Spectator's Journal/Third World Counterrevolutionaries

...They eschewed collectivization, price controls on food, and heavy taxation of farmers to aid industry, all policies pursued elsewhere at a cost of stupendous inefficiency...

...It was spawned by a few men-a dozen, maybe-and if two or three of them had balked, the movement to free market economics in the Third World might have been stillborn...

...Inflation sagged to less than 35 percent in 1980 and to 5.4 percent in the first five months of 1981...

...Chile is usually remembered as the country with the astounding inflation rate of 350 percent under Communist President Allende in 1973...

...The economy rebounded, but was left burdened with lavish food subsidies...

...It offers, the government boasts, "a rare opportunity to earn more profits, 100 percent tax-free...

...General Douglas MacArthur, as military governor of postwar Japan, was pivotal as well...

...For two years, the government has run a surplus...

...And growth in both countries bestowed new wealth on all...

...For all its successes, the capitalist counterrevolution was hardly inevitable...

...The result: the Wirtschaftswunder, the German economic miracle...

...The experience in Uruguay was almost identical, except that the finance ministry went so far as to eliminate the personal income tax in 1974, a year after the military interceded...

...If other poor countries "do not choose socialism, they will continue in a state of weakness, they will be maltreated, oppressed, exploited and will never realize true independence," said Nyerere...

...Taxes have been kept remarkably low, with a top rate of 15 percent on personal income...

...Jaye-wardne of Sri Lanka also sought a model of economic success...

...And that makes you think a socialist philosophy is the way out...

...The Ivory Coast...

...It has to be recognized, and it is recognized over a large part of our daily life, that the community's scarce economic resources can be efficiently allocated only by the price mechanism...

...Their recipe for the advancement of poor nations remains a state-run economy that puts first emphasis on redistributing wealth, not creating it...

...The same policies have produced an economic renaissance in Chile and Uruguay, which are run by military cliques...

...I mean, the poor just could get nothing, but at the same time, the preachers of socialism, the leaders, were enjoying the benefits of commercial and political privilege...

...The Ivory Coast...

...In South Korea and Taiwan, textiles and electronics flourished, and even government industries were required to be competitive...

...In China, Zhao Ziyang promoted profit incentives to boost lagging productivity in Sichuan province...

...The Ivory Coast...

...The flow of capital, foreign or domestic, is unregulated...

...Another favorite of planners at the United Nations, prestigious universities, and various foreign ministries in the West is that countries without natural resources are doomed to economic anemia...

...They would discuss, any matter with me without inhibition...

...What do you have to say to that...

...And a collection of noxious myths about economic progress has been destroyed...

...It's that our approach is right...

...Aid to farmers would only come "at the expense of some other sector of the Uruguayan public...

...There had been a tax rebellion in the later stages of the war...

...My own advisers tell me the same thing...

...When Chile and Uruguay followed this theory, their economies slumped...

...Park Chung-Hee, the Korean president from 1961 to 1979, acknowledged that his protectionist, high tax policies has led to economic troubles...

...A British entrepreneur, J.T...

...He declined to expel Europeans when his country received independence from France in I960...

...Now finance minister, he has kept Chile on a course of low taxes, reduced tariffs, and sound money...

...Income and profits taxes were trimmed substantially, and, in best supply-side fashion, revenues increased...

...Output rose 80 percent from 1976 to 1979, and Zhao rose from provincial governor to deputy prime minister to prime minister...

...Thousands remain as officials and advisers...

...In Israel last spring, the government of Menachem Begin, struggling for re-election, boldly slashed a melange of sales, inheritance, and income taxes, producing some supply-side effects in increased revenues...

...Taxes were incredibly heavy, and for some of the poor people amounted to confiscation of everything they had,'' he explained...

...we have taken a socialist goal, but in practical terms socialism means whatever means can be employed to improve the lot of the poor...

...And colonial officials like Cowperthwaite know exactly why this unfettered capitalism works...

