Full transcript below

In this episode of Somewhere/Anywhere, Diego and Rasheed step outside the studio and into the home of one of Europe’s most important classical liberal thinkers: Pedro Schwartz. What follows is less an interview than a conversation across generations about freedom, institutions, and the intellectual life of modern Spain.

Schwartz’s life traces the arc of European liberalism in the twentieth century. As a young Spaniard coming of age under Franco, he left a closed country and found himself at the London School of Economics, studying under Karl Popper and alongside some of the great figures of modern economic thought. Those formative years exposed him to a cosmopolitan intellectual environment that would shape his lifelong project: bringing the traditions of classical liberalism —Popper, Hayek, Friedman, Robbins — into Spanish intellectual and political life.

Over the decades, Schwartz became not only a scholar but also a conduit of ideas. He translated, introduced, and debated liberal thought in Spain when it was still intellectually marginal. His influence extends through generations of economists, journalists, and policymakers, many of whom first encountered liberal ideas through his seminars, essays, and public interventions.

The conversation moves fluidly between intellectual history and lived politics. Schwartz reflects on the intellectual atmosphere of the LSE in the 1960s, the role of the School of Salamanca in Spain’s liberal tradition, and his encounters with figures such as Friedrich Hayek and Milton Friedman. At the same time, we revisit decisive moments in modern Spanish history: the democratic transition, the 1981 coup attempt, Spain’s entry into NATO and the European project, and the reformist wave of the 1990s.

Schwartz also speaks candidly about his own brief experience in politics —founding a liberal party, serving in parliament, and influencing the policy debates that helped shape Spain’s market reforms. Yet he ultimately returns to the role he values most: that of the public intellectual who helps societies clarify their principles.

Throughout the episode, one theme recurs: liberalism is not simply a set of policy preferences but a civilizational inheritance. It requires institutions, intellectual seriousness, and a broad cultural horizon — one that ranges from economic theory to philosophy, history, and literature.

At 91 years old, Pedro Schwartz remains engaged in that project. This conversation is both a reflection on a remarkable intellectual life and a meditation on the enduring challenges of defending freedom in democratic societies.

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Diego: So welcome everyone to yet another episode of our Somewhere/Anywhere podcast. We are coming to you from Madrid, but not from our studio, but rather from the residence of our very distinguished guest in today’s podcast recording. So I’m joined, of course, by my cohost and friend Rasheed Griffith. Rasheed, how are you?

Rasheed: Hello, Diego. How are you doing?

Diego: Very well myself excited about today’s recording. We are about to host an interview with Pedro Schwartz, who is one of the most relevant thinkers of the classical liberal world in Europe and obviously in Spain. And it is truly a privilege for us to be speaking to him today. Isn’t it?

Rasheed: Yes, I’m very excited and looking forward to the conversation. It’s surprising how many people I come across in my kind of liberal life in the US or the Caribbean, who know of Pedro Schwartz, I think from his Cato publication, actually. So I think it’s gonna be good to hear him in person now in English.

Diego: Well, before we introduce Pedro formally, although he’s sitting right next to us right now, let us just tell everyone that Pedro had a very remarkable career as an academic. He was also involved in politics at some point as well. Of course, his voice is one of the more popular in the classical liberal sphere. He has been instrumental in the diffusion of liberal thought.

He was a student of Karl Popper. He was the president of the Montparnasse Society. His credentials are certainly those that you only come across once in a lifetime. We are truly honored to be here with Pedro. I don’t mean to extend this too much because Pedro is blushing right now, but yes, Pedro, welcome to the interview.

Pedro: Thank you very much for this interview. I hope to be up to standard.

Diego: Let’s jump into it. By the way, we will be using Pedro’s “Las cicatrices de la Libertad”, his biography, as a kind of guiding point. So for our Spanish audience or Spanish reading audience, that is a good companion to today’s interview.

Rasheed: Pedro, I wanted to focus initially on your time in England. Of course, I, coming from the Caribbean, have a much more vivid appreciation of England during this time period in my own history. I believe that from your book, your first time in England was around 1953/54, when you went to learn English. What was that experience like for you the first time?

Pedro: Well, it was a big change and surprise because I came from Spain. At that moment, there was very little freedom in Spain, and I was sent by my father to live in Spain because he wanted, and I wanted to be a diplomat. But when I passed the exams, they were difficult, but I passed them. I was told by the people on the examining board that they sadly couldn’t have me as a diplomat because I wasn’t enthusiastic about Franco, and it was well known that I had been an activist student. I went on to perfect my English in the United States, not in the United Kingdom. And then after I was here for many years, because I was a student at the London School of Economics, it turned out that I’m very much pro-English. You can ask me questions, i’ll tell you what I think.

Diego: We very recently held an interview with Esperanza Aguirre. She spoke of the 1980s when she became involved in politics. She, of course, considers herself to be a student of yours and referenced the influence of British tradition. You were a student there in the London School of Economics under Karl Popper, nonetheless.

Pedro: I was indeed. That was very lucky. I found very good teachers there at the London School of Economics when I did my PhD, and stayed there for I think seven years. I worked with Karl Popper, and I was pretty active there, so I’m both Spanish and British.

Rasheed: I’m curious about your intellectual growth at the time of LSE. It was the early sixties in LSE, when Sir Arthur Lewis was there, when a lot of the changes in the imperial system of the UK were happening, and the entire “colonial experience” was heating up in London. I’m curious, how did that affect you when you were thinking about economics and those topics?

Pedro: Well, the way it affected me... I learned my economics and also my politics from the people I met at the School of Economics. And there I was, pretty active.

For some time, I was the head of the Students Association, and therefore, I was very active, and I admired what I found there and thought I would apply it in Spain if I could.

Diego: It should be noted that today ideas travel very fast. We have to put ourselves in the shoes of someone who, 70 years ago, was traveling in a world from a closed country, traveling away from it, and setting himself in the center of European cosmopolitanism, like London.

So it was definitely a culture shock, but one that you fully embraced because you had that inherent drive for freedom internally.

Pedro: Indeed. What I found is that I could apply the things I was learning in London, in Spain. At the moment, we didn’t have political freedom in Spain, and it was easy for me to translate.

“Let’s have the same thing there.” I even became an MP in the Spanish Parliament, and in general, was very clear that I wanted freedom for my country, and I was then, how could I say, a little more in favor of socialism than I was there.

Diego: I believe John Stuart Mill plays a key role in your thoughts at this stage of your life.

How did Stuart Mill’s thinking influence you, and how did you later drift away from some elements of it?

Pedro: Well, I studied John Stuart Mill and decided to write a thesis about him, which I did and published. It was Karl Popper who told me, “Why don’t you do something on Mill? Why don’t you do your thesis on John Stewart Mill?”

So I did. I followed the advice he gave me, and I wrote and published a book on John Stuart Mill. And I found very many things to learn and to imitate about John Stuart Mill, and with the help of Karl Popper and also Lionel Robbins, who was the head of the board that gave me the PhD. So in the end, I learned from Popper, from Lionel Robbins, and many other people there.

And also John Stewart Mill, who is a very broad thinker, and I think there was lots I could learn from him and apply in my country. Not only in my country, but in general, to organize things in any country.

Rasheed: Why did Popper give you the advice to study Mill?

Pedro: Well, I remember I saw Popper’s “The Open Society”, the book, at a bookshop here in Madrid and bought it.

I bought the book, read it, and didn’t really understand what he was saying. Though at one point I was going to have lunch, and at one door I saw a little name, ‘A.R. Popper’. So I went in. And said, “Are you AR Popper of the Open Society?

He said, “Indeed.”

“Can I come to your lectures?”

He said “Yes, you can.”

And so I went to his lectures and followed, studied a lot of Karl Popper’s thoughts.

Diego: For many of us today, who consider ourselves to be students of the liberal tradition, these authors are unfortunately long gone. But the truth is that you were not just a very intellectual thinker through the years, but also someone who was acquainted with many of these individuals. For instance, you brought Karl Popper’s ideas to Spain, facilitating his translation. You even brought him physically!

Yeah. And, uh,

Pedro: I remember how I drove a little Fiat and took him to different parts of Spain.

Diego: Yes. North of Spain, I believe. Right?

Pedro: That’s right. And in general, it was not only learning what Popper and John Stuart had to say. They transformed the way I saw the world. I had very, very good teachers.

I was very lucky in the people I studied with, not only Karl Popper and Lionel Robbins, but many others at The London School of Economics, which changed my view. And little by little, I moved away from interventionist liberalism to become a real classical liberal in a sense.

Rasheed: I’m curious about, call it the critical intellectual distinction, between your training in economics and then law, when it comes to adopting a more liberal approach to politics or to society.

Pedro: Yes. Well, I studied law and was bored by it. Now I repent because the law is very important, as we know from Hayek’s books too. Laws are very important, so I slowly moved to study law more deeply. Karl Popper’s lectures also had some influence from him about how to organize a country by thought as a liberal person. And so I didn’t look back after that. I remember Karl Popper’s lectures very well, and they were very, very interesting. In fact, perhaps i’ll show you later, his piano is at the house because it was given to my wife, by him, by Karl Popper. And we’ve just repaired the piano.

He really was a very important person, I should say, a friend. He met my children, of course, and my wife. He left the piano in his will, and here we are. The piano, I don’t play. My wife does, and also my daughter, who’s a singer. And so there’s a lot of music in this house.

Diego: One thing that I shall say is that, beyond bringing that British tradition to Spain, Pedro was also instrumental in channeling other ideas from the liberal realm into the country.

Because in Pedro, you have not just a thinker with his own entity and body of work, but also someone who was a student of the Public Choice School, of the Chicago and Monetarist School. You’re also a very acquainted intellectual in regard to the Austrian tradition. So you have a little bit of all of those, and you have played the role of a curator of sorts by not just developing your own work, but also facilitating the importing of this thought into Spain.

Pedro: Indeed, I was instrumental in bringing many ideas back here. Not that I am the cause of them, I learned them. We have a great deal of influence from all these thinkers whom I have diffused here in Spain and have become a sort of instrument to discuss liberalism.

Diego: I must say that I myself was a regular attendee at Pedro’s seminars at the university back when Pedro was finishing up his more active years in academia. So I also consider myself to have learned a lot from Pedro, being one of the younger members of that club. But if we think of the list of people who have been influenced by Pedro.

In Spanish academia, intellectual life and policy, you have names such as Carlos Rodríguez Braun, Francisco Cabrillo, and Maria Blanco. These are some of our most cherished and relevant scholars in free market thinking and open society ideas, and also students of Pedro. You imported that LSE, that London School of Economics, intellectual climate of ideas into Spain through many decades, and you’ve touched many different generations with your work.

Pedro: Yes, indeed. Many people consider me as one of the influential liberals here in Spain, and as time passes, I become deeper in that kind of thought.

I’m not really deep in learning thought, but it’s also had some consequences for my life. As I told you before, I wanted to be a diplomat. I passed the exams, and they told me, “No, we don’t want you as a diplomat.” Thank goodness I became a student. I became a philosopher in the sense of freedom, and that has favored me forever and influenced me a great deal. So it’s not only the kind of liberal thought that you get at the London School of Economics that I learned and then passed on to Spain. All those who wrote their thesis with me, I’m very proud of, as well as the people who followed me at the time.

Rasheed: So, beyond the simple academic intellectual aspect of politics and freedom, you were an active part of the Congreso, the Parliament here in Spain. Why did you decide to actively go into politics?

Pedro: Well, it’s a question I asked myself. Now that time has passed, I think it was a mistake in the sense that being a politician is a very special thing.

You have to bow to ideas that you may not want to. And so I became an MP here, and I was very vocal indeed, even founding a political party. And that stayed with me because I was one of the members of the conservative party here in Spain. And now with the passing of time, I have become a source figure in liberal economics, in liberal political thought.

And that, I think, has been my main contribution to Spanish life.

Take it down. (Pedro gestures to a nearby photo)

Have a look.

Diego: Okay, so we are looking at a Liberty Fund meeting, a picture of it. It was organized by Kurt Leube in the late 1980S. We see a young Pedro Schwarz wearing a red vest, and beside him, it’s Peter Bauer, and Kurt Leube.

Pedro: Look at those!

Diego: Friedrich Hayek, Ronald Coase, George Stigler.

Rasheed: My goodness.

Pedro: So it’s a very special photograph of one of my activities as a student of liberalism.

Diego: We shall add this picture to the podcast so that everyone can take a look. I always think you are a bit too critical of your time in politics.

Let me tell you why. I obviously understand that it is certainly not the place for someone who wants to keep his independence, certainly not in Spanish politics. But I don’t know where the center-right reforms from the 1990s would’ve come if there had not been an intellectual structure that ingrained itself into the popular party machinery.

So in a sense, I think that what Aznar culminates in the 1990s is a byproduct of you setting up a small liberal party, which then became a founding element of the new Popular Party. So I understand your hesitations about that period of time. I agree with the self-criticism, but I think you are leaving out of the equation some very important contributions.

Where would the Spanish right wing be, economically speaking, if it weren’t for that?

Pedro: Well, not only that. I voted for NATO at the time when there was a lot of discussion about NATO. And I voted for it, and in fact was punished in the right wing of Spanish politics.

Diego: For context, they wanted to abstain for tactical reasons, just because they wanted to hurt the socialist government.

But Pedro said, “Well, based on principle, we can’t be tactical about something as relevant as NATO accession.” And this led to your demise in politics.

Pedro: It led to my demis,e and I’m very proud of that.

Diego: As you should be.

Pedro: Because I foresaw some of the things that are happening now. So I was very much for NATO and the sort of politicians that were in favor of defense, in favor of attacking or setting aside the people who were socialists. And we wanted to establish freedom, not only personally, but also militarily. I am proud of that moment in my political life.

Diego: By the way, there was a certain woman in your party. Of course, she was not known at the time, but she has become a towering figure in Spanish politics.

Your disciple and friend, Esperanza Aguirre.

Pedro: I chose her. I pointed at her when I was the head of a party. I said, “Esperanza, come with us.” And she worked for the party here in Spain, and ever since, very kindly says that I was her teacher. And so we’re very much proud of that point. Politics, NATO, Esperanza Aguirre, and the defense of freedom are some things that I was able to foster.

Rasheed: Well, that seems like a pretty accomplished entry into politics. Very successful. When you think of the general calculation, one can make on that. You mentioned you founded the party.

Diego: Union Liberal.

Rasheed: What was this particular reason at the time when you said, “We need to have a different kind of party in Spain.”

Why did you do it?

Pedro: I was very much at the end of my time at the LSE, a believer and defender of economic freedom. And so I wanted the new party that was being organized by Aznar to become a defender of freedom. It was made, and he’s still remembered as somebody who changed the way that we see economic policy here in Spain.

I was very much in favor of economic freedom, which is something that many people didn’t accept here, and they did once I founded this small party, and then it fused into the conservative right. And so if I’m asked what things I achieved as a politician? NATO, economic freedom, and the influence on the conservative right.

Diego: There is one element here that is interesting to note. It’s very hard to think about it these days, considering the way our current government is operating. But in between 1982 and 1986, there were some reformist policies enacted by a socialist Minister of Finance, Miguel Boyer, who was later known for being married to Julio Iglesias’ former spouse and whatnot.

But at the time, between 82 and 86. He did approve some reforms that in principle resonate with the ideas you were defending, like liberalization of business hours, liberalization in housing, which were later taken down by his own party, of course. But this was an interesting situation in which we have probably the most liberal socialist ever in the Spanish parliament, competing with the most liberal MP from the opposition conservatives.

Pedro: Indeed, I remember well when Boyer, who was in the socialist party, defended the idea of freedom of shopping hours and freedom of rental housing and other reforms of that kind. And I was across on the other side, I was within the conservative party. And so what I did after he’d spoken, I crossed the floor and congratulated him.

He’d finally done something very good, and that congratulations wasn’t quite popular with some of my friends.

Rasheed: I wanna go back a few years before that, which is the transition period in Spain. And of course, now from the outside, inside even, there’s still a lot of debate about the correct way it should have happened, the different counterfactuals.

I’m curious, from your perspective, living through it, participating, helping, how did you see the process of the transition being productive?

Pedro: One thing that explains it is that I was a monarchist, and I defended the idea of a king because I thought it was a defense against many mistakes that could have happened.

If I want to pick up the things that I did right, one of them was defending the idea of a king, which we did, and now he really has made a difference in Spain. I had met him and tried to help him whenever I could, and he now still calls me Pedro, something I remember.

Diego: King Juan Carlos has been, of course, involving some scandals. At the same time, this last week, as we’re recording this, the papers from the 23-F, which was an attempted and failed coup d’état that happened in 1981, one year before Pedro became an MP, have been released by this government.

One could speculate a lot about the reasons why they are declassifying these files now, but beyond that, these files paint Carlos in a very positive light, which sort of resonates with the idea that “yes, we can second guess some elements of the transition now, but most people that lived through it are actually pretty proud of what was accomplished then.”

We’re sitting here with someone like Pedro, who was essentially not allowed to pursue his own career as a diplomat by the regime. And for someone like him to question the role of the monarchy as a facilitator for democracy would be a no-brainer because it brought forward freedom.

Pedro: Indeed, indeed, I remember when that coup happened.

I was in Barcelona putting forward the idea of my party. I was giving a lecture. I finally saw people listening to the radio. A guy said, “Come on!”

“Please, you be a little polite to me. What are you doing?”

And he said, “There’s been a coup.”

And I remember well how King Juan Carlos appeared on the television screen, saying to his officers, the officers of the Army, “Obey me. Don’t you dare go against democracy!”

And I remember saying to myself, “Oh my goodness, not again. It can’t happen again. We had Franco once, we didn’t want to relive that.” I remember him in full uniform, telling the officers who were staging the coup, “ Will you please go back to barracks?”

And the tanks were there. The tanks were in València, so it wasn’t an easy thing to do. And this was a very big step for us. We are now a democracy in Spain. You may criticize some of the things that people do, but we do need to have the voice of the people heard. And that is something to be defended.

Diego: Both Rasheed and I are supposed to have an episode at some point about the monarchy. I just want to throw out there that the two most notable attempts against Spanish democracy were de facto stopped by the monarch. It was King Juan Carlos in 1981, and it was King Philip, the current king, in 2017 when the separation was attempted by Catalonia, which many would consider to have included elements of a constitutional coup as well.

So I think that there are great arguments that one can put forward in theory. In practice, however, the monarchy has remained instrumental for freedom in Spain, or at least that is my take.

Rasheed: But I’m curious at the time of the transition, why did you support the monarchy as a tool for democracy?

It would seem a bit counterintuitive.

Pedro: Well, in part, it was an inference for my family, who had met the monarchy group in Switzerland. And also because I thought in Spain we needed to return to something that wasn’t an absolute way of considering the Spanish politics. We needed to have somebody who would pull together the people who had been in favor of Republicanism this time and so on. We were a small group of people who thought the monarchy was a kind of institution that you need in a country that is a loggerhead with itself.

And indeed, yes, we have a king. We can see that as something very lucky, a very good thing. So that’s another good thing I did!

Diego: A lot of people are actually fascinated by the process that led to political change in the nineties. Even Rasheed and I, alongside Manuel Llamas are currently doing a lot of research and perhaps preparing a book about these specific years. Your name has come up when we talk about who was involved in the closed-door discussions on how to articulate a center-right, free-market alternative policy. Can you walk us through this timing in which, in the Fundación FAES, in the circles of PP in 94’, 95’. You can smell that political change is coming, but you need a plan. You need a program, and you were involved there as well.

Pedro: Yes, indeed. I think that we don’t underline how wonderful it was that we had a change. After all, a king is a funny thing, and you want a king when you have a democracy. Having a king and a democracy seemed to be at loggerheads, and what we needed was somebody who was above the political fights that had happened in Spain, even during the Republic in the thirties. There were a number of people who thought that if we had a king who was above politics, who could make us stop fighting each other. And that I think has proved to be so well.

People have criticized Franco very much, but he was the one who wanted a king here in Spain, and he was quite right. It was a good thing to have somebody above politics. It seems that Franco was talking to one of his ministers one day, an economics minister, and the king said to his minister, “Don’t get into politics.”

Diego: “ Don’t go into politics.” Seems that Franco saw himself as being above politics.

In a way, when politics are very partisan and very divisive. This may not resonate with audiences from some countries, like those where coalition agreements and whatnot can be formed. But definitely in a country like Spain, where unfortunately, there is a lot of partisanship, that mediating factor has remained relevant.

But I don’t know if you want to keep this a secret, or if you forgot to answer my specific question, but I am very interested to know about your involvement with the Aznar preparation of government. I know you played a role there. It’s come up in discussions with the man himself.

Pedro: Aznar was somebody we backed, because we thought he could do the right things, which he did. He established many democratic things, but mainly he was in favor of the sort of institution that is above politics. The king today is not really about politics, and that is something that you have a lot in Europe.

So again, defending the king was a great achievement, not only for me, but for many people.

Diego: Another way in which Aznar wanted to take out too much policymaking from the partisan sphere was by joining the Eurozone.

Now you have spoken a lot and written a lot about monetary policy. You acknowledged, that for Spain, joining the Eurozone was a net positive, and at the same time, you also argued that for the UK, they should be considering a common currency but not a single currency. Because that all obviously depends on your relatives, on what you can expect from the domestic.

Can you walk us through this distinction you made at the time?

Pedro: The idea for Spaniards was getting into Europe to solve many problems in the sense that for many people being pro-European was a way of saying pro-free and pro-democracy. And that was very much the attitude of the opposition here in Spain.

By joining Europe, we forget about the less wonderful parts of our politics. And that was indeed what happened. So being pro-European was not only something that Aznar wanted. Many other people also wanted to join as a safeguard for what we were doing.

Diego: In fact, today, if you look at the economic freedom rankings, Spain’s best scores come in those areas where economic policy is not decided strictly domestically, but also jointly. Take the case of financial freedom, freedom to trade, or monetary stability. Also, another question, Pedro. When Aznar came to power in the mid-nineties, he obviously had a plan.

He has a plan for liberalization in telecommunications, energy, and airlines, as well as privatization of government-owned enterprises. He has a plan to cut spending and cut taxes. What was your role as an intellectual in those years, trying to influence that process?

Pedro: Well, he wasn’t just an intellectual, but also a friend.

I think that many of the things he proposed and carried out were necessary for Spain and have left a sort of tradition that we have for economic freedom. Whatever the President of the Aznar government did has stayed. People really remember the time of economic freedom, and I think we shall go back to it when the time passes.

And so Aznar was, for many of us, a hope and a realization. He went really far in what he did. And now we once again, turn back to him. He left politics, but we go back to his ideas so that we can change the way we do politics and economic policy in Spain.

Rasheed: Why do you think Aznar was so committed to these ideas of liberalization of Spain and was actually able to push it through Parliament?

Pedro: Well, I don’t know. We don’t know why or where he got his ideas. But he certainly got them. And I think there was the influence of his wife as well. Very important. Wives are important!

Diego: They are indeed. One question I also wanted to ask you today is about the time in which your student, in a sense, becomes the governor of Madrid.

While she was in office for a very long period between 2003 and 2011, she accomplished successful tax cuts, spending cuts and deregulation. And all across the board agenda of freedom. You were also, once again, very involved with her, and the net results have been amazing. They are still in place today!

Pedro: Indeed! The influence on Madrid politics was pretty important too. And this is still with us. People still refer to that time of economic freedom as a hopeful one, given the time we’re going through at the moment. So we did influence her. She has said very often that I taught and influenced her.

And she indeed, in that sense, became very pro-economic freedom, and that stayed.

Rasheed: So I’m going to change the gear a little bit, back to the more intellectual aspect of your career. So you made many remarks about how the Anglo-Saxon view of liberalism, the LSE influenced your thinking, and you had brought that to Spain. But at the same time, you’re also well known for your work on the School of Salamanca type histories and work.

I’m curious as to how you see that aspect of liberal thinking. How does it relate to how you learn about liberalism in England?

Pedro: Liberalism in England is in a difficult time, I should say. Therefore, the influence of the economic freedom of the School of Salamanca and other things that would be referred to as parents, the idea about it, men, but many others in the liberal school that have come to say, and that is something that has influenced the politics of Spain much more than people think.

People are growing impatient, and voters are impatient with the kind of mistakes this government is making. And therefore, I think that period, not only of Esperanza Aguirre, but also of the liberal club and other ideas in defense of pre-trade and pre-economics, is something that, thank goodness, is here to stay. And we will go back to them as soon as this very difficult period we’re going through finishes.

Diego: That anchorage effect of the school of Salamanca it’s relevant because at the end of the day, it is a way for Spanish liberals to not just simply accept foreign thought, which of course is far superior in many cases, but also to anchor your own intellectual history to some elements that came before you, such as the Cortes de Leon or the writing of the Scholastics back in the day.

But it should be noted that this tradition has been rediscovered. For instance, the Marjorie Grice-Hutchinson book about the School of Salamanca, from the 1950s, is when Pedro is essentially stepping out of Spain to learn at the London School of Economics. So it’s interesting to see how today a Spanish liberal can relate more to 16th century Spanish liberals, than they did back in the time.

Pedro: Indeed, the liberal thinking, liberal economics competition, and an open system are things that are here to stay because of that period. When we helped introduce those ideas into Spanish life, I remember the great fight that we had to face was, people who said they were liberal, but they were really interventionists. Now people agree that we have to do something different. So we must have the tradition, this short-run tradition of free economics, liberal thinking. For the moment, it seems worth it, despite the kind of government we have.

Diego: We will have to speak about this government.

Pedro, of course, has made several references to this, and it comes very naturally to ask. Pedro has been involved in the diffusion of ideas in different roles. He has authored books and literally hundreds of op eds for different newspapers. He even brought Milton Friedman’s ‘Free to Choose’ TV documentary to Spanish television alongside a student of his very renowned scholar, Carlos Rodriguez Braun.

How important what do you think is the role of a journalist?

Pedro: Well, it isn’t a journalist. I would not call it that. It’s simply somebody who writes essays. But here we have a photograph of Milton Friedman and George Stigler. It’s curious that in that photograph, Milton Friedman is in the middle with other people listening to him. The idea of being in favor of free economics, free trade, is something that has come to stay in Spain, mixed a bit with the hope that Europe will find its way. But in any case, I think it’s something that has really struck roots.

Diego: I also wanted to ask you about your book, a fantastic essay, which, if I’m not mistaken, was originally your speech to become a member of the Royal Academy of Political Science and Morals.

It is being labeled as “In Search of Montesquieu” (En busca de Montesquieu), and you have expressed through the years that, at the end of the day, the difficult conquest that is freedom needs those institutions and this limits and provisioning of power.

Pedro: Yes, you need to be able to look at the back and to remember what your traditions are. And people who fight those ideas of freedom are not so important in Spain because for a long time we’ve been working with  Montesquieu, with Milton Friedman, and with others.

We’ve been working to establish the roots of free economics. It is here, it stays here. I think that again, it is a very good step forward.

Rasheed: Coming now to the end of the podcast... One of the topics that we discuss a lot is the problem of the young liberals not really reading that much and discovering these more cosmopolitan ideas of history and thinking.

The start of your last book about your life, the monograph is a Chinese quote, a Greek quote, a Spanish quote. It really makes my point here. In your generation, this idea of a broad view of the world was so important. Is it still so important to have broad reading?

Pedro: Yes. I think, how can I say, the temptation for people who think of freedom and defend freedom, both economic and political, is to fight each other and to say, “Look, I’m different from them. Look at this small group, they are somebody we have to fight.” And I think that is something that we have worked well here, where people in favor of freedom are together and work together.

And that perhaps is something we can teach other people. Britain is one of them where we need to have a different way of organizing society, and that, here again, is something we have struck roots with. Here in Spain, we have liberals who have different ways of understanding society. But we are not fighting each other; on the contrary, we’re more or less, even with our differences, going forward in what is more traditional with our political and economic thought.

Diego: I wanted to ask you about your relationship with some of the most relevant thinkers of the past century. We’ve spoken about Karl Popper already, but you also dealt with Friedrich Hayek and Milton Friedman.

Any anecdotes or stories or just overall opinions of your dealings with both Hayek and Friedman that you could share with us?

Pedro: Well, Milton Friedman has a great deal of influence in Spain because of his television program. It’s something that has left a mark on the way we see freedom here in Spain.

So that’s one thing that goes well. And I remember Milton Friedman, coming here, being attacked, but defending himself because he was wonderful and replying to what people said about him. And then you had the same with Hayek. I remember when we went to Salamanca, and he was there. He was in the chair of the School of Salamanca, defending the idea that if you have confidence in people, then you have confidence in freedom. And the idea that being a liberal means that you tend to believe that people will, in the end, defend what is right, is important. And Hayek was a difficult person, but what he’s writtenhe wrote about the philosophy of freedom is something that stays with us forever.

Diego: Pedro, this would probably be my last question to you. You’ve made several references so far to the challenges that this current government in Spain has created for us. I think that we obviously can identify economic issues, minimum wage increases that are completely blown out of any proportion, and tax increases by literal hundreds.

But the one thing I am more concerned with is the hindrance of the rule of law and the power grab of many institutions of the Spanish democracy. So how do we go forward? If there is a new government in place. What are the priorities?

Pedro: Well, the priority is to obey the constitution.

We have a constitution that should be obeyed. Instead, it’s being attacked. It’s being seen the wrong way, mainly by special socialists who are in power. The socialists have no qualms about attacking freedom. So again, we are lucky to have the 1978 Constitution. Difficult at times, but what we have is the reference for how we have to organize our lives. Not easy, but we can do it. And the basic ideas are there. Seriously, people go back to the Constitution! We need politicians to obey the constitution and to push it in practice. And this is something that sometimes seems to be in danger, but I think the opinion of Spaniards in general is in favor of establishing a free constitution and defending it.

Rasheed: I guess I’ll have the final question, and because it is the final question, I have a very different kind of question. I’m curious, in your opinion, at 91 years old, you’ve done quite a lot, of course. There are some references, I’ve found while reading your books, your views of art and music.

The literature in general is quite wide, as you can see, even right here in your library. What pieces of music or art do you still really enjoy today?

Pedro: Oh, very clearly history, because I taught history. Going back to earlier centuries is something that resonates with people still.

Sometimes wrongly, because some people are thinking of splitting Spain into many different systems, and that is not helping us. You are showing the book there, and so this again, is a book about the traditions of freedom, a very old tradition of freedom in Spain.

The word liberal was really first used in Spain when Napoleon invaded us. Therefore, the idea of a liberal is something that has a tradition behind it, and that’s very important in politics. So that’s something now we are able to defend, and that’s what I try to defend in my book.

Diego: I want to close by saying two things.

First of all, Pedro has always said that there is still a lot of work to do. That is why even today, he’s wearing his boots, writing, and actively engaging in intellectual debate. For that, I think we’re all very thankful. I also want to say, of course, I’m very thankful for this opportunity, and on a personal note, I certainly could never repay all the learning I’ve done in your seminars, conferences, talks, and writings. You have my gratitude for today’s talk, which feels like a talk between friends. My gratitude for all your work and your fantastic legacy.

Pedro: You’re being too kind. Many people together have tried to establish a different way of doing politics. We may not be very many, but we still are there, and we are a voice in Spanish politics, which ought to be treasured. So, having you here with me, I hope that what I defended is something that resonates with you. I’m very glad and very grateful for this conversation.

Rasheed: Thank you so much, Don Pedro.

Madrid didn’t drift into greatness. The street life that runs past midnight, the density that actually works, the sense of momentum rather than maintenance. Those are downstream of decisions. In this episode, Diego and I sit down with Esperanza Aguirre, former President of Madrid, for a case study: what happens when a politician is a serious defender of classical liberalism and then gets enough power to try implementing it.

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Aguirre traces it to a specific intellectual and institutional pipeline: the Liberal Club of Madrid under Pedro Schwartz, weekly immersion in The Economist when it was more explicitly liberal, and Hayek’s argument about the Industrial Revolution’s brutal optics but longer-run moral calculus. She even gives a wonderfully concrete “de-programming” moment: a 1979 trip where seeing telecom competition in the U.S. made the “natural monopoly” story feel less abstract and more attached to a Spanish administrative instinct.

From there, Madrid becomes the application layer. Her version of liberalism is not just lower taxes, but choice plus speed. Choice in schooling and in health care, where she describes making it normal to choose schools, hospitals, doctors, and specialists, and bluntly frames the political resistance as a Leftist preference for “captive clients.” Speed in how a city allows people to build and open: she explains the pivot from slow, permission-first licensing to declaración responsable, an ex post enforcement model that lets small businesses start operating without waiting a year or two for a stamp. Layer in the other pieces: hospitals built quickly by giving land and contracting private construction and sometimes operation, with reversion later; an aggressive metro expansion; and finally liberalized opening hours and Sundays, turning Madrid into the “always open” city that residents and visitors alike now take for granted.

If you think “classical liberalism” is too abstract for real politics, Aguirre makes it concrete: it’s a set of institutional defaults about who gets to decide, how fast they’re allowed to act, and whether the public sector can be made to behave as if citizens are customers rather than files to be managed.

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Podcast episode: Madrid - the Capital of Capitalism - Diego and Rasheed

Una Liberal En Política: Por qué lo que funciona es el Liberalismo by Esperanza Aguirre

Sin Complejos: Solo una derecha unida y orgullosa de su historia puede volver a gobernar España by Esperanza Aguirre

Madrid: A New Biography by Luke Stegemann

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Full transcript below.

In this conversation, Rasheed and Diego sit down with Tyler Cowen to think through a question that sits quietly beneath much of today’s political noise: what actually compounds?

We begin in Spain, with a debate about regulating social media. But the real subject is not technology policy. It is institutional trajectory. How states expand. How societies adapt. And how temporary moral panics can produce permanent structural shifts.

From there, we widen the lens to the Americas. The United States and Latin America are integrating more deeply — demographically, culturally, economically — whether policymakers fully grasp it or not. Yet integration is not the same as understanding. Elites talk. Voters react. But knowledge often remains shallow, filtered through tourism, headlines, or ideological shortcuts.

A recurring tension runs through the episode: spectacle versus steadiness. Some countries produce extraordinary cultural vitality alongside recurring institutional fragility. Others appear dull but quietly accumulate gains. Growth in the low single digits may not satisfy reformers or revolutionaries, yet over decades it transforms societies more reliably than political drama ever does.

We also explore cities that are unexpectedly outperforming, the moral case for economic growth, the thinning — or perhaps evolution — of modern liberal thought, and how literature and cuisine reveal deeper structural truths about nations. Culture, in this conversation, is not an ornament. It is evidence.

If there is a shared thread between us and Tyler, it is this: Latin America is neither doomed nor destined. It is constrained in some places, underrated in others, and more dynamic than standard narratives suggest. The same may now be true of Spain.

The deeper question is not who is rising or falling this year. It is which societies have found an equilibrium that can endure — and which are still mistaking drama for progress.

Rasheed: Hi everyone, and welcome back to the podcast. Today, Diego and I are actually joined by Tyler Cowen, who needs no introduction to listeners of this podcast. So that being said, the first question. I think Diego can start with the first question this time.

Diego Sanchez de la Cruz: Well, first of all, great to have you on Tyler. And look, Spain is considering a ban on social media for minors. Our Prime Minister has written an oped at the New York Times discussing why this is a good idea, and this government is not popular, but this idea seems to be quite popular. So please walk Spanish listeners and viewers through why this idea that may sound well-meaning actually is not at all something that we should be pursuing.

Tyler: I view it as a restriction on free speech. Once government gets its hands more on the internet it won’t stop. So for instance today the day we’re recording Discord announced that to get fully on Discord you have to produce full ID or somehow prove, demonstrate who you are. So anonymous posting is going away. This is for adults also. Once you start down the road of verifying a person’s age eventually you have to do it for everyone. Now I know people are concerned about the effects of social media on the mental health of younger persons. That’s a legitimate concern. I think it is up to the parents, not the government. But also any new communications technology there’s typically an adjustment period before people figure out how to use something properly and we’re going through that with social media. So I’m less worried than many are. And furthermore if you look at the very best research designs, basically they show there’s at most small effects on mental health of say teenagers. And the smartest most accomplished teenagers, that’s what they use to meet each other and to talk and become scientists or have startups at a young age. So if you truly could keep them off social media there’s a big cost to that as well. And people are not talking about the costs So those in a nutshell would be a few of my reasons.

Diego Sanchez de la Cruz: Rasheed, I was just watching the Bad Bunny halftime show at the Super Bowl, and I know you had some questions about the US and the Hispanic influence.

Rasheed: Yes, I did have a question about that. Tyler, right now, the US is one of the largest Spanish-speaking populations in the world. By some estimates, actually more than Spain. And with someone like Mark Rubio coming to dominate national politics, some early polling for the next election kind of shows he might actually become president.

