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Peru

What If Warren Buffett Were Peruvian?

In the race to succeed, talent can certainly play a role. But not everyone competes on the same playing field.

Llamazing!
Llamazing!
Farid Kahhat

-Essay-

LIMA — As noted in my previous column, the United States — compared with some other developed countries — has low rates of social mobility. In other words, an American will find it harder to emerge from poverty than, say, a German. Relatively low social mobility rates also mean that high wealth and income levels are more likely to be inherited or patrimonial, rather than earned through work or personal merit.

Legendary U.S. investor and billionaire Warren Buffett added his own two cents to this issue when he stated once that, "society is responsible for a very significant percentage of what I've earned." Context matters, he argued. "if you stick me down in the middle of Bangladesh or Peru or someplace, you find out how much this talent is going to produce in the wrong kind of soil," Buffet added. "I work in a market system that happens to reward what I do very well — disproportionately well."

The quote underscores an obvious but often overlooked truth: that not all countries afford people the same personal and property rights, guarantees or public facilities. These rights and services, like healthcare and education, are fundamental to creating private-sector wealth.

Researchers Daron Acemoglu and James Robinson have illustrated Buffett's observation by comparing how Bill Gates and the Mexican magnate Carlos Slim made their respective fortunes. Gates got his through innovation in computing programs and exploiting efficient patenting for products that have won near-universal utility. He also used the courts to block challenges to this patenting. Slim, in contrast, made his money through opaque and monopolistic practices in a Mexican telecommunications sector under state oversight.

Buffett has a habit of noting that his personal secretary pays more than he does in taxes.

This means that state institutions can create varying incentive structures for those making economic decisions. At the same time, different forms of acquiring wealth can act as motivators for institutions, with differing consequences for wealth distribution in society. While many of us still benefit from the operating system created by Bill Gates, an OECD study found Slim's monopoly to have cost the Mexican economy some $130 billion between 2005 and 2009.

When asked why he thinks his country's economic system rewards his investor talents so "disproportionately well," Buffett has a habit of noting that his personal secretary pays more than he does in taxes. And that, he explains, is due to fiscal reforms enacted in the United States since 1980 that favor the wealthiest sectors and allow them, for example, to register most of their earnings as capital gains, which are taxable at 15%. Again, context matters.

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Coronavirus

Will China's Zero COVID Ever End?

Too much has been put in to the state-sponsored truth that minimal spread of the virus is the at-all-cost objective. But if the Chinese economy continues to suffer, Xi Jinping may have no choice but to second guess himself.

COVID testing in Guiyang, China

Cfoto/DDP via ZUMA
Deng Yuwen

The tragic bus accident in Guiyang last month — in which 27 people being sent to quarantine were killed — was one of the worst examples of collateral damage since the COVID-19 pandemic began in China nearly three years ago. While the crash can ultimately be traced back to bad government policy, the local authorities did not register it as a Zero COVID related casualty. It was, for them, a simple traffic accident.

The officials in the southern Chinese province of Guizhou, of course, had no alternative. Drawing a link between the deadly crash and the strict policy of Zero COVID, touted by President Xi Jinping, would have revealed the absurdity of the government's choices.

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