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Munger: "strange Latin American case of a dysfunctional economy" which country??


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In this speech:

 

https://www.farnamstreetblog.com/2015/03/charlie-munger-academic-economics/

 

Charlie Munger says:

 

"In this vein, I next want to mention a strange Latin American case of a dysfunctional economy that got fixed. In this little subdivision of Latin America, a culture had arisen wherein everybody stole everything. They embezzled from the company, they stole everything that was loose in the community. And of course, the economy came practically to a halt. And this thing got fixed. Now where did I read about this case? I’ll give you a hint. It wasn’t in the annals of economics. I found this case in the annals of psychology. Clever people went down and used a bunch of psychological tricks. And they fixed it."

 

Any idea what country he is talking about?

 

-Jeff

 

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That it was "fixed" narrows things down. If I had to guess he's talking about Chile and the Chicago Boys a group of Chilean Economists who spent time at the University of Chicago. https://en.wikipedia.org/wiki/Chicago_Boys#Chile

 

That it was a psychological fix rather than economic would seem to preclude Chile though the argument can be made that a shift from democratically elected Marxism to free market economics (and a more authoritarian government to go with it) is as much psychological as economic.

 

Another option could be Uruguay. I'm less familiar with it's history than Chile's but there was also a shift from the base conditions Munger mentions, which were unfortunately endemic to much of Latin America, to democracy and relative economic prosperity.

 

Just guesses, could be somewhere else although they're the two Latin American countries that come to mind that had a marked period of fixing rather than gradual change.

 

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Dear all,

 

 

- 2005:

"South American Company - the publishers of the above book (see page 448 Poor Charlie's Almanack Talk #9) asked Mr. Munger the same question you have asked. And his response was:

"Oh yes - I ran across that fascinating story not in an economics book, but in a psychology paper. I could take it out of my files for you, but its too much effort, so I wont."

The editor noted: "Sometimes we remain in the dark.""

http://fundooprofessor.blogspot.com/2005/11/three-questions-about-charlie-munger.html

 

- 2005:

a previous board (when Corner was hosted at msn) user ('whitesamurai') suggested : "First guess: Costa Rica.  Second guess: Chile."

 

- 2014:

https://www.quora.com/unanswered/In-which-Latin-American-country-did-reformers-use-psychology-to-fix-a-corrupt-market-system

 

- "annals of psychology" : Does anyone know which journal it is ?

 

Thanks ;)

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Thank you "rogermunibond". ;) That is probably Bolivia indeed !

https://olc.worldbank.org/sites/default/files/Ronald%20Maclean%20-%20Leadership%20Biography%20(Approved).pdf

 

 

Here is a related discussion in 2008 (previous Msn board) :

 

General : Mungers mysterious small economy

 

 

Recommend Message 1 of 7 in Discussion

From: MSN Nicknamedolce2invest  (Original Message) Sent: 7/17/2008 6:43 PM

Does anybody know, which small South American country Charlie

reffered to in the "Poor Charlies Almanach"?

He said something like its a small very corrupt south american

economy and some smart people went there and used some

psychological tricks to fix it. He was asked where it was, but just

said he found it in a psychology book and he could sort it out, but

it was too much trouble.

Thanks for your help.

Dolce

 

 

First Previous 2-7 of 7 Next Last

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Recommend Message 2 of 7 in Discussion

From: MSN NicknamePohick2 Sent: 7/18/2008 2:06 AM

could it be Chile?

http://en.wikipedia.org/wiki/Chile

"The country, which had been relatively free of the coups and arbitrary governments that blighted the South American continent, endured a 17 year military dictatorship (1973-1990), one of the bloodiest in 20th-century Latin America that left more than 3,000 people dead and missing.[5]

 

Currently, Chile is one of South America's most stable and prosperous nations.[5] Within the greater Latin American context it leads in terms of competitiveness, quality of life, political stability, globalization, economic freedom, low perception of corruption and comparatively low poverty rates.[8] It also ranks high regionally in freedom of the press, human development and democratic development. Its status as the region's richest country in terms of gross domestic product per capita (at market prices[9] and purchasing power parity[10]) is countered by its high level of income inequality, as measured by the Gini index.[11]"