And then just now you have a Bad Bunny dominating American culture without actually speaking English at the Superbowl show. And then Miami, some people like Patrick Collison say, is most dynamic place I’ve seen in the US in sometimes. So, at what point do you think it’d be useful analytically, to refer to the US in functional terms, as a Latin American country?

Tyler: It is right now. You mentioned the number of Spanish speakers we’re becoming much more interested in what you might call Latin America. In the Democratic party AOC is a leading candidate to run for president. She has a Hispanic background. when you look at foreign policy whether you like it or not it’s an area where America can do things and has a reasonable chance of succeeding. So Venezuela, Cuba on the agenda. Plenty is gonna happen over the next few years I hope it goes better rather than worse. Mexico is our eternal neighbor and will always be important to us. So the fundamentals are on the side of people thinking and talking much more about Latin America over time. When I say people Americans, but of course in Spain too right? Your own migration streams show this.

Rasheed: That’s right. And do you think there actually has been, you know, from your perspective, a meaningful increasing good conversations regarding Latin America or just more of an elite conversation?

Tyler: I think there are many more conversations about Latin America I don’t think many of them are good. One problem is that the non-Latino North Americans typically do not know Spanish. Another is that they tend not to be widely traveled in Latin America. Large numbers of them have been to Cabo, have been to Cancun, have been to Costa Rica, maybe Buenos Aires. It’s not that they haven’t been anywhere. But those are in some ways misleading pictures. And to simply do something like go to Comayagua in Honduras which no one really thinks or talks about and you’ll learn a lot more than the trips most people take. A few days ago I was offering to take someone on a trip to El Salvador for three or four days, as indeed you and I have done with a few others Rasheed. You’re seeing real stuff when you do it that way. There are plenty of ways to see real stuff that are quite safe, and North Americans unless they’re from those places, are dreadfully behind on that score.

Diego Sanchez de la Cruz: We’ve been arguing for the need to bridge that gap and communicate more among Spanish and non-Spanish audiences in the Americas. One of the things we’ve talked about though, is how some of your writing resonates beyond demographics, of course. And some of your books that have not been translated to Spanish have had indeed some influence at the intellectual level.

I’m more specifically referring to “Average is Over” a few years ago and more recently, “Stubborn Attachments”. Now, I’m curious to know which ideas would you pour into these two books do you think still hold and still stick to this day?

Tyler: Let me first note, I think both of those have been translated into Spanish. So “Stubborn Attachments”, there’s a not very well-known Guatemalan edition.

Tyler: I believe it’s come out or is in some way available. And then “Average Is Over” I don’t remember the Spanish language title but I think that’s in Spanish language. But again a lot of the people from those countries probably just read it in English earlier on. My main argument in “Average Is Over” which is from 2013 is that artificial intelligence is going to revolutionize the world and end our productivity crisis. I think that prediction nowadays looks very good. I was one of the first people to be making that claim and I go in detail through how I think the world will work and you will need to be what I call a centaur that is very good working with AI. And the people who are very good working with AI will do incredibly well, and if you’re not you’ll have to make a lot of other adjustments. Now “Stubborn Attachments” is a book from 2018 with Stripe Press and there I argue that what’s really important for human wellbeing is economic growth. Economic growth should be a moral imperative that’s a very important point for really all of Latin America but any country. If you look at East Asia say, which to a considerable degree has realized its potential, many more countries should be trying very hard to follow in their footsteps

Diego Sanchez de la Cruz: You mentioned El Salvador, Rasheed. I know you guys went on a trip there and I know you have some questions.

Rasheed: Tyler, if El Salvador were to become a success story, what would it likely be a success at first? Manufacturing, migratory investment, investment tourism, or something more unusual? Because those typical answers feel like maybe they have missed the boat.

Tyler: I think El Salvador has turned itself into a very safe country which is great news. I think you and I both saw that when we were there. I think under all scenarios they have a very hard time becoming much richer. So I don’t think it’s manufacturing through no fault of their own. But most of the world is de-industrializing. So manufacturing is not a source of growing employment due to automation. But there’s other issues for Central America such as scale and the cost of electricity. El Salvador is not the best in Latin America for either of those compared say to Northern Mexico. So I don’t see what its relative advantage is. And it’s just a small place. I checked with ChatGPT. O

ne estimate places about third of the population, living in the United States on average. That’s probably the more ambitious, one third. So there’s considerable brain drain. I do think in terms of levels they can do much more with tourism. They have an entire Pacific Coast which is quite underdeveloped, and could be developed very fruitfully. Sell condominiums, have people do more surfing. Try to have something a bit more like the next Acapulco, but even there you’re competing against Cancun among other locations and it will boost their level but it won’t be a permanently higher rate of growth.

And that’s the case with many touristic developments. They don’t self compound forever and give you many other productivity improvements. So I expect El Salvador to do much better but I know a lot of people who read Bukele on social media and they think it’s about to be the next Singapore or something and I just don’t know how they’re gonna do that under really any scenario. I do think it will improve and they’ll get more foreign investment and more tourism.

Rasheed: How much is “much better”? That’s doing a lot of work there.

Tyler: When you look at the Pacific Coast and you and I sat right next to the water. So that could create quite a few jobs. But in the longer term steady state I think they’ll have a hard time averaging more than 2% growth. So they can attach themselves more closely to the US economy. They use the dollar and let’s just assume their governance does not go crazy. That’s another risk right? So Bukele or whoever succeeds them could overreach. The checks and balances the constitutional protections there seem quite weak. Another possible risk there that even despite his best efforts the country becomes dangerous again. You look at Costa Rica which had been quite safe and did all the right things, and is larger and has many more resources and that’s now becoming a more dangerous place because it was targeted by external, in some cases Mexican drug traffickers. And that could happen to El Salvador as well. So even if think the current campaign is gonna work forever it doesn’t mean the country stays safe forever. It’s not really in a very safe region. So that’s a side risk which will also keep down foreign an investment. I don’t know I’m I am definitely seeing the upside but not super duper optimistic there.

Diego Sanchez de la Cruz: That cycle of violence that you bring up it’s a common and very recruiting topic in many Latin American countries. You think the worst has ended. You think that things are ticking up and then boom you end up right at a bad place. Colombia comes to mind with so much advancement from the two thousands all the way up to the mid 2010s.

But the situation right now, it’s obviously worse. Ecuador also comes to mind, traditionally very safe compared to other regional standards. Right now I think it was ranked last year among the 10 countries with the highest homicide per capita rate in the world. So I think you make a very good point there.

This idea that crime is gone, well it’s gone for now, but don’t take that for granted. Rasheed has some interesting follow up.

[00:12:13] Tyler: Very few of these nations have really completed what we call nation building

[00:12:19] Tyler: You could say Uruguay has. Even Costa Rica never quite did. So Uraguay, Chile, I would say Argentina. Panama’s complicated. It’s certainly gone well but it does feel to me like about five different countries. Only parts of the Southern Cone have done that and I think that’s why violence keeps on reemerging.

[00:12:51] Rasheed: I do have some Panama questions. We’ll definitely get to that. I don’t think people talk enough about Panama. But before I do that, I do have this other question.

[00:13:03] Rasheed: Colombia we’ve mentioned a bit. Given you don’t drink coffee, Tyler, I’m curious if there is a feeling about how much cultural code you can crack in Columbia.

I mean, I could also say the same about Ethiopia, but we’re gonna ask for Colombia.

[00:13:28] Tyler: I’ve been to Colombia, I think four times. Every part of it I go to feels like a different country. If someone told me I went to a new country I just would nod my head and continue along my way. It’s not very well connected ideologically, politically, socially it’s quite scattered. There’s Bogotá that feels like its own country and they’re very pro-business, the people pro-American. Until Petro they often made some decent electoral choices but it never fell into place for them. But oddly enough in spite of all that violence for decades they had pretty steady economic growth. When you go around Colombian cities parts of them look pretty developed from a retail point of view. I’ve always been optimistic about the place, so I’m hoping that the policy retrogression under the current government is temporary and they can just keep on something like 3-4% growth. You mentioned Ecuador and there’s also Peru which is a mess. Peru is still projected to grow 3-4% this year under conditions that if you describe them no one would be happy about. Ecuador could be growing 2.5-3% under normal projections. That’s hardly spectacular or impressive. But if you can be that much of a mess and still grow and I think Colombia’s in that position, the optimistic scenario is they just keep on growing pretty steadily and eventually they can afford to clean up the whole mess. And I’m always hoping waiting It’s never come I wanna see it happen before my time on Earth is over. I’m no longer sure I will, but in my heart of hearts I say if they can grow 3-4% under these conditions ultimately they’ll cross the threshold That’s my bold case for many of these countries.

[00:15:21] Rasheed: I wanna bring back a question that you actually asked Brian Winter some many podcasts ago where you asked him “If you you, and let’s say your wife, you’re 30 years old, you had children and you were to move somewhere in Latin America. You speak Spanish also Portuguese. You have young kids. Where would you move to?”

[00:15:51] Tyler: Putting aside what my job might constrain I believe the best place to live would be Panama City. You have a lot of very good air connections to the rest of Latin America and the US. It’s safe enough. Panama City is a real city, there’s good food there, no obvious big downside. Buenos Aires is a competitor but there’s too much economic trouble and I don’t feel it’s entirely cleaned up by Milei. And there’s just more purse snatching there than say in Panama City. Chile is a contender but it feels provincial to many outsiders, in that if you’re not part of the Chilean elite circle that gets together and takes tea and eats cake together it’s a little boring. So I think I’d say Panama City. My personal love is Mexico. Where in Mexico? I’m a little stumped. I don’t think Cuernavaca is a crazy pick. And even Mexico City is much safer than it used to be. So they would deserve serious consideration. But for the time being I’ll say Panama City.

[00:16:59] Rasheed: Well, I think that’s the correct answer. I would add, Panama City has very good and not expensive private international schools for children. And that is a, I think a very big win, especially in Latin America. You have that much more cosmopolitan education. And again it’s actually a very good price. So I think it’s point that people tend to not obviously know. Diego you must have some follow up on that.

[00:17:42] Diego Sanchez de la Cruz: Panama, if you want to throw your hand in there, Rasheed because we always go back and forth about how it may be the country that gets overlooked the most whenever we just venture into the regional conversation. It has GDP per capita according to some of the most recorded measures.

But it ranks quite poorly also when you talk about, you know, corruption and good governance. So on the one hand that would seem like a concern. On the other hand, it would seem as okay, the politics are maybe not that clean, but it doesn’t seem to affect the, the overall wellbeing of the country. So, Tyler, I don’t know how you feel about that.

Is that a paradox or is it just coherent because we just have the church and state, or in this case, politics and the market separated enough, so as for corruption not to affect economics that much.

[00:18:28] Tyler: It just could be that a lot of countries in the world are becoming more corrupt, that’s bad. But in relative terms it will not militate against Panama. I think an important factor that for me would be a plus, is just that Panamanian culture is not itself that strong in a way. Your kids will not grow up as Panamanian. They’ll grow up as say American, North American if that’s what you are. Whereas if you bring your kids up in Mexico, Mexico is a huge strong vibrant intoxicating culture. There’s nothing wrong with having your kids be part culturally Mexican but it’s a choice. In Panama City it feels to me a bit like bringing your kids up in Dubai. Your kids are not gonna grow up to be Emirati per se, they’re gonna be Swiss if you’re Swiss or English if you’re English and so on. It’s an advantage and or and disadvantage of living there. It’s why I personally would prefer Mexico but I think for the kids they’d be better off in Panama.

[00:19:24] Rasheed: My husband might have some arguments to give.

[00:19:29] Tyler: He’s not really gonna contradict me is he?

[00:19:33] Rasheed: Probably not. Probably not.

[00:19:37] Tyler: You think about something like Panamanian music, cuisine cinema, there’s not that much. People talk about Mexican slang. They don’t talk about Panamanian slang. I’m sure there is some. You go to David in the north it’s just completely different, or the Caribbean coast. I think it’s a very weak national culture. That’s not true in Mexico at all. Mexico has strong regional cultures but there’s something fundamentally national about it.

[00:20:17] Tyler: I don’t go for Lucho Libre and so on but you can imagine your kid doing that.

[00:20:23] Rasheed: Diego, you want to add something there?

[00:20:25] Diego Sanchez de la Cruz: Well, my son actually loves Mexican Lucha Libre, so, and he’s not even been to Mexico yet. So obviously it is a very national and differentiated culture. And I can see how that comment that you made may actually be a limit on the growth on the appeal of Chile, which in fact is indeed a very well established economy in many areas.

It is much more developed and solid than most countries in the region, but there is that certain provincial feeling of the elites, and that can indeed be a limiting factor. We’ve argued too about how Madrid here in Spain is booming, thanks to not having such a strong of an identity as perhaps Catalonia and Barcelona, where that identity has actually proven to sort of exclude talent flocking and not make them feel at home.

But before we move on over to this side of the ocean I think Rasheed, you had some questions about coffee that you wanted to, to throw out, right? Best coffee in the region. I think it was.

[00:21:26] Tyler: I have no questions about coffee. Do you Rasheed?

[00:21:29] Rasheed: I had a question about coffee. It was the early one about Colombia. Especially this country that has a very strong coffee culture, Ethiopia is actually probably even stronger than this. Given that you don’t actually partake in coffee, do you actually lose something from understanding the actual cultural codes that are so in ingrained in detail like Colombia, parts of Brazil and Ethiopia as well?

[00:21:57] Tyler: Sure. Maybe it’s more important is that I don’t drink alcohol. I probably lose a lot more that way. Because people become more different when they drink alcohol than when they drink coffee. On the other hand I pick up things that other people don’t and in a world with division of labor if I combine my knowledge with theirs I still like my approach. If I were the only person doing it that would suggest I should drink some more.

[00:22:20] Rasheed: Yeah.

[00:22:21] Diego Sanchez de la Cruz: So you mentioned dollarization when we were speaking about El Salvador and Panama is also doing quite well thanks to that monetary stability. Argentina, should it dollarize? What do you think Milei should be doing to advance the agenda? ‘cause he’s done quite good in these first two years, but a lot of room for maneuvers still.

Still a lot of room for improvement as well. What do you think should happen with the monetary policy?

[00:22:47] Tyler: If they could dollarize that would be fine. But I saw an estimate about two years ago that it would cost them $30 billion. That number’s probably changed. It’s still a lot of money for them and I don’t see where they’d get it. So it’s a fine system for them. It’s worked well for Panama, El Salvador and Ecuador but it doesn’t solve the basic problems of those countries. And Argentina’s basic problem is fiscal. And for all the good things Milei has done, their hole is so deep and they’re still not in the clear. They rely on volatile commodity prices. They claim balanced budgets every 10-15 years. They always turn out to be wrong when commodity prices collapse. Their reserves typically are quite low compared to say Brazil per capita and they have terrible interest groups who are very willing to take to the street. And I don’t believe those problems have really gone away. I don’t blame Milei at all for them but whether he can be in there long enough and do enough to change the political culture, to truly put them on a sound fiscal footing I would say is still very much an open question.

[00:23:55] Diego Sanchez de la Cruz: You had some interesting comments about Argentina as we were preparing for the podcast, so.

[00:24:02] Rasheed: I mean, I have, I have many things one could say about Argentina. But Argentina has these extreme cycles that really revolve wrong political drama. And then I think also famously Argentina over produces psychoanalysts. It’s actually the highest per capita in the globe. I’m curious, is there some underlying trait between extreme political drama and this extreme need to psychoanalyse yourself all the time?

[00:24:35] Tyler: Absolutely. And this gets to the import of culture, the obsession with Ava. There’s something about Argentina that for a long time has been psychodrama. It helps them produce so many excellent writers and dramatists so it has an upside but the country is a soap opera. The people have a reputation for being quite narcissistic. Maybe that’s a superficial way of describing it because they also have this incredible ambition. They’ve created quite a few unicorns even if those are realized in other nations besides Argentina. But yeah drama there is high. I would say that in Mexico tragedy is high, tragic drama. Argentina is like soap opera drama. And they’re both problems when it comes to public finance. Chile drama is very low right. A sort of boring point. But it does mean they can stabilize things.They’ve gone through some terrible political events. “We’re gonna rewrite the constitution.” “We’re gonna elect all these leftists.” “Some big chunk of us are gonna pretend we’re totally woke.” But they’ve actually gotten through that okay. And none of that was ideal. But it’s remarkable that they’re now back on some other track again and still have a chance to themselves. Boring can be good.

[00:26:01] Diego Sanchez de la Cruz: Costa Rica is an another political system known for being, you know, very boring, not much going on. And Chilean Nobel Prize in literature winner, Mario Vargas Llosa, argued that they were “exercising their right to idiocy” after getting things right for many decades. The thing is they did exercise. They did not actually change their constitution and things seemed to be swinging back into more sensible policymaking. So we wanted to also bring the conversation a bit closer to Spain.

[00:26:33] Tyler: One thing on the Caribbean… Dominican Republic I think is relatively quite boring compared to say Trinidad or Cuba or Haiti. But it’s done better right? So that’s another example. But anyway back to Spain.

[00:26:46] Diego Sanchez de la Cruz: Well, before we go to Spain, let me tell you that every single socialist government scandal in Spain seems to end up in the Dominican Republic. Although we thought of it as quite a boring country, the recent developments are showing up, that might not be the case.

[00:27:05] Tyler: I wouldn’t say their politics is boring but just being in the country to me is a little flat. It’s really pleasant, I love the beans. People are super friendly, great weather, awesome beaches. But I’m way thinking “oh I wanna go to Trinidad again rather than the DR.” Or Haiti, I’ve been to Haiti five times and the DR twice. What does that tell you?

[00:27:28] Diego Sanchez de la Cruz: Yeah, well, Madrid Rashid calls it home for two years now. I moved here when I was 18. I’m 37, so more than half of my life here already. And it seems to be succeeding along several margins at once in a way that feels kind of unusual to replicate elsewhere in Europe. So I’m curious to know what’s your take on that?

Do you think Madrid is actually doing well? Did you find it a special, interesting vibe when you visited? What was the general experience that you had?

[00:27:56] Tyler: I was there less than a year ago. It was probably my fifth visit to the city. I think it’s in the running to be Europe’s best and most successful city. That’s a subjective judgment but it’s not crazy to claim that it is and that’s a first. So for cuisine, the arts, being cosmopolitan open to the world, vibrancy of walking on the street, it’s just excellent. It does not cost a fortune to be there though you can spend more if you wish to. It’s one of the very best places in the world to spend a week or two. I think it’s way into the top tier.

[00:28:37] Rasheed: Given you’ve actually been here, you know, have you had a temporal adjustment? At what point did you start to realize that? The last visit, the second last visit?

[00:28:50] Tyler: The first visit was the 1990s and then it felt somewhat moreish to me and dark, and fascinating, and sluggish and it was fun but you wondered since it was hovering between older Franco times and some unknown future. I also was there at the height of the financial crisis when things just felt awful. The streets were empty, everyone was frowning. I always thought that was temporary but it still makes an impression on you. I would say really just my very last visit, I had read plenty and I follow Spain so I wasn’t surprised by any of it. But to see it it much more real.

[00:29:45] Rasheed: Well, I agree. I think Diego would agree too.

[00:29:48] Diego Sanchez de la Cruz: Yes!

We voted with our feet and we’ve oped and written books about this. But it’s very interesting because I think that your grasp on the city and the transformation it has undergone, it reflects what’s really happened because Madrid certainly turned things around in the last 20 years or so. The financial crisis was indeed a stop-go sort of moment for Madrid, not for the rest of the country, which quite frankly, has remained stuck in that mentality and not done as well since 15 years ago, all the way up to today. But Rasheed brought to my attention while preparing for the podcast, that you have some curiosity, some interest in the, what we call the School of Salamanca, which is something that Rasheed has also done, you know, his research on.

Because, you know most people when they arrive in Spain and they start to connect with, you know, people that appreciate markets and open societies, they, they tend to think that these ideas simply emanate from other areas and just made their way here to Spain. But it’s true, we have quite a deep liberal tradition that starts with the School of Salamanca back in the 16th and 17th century.

[00:31:03] Tyler: You have las Casas writing against slavery and for the rights of the indigenous. That has been seeping through to other people. But Vitoria, Molina the ones you might call almost the economists, moral thinkers, others grossly underrated. I’m never sure how liberal they are I’m pretty sure what they wrote was liberal. But what they actually favored relative to their time I think is a bit of a mystery. But they understood what we now call marginal utility theory, laid some foundations for modern economics, were excellent on monetary economics; things like the quantity theory of money, causes of inflation, hyperinflation in Spain at the time and were good broadly moral philosophers. So they’re very impressive. And last year I visited Salamanca and got to see some of the rooms and desks even where they did their writing. This made a great impression on me. This was wonderful. Salamanca for me is one of the most beautiful smaller towns in Spain and it’s easy to get to and everyone should go there. That’s one of my plugs.

Diego Sanchez de la Cruz: A two hour trip from Madrid.

Tyler: We had rental car but there’s a direct train line, right?

Diego Sanchez de la Cruz: But trains in Spain right now. Let’s not go there.

Tyler: What’s the problem?

Diego Sanchez de la Cruz: Well just chaos, the delays and actually a few train wrecks with dozens of dead people and just very poor management of the infrastructure that was once known to be great.

[00:32:39] Tyler: What’s caused those accidents? Was it coincidence? Was it cheap construction? Because progressives were telling me for 10,15 years Spain builds train lines and infrastructure so cheaply, this is great And then I saw these three or four train crashes and I just start scratching my head like “What’s going on here?” Do any of you know?

[00:32:57] Diego Sanchez de la Cruz: Well Tyler, I think the, the fact is that a network, like the one we built for our high speed trains is actually very costly. You can choose to have a very costly, high speed train network, but you need to acknowledge that. And Spaniards have been used to not paying the full price, and originally just subsidizing the price.

And then as the bill became bigger, more expensive, the investment in the upkeep, the infrastructure started to go low and low and low, and because there was not enough capacity from the state to add more trains and put more trains in circulation it was opened up for competition in some connections.

Like for example, the one where there was this massive train wreck, which connects Madrid all the way to Sevilla and Malaga in the south in Andalucía, Suddenly you have many more trains, but no additional investment. And you have private operators competing with public operators in the service of the train transport, but you only have a state monopoly with very low investment in upkeep, that is run by the government.

So in terms of how to keep this infrastructure, the rails themselves, that unfortunately has led to worsening performance in the last few years. And this dramatic event a few weeks ago was probably the ‘aha’ moment for many people that were still not convinced that this world class infrastructure is now looking kind of third worldly in many aspects.

[00:34:29] Rasheed: Also another point to that as well. I know some of the pieces that you’re also referring to Tyler. And there is a distinction between the metro systems of different cities and then the high speed trail. High speed rail is managed by a public company Adif. That’s separate infrastructure, separate procurement, separate everything from how the Metro Madrid or the Metro Barcelona, how they, how they function, how they are managed.

So they are actually different things. So the Madrid Metro public administration management is a lot more cost efficient compared to the long route high speed train. But both things are true at the same time, when it comes to Spain which is, you know, one of the benefits of having the such strong regional autonomy for planning all these different things in the economy.

I want to still stick on the Salmanca thing. So one thing I realize, especially when talking to people here like Diego and other people that are very into liberal thinking is compared to the way how very young people now who would call themselves liberals or libertarians, how they think about the metaphors they use. They use Bitcoin, they use crypto, they use these kind of things where the older people in Spain tend to use things like, you know, the Salamanca school and go back to the Cádiz constitution from 1812 and those kind of things.

I’m curious if you think that the thinking around what you call liberalism today is as thick as the things you will have read about Salamanca or that time period in general when it comes to how they wrote about liberal thinking.

[00:36:27] Tyler: People seem to read fewer books, at least fewer books of a particular historical kind today compared to when I was younger. So that to me makes classical liberal thinking thinner, in some ways better, more future oriented, more dynamic, more flexible. But also thinner and more superficial. We’ll see how that bargain turns out, I wish everyone knew the Salamancans and when I was a kid it was actually amazing to me how many people I met who knew the Salamancans. Like you could say “what do you think of Suarez on tyrannicide?”, and they have an opinion. That’s unthinkable today unless it’s maybe you two.

[00:37:09] Diego Sanchez de la Cruz: I must say that some of the founding fathers of the US were very familiar with their work, and you can trace their their knowledge of other authors. John Adams for example, had a copy of a series of books by Juan De Mariana. But then also of course Thomas Jefferson, James Madison, all of them were acquainted with these very old authors that still today, reverberate here locally, but are quite unknown abroad. So I wanted to ask you for some also some marriage counseling. I’ve seen the pictures of your office. When I try to stress how full of books that looks. I can’t. So I just urge our listeners and viewers to just Google that and see Tyler essentially surrounded by towers of books.

So my wife complains that I have too many, and trust me, compared to you, I’m a real amateur. So what would be the best relationship advice you can give me on how to negotiate a dynamic between space for these books and domestic harmony?

[00:38:09] Tyler: It would be easy if you could just trade in marriages right? But very often you can’t, that’s the problem. I have agreed to keep most of my active book piles in one part of the house that has led to temporary peace which I hope is enduring. That’s the best I’ve managed. I would’ve preferred a more Coasean solution like “you let me do this, I’ll let you do that”. But again trade in marriage often backfires or just isn’t possible. Make a concession, admit your partner is correct and try to get as good a deal out of the concession as you can.

[00:38:48] Diego Sanchez de la Cruz: Fair enough.

[00:38:48] Tyler: When I try saying things like “it’s a privilege to live amongst all these books and when visitors come they can admire the titles”, that never works even though we have a lot of quite intellectual visitors, it does not work.

[00:39:05] Diego Sanchez de la Cruz: So we can, we had some questions for you also about culture. And both, both Rasheed and I are big on the idea that some cities, some capitals around Europe, for instance; you can see that they punch above their economic weight culturally. One that pops to mind is Berlin, for example.

Not much dynamism in terms of economics but very, very interesting cultural scene. Do you think there is other interesting examples of this? Instead of debt to GDP or tax to GDP, we could just call this the ‘vibe to GDP’ ratio of which cities are overperforming in terms of culture, although they may not be economic powerhouses.

[00:39:45] Tyler: So many German and Swiss cities do that. Maybe not Braunschweig but you could name a few dozen cities in Germany that are culturally significant. Berlin is still pretty big and all the go a lot of the government workers are there but take Kassel which puts on Documenta. That’s a small city. They have an incredible Rembrandt collection. They are significant force in the contemporary art world. Other things go on there. Somewhere like Zurich, I’m guessing population is still below half a million or it can’t be much above it, incredibly culturally important Basel, Bern and so on. So something about that part of the world, you have federalistic funding and also cultural structures in Germany and in Switzerland and it seems to quite matter. And then you have these very well educated high taste populations. Imagine Basel actually had a referendum as to whether the local museum should buy a particular painting by Picasso. And this was debated earnestly by the citizens and they ended up buying it. Can you imagine what that would be like in the United States or even many other parts of Europe?

[00:41:03] Rasheed: What about that same question in Latin America?

[00:41:09] Tyler: It’s a lot where you are. Argentina is relatively European in this regard but a lot of it is and is becoming all the more like North America. I think in many parts of Latin America, the European influences are fading.

Especially Central America, becoming more and more North Americanized. Maybe not in bad ways but you see the ties to Spain and the architecture obviously the language the history but with so many of them in the United States that’s just the dominant force.

[00:41:44] Diego Sanchez de la Cruz: I see that balancing act when I travel to Quito, my wife is from Ecuador. So when we go back home you see how the, the balance in Quito can still feel quite even between the Spanish and the North American influence. But then you venture into Guayaquil on the coast, and you can clearly see that the Spanish influence has faded and it’s just a remnant of the past.

Some relics of it, but maybe there, but just the culture, the entire of the city feels very American to me, very North American to me. And speaking of culture were discussing Rasheed, these authors that we know you’re familiar with.

[00:42:28] Rasheed: Yes. I know that you’ve said this several places, not several places, but you’ve been, you read quite a lot and you were influenced quite a lot by people like Borges or Rulfo or Cortázar, or Garcia Marquez and Neruda. And if you were choose one or one group of super important work from them to have a conversation about political economy in Latin America, what would you choose?

[00:43:03] Tyler: I’m to have a discussion with the author about political economy?

[00:43:07] Rasheed: No to, to kind of use it as a text for a group conversation, but people who are into politic economy.

[00:43:18] Tyler: I don’t know maybe Bolaño. No, Borges would be my favorite but it’s deliberately quite removed from political economy. If you want the political economy of rural Mexico then it’s Pedro Páramo for sure. But that’s not what most people mean by political economy. But it’s brilliant on rural Mexico. I think it gets at this point of Latin America never having congealed even at the level of the nation that the fiction is so disparate. There’s not a single thing you can pick that fills that bill. And Marquez of course he was a Castro fan in a bad way. It doesn’t seem he ever repudiated it. He just had terrible views on almost everything. But he’s a great writer and he has this sense of the romantic in the fiction and actually the nonfiction reporting as well. But it just leads you so badly astray in politics. Maybe that’s the lesson from him, is that the standards for good fiction and good nonfiction beliefs are almost diametrically opposed. But you only need to learn that once right?

[00:44:24] Diego Sanchez de la Cruz: Just on a side note, I live in Pablo Neruda’s former home in Madrid. He was based in Madrid for a while, and he wrote a poem to the house where he lived here inthe city. It, it was called ‘La Ca Flores’, the House of the Flowers. And that is actually where I’m sitting right here.

So Neruda used to be somewhere around. We don’t know exactly whether it was my apartment or my neighbor’s apartment, but we do know he was sitting on the last floor of my number on the street. So I won’t say the number. We don’t want, you know, people knocking on the door.

[00:45:05] Tyler: He was a Stalinist as you know. He was if anything, worse than Garcia Marquez.

[00:45:09] Diego Sanchez de la Cruz: Oh, he wrote a poem called ‘Ode to Stalin’, so I guess that says everything you need to know about his politics. But his poems certainly do pass the test. Like you said, I don’t think this diametrical opposition between what they bring forward in terms of learning the arts and then what, what leader can you learn in politics, I think is-

[00:45:34] Rasheed: But then what about Vargas Llosa? This is the point because Vargas Llosa meets the requirement of obviously a esteem author from Latin America with a very good political orientation. But I remember, Tyler, I think you mentioned at some point you didn’t really get into his work as much, or did I misremember this?

[00:45:59] Tyler: I think he’s a very good author to read. I like him very much. But on depth a smidgen below the others or maybe more than a smidgen. So “War at the End of the World” is probably his best book. It’s wonderful. I recommend it to everyone. But it doesn’t change how you think about things. Books like “Aunt Julia and the Script Writer” which is the most fun read. Again literally about a soap opera, reading It is like a soap opera. It’s almost genre fiction but doesn’t come close to the others. Maybe “Conversation in the Cathedral” is the one by him that has the greatest depth but I find it very hard to read in Spanish. It’s too hard for me English and doesn’t make that much sense. I will try it again in my life but his claim to fame might ultimately be that book and I’m just not sure how well it does. That’s my own limitation not his.

[00:46:57] Diego Sanchez de la Cruz: The journalistic approach by both Vargas Llosa and Garcia Marquez is something that is very remarkable. Of course, Garcia Marquez threw a lot of fantasy into his fiction. While Vargas Llosa kept it a bit more realistic. With time, both men who were friends became distant because of the Cuban Revolution.

Both were original supporters. Vargas Llosa quickly did his homework and checked what was really going on and became disenchanted with communism. And the Garcia Marquez actually fell in love with it and up to very late in his life, still had his own mansion available for him in Cuba. Obviously the morality of that is there. But of course for the literature no one is doubting the merits of either of them because they were very good authors.

Rasheed: I’m curious, what is it about “Conversation in the Cathedral” you find so challenging in some sense?

Tyler: My Spanish isn’t good enough is quite simply the issue that. And that also means I can’t tell you what I find so difficult in it. But it is polyphonic right?

Tyler: “Conversation in the Cathedral” which I think only has one English language version. Again if there’s another translation I’ll buy it. I’ll try it again when my Spanish is better and I hope someday my Spanish is better and just keep at it. Or maybe when I’m 83 and retired I’ll just sit down with the English and Spanish language versions and spend a full month with it and do nothing, that else might work too.

Tyler: Garcia Marquez in particular underrated, cause everyone reads “A Hundred Years of Solitude” and that was a wonderful achievement but I don’t feel it’s aged that well It’s been copied too much. It’s a bit like looking at the Mona Lisa. And I think “Noticia de un Secuestro” and “Vivir Para Contarla”, those are phenomenal works and they’re not much discussed. And then his short fiction is better to me than say the famous novels. That doesn’t translate well but that I can read in Spanish and people don’t absorb that so much in North America. So he’s considerably underrated even though I really do not like his politics.

Rasheed: Did you read the “La Fiesta del Chivo” by Vargas Llosa?

Tyler: That’s a good book. I like it and it’s fun. It’s very good, it holds up it’s anti-tyranny. but again there’s this final element of depth I don’t find in it.

Diego Sanchez de la Cruz: The element of tyranny, however, is very present in Conversation in the Cathedral too. Just all of his writings sort of take you there. I think his second to last novel, “El Sueño del Celta” was the title in Spanish. And this one is a discussion about the individual struggle within the context of nationalism. And I think that one resonates very well. It’s called The Dream of the Celt.

Tyler: I haven’t read it.

Tyler: I guess i’m suspicious of it. If I read more of Vargas Llosa other than attempting Cathedral again it’ll be the very early ones that some people say are great and to me they feel too working class. I’m not sure how interesting they still are but I would put my time into those.

Rasheed: I actually have not read it in English. But at least I can say recently I was reading kind of comparing the, remember the Houellebecq translation in English and the Houellebecq translation in Spanish. And after reading the Spanish translation of Houellebecq, the English just seems like garbage, like actual garbage.

I think the translator actually distorted substantial chunks of the book. And you realize these things. If you only read the English version, have you actually read the book? Probably not.

Tyler: It’s the same experience but in German because the book came out in German first. So I read it in German and later in English and I thought my goodness the German’s much better.

Diego Sanchez de la Cruz: Some of the action he depicts in Madrid, that Houellebecq depicts in Madrid, takes place very nearby the think tank where we’re both involved with here in the city at the Institute of Juan De Mariana headquarters. Rasheed, we have some final questions, right?

I meant to ask about movies because I like your year end suggestions. Now that the Academy Awards are in about to take place, the Golden Globes just happened. What were the best films that you have watched? I’ve seen it on Marginal Revolution, but if you just were to pick the up right now.

Tyler: Our theme is Latin America. The one major Latin American movie I saw was the Brazilian film ‘The Secret Agent’. Which I liked but I felt it was overrated. I didn’t think it was good enough or coherent enough to really count as a top movie. Something I’d recommend to get on the Latin American theme, the Hollywood version of ‘Wuthering Heights’ is coming out. The Mexican version of Wuthering Heights, I think it’s from 1953, where Buñuel is the director it’s fantastic. It’s so melodramatic and it’s such a Mexican story at its heart. It’s like it should be filmed in Mexico, of course he himself is Spanish but he takes on a Mexican sensibility in his Mexican films I find and I would recommend that to everyone that you can watch. Argentinian movies ‘Nine Queens’, ‘Nueve Reinas’ is very good. Chilean movies the one about the Pinochet referendum I think it’s just called ‘Yes’ in English. That would be a recommendation. Argentina probably has the best movies for South America if I think about it. Mexico of course has quite a bit. Many of those have become very well known and I think they’re excellent.

Rasheed: Did you watch Argentinian series called ‘Nada’? It was from 2023, I believe it was by Mariana Cohn and Gastón Duprat. It’s actually about food, it was fantastic. It’s very funny. It’s very funny.

Diego Sanchez de la Cruz: Cohn and Duprat are two extremely funny directors from Argentina. One of the few that actually completely stayed away from the national consensus of essentially pro-Peronists artists. And they’ve done shows for like Disney Plus and the most watched comedy of the year in Argentina is also by them, is called ‘Homo Argentum’, which is kind of a take on the many ways of being Argentinian. Very funny, dark humor self-critical of the Argentinian people. So check those out. Cohn and Duprat, they are making great work indeed.

Tyler: I think we’re on the verge of seeing this fantastic blossoming of Latin American culture. It’s sufficiently removed from the Anglo sphere to have stayed unique. And there’s now enough wealth in those countries that just not everything is the struggle it once was. So I think this will be a phenomenal time culturally for many of those places. The Mexican musical ‘Avant Garde’ says it’s blossoming. A lot will happen, I would be very long on Latin American culture.

Rasheed: I don’t know if you’ve noticed, or maybe I’ve just been to particular shows, but when I go to even a symphony hall in Mexico City, the audience is substantially, substantially younger than even USA. Okay. So why is that do you think?

