October 23, 2018 | by Dr. Roberto Salinas León Print

Below is the text of Dr. Roberto Salinas León's Cornerstone Talk, delivered on June 15, 2018, at Atlas Network's Latin America Liberty Forum in Santiago, Chile.

“Hablando se entiende la gente…”

The question “should businessmen/women be pro-market or pro-business?” seems silly at best and confusing at worst. Yet, it is at the heart of a crucial public debate concerning the prospects of free markets and an open society—particularly in Latin American countries, where political authoritarianism and the myth of economic central planning have been the rule, rather than the exception. My own country, Mexico, [faced] this debate amid a very confrontational electoral episode, which [took] place on July 1st. And, sadly, the rhetoric of class warfare and the popular image of big business as being an integral part of the “mafia in power” are winning the day.

Wherein lies the fault, or the flaw? Consider the 21st century self-proclaimed “socialist.” In almost all instances, she is a young person with good intentions, governed more by the emotion of the moment than the logic of a well-reasoned argument. She takes an Uber to the local Starbucks, to meet her like-minded friends, dressed in hip-hop tennis shoes and the latest fashion in jeans, obtained a few days ago in an informal secondary market. Upon arrival, she uses her flashy smartphone to log onto free Wi-Fi, to place a tweet or a post in her favorite social media, on why capitalist barbarians continue to exploit the poor and do everything possible to undermine civility and community. A discussion ensues on why an enlightened and caring elite should tell us what to do, how to do it, and most importantly, prevent capitalist forces from dragging us down to mere peons in an amoral market.

The meeting ends with lavish praise of figures such as Naomi Klein, Noam Chomsky or Paco Taibo II, who call for the incarceration and virtual execution of all rotten neo-liberal reformers. All of this is accomplished in a rather short span of time, mostly thanks to the great leap forward in technological innovation and entrepreneurship, using “free” internet and a smartphone. She is, at bottom, a creature of open markets, of the language of prices and comparative advantage, one that engages in capitalist acts between consenting adults.

Yet, such voices calling for a new paternalism or a Bolivarian revolution or the wholesale transformation of our modern societies are often right, albeit for the wrong reasons. In our Latin countries, as in other places, business enterprises are synonymous with corruption or cronyism, not with entrepreneurship. The experiences of latter-day Venezuela, Mexico or Argentina with privatization, for instance, gave this otherwise successful policy a negative name, one where new owners of monopolies enjoyed the lofty privilege of private profits in good times, and of socializing losses during bad times. This popular folk wisdom was reinforced in the aftermath of the 2008 financial crisis, with the resurgence of the critique of market capitalism as an unequal order, responsible for the exploitation of the poor and the working classes.

Indeed, the prevalence of this image of “big business” across Latin America is an outcome of a tradition of selected privilege, and abuse of the political process for personal gains, for benefit of a protected few. In Mexico, Octavio Paz denounced this phenomenon as patrimonialism—a pyramid arrangement between the private and public sectors, founded on a complex web of mutual favors, exemptions, legal discrimination against potential competitors, all at the expense of consumers and citizens. Patrimonialism is, in effect, just another form of mercantilism. This, unfortunately, constitutes fertile breeding ground for larger-than-life caudillos, figures that promise instant redemption and reconstruction of a new social order.

So construed, the contemporary populist becomes the master of society, of language and public discourse; and he sees himself as transformer of the course of history. As other creatures of intolerance, he presumes to have special access to the true underlying nature of the political order. And, as a consequence, debate and dialogue become impossible. Everything that conflicts with the will and wish of the populist titan is ruled out as “neo-liberal,” or a conspiracy of external capitalism. The voices of dissent can no longer appeal to reaction or education or edification; and, continued disagreement is thereby met with forced silence, if not outright torture. This is, as experience in Latin America shows, the beginning of the end for the prospects of open markets and a free society.

This is a point that bears special emphasis; and, additionally, one that should lead us to underscore the strategic need for entrepreneurs and current business leaders to champion the cause of open markets, not of business per se. It is an issue of communication. Any message or claim that is seen as harboring a vested interest will be summarily dismissed as “neo-liberal” treason.

