration data is the CIA World Factbook – a delicious irony given the CIA’s dim view of Correa.]
|Net migration rate:|
|-0.39 migrant(s)/1,000 population (2012 est.)country comparison to the world: 137|
The contrast to Monti’s results in Italy
Prime Minister Monti also inherited a series of crises. Italy was suffering from an acute debt crisis, serious general unemployment, severe levels of unemployment among those aged 15-24, and mounting emigration of Italy’s best and brightest. Italy lost its sovereign currency when it adopted the euro. Monti’s policy space for action was eliminated by Monti’s embrace of long-failed dogmas, particularly austerity. The results of Monti’s austerity program (dictated by Berlin) were disastrous. My colleagues Randy Wray and Stephanie Kelton and President Corrrea predicted that result.
Under Monti, unemployment surged to more than twice the rate in Ecuador and unemployment among those aged 15-24 reached catastrophic levels (over 36%).
Ireland is infamous for its emigration, particularly of its recent university graduates. The sad joke in Ireland is: “Ireland’s leading export is the Irish.” Its net migration rate is high.
|Net migration rate:|
|1.69 migrant(s)/1,000 population (2012 est.)country comparison to the world: 43|
Ireland’s net migration is so large that it constitutes a critical threat to the nation’s future. The single most disturbing statement I heard was a minister in the Irish government who was sitting next to me on a panel for a radio interview. He was discussing his initiative to improve telecommunications so that Irish parents would be able to more easily make Skype-like video conversations with their children and grandchildren after they emigrated. That summed up the withering effects of economics dogma. The Irish government is enforcing the self-destructive austerity measures demanded by Berlin even though they know it will cost them the loss of many of their best-educated children. Their response is to subsidize businesses, not people, so that it will be easier to see an image of your grandchild who now lives 1500 kilometers away and who you will see in person rarely. The most disturbing aspect was that the minister was blind to the madness of his “solution” to the problem of austerity driving the best-educated Irish children from Ireland.
The terrible conditions brought on by Irish emigration help one put in perspective the level of migration Italy reached under Monti’s leadership.
|Net migration rate:|
|4.67 migrant(s)/1,000 population (2012 est.)country comparison to the world: 22|
Under Monti, Italy’s loss of its best and brightest has grown to the point where it is well over twice as severe as Ireland’s horrific migration rate. Italy now has one of the most severe migration problems of any high-income nation in the world.
Correa’s successes in avoiding recession, reducing unemployment and poverty, and securing political stability and tremendous public support for his policies are well known in Ecuador but poorly understood in the U.S. due to the general hostility of the U.S. government and media. The thing about Correa that most upsets them is his success. It is easy to dismiss a failure, but they have no have no substantive response to his success. Their dogmas have failed and his policies have succeeded – and they will never forgive him for proving them wrong.
Correa’s most impressive success, however, may be the remarkable turnaround in migration from Ecuador. He has provided Ecuadorians of all classes with such a surge in hope for their nation, their families, and their job and social prospects that they overwhelmingly believe in Ecuador’s future. They are showing that belief through what economists call “revealed preferences” – they choose to live in Ecuador. There is no more sincere compliment a people can provide to their nation, their fellow citizens, and their elected leaders.
But, he should have become Monetarily Sovereign to avoid future problems — unless he has a Congress like ours, in which case, nothing can save him, long-term.
Complimentary (parallel, alternative) currency can do the job of avoiding future problems. In previous Bill’s posts he talked about 2 year experiment with complimentary currency localy and this year was introduced statewide.
This is exciting. This could be very big. Latin America is, absolutely, the most logical incubator for a whole new kind of progressive government. In “The Shock Doctrine”, Naomi Klein eloquently describes the atrocious period of juntas and dictators that led Latin America to be called the “laboratory” of neo-liberalism. She ends the book with a section about what can begin to happen when “shock wears off”. Where else but in the region on which it was first imposed would we expect to find the first evidence that whole nations and whole peoples can, indeed, shake it off, and immediately start to do better ? Other writers on this site have even pointed to proto-job-guarantee programs in (I think) Argentina.
My great concern is, indeed, and precisely, the CIA. Who doubts that some faction or other would be happy to just take President Correa out? In Honduras and Paraguay, the United States has shown that it is still interested in at least assisting coups that advance Washington’s agenda. It is anxiety-inducing to recall how close Correa came to being assassinated once already. I hope he’s looking after his security protocols as well as he’s looking after his country’s economy.
But does anyone know whether he literally “gets” MMT? From this article, we can’t really tell – even Paul Krugman could prescribe a lot of the program that’s laid out above. It doesn’t take MMT to tell someone that JMK really was onto something back in the day – no matter what the failed Friedmanites of Chicago say about him.
He’s basically like a dictator . The country had such a horrible experience going off the dollar. Real assets depreciated. Real income declined dramatically , overnite even. So I suppose they are afraid to make these kind of drastic changes. They do, however, mint their own coins. So they can issue currency that way. My guess is its costly to transport pennies, nickels, dimes, etc over here . Maybe Beowolf can propose a platinum coin solution that would make Ecuador sovereign again.
From the CIA’s worl fact book page you link, on top of the page I read:
This entry includes the figure for the difference between the number of persons entering and leaving a country during the year per 1,000 persons (based on midyear population). An excess of persons entering the country is referred to as net immigration (e.g., 3.56 migrants/1,000 population); an excess of persons leaving the country as net emigration (e.g., -9.26 migrants/1,000 population).
Which I understand as a negative number in the data means more people are leaving the country than they are entering it. In other words, -0.39 migrants /1000 population would mean more people leave Ecuador than enter it.
This seems to be saying the complete opposite of what you are conveying in your article, so I must have misunderstood the CIA’s explanation of their data. Could you please confirm that I’m being thick?
Pingback: Neo-Liberals’ Dismissal of Latin Americans as “Idiots” - New Economic Perspectives