Tyler: It’s a good sign for them. It’s young people looking to those events for enjoyment. If you go to the Kennedy Center in Washington which is like the lowest of our low. It’s very old people just trying to get out of the house or wanting to connect with each other or be seen. You’ll see a smallish number of Young East Asians. Good for them but not that many. The rest is quite depressing. So this is one reason why I am bullish on Latin culture. A lot of young people seem to still quite care about it in a way that is meaningful and they approach it with depth.

Rasheed: So I want to finish off with food. We both have some, some food questions. Lima. So Lima is a complete outlier and it comes to gastronomy in, in some ways. And I wonder what you think accounts for why you can just walk down the street, toss a stone and hit a Michelin-level restaurant in Lima and you can’t really do that as efficiently in other comparable countries?

Tyler: I would first make the point that other Andean nations have underrated food scenes like Quito would be an example or Bogotá. Not thought of as great food cities but they’re excellent and also cheaper. They’re not Michelin-type restaurants or rated at all but there’s less of a gap than it may seem. But for Peru in particular the elite really is concentrated in Lima and the elite is quite removed from the lower wage workers. So there’s enough of the elite with enough money to spend plus tourists and then the labor costs are cheap which also relate to how fresh is the supply chain. That mix of the very wealthy elites and the very poor workers and then you’re injecting this Japanese influence, all that just gives you this wonderful blend. That’s my theory of Lima.

Rasheed: What, what’s your favorite restaurant in Lima? If, if you, if you can pick one.

Tyler: Best meal I’ve ever had there I have not eaten there recently Maybe it was 8 years ago but it’s Central which as the time was a famous one, I think it still is. But the Peruvian Japanese places I’ve been to three or four of the well-known ones, they are phenomenal. It’s a great place to eat. But like even in Peru if you eat in Arequipa, which has maybe the spiciest food again it’s not Michelin pointed but it’s very good. To me it’s not so much worse than eating in Lima. So I would say these under other locations are underrated. The Lima thing cannot be coming from nowhere is another way to put it.

Rasheed: Sure that that is true. I remember at some point you had recommended people in Mexico City to go to Astrid y Gastón, the Peruvian restaurant. It’s closed in Mexico, but it’s still open in Peru.

You mentioned some, but you know Quito, so on, I’ll put Panama there as well. It’s a very under food scene. But where else would you say, “Hey, this is a remarkably underrated scene for food that is just, oh my goodness!”.

Tyler: Some of the best Latin American meals I’ve ever had are in >>cio<< Mexico. A lot of northern Mexico is amazing for beef. Things like burritos, fajitas that you turn your nose up at even in Spain, but certainly in the US. But the actual versions of those things are phenomenal.Amazonian cuisine which by the way some of which is in Peru but also Brazil other places. It’s never been like drained for its insights by other cuisines. That’s quite unusual. It’s a thing when you go eat it It’s amazing It’s not that easy to find. There’s like a place in London, a few scattered places in the major cities but go to Belem or somewhere. It’s excellent and very interesting and people don’t seem to draw from it much. Maybe the ingredients just don’t transport. Food in Chile it’s boring but it can be excellent if you’re willing to go boring. So if you go to Chile and just eat the eggs eat the mashed potatoes, the strawberries, the vanilla ice cream. Don’t try too hard. Don’t get those crummy seafood dishes with the cream sauces. But food and Chile can be excellent and I know it has a terrible reputation but it’s really quite good. The best empanadas I’ve ever had are in Salta in Northern Argentina So there’s just more and more Brazil everywhere has amazing things and beans. There’s no end to the list as far as I can tell.

Diego Sanchez de la Cruz: Some of the best regional cuisine you find just traveling around, of course, and those, those fly completely under the radar. You bring Salta, by the way, Rasheed and I met with a senator from Salta, oddly enough a few weeks ago. She was great. She’s an independent very big on growth as a driver for for her region.

She’s working with the Milei government, but she’s not ascribed to the Milei party. So she was quite an interesting meet. But back on food some of the best empanadas I’ve had come from the regional areas of Bolivia. Just like some of the best food I’ve had from Chile was from the area of Santa Cruz, which is a rural part of the of the country which is only famous for its wine culture. Then you connect that with the meat, the lamb more precisely.

That makes for a very good mix and it’s very unknown, as you said.

Tyler: Bolivia is phenomenal for food. There are food stalls the comodores. A place I think is not that great. It’s probably better now but La Paz Bolivia because of altitude has had real problems in the past. And if I’m trying to think where did not deliver for me I would say La Paz even though I love Bolivian food more generally.

Diego Sanchez de la Cruz: What about Spain?

Tyler: Spain is incredible food as far as I can tell. I haven’t been to all of Spain of course.

Diego Sanchez de la Cruz: I keep asking Rasheed to visit my hometown and apparently he’s going to do that very soon ‘cause we’re not famous for our seafood and, and meat too. But anyway Tyler, I don’t even know ‘cause we could. Keep going for hours. I don’t know, Rasheed. If we could just wrap this right now because if not, we stand to just keep Tyler on for hours here.

Rasheed: Yeah, I mean, I could discuss food for many hours indeed. I would say one thing closing, so actually tomorrow I’m going to Cairo. I’m going to get some food there for the first time.

And, it’s not easy for people to actually get bivian food, but there is actually a very good Bolivian cafeteria restaurant here in Madrid.

Very close to la Latina. And you know, literally inside of a cafeteria, areas of food stove, Bolivian food that’s actually very good. We can’t go to Bolivia. Maybe you don’t have it good access in New York or so on, but in Madrid can get some good Bolivia food also, and they are from the past.

Diego Sanchez de la Cruz: This obviously was a great honor to have Tyler with us. And please look forward to our coming episodes. We have interesting conversations, spending on many hot topics going on in the Hispanic world, but today we had the wonderful opportunity to have Tyler join us for this very fun conversation.

So yes subscribe, share, and keep following the podcast ‘cause a lot of good things are coming your way very soon.

Does government power exist by default or must it always be justified?

Prof. Somin’s answer is consistent and demanding. Liberty is the baseline and the burden is always on the state.

In this episode, Rasheed speaks with Ilya Somin, Professor of Law at George Mason University and the B. Kenneth Simon Chair in Constitutional Studies at the Cato Institute. His research focuses on constitutional law, property law, democratic theory, federalism, and migration rights.

The conversation ranges from Founding-era constitutional structure to modern Supreme Court doctrine, drawing connections between immigration law, zoning and takings, war powers, tariffs, and public-interest litigation. Throughout, Somin defends a consistent liberal constitutional vision: government power must be justified, enumerated, and constrained, not assumed as an inherent attribute of sovereignty.

Full transcript below

Key Arguments

Madison, the Alien Acts, and Enumerated Powers

• Discussion of James Madison’s Virginia Report of 1800 and its critique of the Alien and Sedition Acts.

• Madison’s warning against allowing government to define its own “necessity.”

• The constitutional danger of importing European ideas of inherent sovereign power into a system built on enumeration and limits.

Immigration and the Chinese Exclusion Turn

• Analysis of Chae Chan Ping v. United States and the birth of the “inherent sovereign powers” doctrine in U.S. immigration law.

• How the Supreme Court wrongly justified federal immigration power without grounding it in Article I.

• Why Somin argues this move directly contradicts the Constitution’s original structure and Madison’s warnings.

Zoning, Property Rights, and the Takings Clause

• Exclusionary zoning as a major barrier to opportunity and internal migration.

• How Village of Euclid v. Ambler Realty constitutionalized zoning under due process but not the Takings Clause.

• Somin’s argument that zoning can be lawful under police powers and still constitute a compensable taking.

• The incorporation problem: why early zoning cases avoided the Fifth Amendment and how that can be doctrinally revisited.

Tariffs, Emergency Powers, and the Supreme Court

• Discussion of current tariff litigation involving the International Emergency Economic Powers Act.

• Why the Court may rule on statutory grounds, the major questions doctrine, or non-delegation.

• Somin’s view that unchecked executive tariff power is incompatible with constitutional structure.

War Powers, Noriega, and Maduro

• Distinguishing military legality from criminal jurisdiction.

• Why Noriega’s capture did not strip U.S. courts of jurisdiction—but still raises war-powers questions.

• Why Maduro’s capture presents a harder constitutional case absent congressional authorization.

• The dangers of normalizing unilateral presidential war-making, even when outcomes seem attractive.

Obergefell, Equality, and Movement Strategy

• Why Obergefell v. Hodges reached the right result but with muddled reasoning.

• Lessons for migration and property-rights movements:

  • Emphasizing shared humanity over group exceptionalism.

  • Rejecting zero-sum framings.

• Comparative discussion of Spain’s constitutional path to marriage equality.

Reading Recommendations

1. Somin - Immigration is Not Invasion

2. Braver and Somin - The Constitutional Case Against Exclusionary Zoning

3. Somin - Free to Move: Foot Voting, Migration, and Political Freedom

4. McGinnis and Somin - Should International Law Be Part of Our Law?

5. Somin - The Grasping Hand: “Kelo v. City of New London” and the Limits of Eminent Domain

6. Rasheed Griffith - The Case for an EU Progress Studies Law Movement

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Rasheed: Thank you Prof. Somin for joining me on the podcast today.

Ilya Somin: Thank you for having me

Rasheed: I wanna jump right in.

Madison’s Virginia Report and the Exclusion Cases

Rasheed: Was Madison basically correct in his Virginia Report of 1800, where he argued against the Alien Enemies Act of 1798, in that allowing broad interpretations of enumerated terms would let the government create its own necessity, and that would invert the constitutional structure.

Ilya Somin: Yes. So I think the report of 1800 which you’re referring to which attacks the Alien and Sedition Acts of 1798 is correct in most of its points. Today almost everybody would say that he was right to condemn the Sedition Act which restricted speech that would criticize the government in various ways. On the other hand there is even to this day more controversy over the constitutionality of the Aliens Act which had given the President the power to deport and detain virtually any non-citizen he deemed dangerous in some way. But I think overall Madison was right to argue that the Constitution as originally drafted did not give the President or the federal government, in general, any general power over immigration or any general power to deport whatever non-citizens he wanted.

Rasheed: So given that then in the 1889 case of Chae Chan Ping vs the United States, what exactly was the move the Supreme Court did in interpreting the constitution? Or for example, was it a suspension of constitutionalism altogether in the name of sovereignty or what we in Europe would call Parliamentary supremacy?

Ilya Somin: It is not a suspension. Essentially the text of the US constitution does not include any explicit provision saying The federal government has the power to restrict immigration. It does include a naturalization cause which is a power to set rules for citizenship eligibility but both in the 18th century and 19th century and today people could migrate and travel and work and so forth without necessarily being citizens.

So Madison argued and others argued correctly that the fact that the Constitution did not grant such a power meant that such power did not belong to the federal government. And indeed throughout the first hundred years of American history almost all immigration controls were actually adopted by State governments not by the federal government. But beginning in the mid 19th century and continuing on through the 1860s and seventies there was a large racist outcry particularly against Asian immigration. So in 1882 the federal government enacted the Chinese Exclusion Act which, as the name implies, barred most Chinese immigration to the United States.

This was challenged on constitutional grounds in the courts and the Supreme Court, and in the Chinese exclusion cases that you mentioned a moment ago, in 1889, they ruled that Congress did indeed have this power but they couldn’t tie it to any specific provision of the Constitution! Normally, powers the Congress exercise are supposed to be linked at least in some way to the enumeration of Congressional authority and Art. 1 of the Constitution. Here the court couldn’t really do that because there isn’t actually a specifically enumerated immigration power.

So they said this is an inherent power of sovereignty that all governments must have in some way and therefore we have to assume that the federal government has it. Actually this sort of argument is exactly one of the points that Madison warned against in his report of 1800, that you mentioned. He said we should not assume that the US federal government has all the powers that European governments typically have because the whole point of the US Constitution was to set up a new system of government.

It would be different in many respects. For instance, unlike Britain and some many former British colonies, we do not have a principle of Parliamentary Supremacy. Rather, we have a system at least as a general rule where the powers of governor are derived from enumerations in the Constitution and that there’s not some general inherent power that just automatically goes to the government no matter what. But in the area of immigration and in a few other areas like the power of eminent domain, the Supreme Court has said that the federal government has this authority even though it’s not specifically listed or enumerated. Because they say this is a power that all governments are supposed to have. They say it just goes without saying in some sense that the government has this authority. I think decisions like this are generally wrong and they have been criticized on various grounds but that’s what the Supreme Court did in the area of immigration. In one or two other areas even though in most other places the court has held to the view that if the federal government claims a power it has to be linked in some way to something that’s enumerated in the constitution.

No Justification for Deportation of Criminals

Rasheed: So in that sense, can there be any justification for deportation, barring any kind of particular criminal activity?

Ilya Somin: So I suppose that depends on what is meant by justification. I would argue that any such deportation is unjust. We should not restrict where people are allowed to live and work simply based on who their parents are or where they were born. In other contexts we readily see that such discrimination is highly unjust. We would not say that within the US we can determine where you’re allowed to live or what jobs you’re allowed to have simply because of where your parents are born or having a particular background or you were born in a particular place or something like that.

Even regarding people who have committed crimes, I have written that I think it is unjust to punish immigrants more than natives who have committed these same crimes. If somebody commits a crime and that deserves punishment then sure, punish them with prison or fines or even the death penalty, perhaps in some extreme cases.

But don’t say that we have two people who have each done the same crime but when it’s an immigrant, in addition to whatever ordinary criminal punishment they get, they also get the punishment of deportation. That I think is very clearly unjust because it’s punishing people extra based on their parentage and place of birth.

We readily see this in a context like racial segregation. If we say if a white person commits a crime he gets a particular punishment but if a black person does he gets that punishment plus he also has to live in racial segregation for the rest of his life. That’s pretty obviously unjust and the international version of this kind of segregation is unjust for the same sorts of reasons. In both cases we are punishing and restricting people’s liberty not based on anything they did or on anything under their control but based simply on who their parents are or where they were born.

Doctrinal Correction in US Immigration Law

Rasheed: Is there any route to a doctrinal correction in the US on this topic? Given it is so, so deeply jurisprudentially lodged into essentially everything you think about immigration?

Ilya Somin: I would say a couple things. First, the route to completely getting rid of the Chinese Exclusion cases (mentioned earlier) is a long and difficult one. And it will require the sort of efforts over a period of many years similar to the effort that was done in the early to mid 20th century to deal with racial discrimination under the law. The NAACP and others spent decades on that.

That said, there are roots to gradual improvement. For example even if the federal government has the power to restrict immigration we can at least impose the same constraints on that power that are imposed on other government powers like constraints based on illegal discrimination, freedom of speech, and so on. We can get rid of cases like Trump vs Hawaii which upheld Trump’s Muslim ban in his first term on the grounds that it wasn’t explicitly a Muslim ban but rather used criteria that correlated with being a Muslim and, obviously, even if we can’t fully restore the correct constitutional principles here, there’s obviously lots of room for incremental legislative reform.

So just as the struggle for equal rights within the country based on race, ethnicity and gender and so forth had many stages. There was a lot of incremental improvement before we reached a point where you know racial discrimination by the government was generally presumptively thought to be unjust. Even now we’re fighting over issues like racial profiling so similarly here there can be a lot of incremental improvement. That can happen and that in the short term is more realistic to achieve than what I think is the ultimate goal that we should strive for, which is to replace the current presumption of exclusion with a presumption of freedom of movement under which it will be rarely, if ever, will the government be permitted to restrict where people are allowed to live and work simply based on who their parents are or where they were born.

Cultural Tensions, Assimilation and Political Influence of Migrants

Rasheed: So on this similar topic, your book, Free to Move, about voting with your feet, essentially there is this tension that comes up a lot. For example, here in Spain, recently, the Socialist government declared, via a decree and bypassing Congress, that they’re going to give an amnesty to almost a million illegal migrants that have come to Spain. Now there is this issue, structurally speaking, we would like to have people to have more freedom to come to any country they want. But there is the thing where.

Call it the Houellebecq Risk, which is, if you have people from particular cultures that are materially less liberal from your own, they might try to impose different value systems. And if you, if you’re a liberal, in a liberal country, a more mass migration of people who don’t share this worldview would cause extreme tension. How do you resolve that kind of tension when it comes to just really allowing large numbers of migration from anywhere?

Ilya Somin: So this is something I wrote about at length in Chapter 6 of my book Free to Move and there’s a number of different points that can be made here. I would just note a few highlights in the book I go over into much more detail. First, if we’re worried about threats to liberal values in western nations, history shows that not once, with one notable exception I’ll get to, has liberal democracy been overthrown by migrants. Whereas many times it’s been overthrown by native born nationalist fascists and others or Vladimir Putin and Russia and so on. We’re looking in the wrong place for the threat.

The one exception that I will note is one that sort of proves the rule which is Adolf Hitler’s role in overthrowing the Republic and establishing Nazim. Hitler was an Austrian immigrant to Germany but obviously he could lead the German nationalist movement because he essentially came from the same ethnic and linguistic group as the dominant majority in Germany itself.

So ironically it seems like migrants only genuinely threatened on a large scale potentially liberal democracy if they’re actually people from the same ethnic group as the majority in the country already and therefore can lead a native born nationalist movement.

Second to the extent that some migrants may have bad values, there are what I call keyhole solutions to addressing this. That is, mechanisms for dealing with possible negative side effects of migration that do not involve actually keeping people out. One is there are many incentives for assimilation and change such as that if you learn the language in the culture of the country you enter you get better opportunities. So having open labor markets, which many European countries often don’t have, speeds various kinds of assimilation to the point where in the U.S. when we look at the views of Muslim migrants on most issues they don’t differ enormously from those of natives.

And indeed a majority Muslims in the U.S actually support same-sex marriage. It’s a pretty strong indication that they’re not somehow trying to impose some kind of authoritarian vision. There are other keyhole mechanisms that can be used. For example, in the U.S it is already the case that even an illegal immigrant cannot become a citizen without having been in the U.S for at least five years and they pass a civics test that most native born Americans would fail if they had to take it without studying for it.

You can make those waiting periods longer or make the test more difficult and so on. Finally it is also worth noting that recent immigrants in both the U.S and in Europe participate in politics at lower rates and have less political influence per capita in many respects than native born citizens. This can be a bad thing if you like having lots of political participation but if you worry about them influencing the political system this reduces the likelihood that they will.

There is also the crucial point that many migrants who leave one country for another with a very different political system and culture it’s not because they want to spread the political system and culture they grew up with but rather because they didn’t like living under that system. And therefore it is unlikely that they’re going to want to try to replicate it in the destination country.

For example my parents and I left the Soviet Union. We didn’t do so because we liked the Communist system and wanted to spread it. Very much the contrary, we wanted to be free of communism. And similarly today, say, Iranian migrants are not leaving Iran because they want to spread radicalism. They’re leaving Iran because they hate the current regime that governs the country and don’t want to live under it. And the same thing is true of a large number of migrants from the Middle East, Africa, and elsewhere. So it is a little bit scaremongering to say that people who have traveled long distances and made difficult adjustments to be free of a particular type of culture and regime nonetheless actually want to try to spread it. In most cases that’s not true.

Rasheed: What do you think accounts for the apparent discrepancy between the attitudes of Muslims in the U.S versus Muslims in the United Kingdom, which seems to indicate stark difference in how they perceive social values?.

Ilya Somin: So I haven’t seen all the data on political views of Muslims in the United Kingdom. I do think if you look at it you will not find that most Muslims in the UK have the values of Saudi Arabia or the government of Iran or whatnot. They may be, at the margin, more socially conservative than native born UK citizens. That’s very different from saying they want to institute some kind of Muslim theocracy or whatnot to the extent that Muslims in the UK are a bit less assimilated in those in the U.S, it may be that in the UK, as in continental European nations, there is there are less liberal labor markets that impedes assimilation to a degree. In the UK they’re somewhat more liberal than they are in many continental European nations but still less so than in the US or in Canada. So what you want to do is have the employment system and the education system be as open as possible and that significantly accelerates assimilation particularly in the second generation.

Exclusionary Zoning and the Takings Clause

Rasheed: Another major part of your work is focused on the Takings Clause, within the Fifth Amendment. Now as I see it, there is a doctrinal tension that I find in this topic. Primarily with Euclid, that is Euclid vs Amber Realty in 1926. Which I believe basically constitutionalized zoning as an exercise of the general police power and under due process.

If I read it correctly, your move is, we can leave Euclid standing and still say exclusionary zoning triggers the Takings Clause. So how is that feasible? How can a zoning ordinance be valid in Euclid, but then yet still be a taking that requires compensation?

Ilya Somin: So here we have to delve a little bit deeply in the US constitutional doctrine.

First let me briefly explain what exclusionary rezoning is. Exclusionary rezoning is a set of rules or a type of rules that exist in many places in the U.S which say that only certain kinds of buildings or certain kinds of housing can be built in this area. The most common is only single family housing and not any other kind. This severely restricts the availability of housing particularly for lower middle class and poor people and makes it very difficult for millions of people to move to opportunity.

Now the takings clause of the Fifth Amendment says when the government takes private property they have to pay compensation. And I have argued in an article called the Constitutional Case Against Exclusionary Zoning, that when the government significantly restricts your right to use property they are in fact taking property. After all, in most cases when we own property the most important reason, the most important right we have, is the right to use the property. Now in 1926, as you mentioned in Euclid vs Amber Realty court case the Supreme Court upheld exclusionary rezoning against constitutional challenges and this has usually been held to say the Court immunizes zoning from challenge or most challenges.

But as we mentioned in the article, the case does not actually mention the takings clause. Not even once. That case was litigated primarily under the due process clause of the 14th Amendment. You might ask why did the Supreme Court focus on that rather than on the takings clause. Well, if you read the lower court decision in that case it is based on the takings clause and that’s part of the reason why they struck down the exclusionary rezoning in that case. But I think the reason why the Supreme Court did not address it is that when the Bill of Rights, including the takings clause at a Fifth Amendment, were first ratified in 1791 the understanding was that they constrained only the federal government not state and local governments. And it is state and local governments that do almost all zoning and most land use regulation generally.

In 1868 the 14th Amendment was enacted and one of its purposes was to incorporate the Bill of Rights against state and local governments as well as the federal government. But for many years the Supreme Court refused to recognize that incorporation had occurred. So the 1920s incorporation was beginning to occur but the court had not at that point ruled the takings clause applies to the state and local governments. Indeed even to this day the court doesn’t have an explicit case saying that it applies. Rather, what the Court has done is it has pretended that it always applied and it pretended the previous decisions that didn’t really did.

But the upshot for us with respect to Euclid is that if you want to get rid of Euclid, or essentially neuter it, all the Supreme Court has to say is that Euclid does not apply to the takings clause. It only applies to the due process clause. The Supreme Court has to some degree already said that in the 2005 Kelo case. Now that still leaves us with some other doctrinal obstacles to dealing with the exclusionary zoning under the takings clause. My co-author Josh Braver and I get into this in our article which I already mentioned, for now I’d merely say that you don’t even necessarily have to overturn any other cases to apply to the takings clause to exclusion rezoning but you would have to limit the scope of some earlier takings clause cases. You would have to reinterpret them in various ways and we describe how that can be done in our article.

Originalist Interpretation of the Constitution

Rasheed: A question on a method. So given that the US constitution was ratified in 1788, then the Fifth amendment in 1791, and later the 14th Amendment was ratified in 1868, when you’re talking about originalist interpretation, anything, is there actual distinction between those periods?

Ilya Somin: So most originalists would say that any given constitutional provision should be interpreted in accordance with its original meaning at the time that it was ratified. So the original meaning of the original constitution that was ratified in 1788 and 1789, should be understood the way that it was understood then. But obviously the original meaning of the 14th amendment should be understood as of 1868 and the original meaning of other amendments at the time that those were enacted. And to the extent that a later amendment supersedes or modifies things that were in the Constitution earlier it would be the original meaning of that later amendment that controls.

Now obviously what exactly counts as the original meaning at a given time is itself in dispute among originalists. We could have a whole separate podcast about that probably. And there’s also a dispute about whether originalism is really the correct constitutional theory in the first place. But if you are an originalist I think most originalists, almost all, would agree that the original meaning that matters for a given provision is the understanding at the time that it was enacted. And in the 1860s obviously there were motivations and understandings that in some respects were different from those of 1789. Most obviously on questions of racial and ethnic equality. Part of the whole purpose of the reconstruction amendments after the Civil War was in fact to get rid of most, if not all, of the racial discrimination and ethnic discrimination that was permitted under the original constitution of 1788 and 1789.

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Supreme Court and Trump’s Tariffs

Rasheed: Okay. So I have a pre-question to my question actually. Why do you think SCOTUS granted a cert petition to Learning Resources Inc v. Trump, even though it was actually concluded in the lower court.

Ilya Somin: Ha. I can’t know for sure why they did what they did. And full disclosure I’m one of the lawyers representing the plaintiffs, not in that case but in the Trump v. V.O.S Selections case which is combined with that one. But I think first, the lower court decisions in the cases they had addressed the major legal issues of whether Trump’s massive Liberation Day tariffs were legal or not. There are some other more procedural issues in the case that could have been addressed more but I suspect the Supreme Court thought that between our case and the Learning Resources Inc. case and also the case brought by 12 state governments, the major issues at stake had been fairly significantly canvased.

They also wanted to resolve this big issue perhaps sooner rather than later. But obviously they don’t tell us what, in most cases at least, why they decide to hear a given case instead of another one. Usually they just say they grant writ of certiorari (or commonly called a cert petition) in this case which, in plain English means, we want to hear the case but rarely do they tell us why they want to hear it. But I suspect it’s a combination of the importance of the issue plus the fact that we did already have several lower court decisions which went into some detail about the legal issues in the case which have to do with whether Trump had the authority to start the biggest trade war since the Great Depression by imposing massive tariffs on imports from almost every country in the world.

Rasheed: So now my core question is this. In your case before the Court, the Court could either a) read IEEPA very narrowly and declare tariffs are not a competent power of the President, or b), read it broadly and then confront the Major Questions Doctrine and the Nondelegation doctrine. Which outcome do you want to happen?

Ilya Somin: I would be happy to win under any of the possible options that we have put forward the International Emergency Economic Powers Act of 1977 (IEEPA) which is the act under which Trump claims the authority to declare these tariffs. It doesn’t even mention tariffs or have a synonym such as Duties. So one possible simple resolution is the court could just say this law doesn’t authorize tariffs at all. Even if it does authorize tariffs it is only in the event of an unusual and extraordinary threat to the economy.

The court could rule correctly that the trade deficits and other rationales for these tariffs don’t qualify as such. If there is uncertainty about what the law means the Major Questions doctrine applies. I think because the major questions doctrine says that when the executive claims some broad power over the economy or over American society, and here it pretty obviously is a broad power, then that claim has to be backed by a clear statement in the law. Here at the very least it is not clearly stated that the president has virtually unlimited power to impose tariffs.

Then also there is the Non-delegation doctrine which says that there are limits to how much Legislative power Congress can delegate to the executive. What exactly those limits are is not very clear from previous Supreme Court precedent. But if there are any limits at all it’s gotta be the case that it’s unconstitutional for Congress to delegate virtually unlimited authority to impose tariffs to the president for any reason he wants against any nation he wants for as long as he wants.

That’s essentially the power that Trump is claiming here. We have some additional arguments as well. I would be happy to win under any of those. I would merely note that the Major Questions and Non-delegation argument would have broader implications that go beyond the specific case of the IEEPA statute because that would influence potentially the interpretation of other tariff laws as well and might make it harder for this President or other future Presidents to use broad interpretations of other laws to claim a sweeping executive tariff power.

But in terms of this case it would be desirable for us and our clients to win on any of those bases. And I think all of them are valid but which, if any of them, we will win under, if we do win, we’ll have to wait and see for the Supreme Court’s decision.

Maduro Capture and U.S Military Intervention

Rasheed: You wrote a blog about the Maduro capture. You may have written more, but I at least read that one. In it you referenced the Noriega episode and U.S intervention in Panama as a comparator of War Powers where you contrast with Venezuela. You say that unlike with Noriega, there was no triggering of War Powers to justify U.S intervention to capture Maduro.

On that doctrine, it seems like to me the core doctrinal interpretation of the Noriega case, this is Noriega vs United States 1990 in Southern District Court of Florida was not about the War Power aspect, but on the Ker-Frisbie procedural doctrine, which is that even if Maduro was illegally captured, this illegality does not divest the U.S of jurisdiction from actually doing the adjudication in the U.S. If that’s the case, then why does it matter too much about illegality relative to War Powers?

Ilya Somin: Now with both Noriega and Maduro I think it’s important to separate out two issues. One, is the legality of the U.S military intervention. The other is the legality of trying this foreign ruler once he’s captured.

In the Noriega case that you referenced, the court was considering the second issue. That is, Noriega was in U.S custody. He was being charged with various crimes and the court said that even if the US intervention in Panama was illegal, and went beyond the powers of the executive under the US constitution, that’s not relevant to the question of whether Noriega could be tried for various crimes he was accused of once he was in U.S custody. I expect that when Maduro raises objections to his prosecution, courts will rule the same way.

But that still leaves open the issue of whether the two military interventions were constitutional. I think in the case of Noriega the answer is that probably it was legal. Because Noriega, about four or five days before the U.S intervened he had actually declared a State of War between Panama and the U.S. So therefore when the other country’s government essentially starts a war the President of the U.S does not need Congressional authorization to fight it.

On the other hand there was no State of War between Venezuela and the U.S before the U.S launched the intervention to capture Maduro and therefore I would contend that sending forces into the other country and capturing the ruler is a large enough act of war that it requires congressional authorization.

And I say that even though I shed no tears for Maduro who is a brutal socialist dictator and I think if he ends up spending the rest of his wife in prison I will shed no tears over that.

Also though I think it’s problematic to charge him with U.S drug crimes and it would be better if he does spend that time in prison it would be better if he spent it for his many horrific crimes against the Venezuela people. Whereas on the other hand I don’t think it’s right or just or even legal for the U.S to somehow extend its war on drugs to people in Venezuela where we have no jurisdiction even setting aside the fact that the war on drugs is in general unjust, there is some irony here. That justice, as with Al Capone, famously went to prison not for killing people but for evading taxes. So similarly you could say that if Maduro ends up being in prison and spending the rest of his life there not for his genuinely horrible crimes but for these supposed drug crimes that will be a kind of rough justice even though the legality of it is problematic.

Rasheed: But what about Article 2 powers, specifically the enumerated foreign Policy power. The intervention in Venezuela was fairly small. Is there an actual consequential view where you have to have a particular amount of activity, militarily speaking, to justify the argument that you can’t “start a war” without congressional authorization? It was a very surgical operation.

Ilya Somin: Yeah. So my answer is that first there’s a legal answer which is that the Constitution gives Congress the power to declare war and that includes the power to authorize the initiation of war and that’s for the good reason. That we don’t want any one person like the president to be able to take the nation to war. You could say sometimes the president can just get away with things and the results are good. Whether the broader results here will actually be good is questionable given that the Socialist dictatorship in Venezuela still remains in power and Trump seems perfectly happy to allow that to continue so long as they give him some oil concessions and the like.

But even if occasionally you can achieve good results by circumventing Congress I think in the long run it is a bad thing if one person can take the nation to war and modern technology actually makes it easier to get swift Congressional authorization than was the case in the 18th century when congress was in session only about half the year and gathering them took a long time cause obviously people had to use sailing ships and wagons to get from their home districts to Washington DC. Now Congress is in session almost all the time and even if it’s out of session given plane flights you can get people together pretty quickly, so if you’re going to start a military conflict that’s like a war there’s good reason to get congressional authorization.

Obergefell and Equal Rights Movements

Rasheed: Is Obergefell a model that can be replicated, say, in property rights, housing, or migration or do you think its success depended on features that don’t travel well across constitutional domains?

Ilya Somin: So Obergefell is the decision where the Supreme Court struck down the ban on same-sex marriage. I won’t go too deeply into doctrinal issues in the case because the court’s decision was very much a muddle. I say that even though I favored the result but the way it was reasoned by Justice Kennedy who wrote the Majority Opinion is in many ways very unclear. But I think advocates of immigrants rights or transgender people and other such causes can learn from the experience of Obergefell and also from the experience of previous movements for equal rights like the Civil Rights Movement, the Women’s Rights Movement and others.

In each case it took quite some time and also in each case they triumphed in large part by emphasizing how the group in question was actually similar, or at least more similar than different. Martin Luther King famously said People should be judged by the content of their character not by the color of their skin emphasizing that skin color is ultimately superficial and what really matters is fundamental humanity which is similar across people of different races.

Similarly to the women’s rights movement they emphasize how ultimately women are fundamentally similar to men in terms of their capacities for functioning in society, their ability to think rationally and so forth. And the gay rights movement prevailed on same-sex marriage in part by emphasizing how same sex relationships are fundamentally similar to opposite sex ones. In same-sex relationships people love each other. They raise children. They have economic needs that can be met by marriage and so forth. I think over time people saw that the differences of race and ethnicity and sexual orientation and gender in most spheres of human action were actually Fundamentally superficial.

And what really matters is the things that we have in common. And that there’s no good argument for giving white people liberty that doesn’t also apply to black people. There’s not ultimately a good argument for letting opposite sex couples married if it doesn’t apply to same-sex couples and so on. And similarly with respect to migration rights for instance we can emphasize the point that there are fundamental human rights that apply to all people and also that it is wrong and unjust to restrict people’s liberty based on who their parents are or where they were born.

In each of these cases there is also an issue of the majority being harmed by giving rights to groups and that also can be addressed in various ways. So emphasizing, for instance, the economic benefits of migration the way migration increases innovation disproportionately in the US and also in Europe, migrants have massively contributed to scientific medical and other innovation. Without which it would be vastly worse off and it’s worth stressing that too. But I think that emphasizing common humanity and and how the supposed differences are actually superficial that is how a lot of these earlier movements including the movement for same-sex marriage succeeded. Whereas on the other hand if you want to argue, as I think some on the political left sometimes do, you know that each group is special and deserves its own special status, and we should have quotas for particular groups, and the like that in addition to being problematic policy in itself, it also tends to alienate people. Also it tends to reinforce the idea that there’s a zero-sum game between groups and these groups are fundamentally different from each other rather than similar.

Rasheed: It’s curious, you mentioned the Majority Opinion on Obergerfell was muddled. Curiously here also in Spain, the government changed the civil code in 2005 to allow same-sex marriage by decree. It was challenged in the Constitutional Court from the opposing political party. Now, the Constitution of Spain, in Article 32.1, says that a man and a woman have the right to contract marriage. So one would think, okay, that’s pretty closed off from same-sex marriage. But then the Court decided that, yes, it says that, but it doesn’t say it has to be between each other.

Ilya Somin: Ah Yes! When you mentioned that text I was going to say yes this is the way out because it says both men and women have this right but maybe the right exists not only with other members of the opposite sex but also the same sex so that’s a clever piece of textual legal reasoning.

Rasheed: Exactly. Okay. Moving to my penultimate question. In your support or defense of public-interest litigation, is it mostly grounded mostly in outcomes, like more freedom, or in process - forcing the government to justify coercion? Which one do you think is overweighted or are they equally both weighted?

Ilya Somin: Both. In that I think there are some areas where we just want the categorical rule against certain types of coercion and the U.S Constitution, in some places, does create categorical rules like cruel and unusual punishment is banned regardless of how severe the crime is that the person committed. But also there can be cases where what we want is some kind of strong presumption against some kind of coercion or restriction of liberty. There can be extreme cases we might want to allow it and the courts should in that situation compel the government to prove that sort of extreme situation really does exist. That is that there’s some great evil that can only be countered by using this particular type of coercion.

Public Interest Litigation in the US and Europe

Rasheed: In Europe, there aren’t that many example groups specializing in public interest litigation. And I’m curious if you have a view on why that is, and then if you also have a view on perhaps how that should probably be pushed forward in Europe, similar to the U.S.

Ilya Somin: Public interest litigation groups are groups like the Pacific Legal Foundation, the ACLU, Institute for Justice, and others which litigate not so much for the purpose of helping a particular client win or from making money but for a purpose of shifting legal doctrine a particular direction. I don’t know that much about the state of public interest litigation in Europe to the extent that there is less of it than in the U.S maybe there is a gap that can be filled here because public interest litigation groups often have an advantage over ordinary litigants in pushing through beneficial change, though admittedly also perhaps harmful change as well.

One issue may be that sort of litigation under, say, the European Convention on Human Rights has been somewhat more recent than large scale public interest litigation in the U.S which dates back now well over a hundred years. Another possibility may be that most European countries are on average poorer than the U.S. and it does require considerable resources to do public interest litigation at a large scale.

