Five Economies That Work: Global Success Stories: Reining in Taxes and Spending May Be the Wrong Prescription for What's Ailing the World's Economies. A Few Success Stories-Israel, Brazil, Chile, Uruguay, and Russia-Illustrate How Increased Taxing and Spending Are Adding Bounties of New Jobs and Cutting Poverty. the Key Is Doing So Wisely

Article excerpt

"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:

Country   2007   2010   2012
Brazil    9.3%   6.7%   6.0%
Chile      7.0    8.2    6.6
Israel     9.2    8.3    7.0
Russia     7.2    7.5    6.0
Uruguay    9.2    6.7    6.7

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:

Country         Taxes as a Percentage of GDP

Brazil                                 39.9%
Chile                                   22.7
Israel                                  27.8
Russia                                  21.2
Uruguay                                 29.7
United States                           15.5

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. …