Business view

ECONOMIC progress is not inevitable. In developed countries we have generally come to expect continual improvement in our economy. We believe that our standard of living will increase over time, despite periodic booms and busts. Yet that is not always the case.

FOR the first half of the 20th Century Uruguay had a robust, vibrant economy. By 1950 their GDP per capita was about 60% of America's and their standard of living was much higher than Spain's. They had huge export businesses which funded advanced social welfare programs. Uruguay was called the Switzerland of South America. Today things are much different. By 2004 Uruguay had less than 20% of the GDP per capita of the US. Uruguay went through an entire generation of practically no growth. Finland should take note.

THE comparisons of Finland and Uruguay are not new. Back during the severe recession of the early 1990s some Finnish commentators worried that we could end up like them: a strong, growing country with a high standard of living falling on hard times. Then the comparison did not make sense, because Finland's depression was due to external shocks and the bursting of asset price bubbles. Now, however, the comparison is apt.

URUGUAY'S problems began when their export markets collapsed. The main political parties' goals were not improving the economy but protecting the status quo. The public sector grew in relative importance as free enterprise declined. State-owned enterprises and government bureaucracies expanded. Eventually the economic crisis turned into a political one, which just made everything worse.


David J. Cord
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