 

Reply

 

Recommend Message 3 of 7 in Discussion

From: MSN NicknamePohick2 Sent: 7/18/2008 2:18 AM

dosn't mention psychology though

"'El Ladrillo'

 

Immediately following the Chilean coup of 1973, Augusto Pinochet was made aware of a confidential economic plan known as El Ladrillo [12] (literally, "the brick"), so called because the report was "as thick as a brick". The plan had been quietly prepared in May 1973 [13] by economists who opposed Salvador Allende's government, with the help from a group of economists which were called by the press, at that time, the Chicago Boys, because they were predominantly alumni of the University of Chicago. This document, El Ladrillo, was made available to the offices of the Chilean Armed Forces Generals on the very day after the coup, September 12th, 1973 [12], and contained the backbone of what would later on become the Chilean neoliberal economic policy.[13]

 

http://en.wikipedia.org/wiki/Miracle_of_Chile

 

 

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Recommend Message 4 of 7 in Discussion

From: MSN Nicknamedolce2invest Sent: 7/19/2008 7:00 AM

Thanks Pohick2,

I thought about Chile, but dismissed it, since Pinochet always had

sound economic policies (as you mention) and the

"police state" had not need to use psychology. (I guess).

It could be however be used right at the start in 1973,

I will try to dig down.

I am very keen to know the "psychological tricks" used to

eliminate the "corruption cycle".

Has anyone read in a book about that?

 

Reply

 

Recommend Message 5 of 7 in Discussion

From: MSN Nicknamejberkshire01 Sent: 7/19/2008 3:54 PM

I believe it is Bolivia. Apparently, there is also a Harvard case study about it. Here's the Wikipedia entry on Abaroa: http://en.wikipedia.org/wiki/Ronald_MacLean_Abaroa and the book he helped write: http://astore.amazon.com/valuinveworl-20/detail/1558155112/104-6220925-9949545.

 

Reply

 

Recommend Message 6 of 7 in Discussion

From: MSN NicknamePohick2 Sent: 7/21/2008 3:53 AM

i dunno, it doesn't match the timeline

i noticed that mungerism too, wish he would have given the book title

maybe worth a question at the annual meeting?

"Sánchez de Lozada and Banzer: Liberalizing the economy (1993-2001)

 

Sánchez de Lozada pursued an aggressive economic and social reform agenda. The most dramatic reform was the "capitalization" program, under which investors, typically foreign, acquired 50% ownership and management control of public enterprises, such as the state oil corporation, telecommunications system, airlines, railroads, and electric utilities, in return for agreed upon capital investments. The reforms and economic restructuring were strongly opposed by certain segments of society, which instigated frequent and sometimes violent protests, particularly in La Paz and the Chapare coca-growing region, from 1994 through 1996. The de Lozada government pursued a policy of offering monetary compensation for voluntary eradication of illegal coca by its growers in the Chapare region. The policy produced little net reduction in coca, and in the mid-1990s Bolivia accounted for about one-third of the world's coca that was being processed into cocaine.

 

During this time, the umbrella labor-organization of Bolivia, the Central Obrera Boliviana (COB), became increasingly unable to effectively challenge government policy. A teachers' strike in 1995 was defeated because the COB could not marshal the support of many of its members, including construction- and factory-workers. The state also used selective martial law to keep the disruptions caused by the teachers to a minimum. The teachers were led by Trotskyites, and were considered to be the most militant union in the COB. Their downfall was a major blow to the COB, which also became mired in internal corruption and infighting in 1996."

 

http://en.wikipedia.org/wiki/Bolivia

 

Message 7 of 7 in Discussion

From: MSN NicknameRogerwilcomina Sent: 7/23/2008 8:40 PM

Here's Abaroa's presentation from the World Bank. Looks very much to be the guy that Munger was talking about. The PPT outlines the problem and details the steps taken to dramatically reduce corruption. Participatory diagnosis, taking out the "cashier," using young people as the eyes and ears etc. very much in the behavioral finance and psychology.

