Back in 1969, Henry Hazlitt’s Man Versus the Welfare State appeared. It was a valuable collection of essays, one of which was “Uruguay: Welfare State Gone Wild.â€
This essay consisted largely of a series of verbal “snapshots†of Uruguay, as Hazlitt called them, in the form of quotations drawn from a variety of sources over the years 1956 to 1968. What Hazlitt described by means of the quotations was an economic system plunged into ruin by unrestrained welfare-state spending.
Having taken a tour of Montevideo, Uruguay’s capital, last month, I’d like to offer a “snapshot†as of the present year, 2007.
What I saw was a city of almost unrelieved drabness and ruin. Graffiti filled walls within a hundred yards of the seat of the country’s Congress. The city’s public parks, presented as an attraction to tourists, were overgrown with weeds; the wrought-iron fences they contained were in a state of collapse. Building after building, in neighborhood after neighborhood, was in a state disrepair. Often, only a burnt-out concrete shell was left. Hardly anything, anywhere, looked new. Much of the city was reminiscent of the South Bronx, an area devastated by more than two generations of rent controls. Only one, small area of the city, near the River Plate, appeared to be at all prosperous.
Uruguay no longer has trains. “They don’t work anymore,†our tour-guide announced. “Uruguay has been resting for the last 50 years and has made no progress in that time,†she said. The population of Montevideo and of the country as a whole are both declining. A large proportion of university graduates in particular leave, in search of better opportunities elsewhere.
From what I saw, if there are another 50 years of such “rest,†there may be nothing much left of Montevideo beyond an impoverished village.
Copyright © 2007 by George Reisman.
{ 27 comments }
Some thoughts,
“Graffiti filled walls within a hundred yards of the seat of the country’s Congress.”
Graffiti filled walls is a typical symptom of a drug prohibition problem, not a welfare state problem (even though they often seem to go hand in hand)
“Often, only a burnt-out concrete shell was left. Hardly anything, anywhere, looked new.”
Price controls! It’s interesting how things can be looked at and the presence of things like long term inflation and restrictive labor laws can immediately be detected even though I know none of their laws.
One thing I’ve often pondered – if it’s not possible to hire a bunch of armed security guards or hand out a bunch of guns, move a population group into a backward country like Uruguay or Hati, and then proceed to practice libertarian polotics, economics, and free trade. It’s not like the already bankrupt government would have much resources to do anything about it.
Reading Dr. Reisman’s description of the bleak disintegration of Uraguay’s economy is unsettling–a disheartening example of the consequences of welfare socialism. I was disturbed to learn that Uraguay has been forced to abandon its railroad system, clearly as a result of capital decumulation imposed by socialism.
More and more, I wonder what fate awaits Americans, who have embarked down a similar pathway.
Dr. Reisman’s comments struck me as the logical follow up to the Hazlitt chapter — just what I would expect from a “welfare state gone wild.”
I have never been to South America, but I posted the article to an email circular in which I participate. Several people say they have been to Uraguay recently and saw nothing resembling this description.
Typical comment: “I happened to be in Uruguay a month ago. I didn’t go into the city, but did tour an upscale suburb that was impressive. I had meetings in ‘Zona America’ which is a place that looks like an office park but is actually a free-trade zone. Businesses that locate there do not pay taxes. Merrill Lynch has an office there that manages $10 billion of client assets; clients that are located primarily in Argentina I was told. All very modern and busy. The airport is not all that great, but the business class lounge was very nice and had free WiFi. I didn’t see anything like what this author describes.”
This person says he didn’t go into the city, but still this seems like a significant discrepancy. There are lots of US cities that fell into disrepair as development moved to the suburbs, for example. Anybody else with first hand knowledge of Uraguay?
