Thanks, Hugo! President of Venezuela deserves free-market award

It's time to nominate Venezuela's populist President Hugo Chávez to the ''Milton Friedman Award'' for his indefatigable work to advance the cause of free-market policies and political harmony in the developing world.

I'm not kidding. No other head of state has done so much in such a short time to wreck his country's economy, and to discourage his neighbors from engaging in the kind of finger-waving populism that has brought about massive capital flight and record poverty levels in Venezuela.

If it weren't for the disastrous performance of Chávez's ''peaceful revolution,'' Brazil's new leftist President Luiz Inácio Lula da Silva would have probably launched the anti-free market policies he had championed for the past three decades, several foreign diplomats and politicians told me during a recent trip to Brazil. And Ecuador and Argentina probably would have followed suit.

The whole region, disenchanted with the results of the U.S.-backed free-market reforms of the 1990s, would have made a political U-turn to embrace the free-spending, blame-the-oligarchy policies that destroyed many of Latin America's economies in the 1970s. It hasn't happened, largely because of Chávez's failures.

Consider what has happened in Venezuela since Chávez took office in February 1999. He declared that representative democracy ''is not useful to any Latin American government,'' proclaimed that Cuba is a ''sea of happiness,'' and began to make fiery, nationally televised speeches -- totaling 1,011 hours so far, averaging four hours each -- blaming the ''oligarchy'' for Venezuela's mounting problems.

Despite a major rise in its oil income, virtually all of Venezuela's economic indicators have plummeted:

o The gross domestic product fell by 8.8 percent in 2002, and is likely to further drop by more than 10 percent this year, according to the United Nations Economic Commission for Latin America. This is worse than Argentina's much more publicized financial crisis, economists say.

o Capital flight has risen from $7.2 billion in 1999 to $10.5 billion in 2002, according to the Andean Development Corp. (CAF), a government-backed regional development bank. Since Chávez took office, $36.2 billion has fled Venezuela.

o Nearly 7,000 companies have shut down since 1998, Conindustria, an umbrella group for manufacturers said. From 11,539 companies, the number has dropped to 4,550, the group said Friday.

o Foreign investment has dropped by nearly 90 percent, from $4.2 billion in 1998 to $496 million in 2002, according to CAF. This year, it is likely to fall even further, independent economists say.

o Unemployment has grown from 15 percent when Chávez took office to 21 percent today, Venezuelan government figures show. According to former Inter-American Bank chief economist Ricardo Hausmann, poverty has increased by 2.5 million people during Chávez's term.

It's no wonder that, when I visited Brazil earlier this year, several well-placed politicians told me privately that Lula would follow responsible economic policies, because he has seen what happened in Venezuela. Lula himself has suggested that publicly more than once. ''President [Lula] rejects comparison to Venezuela,'' read a headline in O Estado de Sao Paulo on Jan. 27.

In fact, Brazil has gone out of its way to prove that it will not repeat Chávez's mistakes. Lula has moved aggressively to reduce public deficits, create an independent Central Bank, and to seek congressional approval of free-market pension and labor reforms that have won public applause from the International Monetary Fund and U.S. officials.

And it's working: since Lula took office Jan. 1 and moved to calm the markets, capital flight has diminished, Brazil's country risk -- the premium countries pay in their foreign debts because of investors' fears of a default -- has gone down, and the Brazilian currency is up about 15 percent against the dollar.

Lula was even quoted by the Brazilian magazine Veja as having stated last month that blaming U.S. imperialism for the disgraces of the Third World ``is a stupidity.''

Granted, Chávez is not the first one to have created more poverty while claiming to defend the poor.

President Fidel Castro of Cuba has managed to depress average income to the equivalent of $10 a month (yes, you've read right), one of the lowest in the world. But Castro lives on an island, and has been able to prohibit independent economic research for so long that his claims of social achievement were until recently taken at face value by many Latin Americans.

In recent times, nobody has done more for the cause of the free market than Chávez. If it weren't for the way he has ruined his country, Brazil -- which accounts for more than half of South America's economy -- would have taken a populist path, and swayed much of the rest of the region with it. Thanks, Hugo!

Why not learn from Hernando de Soto, an economist and founder of the Institute for Liberty and Democracy (ILD) in Lima, Peru, that grew up in Europe and served as managing director of one of Europe's largest engineering firms.

In 1980, he returned to his native Peru in 1980, at the age of 38, were he came face-to- face with a stark reality: being an entrepreneur in Peru took the kind of effort, persistence and constant negotiating of bureaucracies unimaginable in Europe and the U.S.

De Soto, determined to get to the bottom of Peruvian regulatory law, enlisted the aid of two recent law graduates and set out to count the number of laws passed in Peru since WWII.

De Soto and his colleagues discovered that governments in postwar Peru passed an average of 28,000 laws and regulations each year limiting Peruvian's ability to produce and distribute wealth.

For instance, permission to set up a small business and acquire the appropriate licenses took an average of 289 days and cost 31 times the average Peruvian's monthly salary.

In the face of such a crush regulatory burden, most Peruvians operated businesses "extralegally"

De Soto discovered that Peru, in fact, "had become two nations: one where the legal system bestowed privileges on a select few, and another where themajority of the Peruvian people lived and worked outside the law, according to their own local arrangements."

In an effort to understand the size of this "extralegal" or informal economy, De Soto and a group of colleagues combed the streets and shantytowns of Peru during late afternoons and weekends, talking to people about their work, and counting their businesses and enterprises.

De Soto and his team were able to quantify their findings about Peru's "unseen" economic life.

In the early 1980s, De Soto discovered that 90 percent of all small industrial enterprises, 85 percent of urban transport, 60 percent of Peru's fishing fleet (one of the largest in the world), and 60 percent of its food stores operated outside of the law.

Contrary to the views of the government and Peruvian elites who thought of the poor as lazy, many of Lima's poor were in fact carrying the economy on their backs.

The more people the ILD researchers talked to in the shantytowns and rural byways of Peru, the more they realized that it was not so much that the poor were breaking the law as that the law was breaking them.

Even those who had tried to get into the system by applying for titles to their houses and other real estate or licenses to legalize their businesses complained that it was impossible to succeed; wending their way through the bureaucratic obstacles simply took too much time and cost too much money.

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