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May 2018, Week 3

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 		 [How has a country of under five million become a world leader in
democratic, sustainable, and inclusive economic growth? The answer
lies in its peoples belief in focusing on the welfare of all
citizens.] [https://portside.org/] 

 HOW COSTA RICA GETS IT RIGHT   [https://portside.org/node/17239] 

 

 Joseph E. Stiglitz 
 May 8, 2018
Project Syndicate
[https://www.project-syndicate.org/commentary/costa-rica-enlightenment-model-by-joseph-e--stiglitz-2018-05?utm_source=Project+Syndicate+Newsletter&utm_campaign=33a09b0d78-sunday_newsletter_13_5_2018&utm_medium=email&utm_term=0_73bad5b7d8-33a09b0d78-104386921]


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 _ How has a country of under five million become a world leader in
democratic, sustainable, and inclusive economic growth? The answer
lies in its people's belief in focusing on the welfare of all
citizens. _ 

 , 

 

SAN JOSÉ – With authoritarianism and proto-fascism on the rise in
so many corners of the world, it is heartening to see a country where
citizens are still deeply committed to democratic principles. And now
its people are in the midst of trying to redefine their politics for
the twenty-first century.

Over the years, Costa Rica, a country of fewer than five million
people, has gained attention worldwide for its progressive leadership.
In 1948, after a short civil war, President José Figueres Ferrer
abolished the military. Since then, Costa Rica has made itself a
center for the study of conflict resolution and prevention, hosting
the United Nations-mandated University for Peace
[https://www.upeace.org/]. With its rich biodiversity, Costa Rica has
also demonstrated far-sighted environmental leadership by pursuing
reforestation, designating a third of the country protected natural
reserves, and deriving almost all of its electricity from clean hydro
power.

Costa Ricans show no signs of abandoning their progressive legacy. In
the recent presidential election, a large turnout carried Carlos
Alvarado Quesada to victory with more than 60% of the vote, against an
opponent who would have rolled back longstanding commitments to human
rights by restricting gay marriage.

Costa Rica has joined a small group of countries in the so-called
Wellbeing Alliance, which is implementing ideas, highlighted by the
International Commission on the Measurement of Economic Performance
and Social Progress, for constructing better welfare metrics.
Recognizing the shortcomings of GDP that the Commission emphasized,
the Alliance seeks to ensure that public policy advances citizens’
wellbeing in the broadest sense, by promoting democracy,
sustainability, and inclusive growth.

An important part of this effort has been to broaden the scope for the
country’s cooperatives and social enterprises, which are already
strong, embracing in one way or another a fifth of the population.
These institutions represent a viable alternative to the extremes of
capitalism that have given rise to morally reprehensible practices,
from predatory lending and market manipulation in the financial sector
to tech companies’ abuse of personal data and emissions cheating in
the automobile industry. They are based on building trust and
cooperation, and on the belief that focusing on the welfare of their
members not only enhances wellbeing, but also increases productivity.

Like citizens of a few other countries, Costa Ricans have made clear
that inequality is a choice, and that public policies can ensure a
greater degree of economic equality and equality of opportunity than
the market alone would provide. Even with limited resources, they
boast about the quality of their free public health-care and education
systems. Life expectancy is now higher than in the United States, and
is increasing, while Americans, having chosen not to take the steps
needed to improve the wellbeing of ordinary citizens, are dying
sooner.

But for all of its successes, Costa Rica faces two critical problems:
a persistent, structural fiscal deficit and a gridlocked political
system. The economics of fiscal deficits are easy: boost economic
growth, raise taxes, or lower expenditures. But the politics are not
easy at all: While every political leader wants economic growth to
solve the problem, there is no magic formula to achieve it. No one
loves the two remaining options.

Most governments in such circumstances cut items like infrastructure,
because the costs go unseen for decades. That would be an even graver
mistake for Costa Rica, where infrastructure has not fully kept up
with economic growth and, if improved, could itself be important in
promoting growth. Of course, government could always be more
efficient, but after years of retrenchment, further rationalization is
unlikely to deliver much. Almost surely, the best way forward would be
to raise taxes.

To reconcile taxation with an overall economic strategy that seeks to
maximize all citizens’ wellbeing, the tax system should adhere to
three central principles: tax bad things (like pollution), rather than
good things (like work); design taxes to cause the least possible
distortion in the economy; and maintain a progressive rate structure,
with richer individuals paying a larger share of their income.1
[https://www.project-syndicate.org/commentary/costa-rica-enlightenment-model-by-joseph-e--stiglitz-2018-05?utm_source=Project+Syndicate+Newsletter&utm_campaign=33a09b0d78-sunday_newsletter_13_5_2018&utm_medium=email&utm_term=0_73bad5b7d8-33a09b0d78-104386921##]

Because Costa Rica is already so green, a carbon tax would not raise
as much money as elsewhere. But, because virtually all of the
country’s electricity is clean, a shift to electric cars would be
more effective in reducing carbon dioxide emissions. Such a tax could
help Costa Rica become the first country where electric cars dominate,
moving it still closer to the goal of achieving a carbon-neutral
economy.1
[https://www.project-syndicate.org/commentary/costa-rica-enlightenment-model-by-joseph-e--stiglitz-2018-05?utm_source=Project+Syndicate+Newsletter&utm_campaign=33a09b0d78-sunday_newsletter_13_5_2018&utm_medium=email&utm_term=0_73bad5b7d8-33a09b0d78-104386921##]

With inequality still a problem (though nowhere near as acute as
elsewhere in Latin America), more progressive and comprehensive
income, capital gains, and property taxes are essential. The rich
receive a disproportionately large share of their income through
capital gains, and to tax capital gains at rates lower than other
forms of income exacerbates inequality and leads to distortions. While
economists differ on many matters, one thing they can agree on is that
taxing the revenues or capital gains derived from Costa Rica’s land
won’t cause the land to move away. That’s one reason why the great
nineteenth-century economist Henry George argued that the best taxes
are land taxes.

The biggest challenges are political: a presidential system like Costa
Rica’s works well in a polity divided into two main parties, with
rules designed to ensure that minority views are adequately respected.
But such a system can quickly lead to political gridlock when the
electorate becomes more fractured. And in a fast-changing world,
political gridlock can be costly. Deficits and debts can explode, with
no path towards resolution.

Alvarado, who is just 38, is attempting to create a new presidential
model for Costa Rica, without changing the constitution, by drawing
ministers from a range of parties. One hopes that the spirit of
cooperation fostered by the cooperative movement, and ingrained in so
much of Costa Rican culture, will make it work. If it does, Costa
Rica, despite its small size, will be a beacon of hope for the future,
showing that another world is possible, one where Enlightenment values
– reason, rational discourse, science, and freedom – flourish, to
the benefit of all.

_Joseph E. Stiglitz, a Nobel laureate in economics, is University
Professor at Columbia University and Chief Economist at the Roosevelt
Institute. His most recent book is Globalization and Its Discontents
Revisited: Anti-Globalization in the Era of Trump
[http://books.wwnorton.com/books/Globalization-and-Its-Discontents-Revisited/]._

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