A host of distinguished pro-market advocates have gone at length to articulate these issues and challenges. John Tomasi, our distinguished speaker at this Liberty Forum, begins his marvelous reflection on free market fairness with a distinction between open free markets as a framework that empowers people with an “equal right to compete for positions on the basis of their talents and ambitions” versus mercantilist systems based on “preferment and patronage,” where economic exchanges are “constrained by the biases…of the politically powerful.” Sebastian Edwards, the great Chilean economist and policy analyst, is fond too of insisting: “economists, scholars and policy makers should be the first to condemn and denounce collusion, monopoly, crony capitalism and corruption.” To be sure, we should add business leaders to this list. If not, Edwards says, we will “lose the battle of ideas.”

Often, unfortunately, the capitalist seems to be the main culprit, or at least of one the most visible responsible sources for the longer-term sustainability of capitalist markets. Indeed, as Raghu Rajan & Luigi Zingales have argued in Saving Capitalism from the Capitalists, a person “may be powerful because of past accomplishments or inheritance rather than his current abilities.” These, in particular, have reasons to “fear markets” and often work hard to close all doors to new competition. “Free financial markets are problematic,” they tell us, “because they provide resources to newcomers, who can then make markets” richer and more competitive. Imagine! Our friends turn out to be our own worst enemies. This is indeed a paradox of the defense of a (properly understood) capitalist economy.

In this debate, incidentally, we find a major difference of perspective in our community of classical liberal thinkers. On the one hand, some economists and some entrepreneurs tend to shy away from “normative” debates and insist that markets must be defended solely on the grounds of supply and demand, comparative advantage and efficiency gains. Many of us here recall “Alito” Harberger’s marvelous presentation at the MPS meetings in Lima, in 2015, where he forcefully argued for a more modest approach in the defense of market-based ideas—namely, focusing on the gains of greater trade opening, or opportunities for higher growth, over a medium-term span. Expressing the principles of “good economics” represents a task for improving strategies and skills in public communication. However, this otherwise reasonable stance clashes with the fact that populism, old and new, tends to sell instant solutions and impossible dreams, namely, the free lunch; and it sells the dream by simultaneously indicting an outside force: immigrants, the 1%, Wall Street, big foreign corporations, “neo-liberal” know-it-alls brainwashed by Milton Friedman.

On the other hand, there are several classical liberal voices that insist on engaging debate in normative terrain, highlighting the institutional basis of open markets, namely, equality before the law, transparency, availability of information and an effective system of checks and balances. If these are preserved, our societies will have the proper incentives in place for growth and overall prosperity.

These two perspectives may not, I think, be irreconcilable. The key challenge, as our late, great example of business and intellectual leadership, Muso Ayau, used to say, is to insist that we learn to understand the meaning of open markets—not as static systems reducible to a series of formulae, but as dynamic, changing processes able to produce exchanges of a vast sets of information on the wants and needs of producers and consumers. Muso was, indeed, a brilliant exponent on how, in a process of free and voluntary exchange, a party benefits only if the other party benefits. (Formally, this entails that a necessary condition for an agent or set of agents engaged in voluntary trade to “win” is that the agent or set of agents that is (are) counterpart(s) in the act of trade also “win”. Note that this is a stronger statement than the thesis that trade is win-win, or positive-sum.)

There is, no doubt, a great deal of work that lies before fellow public intellectuals seeking a defense of a free society. Axel Kaiser himself, here in Chile and elsewhere, has argued that our leadership needs to embrace culture—or rather, the need to appreciate the values of a free society within daily culture. For Kaiser and others, this means that there needs to be a presence of free-market ideas in the lives of people; and, in parallel, there needs to be an understanding that most major innovations, and consequent improvements in the levels of prosperity, have been, throughout modern history, the result of accumulation of capital and market incentives under open economies.

To others (including myself), we also need to sharpen defensive strategies, and undertake the repetitive task of stating and re-stating how the vanity of instant redemption leads inexorably to misery, repression and loss of human life. On this point, I suggest we heed the valuable lessons from former editor of The Economist, Bill Emmott, who characterizes the principal challenge facing classical liberalism in the new millennium as one where “we must realize that there is no one right way to arrange all social relationships.” The humble liberal, according to Emmott, has to acknowledge “when we think we have come up with solutions to [our] problems, the thing that should scare us most is the idea that someone might assemble the power… to implement them all.” So, pro-market arguments and advocates must also embrace a “hunt for humbugs,” that is, an everyday refutation of the false seductions that promise free lunches, or dignity, or happiness, or whatever. By definition, open markets are not utopian; they have limits, imposed by our own limits as humans acting and transacting on a piecemeal daily basis, exchanging millions tiny bits of knowledge that evolve within our spontaneous order.