Uruguay has turned around what was a crippling meltdown of economies back in 2002 when Brazil and Argentina collapsed, the economy has grown 20% since then, you also have to remember for the last 150 years blanco and colorado governments have drained everything out of the country. I think that slowly now they will start to get their act together, reduce corruption and return uruguay to what it was when it was regarded as the swiss of sth america
Leo Vasco, your view is too simplistic. Uruguay has three clearly distinguishable eras in its economic history. During the first 50 years since its independence Uruguay grew at a rate so high that its population grew from 50,000 to 1,000,000 by the end of the period. This period is characterized by openness to trade, to immigrants and to foreign investment. Argentina’s framer of their liberal constitution, Alberdi, called Uruguay the California of the South. This period ended with a military coup that brought nationalism and protectionism to the scene. The next period is marked by Jose Batlle y Ordonez welfare state creation under the influence of german thinkers. This period showed a reduced rate of growth and an increasing tax burden on the rich, owners of the land. This period ends with a fascist coup in 1931 promoted by those affected by the increasing tax burden. By devaluing the uruguayan peso (abandoning forever the gold standard) they were able to reduce that tax burden and increase the profitability of their exports. The consequences of this instability, brought the third era which was characterized by stagnation, unemployment, emigration, inflation, social unrest and in the end terrorism and a 12 year military government. It was during this last period that corruption became rampant because in a stagnated economy the only way for a group to get advantages is at the cost of the rest. Uruguay needs, at least, reforms of the kind New Zealand introduced, but if they want to be a place worth going to work, invest and progress the only way is look guidance in the open model of the XIX century.
Leo Vasco’s view is the standard left-wing gibberish we are treated to in my homecountry Uruguay. The now ruling leftist coalition blames everything on the “traditional” political parties and offers us the illusion of change “from now on”… forgetting the mayor of Montevideo has been a leftie for 20 years and the only thing that changed there was a drop in productivity.
For US citizens, this is just like when you hear Dems vs GOPpers. Like Dems bashing Palin or GOPs calling anti-war people “unpatriotic”. Nothing to see here, really.
As of you Leo: it is easy to grow 20% when you grow from the bottom of a pit. I am in no wat a fan of the “traditional parties”, but the left-wing coalition blocked every attempt of reform. They even took part in writing a law to privatize the state petrol and alcohol monopoly (yes, you read that right) and then _opposed_ it! The Frente Amplio has been a major force of “rest” in this country, blocking privatisations of the state telephone monopoly, the alliance of the state energy monopoly with private investors, and even the construction of a new airport. At least this changed when they seized power in lawfull elections, and the former detractors turned into enthusiastic ribbon-cutters… weeks before the election and months before the first plane took of from it.
As of the Swiss of South America, this government pandered to international pressure and now agrees to reveal bank customer’s information to foreign governments. Good luck being Swiss with that regard for your customers.
The growth in Uruguay is taking place in resort areas like Punta del Este. there are construction cranes all over the place there. The value of farm land in Uruguay has doubled in the last three years. Uruguay is a farming country, and exports a lot of agricultural products. The city of Montevideo will be renovated as Buenos Aires has. The new zona franca, or tax free zone, in Montevideo is encouraging new foreign businesses to set up like Tata Consulting, the Indian software integration company. Uruguayans are good people with both feet on the ground. The real economic growth around the world is occuring in so called “emerging” economies, one of which is Uruguay. It doesn’t get a lot of press, but it’s a gem.
Sorry to disappoint you Gilman, but you did not see the “deep” Uruguay where more than 10% of its population lives under the poverty line in “cantegriles” as we called shanty towns.
Yes, no doubt further economic reform, deregulation and protection of property rights is needed in Uruguay.
While we’re on the subject, let’s not skate past our glorious role in supporting military dictators and brutual suppression of human rights and democracy in Uruguay and elsewhere in the 60s and 70s – a history that still reverberates today in the form of extreme distrust (bordering on paranoia) of the US and in undue popularity for socialists:
“Backed by the United States, military rulers later seized power in Brazil, Chile, Argentina, Uruguay and Bolivia.
Security forces in these countries worked closely together, formalizing their cooperation in a joint intelligence plan called Operation Condor. Though Condor’s official goal was to target Marxist or terrorist threats to the dictatorships, in practice it served to uproot almost any political opposition or stirrings for democracy in its member nations.
