Status Updates From Left Behind: Latin America ...

The most important factor is the deep institutional differences between the two countries. While Brazilian institutions effectively constrain the executive from implementing irresponsible policies,Venezuelan institutions lack the required checks and balances to restrict such policies.

Repeated mistakes in exchange-rate policy will be singled out as the most important cause behind the region’s economic travails, the waning support for modernizing reforms, and the eventual revival of populism during the twenty-fi rst century.

allowing an artifi cial strengthening of the currency—or currency overvaluation—has negative economic as well as political effects. In particular, it alienates exporters, which during the early years of the reform process are the natural allies of a reformist government, and is likely to end up in a major crisis with huge unemployment costs.

North defined institutions as
“the rules of the game in a society, or more formally, the humanly devised constraints that shape human interaction.” Defined in this way, it is clear that institutions provide the incentives structure that governs human behavior and economic relations in a particular community.

He contrasted the crudeness of the United Sates, where everything—even the arts and the sciences—had to have a practical application, with the values of ancient Greece. He went on to argue that a mechanical application of democratic principles—which he associated with Benjamin Franklin—resulted in crass materialism and encouragement of a mediocre, lowbrow culture.

Sometimes progress and technological advances result in the collapse of old ways of life and the disappearance of older technologies. Th
is is what Schumpeter called “creative
destruction.