But maybe also just the right kind of entrepreneur hasn’t yet come along in Europe to show how it can be done and how it can be effective. I would also note of course that things may be different in different countries even though the European Convention on Human Rights applies to every member of the European Union and I think still even in the United Kingdom which still incorporates it, even though that they’re not part of the European Union anymore.

Rasheed: Right. Yes.

Ilya Somin: Also each EU member state has their national legal systems and systems of judicial review function differently in each of those countries and differently in some ways from the U.S.

Rasheed: That’s true. The 1998 Human Rights Act of the United Kingdom incorporates the European Charter. And that is ironic in many ways.

Conclusion

Rasheed: Well, I think that’s all of my questions. Thank you so much for coming on the podcast.

Ilya Somin: Thank you for having me on.

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Is the European Union now the world’s most underrated libertarian project? There is a fascinating and somewhat tragic paradox at the very center of the European integration project. If you look at the treaties of the European Union you will find what is perhaps the most robust legal framework for economic liberty that exists anywhere in the modern world. It is a system explicitly designed to dismantle the arbitrary power of the nation state to favor local industries. It was built to erode the ability of politicians to engage in protectionism. It was constructed to create a vast zone of unhampered exchange for goods, services, capital, and people.

Yet if you speak to the average classical liberal or libertarian in Europe today, you will find that they have almost entirely abdicated the courts. They view the European Union not as a tool for market liberation but as a superstate to be feared and avoided. This is a tragedy.

Inspired by Dalibor Rohac’s ‘Towards an Imperfect Union: A Conservative Case for the EU’ I will argue the case for a progress studies movement focused on EU administrative and procedural law.

While libertarians rightly value the right to exit a bad system, they have effectively exited the one arena that was most suited to defending their own values.

Consider how the Court of Justice of the European Union (CJEU) used the Cassis de Dijon ruling to invent the principle of mutual recognition, effectively smashing German protectionism by declaring that a product good enough for Paris is good enough for Berlin. Look at how it leveraged proportionality in Commission v Italy to discipline national paternalism regarding trailer bans, transforming the internal market into a zone of negative rights. Even more boldly, the Court has aggressively liberalized services where politics failed; it is the institutional force that struck down the arbitrary “1/30” ratio for “uber driver” (VTC) licenses that protects a Barcelona taxi monopoly.

Moreover, while some member states dragged their feet on social liberty, the Court’s recent Wojewoda Mazowiecki judgement obliged Member States to recognize a marriage between two Union citizens of the same sex that has been lawfully concluded in another Member State where they have exercised their freedom to move and reside. The “Open Skies” judgments broke national flagship airline monopolies to create a single aviation market. The mechanism is ruthless and procedural: almost any litigant can use the Francovich doctrine to sue their own government for damages when it fails to open a market, or invoke Simmenthal alongside Costa v ENEL to disapply national legislation entirely that conflict with the single market.

We need to frame this paradox clearly because it drives the entire argument for a new movement. Libertarians (European classical liberals) have the strongest normative case for a free internal market. We are the ones who believe most deeply in the power of competition and the moral necessity of open borders for trade. Yet we have handed the keys to the legal engine of the European Union to our ideological opponents. The legal architecture of the EU was built to eliminate national barriers, but libertarians treat it as irredeemably statist.

The idea I want to advance here is that liberalisation will not return to Europe through politics alone. We are living in an era of rising anti-institutionalist populism where the political will to deregulate is almost nonexistent. The principles of direct effect and supremacy, which allow European law to override national law, are the core tools that libertarians have generally ignored. As Alec Stone Sweet argues in The Judicial Construction of Europe the legal system is constructed by the actors who participate in it. If libertarians refuse to participate, they are effectively conceding the construction of Europe to their opponents.

Why Libertarians Abandoned EU Law

To understand how we got here we need to engage in a bit of diagnostic analysis. Why did the libertarian movement in Europe abandon the legal field? I believe there are three main reasons: an intellectual allergy to supranationalism, an institutional capture of litigation by the left, and a lack of procedural imagination.

Many libertarians have a deep skepticism of any centralized power, and they view the European Union as a project of centralization. They conflate “Brussels centralisation” with “legal integration.” They do not see that legal integration can actually be a constraint on state power. There is a difference between political federalism, which can lead to a bloated superstate, and judicial market integration, which restricts the ability of member states to fragment the market. The former is bad from a libertarian perspective, but the latter is good. By failing to make this distinction, libertarians have rejected the entire project.

Second, there is the issue of institutional capture. Litigation is a game that is played by those who show up. Over the last few decades, progressive (Leftist) NGOs have mastered the art of strategic litigation as a democratic participation tool. They have used it to worsen environmental standards, digital rights, and consumer protection. They have built sophisticated legal networks that know how to spot a test case and how to bring it all the way to CJEU in Luxembourg. Market liberal think tanks, on the other hand, have stayed in the realm of policy. They write papers arguing that the Common Agricultural Policy is inefficient, which is true but ineffective. Meanwhile, environmental groups are in court forcing governments to rewrite their laws. There is an empirical angle here that is worth exploring. If one were to quantify and qualify the kind of cases going to the Court of Justice and the General Court, I suspect one would find a massive imbalance. The demand side of the court is dominated by those who want more regulation, not less. This is outside the scope of this essay but someone should do it.

Third, there is a dire drought of procedural imagination. Libertarian networks in Europe rarely create centers to train litigators. They do not inculcate the potential ruthlessness of Article 267 of the Treaty on the Functioning of the European Union (TFEU) or the doctrines of state liability. This stands in stark contrast to the situation in the United States. In the US, the “libertarian legal movement” is robust and highly effective. Organizations like the Institute for Justice, Foundation for Individual Rights and Expression, New Civil Liberties Alliance, and the Pacific Legal Foundation have spent decades using the courts to strike down occupational licensing laws, protect property rights, and defend free speech. They understand that the constitution is a tool that can be used to limit government. European libertarians have no such infrastructure. They have no “Institute for Justice” law clinic to take on the cases of the “little guy” against the State.

Finally, we must confront the issue of cultural defeatism. There is a widespread belief among European market liberals that EU law is “too dirigiste to save.” This has become a self-fulfilling prophecy. If you believe that the court is rigged against you, you will never bring a case. If you never bring a case, the court will never have the opportunity to rule in your favor. This mindset is a form of ideological fatalism. For more on this theme you should listen to my podcast episode with Adrián Rubio.

An Engine of Liberalisation

When we overcome this defeatism, we will see that EU administrative and procedural law (granted, not the most catchy phrase) is actually a hidden engine of liberalisation. The core treaties of the EU contain provisions that are remarkably libertarian in their effect. The four market freedoms (free movement of goods, services, persons, and capital) operate as negative rights. Articles 34, 49, and 56 of the TFEU are not just policy goals; they are legally binding prohibitions on state interference. They function very much like constitutional rights to trade. Libertarians should start framing these provisions as fundamental economic rights.

Then there is the principle of proportionality that is perhaps the most underutilized tool in the libertarian arsenal. The principle is enumerated in Article 5 (4) of the Treaty on European Union (TEU) and serves as a check on both the exercise of power (ensuring actions stay within bounds) and the substance of laws (balancing private rights against public goals). Essentially, if there are multiple ways to reach the same goal, the authority must choose the method that is least intrusive or burdensome to the individual’s rights. A law is not necessary if a less restrictive alternative could achieve the same result just as effectively. Properly invoked, it can dismantle arbitrary restrictions. Libertarians can and should use proportionality to discipline national paternalism.

We must also look at the enforcement mechanisms. The doctrines of direct effect and state liability mean that EU law is not just a matter for diplomats. It is a matter for individuals. The Francovich line of cases established that a citizen can sue their own government for damages if the government fails to implement EU law. This makes liberalisation self-executing. It creates a financial incentive for states to follow the rules. And let us not forget the principle of effectiveness and procedural autonomy. These doctrines force national courts to interpret domestic procedure in a way that makes the exercise of EU rights effective. If a national procedural rule makes it impossible to enforce a market right, the national rule must yield.

The core point here is that current pro-market actors discuss “deregulation” politically but ignore the historical reality. The most successful deregulation in history was the creation of the single market. And this was not achieved merely by legislative acts approved by the Council or the Parliament. It was achieved by the CJEU enforcing the treaties against recalcitrant member states. It was a judicial deregulation.

Who Occupies the Forum

The effectiveness of this judicial strategy has been proven, but unfortunately it has been proven by the others. While libertarians have been absent, other ideological groups have occupied the forum. The environmental movement is the prime example. Through the international Aarhus Convention (implemented jointly as Directive 2003/4/EC, Directive 2003/35/EC and Aarhus Regulation (1367/2006)), environmental NGOs won wide access to the courts to challenge decisions that affect the environment. They have used this standing to great effect. In cases like Stichting Milieu v Commission, they have forced the Commission to tighten its standards. Libertarians could mirror this strategy. They could argue for pro-market procedural rights that would allow them to challenge economic restrictions with the same vigor that environmentalists challenge modern infrastructure projects.

Digital rights activists have also shown the way. The case of Digital Rights Ireland is instructive. Here, a group of activists managed to get the Data Retention Directive invalidated on privacy grounds. This demonstrates that persistence can reshape entire EU doctrines. If a group of privacy activists can strike down a major EU directive, why can’t a group of economic liberty activists strike down a protectionist one?

Consumer protection and gender equality are other areas where activists have built vast positive rights case law through incremental strategic litigation. They did not win these rights all at once. They won them case by case, chipping away at the legal order until it reflected their values. This should suggest that activism through law is ideologically neutral. The law is a tool. If you pick it up and use it, you can win. If you leave it on the ground, your opponent will pick it up and use it against you.

It is important to remember that the Court of Justice is a demand driven court. It cannot rule on cases that are not brought before it. Libertarians simply seldom file the demand.

What a Libertarian Litigation Agenda Could Look Like

So what would a libertarian litigation agenda actually look like? One obvious target is licensing and local barriers. Across Europe, local governments use zoning laws and licensing requirements to protect incumbents. We see this with ride-hailing licenses in Spain, regional caps on businesses in Italy, and retail zoning in France. These are classic examples of rent seeking. A strategic litigation campaign would argue that these restrictions constitute a disproportionate restriction on the freedom of establishment under Articles 49 and 56 TFEU. The argument is simple: these rules do not serve a valid public interest; they serve the private interest of the taxi lobby or the existing retail chains.

Another target is the “gold plating” which occurs when member states transpose an EU directive into national law but add extra requirements that go beyond what the directive requires. This creates unnecessary burdens for businesses. Future work should demonstrate how different member states transpose the same directives in light of liberalization. For example, the Planning Act in Ireland and the Ley 21/2013 in Spain differ materially in how they handle environmental assessments; while both being EU Member States. These differences can distort the market and are often challengeable.

State aid is yet another fertile ground. Article 107 TFEU unequivocally prohibits state aid that distorts competition. This is a powerful tool to attack protectionist subsidies that crowd out new private entrants, like startups. If a government is propping up a failing national airline or giving tax breaks to a specific industry, that is a violation of EU law. A libertarian litigation strategy would aggressively challenge these subsidies.

We should also focus on procedural rights for entrepreneurs that invoke principles of legitimate expectations and good administration under Article 41 of the Charter of Fundamental Rights. Businesses need certainty to invest. When governments change the rules in the middle of the game, they often violate this principle. We should also push for standing and procedural equality. We need to push national courts to apply Aarhus-style openness to economic liberty NGOs. If an environmental group has standing to challenge a bridge, an economic liberty group should have standing to challenge a licensing law.

The meta strategy here is to build a network of preliminary reference procedures coordinated across member states. The preliminary reference procedure allows a national court to ask the CJEU for a ruling on the interpretation of EU law. This is the mechanism that links the domestic judge to the European judge. We need to develop standard pleadings that show domestic lawyers “how to turn a domestic licensing dispute into a European market freedom case” for the public interests. We need to equip the pro-liberty lawyers in Warsaw and Madrid with the arguments to go to Luxembourg.

Litigation as the True Liberal Art

Tyler Cowen and Patrick Collision set the stage but to sustain this progress studies movement for EU law we need a philosophical reframing. We need to cast litigation not as a dirty business but as a true European liberal art. We need to view it as institutional entrepreneurship. The aim is not to burn down the system; but to hold it to its own highest standards.

Libertarians should view the Rule of Law as a discovery process. Just as the market is a discovery process for prices, litigation is a discovery process for justice. It uncovers the limits of legitimate coercion. Indeed, there is a parallel here with Hayek’s concept of “spontaneous order.” The common law, and to some (increasing) extent the case law of the EU, evolves through the decentralized decisions of many judges over time. Courts act as decentralized knowledge processors. By bringing cases, we are feeding information into this system.

Libertarians should learn to love administrative procedure given that procedure is what constrains discretion. It is what prevents the arbitrary exercise of power. In fact, in a recent podcast Tyler Cowen rightly argued this point to Dan Wang, that against our intuitions, lawyers are the underrated engineers of progress. When we insist on due process, we are insisting that the state justify itself. Procedure exposes contradictions. It forces the state to admit that its “public health” regulation is actually just economic protectionism.

The polycentric nature of EU law also fits libertarian institutional design. We have the CJEU, the Commission, and the national courts all interacting. This creates a competition of jurisdictions. If the national court is blocked, you go to the European court. If the Commission is inactive, you go to the judge. Yes, there are many, many, many problems with EU institutions, and these are well known. But perhaps this essay can offer an alternative mental model.

So what to do? Libertarians need to move from talking to doing. I think that an “EU Progress Studies Law” clinic should be created. This clinic would exist to train European lawyers and students in the procedural tools for liberalization. It would be a training ground for the next generation of freedom fighters. It would teach them how to identify a good test case, how to draft a preliminary reference, and how to argue proportionality. It would do the empirical work of quantifying the cases and identifying the gaps. It would be the European answer to the Institute for Justice.

Enter the Arena

Libertarians are losing the EU not because Brussels became too powerful, but because they have weakened their fight in the forum where power was contested: the courtroom. They allowed their opponents to define the rules of the game. They exited the arena when they should have been flooding it with litigants.

Every major liberalisation ruling in EU history, from Cassis de Dijon to Keck, began as a single litigant’s act of defiance. The next wave of freedom in Europe will not come from new manifestos or from pithy tweets about the Commission. It will come from new case numbers in the CJEU’s docket. It will come from a movement that understands that the Rule of Law is the ultimate safeguard of liberty, and that is willing to do the hard, boring, procedural work of defending it.

Today’s edition covers September 29 to October 13.

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The Top 5 Stories:

• The PRC officially joined the Andean Community (which is made up of Bolivia, Colombia, Ecuador, and Peru) as an observer state. China applied last July, and the new status allows China’s representatives to observe and speak in certain meetings, though Beijing will not be allowed a vote. The group’s Secretary-General said the development will enhance relations through the “development of political dialogue and the intensification of cooperation.”

  • Right now, there are six other observer states: Spain, Morocco, Turkey, Greece, Panama, and the Dominican Republic. Notably, the United States is not an observer.

  • The Andean Community is considerably less prominent than other regional groupings like Mercosur or trade agreements like USMCA, but it does provide some tangible benefits for its members through facilitated border crossings and some free trade. Moreover, the community includes some of China’s closest economic partners (Peru, to a lesser extent Ecuador) and political allies (Bolivia under the MAS). As the region faces increased political turmoil, observer membership gives China another way to maintain its close relationships with these countries.

• U.S. Treasury Secretary Bessent claimed that Argentine President Milei is “committed to getting China out.” The comments came after the U.S. government offered Argentina a $20 billion swap line to prop up its economy, which it reportedly conditioned on the country rolling back its $18 billion swap line with the PRC.

  • Argentina’s central bank has an active $18 billion swap line with China’s central bank, and in recent years, the press has suggested that the PRC had leveraged the swap for political goals. Still, even if the U.S. currency swap and peso purchasing help wean Argentina away from Chinese financing, the country’s reliance on trade with the PRC (as well as PRC infrastructure and commercial investment) means that there really isn’t a way to get China “out” of Argentina.

• The Brazilian development bank BNDES and the China Ex-Im Bank created a new $1 billion fund to invest in diverse sectors, including infrastructure, bioeconomy, mining, and agriculture, in the South American country. A few days later, President Lula attended the opening of a $1 billion BYD EV manufacturing plant in Bahia. The founder and president of BYD, Wang Chuanfu, also traveled to Brazil for the event. The plant will reportedly produce 150,000 cars per year in its first year. (Xinhua)

  • Brazil and China have close financial and investment ties dating back more than two decades, but the size and scope of these developments make them significant. Still, Lula’s participation in the BYD plant inauguration is a bit curious, considering that this Bahia plant seems to be the same one where a Brazilian prosecutor accused a BYD contractor of having used “slave-like” labor conditions.

• The Chinese-built Demerara River Bridge officially opened on October 5 in Guyana. The $260 million bridge was built by China Railway Construction Corporation. During the inauguration ceremony, the Chinese Ambassador said it “symbolizes the commitment of Guyana and China to the Belt and Road Initiative.”

  • Guyana has benefited from heavy Chinese (and Western) investment in the oil sector, but this project shows that the PRC's presence in the Caribbean country is multifaceted. Additionally, in contrast to Secretary of State Rubio’s remarks from earlier this year criticizing what he (incorrectly) thought was a Chinese-built road, this is a genuinely important and eye-catching project that U.S. firms and state financing have not been able to compete with in the region.

• Mexican President Sheinbaum said that her government would hold off imposing tariffs of up to 50% on nearly 1,500 products on non-FTA partners (namely China) until after Mexico holds talks with those countries.

  • In late September, Sheinbaum proposed raising tariffs on non-FTA trade partners. In response, China’s Commerce Ministry (MOFCOM) launched an investigation into whether Mexico’s tariffs were an unfair trade and investment barrier, prompting Sheinbaum to backtrack and propose a high-level working group to resolve trade issues.

  • All this takes place in the shadow of the 2026 USMCA (formerly NAFTA) trade agreement review. The U.S. government has been critical of Chinese investment and trade with Mexico, especially in sensitive sectors like autos, so this tariff move might initially have been a way to smooth over Washington’s concerns.

Core Brief

Are South America’s illegal and unreported Chinese fishing woes over?

These days, I often feel like the bearer of bad news when it comes to China-LAC updates. But halfway through September, Latin America got some (tentatively) positive news when the World Trade Organization’s (WTO) Agreement on Fisheries Subsidies officially came into effect.

Now, you’d be forgiven for not knowing about the first phase of the WTO fisheries agreement (called Fish I), or even for not realizing that the WTO still functioned at all, given the United States’ multi-year campaign to effectively disable the international body. But this agreement, which is the result of multiple decades of hard-fought negotiating rounds, is both the most significant global trade agreement in years and an agreement that will bind fishermen to more sustainable fishing practices, especially in regions like South America’s coasts.

China’s fishing presence

China is home to the world’s largest fishing fleet, with more than 17,000 vessels operating globally, some of which operate illegal, unreported, or unregulated (IUU) fishing operations. Partly due to the Chinese fishing fleet’s massive size, and partly due to what have historically been weaker environmental regulations from Chinese businesses writ large, Chinese vessels have often been flagged as particularly common practitioners of IUU fishing.

These types of environmental abuses have hit Latin America, particularly the South American countries of Ecuador, Peru, Chile, and Argentina, especially hard. Chinese IUU fishing off South America generated hundreds of millions of dollars in losses for local fishermen, while also forcing South American militaries to expend resources to track these vessels and to make sure they don’t intrude on exclusive economic zones (EEZs).

The glimmer of a solution

The new WTO agreement that China acceded to largely ends subsidies for IUU fishing, which is certainly a start for addressing this problem. Affected South American countries like Ecuador have engaged in bilateral discussions with their Chinese counterparts. Yet because oceans and fisheries management are global issues, resolving Chinese IUU fishing near South America requires multilateral solutions like this agreement.

That said, further work remains. Future agreements will be required to end shipbuilding subsidies that contribute to overcapacity. Moreover, the current agreement has a number of deficiencies, including weak penalties and a lack of transparency enforcement mechanisms. Just this week, InfoDefensa reported that the Chilean Navy is monitoring a Chinese fishing fleet near the Southern Cone country’s shores.

But this is all the more reason for both LAC countries and the United States to continue engaging in these negotiations to resolve this longstanding irritant in Chinese–South American relations.

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The Roundup

Politics and diplomacy

• Chinese Vice Foreign Minister Miao Deyu attended a China-CELAC foreign ministers dialogue, likely in New York, on September 25 with counterparts from 13 countries, notably including Haiti. Miao contrasted PRC-LAC cooperation with what he characterized as U.S. “unilateralism, protectionism, hegemony and bullying.” He also re-emphasized Xi’s five proposed cooperation programs for the region. (FMPRC)

• The President of Dominica, Sylvanie Burton, traveled to Beijing for the Global Leaders’ Meeting on Women. She met President Xi during the trip, where they discussed issues like climate change response and infrastructure. (Xinhua) (People’s Daily)

• Colombian President Petro fired all of the country’s Beijing-based diplomats after accusing them of sabotaging relations by canceling meetings and altering his schedule without permission. The news came on the same day that the Colombian foreign minister said that Colombia adhered to Beijing’s “One China Principle.” (CGTN)

• The Mexican Chamber of Deputies installed a new China-Mexico Friendship Group with 54 members. Deputy Raymundo Vázquez, a member of the ruling Morena Party, will lead the group.

• China’s embassy in Panama accused the United States of “spreading lies” in the country after the U.S. ambassador in the country called the Chinese presence near the Panama Canal “malign.”

• The Chinese ambassador to Antigua and Barbuda, Zhang Yanling, is departing her post. In a farewell meeting, the Antiguans’ Foreign Minister praised her for improving relations in infrastructure, health, and education.

• Chinese foreign minister Wang Yi discussed UN reform with former Chilean president Michele Bachelet. Bachelet is expected to be nominated by Chile for the UN Secretary General role. (Xinhua)

Investment, finance, and infrastructure

• Chinese and Brazilian foreign affairs officials met in São Paolo for the second bilateral forum on financial cooperation, with talks specifically focusing on facilitating transactions in local currencies.

• The latest round of China Southern Power Grid Company is reportedly in talks to buy a majority stake worth roughly $4 billion in Transelec, a Chilean transmission firm. China Southern already owns 28% of the firm.

• Chinese mining company Gangfeng Lithium announced a new $2 billion investment in its Pozuelos-Pastos Grandes (PPG) project in Salta, Argentina. Meanwhile, Argentine oil company YPF is negotiating with Chinese construction company Wison New Energies to acquire two floating liquefaction units (FLNG).

Trade and technology

• The China-Costa Rica Free Trade Committee met virtually on September 18^th for its eighth meeting. The two sides discussed issues like “bilateral trade, rules of origin, and investment cooperation” to better implement their FTA.

• The Brazilian Minister of Science, Technology, and Innovation, Luciana Santos, gave opening remarks at a Seminar on Innovation, Science, and Technology at the Chinese embassy. The discussions specifically touched on AI, digital transformation, and the energy transition. (TeleSur)

• Mirroring how Chinese producers are buying Brazilian soy to replace U.S.-grown beans, Chinese state-owned firm COFCO purchased more than half a million metric tons of canola from Australia in a bid to diversify away from Canadian canola due to geopolitical tensions.

• China donated 25 1.8MW generators to Cuba to support the country’s electrical grid, eight of which will reinforce the capacity of the Guanábana power plant in Matanzas.

• Montevideo and Beijing agreed to allow Uruguayan bovine gallstone processors to export Argentine, Brazilian, and Uruguayan bovine gallstones to the PRC.

Taiwan

• Taiwan’s foreign affairs ministry denied that there were any irregularities in its aid donations to Paraguay. Its statement came after a Paraguayan radio station released audio that allegedly showed corrupt distributions to Senators.

• A delegation of 15 Taiwanese businesses traveled to Mexico to explore electric vehicle opportunities. The delegation will also visit Guatemala, Brazil, and Paraguay.

• Taiwan donated 1,350 tons of rice to a Haitian Economic and Social Assistance Fund, which will “support families living in extremely precarious conditions throughout the country.”

• The Ministry of Agriculture of St. Vincent and the Grenadines received a range of agricultural equipment, including tractors and grading machines, from Taiwan.

Society and culture

• China’s Ministry of Foreign Affairs donated $94 million to Trinidad and Tobago in non-refundable grants. The funds will be used for “mutually agreed projects under an agreement on economic and technical co-operation.”

• The mayor of the Ecuadorian city of Guayaquil announced it will build a $3 million Chinatown in the city center as part of an effort to boost the local economy and to reconnect the city with its more than 50,000 Chinese-descendant residents.

• A small cultural delegation from the Fujianese city of Quanzhou visited Panama City to perform traditional opera styles and to greet locals in traditional clothing. (Xinhua)

Analysis and Opinion

• A new report from CSIS claims to provide a new dataset of Chinese (and Russian) military diplomacy in LAC, finding that Brazil and Argentina have had the most military exchanges between 2022 and 2024.

• In a study for Brookings, Joshua Meltzer finds that there is some trade circumvention by Chinese producers through Canada and Mexico, although some of the evidence disappears once adjusted for price increases.

• In The Diplomat, Evan Ellis explored Peru’s “active neutrality” in relations with Washington and Beijing, arguing that “over the long run, Peru’s ability to successfully balance between the United States and China will depend on putting its own true interests first.” Meanwhile, Victoria Jones suggested that Chinese cultural diplomacy laid the groundwork for Chinese megaprojects in Peru for The Diplomat.

• Alonso Illueca wrote about how China’s influence shapes elections in LAC countries like Bolivia, Honduras, Costa Rica, Brazil, and Chile for the China-Global South Project. He also wrote about Nicaragua’s attempts to resuscitate a canal project with China’s help.

• Writing for the Guardian, Nesrine Malik argues that China is “eyeing superpower status” in Africa and the Caribbean, suggesting that “China is transacting with poorer countries in an asymmetrical relationship of power.”

That’s it for now, thank you! And a big thank you to the team at CPSI, especially Rasheed and Shem. I am so grateful for their support in publishing this newsletter for the past few years.

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Today’s edition covers September 1 to September 15

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The Top 5 Stories:

• As part of the celebrations marking the 80^th anniversary of Japan’s defeat in World War II, Cuban President Miguel Diaz-Canel met with President Xi and Secretary of the CCP’s Central Commission for Discipline Inspection Li Xi. In the latter meeting, the two sides reportedly “drew a new blueprint for bilateral relations.” At the end of the visit, Diaz-Canel attended a Cuba-China Biotechnology Working Group meeting and announced that 30 cooperation agreements had been signed over the course of the trip. Later, the Cuban trade minister commented that the two sides are renegotiating the island’s government, financial, and business debts in China, as well as Cuba’s accession into China’s Interbank Cross-Border Payment System.

  • Also at the ceremony were the Venezuelans and the Brazilians. The president of Venezuela’s National Assembly, Jorge Rodriguez, represented the Bolivarian Republic, while Celso Amorim, a special advisor to President Lula, attended on behalf of Brazil. Amorim later met with Wang Yi and suggested that their two countries should explore defense cooperation opportunities. (FMPRC)

• A delegation led by 20 Nicaraguan municipal secretaries from the ruling FSLN party traveled to China to visit the school of the Provincial Committee of the Communist Party and meet with the CCP’s International Department. At the same time, the co-director of the National Police, Francisco Díaz, attended a PRC security forum and met with the Chinese Minister of Public Security.

  • Since establishing formal diplomatic relations in 2021, the Ortega regime has swiftly sought to leverage its relationship with Beijing to support its authoritarian political project. The CCP engages with both authoritarian and democratic regimes on security and political issues; the engagement with Nicaragua’s ruling party has been particularly intense.

• Mexican officials announced they would raise tariffs on over 1,400 products from non-FTA partners, a new set of duties that would fall largely on PRC exports. Notably, these new tariffs include a 50% tax on Chinese autos. China’s commerce ministry cautioned against the trade action, and Mexican and Chinese officials are expected to begin talks over the trade measures in the coming weeks.

  • This is not the first time that Mexico raised tariffs on its non-FTA trading partners; back in 2023, then-President Lopez Obrador imposed an average 25% tariff on more than 500 goods. That said, next year’s USMCA review will likely create new pressures on Mexico to reduce Chinese investment, trade, and transshipment in the North American country, so this effort may be an attempt to preempt those concerns.

• A Paraguayan radio station released leaked audio that purported to show that Paraguayan senators were receiving kickbacks from Taiwanese economic development funds that were supposed to be spent on new elevators. The president of Paraguay’s congress denied the rumors, arguing that Taiwan was directly paying the contractors and that there was no opportunity for graft.

  • Most of Taiwan’s foreign assistance to its diplomatic allies goes to real projects that help locals with issues like food security, education, and healthcare. That said, corruption and payoffs are not unheard of when it comes to Taiwan’s foreign policy. For example, former Guatemalan President Alfonso Portillo received $2.5 million in bribes to maintain diplomatic relations with Taipei. Relatedly, the Economist previously reported that Paraguay’s ruling Colorado Party often treats Taiwanese foreign assistance as a “stash of ‘petty cash.’” While this might be a big misunderstanding, it is also not impossible that some Taiwanese money was not being used for its intended aid purposes.

• The Chinese General Administration of Customs (GACC) approved Brazilian sorghum imports, clearing the way for a new alternative U.S. sorghum. The first shipments are expected to ship as early as this year. The approvals follow through on a commitment President Xi made during his visit to Brasilia in 2024.

  • China and the United States used to be highly interdependent on sorghum exports: back in 2023, 53% of Chinese sorghum imports were from the United States, while 85% of U.S. sorghum (totaling $999 million) went to China. Experts expect that Brazil has strong potential for long-term sorghum cultivation, which could heavily displace U.S. sorghum trade in the future.

Core Brief

The Global Governance Initiative (GGI) and Latin America

The SCO summit of Asian leaders and a plethora of goose-stepping young Chinese men and women grabbed the Chinese headlines from early September. But lying in the background, China’s foreign ministry (MOFA) announced a new major policy proposal that anyone following Chinese foreign policy will soon have to memorize: the Global Governance Initiative (GGI).

The GGI is premised on maintaining and enhancing the UN-led world order. Explicitly criticizing (U.S.) unilateral sanctions and slow progress on multilateral issues, the GGI is made up of five core (but admittedly bland) concepts: sovereign equality, international rule of law, multilateralism, people-centered approach, and “real results.” Priority areas for multilateral engagement are “international financial architecture [reform], AI, cyberspace, climate change, trade, and outer space,” as well as boosting “the representation of the Global South” in multilateral organizations.

Though the GGI’s older siblings, namely the GDI, GSI, and GCI, have not amounted to much in the way of tangible deliverables, at least three traditional China-friendly regimes quickly signed on to MOFA’s new plan: Cuba, Nicaragua, and Venezuela. These three are among the most China-aligned governments, so this provides little indication of how far the GGI’s adoption will actually go in the region.

That said, three immediate implications from the initiative stand out to me:

• Boosting representation in international institutions can take many forms, but one of the most obvious would be expanding the UN Security Council’s (UNSC) permanent members. Brazil has previously sought a permanent seat at the UN, but any configuration of expanded UNSC membership would likely mean a more active voice for one or many LAC countries in the body.

• China’s foreign ministry previously addressed international financial architecture reform in this spring’s China-CELAC forum declaration, but the GGI further cements the importance of addressing the issue in future Chinese foreign policy. Considering that nearly every Latin American and Caribbean country has relied on the World Bank and IMF, any reform of the international financial architecture would immediately affect the region’s interests.

• Supporting “regional and subregional multilateral institutions” suggests that China will continue, if not enhance, its relationship and support for regional multilateral bodies like CELAC, CARICOM, and even the OAS.

None of the GDI’s complaints or proposals are all that new to Chinese foreign policy, but it does succinctly lay out China’s vision for the multilateral world order. In the coming months and years, China will probably encourage other LAC countries to support the initiative, as well as the reforms themselves.

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The Roundup

Politics and diplomacy

• At a ceremony attended by various Venezuelan officials and the Chinese ambassador, President Maduro inaugurated a monument to the 80^th anniversary of the Chinese victory against the Japanese in World War II on the outskirts of Caracas.

• Canadian Parliamentary Secretary and top aide to Prime Minister Carney, Kody Blois, met with Chinese Vice Foreign Minister Ma Zhaoxu, exchanging views on “bilateral relations”. (FMPRC)

• Chinese naval hospital ship Silk Road Ark set sail on September 5 for its maiden overseas deployment, with the ship expecting to stop in Mexico, Jamaica, Barbados, Brazil, Peru, and Chile for a humanitarian medical mission. (PRC MND)

• The U.S. State Department announced a new policy to restrict visas to Central American citizens who “act intentionally on behalf of the Chinese Communist Party” to “support or carry out activities that undermine the rule of law in Central America.”

Investment, finance, and infrastructure

• China’s embassy and the Dominican Republic’s foreign ministry signed an economic cooperation agreement for $40 million in non-refundable grants for emergency management and natural disaster response projects and 450 scholarships for DR government officials.

• Mexico agreed to purchase 15 electric trains for the Mexico-Pachuca route from CRRC Zhuzhou Locomotive for about $318 million.

• Zijin Mining began operations on its $600 million lithium project in Catamarca, Argentina. The investment will start off producing 20,000 tons of lithium carbonate equivalent (LCE), but it expects to eventually ramp up to 50,000 LCE.

• The Chinese and Honduran governments showcased the economic benefits of their cooperation by inaugurating a new agriculture processing plant in Comayagua that had been built with a $3.1 million grant, announcing a new expert mission to evaluate the Patuca II-A Hydroelectric Project, from the Chinese Agency for International Cooperation for Development, and agreeing to a new $3 million sale of tobacco to PRC buyers.

• A new floating oil production facility that will eventually produce 60,000 barrels of oil per day in western Venezuela arrived in the country at the beginning of September. The facility is part of a broader investment by China Concord Resources Corporation.

• A new report by the Brazil-China Business Council found that Chinese investment more than doubled in 2024 compared to the year before. Total investment by Chinese companies totaled more than $4 billion across 39 projects.

Trade and technology

• China’s Ministry of Commerce lengthened its anti-dumping probe into Canadian canola oil by six months, giving negotiators additional time to resolve the trade dispute.

• A business delegation led by Nicaraguan presidential advisor (and son of the Ortegas) Laureano Ortega met with PRC companies and signed an MOU on information systems technology during a visit to China.

• Due to an outbreak of avian flu in Argentina, China’s customs administration banned imports of poultry and related products on September 3.

• A new cargo shipping route between Zhangjiagang Port in east China's Suzhou City to Chancay Port in Peru opened on September 12, further linking the two countries. (Xinhua) The new route was launched as Peru’s finance minister expressed confidence that his government could maintain strong trading relationships with both the United States and the PRC.

• A new Buenos Aires-Shanghai flight route by China Eastern via Auckland will officially launch on December 4. The new air route to Argentina will be among the longest in the world.

Taiwan

• The ROC Ministry of Foreign Affairs allocated $174 million to its Latin American and Caribbean operations for the coming year to both support existing relations with its diplomatic partners and to build new, likely unofficial, ties across the region.

• The Taiwanese embassy in St. Vincent and the Grenadines donated a host of medical supplies like wheelchairs and walkers, as well as an ambulance, to the country’s Ministry of Health.

• Taiwan’s Foreign Trade Development Council and the foreign ministry sponsored a business conference in Lima. Twenty-eight Taiwanese manufacturers from the electronics, technology, agriculture, finance, manufacturing, machinery, hardware, and food industries met with Peruvian companies.

• Paraguay’s air force received four Bell UH-1H Iroquois helicopters from Taiwan, and the country’s armed forces expect to get additional armored vehicles in the near future.

Society and culture

• The eighth China-Latin America Civilizations Dialogue Forum was held in Wuxi on September 12. The forum brought together more than 150 participants from 20 countries to discuss cultural issues, sustainability, and trade.

• The Honduran Institute of Anthropology and History (IHAH) and the Institute of Archaeology of the Chinese Academy of Social Sciences (IACASS) signed an agreement on “research, conservation and promotion” of Honduran cultural heritage.

• The University of Chile’s agronomy faculty signed an agreement with Tianjin Nongkenjing to build a demonstration farm in Maipú that could host experimental cultivation areas.

• Chinese oil company CNOOC, which has notable oil investments in Guyana, sponsored 7 Guyanese doctors to attend a three-month training program in Nanjing.

• The Barbados Ministry of Health and Wellness signed an MOU with the Chinese embassy to allow for the arrival of the eighth Chinese Medical Team at the Queen Elizabeth Hospital.

• The PRC embassy in Antigua and Barbuda will donate 1,800 solar street lights to the Caribbean nation, as well as sponsor a new training series on modern irrigation techniques.

