San Ignacio and Comparative Advantage

One of the biggest things that comes out of neoclassical economics is
the notion that government intervention in the economy tends to get
bogged down in distributional politics (dividing up the pie rather than
trying to make it bigger) and tends to be non-productive and inefficient.

One of the interesting things to me down here is how rarely this seems
to be the case. Though there are a few cases I can point to of local
governments doing inefficient things when they get into the economy (the
provincial government of Carhuaz, Peru building a market in Vicos that
seems to get no use), there are at least as many cases of markets gone
wrong (excessive use of chemical fertilizer in rural Guatemala to get
bigger, more marketable veggies, with the end results that your kids all
get cancer and have birth defects).

In general, when local governments get involved in local economies, they
often seem to be solving collective action problems in ways that make
markets more efficient--by building infrastructure, for example, or by
pooling resources in such a way that large-scale investments can be made
that individual producers wouldn't be able to pay for.

Market fundamentalists might argue that these sorts of things could be
done more efficiently by firms, but they would be wrong. Because
mechanisms for contract enforcement are so weak down here, it's very
difficult for individual firms to conglomerate as larger firms, or to
join as cooperatives. The end result is that local governments, which
are sometimes seen as more trustworthy, and anyways, can force people to
comply with tax regulations (for example) are a good solution to these
problems of public investment.

Here in San Ignacio, there's a lot of government support for ranching
and cattle-raising on a small scale. The municipal personnel believe
that they're promoting this industry, both to gain the support of
citizens, and also to increase municipal tax revenue. In either case,
it wouldn't make sense for them to support industry in an inefficient
way, since doing so would mean either worse electoral/political results,
or worse economic/revenue results.