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Leftist Turn in Latin America Could Set Back Vital Economic Reforms, Says Expert in The Milken Institute Review

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Leftist Turn in Latin America Could Set Back Vital Economic Reforms, Says Expert in The Milken Institute Review

Voters in Latin America, frustrated by the undelivered promise of more than a decade of market reforms, are moving left by the millions. But even though new leaders are a more responsible breed than their populist predecessors of the 1970s, their failure to stay the course is undermining the region′s economic prospects, explains a former State Department official in the latest issue of The Milken Institute Review.

Albert Fishlow, now director of Columbia University′s Institute of Latin American Studies, says these leftist governments will lose critical ground to hard-charging, economic newcomers such as India and Vietnam if they don′t make progress on issues ranging from improvements in education to the creation of independent judiciaries.

"Bolstered by the windfall from the commodity boom, a new generation of populists is advocating a regression to the big-government policies of the 1960s and 1970s — only this time, with a greater commitment to reducing poverty," writes Fishlow. "That approach puts at risk the modest gains from a generation of reforms."

While helping the poor is an important goal (and one too long ignored by right-center elites), he adds, "Only through productivity growth, fueled by advances in technology and greater domestic savings, will Latin America be able to dig its way out of the morass."

Also in this issue, four scholars from Yale and Harvard argue that while growing ranks of American workers are being asked to take a greater role in managing their retirement funds, most don′t have the will or ability to save enough or to invest it wisely. But with a little help from government and employers — in particular, changing the rules to make adequate savings the path of least resistance — the outcomes could be much different.

"For better or worse, the trend toward asking workers to take more initiative and bear more risk in planning retirement is probably unstoppable," write the authors — James Choi, who teaches finance at the Yale School of Management; David Laibson, professor of economics at Harvard; Brigitte Madrian, professor of public policy and corporate management at Harvard; and John Beshears, a graduate student at Harvard. "But the consequences of the shift are far from clear. At very least, the employers who are shedding the risk, and the government that is implicitly encouraging the switch, owe Americans a gentle push in the right direction."

Other highlights from the new Review:

 

  • By the time the war in Iraq is over, the cost could exceed $1 trillion, according to Scott Wallsten and Katrina Kosec of the AEI Brookings Joint Center. They measure the "direct costs in addition to those related to the budget, including (but are not limited to) lost civilian productivity from the displacement of National Guard and Reserve troops, deaths, injuries and physical damage in Iraq caused by the war."
  • C. Pascal Zachary, who teaches journalism at Stanford University, says there is finally some good economic news coming out of Africa, thanks to the growing realization that joint efforts between local farmers and foreign business can be engines of prosperity: "There is new optimism about the prospects for food production in Africa — and that optimism is sufficiently grounded in specific examples around the region that it is fair to conclude agriculture is poised for a significant revival."
  • Laurence J. Kotlikoff, an economics professor at Boston University, tells us that the personal financial planning industry typically does a poor job in helping clients to create and sustain optimal retirement savings strategies. "Long-term financial planning, like surgery," he explains, "must be extraordinarily precise if it is to be useful. Small mistakes and the use of the wrong tools can cause and, no doubt, are causing major and irreversible financial damage."
  • Charles Cooper, a decision theorist and private consultant, and David Henderson, an economist at the Naval Postgraduate School in Monterey, Calif., demonstrate that a little clear thinking can go a long way. "In most situations you′ll ever face, whether in your personal or business life, if you use some basic tools to clear your head, you′ll do better than if you don′t."

Also in this issue are excerpts from the 2006 Milken Institute Global Conference panel discussion with Nobel Prize winners in economics, moderated by Michael Milken.

This issue′s book excerpt comes from The Invisible Safety Net by Janet Currie, a professor of economics at UCLA, who explains why the reform of the welfare system went so smoothly — and why, paradoxically, that success has put at risk other antipoverty programs like Medicaid and school lunches that are now crucial to maintaining the social safety net. Also in this issue: a Charticle by Senior Fellow William Frey that shows which states and cities the middle class is fleeing to; and yet another offbeat, end-of-book "Lists."

The Milken Institute Review is sent quarterly to the world′s leading business and financial executives, senior policy makers and journalists. Its editor is Peter Passell, former economics columnist for The New York Times.

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