"The Mozambique Miracle"

I'm posting this editorial from the Wall Street Journal as an object lesson demonstrating the futility of Marxism, and the beauty of a market driven economy.

EDITORIAL BOARD

The Mozambique Miracle
By MATTHEW KAMINSKI
April 7, 2007; Page A8

MAPUTO, Mozambique -- In the Hulene quarter of this former Portuguese colonial capital, private minibuses swerve around holes carved in seas of mud. Metal sheets provide shelter for thousands packed in without electricity or sanitation. Illiteracy and HIV rates are shockingly high. The stench and deprivation take the breath away.

Mozambique is one of the world's poorest countries. It's also an African success story. Here, such things are relative. To the immediate west, Zimbabwe's Robert Mugabe misrules his country toward calamity. Nigeria, Ivory Coast and others are beset by civil conflict and corruption. But Mozambique, scarred by 16 years of civil war and Soviet-style economics, turned itself in the right direction on its own. Optimism, however guarded, and Africa do sometimes go together.

For all the debates over development strategies, the secret to Mozambique's recovery is simple. "We opened our markets and dropped the centralized economy," says Miquelina Menezes, who chairs the country's association of economists and runs a fund devoted to bringing electricity to rural areas. "If you want to join the world, you have to change. We needed to rebuild the country and to rebuild confidence."

The elite never experienced an ideological conversion. The main drags in Maputo, once dedicated to Portuguese worthies, are still named after Mao, Lenin and Kim Il Sung. ("It's our history, not our present," laughs Ms. Menezes. "They won't change them again.") But hyperinflation and a stagnant economy forced leaders of the neo-Marxist liberation movement, Frelimo, to shift their approach. Starting in the early 1990s, the ruling party cut subsidies, opened to outside investment, privatized firms nationalized after independence in 1975 and got a grip on borrowing and the budget. An independent central bank brought inflation into single digits. According to the World Economic Forum's competitiveness index, Mozambique has reformed more than any sub-Saharan African country.

The payoff is the highest average growth rate, at 8% over the last decade, among the continent's non-oil exporters. GDP per capita is a still tiny $320, but that's compared with $178 in 1992. Since 1997, poverty rates decreased more in rural areas (from 71% to 55%) than in urban (62% to 52%), according to the World Bank. Child mortality has declined to 152 per 1,000 live births from 235. And primary-school enrollment has risen to 71% from 43%. Once a leading recipient of food aid, Mozambique now exports maize, with 5.6% average yearly growth in farming in the last 15 years. Banks, telecom and tourist firms, many from neighboring South Africa, have come in.

"[Economic and political] stability has been the key factor" to reviving the country, says Thiago Fonseca, who runs the Golo advertising agency here. His challenges: A lack of skilled workers and HIV/AIDS, which has claimed the lives of a couple of his employees. The nation's HIV prevalence rate is 16%, which will reduce life expectancy to age 36 by 2010, from 40 today.

Appreciating the change for the better takes some imagination. Like many of its neighbors, Mozambique went from colonialism -- under Portugal, still a developing country itself -- to a Cold War-proxy conflict that claimed a million lives (out of 20 million) and left a generation uneducated. Few of the paved roads have been worked on since the Portuguese left 32 years ago. "A lot of [the growth] is catch-up after war," says the World Bank's man in Maputo, Michael Baxter.

But neighbors in similar straits haven't put in place Mozambique's fixes. Inflation in Zimbabwe is 1,700%; nearby Malawi and Zambia, their economies distorted by subsidies on commodities, are growing haphazardly. "You need political will" to get it right, says Mr. Baxter. "Starting from a low base" or "being a former colony" -- oft-heard excuses for Africa -- has little impact on economic performance. What matters, as regional dynamo Botswana also shows, is governance.

A "donor darling," Mozambique doesn't obviously squander the more than $1 billion a year in Western aid, which accounts for half the budget. Experience here suggests that a commitment to economic opening ought to be the litmus test for aid recipients.

No country in this part of the world is assured of staying on track. Erratic "Uncle Bob," as his deferential neighbors call Zimbabwe's 83-year-old Robert Mugabe, is a useful reminder that local politicians pose the gravest threat to Africa's future. In each of the three general elections since the 1990 constitution, Frelimo has won by wider margins amid accusations of fraud. Absent any peaceful turnover of power in Mozambique, Frelimo and the state are increasingly becoming one; nearly all jobs are reserved for party members.

What if it lost elections? "We'd have a serious revolution," says Fernando Lima, publisher of Mediacoop, the largest independent press group. While the government is publicly committed to free speech and democracy -- to keep donors happy, at least -- Mozambique's civil society is hampered by state domination of media, low penetration of radio and television, and weak institutions such as the courts. "Every country in Africa says it's a multi-party democracy," says Leon Louw, director of the Law Review Project in Johannesburg. "It doesn't mean it's so; it only means it's better than it could be."

In the meantime, having done the so-called first generation of market reforms, the government is dragging its feet on legalizing land ownership, fighting corruption and loosening a restrictive labor code to bring in more investment. "Now they're stuck," says Mr. Lima. "There is a strong socialist background here. If we want to perform, we need to be different."

