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When socialism can 'work' By Martin Hutchinson

Bolivian President Evo Morales last weekend won re-election by a smashing margin. His eight-year rule has weakened Bolivian property rights, indulged in frequent nationalizations and demonized capitalism. Yet it has also produced Bolivia's best growth rates in several decades, far better than the orthodox and admirable policies pursued in 1985-2003.

Thus Morales' policy of making Bolivian clocks run backwards seems reflected by the apparent successful defiance of theory in his economics. In reality, however, there is a fairly simple explanation, and it is an important lesson for other poor countries.

Morales, the first "indigenous" president of Bolivia, is a Latin

American socialist. He enjoys denouncing capitalism, but not quite a standard one. His eccentricity was demonstrated a few months ago when he caused the clocks on the Bolivian Congress to run backwards, explaining that "clockwise" was a "Northern-Hemispherist" construct, derived from clocks following sundials in a hemisphere where sundial shadows advanced clockwise, and was hence not relevant to the Southern Hemisphere, where sundial shadows run counter-clockwise.

He's quite right. There can be no doubt that if clocks had been invented in Australia or Patagonia, their hands would run the other way. He is, however, pushing it in respect of Bolivia, where La Paz is sufficiently close to the Equator that, for part of the year, sundials work the same way as they do up north.

His economic policies have equally had a certain logic to them. Through nationalization and tearing up contracts, he has enabled the Bolivian state to quadruple its revenues from minerals and energy extraction at a time when prices were high and mining and energy companies would otherwise have made windfall profits from their rise. This has in turn enabled Morales to increase the Bolivian welfare state without drastically unbalancing the budget.

Indeed, aided by the windfall in resource revenues, his budgetary policies have been a model of restraint, far better than most other Latin American countries, or indeed than the rich nations of Europe, the US or Japan. Purely judged on his budgetary policies, we might well envisage for him a post-presidential career as the successor to USTreasury Secretary Jack Lew or British Chancellor of the Exchequer George Osborne!

The results of Bolivia's policies have been excellent. It has had an average growth rate of over 5% since he took office in 2006, with the 2008-09 recession survived with barely a hiccup. With the budget so close to balance, Bolivia's international debts are also modest, although a 2008 default on outstanding international bonds for a time made it difficult for the country to borrow. However, in late 2012, the hyper-liquid state of global bond markets enabled Bolivia to borrow again, raising US$500 million of ten-year money at a rate of only 4.875%.

This success is in marked contrast to the fate of the "neo-liberal" policies pursued from 1985 until 2003. During that period, while Bolivia ended hyperinflation, growth averaged only 3.1%, barely enough to keep up with the 2.3% annual population growth, and there were a number of grinding recessions.

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When socialism can 'work'