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Fatherly control on grandfathers’ funds

When people give up money in order to save for the upcoming, the least they expect to have in the future is the same amount of capital or more, not less. The Bismarckian pension system, diffused all over the world, nowadays works exactly the opposite. Beneficiaries are not getting what they expect making this collective capitalization scheme bear with all kinds of difficulties.

It faces a political problem given that the government has the monopoly of the Social Security and it occasionally uses the workers’ money for political purposes. The monthly contributions workers make by law go to a common fund that governments are meant to merely “administrate”, but that sometimes they employ for other purposes leaving no funds for the future.

In Ecuador, for example, the government has always counted on this fund to invest in public bonds or whatever other investment the incumbent administration chooses. Certainly, employees feel entitled to all the benefits that politicians have promised them, but sometimes they don’t get them. For instance, in order to extend the submission of benefits to workers, Spain is one of many countries to recently strategically plan for baby boomers by delaying pension collection. This is an example of measures governments take when they don’t have the payback.[1] Currently, the U.S. is short $1.26 trillion in paying for public employee pensions and other retirement benefits.[2]

Also, the system deals with a demographical trouble as the world’s trend is to have aging societies: while born rates are decreasing, medicine and technology is extending life expectancy.[3] This results in less active workers contributing to the financing of an increasing demand on elderly pensions.

Libertad Política vs. Libertad Económica

¿Es la democracia lo que necesitan los países subdesarrollados para salir de la pobreza? Gary Becker,  Premio Nobel de Economía (1992), realizó un análisis reciente en el que explica cómo en países subdesarrollados la democracia debería servir para promover la libertad económica. Lamentablemente, pocos son los países pobres que gozan de esta libertad, aunque vivan en democracia.

Becker empieza aclarando que al referirse al término democracia, no lo hace como el sistema de gobierno ideal sino como una comparación frente a formas de gobierno que no gozan de libertades y carecen de instituciones.[1]

Según Becker, por ejemplo, existe una baja correlación entre las tasas de crecimiento del PIB  y las democracias. Es decir, no necesariamente los países democráticos son países que crecen económicamente. En el caso de India, con una democracia desde su independencia, no fue hasta que salió del socialismo (cuarenta años más tarde) para abrir camino a un gobierno promotor de políticas de libre mercado, que empezó su rápido crecimiento. Por otro lado, algunos absolutistas han logrado crecimientos extraordinarios, pero no son la regla sino la excepción, dado que por cada Pinochet que produzca un rápido crecimiento económico hay siempre un Stalin con funestas políticas planificadoras que llevan el país a la quiebra.[2]

Con respecto a la creación de la riqueza Becker menciona países como Taiwán y Corea del Sur en los cuales hubo un rápido crecimiento bajo las dictaduras y que al convertirse en democracias se volvieron países aún más ricos. Para exponer la correlación entre riqueza y democracia cita al sociólogo Seymour M. Lipset quien explica que no es que los países democráticos sean más propensos a crear riqueza sino al revés. Según Lipset, los países ricos son aquéllos que buscan democracias pues quienes viven en países desarrollados, una vez que gozan de libertad económica, van a demandar como es lógico, libertad política también.[3] Es decir, para Lipset, la riqueza crea las condiciones para la democracia.

Ecuador: Uncertainty and Division

Last Saturday a controversial plebiscite took place in Ecuador. It consisted of two parts: five questions regarding press regulation, employees’ enrollment in the state pension system, unjustified enrichment, bullfighting, and gambling. The other five questions attempted to reform the three-year-old Ecuadorean Constitution in aspects such as justice authority and preventive detention.

The $30 million plebiscite itself didn’t take place without convolution. After an early count, the exit poll elaborated by Santiago Perez, the pollster hired by the government, stated the “triumph” of the majority supporting the regime. Indeed, the official newspaper’s headlines indicated the victory of the referendum by 62%.[1] Even Venezuela’s President Hugo Chávez, President Correa’s close ally, congratulated him for his “great victory”.[2]

While the officialism celebrated, the National Election Council undertook the official vote count. Soon the President was informed that the error in the exit poll had been of around 19,5% and the victory might not has been as absolute as he was told by his contracted pollster.[3] The victory margin appeared much lower than expected, and thus the celebration ended up in worries and uncertainties.

Forty-eight hours after de polls closed, the Council had only counted 41% of the total votes but the margins between “yes” and “no” are indeed very small, with some questions barely receiving support from half the voters. Although the small margins, the government declares victory and announces that it has its plan to apply the plebiscite results immediately.[4]

Two days later the balance of the Ecuadorean referendum was $30 million less in treasury, a divided nation, increasing doubt on where the country will stand, and multiplying uncertainty for the future. After this referendum, President Correa may have more power than before, but this election probably shows that the unconditional support he used to have is decreasing as his power increases.