Condor also coordinated the assassination of opposition figures abroad,”
http://www.nytimes.com/2006/08/16/world/americas/16cnd-stroessner.html?ei=5088&en=cd9da45f8ae57041&ex=1313380800&partner=rssnyt&emc=rss&pagewanted=all
http://en.wikipedia.org/wiki/History_of_Uruguay#Modern_Uruguay
http://eh.net/encyclopedia/article/Bertola.Uruguay.final
http://www.oneworld.net/article/view/142636/1/
http://rawstory.com/news/2007/_Kissingers_extradition_to_Uruguay_sought_0326.html
http://www.zmag.org/sustainers/content/2007-03/24trigona.cfm
http://www.gwu.edu/~nsarchiv/NSAEBB/NSAEBB125/index2.htm
http://en.wikipedia.org/wiki/Guaran%C3%AD_Aquifer
http://www.wonkette.com/politics/george-w.-bush/we-hate-to-bring-up-the-nazis-but-they-fled-to-south-america-too-208549.php
You are not telling the full story. During the Cold War, the USSR and Cuba were doing the same with the terrorist groups that appear all over Latin America. Even Che Guevara, the most cold blooded killer of the Cuban revolution, when visiting Uruguay said that no revolution was needed in Uruguay.
Ah, good Jorge! You dare speak the unspeakable!
The lefties had _their_ plans for _all of us_. Just Google “OLAS” “Tricontinental” or “Junta coordinadora revolucionaria”. They started this international association to spread their ideology and their bullets, and now they resent that their opposing party did the same and beat them to the top.
Yes, they would kill and slain their way to power- for the good of us all of course. They even had a cool patch! Check it out :
http://sp0.fotolog.com/photo/32/24/66/mjrebelde/1227558289527_f.jpg
So what’s a 2010 man to do, TokyoTom?
I am uruguayan and live in Montevideo.
Graffiti fills all the city, but it is almost all political, very few of it is related or done by drug addicts. Here graffiti started as a tool of the left parties to express themselves in the years of dictatorship in the 70´s and beggining of the 80´s, and they continue to do so, even though they are the government.
Big parts of the city are in complete disattention, so they look as Mr. Reisman says, but not all, and I would guess that more of it is well than not. Of course, the standard of well here is below what you could consider so in Europe or USA. And the part of the city along the River Plate is the best mantained, in relative good condition and where more than half of the population live.
Uruguay, and Montevideo in particular has nothing to do with Haiti, or any other poor south american country. Of course we are a poor country, but far above the worse, socially and economically we are much closer to Chile and Argentina. About a quarter of our population is poor, of which only a small proportion in extreme poberty. The other extreme is also very small, so the great majority can be considered middle class.
Against what Leo said, our current government, socialist as it is, is making things worse. Not that I accept as good what colorados and blancos did, they started this process of decay. At first I voted colorado, but dissapointed as I were I turned liberal (libertarian).
Regarding corruption, it exists but it is mild compared to any other third world country. And it still is a problem with this progressive government, foe example the Montevideo´s county casinos lost US$ 15 million in the last five years of socialist management, this issues has just been sent to the penal courts. Recently the president´s son, Javier Vazquez, is accused of wrongdoings, because he and his associates got a contract worth US$ 60 million with venezuela in not a clear way. In summary, corruption here is more than I can take but is way below the levels in our neighbours Argentina or Brazil.
Regarding our trains, they were built an operated buy british companies until the begginings of the XX century, when they were expropiated. Since then very few improvements have been done, only changing the occasional wagon or locomotive, so today it operates only for freight (lumber and citrus mostly) except for one line for passangers that covers a short distance from Montevideo.
As noted by other posters there are some improvements like Zona America, a duty free zone, but are few and far. So, unluckily, my expectations are that we are going to get even worse, and so think lots of my countrymen, as they are emigrating in a very important way.
Regarding our period of dictatorship, as ugly and unexcusable as it was, it was relatively benign compared to other south american countries. The guerrillas killed no more than 20, the military “dissapeared” less than 30 in Uruguay and around 200 hundred were killed in Argentina, either because their uruguayan or argentinian involvement. These figures are not exact, because as an example, a couple of years ago it was published the list of the 30 “dissappeared” in uruguay, but one of them sent a letter from Europe stating he was alive. All this is very passional, so the truth is rutinely distorted by all sides. In any way it was a very dark period of our life. Very shameful for all, specially the great majority which was caught between two evils.
I am sorry for such a long post.
Eduardo
My friend Amos at just talked with his friend a health care professionl in Uruguay. He said that things were very bad in the sixties. At times he could not get supplies. But he continued, things are much better now.
He also said that they do have trains primarily for freight.