There is a dichotomy between the academic philosopher, who seeks to sharpen knowledge of our point of view and redefine claims against the constructivist impulse; and the liberal politician, who must engage public opinion, special interests, media bias, and other such phenomena of political discourse. The differences in this distinction are striking, insofar as the former quarrels with themes surrounding, say, the compatibility of autonomy and perfectibility; whereas the latter must go beyond bounded rationality, and de facto engage the enemy on its own ground, where the use of irony, metaphor, allegory and humor, are part and parcel of "winning" debates—part of the very rhetoric of liberty.

Jerry Jordan has characterized the great policy debate over markets in modern times as a conflict between wealth-sharing and wealth-creating policies. The former, when dressed in populist garb, deliver extremely strong short run appeal, notwithstanding the negative consequences they unavoidably produce in the long-term. Yet, consider the rise (or rather, recognition) of informal economies in Latin America. These represent evidence of how commercial virtue and innovation can survive the most discriminatory and anti-economic institutional frameworks, and why entrepreneurship is a daily natural activity that cannot be reduced to an ideological category. In Peru or Mexico, and certainly in Chile, we have witnessed a surge in how popular culture sees open competition, or the stability of the purchasing power of the currency, as values in society—as welcome phenomena that have improved lives, and that are not reducible to political brands such as “left” or “right” or “center” or whatever. To be sure, informal economies are primitive and limited. But, think of how the energy of millions of entrepreneurs and innovators could be channeled if they has access to simple rules for our complex world, if they were able to learn the extended language of prices beyond their local context; or, if they enjoyed the legal certainty that the product of their toil and theirs’ to own, and not someone else’s (well-defined property rights).

To this end, the entrepreneur and business leader, qua leader in the battle of ideas, must be more than an entrepreneur or business generator. She must also engage the cultural debate over the constitution of liberty and the prospects of a free society, both in the intellectual space with the likes of John Tomasi; as in the policy space with the likes of those heading trade or macroeconomic policy; and, naturally, in popular culture and modern media.

To repeat: the anti-capitalist mentality survives and gathers strength when those who are a product of capitalism and open markets (properly understood) seek rents, or lobby a friend in the high places for a tariff, a tax break, a temporary subsidy, or worse, a bail-out. Thus, the entrepreneur that risks capital and know-how in the realm of wealth-generation must also do so in the realm of conversation and civilized dialogue; and, such leaders must also learn to see this exercise as a valuable investment in our common future.

This, is perhaps the most powerful contribution that Latin American business leaders can contribute to the aims and claims of a free society: embracing the very meaning of open markets, in all of its dimensions. The case for freedom, according to many of our fellows and teachers, ultimately rests in what Emmott himself describes as "the belief in tolerance, freedom and experimentation" over the ever-present temptations to impose solutions from above. To this end, free and voluntary exchange of ideas will not merely produce mutual intellectual satisfaction (edification?) between interlocutors. As Octavio Paz also noted, it will lead to defending open conversation, an act which in itself constitutes an instance of liberty—a civilized exchange of ideas, where assent and dissent are a product of logic and evidence, of persuasion and presentation, and never of terror or silence or subjugation.

This is what we champion—and what better way to encapsulate the essence of our claims by reminding us of the wonderful wisdom embodied in that popular folk saying across Latin America—“hablando se entiende la gente.”

Dr. Roberto Salinas León portrait
Dr. Roberto Salinas León is well-positioned to elevate the work of Atlas Network and its partners in Latin America. He is currently President of the Mexico Business Forum, as well as the President of Alamos Alliance, which was described glowingly in Forbes in 2013 as “one of Nobel Laureate Milton Friedman’s favorite retreats,” with Roberto Salinas León noted as “a major driving force of efforts for free markets.” Learn More about Dr. Roberto Salinas León >