Analysis and Opinion

• Howard Shen and Frank Alley argue in World Politics Review that the upcoming elections in Honduras are a referendum on the country’s relationship with China (and possibly a future relationship with Taiwan). Two leading candidates have suggested they would restore ties with Taipei at the expense of Beijing.

• A new article in Foreign Affairs by Hussein Kalout argues that under the Trump Administration, “U.S. policy [in Brazil] is playing into China’s hands.”

• Eric Olander of the China Global South Project spoke with Alonso Illueca on his podcast to discuss small-state diplomacy with Latin American and Caribbean countries like Dominica. Illueca later wrote about how China’s lithium investment bid in Bolivia has gone awry now that two center-right candidates who do not support Chinese investment in the country made it past the first round in the country’s presidential elections.

• Writing in Responsible Statecraft, Jorge Heine argues that the United States has little to offer countries like Ecuador in competition with China.

• A new piece in The Diplomat by Evan Ellis explores Peru’s “active neutrality” between the United States and China, finding that Lima’s “ability to successfully balance between the United States and China will depend on putting its own true interests first.”

That’s it for now, see you again in two weeks!

Make sure you don’t miss the next issue of Chaufa 👇

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Show Notes

What if the most subversive libertarian of the twentieth century wasn’t Hayek or Nozick, but Michel Foucault? In this episode, Rasheed and Mark Pennington dismantle the worn-out cliché of Foucault as the Left’s philosopher of suspicion and instead expose how his late work aligns disturbingly well with the libertarian project. Forget the caricature of Foucault as the theorist of discipline and surveillance. In this episode, he appears as the radical voice warning that freedom erodes not just under authoritarian violence but under the bureaucrat’s file, the planner’s map, and the expert’s soothing discourse of “safety.”

By pairing Hayek’s critique of the “pretense of knowledge” with Foucault’s genealogy of “regimes of truth,” the conversation makes an explosive claim: both thinkers diagnose social engineering as a theological fantasy, a bid for God-like authority over human complexity. And if Hayek valorizes entrepreneurial discovery, Foucault demands a relentless critique of the categories that normalize us into docile bodies. The convergence? Freedom is not a polite legal boundary but a restless act of self-creation: always experimental, always at risk, and always opposed to those who claim to know better.

This episode pushes further: into Milei’s Argentina, where Foucault is suddenly a touchstone for right-wing politicians; into the culture wars, where “identity” becomes just another disciplinary cage; into Judith Butler, recast as an unwitting libertarian entrepreneur of the self. The provocation is clear: maybe libertarians abandoned Foucault too quickly, and maybe Foucauldians ignored how close their master was to undermining their own collectivist pieties. What if the true scandal is that Foucault, at his most dangerous, was never the enemy of liberalism — but its most radical ally?

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Rasheed Griffith

Mark Pennington | Mark Pennington @ King’s College

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Foucault and Liberal Political Economy: Power, Knowledge, and Freedom (Philosophy, Politics, and Economics) - Mark Pennington

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This transcript was automatically generated by AI and lightly edited. We don’t catch every error, so if you spot one, send a message/email via progress@cpsi.org.

Rasheed: Hi, Mark, and thank you so much for joining me on the podcast today.

Mark Pennington: It's really good to be here. Thanks for the invitation.

Rasheed: So we're going to be primarily talking about your new book, about "Foucault And Liberal Political Economy". I have it here on Kindle. The physical copy wasn't available yet when I started to read it, and I've been waiting for this book for probably over 10 years. And my friends that know me very well always know I'm saying, "Hey, there's so much Foucault when you think about classical liberalism, and no one seems to actually be synthesizing these ideas".

So I'm like, "Okay, this book has to be probably the most important book this year, in my opinion".

Mark Pennington: Very high praise. Thank you very much.

Rasheed: So, to get into the conversation, I always remember this quote from A.C. Grayling: "What is philosophy? It's too much of a smooth cliff. You can't really get up too easily." What is Foucault and liberalism? It's kind of the same idea. So I want to ease into it a bit carefully.

To start off, I'm curious about your view on this aspect. So I know you did your PhD work on the UK planning system and public choice economics and so on. I'm curious, if you had to bring your early work on planning together with your new work on Foucault, what fresh perspective does this synthesis give us about housing and urban planning in the UK today or in Europe, for that matter?

Mark Pennington: A really interesting question. So that work that I did on urban planning was really looking at the system of land use regulation in the UK from a kind of public choice theory perspective. Which, in some ways, I've kind of moved away a little bit from in more recent years.

But the key idea there was that many of the rules and regulations are not there as a kind of public interest manifestation. They're a product of what public choice theorists called "rent-seeking behavior". So it's interest groups trying to influence the regulation to benefit themselves, often at the expense of other groups. And also people working in bureaucratic agencies who are often engaging in programs of effective self-aggrandizement by maximizing the number of regulations that they supervise and the size of their bureaucratic agencies. And it's a kind of nexus between those forces, the interest groups, and the bureaucracy that produces a system that chronically restricts the supply of housing. So you've got various interest groups that benefit from restricting housing supply, and you've got a bureaucratic structure that also benefits from this regulatory apparatus. Now, if I were applying the perspective, I, developing this book to that very question, I'd be looking at the planning system as a form of what Foucault calls "power knowledge". It's a kind of power knowledge complex. So I'd be looking at the way in which these actors, the bureaucratic actors, and various interest groups deploy various examples of what Foucault would call discourses, actually justify aspects of the regulatory regime. And I'd also be looking at the way in which these discourses, and the kinds of systems of classification. That goes along with their work to effectively exclude or marginalize certain kinds of actors. So they fix both people and, in this particular case, conceptions of the way in which land ought to be used into categories that actually block various forms of experimentation. To give an example of that, in the UK, with that land use planning system, we have a very strong green belt policy. Particular areas are designated as open space. The notion that certain areas are, if you like, naturally almost always be open space is constraining because it fixes a category of the kinds of land uses, but also the kinds of people that are associated with those land uses that should be allowed to be in certain kinds of spaces. That can have all kinds of exclusionary effects. So when you have interest groups, what are often called "not in my backyard" interest groups, people who don't want new housing in the area where they live. Sometimes that is just because they don't wanna see more housing for understandable reasons, perhaps if they've got a nice view. But it might also be because they want to exclude the types of people who might come in to occupy that housing. So that kind of lens, I think, is more the one that I would be deploying if I were using this Foucauldian framework.

Rasheed: Hayek criticizes the pretext of knowledge in scientific planning, and Foucault maps how expert discourse crystallizes into regimes of truth. Do these critiques converge on the same warning, or does analysis of power reveal hazards even within Hayek's market epistemics?

Mark Pennington: That's an interesting question. So I think the area where Hayek's ideas and Foucault's ideas overlap is the idea that there is no God-like perspective on the world, no one who can have access to a kind of totalizing understanding of the world. And by that I mean of other human beings and of the way they interact in various social settings. Now, in Hayek's case, it's the idea that there are what he calls complex phenomena, where the number of variables and the character of their interaction, intertwined with the creative aspect of human agency, means that there are no stable law-like relationships that can be observed and manipulated in a predictable way by planners. So in Hayek's view, the knowledge that is relevant to social coordination is always dispersed. It's subjective. It's often contradictory. Even at the individual level. People aren't necessarily sure of which actions they should take. Now Foucault, he is very influenced by Nietzsche's ideas on a sort of Perspectivalism. So it's the idea that each person tries to exercise what Nietzsche calls "a will to power", by sort of imprinting their perspective on the world. That perspective is only ever partial. It's only ever reflecting your own experiences or your own attempt to influence other people. But people will often use claims to scientific truth, to try to claim that their partial perspective is actually something like a God-like or objective perspective on the world. So you could combine those by saying that, both Hayek and Foucault would see people who claim to have the knowledge to be social planners or social engineers as claiming that they have a kind of God-like expertise to enable them to manipulate and manage society. Which for different reasons both Foucault and Hayek are suggesting that they don't actually have. Now you also asked a question there about whether Hayek's own views about market epistemic the coordinating properties of markets. Could we consider those as an example of a kind of power-knowledge claim, now on a Foucauldian view? Yes, they are. Because all claims to truth about social coordination are examples of that. I think the reason that the kind of claims that Hayek makes are not as susceptible to that kind of critique as are the claims of the, would-be planners or social engineers, is that central to liberalism or at least the kind of liberalism that Hayek supports, is the notion that all truth claims including the ones that liberals make, should be open to contestation and to competition. So on the Hayekian view, in a sense, there's nothing wrong with people engaging at a local level in kind of experiments in socialism, if you like, that challenged the claims of liberalism. What the objection is to is a kind of totalizing attempt to introduce those kinds of practices on a society-wide basis.

So liberalism itself should always be open to contestation. We shouldn't necessarily, I think, try to prevent people from experimenting with non-liberal methods, provided they don't try to extinguish. The potential for other people to continue engaging in liberal practices.

Rasheed: The way I see it, Hayek prizes freedom because it lets unforeseen knowledge surface. And Foucault values critique, his idea of critique. Because it opens space for unanticipated knowledge and ways of being, his terminology. Is this openness to the not-yet-known the common core between these two projects?

Mark Pennington: I think it very much is. So you can think of Hayek's understanding and many other people in the kind of Austrian tradition, of what entrepreneurs do as a practical instantiation of Foucault's notion of critique. Critique in the Foucauldian sense is always taking place within a tradition. Or within a discourse or a set of practices that you can never completely escape from your whole mind, your thought processes are constituted by these discourses, but that doesn't mean that you can't spot ambiguities or gaps within them or contradictions within them. That's what critique is for Foucault. Likewise, Hayek and the Austrians would see entrepreneurs as looking at various market practices or gaps within the price system, within sets of prices, or contradictions between particular sets of cultural ideas, and looking to use those as spaces that create something new or different. So you could think of what entrepreneurs do as challenging the status quo and being a form of practical criticism in the business world, but also potentially in the cultural and ethical sphere as well.

Rasheed: This idea of Foucault and critique. I'm gonna come back to it later because it's one of the things that I think is most overlooked. And I realized that also when even Stephen Cochrane-

Mark Pennington: Yeah.

Rasheed: The historian did some classes with Foucault at Berkeley. He has maintained this idea of Foucauldian critique throughout his entire work since then.

But we'll get back to that. So I do want to go to another point. Deirdre McCloskey recuperates justice as one of the virtues among many and knows justice as a strict side constraint on coercion, but Foucault treats justice as a historically contingent tribunal of truth.

Can these three be made compatible inside, liberal order, or do they clash?

Mark Pennington: Well, I think it depends on how you ground the notion of justice. So, if you take it from a kind of very strong, Nozickian or rights-based libertarian perspective, which emphasizes notions of self-ownership, that there's something about the person that means that they own themselves, which is rooted in some particular capacity for reason, a form of liberalism is in line with Foucault. Because he would want to say that there's nothing really essential about people. That means that any particular set of rights might follow from that. He might see certain forms of liberalism in that sense as being excessively individualistic. So they'd be prioritizing very much. Rights that are based on a notion of self-ownership. What I think he would be more sympathetic to is based on, his notion of a kind of pluralism of rationalities, that given that our understandings of ourselves are actually always historically contingent, we should be open to the possibility of there being, multiple constructions of individuality, some of which may be if you like, more individualistic, some of which might be more communalistic. And although he isn't, he doesn't specify. And this is arguably one of the reasons why some people have problems with me, doesn't actually specify what that looks like in practice. I think there are many commonalities there with the final part of Nozick's anarchy state in 'Utopia', what Nozick calls the meta 'Utopia', which doesn't depend on the rights-based or self-ownership foundations that he sets out earlier in that book. So the meta, Utopia is talking about a pluralism of communities, you have some that are more individualistic, others that are less individualistic, and people can kind of move in the gaps between these different sorts of communities or cross into different sorts of communities. That is, I think, precisely the kind of social environment that is compatible with KO's notion of freedom. So for Foucault, freedom is about self-creation, the capacity to reinvent yourself, to experience different ways of being, which could be more or less individualistic, more or less communalistic, so that there wouldn't be any one ideal type of human life.

So I think the meta Utopia idea in Nozick is very compatible with that, and any form of liberalism that emphasizes a kind of radical pluralism that tries to found its notion of what justice is around that notion is also compatible with it. So I would say if you're looking for the tradition that is probably closest to that in a more philosophical sense, in a deeper philosophical sense, it'd be a kind of Hayek-Hume synthesis where what they call rules of justice are not justice in the sense of reflecting some deep, underlying moral truth.

It's more like a kind of compromise to cope with the fact that in the world around us, people radically disagree about many things, and therefore, we need some basic rules of interaction to facilitate social existence in the face of deep-level ethical disagreements.

Rasheed: So on that notion of the self and the creation of the self, there's a famous poet from the Caribbean named Derek Walcott, in England also, I guess. And he has this poem called "Love After Love". The very last line is "Sit, feast on yourself, feast on your life." And that always reminds me of this quote from, well quote, and idea from Foucault.

So when Foucault says "The self is not given to us," he echoes his earlier claim that subjects are power effects. And in asking us to create ourselves as a work of art, I think the famous life from Foucault, is he shifting from an oncological diagnosis to an ethical imperative, or simply making explicit what was always implicit in his genealogy?

Mark Pennington: I think those two ideas are very closely related. So he certainly has the idea that our conceptions of ourselves at any point in time are largely powerful effects of the various discourses. Or what somebody like Hayek, or Michael Oakeshott would talk about as being the traditions or conventions or norms within which we are always embedded. So even the way we think is conditioned by these cultural practices or routines that we didn't actually invent ourselves. So we're always products of that. Now, Foucault believes that we do have a capacity for agency, though we are always shaped by these discourses or practices, we're not determined by them. The notion of self-creation is the idea that you can play with the rules or discourses within which you're situated to create something new and different. You can reinvent yourself. He's looking at that from a kind of, if you like, ontological or descriptive understanding of what happens in human societies. But people do reinvent themselves. But he also, I think, does believe that there is a kind of ethical imperative for this as well. So his ethics are about giving people the space to engage in this freedom of self-creation, enabling people to make their lives a work of art, as you mentioned. So there is an ethical aspect to this, but that ethical aspect is intimately entwined with his ontological view that we are always power effects of the kind of social systems in which we find ourselves.

Rasheed: Tyler Cowen, in his "Complacent Class", laments the emergence of the risk or risk-adverse stagnation in people. So Foucault diagnoses this idea of normalizing power that breeds docile bodies. Do you think they talk about the same thing?

Mark Pennington: I think they may well be doing so. So I mean, this goes back to the previous point. These self-creative acts that Foucault is talking about, where people make themselves a work of art, often entail risky behavior. They involve acts of transgression, in various ways, where people challenge aspects of the status quo in ways that can often be quite dangerous. putting yourself at physical risk because of the challenges or active resistance that you might be engaging in. So there's a very active sense of Foucault about what freedom entails. It's not a passive state; it's an active state where you are challenging aspects of the status quo. Now, what he calls a normalizing society is a type of society that deadens that actually fixing people into categories and limiting their capacity to engage in these acts of resistance. You can think of the way in which many western societies have, if you like, encased themselves in various safetyist or precautionary narratives, around public health, environmentalism of various kinds, as examples of this. They are telling people that they should be risk-averse, that risk-taking is something to be fearful of rather than to be something that is embraced. So increasingly people are sort of encasing themselves in various forms of control, which give the illusion of safety in many ways actually produce not greater safety, just subjects who lack resilience in the face of the inevitable changes or challenges that will confront them in their lives.

Rasheed: So to put it crudely, maybe you won't agree, but classical liberalism broadly defends-

Mark Pennington: Yeah.

Rasheed: negative liberty, freedom from coercion. Does the microphysics of power suggest subtler forms of coercion that libertarians generally overlook speaking?

Mark Pennington: Yes and no. So the classic critique that a lot of people who are influenced by Foucault make about the focus on negative liberty and classical liberalism would be that if you simply focus on intervention, in terms of acts of direct violence against people or infringements on property rights, you are ignoring all the other ways, decentralized ways, the way that you're brought up in the home, in the education system, other sites that can lead to feelings of, constraint or unfreedom. So norms around gender or sexuality would be the obvious example of this. That if you simply focus on freedom as non-interference. In the classical sense, you'd be ignoring how people can be constrained, their freedom limited by the circulation of discourses or narratives that mean that certain actions, around gender and sexuality, are considered to be beyond the pale that marginalizing certain actors. Now that is a classic reading that often Foucauldian critics of classical liberalism give. It's not clear that it's the one that Foucault himself would endorse, at least not the late Foucault. So he makes very interesting remarks about the only guarantee of freedom being freedom. And I think what he's getting at there is the idea that we can never escape from these decentralized forms of constraint, or if you like, cultural interference that actually shape our very sense of who we are. A potential benefit of negative freedom is that it leaves individual subjects with the greatest space to find out for themselves how to challenge those norms or practices that they're situated to engage in acts of rebellion. Whereas ironically, positive theories of freedom that claim to want to liberate people from cultural processes that may discriminate against people who've got certain sexual orientations, or gender identifications, or racial or ethnic identities, actually end up imprisoning those people because they construct them as passive agents who aren't actually capable of challenging the power relations in which they find themselves. So I think a really interesting example of this, which is one I mentioned in the book, is to look at what Iran has been doing in the recent past to challenge incredibly restrictive theocratic practices. Now, those challenges that those Iranian women have been engaging in have been crushed by direct violence from the Iranian regime. But the point is that those women, even though they're in a very constrained situation, have had agency; they've been able to challenge themselves without requiring some external liberator to come in and free them from what they see as forms of cultural oppression. And that is true, I think, in more liberal societies for many groups, whether it's gays, lesbians, people in ethnic minorities, or other actors, that they've often got space in a liberal regime to figure out their own ways of actually challenging the power systems that they find themselves in without requiring some external agent to liberate them.

And the process of supposedly liberating, liberating them, actually just pigeonholing them into various kinds of categories and routines that end up just perpetuating stereotypes about various group identities.

Rasheed: Foucault's governmentality thesis says that, modern state regulates conduct through welfare, health, and security. Does that genealogy strengthen the libertarian warning against mission creep, or does it suggest that even in a night watchman state, it inevitably grows pastoral tentacles?

Mark Pennington: When Foucault speaks about governmentality, he refers to the interaction between different types of power. So some of that power could be what many people usually associate with power, which is sovereign power, like the power of the state to issue commands or orders elsewhere. It could be examples of what he calls disciplinary power, which targets specific individuals who are considered to be troublesome actors in some sense. And then thirdly, he talks about bio power, which actually overlaps with what you call security mechanisms there in your remarks. So by that, he's talking about narratives that target the whole population as the focus of control or the focus of government. He has interesting things to say about that biopower when he's discussing liberalism. So he basically distinguishes between forms of this biopower that are very constraining, that lead to the proliferation of regulations and controls over people in the name of improving the welfare of the population. And you can think of public health as being something like that. And those elements within, if you like, neoliberal or liberal discourses, which emphasize the importance of various kinds of controls and operating instead through incentives and signals, which enable people to coordinate with others but without actually subjecting them directly to disciplinary types of power or to command control techniques. And he seems to think that things like the price system or various market-like processes, and you get this through his engagement with people like Gary Becker, are forms of power that nonetheless allow subjects greater freedom of maneuver than some of the other types of power techniques that are operative. I think to go back to the core of your question, does liberalism completely avoid those kinds of power? No, it doesn't. Because all societies have these power mechanisms operating. But I think if you are giving a kind of liberal reading of Foucault or trying to square aspects of liberalism with some of his concerns, the argument would be that the types of power that operate in liberal societies are less controlling. They are less pastoral than the types of power that might be operated in other types of regimes. And that's how you could make a kind of Foucauldian case for certain forms of liberal rule.

Rasheed: So I want to move now into what I would call the applied Foucauldian analysis of the world. And, you know, people would not normally know this, but the most important place right now for Foucault is Argentina and generally right-wing politics in Latin America. Again, very, a very funny case.

I'll get to why that is the case. So perfect, because you could then kind of help me understand it.

So I was actually going through, preparing for the interview. I was going through some of the old Foucault essays, and I remember I found a note where Foucault actually quotes Jorge Borges-

Mark Pennington: Yep.

Rasheed: - the Argentinian writer, in the beginning of " Order of Things", in one of his frameworks for thinking about how to actually structure knowledge and so on.

So Borges is also a well-known writer. He's not well known for politics. He's a very strong libertarian in the literally Nozick level of things. There's actually a very good book, in Spanish, about Borges and economics and so on that kind of discusses these ideas. And of course, now one of the most popular figures when it comes to Argentina or far-right politics or right-wing politics is Javier Milei from Argentina. So interestingly, Milei talks quite a lot about Foucault. People don't know this, of course, and I will get to why this is, and why he actually thinks his interpretation of Foucault is correct. So in this book from 2018, called "Libertad Libertad Libertad", which of course means liberty, and you will see it as of course libertarian, talking about liberty, blah, blah, blah.

This is actually a line from the Argentine national anthem. So he grounds his view of liberalism as an Argentine quality. Now he opens the book with a very stark quote from Borges, where Borges essentially said, "the state is the enemy of the individual." Very strong, very strong words.

Okay? Now, what I find most interesting about this book, at least in the introduction, is Javier Milei-

Mark Pennington: Mm-hmm.

Rasheed: - mentions Foucault. He said Foucault knew it. " First, you need to change the people." So he mentioned this, it's become a long leader, but he mentioned this in the context of his politics. He views when, for example, in an interview when he was doing the election for president, his circuit, an interviewer asked him "what's the most important problem in Argentina, the politics or the economics?"

And Milei said it's morality. And in his view, you cannot have good politics or good econ policy if the people treat it as an actual moral pursuit. So he's using Foucault in this context here to say, "Well, nothing you do in politics matters unless the people themselves are different people." And. I'm curious because I think this is a wrong interpretation of Foucault in the sense that Foucault wouldn't say first you change the people, as Milei suggests. He would say, "Well, you have to change the institutions, the truth, values, the structure in which the people themselves inhabit, and that will allow them to change. And that's how you start off the future. "So the thesis or the people or the bodies need to be actioned upon, I think it's correct.

But do you think this idea of "well, the people need to change first" is actually a good interpretation of how Foucault himself would set it out?

Mark Pennington: That is a really interesting question. I mean, I wasn't familiar, and this is one of the problems of being a British person; we don't read other languages. I wasn't familiar with these connections at all. I think the answer to your question is a difficult one.

'cause you can read this in two different ways. So Foucault makes a statement, I think it's in one of the late essays, I think it may be in the essay, ‘The Subject and Power,’ which is one that kind of summarizes his previous works. And it was written in the early 1980s. He says that he has a line where he says the problem is not individualism, but the type of individualism linked to the state. Now what he means by that is that it's not that individuals don't exist, it's that the way we see ourselves as individuals in today's world has often been shaped by these systems of classification that often come down from the state or that link the state apparatus with various other sites in society that, and actually constrained people, within various constructed categories. Now, in a case like Argentina, or other very heavily regulated economies, and I think actually this is also true increasingly of Europe and the United States. You actually do have forms of individuality that are linked to the state. So we have the distinction between, if you like, the regulators and the regulated, between those who are the nudgers and those who will be nudged. Now, perhaps what people like Milei are getting at is that people in societies like Argentina have become so used to seeing themselves almost as passive agents who were just there to be manipulated by the state authorities, that it's that kind of construction of themselves, which needs to be challenged. So when you say that Milei says that we need to change the people, what he's getting at is the idea that we need agencies see themselves in a much more active sense as being, if you like, entrepreneurial actors, not actors who have to ask permission, or to engage perhaps in bribes, just if they've got to do anything, but people who see themselves as being more self-directed. Now, the question, and this is the difficult part, I think, is where does that come from? Foucault, I think, would be very resistant to the idea that creating a new, more entrepreneurial self is something that can be generated from the top down, a kind of political liberator, the form of maybe Milei or anybody else. What will be required is a much broader set of cultural changes where people start to see themselves in a more kind of entrepreneurial or free light. I don't think that perspective would exclude a role for some form of political change at the governmental level. So maybe having a kind of inspirational figure like Milei or somebody else could be a part of that process. But you wouldn't want to get into a situation where you've got a kind of cult of personality because that would actually be reproducing the very phenomena that you're wanting to challenge, which is the idea that people can't lead their own lives, they need leaders or pastors to put them on the right path when that freedom is something they have to discover or create for themselves I think for Foucault.

Rasheed: You used the keyword, which is what I want to talk about for the next few questions. It's “culture”. So this, the culture war, is a very big conversation in Europe and in the US. It's a much bigger conversation in right-wing Latin American politics. So there is a book, here it is. It's called "The Culture War."

Mark Pennington: Yeah.

Rasheed: It's essentially, rules for a new right wing in Latin America. And this was written by another Argentinian, very important to Milei, named Agustín Laje. He's a close advisor of Javier Milei, and he is also a YouTube influencer. He has over 2 million subscribers on YouTube and, big TikTok following. And he is what he called a public intellectual in Argentina and essentially the Hispanic world for the right wing, even here in Madrid.

He's always here giving lectures and so on. Now he talks a lot about Foucault too. And so in this book about the Culture War, essentially he talks about Foucault, essentially about Foucault and the power he Foucault. He says that Foucault talks about the words we use, the knowledge we have, and the science we teach.

Those are terms that he calls power and discourse. But Agustín Laje says, "I mean, the exact same thing, but what I mean is culture." So he's actually using the Foucauldian framework to tell people why the culture war is so important for right-wing politics in Latin America, in Argentina, and so on. This, to me, is the core tension because, in this case, not Foucault per se, but can libertarianism fight a culture war given the negative liberty, negative coercion, ideas of libertarian thought?

Mark Pennington: Well, I think it can, but I think you've obviously gotta be very careful about how you use the term culture war. So when I hear that, I find it very hard to separate it from all of the kinds of debates around identity politics that are raging in Europe and in the United States. Now the way I think I might want to embrace an element of what you might call a culture war would be trying to emphasize what we were mentioning earlier about this notion that at least in Foucault's view, have the capacity to make themselves works of art or to use some of the language that he uses late on, to be entrepreneurs of the self, that they can reinvent themselves. And what you could think of as being, if you like, a kind of positive culture war rather than a negative one, is to be talking about the spaces that enable that self-entrepreneurship, that self-creation to take place and to unfold. And perhaps in many societies that have been very constrained by sort of paternalistic discourses which see them as just passive agents who've got to be manipulated by their rulers and by their betters. That's exactly the kind of cultural war, if you like, you need to be fighting. But what you're challenging there is the idea that there are rulers and ruled, that people have to have their lives directed by planners or regulators rather than having the capacity to direct their own lives. But going back to the point about identity politics, and this connects to what I was saying a little bit earlier in the conversation in the European and the North American context. I think there's an argument from a Foucauldian position for a culture war, which challenges the current terms on which the culture war is being waged. Because that culture war, as it's unfolding in the US and Europe, is a collectivist one. It's about reinforcing notions of group identity, it's around sexuality, gender, ethnicity, race, these sorts of things, and whichever side of it people are on. It's about keeping people in sorts of categorizations. I think a Foucauldian view would be much more individualistic, it would be about enabling people to break outta these categories, to create new identities across differences so that we can have new forms of individuality emerging rather than keeping people stuck in collective categories, which in different ways are reinforced both by the social justice warriors on the left and by, if you like, the reactionary right wing response to those culture warriors.

Rasheed: I think that is correct, and I think that is how Milei views it. And you, you know it because obviously one of his core theses is he created a new ministry called the Ministry for Deregulation and State Transformation, which was headed by a very, very good economist. And he closed down a bunch of other ministries, from 22 Ministries to 8, and the core one being this Ministry of Deregulation.

And you can see it because they're saying, we are gonna take away all of these state structures to allow people to obviously be entrepreneurs of themselves. And it's almost also the same Foucauldian idea of technologies of the self as well. We're gonna free up this space so you can have more of that for your own view. That's a very different approach to culture war than in terms of the US or Europe, as you just said.

So to tie this in, I have another question. So there's another book I want to highlight since this book. This is actually about Gramsci and Milei. So again, in Argentina, it's amazing.

These people go on the night news and talk about these topics. This theorist Aravena, this is his PhD thesis.

So he doesn't use Foucault at all. He does mention Foucault in the book. He says that Milei, however, has a more Gramscian approach. So his view is this, he says that Milei and the right, but he really means Latin American right, has mastered Gramsci's war of position, turning schools and media into trenches.

And now my question is this. I'm not sure I agree with that, but if liberals or libertarians jump into the same cultural trench warfare, do they preserve freedom? Or do they risk installing a new soft discipline of their own? Is this the same tension here in the Foucauldian system? On one level, you have to actively do something to get rid of these barriers to yourself.

But you could also, in the same sense, risk installing new disciplinary actions as well. And I'm not sure to what level one could come out in, obviously I have my views, but I'm not sure exactly, really, how clear those views are. And just to add in one more point before I get to the question, there's another theorist here in Spain, he's very popular, where he talks about culture war also in this much more nuanced way, where, when Foucault said politics is war by other means.

A theorist I mentioned here in Spain said, "Culture wars are always lost." And in some sense that's true. But at the same time, I think Foucauldian critique has to be true also, you need to actually actively use power as a production and actually pursue these ways to allow people the space to do them, to create themselves as a work of art.

So anyway, that's a lot to say, but how do you see this very meta tension, being able to play out as politics?

Mark Pennington: I think on the Gramsci point, I mean, obviously I'm not familiar with these works that you mentioned, but I would imagine the concept that they're interested in there is the Gramsci notion of hegemony, there are sort of hegemonic ideas, which are quite similar to some of Foucault's concepts. Like when Foucault talks about a dispositive or an apparatus, in some ways, that's quite similar to Gramscian hegemony. Now the Gramscians, of course, what they want to do is, as they would understand it, they see there being, or the left wing Gramscians, if you like, a kind of liberal or capitalist hegemony in the culture, and you want to replace that by taking over various cultural institutions. So you basically install a kind of leftist, sympathetic, or socialist hegemony. Now that is very much because it's these powers residing in institutions of the states, still quite a top-down kind of view of how you change a society. That is the type of view that you could see now unfolding in the United States. The way in which people in the Trump administration are trying to install a new hegemony, if you like, within US educational institutions. So there's direct interference in the university sector, from a whole group of people around the Trump administration who are trying to install a more conservative, friendly hegemony, if you like, in that system. Now, I don't think from a kind of Foucauldian position that that is the way you would want to go, because it is very much emphasizing the idea that we need external liberators. So you are right, I think that if you want to free up spaces in heavily regulated systems, you do need some deregulation of the state.

You can't avoid engaging with the state apparatus. You've got to maybe do some of the things that Milei is doing, which is abolishing certain government departments, abolishing certain ministries. But there's a difference between doing that, and I think what is happening in the United States where you then try to penetrate aspects of private and civil society to, install your own ideas or your own practices, because then that becomes a very top down sort of project, which is actually denying the agency for people to engage in their own forms of resistance or entrepreneurship or whatever you want to call it.

Does that make sense?

Rasheed: It does. It does. As we were talking, I remember a tweet that was made last year. I just pulled it up. Mind my crude translation. So this is Milei as president of Argentina, posting a long tweet about Gramscian sociology. He said that the most wonderful thing about the culture war brought into politics based on the principle of revelation is that when one points out the sacred cows of Gramscian structure, it automatically creates a dividing line between those who live off the privilege of the state and decent people. It's funny because there are a bunch of biographies about Milei that came out last year.

I have all of them here on my shelf. None of them discusses this theological Foucauldian analysis that he has with the world. It's a very odd blind spot.

Why is it that, given Milei is viewed by essentially everyone as a libertarian capitalist, strong Hayekian, strong person of von Mises, he knows it. They know all these connections, but yet again, the libertarian or the European liberals among us still do not understand the Foucauldian aspect, even though he literally mentions Foucault.

He talks about Gramsci. Even his framework of policy is the same thing. It is a continuing example of this disconnect between libertarian thought and Foucault, as essentially your book points out.

Mark Pennington: It probably is, but I'm obviously part of this, I think, which reflects what I was saying before. I think people, certainly in the circles I work in, would simply be unaware of these connections. I had no idea until you mentioned it to me conversation about what is going on in Latin America.

It's a great example, the fact that people like Milei, and some of the other people you've been speaking about, are using Foucault's ideas or Gramscian ideas, but using them in a very different context from which many other people in those traditions have used them. They've been traditionally associated with more kind of radical left politics. That's a wonderful example of how once ideas get out into the world, the theorist is not in control of what happens to them. They can be appropriated, reinterpreted by other actors. And that is arguably what you are describing in the case of Latin America. Now, the bigger point I think you're getting at is why is it perhaps that certainly in Europe, and I think this is true in North America as well, people in the classical liberal movement or the libertarian movement more generally, haven't really engaged with, people like Foucault. and I think, I said that in this, in another interview I did recently. I don't think you can do this without the kind of cultural history. You've been talking about cultural wars, but the kind of cultural history of Europe and North America over the last 50 or 60 years, where many people in the libertarian movement are very formed by the backdrop of Cold War politics. And as they see it, lots of people who are postmodernists like Foucault or post-structuralists, whatever you want to call them, were people who had some kind of association with the Marxist left at one point. Even though they, in many cases, abandoned those connections and in fact developed concepts in Foucault’s case that fundamentally challenged Marxism, are still in the eyes of many of these people tarred with that Marxist aunt brush. And therefore, people just don't want to go near those sorts of ideas. There are all kinds of prejudices that people have about, "Oh, you just shouldn't read these French thinkers." And I think it's very misguided because there are really productive ideas that can be taken from these thinkers, irrespective of whether or not they move towards liberalism. In the case of Foucault, I think there is a good case to be made that towards the end of his life, he was moving towards something like a liberal position. But frankly, even if he wasn't, he still has fascinating ideas about the way power is used. It's manipulated the way it controls us, which can be of use to libertarians, and it's a great shame that they haven't engaged with it more.

And this is one of the reasons I wrote my book to try to show how that engagement can take place.

Rasheed: Beyond your book and also your book is very important here, but what else would be useful to have the libertarian crew actually engage, not superficially, I mean, really engaged by understanding proper biopolitics and night watchman state-

Mark Pennington: Yeah.

Rasheed: collisions. What would that take?

Mark Pennington: Can you explain that a little bit more? I'm not quite sure. Are you talking about what other thinkers, those kinds of liberals, might engage with?

Rasheed: In the sense of this. You have a very popular figure in politics, and you have a lot of academics who talk about the figure a lot. And he talks about these things a lot. But even then, that wasn't enough to encourage more column libertarians to actually think about Foucault and other people like that still.

So I'm saying, is this a problem in just the educational path when it comes to these things, where one could say, you do an econ degree, don't do econ history? You definitely don't do any kind of Foucauldian either. But I'm curious how you would want to improve the awareness of, not only Foucault, but if your term is what?

Postmodern liberalism? How does that now become a more widely used concept for thinking?

Mark Pennington: Well, it's very difficult because you've got obviously in an academic environment, which is the one I'm most familiar with in universities, social science in particular. You've got this very strange divide between economic disciplines, economics itself, you might potentially include business studies or areas like that also, they tend to be the areas that attract more, if you like, libertarian oriented people. Because economic theory is perceived as something that is relatively speaking, more sympathetic to markets than some of the other fields. The irony there, of course, is that the kinds of economic models that dominate economics departments are actually very technocratic, very scientistic, very anti-individualistic, very anti-creative, in many ways. On the other hand, you've got the situation where in the arts and humanities and the non-economic areas of social science, that's where you have, if you like, many of the more creative or entrepreneurial understandings of culture and the way that culture shapes us that are anti. But these fields tend to attract people who at least identify themselves as being more left-wing, being concerned with more left-wing sorts of issues around cultural freedom, for example. And I think what's required is an attempt to bridge these areas. And I think the great potential of the kind of Austrian economic type tradition that I'm very sympathetic to that although this hasn't happened, it has the potential to bridge these areas. Because, on the one hand, it is an economic form of analysis. But on the other hand, it's a form of economic analysis that embraces the creative aspect of human beings, embraces the idea of uncertainty, flux, change, disequilibrium. And I think the trick is to show that this kind of economic understanding can speak to the concerns of the arts and humanities. And I hope my book is a kind of small step in making that bridge more apparent. But it's not only me who's doing this, I think Deirdre McCloskey's work is very much an example of someone who's economically informed, but she's using an approach that should have appealed to people in the arts and humanities. And I think it's only when those kinds of bridges can be created and people can start to tentatively, if you like, from either side, put their feet on those bridges that we might start to get the movements that you're talking about.

Rasheed: Interestingly, he credited a professor here in Spain, in Madrid, for his knowledge of Austrian economics. And he actually directs a very popular economics graduate program here in Madrid about Austrian economics, and most of the well-known Spanish thinkers about Austrian economics have actually gone through that program.

