Costa Rica / America - Inequality of Outcomes : Government OverReach

This seems to be the theme of the current controlling party in Washington, income inequality among the classes driven by elites that find the lowers classes as necessary inconveniences.

In Costa Rica as in America, the inequality is directly proportional to who is running the government and their agenda. It's really easy to understand as it plays out everyday before our very eyes on television and print media, government willingly advocates for more power through subjugating business to gain financial reward of subliminal threats.of reprisal if they don't comply. 

As a result, businesses succumb to the pressure to do the bidding of government officials, and as a result are rewarded with taxpayer dollars. Good examples are the big banks and industry like General Electric, all receiving generous rewards for playing the game, and for generous contributions to the elected official that hold the big stick of fear of  the law and regulation.

Little wonder then that small businesses and the middle and lowers classes are locked into a stagnate or diminishing life style, that is the inequality of outcomes between those that have access to power grow larger and more powerful, while those that don't grow smaller and weaker.

As the gap between the haves and the have-nots grows larger and more intense, the very officials that caused the gap to grow in the first place are the very ones that now proclaim to be working to change the system to make it more fair, but realty are working to make it worse. This is not by accident but by design. 

Costa Rica is no different then America, as those that have access to power grow richer, those that don't grow weaker and poorer. It is the very basis of the progressive socialist agenda that sees and understands the weakness of a complacent  and or compliant citizenry that can be separated from basic individuals rights to pursue prosperity unencumbered by outside forces such as an over reaching government agenda of absolute control of all outcomes.

Once the gap is large enough and the citizen loses faith in the system, all that has gone before will be lost.

Costa Rica: Growth without Poverty Reduction
Source: Juan Carlos Hidalgo, "Growth without Poverty Reduction: The Case of Costa Rica," Cato Institute, January 23, 2014.

February 18, 2014

Costa Rica has grown for the last quarter century but the number of Costa Ricans in poverty has remained steady, says Juan Carlos Hidalgo, a policy analyst at the Cato Institute.

Costa Rica suffered an economic crisis at the beginning of the 1980s after its protectionist policies that had encouraged the creation of state-owned enterprises became an overwhelming financial burden on the government. But over the last 30 years, Costa Rica has instituted a number of liberalization measures that have led to strong economic growth and boosted tourism, the most important business sector in the country.

• It created tax-free zones to encourage business development (Intel built a plant in Costa Rica in 1997, thanks to this incentive), and it entered into a number of free trade agreements with countries across the globe.
• All of these reforms increased the value of exports, which rose as a percentage of gross domestic product from 27 percent in 1985 to 49 percent in 2007.
• Many state-owned businesses were also privatized, though some remained under state control.
• From 1985 to 2005, Costa Rica went from ranking 62nd out of 109 countries in terms of economic freedom to 23rd, growing at 4.7 percent per year since 1987.

However, this growth has come without a reduction in poverty over the last two decades, and the percent of those living below the poverty line has hovered around 20 percent since the early 1990s. Why? Because the country's economic model is largely mercantilist and its policies have benefited Costa Rica's export sectors but hurt Costa Ricans as a whole.

• Monetary policy: Costa Rica's policies undervalued its currency, which boosted its export sectors but led to inflation. Basically, its monetary policy functioned as a subsidy to exporters, and as inflation always hurts the poorest segments of an economy, the lower classes suffered.
• Agricultural protectionism: High tariffs on products such as milk, rice, beans, potatoes and chicken basically function as a reduction in income. A 1998 study found that this type of protectionism reduced the income of the poorest 70,000 Costa Rican families by a full 41 percent.
• Regulatory and tax policy: The total tax rate in Costa Rica adds up to 55.3 percent of an average business's profit. And its regulatory environment, marked by inefficient bureaucracy, put the country at 94th out of 148 nations in terms of "burden of government regulation."

Costa Rica needs to institute actual free market reforms that keep the government from picking winners and losers. Abolishing agricultural tariffs, peeling back regulations and adopting neutral exchange rate and tax regimes would do much to bring more Costa Ricans out of poverty.