Alan Garcia Sees the Right

This doesn't have much to do directly with lean manufacturing, but I often use Fridays to blather about other topics I find personally interesting.  As many of you know, I lived in Peru from 1973 to 1980.  Most of that time was marked by a couple of military dictatorships, coups, strikes, corruption... you get the picture.  Throw in a magnitude 8.1 earthquake and you've got the makings of a fun foreign experience.  I still remember running outside of our house and seeing the balcony begin to crack above me, then looking a few blocks away and seeing window washers being smacked around on the PetroPeru high-rise office building.  Some day I'll tell you about the 30-day trip we took driving through Chile, Argentina, Paraguay, and Bolivia.  Let's just say it was a bit different then compared to when I returned for a visit a couple years ago.

Last weekend the Wall Street Journal had an interview with current Peruvian president Alan Garcia.  Like many Peruvian presidents, he has been president before, from 1985-1990.  Back in those days he was known for his leftist populism, and as most governments that try to distort the free market his ended in a bit of a disaster.

Price controls had spawned long lines for food. The government had a fiscal deficit totaling a whopping 7.5% of GDP. The economy contracted 8.8% in 1988 and 12.2% in 1989. Meanwhile, Shining Path terrorists dominated the countryside, making life miserable for the peasant population, unattractive to foreign investors and impossible for tourism.

In July of his last year in office, when his successor Alberto Fujimori was sworn in, the monthly inflation rate was 63%.  Mr. García left office in shame and, hounded by corruption charges, fled in 1992 to live in exile in Colombia.

Mr. Garcia was lucky in the fact that he was deposed democratically instead of via military junta.  His successor wasn't that much better, but at least he got the Shining Path under control.  After one failed attempt, Alan Garcia tried again.

In 2006, he ran again and won in a run-off against a hard-left populist who was promising to replicate Chávez-style government in Peru. His victory was owed in part to the many Peruvians who, despite bitter memories of his disastrous administration, held their noses and voted for him just to avoid the horror of chavismo. Then they braced themselves for life again under the man known as "crazy horse."

Their fears were unwarranted.  Mr. Garcia began to change.

So far not only have their fears not materialized but something truly unexpected has happened instead: Mr. García now speaks the language of a born-again economic liberal and defends markets as a way to reduce poverty. Whether the conversion is authentic is a matter of much debate in Peru these days. What I can say for sure, after a 70-minute interview, is that he firmly grasps the principles behind the arguments he now professes to believe.

Apparently "economic liberal" means something different that just "liberal," at least up here.  Senor Garcia has done almost everything possible to get out of the way of business and to stimulate the free market private sector.

A clever and seasoned politician, legendary for his silver-tongued populism, he is now in the business of marketing his country to investors. And why not? With an average growth rate over the past six years of better than 6.2%, the story is a good one. And it is about much more than a boom in mining exports.

Peru has blossomed because of competitiveness, something that could not have been imagined a decade ago.  Peruvians are discovering their comparative advantages in niche markets around the world in a host of other sectors, including manufacturing, apparel and agriculture. A visitor to Lima immediately appreciates vast improvements in services compared to even a half-decade ago.

How has all this come to pass? "I think the essential change is in the commercial economic model of Peru," he says. The country "has decided to insert itself in the global economy, open its borders to investment, lower tariffs [and] guarantee fiscal and monetary stability. I think this, sustained for more than 10 years now, is bearing fruit."

It is truly a turnaround story.  A story of of someone who woke up and saw how free markets don't just enrich companies, they raise the standard of living for everyone.

For a country defined by decades of poverty and violence, this borders on the miraculous. But what may be more amazing is that the region's most notorious left-wing populist of the 1980s now champions free enterprise. Even Colombian novelist Gabriel García Márquez never wrote such a surreal tale.

More shocking for those who remember the old Alan García is his newly espoused faith in the private sector as an engine of human progress. "I have an enthusiastic and hopeful perspective that we are beginning a new economic phase of the economy, like in 1750 with the steam engine. We are beginning a totally different chapter in economics. The world is linked and there is a growing democratization through participation by consumers and producers.

Hernando de Soto must be proud.