...But what is overlooked is that inflation reached 500 percent in 1974 and 374 percent in 1975 after General Pinochet had supplanted Allende in a bloody coup...

...It followed the resurgence of Japan, whose economic success had lifted it far above Third World status...

...I still believe that, in the long run, the aggregate of the decisions of individual judgment in a free economy, even if often mistaken, is likely to do less harm than the centralized decisions of a government, and certainly the harm is likely to be counteracted faster," he said...

...Uruguay's economy was suffering from bloated government spending, price controls, and lofty tariffs...

...Moreover, foreign capitalists are being urged to establish factories in China's new "enterprise zones...

...Whether they're acceptable is a different matter, and other countries disagree...

...Herr Erhard, my advisers tell me that what you have done is a terrible mistake," said Clay...

...The result: booming economies in the unlikeliest places...

...The government is determined, Deputy Prime Minister Yao Yilin said last spring, "to regulate the economy according to the pressures of supply and demand in the market, within the state plan...

...Often, a negative model has been influential, one where policies palpably failed...

...The treatment: supply-side tax cuts...

...Along with the Pacific four, the Ivory Coast has been booming under capitalism since the 1960s, mainly because President Houphouet-Boigny has rejected the conventional wisdom on black African development...

...For starters, the overarching notion that the path to national wealth is paved by government manipulation of the economy has been discredited...

...But trade is free and market forces reign...

...But Lee Yuan Kew, the prime minister of Singapore and a lapsed socialist, was looking for a model...

...Central planning, said Swedish socialist Gun-nar Myrdal, is "the first condition of progress.'' A breathtaking transfer of fnoney to poor folks is "necessary" for economic success, claimed the ballyhooed report of the Independent Commission on International Development Issues in 1979- But, like Erhard and Clay, an increasing number of leaders in the Third World are brushing aside this advice and embracing free market economics...

...South Korea, almost alone in the world, maintained an economic growth rate of 10 percent right through the oil price increase and recession of 1974 and 1975...

...in theory, it's perfect, but what I have experienced and what the people of this country have experienced [is] that in practice it means something quite different...

...As Erhard unfolded his vision of German prosperity through the untethered play of market forces, Clay's skepticism dissolved...

...Where is it least pressed in black Africa...

...He never wavered in his devotion to free market economics...

...This has been disproved by the spectacular material advance in Japan, South Korea, Taiwan, Hong Kong, and Singapore, which have scant resources...

...South Korea and Taiwan advanced on parallel tracks, fostering industrialization but not at the expense of agriculture...

...Some 2.5 percent chose,' 'Everyone for himself and the devil can take the hindmost...

...Those are the clear-cut success stories...

...These were devised by a team of young economists, a number of whom studied under Milton Friedman and Arnold Harberger at the University of Chicago...

...A confirmed advocate of free enterprise like John Cowperthwaite, the financial secretary of Hong Kong in the 1960s, didn't need a successful new model to convince him that the tiny colony would benefit from unchained capitalism...

...Government intervention is non-existent...

...Just the work of men, freely furnished.'' The second phase of the revival of capitalism occurred in the mid-1970s in Chile, Uruguay, and Sri Lanka...

...Some tax collectors were too frightened to even try to collect any longer...

...It "is a good example of how the statist socialism does not lead to progress, stability, respect for personal rights and a genuine democratic existence," he said...

...Mac-Arthur recognized the need for tax cuts in spite of the government's hunger for more revenues...

...And in practice, it often means the poorest don't have their lot improved at all...

...But Tanzania, once a maize exporter, now imports large amounts of maize...

...Singapore, with a population half the size of Hong Kong's five million, is not quite so free...

...With copper prices about to buckle, Pinochet was advised that only "shock treatment" would keep the economy from absolute wreckage...

...Thousands of industrial companies, though state owned, are allowed to keep a healthy portion of their profits and use the money virtually any way factory managers desire, notably for fringe benefits and bonuses for workers...

