Bolivian Central Planning

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by Simon Black

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Anyone who has any doubt that central planning and corruption destroys an economy should head to Bolivia. The country is a classic example of a resource-rich nation whose economic potential has been squandered by socialism.

It wasn’t always this way. Bolivia has had several periods of prosperity in its relatively brief history; in the late 1800s, for example, the price of gold began to rise dramatically against silver which was backing many currencies at the time such as the US dollar.

Bolivia’s mining industry dates back to the 16th century, and as the country was rich with gold, its economy prospered. The good times lasted until the global depression in the 1930s when Bolivia and Paraguay went to war over the Chaco, each side thinking there was oil underneath the ground.

Following a terrible defeat and a resurgence of tough times, a number of revolutionary movements sprouted around the country. These took hold for several decades, eventually leading to a series of failed military dictatorships that were finally abandoned in the 1980s.

With an inflation rate of roughly 25,000%, Bolivia’s new market-oriented government took immediate steps to liberalize the economy, reduce capital and trade barriers, privatize state-owned companies, and attract foreign investment.

By 1985, the economy was heading back on track, and the prosperity lasted through the early 2000s when nationwide turmoil broke out over the fate of Bolivia’s massive natural gas reserves.

In light of new gas discoveries near Santa Cruz, the government provided concessions to a group of foreign companies who were willing to invest the necessary intellectual and financial capital to exploit the reserves. This move was widely opposed by many Bolivians and resulted in violent protests.

Ultimately, socialist presidential candidate Evo Morales was elected in 2006 and began his tradition of May Day nationalization decrees, starting with the natural gas reserves.

Morales considers himself a champion of the poor, and his stated aim is to distribute the profit from Bolivia’s resources among the people. Certainly, there is a large contingent of the population within Bolivia that lives in abject poverty, and their prospects have changed little over the years.

Socialists like Morales think that you can cure poverty by throwing money at the problem. They believe that by confiscating profits from evil capitalists and sprinkling them among the poor, they can lift people out of poverty.

This is a logical failure. Poverty isn’t caused by a lack of money… it’s caused by the lack of ability or opportunity to create value. Showering poor people with money does not address this problem, just ask any millionaire lottery winner who’s ended up back in the trailer park.

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