Could Puno and Guantanamo Be The Next Hong Kongs? By Alvaro Vargas Llosa Price of Liberty

August 21, 2006

WASHINGTON—Most readers of this column have never heard of Puno; quite a few have heard of Guantanamo Bay. Puno, a poor region in southeastern Peru, could become an economic powerhouse and stem the politics of resentment that is invading the Andes—if the government would allow a real free-enterprise zone to be established. Likewise, Guantanamo could erode Cuba's communism in the way West Berlin eroded East Berlin's communism if the U.S. authorities gave Cubans an opportunity to turn the controversial naval base into a new economic Hong Kong.

The Andean region, where authoritarian populism is ripe, needs a quick economic success story. Social resentment has already produced two Andean presidents—Venezuela’s Hugo Chavez and Bolivia's Evo Morales—and came within an inch of producing a third one, Ollanta Humala in Peru. The way to erode these movements that play the ethnic and the ideological card against globalization is to permit free enterprise.

Puno is 60 times bigger than Hong Kong. Unlike the rocky Chinese territory, it has agriculture, livestock, silver, copper, the highest navigable lake in the world and a mythology going back to the origin of the Incas. Peru's successive regimes have kept that region poor by using political tools to prevent local entrepreneurship from flourishing. Today, 80 percent of the population is impoverished. Puno would be even poorer were it not for 20,000 people who smuggle products from neighboring Bolivia and resell them across the country.

Thousands of Punenos have been asking for a tax-free environment in which to produce and trade goods and services under clear property rules. Mainstream opinion in Lima has long opposed this on technical grounds. The only valid argument for opposing it would be to say that the whole of the country rather than just one region should be turned into an enterprise paradise. But that is not what critics object to.

Forgetting that the Peruvian economy is already a patchwork of tax exemptions, they say it is unfair to favor some people at the expense of others, thereby creating a fiscal imbalance. Despite the obvious failure of the authorities to stem smuggling in a country where this centuries-old activity amounts to more than $1.2 billion a year, they say it will mean unfair competition. Citing the insufficient wealth generated by trade zones established in the 1990s under the name of “Ceticos” that were limited to exporting companies and therefore missed the point of free enterprise, they disparage Puno’s aspirations.

President Alan Garcia, who took office last month, says he supports plans for Puno’s free-enterprise zone. If he truly does, he should go beyond the law that was passed by Congress and his recent decree expanding its purview. The law frees industrial and agricultural activities, but keeps many commercial restrictions that affect small businesses and current smugglers of consumer products and other goods from Bolivia. If special interests elsewhere in the nation are affected by free commerce in Puno, then that is a great argument to get rid of commercial barriers the way the Baltic country of Estonia did in 1992—which touched off an economic boom.

Guantanamo is another interesting prospect. Located in southeastern Cuba, it is about two-thirds the territory of Washington, D.C., and has a better infrastructure than Cuba, including its port and its airport. But its use as a prison for the indefinite detention of terror suspects provides a rich target for critics of the U.S. It was leased by the U.S. at a time when Washington called the political shots in the island, and has served successively as a fueling station, a military nerve center, a refugee camp, and a prison, but never as something that could have pulled the rug under the feet of Cuba's totalitarian regime: a prosperous free-enterprise zone.

The U.S. should remember what a colossal effect West Berlin had on the other side of the Brandenburg Gate and what a damning example Hong Kong constituted for China before the British handover. Two million Cubans in the United States have accumulated twice as much wealth as the 11 million Cubans on the island by starting thousands of businesses over the years. (At the end of the 1990s, Hispanic Business magazine estimated that Cuban companies in the U.S. generated $25 billion; more recent figures are not available, it must be much higher today.) If Cubans had been allowed to turn Guantanamo into a prosperous capitalist zone, they would have been 10 times more successful than they have been at combating Castro from Miami and Madrid.

Puno and Guantanamo could become the Hong Kongs of the Western Hemisphere in little time. Just let them.

Pierre Lemieux is an economist and co-director of the Economics and Liberty Research Group at the Université du Québec en Outaouais and a Research Fellow at The Independent Institute in Oakland, California.

Alexander Tabarrok is research director at The Independent Institute, associate professor of economics at George Mason University, editor of the Independent Institute books, Entrepreneurial Economics, The Voluntary City (with D. Beito and P. Gordon), and Changing the Guard: Private Prisons and the Control of Crime.

Alvaro Vargas Llosa is a Senior Fellow and director of The Center on Global Prosperity at the Independent Institute. He is the author of Liberty for Latin America.

Robert Higgs is Senior Fellow in Political Economy at The Independent Institute, author of Against Leviathan and Crisis and Leviathan, and editor of the scholarly quarterly journal, The Independent Review. Click here for a bio on Dr. Higgs, the noted economist and historian.

William Marina is Research Fellow at the Independent Institute in Oakland, Calif., and Professor Emeritus of History at Florida Atlantic University.

David T. Beito is a Research Fellow at The Independent Institute, Associate Professor of History at the University of Alabama, and co-editor of the book, The Voluntary City: Choice, Community and Civil Society.

William Marina and David T. Beito belong to "Liberty and Power," a group blog at the History News Network.

For further articles and studies, see the Center on Peace & Liberty and OnPower.org.

Nicolas Heidorn is a public policy intern at The Independent Institute in Oakland, California.

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