The Fundamental Difference Between Scott Sumner and Me

by Mike Kimel

The Fundamental Difference Between Scott Sumner and Me

So Scott Sumner responded to my latest post. There’s a lot I disagree with, and I was all set to start responding point by point when I had an epiphany: essentially this all comes down to a difference in how we look at a government’s interference in the economic affairs of its citizens. As an example, he views Singapore and Japan as states that interfere less with the economic affairs of its citizens than Argentina (a view shared with organizations like Heritage). I see things the other way. I also think Sumner’s opinion on this matter is not just wrong, but also inconsistent and illogical.

Since Sumner began this with an anecdote, let me go with a little story myself to illustrate my point.

Say its 1980. A doctor decides to open a private clinic where he can ply his trade as he wishes. Perhaps he wants to peddle procedures deemed harmful or immoral, maybe he just wants to charge prices that the government doesn’t approve, perhaps he isn’t licensed to practice medicine, or maybe he has something else in mind. His motives aren’t our business in this little story. So he sets up shop in a quiet street in a suburban neighborhood in the capital. Fast-forward to 2010. The doctor has had a successful 30 year practice doing what he wanted, and he’s now passing on his business to a young associate. Given his entire practice would be deemed illegal in Argentina, Japan, and Singapore, in which of these three states is this story most likely to have occurred. Or put another way…. in which of these countries do you think you can most easily find a doctor practicing for the past three decades outside of all state control?

I would answer, without any doubt, Argentina. I don’t have any data, but I did live long enough in South America to know how easy it is to find such practices in several countries in the region. (I don’t know enough about Chile but I imagine its a bit harder in Chile than in, say, Argentina, Brazil, or Peru.) I imagine Scott Sumner would probably answer Argentina too.

The main reason we probably agree is that we probably have a similar view of what the social structure looks like in those three countries, and what the punishment would be for a doctor who got caught. The Japanese version of the doctor would face jail time, and perhaps worse (from his perspective): social stigma. The Singaporean version of the doctor would face jail time, and perhaps some form of physical punishment such as canings for which Singapore is famous. I’m not going to say its impossible for the Argentine to go to jail, but its almost ludicrously unlikely without some aggravating circumstances, like killing a patient or two. In the unlikely event he was closed down (and a very small bribe should have been enough to fix that, barring extenuating circumstances) he’d probably just re-open in a different location.

And the story doesn’t just apply to doctors. Change the facts slightly to cover a taxi driver, a bar owner, or someone looking to start a construction company. Again, I can easily see such a person operating for 30 years in Argentina. Heck, I’ve seen seen them operating. (And operating is the key word – if the taxi driver was the guy who decided to open the clinic and start doing surgery, medical education or not, who exactly is going to stop him in Argentina?) In almost every field of endeavor its easier to get around what the government wants from its citizens in Argentina than it is Japan and Singapore. Simply put, the only thing I can think of off the top of my head that the Argentine government seems to be able to do every so often that the Japanese or Singaporean government haven’t been in the habit of doing is placing restrictions on what one can do with one’s bank accounts. Having lived through that (albeit in Brazil) I can tell you its a pain in the behind, but everyone gets around the rules.

There’s also the flip-side. In Japan, a mid-level employee of one or another ministry can tell Sony and Toshiba and Toyota where to allocate their R&D funds… and the company would do it. In Argentina the government can tell people whatever it wants, but everyone knows it won’t happen. Singapore’s government still owns a sizable piece of the country’s productive output. Argentina’s used to, but no longer does.

And that’s the other point of contention. Not only do I feel that Argentina has far less control over the economic (and non-economic, for that matter, though that’s another post) life of its citizens than Japan and Singapore, but that difference increased over the length of the 1980 to 2008 period to which Sumner alludes. (Bear in mind, Sumner’s original post dealt with liberalization, that is to say, a process of getting the government out of its citizen’s hair.) I can tell you from personal experience – if you went to Argentina in 1980, your bags would be searched for electronic contraband. Thoroughly. See, they were trying to get an electronic industry off the ground. They’ve long since given up on that protectionist policy (some time in the 80s) and while I’ve been there a few times since 2000, I’ve haven’t so much as had to crack my suitcase a single time in the last decade. Also gone is state ownership of things like railroads, airlines, and all sorts of services. And then there’s the military dictatorship.

Exactly what have the governments of Japan or Singapore divested themselves of during this period? What changed? Ditto Hong Kong. Or the US for that matter. Do you really think deregulation of airlines, telecom, and financial services begins to compare to what happened in Argentina since 1980?

So there’s the difference. Sumner and Heritage and the like have a certain belief in freedom. That belief essentially is of a non-messy freedom. They view Singapore as relative free because it produces outcomes they like – Singapore is clean, efficient, and functional. I, on the other hand, think Argentina is relatively free, not because I like the outcome necessarily, but because the government has less ability to meddle in the lives of its citizens.

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