 

http://www1.worldbank.org/publicsector/anticorrupt/CoreCourseDec2003/Maclean.ppt

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Hi "globalfinancepartners",

My pleasure. ;)

 

Back to the subject :

(interactive link): 2008 Preventing Corruption by Reinventing Local Government : Practical Lessons from La Paz

http://fpdl.org/milc/

 

2015 Cleaning Up La Paz  How Bolivia’s biggest city freed itself from a ubiquitous culture of corruption.

http://foreignpolicy.com/2015/09/11/cleaning-up-la-paz-bolivia-corruption/

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I don't know whether this is related, or possible, but I do recall a situation in South/Central America (I think anyway) where there was an inflation issue and they couldn't get a handle on it.  I believe what ended up happening is they introduced a new currency and started listing prices in both the current currency and the new currency.  While the current currency had inflation problems (e.g., doubling in price over some series of time), they held the new currency stable (So, e.g., you might have a banana cost $1 at time A and you set it at 1 bogo at that time, then later, the banana costs $2, but it still costs 1 bono (but now 1 bono is worth $2)).  Thus, people got used to this new currency being stable, and then trusted that currency, and the whole system stabilized.

 

As you can see, I'm pretty vague on the details, I just remember the story.  And I feel like I didn't read it from an economics viewpoint either.  Anyway, sounds like a story Munger would like. 

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I don't know whether this is related, or possible, but I do recall a situation in South/Central America (I think anyway) where there was an inflation issue and they couldn't get a handle on it.  I believe what ended up happening is they introduced a new currency and started listing prices in both the current currency and the new currency.  While the current currency had inflation problems (e.g., doubling in price over some series of time), they held the new currency stable (So, e.g., you might have a banana cost $1 at time A and you set it at 1 bogo at that time, then later, the banana costs $2, but it still costs 1 bono (but now 1 bono is worth $2)).  Thus, people got used to this new currency being stable, and then trusted that currency, and the whole system stabilized.

 

As you can see, I'm pretty vague on the details, I just remember the story.  And I feel like I didn't read it from an economics viewpoint either.  Anyway, sounds like a story Munger would like.

 

That's how Brazil conquered hyperinflation.

http://www.npr.org/sections/money/2010/10/04/130329523/how-fake-money-saved-brazil

 

 

 

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I don't know whether this is related, or possible, but I do recall a situation in South/Central America (I think anyway) where there was an inflation issue and they couldn't get a handle on it.  I believe what ended up happening is they introduced a new currency and started listing prices in both the current currency and the new currency.  While the current currency had inflation problems (e.g., doubling in price over some series of time), they held the new currency stable (So, e.g., you might have a banana cost $1 at time A and you set it at 1 bogo at that time, then later, the banana costs $2, but it still costs 1 bono (but now 1 bono is worth $2)).  Thus, people got used to this new currency being stable, and then trusted that currency, and the whole system stabilized.

 

As you can see, I'm pretty vague on the details, I just remember the story.  And I feel like I didn't read it from an economics viewpoint either.  Anyway, sounds like a story Munger would like.

 

Brazil, this is when they introduced the Real.

 

BeerBaron

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A tip of the hat to you futile (you aren't the operator of the futile finance site are you?)

"Netnet", Yes.  That's me! My pleasure. ;)

 

 

A few more links related to this thread :

46 min video (10/15/2013) interview in english with Ronald MacLean Abaroa

https://www.kaltura.com/index.php/extwidget/preview/partner_id/32325/uiconf_id/32372481/entry_id/1_0dhibv8z/embed/iframe?&flashvars[streamerType]=auto

 

Also one book that helped him :

http://tinyurl.com/j5jr55j

https://www.amazon.com/Controlling-Corruption-Robert-Klitgaard-ebook/dp/B004HO6C8O

 

 

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