The road ahead for a place like Mozambique is staggeringly long. About 93% of its people lack access to electricity. Half can't read; half are undernourished. But Africa needs to start somewhere, and Mozambique shows how.

SOURCE: Wall Street Journal: 7 APRIL 2007: The Mozambique Miracle

Why it's important to understand economics

Two EXCELLENT articles--back-to-back--on National Review Online underscore the imporatance of having an understanding of economics before spouting off on some hair-brained government sponsorted social intervention plan, whether it be minimum wage hikes or government sponsored support of unions.

Here's an excellent article by a BLACK, AFRICAN-AMERICAN ECONOMIST, Thomas Sowell, that rightly criticizes the economic stupidity of Barack Obama: Barack Obama, Control Freak

Excerpt:

Senator Barack Obama recently said, “let’s allow our unions and their organizers to lift up this country’s middle class again.”

Ironically, he said it at a time when Detroit automakers have been laying off unionized workers by the tens of thousands, while Toyota has been hiring tens of thousands of non-union American automobile workers.

Labor unions, like the government, can change prices — in this case, the price of labor — but without changing the underlying reality that prices convey.

Neither unions nor minimum-wage laws change the productivity of workers. All they can do is forbid the employer from paying less than what the government or the unions want the employer to pay.

When that is more than the labor in question produces, some workers who are perfectly capable become “unemployable” only because of wages set above the level of their productivity.

Source: National Review Online: Barack Obama, Control Freak: Feb 22, 2007

The point of Sowell's critique is this: government intervention in terms of subsidies and minimum wage laws and other such garbage all have the exact same net effect: they raise prices, and sometimes raise prices quite substantially.

Why are higher prices a bad thing? Well, the more something costs (in general) the less people buy, hence less is produced, hence the resouces needed for producing it are not longer needed...and often these "resources" are human beings--the American worker.

Here's another article from National Review Online that proves the point: The Corn Threat:

Excerpt:

Economic forecasters of all stripes should be impressed by the accuracy of Governors’ Ethanol Coalition study. It was virtually spot-on. In August of 2006, the sum of actual ethanol production-capacity in place, plus the planned capacity of those ethanol facilities that were already under construction passed the eight billion gallon mark as ethanol plants overshot the 7.5 billion gallon mandate. The average corn price in August 2006, at the end of the last crop year, was $2.09, but when current and prospective ethanol capacity hit the eight billion gallon level, corn prices started a bull trend, still in place. On January 23, the day of the State of the Union speech, corn was $4.09 per bushel. Many analysts expect $5.00 per bushel before this is over.

Some context on corn prices. For the past ten years, the average price has been $2.05 per bushel; in only three years have corn prices ever topped $3.00 per bushel. The all-time record-high season-average corn price is $3.24 per bushel in 1995/96 — a year that saw many ethanol mills shut down because of too high corn prices. But now, the use of ethanol is mandated by law, and as such price does not necessarily impact demand. Instead, the burden of record corn prices falls on the livestock and meat sector — typically the economic engine of the rural and farm economy.

In early December, the Nebraska Cattlemen’s Association — the group of cattle ranchers and farmers from Secretary Johanns’ home state — passed a resolution at their convention calling for ethanol to “transition to a market based approach,” and opposing “any additional federal or state mandates for ethanol usage and/or production.” The National Cattlemen’s Beef Association passed a similar resolution at their convention in February calling for an end to ethanol subsidies. The National Turkey Federation and the National Chicken Council — producers of turkey and chicken meat — had both testified before congressional panels as early as the summer of 2006 that ethanol mandates posed a threat to their industries’ economic viability.

Source: National Review Online: The Corn Threat: Feb 22, 2007

EU to US: We’ll Shoot Ourselves in the Foot if You Shoot Yourselves in the Foot

Oops, it seems the Europeans will only destroy their ecomony to implement the Kyoto greenhouse gas emmission targets if the USA is willing to do so. (Note to readers: if for no other reason, it is best NOT to elect a Democrat for president, since those idiots actually think the Kyoto treaty is a good thing...) An excellent little post on the NRO "planet gore" blog: EU to US: We’ll Shoot Ourselves in the Foot if You Shoot Yourselves in the Foot

Excerpt:

As the European Union prepares to overshoot its Kyoto greenhouse gas (GHG) emission targets by a substantial margin (joined by Japan, Canada, and other countries that promised to reduce their emissions under Kyoto), Europe is gearing up for international negotiations on post-Kyoto GHG reduction commitments.

Since significant GHG reductions are likely to cause serious hardship, the EU doesn’t want to kick its economy too hard unless other countries, particularly the United States, agree to hobble themselves as well. Yesterday’s New York Times headline “Europeans Agree to Cut Emissions Sharply if U.S. and Others Follow Suit” tells the story: “European officials want other parts of the world, including the United States, to adopt European-style restrictions on emissions to fight climate change, thus helping European businesses compete globally at a time when the European Union is toughening regulation in sectors like air travel, car manufacturing and construction.”

Source: National Review Online - Planet Gore: 22 FEBRUARY 2007: EU to US: We’ll Shoot Ourselves in the Foot if You Shoot Yourselves in the Foot