Facilitate the start of business a pending challenge for the country

La Nación – Argentina is the realm of contrasts: contrary to what happens in other countries, here the improvement of economic institutions does not keep pace with that of political institutions. Thus, the notable advance in indices such as the functioning of democracy, freedom of the press and the perception of corruption, contrasts with the slow recovery in terms of economic freedoms and the ease of doing business.

This conclusion arises when analyzing the results of the Institutional Quality Index of Libertad y Progreso Foundation, a ranking that measures the quality of the country’s institutions and, indirectly, indicates how attractive it is for foreign investments. In 2019, Argentina was ranked 112, after climbing seven places with respect to the previous year, but while in political institutions it climbs to 78th place among 191 participants, in economic ones it is 138.

Martín Krause, author of the mentioned index, comments that today he is in the same place as in 2008, date from which the country collapsed to position 146. “The improvement in recent years is due to what happened in the field of political institutions, where Argentina shows an indicator of 0.5466 (Norway being the best quality with 0.9905 and North Korea the last, with 0.0176)0”, adds the professor of the University of Buenos Aires (UBA).

Where the country’s situation is not flattering, warns Krause, is in terms of market institutions. “There the qualification is 0.2593 (Singapore being the best quality with 0.9940 and Somalia the last, with 0.0053) .The weak point of Argentina is, precisely, in the lack of economic freedom and in the little facility for the enterprises, that delays it in the economic item, because at the same time the rest of the countries keep advancing”, he says.

In the analysis of this work, from Libertad y Progreso, a space of liberal thought, it is observed that the fall deepened in Kirchnerism. “The arrival of Mauricio Macri in December 2015 meant a remarkable change of direction and an apparent way out of the plague that hit Argentina between 2003 and 2015: the populist fever”, says the report.

And what does populism and institutional quality have to do with it? Writer Emilio Ocampo, co-author with Roque Fernández of El populismo in Argentina and the world, responds that the presence of the former is synonymous with the absence of institutional quality. “Populism is the simplistic, simplistic and arbitrary solution to structural problems faced by a society that proposes a charismatic and opportunist politician using a Manichean discourse. To the extreme, populism ends up destroying democracy and in its final mutation becomes authoritarianism”, says the economist and historian.

The economist Agustín Etchebarne, from Libertad y Progreso, points out that knowing the institutional quality is important, because a country more prone to respect the rules attracts more investment and work. In this sense, explaining the Nobel Prize theory Douglas North, says: “If a government is likely to confiscate property or savings, the expected rate of return on investments will be lower and, therefore, the investment will be lower”.

Meanwhile, Nicolás Cachanosky, an economist at the Metropolitan State University in Denver, points out that there is a strong consensus that rich nations are more prone to have a free market economy open to the world and an adequate framework of rules that protect property and property. freedom. “Institutions are key to understanding the success or failure of nations, in short, it is the rules and their respect that define the development of a country in the long term”, he stresses.

From this vision, the link between healthy institutions and economic well-being is clear. “But, paradoxically, while in the world it is seen that an improvement in institutionality brings a similar advance in the economic sphere, in Argentina there is the strange case that there is a great effort to improve political institutions and an oversight in the economic”, conclude in Libertad y Progreso.

Why Argentina advances slower in its economic institutions? Krause attributes this phenomenon to the persistence of the fiscal deficit, high inflation, tax pressure and a still quite closed economy, all issues that hold back for the moment a major improvement in terms of economic institutions.

The Institutional Quality Index is very broad, since it averages eight internationally recognized indicators: Rule of Law and Voice and Accountability, both from the World Bank; Freedom of the press, by Freedom House; Perception of corruption, by Transparency International; Global Competitiveness, of the World Economic Forum; Economic Freedom, Heritage Foundation, Economic Freedom in the World, Fraser Institute, and World Bank Doing Business.

A tour of the rest of the country is analyzed in the index in question allows to see that those who combine both economic freedoms and legal security and transparency in the ideal balance are New Zealand (number 1 of the ranking), Denmark, Switzerland, Norway, Finland, Sweden, Holland, Canada, United Kingdom United, Australia, Germany, United States, Ireland, Estonia, Luxembourg, Austria, Iceland, Hong Kong, Taiwan and Belgium.

Krause also highlights the performance of the Baltics, who rank 14th (Estonia), 22nd (Lithuania) and 29th (Latvia), mainly because they are the best placed countries among those who left the Soviet socialist regime at the beginning of 90. “In 1996, Estonia was already ranked 39th, which shows the great effort of change made in the first years and the continuity that has had since then”, says the professor.

Unfortunately, towards the end of the list there are not many cases of countries that are emerging from this bad position. This year, the inhabitants of the “ghost train” of institutional quality are North Korea, Somalia, Syrian Arab Republic, Eritrea, Equatorial Guinea, Libya, South Sudan, Turkmenistan, Venezuela, Yemen, Sudan, Chad, Burundi, Democratic Republic from Congo, Central African Republic, Angola, Republic of the Congo, Zimbabwe, Iraq and Cuba.

The case of New Zealand

A remarkable case in terms of institutional quality is New Zealand. This country is doing as well in institutions as it does in some sports. In the 24 years of data from the Institutional Quality Index, New Zealand was the country with the highest institutional quality during half the time, according to the index analyzed.

In parallel with its improvement in institutions, the country went from a per capita income of USD 26,735 in 1996 to USD 37,852 in 2017 (constant dollars of 2010). “The life expectancy is 80 years for men and 83 for women, and it stands out for respecting individual rights, cultural differences, environmental protection, security and justice”, says Krause.

The countries that have accompanied New Zealand all those years in the first three places are Denmark, this year 2nd, and Switzerland (3rd). Denmark has occupied the first place for four consecutive years (2008/11) and Switzerland in five years (2005/07 and 2015/16).

During those 24 years these countries have shared the first three positions, a performance more than remarkable, which extends the suggestion to study their institutions in all three cases. From 2002 to 2017 they had a fourth companion, Finland, but this country fell to 6th place in 2017 and now regains a step.

Argentina is far from dreaming of integrating the top ten of the Institutional Quality Index that the New Zealanders lead, but at least it was in the race: since 2016, it has advanced 30 positions in the ranking (4 in 2017, reflecting 2016, 19 in 2018, based on what happened in 2017 and 7 this year, reflecting 2018). Of course, unfortunately, that did not serve to give more pace to the improvement of the lagging economic institutions.


By Carlos Manzoni