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Five economies that work: global success stories: reining intaxes and spending may
be the wrong prescription for what'sailing the world's economies. A few success
stories--Israel,Brazil, Chile, Uruguay, and Russia--illustrate how increasedtaxing and
spending are adding bounties of new jobs andcutting poverty. The key is doing so
wisely.
"Austerity" and "limiting government spending" are popular words in the post-recession United
States and western Europe. Lawmakers in these parts of the world have been slashing
expenditures in hopes that this will rein in public debts and encourage the private sectors to start
creating jobs again.
Sadly, the hoped-for results have not materialized. Debts remain high while job creation stays
sluggish. But meanwhile, in other parts of the world, a number of countries' economies are
springing to life and posting even higher employment than they had before the global meltdown.
Even more notably, these countries--which include Brazil, Chile, Uruguay, Israel, and Russia,
among others--are achieving these results by doing the exact opposite of their wealthier
counterparts: Instead of spending less, their governments are spending more.
"It is vital to demonstrate that an alternative, job-centered approach ... exists. It is also imperative
to nurture this alternative approach with concrete examples of policies that work," states World of
Work 2012, the latest edition of the International Labour Organization's annual review of labor
and employment trends around the globe.
Many of these successful countries are, surprisingly perhaps, in the developing world. The report
notes that an astonishing 60% of developing countries have higher employment now than they
did in 2007. Even more key, three-quarters of the world's developing countries posted declines in
their national poverty rates since 2007. Some advanced economies are making great progress,
as well, although not nearly as many: The report indicates higher employment in 20% of the
world's advanced economies, Israel being one of these fortunate few.
These findings correspond with that of the International Monetary Fund (IMF), whose
country-level data on unemployment for these five countries are as follows:
Meanwhile, the United States, longstanding bulwark of the global economy, is just scraping by,
according to the same source. Its unemployment rate, at around 7.7%, is more than one and a
half times higher than the 4.6% at which it stood in 2007.
Why They Are Winning
What sets these successful economies apart from the many others whose economies remain in
the doldrums? Is it lower taxes, fewer regulations, and fiscally conservative government
expenditures--i.e., the standard policy prescriptions that many of today's orthodox economists
advise? Actually, no: While the five countries outlined above do exhibit legal structures that are
friendly to businesses and business development, if you place them all next to the United States,
you will find that each one's government collects and spends significantly higher levels of taxes
from its citizens every year. From the CIA World Factbook:
These higher tax revenues do not squelch economic growth and job creation in these countries
at all; rather, they boost them. This is because the governments wisely return those incoming tax
revenues to the people in the forms of public works projects; health-care services; education, job
training, and school-tuition assistance; and social-welfare services, such as unemployment
assistance and meal vouchers.
Public works projects create jobs directly, since every project needs workers. Education and
health care are sound investments, since citizens who pursue more education become more
employable and, even better, more productive. They acquire greater skills that can help their
businesses increase profits. Or, if they are so inclined, they could start new businesses of their
own. Meanwhile, adequate health care will ensure that workers do not compromise their
productivity by suffering from untreated illnesses or needlessly worrying about their long-term
health.
Welfare programs also contribute to economic productivity. They put spending money directly
into the hands of needy individuals so that those individuals can buy from their local businesses
and help those businesses to prosper.