Every time Milei talks about his ideas of economics, he credits Austrian thinkers, obviously, as people know first. But the reason was because of this particular school here in Madrid that does the lectures actually from my think tank. We put them online, and that's how Milei actually watched them in Argentina.

It's very interesting. So I think that probably is one of the best options one has, and I'm hoping a lot more of that becomes the case. Ironically enough, we're living in that Foucauldian nightmare of the discipline constraint of academia, causing this.

Mark Pennington: And I think what's very important is that people who are classical liberals or libertarians who do have this understanding of Austrian economics, what they shouldn't do is to attack the people in the arts and humanities as being economic ignoramuses. I mean, this is what often does happen. There is an element of truth in that, in the sense that many people in arts and humanities are resistant to economic forums of explanation, even if I think the kind of Austrian kind. And I think what people in the Austrian tradition need to do is to reach out to these people in more sympathetic ways to say, "Hey, look, we have an understanding of economic theory that is actually compatible with many humanistic understandings that many people in the arts and humanities are interested in exploring."

So instead of dismissing these fields, which I think is often what happens, people in the tradition need to think creatively about how to engage these people. Because it's in the areas of arts and humanities or the non-economic social sciences, these are the fields that have had enormous influence in the cultural sphere and ultimately in the political sphere over the last 20 or 30 years. And if Austrian economics and classical liberalism are going to have a kind of broader revival, we need to engage people in these fields, not to treat them as a kind of inherent enemy.

Rasheed: I think Tyler Cowen has a comment, and he told me, or maybe he was public, I don't remember where he said, we need to have some more defenses of postmodern thought because it's too easy to say, "Oh, it's so silly." But it's so important, and a lot of it is so relevant. But there are very few defenses, not even speaking from a right-wing or a libertarian perspective, which I think your book obviously contributes to.

But on a broader scale, there's so little defence from, call it more serious, but sympathetic audiences of these ideas that is just either the people who will co-op Judith Butler without actually understanding things she wrote, or people will say, everything Butler wrote is bad. There's no in between.

I didn't think that way. Austrian economics, Austrian scholars could really be this pivot point between these different schools.

Mark Pennington: I think they can. There's a paper I read recently, which was arguing that Butler's conception of gender fluid, sort of notion, is very compatible with, kind of, Austrian ideas around entrepreneurship. So you can think of people who are inventing these kinds of multiple gender identities as kind of cultural entrepreneurs who are saying there are multiple different ways for people to be men and women.

You don't have to get into the debate about whether sex is real or socially constructed. Just to recognize that even accepting that there are two sexes, men and women, what that actually means to people and how they express that could be done in multiple ways that in the past have been overly constrained. And that people who adopt different comportments, different styles of dress, want to express gender in different ways, they are being creative entrepreneurs in a sense, in a way that somebody like Butler should be able to engage with.

Rasheed: I fully agree with that. I've been there for a long time, like Butler is one of the most important libertarian thinkers there is. However, I am crucified every time I say that, but it's fundamentally true.

Mark Pennington: I watched a very nice video that she did about, about 18 months ago, on gender and what she was trying to get at. And the whole thing is about her saying we want people to have more spaces where they can be free to express themselves in different ways.

Rasheed: Exactly.

Mark Pennington: It's very libertarian. You don't have to buy into all her silly economic ideas. In fact, I think what we need to do with people like Judith is to say, "Well, look, if you've got all this emphasis on pluralism, dynamism, and gender, why don't you have the same view about the economic system?"

"Why do you want a top-down, centrally planned system where bureaucrats decide things?"

Rather than wanting a kind of equivalent of what you're talking about in the area of gender and sexuality?

Rasheed: It's the same idea where there are a lot of popular libertarian public intellectuals that themselves have pretty bad ideas with econ policy, bad monetary policy, you have some core libertarian ethos, but your actual economic operation, operation knowledge is so poor that to me is irrelevant. But the core thing is so important. But when Butler talks nonsense about economics, it's like, "Oh my God."

Rasheed: I have one last question to kind of sum everything. When you are trying to talk about postmodern liberalism, why do you think that choice of terminology was the most appropriate to use?

Mark Pennington: In some ways, it's deliberate, it's deliberately provocative because many people who are liberals, postmodernists, or who identify themselves as liberals, see postmodernism as the enemy position. I want to explain to those people that that isn't the case. There are many liberal friendly or libertarian, even friendly themes within postmodernism. But equally, people who identify themselves as postmodernists often see postmodernism as being antithetical to liberalism. And I'm also directing my comments towards them to show that, actually, the liberal spirit. If you like, and I hesitate to use the term true, but if you like the true, postmodern spirit, so I'm, I'm using liberalism as a deliberately provocative phrase to provoke or to engage.

I hope creatively, and I genuinely mean that two different audiences, the liberal audience and the postmodern audience, to show that they've got much more in common or they should recognize they've got much more in common than is, than is often thought to be the case.

Rasheed: Mark, thank you so much for joining me on the podcast today. I really enjoyed this conversation.

Or listen on Spotify

Show Notes

Libertarians in the EU have forgotten how to win. This episode explores an idea that sounds counterintuitive at first: that the very machinery of EU law, so often criticized for its bureaucracy and regulatory sprawl, can actually be repurposed into a tool for liberalization. My guest, Adrián Rubio, Law Professor at the Universidad de las Hespérides, makes the case that while the EU as a political project has a natural tendency to centralize power in Brussels, its jurisprudence and procedural mechanisms remain remarkably open-ended. Those tools can just as easily be used to dismantle unnecessary restrictions as to expand them. What matters is who picks them up, and to what end.

For decades, libertarians, conservatives, and progress-minded reformers have treated the European Union as something to fear or resist: a sprawling technocracy that smothers local autonomy and regulates markets to death. And yes, the record is full of Green Deal mandates, ESG governance schemes, and Brussels-driven sovereignty claims. But if you zoom in on the nuts and bolts of EU case law—Simmenthal, Gas Natural, even the VTC Barcelona licensing fights—you find something surprising: doctrines and procedural devices that national courts can deploy to strike down over-zealous domestic regulations. In other words, Europe’s much-maligned legal order might also be the sharpest weapon against the sclerosis of its member states.

The provocation here is simple: perhaps libertarians and classical liberals have been negligent. They have abandoned litigation as a strategic weapon, leaving the field to environmentalist NGOs, precautionary regulators, and bureaucrats eager to stretch their mandates. But what if pro-freedom lawyers and institutions mobilized? What if they took preliminary references seriously, used proportionality tests to challenge precautionary bans, or demanded real enforcement of the internal market? Every national courtroom in the EU is, in effect, also a European courtroom. Yet the docket is shaped by those who bother to bring the cases.

This conversation, then, is not just about diagnosing Brussels. It is about reimagining the battlefield. Like technology, it can either entrench power or liberate markets. What Adrián and I argue is that the next generation of lawyers, NGOs, and think tanks should stop treating the EU as a monolith to complain about and start treating it as a laboratory to experiment in. If procedural law has already been leveraged to delay infrastructure and halt development, why shouldn’t it also be leveraged to expand freedom and accelerate growth? The challenge is not legal impossibility—it is strategic neglect.

Follow on Twitter

Adrián Rubio https://x.com/_adrubio

Rasheed Griffith https://x.com/rasheedguo

Recommended

• Preliminary References to the European Court of Justice - Morten P. Broberg, Niels Fenger

• Four Functions of the Principle of Primacy in the ECJ’s Post-Lisbon Case Law - Katja Ziegler, Päivi Neuvonen and Violeta Moreno-Lax (eds), Research Handbook: The General Principles of EU Law (Edward Elgar, 2021, Forthcoming)

• Liberalisation and the pursuit of the internal market - Niamh Dunne

• Mutual Recognition In Goods And Services: An Economic Perspective - Jacques Pelkmans

• The Preliminary Ruling Procedure - Davor Petrić

• La relación de los taxis-VTC y los conceptos autónomos del Derecho Europeo - Natividad Goñi Urriza

This transcript was automatically generated by AI and lightly edited. We don’t catch every error, so if you spot one, send a message/email via progress@cpsi.org.

Rasheed: Hello, Adrian. Thank you so much for joining me on the podcast today.

Adrián Rubio: Thank you so much, Rasheed. It's my pleasure.

Rasheed: So I want this episode to be a bit broad, but pretty deep when it comes to legal issues in the EU and therefore all the EU member states. And something I've been pondering the last year, two years or so, is this issue with the perception of EU law when it comes to people who are, what they call, broad libertarian or conservative or even progress studies oriented. And my first question is essentially to frame the conversation. Do you think that libertarians or conservatives really do not think enough about how EU law has liberalized many of the economies in the member states? Not only Eastern European economies, but also countries like France and Spain as well.

Adrián Rubio: I think you mentioned two different things that are relevant here. Yes, historically, the EU law allowed some national markets to get liberalized, especially in heavily regulated sectors such as telecommunications, airlines, or energy. But, and I must highlight this, having seen the latest developments in EU regulation, we can see that the EU tends to concentrate power at the center, at the Brussels bureaucracy, at the Brussels machinery. And so I think it might be a bit nostalgic to think that EU law, per se, in general favors liberty or favors liberalization. So what I would say is it tends to do so once it removes power from member states and or regions.

So let me explain this a little bit better. You can find a pattern, for example, just get the green deal regulations and directives, but also all the ESG governance mandates, or even the AI Act, or the notion of digital sovereignty. You see there that they liberalize those sectors, but once they've already gathered the bureaucratic control at the center in Brussels.

So they develop a bureaucracy, an institutional apparatus that yes will favor liberalization, but once it's under the control of Brussels. So I think from a classical liberal and or conservative position, I would remain skeptical. And if you think about this, we are not necessarily ideological about this.

So it's not yes or no to the EU as such. EU law has indeed liberalized markets. And we can see this especially in Eastern European countries. And also as you were saying, in many Western countries, especially from the South: Portugal, Spain, Italy, or Greece. Just because the Europeanization of these countries came at the same time as their neo-democratization, if you want. In other words, they had to reinvent themselves and agree to the "Acquis Communautaire", in other words, agreeing to the European set of norms involved, also liberalizing markets from an economic point of view. However, I just keep highlighting this point. EU law is a powerful tool when used adequately by lawyers and also by member states.

But EU law, per se, I think, is neutral. And so one needs to actually pay attention to specific measures because the tone might sound liberalizing, but then the mechanics involve giving away all the power and getting it centralized in Brussels.

Rasheed: So let's talk about this mechanical aspect. So one of the things that comes up a lot when it comes to EU law, as favoring or countering liberalization policies, is this reaction with the member states and how they interface with EU law. So yes, you have EU laws that are literally imposed upon member states, depending on the various complex levels of the EU and the member states. But it seems to me that when the many member states transpose EU directives into their local laws, they essentially maximize the potential regulatory aspects of the law to full effect. Rather than using it in, let's say, the intended, but let's say, the more liberalizing effect. But as you mentioned, EU law could be neutral sometimes.

Who essentially has the blame, if you were to put it that way, for this obtuse, regulatory increase over the last 20 years in the EU?

Is it the member states via transposition, or is it core EU-centric law?

Adrián Rubio: Actually, that's a really good remark that you're making, and I don't think I would find guilty parties while having the other hand, innocent parties.

I think first of all, there is ignorance about the EU machinery and the EU law mechanism. Not only domestically by legislative and executive powers, but also sometimes you can see it in the judicial power.

For example, you see some sociological behaviors that are somehow concerning. For example, in Spain, now you are mentioning Spain, that some courts are skeptical about using some mechanisms, some actually decent procedural mechanisms that eulo favors or allows just because it might seem like a political game.

So there's always that tendency to politicize, even procedural law. In other words, once a domestic court acts or activates an EU law procedure or mechanism, alarms and alerts by media, usually mainstream media controlled at this moment in Spain, are mostly directly or indirectly by the main party in power.

It becomes something political, not strictly legal. So who's to blame here? I think both first, it's the EU per se, as a pro, as a project, is to blame insofar as any other project is thirsty for more power. It has some inertia, which I think is problematic. Not only sclerotic in many liberalizing ways, or thinking about increasing freedom.

Because it paralyzes it or freezes it, it can also foster it, as we just discussed. In other words, that's why I said that my initial point is always neutral. I would call it Euro realist, meaning let's take it case by case. Let's take policy after policy and consider what normative judgment we can make on EU behavior as an institution.

So the problem sometimes is just that the institutions themselves need to prove that they are relevant, especially the European Parliament, and which European Parliament has been. Empowered throughout the latest primary sources reforms, like treaty reforms, just because it is. The EU always faces this issue of the democratic deficit.

And so to tackle this, I think the European Parliament has gained some increasing power. The problem is that there are some factions within the European Parliament that really have a different understanding of what the speed and the ambition of the EU as a polity, not as a union of law, not as a union or an inter-governmental union, but rather as a growing state, should be doing.

And so sometimes competencies are taken to. To their upper limits. I don't think I'm think I might I'm being clear with this, but it is something really remarkable when you see the European Parliament from the inside, that there's a thirst to show off, a thirst that they are relevant, that they can do stuff.

And so they bring in some sort of impetus to the European project that, earlier on, when the European communities were created, wasn't there. And I think that's also somehow denaturing, the entire technocratic aspect of some EU policies that used to work well, especially those that, for example, removed barriers to the internal market.

Rasheed: It sounds as if you're saying an increase in democratic say of the parliament has led to a decrease in democratic value of the EU project.

Adrián Rubio: Absolutely.

And I would wholeheartedly agree with this, with that statement. However, let's recognize that there's some tension here. In other words, we don't want a Brussels technocracy that there is, in other words, it exists technocrats, or let's actually get the general message first. Expertise is needed for important and especially tough decisions to be made.

Let's say it, for example, the starting point of my career at the European Parliament. Back in 2014, I faced a debate in which I saw how protectionist Spanish MEPs were about ports.

Ports, in other words, are a heavily relevant core, even a strategic sector for commerce. And you saw how the Spanish MEPs agreed only across parties in a multi-partisan way just to support the rejection of liberalization and the opening of the doors to competition.

But Italy faced, not so long ago, also a problem with the beaches and the control of those concessions. And they showed some sort of anti-liberal rising forces. So technocracy in those situations actually works better. In other words, if it is clear that free open markets favor more trade and not only trade or commerce in a.

In a worrisome way, but actually creation thereof. In other words, create trade creation, commerce creation rather than diversion with not only just rent seeking, but also governmental control that actually acts in a way that doesn't seek efficiency, but rather maintenance and increasing their bit of the, of their piece of the cake.

So yeah, technocracy is actually an ally for some key strategic sectors. In other words, paying attention to data, to figures, and to what works is necessary. Call it technocracy. I mean, you might call it technocracy just because they are those bad or. Hardly palatable decisions that some sectors in society will not agree easily with because they don't resonate with their intuitions in their hearts and minds.

Let's say that way. The EU actually is a great force to enact some tough decisions that at the political level would be very costly, and I think that should be the way EU law could help us lovers of freedom to foster freedom. In other words, that's why I said EU law is a powerful tool when being used, when used properly.

So I wouldn't demonize the tool that we've got. It's just like technology. You can hear now in all conversations about AI, and you find some. Techno optimists and techno pessimists. In my case, I'm more of a pragmatist here. The tool in and of itself is neutral. Whatever we do with it is what leads me to be optimistic or pessimistic.

So I think the value judgment is also here. Technocracy, per se, EU technocracy even, could be beneficial if oriented towards the actual public goods that we seek, meaning maximizing individual freedom. That also includes economic freedom. And unfortunately, I think that is part of the past in the EU.

In other words, when understanding fundamental freedoms, the EU is somehow reluctant now to take economic liberties as part of those fundamental freedoms. And you see it in many different areas. And this is concerning because this has a spillover effect. Spillover effect meaning at the domestic level, member states are also somehow in a tendency to replace the central, even primordial role of economic liberties as necessary conditions, not sufficient, but necessary conditions for the flourishing and the progress of societies and communities. So, EU law in terms of technocratic elements, yes, when used adequately.

However, if we grant all power to technocracy, the democratic deficit becomes unbearable. And you see this, especially in a very frustrating way, when you see that the EU machinery, Brussels, let's say it this way, uses double standards. And I think this is what annoys me the most about the current situation of the EU.

EU institutions do not enforce EU law equally, meaning first they create some room for political discretion, I would say, so that they enact or they initiate some procedures only and solely when the actor is somehow reluctant to the EU grand vision of what the EU ought to look like. However, when the same or almost the same decisions have been taken by any other member state, if that member state or its leaders are somehow favorable in general to the EU project, those mechanisms are not taken seriously or not even considered to begin with.

So I think that increasing or tackling the democratic deficit by increasing democracy is also dangerous. In other words, I'm not in favor, for example, of a more direct democracy at the EU level as some people on our side of the political spectrum on the right are. I don't think that the EU should be doing great or grand politics.

I think the EU should be doing what it's good at, which is tackling some specific sectors in which cross-border cooperation and mutual recognition, for example, of products, substances, or favoring a single union or a unified market that actually operates in favor of customers and producers, and citizens in general.

Do not forget the political dimension of the market player. I think the EU could do great things with that when focusing on that precisely. However, if we become a polity with all letters, then of course, democracy's a necessary condition for it. And I don't think that interacts or connects well with fostering the right decisions that, at the political level, are very hard to swallow.

For some things that Spain, in this case, or Italy, or like Bulgaria, are not happy doing at home, the EU is used as an excuse or almost even as an alibi. Technocracy can be your friend. Technocracy can be an ally for politics. So what is an administrative lawyer like me concerned about?

Mechanisms to keep that technocracy not only transparent, but also legitimate and accountable, that, when I teach administrative law or when I practice EU administrative law, that's everything I fight for. What I'm fighting for is making sure that whenever EU institutions exercise some political discretion or some technocratic discretion, if you might, we have the necessary legal and procedural tools to defend ourselves when our opinion hasn't been heard, we didn't have a chance to participate adequately or in a meaningful way in the decision making process or decisions have been taken in the shadows, in other words, with black boxes that are very hard to see some sort of throughput, transparency, and some scholar say.

Of course, judicial review then becomes the necessary tool that any lover of freedom, also at the EU level, should be ready to use. And I cannot emphasize this enough. I think libertarians, conservatives have given up on litigation in many ways.

Rasheed: Why do you think that happened? So courts have grown very comfortable, not only in Spain, but definitely in Spain, to annul, for example, urban plans for strategic environmental assessments.

Adrián Rubio: Yeah.

Rasheed: Do you think that judges are more receptive to procedural rights claims, environmental review, and consultation than to economic freedom claims? Is this why you think classical liberals or libertarians do not do litigation as much as they should, or is there another reason?

Adrián Rubio: That's an excellent question that I also pose to myself very often as an EU administrative lawyer who actually avoids litigation as well as part of my work. So some of the reasons that motivate my choice of preferring alternative mechanisms is that once you grant the decision to a third party, in this case a judge, you lose a bit of control.

But this is not unique to EU law. In other words, this is not an innate problem of EU law or EU law in terms of judicial mechanisms or procedures. No, this is part of any system in which you can go to court. Adding a hetero composed decision making solution or resolution mechanism will always increase uncertainty.

Of course, uncertainty is not only a cost, but also a transaction cost that comes with time.

Time, when understood properly, means money. So, of course, any reasonable, I would say reasonable lawyer, when your client is pushed or a silent decision means concrete costs for expected positive outcomes without the certainty that they will be that.

It's an economic analysis of the law that I think we libertarians and conservatives actually developed not only in practice, but also as an economic or scholarly discipline, which is important. In other words, the law and the legal processes do not operate without any economic efficiency consideration.

However, I definitely see a window of opportunity here. In other words, if we train like-minded lawyers, especially young lawyers who are mostly EU natives, if you might. In other words, the EU legal system, which is very unique, is no longer foreign to the new generations of European lawyers.

We grow up studying constitutional law, knowing that constitutional law is at the level of EU primary law. So that coexistence between domestic law and primary law at the EU level is part of the general mainstream understanding of any lawyer trained in the EU at the moment. So we can use that.

Judges. So what's the issue with judges? First, judges are also part of the general society; in other words, yeah, of course, they are experts of one kind. I wouldn't call it technocratic so much. I would call it counter-majoritarian, which, understood wrongly, could also mean anti-democratic. But for the same reason that I argued in favor of some technocracy, I will also argue in favor of some counter-majoritarian mechanisms in the legal system of any polity, community member, state, region, or EU as a pseudo-generous polity. However, domestic judges are somewhat reluctant in general to be the ones who move the debate forward. So what do I mean by this? And this is actually part of my professional experience.

This is what I've seen so far. Judges are not in a position to actually advance EU law. And it's not their role either. So let's actually be honest about this. We cannot expect a judge to introduce arguments of economic efficiency or economic liberty when you see the trends of not only domestic policy, but also EU policy going in different directions.

So if the focus of EU law right now is, for example, on SE or on ESG environment, social, and governance, introducing the pillar of protecting economic individual freedom sounds a bit pushy; in other words, it sounds a bit outside of the scope of the interests of the current EU. And so I think that we cannot expect judges to be heroes.

I think they might be at some points also villains. It goes both ways. But what I'm saying is we should not expect them to become martyrs. So I think that there's a great window for legal mobilization, a concept that in the US, for example, is very common. In common law systems, it's very common to use litigation strategically to get some topics back on the table.

However, it is not so much part of continental law tradition, and I think that's something that EU law especially fosters and favors us to try. Let me go back to my teaching. EU law is not taught as other courses that I teach, like administrative law in Spain, for example, or comparative administrative law.

In EU law, when you read cases and you use case law, there is some combination, an interesting combination between some very continental law, civilian law doctrines, but also there is some element of common law. I would say physiology, in other words, not so much the instrument but the methods, the way it works.

The case law of the Court of Justice, the EU, evolves in a way in which we study cases by their name. That's something that, for a Spanish law student, is very uncommon. So, EU law, I think, offers the possibility to be a bit experimental. And this is something that I encouraged my EU law students back in the past.

EU law is almost a laboratory, a legal laboratory. In other words, since it draws from so many legal cultures and traditions, you might try, for example, to use some legal mobilization. In other words, why shouldn't classical liberals, libertarians, or conservatives use those tools and try some strategic litigation?

For example, you just said in Spain, there's the case of the urban planning and the local municipal plans for the environment or design of cities, et cetera. It seems like only some elements would be read by judges as substantial or necessary elements for an adequate plan, but it is not necessarily the case.

EU law grants and allows you to actually talk about other fundamental freedoms of the EU. Economic freedom is there, of course, very conditioned. Very conditioned, and always somehow in a secondary order, which is indeed by design, a problematic feature, not only for the EU, but also of constitutional law across the globe.

Spain, for example. Of course, there is a right to private property, but it is always subject to the general interest. So there is already a door for abuse of power by the public institutions, public authorities, who are those who interpret what the general interest looks like and entails. You are already somehow getting your economic freedoms and liberties a bit decaffeinated because they are subordinate manner.

In other words, they're of a subordinate character. They're not as primary as, for example, environmental rights, which are very novel in many different ways. In many respects, some elements of environmental law are unique legal experiments. Like talking about rights of nature or animal rights, those debates weren't there 100 years ago.

In other words, using even the language of claim rights and privileges and liberties, and no rights. So if the EU was experimental, creating and developing legal mechanisms to protect animal welfare or environmental safety, or protect your public health, why shouldn't it also be good for us to become a bit experimental and, through litigation, try to get the EU judiciary, in this case, not only in Luxembourg, but also at the member state level.

Remember, every single courtroom in the EU member states is also a potential EU court. Why shouldn't we try that? Has it even been tried?

Rasheed: That's my question to you. Has it? So one case comes to mind very quickly,

This is the case in Barcelona, here in Spain, a licensing problem where Barcelona restricted the number of licenses for things like Uber.

And they took that case to court and used a preliminary reference in the Cataluña court to push the EU to have the EU say, "yeah, this actually contravenes different economic freedoms that EU law guarantees.

I would think you would have a lot more of those things happening. Is it a fact that the lawyers themselves don't try to push these things?

They don't actually try to use EU law via preliminary reference, for example, to actually get EU law input into these deregulatory cases.

Adrián Rubio: Excellent example that you bring in. So, something that I would say that I already mentioned earlier, it is true that at the moment, Spain might not be the best example for this because courtrooms are seen almost as quasi-parliamentary entities at the moment. So we have ministers from the current government accusing specific judges, targeting specific judges with name and surname, for "lawfare."

In other words, for abusing the legal system to accuse members of the government or members of the president or the prime minister's family. So, at the moment, it might not be representative, what we find in Spain. So I would be interested in checking what's going on in libertarian or conservative circles out in other member states.

Because what I know at the moment is from Spain. So yeah, there is some skepticism by lawyers to actually invoke EU law. First, it feels a bit remote. It feels remote, especially for the older generations. I think there's a sociological element to it. Younger lawyers, I think, would be more comfortable, I believe advancing some EU law arguments before the courts because we are more knowledgeable, or as I said, more native to EU law in general.

It would be a bit risky for an older person. Older people tend to be litigators. That's the point. That's why I said the sociological element. If you see the structure when you're a junior associate, you'll most likely work just with paperwork. You'll be preparing paperwork. Sometimes you'll litigate, but you'll usually litigate with civil or criminal cases.

Not so much public law, administrative law, and regulated sectors law. When you do that, though, I don't see any veto for us to try. Yeah, we've been humble about it. And this is not something I would like to say about ourselves, about us, but I think we have become comfortable knowing that there's nothing good in the EU.

In psychology, they call it learned helplessness or something like that. Meaning you somehow naturalize that life sucks, meaning EU law sucks, or EU law only favors arguments on ESG or environmental protection, or social welfare elements.

And it is true that the EU mostly is about that. But let's be honest, the agenda or the docket of the courts in Luxembourg is not made up by itself. It is also on us to bring up cases. So yeah, I think we, especially us, those liberty lovers, fight freedom fighters if you want. We shouldn't be afraid of trying, we shouldn't be afraid of trying new things.

Rasheed: My friends in Ireland, they always lament about the standing given to them by the Arrhus Convention, and they use that standing to go and block all these potentially very good infrastructure projects. And they're saying, because of EU law, that this is possible, slowing down progress in Ireland. But at the same time, it seems on the flip side that pro-freedom organizations or NGOs could also have standing to do litigation in favor of more development, but they don't. So where is the tension coming from here?

Adrián Rubio: First of all, the Arrhus Convention is not necessarily an EU innovation. I would call it more of an international law, piece of legislation or treaty, that is adopted, that has been adopted by the EU as such. And I think this is the key. So the Arrhus Convention is now "Europeanized."

However, that Europeanization of Arrhus logic is again, somehow biased or linked to some specific causes. Why? Because Arrhus, in fact, is a great convention to secure access to justice, transparency, and participation in environmental law matters, in environmental decisions in general. However, it is not of unlimited abuse that it comes.

In other words, access to justice cannot come with unlimited abuse of it. So suppose, for example, that there is a case in which some limits for emissions come up. Of course, a lower and economic system would say there are schemes to control negative externalities without actually preventing companies and industries from functioning or growing.

There are some mechanisms to actually make things even; however, our responsibility of participating in the decision making and especially access to justice, in other words, enact or initiate judicial review, is mostly and solely monopolized by environmentalist NGOs. So those who speak about themselves as being the protectors of the environment, as if conservationism had never been conservative to begin with, I urge them to read Roger Scruton and his treatment of the environment and green conservatism, et cetera. So, besides the political element, from a legal point of view, Arrhus would allow an association, a think tank, an NGO with a legitimate interest, which we need to discuss more on further what that means.

Of course, also something that is being, has always been debated at scholarly events and conferences is whether the Plowman, like the main landmark case granting access to the courts in the EU, is too strict.

Rasheed: So in 2019, the Gas Natural case, the Supreme Court used indirect effect to align restrictive Spanish energy rules with EU liberalization tools.

In my view, this is a very good thing for libertarians.

But could they argue that essentially the ambiguous Spanish regulations must be read in the least possible, burdensome way, as in using that precedent as a doctrinal effect for thinking about how to go about using indirect tools in procedure rules from the EU in this member state, Spain, but other member states. And then to submit a bit larger question, what do you think are the key procedural tools that people who are more interested in liberalization should actually think about using or deploying litigation or otherwise?

Adrián Rubio: The first case, when you mentioned it, sounds a lot like Simmenthal.

Rasheed: Yes.

Adrián Rubio: Simmenthal, when I was teaching it at the beginning, when I learned it as a student, I never made the connection with liberty.

Last time I taught it, which was a couple of months ago, actually, I realized that Simmenthal can become a true liberty tool.

In other words, this idea that national courts, any national court, not those at the top, can reassess bureaucracy and cut bureaucracy at the domestic level without waiting for Parliament or waiting for the legislature or the executive, is a powerful tool. In other words, EU law sometimes is on our side, and having this idea of what I can say, cutting the tendency of some member states to just add more burdens or more layers of bureaucracy and restrictions beyond those EU directives.

Simmenthal allows us to go before the courts and redirect the conversation. In other words, limiting additional steps that would just denature, in fact, the directive's purpose or the purpose of the directive. Of course, we also have to bear in mind that procedural autonomy of member states is there, and so usually in those areas with shared competencies, the EU directive will tell us this is what the EU as a whole wants, and that's our secondary law, meaning this is what must be present.

And of course, there are always some students who try to go above and beyond. Usually, when that happens in, for example, environmental law, which is a shared competence, it tends to go against freedom. It tends to go in favor of further restrictions. However, let's keep in mind that Simmenthal, when invoked adequately, could also become a shield of liberty.

It could allow us to force the court to review. Is Spain going way too far? Is Spain adding bureaucracy and further restrictions that actually weren't there at the beginning of EU law, per se?

Rasheed: That is where the irony comes in, where it seems like EU jurisprudence doctrine to review the transposition member states of EU law that can say, Oh, that was actually a bit too much. I guess this is maybe the psychological answer you have. Why don't lawyers or groups of interesting parties, very pro-freedom, try to enact review or transportation review or preliminary reference via, for example, invoking doctrinal issues like in Simmenthal? Seems to be a very obvious thing to do.

Adrián Rubio: In fact, in Spain at least, what I would say is that I think we lack some sort of group of people who have the capacity of being parties in those legal procedures.

Just think about it. If you're a lawyer representing a firm with a direct interest, it's the involved party in the decision, or the restriction will be directly imposed on them, it's tough to persuade them. That litigation could be seen as something strategic that goes beyond the specific case. I cannot easily sell to a client, "let's go to core. Let's wait for the time, because we might be able to actually reduce the ambition of this transposition of the directive."

So maybe what that points to is that we actually need a group of people that are capable of taking those cases, maybe even defining a pro bono system. That's the entire idea of legal mobilization. In other words, lawyers or jurists together, trying to use the legal mechanisms lawfully, in a law-abiding way, to push the law.

Not to push in a political sense, but actually to filter. Abuses of law that come through even legislation, but especially as you said, transposition of directives, because it also disrupts very much the other goals of European integration, such as the internal market, and you see this with pesticides, for example, all the time.

Mutual authorizations are not as easy as you might expect in a single market, for example. So a product, of course, active substances would always come from the approval to enter the market at the EU level, per se, through a regulation, actually, which is a decision of course. Administrative law at the EU level is peculiar because we use a legislative decision or quasi-legislative decision to actually approve a substance, which is strange.

From a normative technique point of view, it's unique, strange. So once you have that substance accepted, then you need to approve actual products, having those active substances. And this is cross-sectoral, in other words, this could be in plant protection products, but it could be in biocides.

It could be in human medicine products or cosmetics, or anything chemical, which is what I work on. My examples come from my actual practice. Then you see that what happens, for example, in Estonia might not be echoed as easily as you expect from Spain. So there's a product that in Estonia has no problem whatsoever to be approved.

And then in Spain, it's not approved, and then it takes time. And of course, if you are a producer who has a European mindset, in other words, a European integrated market point of view, then you don't have legal mechanisms to force Spain to take into consideration what Estonia is doing.

And so, some pre-litigation, it would be at the administrative procedure review, in other words, before getting into Spanish administrative courtrooms. So, reviewing administrative decisions within the administrative procedures and the mechanisms that we've got.

I faced this situation a couple of times, and I had to try to persuade the ministry in this case of health, agriculture, and environment altogether that the situation would be detrimental to the interests of Spanish agriculture vis-à-vis Italian agriculture and Portuguese agriculture.

This kind of argument shouldn't even exist. In other words, if we truly believe in the internal market and we've got some mutual recognition schemes, why aren't they always working almost in an automated manner?

So of course, there's room for us.

Rasheed: This was one of the main critiques in the Draghi report, I believe, about the problem of harmonization rules or lack thereof, and then the lack of market enforcement by the commission. The current commission has done 80% fewer enforcement actions than previous commissions.

So the main thing the commission should be doing, policing the internal market, they have stopped doing that and decided to do other things. Are there actual legal mechanisms to force the commission or other parties to actually come back to the table to do the things that they should be doing?

Adrián Rubio: That's a great question, and I think in fact that the higher levels of democratization of the European Parliament are here, are allies. We can, through parliament, require or urge the commission to start doing those procedures to take their job adequately and seriously. And indeed, what you said is so true. In other words, the European Commission now, if you check even the legislative agenda when a new commission is appointed, the College of Commissioners seems to be a different animal than it used to be. In other words, it's not about the members, it's also about the portfolios, the political priorities at the European commission level set by at least partially the European Council, this new institution after Lisbon. And I think it's politicizing the European Commission, but not in the right way.

In other words, politicizing in and of itself, again, is neutral. I'm always very functionalist when it comes to making normative or value judgments about what works and what doesn't work. Let's check. Let's see. Give me the evidence, and then I'll make my judgment. A political European Commission could work better if accountability, transparency, and participation are enhanced, adequately secured.

But if you don't touch the mechanistic or how, what can I say? The bureaucratic rules for their operating systems, and you make it political, then you are empowering a college of commissioners, in this case, with some competencies that weren't even foreseen by the treaties. And this is what we see now with Ursula von der Leyen and all the parties of the great coalition supporting her and her commission, trying to force ideas, pushing an agenda. First of all, it's not that it doesn't come directly from citizens because, of course, you can argue that, yeah, we did Spitzenkandidat.

Of course, Ursula von der Leyen wasn't the Spitzenkandidat back then. So it works whenever it has to work. So again, politics, high-level politics, if I may, you might think, "okay, they’re indirectly legitimate." Let's assume that for the sake of argument. So we are not gonna contest their legitimacy. But when you see the legislative agenda of what kind of proposals the commission will take and will present to the council in the European Parliament, almost 70% have nothing to do with the internal market or its defense.

It's all about expanding more and more regulation, and I wouldn't even say technocratic regulation; it's just regulation. Let's regulate. Regulate, as in let's limit and precondition what the European Union will be doing, what it will be able to do, et cetera. In other words, it's redirecting the entire European Union with a political vision. "These are our priorities. These are not our priorities." However, the European Parliament now has tools, including written questions, oral questions. It works almost with a very limited amount of capability in this case, but it can make some noise.

In other words, what happens at the European Parliament makes noise. MEPs know this, and in fact, with the right ideas to defend freedom, they're capable of doing great things, at least making that noise. What happens then with lawyers and jurists who do not want to play the politics game?

Let's say it this way. The law in the courtrooms, in other words, judicial procedures, could also be a good locus or a good forum for us to enhance and advance freedom.

I don't think it's a problem of will, I think it's a problem of a lack of network.

In other words, I don't think we know one another enough, so maybe this is a, to be honest, piece of homework for think tanks, associations. We're not good at keeping in contact. Or maybe it's just dominated by economists. I don't have a problem with it, but I'm saying maybe the legal voices have a place, and their expertise might be of help to the cause of freedom.

So I think there's room for some innovative bottom-up associative or association kind initiative that would lead us to explore at least the possibilities of EU law, seen by the judiciary, to actually advance freedom. Just with the same EU law, in other words, with the same pieces of legislation and the same case law that have been used politically against freedom.

Rasheed: So let me ask one final question. If you were advising a libertarian, classical liberal, or progressive think tank in Madrid, Dublin, in Brussels, what kind of cases would you tell them to start with? What do you think are the low-hanging fruit for market liberalization using procedural tools of EU law?

Adrián Rubio: So first, the last one that we just mentioned, it would be close to what I'm trying to do, I mean, at a lower level, but anything using access to justice. In other words, using procedural rights to fight disproportionate environmental regulation, or I wouldn't even call it environmental, I would just call it against innovation, or extremely precautionary principle-based.