I have a home in Punta del Este but am a US citizen living in Seattle. I really disagree with the author’s comments. Surely every city has it’s share of problems, but I have seen great progress in the years I have been visiting Uruugay.
Punta del Este has become a boom town. It is hard to believe the number of new condos going up. In Montevideo there is a new aiport terminal under construction which should increase airline passenger and freight business. American Airlines now offers seasonal non-stop service from Miami to Montevideo.
Michael
Michael,
If you are not taxed, and you have already made your money somewhere else, living in Punta del Este is great. I am planning to do that myself. However, how do you explain that working age people continue to emigrate from Uruguay.
Your vision is too simplistic.
Amen.
VAT 20%, “Social Security” (??) 17%, Income Tax 20% if you are fortunate enough to earn more than 1600 US dollars a month, 15%
60% tariff on real cars (“only” 40% on brazilian and argentinian motor-traps)
And several other nuisances as abusive fees for license plates in several regions of the country, etc.
An effective tool to combat corruption is to create a who is who index of the corrupt in each country and town. A lot of information is available in the Internet, but its fragmented and difficult to use. An index of the corrupt with a post for each individual name photo curriculum crimes etc is the way to go to make information easy to use for everybody
An effective tool to combat corruption is to create a who is who index of the corrupt in each country and town. A lot of information is available in the Internet, but its fragmented and difficult to use. An index of the corrupt with a post for each individual name photo curriculum crimes etc is the way to go to make information easy to use for everybody
Aparicio, a better way to reduce corruption is to reduce the role of the estate to the minimum. If the estate taxes and spends about 40% of the Gross National Product, then the opportunities for corruption are almost infinite. When Uruguay was one of the richest countries in the world, measured by per capita income, the estate did not spend more than 10%.
I am from Uruguay, and I see a mix of partial perceptions here, the true is, Uruguayan welfare state re-distribute a lot of wealth available at the time, but was slow to adapt to the challenges of the world economy, therefore not alternatives were found to export when the bad times came. By the way the bad times came because of lack of liberalisms in the world, application of protectionist policies and subsidies to farmers in the first world we couldn’t export after the WWII as we did in the good years. So yes from this point of view Uruguay was a victim of distortions to the market created by developed countries.
Uruguay now has a quote of how much meat it can export to EU and USA. If we want car’s from Japan we import them. If the Europeans want our meat, there is a limit to how much they can buy to us.
Remove this and you will see a lot less gratifies in Montevideo. Since Uruguay has a natural advantage to produce meet and agricultural products –In the strict sense of Adam Smith- than, let’s say a farmer in Germany.
A lot was invested in education by this failed-welfare state, and this gives opportunities now for Uruguay as a services hub. University is free in Uruguay, and people can graduate –with effort- without having the burden of paying back a loan as in many anglo-saxon countries.
Lower middle class people can have an education –As I did- and have an opportunity for social progression. Of course there are lot of problems and exclusion of the very poor, nobody denies of that, but it would probably be worst with paid universities only.
We fail to adapt to changes in international situation to keep exportations at a level to keep our income at the end of the 50′s, and then we went backwards. U.S policy and dictatorship didn’t help in the 70′s, – U.S sent a guy call Mitrione to teach torture here-, crisis in Neighbours neither did in the 2000′s. The worst legacy of the dictatorship was the external debt they left us and reduction in salaries forced by the suppression of worker’s unions, fostering emigration. We are still paying this debt, although it is illegal- since was awarded by the international institutions to Dictators-, for the sake of honouring our external obligations in order to have a good credit score and being regarded as a safe place to invest. Because we know we need to find ways to survive in the global economy somehow.
There is not much price controls in Uruguay nowadays, and a lot of industry is gone due application of liberal policies, so it is not a clear case of stagnation due state interventionism. In the last decades the governments wanted to liberalize but could not do it because public opposition to it. By popular referendums the privatization of Public Utilities was rejected by the people. However in some areas like mobile telephony and data communications monopolies are abolish and there is competition between companies.
The case of the railways has a lot of history, when they were English the government compete with them building all roads in parallel-trying to get rid of English influence-. They are massively used today for cargo to bring the commodities we export to the port.
