Making Economic Sense
Making
Economic Sense
by Murray Rothbard
(Contents
by Publication Date)
Chapter 95
Peru And the Free Market
He had been widely touted by the American media as
the savior of Peru from
hyperinflation and from the dangers posed by the current socialistic
Garcia regime as well as the
fanatical Maoist-type guerrillas who call themselves "The Shining
Path." Mario Vargas Llosa,
tall, aristocratic, eminent avant-garde novelist and ex-leftist, was
running for president of Peru.
Vargas Llosa, trumpeted by the media, was a
non-politician bound for inevitable victory
on his free-market program. In the April presidential balloting,
however, which Vargas was
expected to sweep in a landslide forecast by the public opinion polls,
the bubble burst. An
unknown presidential candidate, Alberto Fujimori, operating with
virtually no money out of a
storefront in Lima, rose from a negligible amount of previous polls
into a virtual tie with Vargas
Llosa for first place. Fujimori may now win the runoff. What exactly
happened on the road to the
Peruvian free-market paradise?
Vargas Llosa had been converted to the free market
by the remarkable economist,
Hernando de Soto, whose best-selling work, The Other Path,
not only called for a free market,
but advocated a genuine "people's" free market based on private
entrepreneurs, in contrast to
Peru's (and other Latin American countries') unfortunate experiences
with state capitalism that
fosters privileged contractors and monopolists.
In the early part of last year's presidential
campaign, de Soto was one of Vargas's key
campaign advisors. But de Soto soon broke with Vargas, denouncing him
for selling out to the
very state capitalism that de Soto had spent so many years denouncing.
Vargas's shift was the beginning of his troubles.
His state-capitalist policies aggravated
the fact that Vargas Llosa is one of the wealthy, white minority of
European descent--the
Criollos (approximately 2.8 million out of a largely Indian and
mixed-Indian Peruvian
population of 20 million)--who are the landlords and state capitalists
of Peru and who are
therefore cordially detested by the rest of the population. While
Vargas Llosa surrounded himself
with wealthy Criollos, he was visibly uneasy on the stump in Indian
districts.
Vargas sealed his doom when he embraced the
"free-market," "anti- inflationist" policies
of the new Brazilian president, Fernando Collor de Mello. His
"free-market shock treatment" for
the Brazilian economy has been widely heralded as a salutary if radical
"stong-man" technique of
ending that country's accelerating inflation.
De Mello's policy may well be a "shock treatment,"
but it goes far beyond any shock
administered by a free market. While there are some decontrol and
privatization planks in the de
Mello program, most of the shock is blatantly statist: including a
massive increase in taxes, and,
in particular, a Draconian deflationary program that freezes for many
months everyone's bank
account, thereby suddenly contracting the Brazilian money supply by
80%.
Austrian economists have often been accused of
being grim "deflationists" for wanting to
allow insolvent fractional-reserve banks (including S&Ls) to go
bankrupt without a bailout. But
this contraction is nothing compared to de Mello's arbitrary deflation
of 80%. Far from being
free market, the Brazilian policy amounts to first engaging in a
massive printing of money, then
spending this newly-created money, driving up prices drastically, and
then proclaiming a cure by
confiscating the largest part of that money. In short, the Brazilian
government has delivered to
the country's economy a massive and lethal one- two punch.
On his promising to Peru the same treatment as de
Mello had just given Brazil, it is no
wonder that the Peruvian voters turned from Vargas in droves. In the
meanwhile, Fujimori came
up fast on the outside. A member of the small but highly respected
Japanese-Peruvian
community of 55,000 Fujimori found himself embraced by the country's
Indians as a fellow
ethnic oppressed by the hated ruling Criollo elite.
The first Japanese were imported into Peru at the
end of the 19th century to work as
slaves on the coastal sugar plantations. The
Japanese, however, rebelled within weeks,
and moved to Lima, where they are now located. Fujimori's parents
emigrated to Lima in the
mid-1930s where his father, along with other Japanese, created hundreds
of successful small
businesses.
After Pearl Harbor, the U.S. government pressured
Peru to go to war with Japan, to
confiscate Japanese-owned businesses, including the elder Fujimori's
tire repair shop, and to ship
almost 1,500 Japanese to internment in the U.S. Hence, the Peruvian
Indians' embrace of
Fujimori as a fellow non-white rising up against the Criollos. The fact
that Fujimori's immigrant
mother does not speak Spanish works in his favor with the Inca masses,
who don't speak Spanish
either; Spanish is the language of Vargas Llosa and the Criollo
conquerors.
Fujimori, by running a non-moneyed, grass-roots
campaign, tapped this favorable
sentiment. Moreover, his campaign slogan: "Work, Honesty, Technology,"
though a bit vague,
resonated with the three key precepts of Inca law: don't be lazy, don't
steal, don't lie. Fujimori
also promised the Peruvians something far more concrete: that he would
encourage massive
private Japanese investment. As I write, the race is a toss-up. If
Vargas loses, it will be because
he deserves it.
Previous Page * Next Page