Sunday, May 15, 2011

Explaining Calderón's Failures

Matt Yglesias on Latin America's problems:

Even a model libertarian state requires the existence of the ultimate “big government” program—a bunch of dudes with guns authorized to threaten to shoot people who don’t agree to be handcuffed and imprisoned. And this program needs to work well. Which is difficult to do if you have a force of poorly paid and poorly trained cops dependent on corruption to make a living. As Mark Kleiman explains, you can easily get stuck in a bad equilibrium:

Also not news, but something I hadn’t reflected on: the “neoliberal”/IMF/Washington Consensus emphasis on reducing taxes and public spending made the problem – already bad enough – worse, and almost impossible to fix. One reason the Colombian security/rule of law situation has gotten better (which is not to say good) is a special tax levy on high incomes dedicated for the use of the security services. The back story on that tax, according to Zedillo, is that Bill Clinton went to Bogota in 1999, met with a bunch of rich folks, and told them that if they wanted security they’d have to pay for it. Apparently they agreed, and basically volunteered the tax increase.

But when Zedillo at about the same time (when he was President of Mexico) talked to Mexican “civil society” groups that were complaining about lawlessness, and told them “The taxes you don’t pay are the security you don’t have,” he got nowhere. “Right away, I lost eye contact,” he said. Prosperous Mexicans would rather hire private “security firms” to protect their children from kidnapping, without too much concern about that fact that some of those firms maintain demand for the service by kidnapping the children of non-clients.

This is in part a “policy problem.” But I think it’s also pretty clearly to an extent a problem of public ethics and public morals. In societies with a decent level of public spiritedness, social solidarity, and moral responsibility, elites concerned about public safety respond by trying to improve pubic safety. For the past 15 years or so, Colombian elites have, among other things, sincerely wanted their country to work better and it’s paid off.

The limits of the Colombia comparison notwithstanding, I think the multiple equilibria model offers some insight into Mexico's vicious cycle of low tax revenue begetting poor public service begetting unwillingness to pay higher taxes begetting further deterioration in public security, et cetera, and Calderón's inability to do much about it. In development economics, the way to get over a bad equilibrium is a "big push", in which you address the host of issues collectively preventing higher growth and a better equilibrium at the same time, and eventually the vicious cycle is replaced by a self-perpetuating virtuous cycle. Attacking the different issues piecemeal, in contrast, is not enough to get out of the bad equilibrium trap, nothing changes, and the individual efforts are wasted.

This would suggest that Calderón, upon arriving to office, should have prepared to simultaneously address the many challenges allowing organized crime to flourish by establishing a broader political consensus and giving his government the tools to take them all on. Instead, he has addressed the various challenges one by one, almost haphazardly. (This is similar to a common critique of Calderón, though it is not often phrased in such language.) For instance, he called the army out of the barracks ten days after arriving in office, but he didn't pass a tax reform until 2008 (an inadequate one at that), and he didn't directly call on businesses to pay more until late 2009, almost three years after he arrived. Granted, attacking every element of organized crime at once simply wasn't politically feasible for Calderón in December 2006, which is where the model falls apart a bit as a real-life prescription, but it does help explain why Calderón's many piecemeal efforts have had such little visible impact.

No comments: