There is no unemployment in Peru - Liberty.me

There is no unemployment in Peru

Craig Spencer August 25, 2017 at 12:59 pm

This is in spite of the fact that Peru has some of the most restrictive and onerous labor laws in the world. The reason is that the laws are so bad that, for most people, formal employment is out of the question. Sheer survival requires that they make their living in an entrepreneural way in the informal (ie. free) economy.

In the last ten years the size of the informal economy in Peru has actually increased from 60% to 70%. Anyone who wants to work can find a job in the part of the economy outside of state control where the terms of employment are whatever is agreed upon between employer and employee rather than what the state dictates. Or start a business that operates by ignoring the state almost completely

This situation causes great angst for the political class which moans over all the people working without “social benefits” and at jobs in small businesses that pay no taxes and that the hand wringers consider inefficient. They are preoccupied by the need for the state to do something to fix this “problem,” fearing that Peru can never progress to be a prosperous, developed country like the US with such a high rate of informality (ie. with such a large free economy).

The fact is that Peru has one of the highest growth rates in the world and some 50% of the population has passed from abject poverty into the middle class in the last 20 years. For the first time in the country’s history the bulk of Peruvians are prospering.

The informal or free economy operating in spite of the state is the engine of this progress. Of course, the politicians are anxious to kill it. But my bet is that ordinary Peruvians, rather than the statists, will win out in the end.

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anders lundberg September 25, 2017 at 5:05 am

It is some what ironic that the state want to control the prosperity of the economy by regulations, and because of that, the economy does prosper, but not in their format.

Edit: typo

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Craig Spencer September 25, 2017 at 2:46 pm

That is the case in many fields.

Public transportation in Lima is, and has for several decades been, in the hands of thousands of small entrepreneurs who operate their buses in spite of the government attempts to control or displace them.

Peru is one of the largest producers of gold in the world and has some very large, formal mines. But nearly 50% of Peru’s gold production comes from informal miners operating illegal mines. In the last few years the government has tried to clamp down: blowing up their machinery, raiding refineries, controlling gold exports, etc. But Peruvians just went further underground (no pun intended), developed smuggling routes through Bolivia, etc. The informal production has actually increased.

To most Peruvians the government is just an irritating obstacle to be gotten around as much as possible.

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Craig Spencer September 27, 2017 at 6:35 pm

Here is some editorial commentary pertinent to this topic.

La necesidad de persistir en el modelo (The need to stay the course)

My translation of some pertinent paragraphs:

Our economic and social model, in general, reproduces many of the features present in the societies that have achieved development: free commerce, deregulation of markets and free prices, a private sector overwhelmingly opposed to state ownership, and a huge deregulated space in which to innovate.

It is evident, however, that the progress of the economic and social model is going along with the general failure of the State. There are the world rankings that show us that the country places very low with respect to institutions, justice, infrastructure, education, health and innovation. Well, who is responsible for that non functioning State? Is it the “neoliberal model” or the politicians who barely understand the economic keys that have allowed us to create the best moment of the history of the Peruvian republic? Doubtless it is due to the politicians.

Economic freedom with an absent state, or with the general failure of the state, produces the paradox of a special economic and social time with dramatic contrasts. The failure of the State and the elites have created the universe of bad law or the impossible norms, turning Peru into one of the region’s most informal countries.

The bad law is born of that bureaucratic vision of the elites who make the law by following “authoritative specialists”, instead of developing the standards from the bottom up. If you view how to make law the other way we perceive that the informal world is a pro market and pro entrepreneural torrent, and that the failure of the State and its rules has become a mountain to circumvent to seek development.

Many Peruvians understand what Americans do not.

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Frank Maruschak September 28, 2017 at 9:31 am

I think that the problem with “America” is that too many individuals found that “mining” the wealth of other individuals by going to work for the government is easier than going to work in a “real” mine.

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Ken Jons-un October 4, 2017 at 10:48 pm

Looks like they are right in line with the greater progress around the world.
http://foreignpolicy.com/2011/10/28/the-shadow-superpower/

and
http://freakonomics.com/2011/11/01/the-black-market-is-the-second-largest-economy-in-the-world/
Maybe @jayant can speak on how the GST is defecting the freer side of the economy in the sub continent? When I was touring a couple of the local shop keepers were lamenting the sales tax. I see lots of others online. Today it is small but we know it will ramp up as politicians are never satiated.

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  Craig Spencer October 5, 2017 at 12:20 am
  
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  Jayant Bhandari October 5, 2017 at 5:01 am
  
  India’s attempt to go digital and towards GST has been an unmitigated disaster. There is today more cash than there was before. Small traders are simply unable to or too tired to satisfy GST requirements. India is in a truly precarious situation now. They got rid of the old tax system. And the new one (of course) does not work. The problem is that India is being run by a bunch of pathetic, simple-minded, inexperienced morons. They took all these decisions without any consultation. When demonetization happened, they had not even informed the top guy of the Indian federal bank. There is huge unemployment in the lowest strata of the society. I can now get a wage earner for $6 a day instead of $7.
  
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