...In Tanzania, President Julius Nyerere nationalized farmlands and forcibly moved 14 million people into ujamaa settlements...

...Perhaps the sharpest turnabout has come in what is still called the Democratic Socialist Republic of Sri Lanka...

...In three other countries-one authoritarian, one democratic, one Communist-the steps toward free market economics have been tentative and thus the results, though striking, are less conclusive...

...Singapore copied Japan...

...If you live in a country such as ours, a very poor country, at least 50 percent of the people in property, and if you assess the problems of the country in your heart, then there is no question what is paramount is concern for underprivileged...

...Equally tarnished is the idea that wealth is widely shared only when redistribution is aggressively pressed...

...But Hong Kong's population doubled from 2.2 million to 4.5 million from 1954 to 1977, as its economy blossomed and wages soared...

...So forget it, he said...

...From this fateful encounter was born the free market economy in Germany...

...I found the planning authority personnel in Shenzhen most cooperative," he said...

...In the Ivory Coast and Singapore, nations with mildly autocratic rule, it has generated two decades of stable growth and broadly shared prosperity...

...Finally, the theory that infant industries should be nourished by high tariffs and subsidies has been undercut...

...Sergio de Castro, one of several Chilean economists trained in free market principles at the University of Chicago, was acutely aware of the shortcomings of both Salvador Allende's Marxist policies and Augusto Pinochet's initial austerity policies...

...We proved that certain principles worked," Prime Minister Lee told writer Anthony Sampson...

...Some socialist states have achieved a more egalitarian distribution of income and wealth, but only at great economic and human costs...

...And four years ago Sri Lankans, well educated but impoverished, voted the socialists out and neo-capitalists in...

...De Castro, who dines with supply-side economist Arthur Laffer when he visits Los Angeles, draws a mighty lesson from Chile's economic turmoil...

...Low taxes, free trade, and minimal intervention have given Hong Kong, a British colony with appointed leaders, the most vibrant economy in the world...

...Guess...

...But why such unabashed capitalism in a tropical nation that has known only more and more socialism for decades...

...Herr General, pay no attention to them...

...More dramatic is Communist China's use of market forces and incentives to spur productivity, expand private farming, and encourage foreign entrepreneurs...

...The economy, which shrunk 13 percent in 1975, grew by nearly 9 percent in 1977...

...indeed, one of the most extraordinary aspects of the turn to capitalism is that it is flourishing in every type of political soil...

...Which country has the freest economy in black Africa...

...Wakefield, found Chinese bureaucrats downright helpful when he asked to set up a factory near Hong Kong for producing fishing flies...

...After signing the Camp David accords with Israel in 1979, President Anwar Sadat of Egypt pushed through deep cuts in personal income tax rates...

...Income taxes reach a top marginal rate of 55 percent and forced savings amount to one-third of a company's wage bill...

...So, too, overpopulation is supposed to foreclose substantial economic improvement...

...An excessive issuance of currency inevitably gives rise to inflation," an article on the evils of "leftist thinking" declared...

...Last August, Finance Minister Valentin Arismendi went on television, in the words of a State Department cable, to "puncture any expectations of more state intervention in the economy...

...Now, the German experience is being repeated in the Third World in what amounts to a capitalist counterrevolution of global dimensions...

...Pursued a shade less vigorously, they have revived Sri Lanka, a democracy whose economy had stagnated for decades...

...Which has the highest per capita income...

...Progress is represented by personal initiative, economic liberty and private enterprise...

...Growth averages nearly 9 percent, and inflation was held to minus 2 percent as recently as 1976...

...Where is wealth more broadly distributed, the Ivory Coast or socialist Tanzania and Zambia...

...There is no miracle," said Houphouet-Boigny...

...With thousands of small landholders farming for profit, productivity spurted, far outpacing that of Communist China and North Korea...

...Obviously, Erhard was crucial...