The country is not very densely populated so it is not a very clear business case to use them for passengers. Had it been a more socialist country they would still running at a deficit. The country is served by a network of intercity busses in relatively well maintain roads.
The visitor probably will not notice the busy container terminal of Montevideo and the new one in construction in El Cerro, on the other end of the city. A big share of the cargo traffic to Buenos Aires is actually handled by Montevideo.
Uruguay is now doing well with exportations and services; this is due a external situation. Most tourist from Europe/USA tend to think that now tourism is something new, but it has been around for a century now, mainly serving the Argentine summer tourist. I recommend the visitor to see the city of Piriapolis, 20 minutes drive of Punta Del Este to see the old Argentino hotel and other buildings, that should convince you tourism has long tradition here. While Punta del Este started more in the 40s/50s I believe.
What is new is that after the crisis of 2002 the local currency went very low and then Europeans and Americans can afford to travel so far for tourism. This situation may not last if the economy keeps recovering, and the local currency appreciating. Also middle class Americans will probably travel less abroad due their own economic problems, probably due to too much liberalistic policies in America.
The social legacy of the crisis is last, people living in slums, record criminal levels, when I was I child in 1980, during the day, the door of my house in Montevideo was unlock during the day, something unthinkable today. The social fragmentation produced by the extreme differences in society is something many Uruguayans can’t stand anymore, having being educated in a more egalitarian idea. So they emigrate or tend to think pessimistically about the future, even if it is not necessarily the case.
So everything is about balance, and different medicines for different sickness. When a country is rich and with bad re-distribution a little bit of social-democracy can be good. When an economy is too inefficient a little bit of a liberal shock can be healthy. But everything depends on the case and the moment in history. We were once known as the Switzerland of America, but Switzerland survived the end of the mechanic watch and move on. We couldn’t survive when markets for our products closed. Our grandfathers created our failed state, and it fail, it is for us to reform it to make it more flexible to the challenge of production in the information age, but without sacrificing the social values that aimed it. A lot of the liberalistic theory has been miss used to help big companies to make big business out of State owned assets in South America, and is also being used to make big business in America and Europe, in the end the common citizen is paying the bill as it is happening today
Martin Thomas,
Your post is the worst of all. You are putting the blame of Uruguay’s deterioration on others when we have only ourselves to blame and your view of Uruguayan history is distorted, probably by that “free” education you obtained in the state university which is still living in the Cold War years.
Mises said the USA was the richest country in the world at the time because it was the last to introduce the welfare state. Unfortunately, Uruguay was one of the first. The wealth creation process which started so well was cut short into a fever of redistribution. We have harvested what we sowed.
jorge,
is there any political appetite for shrinking the state in uruguay? are there none who question the wisdom of the current social model?
Yes there are some of us, but we are few and far between. The Uruguayan credo spread through cultural manifestations like music and literature, by the educational establishment, and even by common knowledge and word of mouth is one of distrust of business, disgust for profits, self-righteousness when caliming for redistribution of other people’s money (through tax and spend programs), belief in the state as solver of problems and as protector (against all empirical evidence).
I forgot to mention that of every three dollars our bloated state owes, two dollars are debt accumulated through the country’s history and one dollar is debt acquired during the left coalition’s five years of government. Yessir, they got us 50% more debt in only five years. That’s change you can’t believe in, isn’t it?
Uruguay is the South American country were more people define themselves as socialist. During its first 50 years of independence it was a ideal liberal state: very little government expenditure and open to immigration, trade and foreign investment. Given its natural conditions as port it attracted a lot of British investment. Unfortunately, nothing of that history remains in the public’s mind.
A few of us, reestablished the Partido Liberal in 2003, but had no money to run a meaningful campaign. We obtain very few votes. We also created a think tank.
I used to teach finance and economics after my full time work and when ask about my opinion I would promote a reduction of the state and moving to a more open economy, but now I am an economic exile as many Uruguayans who in the past left looking for progress.
yes, i’m familiar with uruguay’s past, having spent time in argentina and chile. tokyo tom forgets that pinochet and the condor plan came after allende had chile crawling with soviet consultants in his attempt to transform chile into the workers’ paradise, and expropriation was in full swing, either formally or otherwise by armed thugs.
the fascists were a reactionary force.
This is like a glimpse of Las Vegas in 2020. Or Detroit today.
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