I'm writing a paper on that, by the way. So that's why it comes naturally to me to argue for this. So that the starting point of environmental regulation and lawmaking isn't necessarily prohibition by nature, by default. So getting access and getting our voices respected or protecting economic liberties as part of the dilemma of the proportionality test at the end of the day, I think we just don't show up. That's the point. So I think that's the first thing, at least a team of a couple of lawyers, public law-inclined lawyers should focus on. Let's explore, let's see what the procedural rules could allow us to enter the courtroom with and make some arguments that haven't been made before or that usually don't come up.

It's not that we don't think about them, it's just that we use different fora. We're somehow scared of going to court. And I understand because if the funding is not from an association per se, but rather we are working with clients, we cannot, and we should not in good conscience be using the company's expectations, trust and name to advance these cases.

So that's one thing. Anything related to flipping a bit, the dominance of the anti-free AARHUS Convention, if you might put it this way. The second kind of cases, anything that fosters market unity. In other words, enhancing the single market. The pathology here is again, the European Commission, by treaty and by definition, should be the one who initiates all these procedures.

They're not doing it all the time. So maybe we actually should also put some political pressure to make sure that this happens by the commission, and alternatively, simultaneously using or challenging barriers at the domestic level, applying the treaty of the function of the European Union. Articles

I think it's 35, 34, 35, 36, they are powerful articles that would allow us to bring up cases just in defense of the market, union market unity, if you might.

So the last one, just so that we echo a bit of what we discussed together. Why shouldn't we try to explore where Simmenthal takes us from a liberty point of view? In other words, any case related to permits, licenses, or deadlines. Anything that is very explicit in EU law that is not respected by the national administration. And this is not uncommon. First of all, the transposition of directives sometimes works well, sometimes does not work well. Maybe we need a team in a new initiative association, think tank, whatever you call it, in Dublin, Brussels, or Madrid, to monitor how those transpositions go. And this is also an important thing that I usually repeat a lot in class. Directives are the most preferable piece of legislation that the EU can produce out of regulations, in other words, binding with EU law, text directly from Brussels.

Vis-à-vis directives, meaning with a task of having to reinterpret or accommodate the directive into the letter of domestic law. Those who love freedom, we would in general almost always prefer the latter. And why am I saying this?

Because then there are other places that you can persuade people that those decisions, that favor liberty, that favor autonomy, and other sorts of freedoms, are preferable. Once the decision is made in Brussels and it's part of our regulation, good luck. You are out of the game, and you have to go through litigation, through case law, through the court.

The process of the transposition of those directives, you can take part in it through the domestic organizations. Of course, it involves a little bit of lobbying, but yeah, why not? A think tank should also produce reports, position papers. I would definitely think that lawyers are well-suited to do this in an articulate, convincing, and persuasive manner.

And then once it goes wrong, which might go many times before the courts, we should invoke Simmenthal and try to see if the doctrines of direct and indirect effect could allow us to request or force national administrations to act in efficient liberty-defending manners. So again, my takeaway here is there's room for us jurists and lawyers, who know about EU law, to try to see how far it takes us to defend freedom using the tools of EU law, not just withdrawing from the entire game. I think we did this a bit, I myself included. In other words, I just added the label of EU law as part of an almost globalist project, and so I don't wanna have anything to do with it.

But then I needed to work with it because that's what I'm decent at. That's what I know best. And I realized that we have some powerful tools that, when used in the defense of freedom, could be beneficial and, most importantly, successful. So why shouldn't we explore or concentrate our energies into two or three of the ones that we mentioned during our conversation today?

And we start checking out what works, what doesn't work. And again, keeping an open mind in a functionalist way, in a pragmatist way. This is, at the end of the day, what being a Euro realist looks like. I'm not per se, a Euro skeptic. I do believe in an idea of Europe, perhaps not so much about the European Union federalist, supernational thing that, of course, I do not share.

But that's my position on this. But I'm not a Euro skeptic by nature either. In other words, I know that EU law allowed modernization in a liberalizing way of the economy. And I think priorities for the EU should remain mostly economic, not political. So why shouldn't we go back to it and try to see what's left?

Rasheed: Adrian, thank you so much for coming on today. I believe this episode will be very helpful to many people.

Adrián Rubio: Thank you so much, Rasheed. It's a pleasure.

Or listen on Spotify

Show notes

Spain’s fiscal architecture is more than a ledger‑sheet debate; it is, as economist Jesús Fernández‑Villaverde, the Howard Marks Presidential Professor of Economics at the University of Pennsylvania, reminds us, the very skeleton of the modern state. Drawing on Schumpeter’s maxim that “the state is taxation and taxation is the state,” Fernández‑Villaverde opens the conversation by weaving the American and French revolutions into a wider argument: when you refashion a nation’s tax machinery, you refashion the nation itself. That lens frames Catalonia’s renewed demand for a new financing model, not as a routine budget negotiation but as an existential redesign of the Spanish state.

Jesús details how Spain already operates one of the most decentralized fiscal systems in the world, “more latitude than most U.S. states,” he notes, yet Catalonia now seeks the bespoke privileges long enjoyed by the Basque Country and Navarra. The Regional Authority Index rates how much self‑rule and shared rule each country’s sub‑national governments actually wield. In its last update the index places Spain as the most decentralized unitary state in the sample and fourth overall among 96 countries.

Those northern provinces collect every euro on their own soil and forward a modest remittance to the central treasury, a setup that Fernández‑Villaverde brands “a Confederate relic.” Extending it to Catalonia, he argues, would hollow out Spain’s common‑pool finances, deepen inter‑regional resentment and erode the principle of equal citizenship, while turning the national revenue service into little more than a mailbox for provincial checks.

Politics, of course, is the solvent in which these principles dissolve. Prime Minister Pedro Sánchez’s coalition leans heavily on Catalan and Basque votes; hence, the Jesús says, the Socialist leader flirts with a reform that his own party barons fear will be “the kiss of death”. Layer onto that an opaque, labyrinthine funding formula, ripe for local demagogues to blame Madrid or the neighbors, and Spain’s fiscal question becomes not merely who pays, but what kind of country the Spanish want to be.

Recommended

• La factura del cupo catalán: Privilegios territoriales frente a ciudadanía - Jesús Fernandez-Villaverde and Francisco De la Torre

• El desafío secesionista catalán: El pasado de una ilusión - Alberto Reig Tapia

• El guionista de la Transición: Torcuato Fernández-Miranda, el profesor del Rey - Juan Fernández-Miranda

• Website about the economic agreement with Basque Country

• Las elecciones generales de 2030 - Jesús Fernandez-Villaverde

• A Millennial View of Spain's Development: Essays in Economic History - Leandro Prados de la Escosura

• El dilema de España - Luis Garicano

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This transcript was automatically generated by AI and lightly edited. We don’t catch every error, so if you spot one, send a message/email via progress@cpsi.org.

Rasheed: Hi Jesús, thank you so much for coming on the podcast.

Jesús: Thank you for having me here.

Rasheed: So I'm looking forward to talking about your new book. [Shows book]

Jesús: Yes.

Rasheed: It has been making quite a stir in the last couple weeks in Spain because of the recent legal adjustments, to put it mildly, that are being pushed by Catalonia.

We'll come to that but I want to start off very broadly. Something you mentioned. I'm gonna ask it in a question. What did Schumpeter understand about the concept of states that political pundits tend to not understand?

Jesús: Okay, so the the point that we highlight at the beginning of the book, which is recalling a very famous talk that Joseph Schumpeter, gave right after World War I in Austria is that a modern state is basically a fiscal state. By that he meant that the fiscal structure of a state determines all the other political economic structures of the state.

And therefore, if you change the fiscal structure of a state, you are changing the state in itself and the examples that we give in the book are very straightforward. And two that come to mind well, while the United States. The United States is born from a fiscal dispute. So the British Empire was organized around the idea that the colonies in North America had their own responsibility for taxation, for fiscal policy. And then in some moment the government in London, the decided that should not be the case, that they want to move to a different system. And that initiates a constitutional conflict that ends up with independence of the United States. But many people forget that the constitution that we have now in the United States is actually the second constitution that the United States had, the 1787 Constitution.

There was a previous one, the articles of Confederation on Perpetual Union. And what happened with that constitution is that it set up a fiscal system that was not sustainable. And it's very clear by around 1786, early 17 87; that the system is not working. And that's why James Madison convinces many other people to call for the Constitutional convention in Philadelphia to create a completely different fiscal system and with it a complete different federal system. And the interesting thing is, if you actually read the pamphlets and the articles of the time, it was very clear to everyone involved that we were talking here about fiscal systems. So that's the first example that we have in mind.

And the second example is the French Revolution. The French Revolution comes because Louis XVI needs to call the State Council, because the the French fiscal system was in complete bankruptcy and he wants to change it. And that unleashes a series of forces that leads to the French Revolution. So at the very core of the origin of this modernity, you have the American Revolution and the French Revolution. Both revolutions are fundamentally about fiscal structures. So when you are talking about fiscal structures, it's not, that boring class you took in public finance in your senior year where they were telling you about debt, loss. Taxation is actually the very essence of a modern state.

So taxation is the state, and the state is taxation.

Rasheed: Now we're gonna be talking a lot about Catalonia. Basque Country also, but Catalonia in particular. And of course coming from the outside, people tend to think the Catalan tendency towards separation is a fairly recent phenomenon. As you highlight in the book, it is not given that the sentiment of Catalan separatism far predates the modern state of Spain.

Is there a future where you think this sentiment goes away?

Jesús: So there is a low frequency movement that is happening right now in Cataluña, which is the enormous demographic change. Okay?

And I have made this point many times. Right now around only 55% of births in Catalonia are born from a mother that was born, actually not even Catalan, that was born in Spain. That basically tells you that only 40, 45%, perhaps even a little bit less of mothers that were born in Spain speak Catalan at home. At this moment, I will say that less than 30, 28% of kids born in Cataluña, perhaps even less, will speak Catalan at home. And that basically means that as we fast forward over the next 40, 50 years the use of Catalan as a language will suffer a lot. And usually this type of nationalist movement are very directly linked with the language. Not always. You have the case of Ireland as maybe as an exception. But in that sense, my reading of the situation is that Catalan nationalism will be much less prevalent in 2060, than it is today. Again, all this depends on a lot of demographic factors, and of course forecasting the future is difficult.

Rasheed: In 2017 when there was the illegal referendum in Cataluña. There was, following that, a situation where the Court of Auditors and Supreme Court wanted to give some massive fines to people involved in using public money to push forward the referendum. One of them was a very well known economist - Andreu Mas‑Colell. And at the time, many international economists, including 33 Nobel Laureates, wrote a famous letter where they unequivocally supported Mas-Colell. It was pre purported to use public funds to also promote separatism.

Why do you think that a lot of international (often mostly American) econ professionals tend to be a bit more lenient when it comes to separatism in Cataluña, but not, let's say, revolting in DC.

Jesus: Yeah I think that there is a combination of factors. Academics tend to always look sympathetically to what appears to be the underdog. Poor economies which are trying to fight for freedom or whatever you want to call it. And the aggressor's been fined by the legal authorities to be forced to pay some money.

So that always looks good. You stop randomly an academic in any university and you tell a story like that without entering into many details. And people will always be sympathetic. The second point, which I think is more important, is, he was a very well known academic, very well respected.

I don't have anything negative to say about his academic accomplishments and that makes him looked very favorable towards the rest of the profession. But it was my experience at the time. Several people asked me, and when I outlined the legal structure of the case, everyone was like, "wow, this is not exactly what I thought it was." So let me give you a very complete example. You probably know, in the United States, organizing a referendum of independence for a state is unconstitutional. The Supreme Court has decided that. So imagine that the secretary of let's say Pennsylvania, decides to sign a piece of paper saying that he's going to use money from the government budget from the state, from the Commonwealth of Pennsylvania budget, to pay for that referendum and to organize the steps for that referendum. And in addition to it, he has a report from the legal office of his Secretary of the Treasury telling him that this is illegal. And yet you still sign it. How will you react if I tell you that case? Has this person incured any type of legal liability? Of course he has. And when I explain it in that way, a lot of people said "I didn't know it." Some people say "oh, he does microeconomics. He doesn't really know about the law." And I said "no, but remember. The legal counselor, the senior legal counselor of his department, sat with him down and explained to him that what he was going to do was illegal." And yet he signed. So what do you want me to say?

At the end of the day, he's not going to pay that money back. But I think that we should not confuse one thing with the other.

Rasheed: Was there any economic logic behind the autonomous community design following the transition, and the new Spanish constitution in 1978?

Jesus: Yes. Okay. You need to think about the history of Spain and the economic history of Spain more concretely in a little bit of a wider framework. Spain didn't do a very good job during the 19th century. So Spain doesn't transition successfully to what many political scientists have called the modern state or the modern liberal state .It's in a process of construction of a modern state that remains uncompleted up to today, in fact. And one of the consequences of that in complete transition is that Spain has only weakened after the industrial revolution. Now modern historiography tends to be a little bit more positive that the traditional view that was always very negative. And I agree with that modern view. But nonetheless, at the end of the day, think about the big picture in the process of the construction of a modern state and a modern economy during the 19th century, Spain got a B- or a C+. Now in particular that incomplete construction of the state means that in the late 1870s, Spain has or undertakes something that is called “Restauración borbónica” after the first republic, the Bourbon family comes back to be the new kings of Spain again, I Alfonso XII, Alfonse XII. And in particular the party in the government at that moment, the Conservative party, with Cánovas del Castillo as prime minister is a very strong defender of autarchy, very high protectionism and a lot of state intervention. Maybe now this is a little bit easier to understand after the new administration in the United States , but people often forget that the conservatives have traditionally been the party of tariffs, of protection and the state government intervention.

Rasheed: That's right.

Jesus: It was liberals who were against that. But to make a long story short, from around 1878 to around 1959, Spain embarks on a process of autarchy, import substitution And various state and a lot of government intervention. That changes dramatically in 1959 with the Plan de Estabilización, the Stabilization Plan where basically Spain opens to international trade makes the peseta convertible, the currency that we used at that time. And first and foremost the consequences were that for around 17 years, Spain grew very fast. So when you want to think about why Spain is a modern country, why you go to Madrid, you go to Barcelona, it looks a lot, like many other European cities those are the big years where Spain goes from being a very poor and underdeveloped country to being a modern economy.

Rasheed: And all of that was during the Franco period, just to make that point clear.

Jesus: But remember, it's from 59. The first Franco was against it. This is the second Franco. I can tell you exactly why the Franco regime completely changes its economic policy in 1959. Think about it as very standard and classical catchup. It's also based on a lot of very energy intensive models of growth and it comes to an end around 1973 or 1975. First of all, because the oil shocks mean that energy is much more expensive.

Spain doesn't produce any oil or any natural gas, of any importance. And just because I was saying before, just the pure process of convergence kind of reaches an end. So, the Spanish economy is in a very difficult situation. And in particular, you need to reorganize the public finances. And for that you need a complete new framework of government.

And that's a little bit of the economic background behind the Spanish Constitution of 1978.

Rasheed: On that point - before we move on, why exactly did Franco II change the policy so quickly? Some Spanish historians claim, all these Opus Dei “progress-pilled”technocrats really got into the brain of Franco. But what was it in your view?

Jesus: I agree with the conventional historiographical view. Franco never believed in the market. And he was really forced into that in 1959. So the persons to keep in mind over here were basically Alberto Ullastres and Mariano Navarro Rubio. So the situation and to some extent, maybe a little bit less, Laureano López Rodó. So let me give you basically what happens and a little bit of historical background.

Contrary to what many people believe, Franco regime was not monolithic, okay. It was really a coalition between different groups. It's what political scientists sometimes have called "limited pluralism." And what they mean by that is, of course you are not a democracy. I don't want to confuse any listener into believing that this was a democracy, but it's not a monolithic structure like the monolithic structure of the Communist Party of China today, for instance. And there were different groups within that coalition of government. In Spain we refer to them as familias, families.

So one very important family, for instance, were the Fascists, the Fascistas. They were also called sometimes the Blues, los Azules, because the shirt of the Spanish Fascist party, is a blue shirt. And these guys werea along the lines of Mussolini, maybe Hitler, except that in Spain, antisemitism was never a big deal because of course at that time the Jewish population in Spain was very small. And these guys believe in a standard fascist economic, industrial policy, et cetera. The main representative was a guy called Wanis. And very strong defense of workers' rights. People tend to forget that fascists were very much into the defense of workers rights in a very peculiar way.

But anyway, then you had the army. The army was another family. And then you have the monarchist, the old monarchist who believe in a very traditional view of the monarchy. they came in two flavors: the ones who defend what is the current branch of the monarchy of the dynasty in Spain Felipe VI. Not his, not Felipe VI, but his grandfather Juan De Bourbon. There was the flavor that defended what was called the Carlista branch, which was a branch that broke off in the early 19th century. And then there was a group as you were saying that were called the Technocrats.

So who were the Technocrats? The Technocrats were basically people who as you say, many of them were linked with Opus Dei, Catholic. I'm forgetting another group, the Propagandistas. But don't worry about those. And basically these guys had a lot of background in education.

They tended to be either professors at the university of very top civil servants. Something for people who are from outside of Spain, that perhaps is sometimes difficult to understand, is that the examinations to get into the top civil service are extremely competitive and really they are the top. They are the top of the crop.

The cream of the cream in at the university. It's a little bit different from the United States or other countries. Anyway, so you have all these types of people who are very prepared, much more professional, and have much better knowledge of of the international developments. And they think that the Spain needs to develop and needs to grow. Now, they were not Democrats in any meaningful sense of the world, but on the other hand, they thought that a very old style dictatorship didn't look that good in the context of 1959. And what they wanted maybe was to move towards a little bit of a soft authoritarian regime, something like that. Now they are minority in the government and they cannot really impose their views, but they have three enormous advantages. The first enormous advantage is that they can get things done. So Franco realizes the first Technocrat that comes to power is ano. Rado, who is basically running the day-to-day of the Spanish civil service. I don't know how many listeners may remember a wonderful British TV series called "Yes Minister." And yes,

Rasheed: Yes, I know it very well…

Jesus: So then they may remember Sir Humphrey Appleby, like the top civil servant - Laureano López Rodó, Sir Humphrey Appleby. He has the advantage that he gets things done. So when Franco or his kind of second in command, Carrero Blanco says, "I want to do this. I want to prepare this project, I want to accomplish this thing", Laureano López Rodó shows up one month later and says, "look, this is the draft legislation. This is. The organization that we need." And, both Franco and Carrero Blanco start to realize if we want to survive and have an effective government with high capability, these guys are very good. The second thing that these guys have in favor is that both the United States and all the international organizations like the IMF and the World Bank, that indirectly depend on the United States as well, really supported. The last the United States, of course, wants a reliable ally in the Cold War against the Soviet Union.

And it was a prosperous ally, and it wants an ally that is not going to fall to the Soviet subversion and having a crazy, semi fascist structure with an underdeveloped economy, that doesn't look very good. So the United States and the IMF really like  López Rodó, Navarro Rubio and  Ullastres because these are the guys that can get things done, that can get Spain modernized, and that helps in the big context of the Cold War.

And of course that means that not only do you have the the pressure of the United States, but you also have the money of the loans that the IMF for the World Bank can give. And this makes a huge difference. The third fundamental. Issue is that Spain has run out of foreign currency. We are in a situation where this import substitution scheme, this import substitution model of of economic growth has completely run out of steam.

And there is no money. Navarro Rubio wrote memoirs that are very interesting and I always recommend to those who want to read them, you probably need to get them in some type of library because it's impossible to get a copy. But Navarro Rubio explains that there is a meeting of the cabinet and Franco is against this Plan de Estabilización. Because I remember Franco never liked the Plan de Estabilización. He did it against his best judgment. And the meeting ends and Franco gets out and Navarro Rubio follows him and don't know how many readers know this or how many listeners know this. It's a little bit of insight, but Franco was very short he has this very, high pitched voice.

And  Navarro Rubio was very tall, a very big guy, and with a very deep voice. Navarro Rubio follows Franco and says, "Mi General", "My General" in Spanish. You don't call sir to the military officers, okay? That's only in American movies. You need to call them general. He says, "we are running really out of foreign currency. This is serious. We need to do something about this." And Franco, who understood as much about economics as I understand about the production of mussels in the Black Sea asks "but what about the crop of oranges?" Because of course, even at the time, the export of oranges from Valencia and Murcia were a big part of the export of Spain, but even in 1959 it was not that much.

Navarro Rubio replies right away. "But what if there is a frost? We lose the crop. So we don't have that inflow of foreign currency." And basically Franco replies, " do whatever you want, but don't get me involved into it." Which to me is the ultimate example of a state with a complete lack of capability when the dictator that is running the country says " do whatever you want, but don't get me involved."

So this is basically, I think, Franco recognizing that he doesn't really have any real alternative. He never like it. And even until the end of his life, even if he had to rely a lot on the technocrats, he always had a little bit of a love hate relationship with them precisely because on one hand he admired that they could get things done, but on the other hand he was very suspicious of what their ultimate goal was with respect to his regime.

Rasheed: Okay, so there's one thing that you highlight and stress a lot in the book that I was very surprised by. In practical terms the Spanish state is even more fiscally decentralized than the US. Could you explain how this is possible?

Jesus: So this is very interesting. When the Spanish Constitution was being drafted basically the idea is we have very different views. There are different parties. There is a committee. They put together a committee to draft the Constitution. And the problem over there is that there is many different views. The different drafters of the Constitution decide to write a constitutional text that is extremely ambiguous. So the Spanish constitution allows both a tremendously centralized state structure and an extremely decentralized tax structure. And the same with all the other type of rules . That was probably a good idea. That was a good idea because all the previous constitutions that the Spain had, so Spain had a constitution in 1812, in 1934, the Statutory Real 1837, 1845, 1854, 1867, 68, 1873, 1879, and 1931. All these constitutions had always been constitutions of one political party. There had never been an effort to draft a constitution where different political parties with different programs could all use that constitution. The Constitution of 1978 in comparison, is a constitution that allows for a high degree of indeterminacy in how we are going to structure the country.

It turns out that for a number of reasons of political economy that we try to describe in the book briefly, if I may say, the book is 93,000 words, but it could have perfectly been 200,000. But for a number of reasons basically we end up in a situation where we really push the Constitution to its max in terms of the decentralization. So at this moment I will say that Cataluña or some other regions have certainly more fiscal autonomy than most states in the United States and more power. At the same time, it's a system that is very obscure and poorly designed and it does not provide the right incentives.

So the good thing about the US is that you have the federal revenue service and that generates the taxes for the federal government, and then you have the state taxes. Now, the system is not as clearly delineated as some people claim because there are a lot of transfers from the federal government to the states. What you have in Spain, in Cataluña is that there is roughly only one fiscal agency, only one revenue service. Then the money that comes from that revenue service is allocated between the central government and the region. This is different though from the system in the Basque country and Navarra. The system of Basque Country and Navarra is truly the system of a Confederacy. So if you live in the Basque Country or Navarra, you don't pay Spanish income taxes. This is something that most people will find shocking. But that's the fact. Okay, so if you are in Biscay, there is a specific Biscay income tax. Now people need to be very careful about this.

This is not like in the US where if I live in California, I pay my federal income tax and my California income tax. No. This will be a system where if you live in California, there is no federal tax. So California will be getting all the money, absolutely all the taxes in its territory, taxes on income, on profits, corporate taxes, VAT, absolutely everything.

And then it takes a little bit of that money and transfers to the central government. And that's in some sense the system that the US, as I was mentioning before, had under the Articles of Confederation. So the fiscal system in Delaware was completely independent of all the other 12 states.

And then Delaware will give a little bit of money to the continental Congress, that's the system that you have right now in the Basque Country and Navarra. What happens is that, of course, the system gives enormous power to those two regions. It means that they are not contributing that much to the common pool to pay for services like national defense public debt, et cetera. And Catalan nationalists have said, "me too. I also want to be in that situation." So they want to move from a situation where they already have an incredible amount of power. And as I mentioned, and we mentioned, and I think we document very well in the book, for instance, certainly much more self-government than states in the United States. They will basically be a confederate state within a confederation. And that's what we think will be a terrible outcome. And we don't think it's a good idea. And that's why we wrote a whole book about that.

Rasheed: I'm not sure if I wanna go down this particular side quest rabbit hole, but something you mentioned about the constitution, that I hear often. Contrary to your point about the 1978 Constitution being the most pluralistic, some legal scholars tend to think the 1812 “la Pepa" constitution was a lot more broad with all encompassing, different viewpoints, different hemispheres in Spain, Hispanic world and so on than any other later Constitution, technically in Spain.

Jesus: That's true. The 1812 Constitution was relatively open to different views of the world, and the problem is, it was a little bit utopian. It was a constitution done in the middle of the Napoleonic Wars, and I think that Constitution fails not as much for being a very narrow minded constitution, as I will say. On the side of the Right, for instance, the 1834 Constitution or on the side of the Left, the 1931 Constitution. But I think it was just utopian in the way it was structured. That was not the constitution for a country in 1812. So for instance the idea of the system of representation as was set up, I don't think it would have ever worked in practice.

Now, having said that it is true that if, for instance, after the independence of the Americas, we had, let's say in 1834 or 1837, a constitution inspired by the principles of the Constitution of 1812, but with a much more realistic framework. I think that the modern history of Spain will have been much better off. What is really remarkable about the Constitution of 1787 in the United States, and I'm a big admirer and I actually teach this to undergrads for many years. It's this wonderful balance between these ideas of creating a modern union and a modern republic, but also with a hard nose pragmatism of "we need something that will work day to day."

Madison and everyone else who was involved in the design of the Constitution need to be immensely praised for being able to balance ideals with the practical wisdom. And unfortunately, I think that in the Spanish political tradition, this concept that you need to balance ideals with practical wisdom has always been absent. I think it's has a little bit to do with our Catholic cultural background of the Martyr that dies in the pile of fire or against the lions in the circus of Rome instead of trying to think for something that is practical and is possible. And even the Constitution of 1787 had a few things that didn't quite work out and had to be amended right away, but that shows that constitutional design is very complex because it's very difficult to forecast all the situations that may arise and how to address them.

Rasheed: You mention in the book that you thought the Spanish Constitution of the Secondary Republic was a lot more clear when it comes to competencies of the State and regional powers.

Jesus: Actually that's true. So as much as I was a critic of the Constitution of 1931, in some aspects it actually designed political structures in terms of the centralization that was much more transparent. It was much shorter, it was less ambiguous. So in that sense, yes. So that part of the 1931 Constitution I like a lot. Now, on the other hand someone could criticize me for the following thing.

The 1931 Constitution really only was in operation for five years until the war started, even in the area, still controlled by the Republicans after the coup d'état in July, oh by the way, today is July 18th. Even after the beginning of the coup d'état in the areas still controlled by the republic it was not really operative in any meaningful sense of the war. So you only have five years, and that means that we don't really know how the system will have ended up 10 years later, 20 years later, 25 years later. And it may be in the case that it would have end up with even a worse outcome. But having said that, I think that the reading of the sections of the articles related to the home rule by regions in 1931 was actually quite a sensible one.

Rasheed: One of the common critiques of your critique of the new financing plan for Catalonia is just idea that, "but shouldn't there be different models of financing for regions? Won’t competition actually end up being good for the State in general?"

Jesus: So we need to be very careful about distinguishing two different things. Number one is, should we have fiscal competition among different regions or territories. Yes, I'm happy with that. The second argument is, should we have asymmetries in the legislation that allows different territories to do that?

And that's what I'm against. Okay. So look, Texans can lower taxes and offer a more attractive environment to businesses than California, but federal legislation applies in the same way to Texas, and to California. What I'm against is the idea that you're going to have some rules applying to Cataluña, to the Basque country and to Navarra, but not to the rest. What I want to emphasize, and I think this is a point that many of my critics don't get, is that the fact that I want to treat everyone symmetrically, does not imply that I want to impose uniformity, which is a very different thing. But if we are going to let Cataluña make decisions about this income tax, we need to let everyone else make exactly the same decisions.

So if you ask me when I walk into your office, "will you sign onto the Swiss fiscal system?" Probably yes. "Will you sign onto the US fiscal system?" Probably, yes. The point is, that is not what is being proposed on the table. And I think in a very disingenious way, who defend what is being proposed on the table right now are saying, "oh, but this looks like Switzerland, the United States, and that's a lie." They are using the prestige of Germany or Switzerland or the United States to defend something that is not the system in Germany, in Switzerland, or in the United States.

Rasheed: Could you make it more concrete? Why isn't this financing plan for Catalonia just like the Swiss model? Because on the surface it really seems very close to this model.

Jesus: In the Swiss model, you have the following. You have a federal revenue service, and you have the Cantonal revenues revenue services. Okay, so the Federal Revenue Service is a federal agency that runs the VAT and the federal income tax. And the federal income tax and the VAT is the same for everyone in Switzerland, and that's the money that the federation uses to run the federation. And then every Canton has a Canton income tax. I'm skipping some minor details. But I'm aware of them. I'm just trying to simplify. So this doesn't look like a lecture in college. They have their own state, their own local income tax, and you pay to your Canton for that amount of money.

The Canton uses that money for running their businesses. This is most emphatically NOT what is being proposed right now. What is proposed is that there will be no National Spanish Revenue Service in Cataluña. In fact, 100% of the taxes will be raised solely by the Catalan Revenue Agency, VAT, all income tax, and then Cataluña will keep all those tax revenue and just use a little bit of that tax revenue to transfer to the central government as a contribution. You see how it doesn't look at all like the Swiss system?

In the Swiss system there is a federal system run by a federal agency and there is a local tax system run by a local tax agency. These guys say "no, in Cataluña, there will be no national tax agency. We will raise 100% of the revenue and then we will just pass a little bit of a cheque at the end of the year to the central government." The best way to think about it, this is how the European Union works. Portugal or France, they raise all their revenue and at the end of the year they send a cheque to Brussels. That's basically what they want.

Rasheed: This is one very unique thing about Spain. As you wrote in the book, Pedro Luis Uriarte remarked that the Basque Country “es único en el mundo”- the way of doing financing there is the only place in the world that this is happening. In Basque Country how does the collection work - they collect the money, as you mentioned, and then they remit around 6% percent to the central government?

Which is obviously now very small. Why was it that this amount was, fixed back in, I think, 1981 or so? It has never been adjusted since then.

Jesus: So this is simply politics. It turns out to be the case that the two main parties in Spain, the Socialist and People's Party (PSOE), the conservative Party (PP), often do not get a majority in Congress. They only get a plurality and they need extra votes, and the nationalist Basque Country party (PNV) is always ready to chip in for those extra votes in exchange for keeping the system the way it is now.

And in relation to it, we made a mistake in the original design in 1981 that says that the system can only be approved by agreement of both sides, of the central government and the Basque government. So you are in the following situation. I'm let's say the socialist party. I run for election. I get a majority, and you are the nationalist.

I don't need your votes. You just say "I don't agree with any change."

The system gets us to stop. Four years later, I don't get a majority. I only get a plurality and now I need your five MPs (from PNV). You see how the system is absolutely perverse.

You always have a veto to use against any change that is against your interest. But you have a lot of power when I need your MPs to get the system to go in my direction. And that's in fact why the system actually has become more and more unjust because something that has happened is the social security in Spain right now runs a gigantic deficit.

And that deficit is being paid by the central government. But in the computation of the contribution that the Basque Country pays to the central government, that deficit of the social security is not included. Which means that they benefit because the pensions, the retirement benefits are still being paid in. But the Basque Country - they don't pay anything whatsoever. That's why in the book we demonstrate that at this moment, the Baqsue country is receiving net transfers from Spain, net fiscal transfer, which is absolutely ridiculous. This will be the equivalent in the United States, of Connecticut receiving transfers from Mississippi. That goes against any basic principle of fairness.

Even if you were a hardcore libertarian who believes that, everyone should run their own affairs, this is even worse than that. The Basque Country is not chipping in for the running of the countries but they are receiving transfers from the rest of the country. Look, if the PNV wants, [Prime Minister] Sánchez will fall tomorrow.

According to the Spanish legislation, you need 55 days between the fall of the government and the election. But if PNV wants - today is July 18th too late in Spain now.

It will need to be done on Monday. So Monday plus 55 days, Spain will have elections. That's an enormous power that other small regional parties across the world do not really have.

Rasheed: So on that point. So the reason why that's possible is that currently in Spain there is a Frankenstein Coalition that Sánchez had to put together after last election because PSOE couldn't get seats on their own. But that's going to my question: why is it that the central government even considering this new Catalan law?

Of course, we hinted at it but could you be more concrete on that?

Jesus: So the situation is as follows at this moment in Spain. Every time we have a general election, there are really two general elections going on. There is a general election in 15 regions, and then there is a general election in Cataluña, and the Basque Country. And we are in a situation where these two elections give very different outcomes. If you take out Cataluña and the Basque Country, the right wing parties have won the election in Spain every single time, I think since 1996, except I think in in 2005. And even then they lost by one MP. Both Cataluña and the Basque Country vote so overwhelmingly on the side of nationalist and left wing parties, that completely shifts the situation.

So this is particularly important for Partido Socialista, for the Socialist Party (PSOE). The Socialist party now depends crucially on the MPs that they can elect from from Cataluña. This is not very different, for instance, from the liberal party in Canada that depends crucially on the MPs that they can elect in Quebec. Or even labor in England in the United Kingdom in most of the elections, not in the last one, but in most of the elections labor doesn't have any way towards power that does not pass through getting enormous numbers of MPs from Scotland.

Which means that at this moment you don't really want to think about PSC - the Socialist party in Cataluña. So people miss one point is that PSC is literally a different party from PSOE in the rest of Spain. It's a federated party. And the joke I often make now is that it's not that PSC is federated with PSOE, it is that PSOE is federated with PSC. Which is very different.

And that means that the MPs of Cataluña have become so immensely important for Pedro Sánchez and for the future of PSOE that they are willing to give this legislation. Now, the problem, of course, is that the Socialist Party, for instance, in Asturias, in Andalucia, and in Extremadura understands that this will be the kiss of death. And that's why I think that what is really going on right now behind closed doors is a civil war within the Socialist Party.

What happens for those listeners who are not following day to day Spanish politics is last Monday, which I think it was the 14th, there was supposed to be an announcement between the Socialist and Esquerra Republicana​, the left wing nationalists in Cataluña, of the new financial agreement. And what they published, a statement of three or four pages is absolutely ambiguous and empty. The reason for that is because I think that even within the Socialist Party, it's not clear that Pedro Sánchez commands enough majority to support this change of the system. But the Socialist Party is really in a terrible situation for the long run.

It's basically becoming the party that only exists because it has electoral power in Cataluña and in the Basque Country. And it's not very clear to me once Pedro Sánchez is gone how they are going to be able to recover their electoral foothold in the rest of Spain.

Rasheed: You also mentioned in the book, summed up in this line that I will repeat: all the people in Asturias believe that Galicia is better financed than Asturias, but all people in Galicia believe Asturias is better financed than Galicia.

Why exactly do people have this weird dichotomy of views.

Jesus: So it is very simple. The system right now is extremely obscure. It's very difficult to understand what is going on, and in fact, I will argue it was designed in an obscure way on purpose. And this basically means that it's very easy for politicians to blame all your problems on the system not giving you what you want.

You could not imagine how many times I had discussions with people who say, "no, the problem of the system is X." And I say, look, "X is not true." And I will actually show them the piece of law, the legislation showing them that the X is not true and they will not believe it. And I will ask: what do you want me to say? So I think it is this, you're in Asturias and I want to run for president of Asturias. So for me to go and say, "Rasheed, you are not doing that well. It's not my problem. I don't get enough money because of the system."

But then I'm doing the same in Galicia. And then you have a twin brother Rasheed Prime in Galicia.

And now I'm saying "Rasheed Prime, you are not doing very well." "It's because, these Asturians are getting a lot of money." So it's a very easy political spin to give. And because the system is so extremely complicated. Look, if I really wanted to explain the system with you in all this detail you would need to give me at least 10 hours. And you have a background in economics. Good luck trying to explain this to someone who doesn't have a background in economics and, doesn't have 10 hours for me to explain this. And that means that politicians like obscure systems - politicians, do not like transparency. If there is transparency, it's very clear that you are the one who has screwed up.

If there is obscurity then it's someone else's fault. Everyone loves that. And that's the main problem in Spain right now, that we have designed a system that is so darn complicated. In the book we say we are not going to name names, but there is this very, very famous journalist who actually recently got a prize for the best journalist in economics in Spain. He wrote in December, this article. It was full of inaccuracies. Now, do I think he was lying? No, I just think he didn't understand the system. So even a well-respected senior journalist writing for a very large Spanish media corporation cannot get this right. How is the average voter going to get it right?

