Luis Rubio
It appears to be an enigma how innumerable nations, especially in Asia, reconcile the enormous disorder that characterizes them with their extraordinary economic performance. Whoever has observed the chaos reigning in vehicular traffic in Indonesia, Philippines, Vietnam, or India, to cite some emblematic cases, could not imagine that these are the nations boasting some of the highest growth rates along the last decades. Yet more interesting, that perceived disorder also has its counterpart in the corruption that exists in the world of the economy, where the enrichment is not exceptional of politicians and government officials, nor is the use of connections and cronies to get ahead in business. Would it be possible to find the explanation for the economic success and income distribution in places distinct from those conventionally assumed?
Order and chaos comprise two extremes in the same continuum. There are societies where order is everything: no place better than Singapore to prove that economic success and order are highly correlated. There is definitely no chaos in its urban traffic nor in the relationship between public officials and business: the rules are clear, complied with, and enforced; consequently, punishments are exemplary, thus infrequent. The other extreme includes the nations mentioned in the previous paragraph, where chaos seems to reign, compliance with the law is rather lax, if not inexistent, and, however, the economic success is undeniable. Of course, there are myriad nations with great order (Russia, North Korea, Cuba) and many others that are chaotic in all respects (in Africa, Latin America), most of these with extremely poor economic performance. Where might the difference lie?
A video prompted me to reflect on how things work. The video compares the way people drive in ordered societies with that of a certain -unmentioned, but clearly Asian- disorderly nation (http://shorturl.at/npJ18) and illustrates in razor-edged fashion the contrasts between countries with established rules and those required to hammer out de facto rules every day. The video begins with several examples of vehicles that approach an intersection and, in the absence of a traffic light or sign, continue to go forward, presumably assuming that the others will stop. The video ends with the case of an Asian nation where there are no rules at all but where, despite that, the system works. The chaos creates its own order.
In nations distinguished by the existence of explicit rules and ones that are adhered to, the population builds into its internal charter a series of assumptions that make things work naturally, except when these recede from view. A Canadian driving up to an intersection knows that, in the absence of a traffic light or a stop sign, they can proceed without giving it any thought, something that no Indonesian or Vietnamese would take for granted. As exemplified by the video, the Canadian (or German or French citizen) ends up in a crash because both drivers applied, instinctively, assumptions that are invalid when there are no rules. For its part, in a society accustomed to chaos, everything adapts automatically.
What works in traffic does not work for the economy, which requires clear rules that do not change: that is what, to a greater degree than order itself (or the absence of corruption), engenders conditions for savings, investment, therefore growth, to prosper. Indonesia resembles Singapore not in order but in constancy in the rules of the game. In Indonesia, legislation is not modified for private investment every time the government changes, nor does it change the way its government officials work because a new boss comes about.
In a comparative study on the way Asian and Latin-American governments function* the authors cite a businessman: “I lived in Brazil and in Indonesia and was responsible for a very similar operation. But in Indonesia I devoted myself body and soul to the productive operation and did not have to worry about anything else. The rules were clear and did not change. Everything was different in Brazil. There I woke up every morning to find out whether I still had a job because there was no day on which the regulations did not change.” Sound familiar?
The Mexican government has been prone to reinvent the wheel every six years, which generated, along the last century, the phenomenon of the six-year economic cycle: savers, entrepreneurs, and investors waited for the new government to take on a life of its own before committing and risking their resources. Every government that took office changed the rules, impeding the consolidation of projects requiring long-term maturation periods: everything had to fit into the sexenio. Instruments such as NAFTA began to change that tradition because they entailed mechanisms that granted certainty and legal protection to the investor.
The current government disdains the need for certainty, clarity of direction, and counterweights that reinforce both. Bent on ignoring the world, including its own corruptions as illustrated by the recent disaster in the Mexico City subway, the president imagines that he can impose his own rules at no cost. Therefore, his actions will not yield better results: he does not understand, nor is he willing to understand, that no one will save or invest without there being certainty and credible sources of trust.
* Borner, S., Political Credibility and Economic Development
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