Paola Ycaza has B.A. in Political Science and graduated with a B.A. in Economics (thesis pending). Currently she is working on her thesis on the Ecuadorian Pension System.

In Defense of Self-Interest

Atlas Shrugged is a novel by Ayn Rand written and published in the Fifties. According to the Associated Content (from Yahoo)[1] this 1,075 page book is the most influential novel of our time. The main argument strongly defended in this novel is that businessmen searching for profit are the motor that keeps the economy alive. This defense of self-interest has brought controversy and debate during its more than 50 years of existence.

The creation of key characters helps the author demonstrate how rational business activity is and how natural self-interest turns out to be in every aspect of life. In the book, profit is the motivation for which the main characters –businessmen– work arduously every day. By looking for their own profit, they not only benefit themselves but also contribute to the society as a whole by creating wealth, generating employment, and offering products and services to the public. Finally, the author argues how likely it is for government officials to chase their own benefit: they look for votes and laws that will favor them. This would not be reprehensible if government’s interest didn’t affect every individual in a society; but it does. In Rand’s perspective, government’s power can result in irreversible harm for entrepreneurs when the former make decisions affecting every business activity. Laws, taxes, and even subsidies coming from the government can be counterproductive to the ones moving the economy.

The movie based on Rand’s novel will be released in 10 days. Hopefully it can be watched worldwide –naturally this will depend on how much money theaters’ owners expect to earn by releasing it, which is not reprehensible. Whether or not the world is able to watch it, Atlas shrugged is a highly recommended reading. Moreover, if you are a college undergraduate or a graduate student I suggest participating in the essay contest that the Ayn Rand Institute (ARI) sponsors. Of course there is an attractive profit motivation of over $99,000 in prize money, which makes that thousands of students worldwide participate every year.

Rand died almost 40 years ago, but her philosophy still influences and inspires businessmen and academics. In today’s societies Rand’s perspective represents a convenient warning for those governments aiming to destroy businessmen incentives and discourage investment. The release of this movie can be a great opportunity to reflect how entrepreneurs’ profitable activities contribute positively to developed and developing nations.

Paola Ycaza has B.A. in Political Science and graduated with a B.A. in Economics (thesis pending). Currently she is working on her thesis on the Ecuadorian Pension System.

[1] “10 most influential novels of our time.” Associated Content from Yahoo. April 22nd, 2010

The Prize –or Price?– for Thinking Different

The international community acknowledges how difficult it is for Cubans to disagree with Castro brothers’ regime and has rewarded the attempts of a few of them to protect their right to think different. Recent events confirm how vulnerable and defenseless dissidents really are.

Oscar Biscet, founder of the Lawtown Foundation for Human Rights and Democracy in Cuba —arrested in 2003 for “opposition activities”— was released from prison last week along with more than 50 other dissidents. In 2007 he was recognized for his persistent efforts to advance towards a democracy in Cuba, and George W. Bush, then President of the United States, presented him with the Presidential Medal of Freedom. However, his son and daughter received the prize on his behalf since he was in jail when the ceremony took place.[1] Another Cuban dissident Guillermo Fariñas, last year’s winner of the European Parliament’s Sakharov Prize for Freedom of Thought, was unable to attend the ceremony because the Cuban government banned him from leaving the island[2]. Fariñas has conducted several hunger strikes to protest against the regime and has been imprisoned under allegations of discrediting Cuban political system.

Likewise, on the occasion of the International Women’s Day, Secretary of State (U.S.) Hillary Clinton hosted the 2011 Women of Courage Awards. One of the awarded women, Cuban Yoani Sánchez shared the same fate as she did not obtain permission to leave her country to collect the prize. And it’s not the first International Award she hasn’t been able to receive in person.[3] Her blog Generación Y (Generation Y) has become a very popular website where she writes of everyday life in communist Cuba.

Overall, dissidents struggle everyday to restore their honor, to protect their families, and to be able to work in accordance to their principles. Somehow they manage to carry on with their goals by defending their ideas. They fight bravely against the regime’s oppression, refusing to conformism. Their achievements are reached in spite of their constant exposure to government abuse. Not in vane they are awarded and applauded.

Paola Ycaza has B.A. in Political Science and graduated with a B.A. in Economics (thesis pending). Currently she is working on her thesis on the Ecuadorian Pension System.