Government ‘Regulations’ are Choking Business in Ecuador

 

When governments make proposals, they always come behind a veil of good intention.  They always sound good.  They play on people’s good nature.  Who wouldn’t want to help the poor, or make education more widely available, or be safer, or have more equality?  They also, at least in places like the US come with misleading names meant to sell the proposal.  Like the Patriot Act or No Child Left Behind or the Cybersecurity Act. 

 

The problem is the way they sell the bill, regulation, rule or executive order to the public rarely has anything to do with its actual intent, what it actually says in the fine print and what affect (intended or not) it will have.

 

A great example of that are price controls.  Price controls have failed in every instance they have been implemented.  They lead to market dislocation, distort prices, create artificial supply and/or demand dynamics and result in a black market, loss of confidence and depending on how they are implemented some sort of collapse.

 

Yet how are price controls sold to the public?  They are addressing some ‘problem’, helping some group or righting some injustice.  Sounds good right?  And yet the consequences of their implementation are to distort the marketplace, drive would be success stories out of business and artificially prop up would be failures.

 

Anyone who has ever studied economics in any kind of honest way understands this.  Government intervention in the marketplace, create conditions that ultimately serve as justification for more government intervention.

 

Yet, Ecuador, like most countries in the world, seems to be purposefully ignoring this fact.

 

Under the cry of environmental protection and stopping foreign corporate exploitation of natural resources – through tax policy and regulations, the government has put nearly every private domestic miner out of business.  Yet through deals with the government – providing exemptions, foreign and Chinese miners are back in business.  So the result of these policies has been to make it impossible for the little guy to mine, while allowing those big enough to negotiate with the government to remain in business. 

 

After mining, the government turned their attention to the lumber industry.  Again under the guise of environmental protection, they regulated an industry out of existence.  This has driven up the price of wood to prohibitive levels, affecting everything from land value and jobs to overall costs of construction and doing business.

 

More recently they passed legislation taxing used car sales for anyone selling more than one car in a year.  This has made it difficult for used car dealers to compete with the still untaxed private used car market – driving many out of business. 

 

Many developers, due to lengthy approval periods, burdensome environmental regulations and even laws requiring signing over percentages of developments to the government, have stopped developing, moved elsewhere, or are searching out Provinces with less burdensome regulations.  These profit destroying initiatives, passed under the banner of helping the people and regulating business interests have destroyed jobs, slowed growth and put downward pressure on the economy.

 

The government has even gone as far as to regulate the hours when stores are able to operate.

 

They have regulated the private debt markets, making it illegal to borrow from a non-approved entity.  This has made it more difficult to find financing as this coincided with government approved financial institutions slashing lending.

 

Cumbersome labor laws have caused unemployment to rise, as the government mandated minimum wage, ancillary benefits and risks associated with terminating employment have made the cost of employing someone greater than the market can bear. 

 

Steep import taxes filter through to all levels of the economy, slowing activity and growth.  Goods are less widely available and more expensive – making it more difficult for businesses to compete.

 

The 12% value added tax (just raised to 14% for a period of one year) is another huge burden to businesses and consumers alike.  A product may be taxed at 14% four plus times before it reaches the consumer.

 

At the same time, the hypocrisy is on full display.  While the government screams about climate change and carbon emissions, passing regulations stifling every day Ecuadorians ability to earn a living – they open the rainforest and cherished national parks to Chinese drilling in exchange for loans.

 

As the regulations, taxes, prohibitions and various control mechanisms lower economic movement, growth and kill jobs; the government is then afforded an environment ripe for more measures to ‘help’ (see: intervention).

 

The good news is the population of Ecuador has had enough.  With the IMF predicting a 4.5% fall in GDP for 2016, the Presidents approval rating now sits in the low 30’s and the socialist cries of more and more help (control) are increasingly met with sarcastic exasperation.

 

While it is impossible to know what the future holds for Ecuador, it is encouraging to see the socialist tide turning.

 

Lets hope here and across the world people realize the grace inherent in freedom of all kinds and reject the never ceasing overtures of would be controllers.

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