...Or, as President Jaye-wardne puts it, "We are open to serve as a capitalist organization and I often use the words, 'Let the robber barons come' to that area.'' And they have, helping the Sri Lankan economy to soar...

...With thriving capitalist systems, Japan and (to a lesser extent) Germany became models for Third World emulation...

...But Smith would doubtless be pleased with the nuggets of free market wisdom that 6tud the (Chinese) Beijing Review each week...

...Not that we have no gray matter here, but Europe is ahead of us in technology," Houphouet-Boigny said...

...After 20 years of welfare extravagance, price controls, and food rations, the economy had slowed to a near-halt...

...If that includes private enterprise, then that's also a good object, because if that gives jobs, if that increases incomes, if that gives better cultivation methods, if that means better management of your industries, well that's good enough socialism for me...

...To my mind today...

...Trade Minister Lalith Athulathmudal gave this explanation to journalist Ben Wattenberg: We are in a post-socialist era, an era where slogans no longer are believed to be ipso facto...

...But some of the cuts were temporary and other free market policies were not pursued...

...Just as impressive was Hong Kong's performance-10 percent growth from I960 to 1980...

...Since his election as president in 1977, Sri Lanka has copied Singapore...

...Small-scale farming and industry have fared well, as the president looks scornfully on the grandiose agricultural or industrial schemes cherished by other African leaders...

...If this turns out to be more than a flirtation with capitalism, it could be the most significant free market breakthrough since the collapse of mercantilism two centuries ago...

...Another said "the purpose of socialist production" is to meet people's demand for "material goods...

...Clearly, something is going on here, though it may not be exactly what Adam Smith had in mind...

...Taxes were cut, import and price controls scrapped, and subsidies reduced...

...Even if China backslides, the case for capitalism in the Third World-a truly awkward term for economically by Fred Barnes backward countries-has been made...

...When they turned to free trade and non-intervention, their economies surged...

...You have to learn how to succeed, to see who performs better, and then copy them," he said...

...And what could be more indicative of the birth pangs of capitalism than the report of a poll of Communist youth on their favorite proverb...

...Trade is free...

...Neither did Felix Houphouet-Boigriy, the president of the Ivory Coast since its independence in I960...

...It's a question of priorities . . .It's not that we're superior...

...As commander of the American occupation zone in Germany, the general wanted to know why Erhard, acting on his own initiative as economic chief of the embryonic German government, had peremptorily abolished food rationing and wage and price controls...

...Unions are absent because of progressive anti-unionism in the form of relatively high wages...

...Farmers have been given permission to double the size of their private plots, and the marketing of homemade handicrafts has official sanction...

...Erhard, disheveled looking but unbowed, responded without pause...

...An "investment promotion zone'' for foreign companies was established outside Colombo, the capital...

...No more...

...Incentives abound...

...When I was traveling to and fro, I found the facilities for foreigners at the Chinese border to be much better organized than on the British side...

...It "was particularly impressive because it brought with it early and almost as a by-product a more egalitarian distribution of income and wealth than is found in most other countries," noted Herman Kahn...

...The rebirth of capitalism in the Third World has come in three phases...

...The gurus of economic development still offer the old advice...

...The Ivory Coast exports rice, cocoa, and coffee at great profit and has attracted one million African immigrants...

...He became a convert, against the advice of an international brigade of officials, academics, and experts who declared that hopes for material progress and financial security in poor countries rest with a state-controlled economy...

...He shifted to free trade and lower taxes in 1964...

...The first was in the 1960s and involved the Pacific gang of four-South Korea, Taiwan, Hong Kong, and Singapore...

...In authoritarian countries like South Korea and Taiwan, capitalism has ignited phenomenal economic growth, even in the teeth of oil shocks and a worldwide recession...

...In Communist China, along with Egypt, Israel, and several Latin American countries, the critical locale of the third phase of the capitalist reawakening, leaders are not itching to proclaim "the post-socialist era," but they are willing to come awfully close to that...

...They have to be proved...