You are never going to be the one saying, "no, it was my fault." You are always going to blame the other person. I have been in this profession for what, like 25 years. I have never seen a case of a paper co-authored by two co-authors, and the paper didn't quite work out and either co-author said "It was all my fault." I think that in every single case, the answer I got was "of my coauthor didn't do what he was supposed to do."

Rasheed: Do you think that the financing system of Basque Country and Navarra should be removed?

Jesus: Oh, totally. I don't know if you saw my X post this morning on July 18th. It needs to be abolished! Destroyed! Exterminated! And once we have finished with that, we are going to bring a Catholic bishop who is going to do an exorcism. Find every single code book that ever had any memory of that system, and throw holy water.

And then we are going to go to Wikipedia and eliminate all the references in Wikipedia of system ever existing. And go to every textbook and eliminate every reference in the textbook. Am I clear?

What Stalin did to Trotsky's memory in the Soviet Union is little in comparison with what I want to do with the cupo .

Rasheed: Wouldn't it be just politically so infeasible to get rid of that system, given the requirements to reform the Constitution and things like that. This is a tough thing to remove.

Jesus: That's true and I'm realistic. I know this is not going to happen on Monday.

I learned something from Milton Friedman. You put ideas on the table.

Once you put ideas on the table, they have their own dynamics and sometimes life surprises you. If we never put those ideas on the table, nothing will ever happen. So just between you and me and everyone else listening to us. Even if yes, the proposal of removing the cupo means that the next negotiation of the cupo is not as unbiased as before, that will already be a good outcome.

Rasheed: Why did the Spanish government remove and then re-implement a wealth tax within three years?

Jesus: So two reasons. First of course, the wealth tax is a distortionary tax and is probably not a good way to tax. But the wealth tax has two advantages. One that is good and one that is bad. The good one is that the wealth tax- and this is something that very few people have in our models in economics, it's a good way to control and audit income. So in the US, if I get $10 million, five years ago and I use it to buy some property after five years, when you know any type of legal liability for those $10 million not paid in income tax will disappear, I don't need to justify anything. If you have a system of wealth tax, it's much easier to keep track of quick changes in wealth that hide changes in unreported income. So I'm actually relatively favorable to the idea of a very small wealth tax.

Only 0.001% to be able to keep track of sudden change in wealth that represents hidden income. Now, of course, I know what a lot of people is going to say. You start with a 0.001% and you end up with a 10% tax.

The second argument is that in Spain there is a lot of suspicion. You can check that in any type of survey about values, about wealth. And most people think that wealth is a sign that you have done something nefarious and that you have stolen, that you have exploited someone. So politically speaking, Spaniards are very favorable to a wealth tax.

And even if you try to explain to them that this is, first of all not a very important source of revenue, and secondly, it is a highly distortionary, that's a loss pattern.

Rasheed: What hidden effects does an aging population have on territorial distribution of public spending in Spain?

Jesus: The North is aging much more than the South. It means that the North needs many more resources than the South for things like both health and social security retirement. And that basically means that the system needs to be adjusted to control these things. And look, I hear a lot of people saying things like, "oh, we should have less transfers and they need to figure it out, what to do."

And my answer is, look, Galicia cannot figure out what to do. They have already an enormous amount of old people. And you need to provide services to them. So you need to consider that. And as Spain ages more and more, this is going to be very important and needs to be a fundamental factor.

You need to pay social security, you need to pay health services, and they are not uniformly distributed within the country.

Rasheed: You mentioned, I think in an article that elections in Spain are won by pensioners.

And given that's the case where do you see this idea of doing real reform for long term planning that might have perceived short term bad effects for pensioners.

How does the opposition actually get things done?

Jesus: Oh, I wish I knew the answer to that. I'm actually quite pessimistic on this. In some sense I feel like Saint John, a voice that chimes in the desert. I think that nothing is going to happen with the whole government. And I think that basically no reform of substance is going to happen over the next four to five years, even under a PP government.

What I think is going to happen with let's say 60% probability, who knows? Life is so complicated. The country is going to be in such a terrible fiscal situation that all doors are going to be open and then who knows how we are going to end up.

And I think it's going to be a moment like in 1959 where literally there is no money left. And then even if you don't like to do reforms, you need to do them. So that's my forecast. We are going to kick the ball down to road for five more years.

Rasheed: There are a lot of surveys that show that the Vox has a plurality of voters under 25. So unlike the US, in Spain the younger people simply are pushing a bit more right wing, what does that indicate to you?

Jesus: In fact, I will push that line a little bit further. I think that at this moment there's a plurality in voters under 55.

Rasheed: Right.

Jesus: Yeah. In Spain wages have been stagnant since 2008, and so if you are under 55 and you look at your life cycle in comparison with the life cycle of your parents or even your grandparents, you have been doing worse. The price of housing has completely skyrocketed, the economy is not doing very well and in a well-defined sense, we can come back to that later on and we are accumulating a lot of public debt.

So I think that a lot of people are basically saying, "look, the current system, and in that sense, both the People's Party (PP) and the Socialist Party (PSOE) are offering basically slightly different versions of the same recipe, it's not working for us. So we need to look for something different."

And at this moment, the only one who is offering something different, for good or bad, I'm not judging that, is Vox. And I think that the People's Party (PP) has made a strategic mistake. They thought that Vox was just a flavor of the month that it will disappear.

And I think they have made a fundamental mistake and they are going to stay there forever or for the middle run. And it's only going to keep growing. And of course let's remember there are two Voxes in Spain. There is Vox and there's another one that we call Aliança Catalana. They have a slightly different view about what the nation is.

But for all practical purposes, Aliança Catalana and Vox are the same party. I will not be surprised if Aliança Catalana becomes the largest nationalist party in Cataluña in the next five years.

Rasheed: So final question.

What do you hope for the general public - no, let's say the pundit class in Spain: What do you think they should really grasp from the book?

Jesus: Look at numbers.

Spain doesn't believe in numbers. Spain is one of the few countries in the world where a minister under the People's Party criticized the reforms proposed by a friend of mine, Luis Garicano, because he had done them with an Excel file.

An argument, which I think is absolutely ….you know. Cospedal was her name.

You know one of those nefarious politicians that we have had in Spain. She actually said that. She actually says, "we don't believe in doing policies with an Excel file." We don't believe in numbers in Spain.

You have been here for a while and you will realize that Spain is one of the few countries where you can actually brag about the fact that director means "I studied humanities, that means that numbers are irrelevant for me." Spain is a country that doesn't believe in numbers. And if I just could get people to say, "look, these are the basic numbers of the system, let's talk about numbers”. I will be happy.

Rasheed: Jesús, thank you so much for joining me on the podcast.

Jesus: Thank you. Thank you for having me.

Or listen on Spotify

Show notes

Rasheed and economist John Cochrane discuss the structural complexities of the Eurozone’s monetary system, focusing particularly on TARGET2 balances. Trade imbalances within the Eurozone are no longer offset through private financial claims, but have instead created a vast network of public-sector IOUs among national and central banks.

The transformation of the Euro into a fiscal conduit has introduced new risks, especially in the case a country exiting the Eurozone, leaving its massive debts unpaid. Cochrane emphasizes that monetary and fiscal policies are inseparable, particularly in a high-debt environment, and suggests that the architecture of the Eurozone should reflect this integrated reality.

Join us for this informative episode as we also tackle contemporary banking mechanics, including CBDCs and the Fed aversion to narrow banking, alongside growing pains like ballooning US debt and a regulation-encumbered banking system.

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Recommended

Crisis Cycle: Challenges, Evolution, and Future of the Euro - John Cochrane, Luis Garicano, Klaus Masuch

The Fiscal Theory of the Price Level - John Cochrane

Stabilizing the Future with John Cochrane - The Rasheed Griffith Show

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This transcript was automatically generated by AI and lightly edited by our team. We don’t catch every error, so if you spot one, send us a message/email via shem@cpsi.org.

Rasheed: Hi John, and thank you so much for coming on the podcast once again today.

John: Hi. It's always a pleasure, Rasheed.

Rasheed: And for this episode, I'm going to emphasize a “Tyler disclaimer.” This is the conversation I want to have and not what other people want to have, because it might get a bit technical, but that's just how it is.

Okay. So my first question is on TARGET2, especially on TARGET2 balances inside the Eurozone that look a lot like IOUs between central banks, which I think is a view you share, but some people would argue that no, it's just accounting data and therefore risk-free. So what are the hidden assumptions that those people are missing?

John: Risk-free or not risk-free is a- those are separate question. Let's unpack this. Suppose someone in Italy or Spain buys a Porsche from Germany. They gotta send money to Germany, right? And the way this normally works with trade is if you have a trade deficit, there's a corresponding capital account surplus.

What does that mean? That means that one, the money goes to Germany, but Germans don't wanna sit on money. They end up having to hold Spanish or Italian securities, loans, stocks, bonds, something like that. So you're gonna have imports of goods. You trade a claim, some financial claim, in the other direction.

That's how it's supposed to work, but that's not how it ended up working in the Eurozone. Through a combination of unintended effects of the ample reserves regime, the way it works now is that a large fraction of the trade deficit, the money simply goes and sits there, and it sits there on the central bank's books.

So what ends up happening is. The Spanish person buying a Porsche commands his bank to give the Central Bank of Spain some money. The Central Bank of Spain gives that money to the European Central Bank. The European Central Bank gives that money to the bank in Germany, and it just sits there so that rather than Germany accumulating claims on the Spanish economy, the German Central Bank ends up accumulating claims on the ECB, which accumulates debts from Spain.

So this is transferred through central banks rather than through private securities. Okay I hope you don't mind, when we were writing this book, it took me a long time to understand TARGET2. I hope I do understand it now. Now, what's weird about this is now we have trillions of euros.

The ECB owes the German Central Bank trillions of Euros. And the Spanish Central Bank owes the ECB trillions of Euros, all of it paying low, supposedly risk-free interest rates. Rather than this going through, Germany holding, say, bank debt in Spain that then finances Spanish investment.

Now, is that good, bad, or dangerous? There are trillions of overhangs. Were Spain to leave the Euro, Spain might well say, tough luck. We're not paying that. Where are we supposed to get a trillion Euros?" And I think that is the that's the sense of risk, and to the larger question, this is not money.

This is fiscal, these are assets, this is wealth. So the Euro system, which was supposed to just be the common currency for Europe, has ended up managing a trillion Euros. I forget, but that's the size of the numbers. A trillion euro promise of debt of Spain to the ECB and debt of the ECB to Germany to the German Central Bank.

And that was not the intention of the Euro system to channel these fiscal transfers and tri-fiscal promises and lending, and so forth. Sorry about the long answer, but the minute you say TARGET2, it's like a bowl of spaghetti.

Rasheed: There is a, even today, people even, I would say professional monetary economists, they always conflate or, probably don't conflict enough, fiscal and monetary when they're having their models or even their intuition pumps.

And every time I have a conversation with someone, they say, "Oh, but this particular bond portfolio, but okay, fine". But still, when you think about your totality of things, you can't do that clean separation.

John: Yes. Hallelujah! No, of course. I'm pedaling two books, "The Fiscal Theory of the Price Level" and "The Crisis Cycle" with Luis Garicano and Klaus Masuch, which are fundamentally dedicated-

Rasheed: I have that book here.

John: Ah, thank you. I gotta sell some books. They're dedicated to the proposition that fiscal and monetary policy are always integrated. They're always part of the same thing. Now, in some circumstances, the fiscal part is less important. As the Euro is set up and has evolved, and as our governments are more and more indebted, the fiscal and monetary linkages are stronger, so always and everywhere, inflation, especially, is a combination of fiscal and monetary policy.

Rasheed: Okay. And the next question. Euro skeptics often say that the Euro straitjackets a country that needs its exchange rate. It's a very common comment. If Finland, for example, could float tomorrow, how much would they buy?

Maybe 5% growth? Or would they just crash out?

John: I'm sorry, who could leave tomorrow?

Rasheed: Finland. If Finland were to leave the zone, for example.

John: Finland. Oh boy. It was hard enough to know about the economy of Spain. And now you want me to know the economy of Finland. Now, Finland, it strikes me, as an ignorant American, it strikes me a fairly well-run country.

Norway's doing fine with its currency and Denmark, and it is doing fine with its currency. The UK is doing okay. But should Greece and Spain have their own currency, I think it is a harder question. So this is a… I'll try to be honest, rather than just give my opinion.

There's this question of the "optimal currency area" in economics. Who should share a currency, and who should have their own currency? I think my lovely house in Palo Alto should have its currency, and anytime there's a negative shock, I should get to just print money and offset the negative shock to the Cochrane family balances.

Maybe not. That's too small. So clearly you want some scale. And in Europe, of course, having a common currency helps have a common market and economic integration. The counterargument is first for the smaller. So one, the argument for bigger is we shall be using the meter, sorry, fellow Americans, why should we?

In Europe, every town used to have different units of measurement. That's crazy. We should all use the same units of measurement. We should use the meter and the degree Celsius, and, sorry, America. Okay, we're down to two. America goes its way, and everyone else uses the meter, but the standard of value, why should we use a different standard of value?

So the argument goes. Prices do vary across countries. I just drove from New Mexico to California. The price of gas is like $2 and 50 cents in New Mexico and $6 in California. It's like living in a different country. It's not clear why we have the same currency.

But the big argument is that sometimes it's hard for prices to change. So, if you let the currency change instead, it's easier on the economy to have the currency change rather than the price change. If the economic fundamentals require wages to go down in Spain relative to Germany, it would be easier to simply bring back the peseta.

I hope I got that right. And I'm used to doing Italian examples. Bring back the peseta and devalue the peseta rather than let the wages go down.

So the argument is that Central Banks and their infinite wisdom can artfully devalue the currency just enough to offset various shocks.

Now, when you look at the history of that, I don't know Spain enough, but I certainly know Italy and Greece. How much did Italy and Greece grow because of their Central Bank's artful ability to just slightly devalue shocks? How well has Argentina done by its Central Bankers, artfully devaluing shocks? Or was having your currency in a small country simply a piggy bank for the government to inflate its way out of trouble periodically?

And as a result, nobody would lend money to the government, and it inhibited private markets, 'cause interest rates are always high. After all, we're waiting for the next devaluation or inflation to come along. So, having a joint currency is a fiscal pre-commitment. It says we will not, we may not inflate away the debt this time, and if we default on the debt, it's gonna cause big pain.

You're tying yourself to the mast. As it did to Greece and Spain, they made that pre-commitment. They joined the euro inflation ended. They were able to borrow at incredibly low rates. And they overused the capacity to borrow. So then those pre-commitments all came through, you tied yourself to the mast, and then the ships started sinking.

But tying yourself to the mast was a good thing and should have been exploited more wisely. So those are the thoughts that lead me to conclude that larger currency areas are better. Economic integration, easier trade, and the fiscal pre-commitment that especially countries with weak fiscal institutions, weak central banks will not inflate.

They put that whole decision off to somebody else. I think those benefits are greater than the supposed ability of a small country's central bankers to offset some shock somewhere. And if it's difficult to have prices fall, which is this, that, that is the standard economic thing, oh, prices falling or terrible.

Why then do we have so many laws making it hard to lower prices and wages, right? All of macroeconomics is right, now there is one problem. Recessions are costly because of one thing and one thing only that prices are somewhat sticky. Instead of having central bankers exploit this. Why don't we get rid of all the laws that force prices to be sticky, and then we get rid of the problem?

Now, maybe there's other, you, macro, we don't know what recessions are, but at least intellectual coherence demands that we think about what's called, structural problems, internal devaluation, rather than just counting on every time the Cochrane family finances are in trouble we'll just devalue the "Cochrane dollar" a little bit.

Rasheed: It sounds like, I'm not sure how familiar you are with the Charles Kindleberger key currency argument where he's very, I guess maybe not influential, known in some parts for a particular idea he had where he used currency or money as a metaphor language where it's good to have one world language.

It's good to have a very few sets of languages that people can communicate with. It's better for world peace, for world trade, and for world commerce. Why not have one world currency or at least go towards one in the trend? And it is always a bit confusing to me why the intuition is always the opposite direction because it's not like you're, like, economics training has models.

Even the normal person, the intuition is let's have more currencies. I'm from the Caribbean. The Caribbean proper has a lower population than London yet has 13 currencies.

John: Yeah. And one of the genius things that's genius to the United States is we have one currency, right? Even though economic conditions between New Mexico and California are so different.

So I agree. That's why I started with the example of common weights and measures. I think that it's perfectly clear that there's just no useful purpose and just having countries have separate ones and we don't set, we don't have the Bureau of Weights and Measures say, oh, there's a recession on.

Why don't you cut the yard down a couple of inches? 'Cause that'll help the tailors to move more suits at a lower cost. Yeah, that would be crazy.

Now, what it does mean is, that, is that you have to allow economic adjustments. So the whole argument is that instead of having an economic adjustment in the country, what you have is you devalue the currency to offset the law and demand to try and goose the economy a little bit with inflation to make up for the economic adjustment.

For example, people say it's harder in Europe because it's harder for people to move, and you don't have as much fiscal union as the US has, and so forth. But maybe people moving is a good thing, right? And maybe businesses adjusting is a good thing, and maybe prices adjusting to what they should be, prices having their Hayek signal of things rather than having those signals be obscured by trying to do it via the currency, is a good thing.

Because if Spain leaves the Euro and starts devaluing, all businesses have to devalue the same amount. Maybe not all businesses want to change prices by the same amount. Maybe the tourism industry is booming and that should be raising prices, and maybe, I don't know- what do you make?

You must have silly things that you make in Spain. Those things should have lower prices, the overall currencies, the sum of thousands of prices, half of which are going up and half of which are going down. I tend to favor, yes, this is as much philosophical as it is economic.

Rasheed: There's a central banker I know, he's the former governor of the Central Bank of Barbados. His name is Delisle Worrell. He's very well known for this particular view that you have, which is that Barbados has had the same exchange rate for 40-some years. One US dollar is two Barbados dollars.

It has not changed at all. That's a policy he was well-defined to help create, 'cause he was there when they started the bank in the 1970s. And his stance is this: you never change the exchange rate. You always do fiscal adjustments, even if you think it's more painful, you always do fiscal adjustments.

John: Yeah. So you can see that's a pre-commitment. He's playing a nice game of chicken with the fiscal authorities. "I am not going to bail you out. So you had better mind your manners here." And I think especially for small countries, that makes abundant sense. So, partly, however, I am skeptical for historical reasons of the wisdom of central bankers.

Not because they're bad people. I couldn't do any better.

It's just an impossible task to try to micromanage the response to shocks. And if that were better done, then perhaps there'd be an argument. But you look around the world, and very few central bankers can pull this off.

Rasheed: There's one line from the book that I liked quite a lot.

It was "the treaty's flaw", the treaty for the EU, "is being silent on the issue, allowing an expedient ambiguity, but that ambiguity proved costly." This is, of course, about having a monetary union without a fiscal union. But the book also makes the argument that a monetary union is feasible without a fiscal union.

This is pretty much contrary to the prevailing opinion.

John: Oh, thank you. Yeah. Let me pound my fist on the table! Monetary union without fiscal union is feasible. Now, Europe may want a fiscal union. In some sense, I'm American, so I like my country, and I think moving from the Articles of Confederation to the Constitution was a good thing in the US. Hamilton was a good guy. But you don't have to do it. So, a common currency, like a common set of weights and measures. We don't have to have a fiscal union to all use the meter, and we can certainly define a common currency that we all use, the euro or, for a thousand years in Europe, gold coins.

We all used gold coins, and we didn't have, God knows, we didn't have fiscal union, 'cause Europe was busy butchering each other with various wars for a thousand years. So it's perfectly possible. Now, what it means is that a common currency without fiscal union means that governments that can't pay their debts must go bankrupt.

They must be able to default on their debts. And that was the point where the architects of the Euro, who, as we look back, did a fabulous job, especially when you think about the 1990s, when nobody was thinking about debt crises and financial crises and all the other things that happened.

They thought through a lot of the details, but they were iffy on, "look, if this is a monetary union without fiscal union, countries have got to be able to default, just like companies." If a company can't pay its bills, it doesn't have to exit the Eurozone and start its currency. No! It defaults, and its bondholders don't make money.

They don't get, they get a restructuring, they get 80 cents on the Euro or whatever back. So countries have to be the same way. And they didn't quite wanna say that. Now that's understandable too. We're getting together. This is politically difficult. We're all gonna throw our lot in together.

You, especially I'm not gonna try to do a German accent, but you don't wanna start doing, "Hey you Italy, now if you can't pay back your bills, we're gonna set up the mechanism where you default." That's our example in the book, how hard do you wanna argue about the prenup on wedding night?

We're all gonna be good. Nobody's gonna cause trouble. And there are some debt and deficit rules. If you obey those, nobody will have any trouble. But that was left hanging. Now, of course, the people who put this together did what everybody does on the wedding night.

We don't need a prenup, we'll hash it out later, right? And rules would happen and that kind of never happened. So we pretend that sovereign debt is risk free. Banks are allowed to hold sovereign debt as risk-free assets on their bank balance sheets, even now after the sovereign debt crisis.

So we pretend it's risk-free. We pretend that the ECB won't come and bail everybody out. But of course, the ECB ended up bailing out governments. So that is, I think, the fundamental issue that never got resolved. Yes, you can have a- I'm gonna repeat it, sorry, 'cause it's so important.

You can have a monetary union without a fiscal union, but it means that countries must be able to default. And if they're not able to default, that means the central banks will always come and print money to bail them out, and then they have no incentive to actually control their debt and deficits. And you don't want to have that.

Rasheed: So there is a related argument when it comes to the Euro bond, essentially. So Washington has a deep treasury market. Brussels doesn't have a single safe bond collectively. But is there a real need to have a collective EU bond? It seems to me that the EU should be doing less stuff, and the permanent bond system would encourage it to do more stuff.

John: Yeah, no, we're into the politics of the European Union. But certainly, the next gen EU issue of Euro bonds, I would rate as not an enormous success in terms of debt being issued. With a very clear statement of how that debt is going to be repaid. And then the proceeds are being used widely, wisely on very important investments.

And here, the poster child is Italy's super bonus.

So the Italian government took this money and decided they would give a 110% tax credit for energy efficiency upgrades. 110%.

Rasheed: Yeah.

John: So that means Italians are very creative and entrepreneurial. "Luigi, the bill on that energy efficiency upgrade isn't high enough. Do you think we could maybe gold plate those new windows?" And so, just money went down the rabbit hole.

Rasheed: And Spain, the next gen got just pushed anywhere.

John: Yes, exactly. Now we're into the political economy of debts. The other problem with the NextGen EU is not very clear how it's gonna get repaid.

Let me again, make my ad for Alexander Hamilton. We had a federal government, which assumed the state debts and therefore had US debt to be repaid. But as a result that federal government needed the ability to tax , to tax directly. Not to just have contributions from the member states to pay this off someday, somehow. The federal government had the ability to tax.

Now it was via tariffs, but you wanted a federal government that could raise its own money to repay its debts. And if you're gonna have a Euro-wide bond, you need to have Euro-level taxing authority. And then you need a more functional European-level democracy.

'Cause you don't want the kind of technocrats in Brussels who are there to decide what kind of ham gets to call itself prosciutto and Spanish ham can't call itself prosciutto. Those people can't be in charge of setting your taxes.

Taxation needs representation. Another lesson, sorry. It's the 250th anniversary of the US. So taxation representation is really important, guys. And effective. So now there's this big enthusiasm for the Euro bonds. Maybe we're gonna drive out of the US as a safe asset after the US has a debt crisis.

Only if Europe has a way of paying back the Euro bonds that's more reliable than the US debt crisis. And so much public policy is an answer in search of a question, and you just did that. Euro bond, that's an answer. What's the question? If we define the question, then maybe we can create a safe asset that's useful for repo markets?

Is it creating something that banks can hold instead of holding sovereign debt? There are other ways to do all of those. The one we talk about in the book is, you could take the current sovereign debts and put them in a money market fund or a mutual fund, or an ETF structure, and then you have a diversified portfolio of European sovereign debt.

And one of the big problems is that Spanish banks hold Spanish government debt. Greek banks hold Greek government debt. Italian banks hold Italian government debt. So if any country gets into trouble, its banks get into trouble. Why aren't the banks holding diversified portfolios of European debt so that if Spain goes down, the Spanish banks say, "Okay, we lost 5%, big deal."

Spanish regulators love Spanish banks to hold Spanish debt. And so that's one of the purposes of a Euro bond. But it can also be a diversified portfolio of existing debts. You don't have to create a new instrument for that. For that question, there are other answers.

And if we're gonna go deeper into Eurobonds, let's define what we want? And then how do you structure a Eurobond to be that thing?

Rasheed: I find, I guess, depending on which level of conversation this narrative pops up in. But least on the- call it politics, which is where it mostly comes up in public. On a political level, usually, when, for example, the commission says we should have a Euro bond, it's so they have more money. That just feels like the only contemplation they're making when it comes to this. "We want to spend more on random things; therefore, we should have more money." It's only recently, at least, much more frequently,

recently you will see, for example Christine Lagarde, ECB, trying to use the lesbians be a haven for us money rationale for the Euro bond in this case. But then, here's the other question, then. Even if you somehow have a Euro bond, there's no actual capital market if you want to put the money into it anyway.

So again, your point is like, what's the actual thing you have to optimize? And not even the basic bare bones of the system to have a counterweight to the US reserve currency status aren't even there at all.

John: That's funny. Of course, the Trump administration now thinks reserve currency status was a terrible thing.

'Cause us printing up money and sending it abroad, and they give us stuff for free, that was off. Maybe you could take over that. China sends you stuff for free. There are just so many things in what you said there. So one purpose of a Euro bond- I'm surprised, Lagarde ought to think hard about this.

The ECB has all these national bonds. And is intervening very much to keep afloat , all the national bonds. So one of our proposals is if there is a Euro bond, the ECB may only buy Euro bonds and may not buy, and therefore prop up national bonds which the ECBC's, fragmentation and market dysfunction anytime yields go up.

So be careful what you wish for. You might just get it.

Rasheed: So I want to pick up on that a bit, but I wanna move away a bit from the ECB first. So the Fed has essentially flooded the system with more reserve floors currently, and the ECB still uses a corridor, but it's creeping lower all the time.

Does this difference matter for the inflation fight, or is it just a plumbing detail?

John: So both the ECB and the US Fed are now, I think, the ECB is still a floor in the sense that the deposit rate is the rate that moves interest rates. Okay, let's, lemme try to define things here.

There's the interest rate at which a bank can deposit money at the ECB, and there's a higher interest rate at which a bank can borrow money from the ECB. So market rates are gonna be in between those things, right? If the market rate is above the borrowing rate, then banks borrow from the ECB instead, and that brings it back.

And historically, the ECB started mostly at the borrowing limit. Banks were borrowing reserves from the ECB, and that was the crucial rate. And there weren't many deposits. With the huge QE, there were so many reserves that were on deposits that mattered. Now, plus or minus, I don't care.

The fed is still at the deposit rate because our lending facilities don't work as well as the European lending facilities. But if the Fed ever really wants to lower interest rates, push 'em down, it may find it has to start lending more accurately. So I would rate that as mostly a plumbing issue.

Neither Central Bank is having trouble right now, moving short-term market interest rates to where it wants them to go. The larger question is how much Central Banks can fight inflation by moving short-term market interest rates with abundant reserves?

That's a deep theoretical question. I'm not sure that's where you were going, so I'll let you ask that if you want to go with it.

Rasheed: No, yeah!

John: I would rate that as a plumbing question to first order.

Rasheed: Okay. So in a similar area, generally speaking, you rather a price level, not an inflation target. But now, in the EU, 2021 now finance is administered in the Euro area, how could the ECB sell the idea without really setting off a political earthquake to change how that system is targeted?

John: Firstly, they'd have to want to. Now this is an important question. Let me unpack it for your listeners. The ECB's mandate is price stability. That's what's written in the trade treaty, and the US Feds' mandate is price stability and maximum employment. But the first one is price stability. Oh yeah, that seems pretty clear, right?

Price stability. Both the ECB and the Fed decided to interpret that mandate as 2% inflation forever. Now wait a minute. The meter was designed for length stability, and nobody said you'd cut two centimeters off the meter every year, right? What do you mean by Bureau of Weights and Measures? So, first, they interpret that as 2% inflation.

And second, the ECB is particularly clear about this. But any mistakes are forgiven. So suppose you have a 10% inflation history, you say, "Oh, too bad we're targeting 2% going forward in the medium term." So you might think, for example, as many inflation targeting countries did, that there would be a, it's like five years, and we tied up what was average inflation in the last five years?

How'd you do? Was it 2% or was it 8%? We do not try to get that backward-looking average to 2%. We want our forecasts for the medium term to be 2%. And if we screw up one way or the other, "oh forget it." So now, we have a bunch of issues. If you wanna think about what mandates we want Central Banks to follow.

Do you want them to follow inflation, 2% per year forever, or do you want them to aim for 0% inflation, meaning the price levels stay? If there's a mistake, if there's a spout of inflation, do you want them to have future inflation a little bit lower so that the long-term average inflation is 2%? Or do you want them to just forget about mistakes and try to get back to 2%?

And so what about what happened? Or even a more price level target, suppose the level of prices went up? So this is what happened: the level of prices went up, and then you go back to prices not rising, meaning zero inflation. Was that good enough? Or if the level of prices goes up, do you want them to slowly bring the level of prices back to where they used to be?

Which is, over centuries, the way things were in Europe. Under the gold standard, there would be inflation and deflation. But after a period of inflation, prices would come back. So the level of prices was constant over long periods. Okay, so I keep redefining things.

I hope this helps you, listeners. So, among this plethora of possibilities, I prefer a price level interpretation of what price stability means. And if you have a bout of inflation over a period of 10 years, you will slowly bring the price level back to where it was if you have the capacity to. Why? The meter is what it is. Prices should be informative over long periods. I don't see any need for steady 2% inflation. There are 10 arguments on the other side, which I will not go through unless you ask me. But I don't think those arguments hold water. But the biggest one is that periods of low inflation or deflation are somehow bad for the economy.

And if you look back at those periods they seem to be just fine for the economy. There's a theory that by having low inflation, you're in danger of a deflation spiral breaking out. That never happened, 30 years in Japan with a steady price level. There was never a deflation spiral that uncontrollably broke out.

So I think that's a fantasy. So, that's the main reason not to want it. So that's why I always like the cleanest, simplest answer and price level; that's what I think they meant when they said price stability. And fundamentally, inflation is a set of units.

Do we measure things? Do you measure paintings in dollars, Euros, or Lira? It doesn't matter. You can measure 'em in inches and centimeters or furlongs if you want. The real thing is the real thing. So that's why I like the clarity of units, of measurement.

Rasheed: So the Euro crisis toolkit kept growing: SMP, OMT, PEPP, PSPP, TLTRO, you name it.

If you were to design a pre-approved rescue fund that still keeps markets honest, what guardrails would you put on it?

John: Yeah, I am impressed by the ECB’s ability to create an alphabet soup of acronyms. I thought only the US was the world leader in this, but my hat's off to the ECB.

What each of these was, let's go back to try to unpack these. The ECB started with almost a law, but certainly a tradition, we do not buy government bonds. Because we're not in the business of financing government deficits. But of course, starting with the financial crisis and then certainly in the sovereign debt crisis, and then in crisis after crisis ever since.

And then in the ECBs desire to deliberately inflate during COVID pandemic, they bought sovereign bonds like crazy. But we all understand the danger of unlimited sovereign bond buying in a common currency without fiscal union. It's already a problem for a government like the US that the central bank buys government debt monetizes it, that causes inflation and leads to more deficits.

It's even worse in a currency union because an individual country, if it knows the ECB will bail it out, just borrows like crazy. You mentioned euro bonds. They put in euro bonds because they wanted to spend more.

That's a fundamental misunderstanding of what government debt is about. Spending is always paid for by taxes. It's either taxes now or taxes later. So that if you're issuing government debt, you're issuing promises to tax later. And if you want Euro bonds, you don't want Euro bonds 'cause you want to spend more, you want it 'cause you want to spend now and tax later. But without the tax, later you just get inflation anyway.

There was this tradition, we didn't buy government bonds, but then one by one, they did. And since it was questionably legal, there were several court cases about whether the ECB could even do this. And to their credit, to try to contain the moral hazard, to try to say, if they just say "we buy government bonds, just, call us and say crisis, and yeah, we'll buy whatever it takes."

They didn't want to do that for obvious reasons. They don't want countries to feel that no matter what happens, we'll always come in. So there are always limits, and so on. But one by one, the limits have gone away. Currently, we need a diagnosis of market fragmentation or dysfunction, but since no central banker ever trusted a market, the market's always fragmented, dysfunctional. And the current ones are unlimited. I know I've talked to ECB officials who say, "No, we have all sorts of rules." Markets certainly think there are no rules. But any blip up in, in Italian or Spanish spreads will be met by, "Oh, this is market dysfunction."

Now, in the book, my co-authors persuaded me that some ECB bond buying was useful with limits. And here's the case. And my hat's off here to my co-author, Klaus Masuch, who was basically in charge of Greece at the ECB and put together a lot of these programs.

It came kinda late. But if you have a currency union without a fiscal union and you have sovereign debt, I'm the hard ass. That means you've got default. But there's no default mechanism. So default in corporate debt, there's a bankruptcy court and order of precedence, and there are rules on how you default.

At least you need those rules on how to make these defaultable securities. And what are the rights of creditors? Can they seize assets? How do you get some, and their bankruptcy, like IMF programs, you try to avoid a chaotic default. You try to avoid situations that a current country can't pay back now, but might be able to put affairs in order.

A mechanism that comes in and says, look, we, the collective, the rest of Europe. We were not gonna print money to help your debt, but if you're getting in trouble, we will have a mechanism that lends you money in the short run. In return, you will finally get around to those microeconomic reforms that you've been putting off for 20 years.

You'll free up your labor markets and get rid of a bunch of protections and get rid of a bunch of subsidies, and we'll have a program that credibly gets your fiscal things back in order, in return for support. And so that's the useful sort of institutions involving some limited amount of government bond buying that I think would be important.

First of all, there's always the backstop. A country can default, and it won't be chaotic. If you don't have that backstop threat, then the second step doesn't work at all. Because if we're in negotiations about a rescue plan, but default is impossible, you just sit back. A default is impossible.

Bring it on, right? No. So that has to be there, and it has to be functional. You cannot have a default bring down all the banks. It has to become defaultable debt that is risky on the bank balance, and banks have to account for it and diversify that debt. And so then the second step, you need an institution that can step in and forestall default by providing coordinated fiscal help subject to conditionality; the country will work out a plan where you start growing and you're able to pay back at least some of this debt. Depositors will take haircuts, as in all these things. You're all getting 80 cents, you're getting a rescheduling of the debt, putting off some interest.

Yes. And the depositors, debt holders can't be banks that will instantly fail. You need that sovereign debt to be held by people who can take those risks and earn a premium for it. But those kinds of mechanisms are necessary.

And you asked when you can buy sovereign debts? And in the context of those mechanisms, I think now you have mechanisms that allow you to get through problems without destroying the incentives for countries to issue debt wisely.

Rasheed: So I seem to be the only person in my circle of libertarian people in Madrid who tend to like the idea of a digital Euro, the central bank to the currency project of the ECB. I'm in the very, very small minority in that camp.

I don't know how much you've looked into the actual project of the digital Euro at the ECB. It's a lot more advanced than people think it is, and a lot more sophisticated than people think it is, in my view. But generally speaking, what's your view on a European digital currency, or if you have looked into this particular project, the current architecture they're trying to push for? Especially given that we did discuss TARGET2 earlier. One of the important things people forget when talking about the digital Euro is that the ECB already has a TARGET2 instant payment settlement, so the TIPS system. Which is perfectly suited to run any CBDC project, and it's already technically used pseudo-CBDC by some institutions.

John: Ah, I hope you weren't hoping for a small answer here. You're a libertarian circle in Spain, and there are three of you. Bring the other two on. And I also travel in libertarian circles, and we all get along fine until the question of money comes up.

Why should the government provide money? Scottish free banking! And I am a practical, empirical libertarian. There are a few things that the government can do pretty darn well. And one of them is to provide a currency. Why? Because a currency is fundamentally backed by something.

And so, in the absence of a government, paper money is backed by loans, but loans sometimes go bankrupt. And so there are runs on banks, whereas government money is backed by the present value of future taxes. And that's a darn good backing for money if the government is at all responsible.

Now, true libertarian, so the government's never responsible, but it's a problem of being a libertarian. You get involved in the "should the government issue pilot’s licenses" and go, maybe not. Of the catastrophes lying in front of us, there's 999 in front of privatizing pilot licenses.

And so money is, I think, one of those. Preamble, the digital euro. There's this fascination in the U.S., too, in part, with the blockchain question. So we should separate by digital Euro, do you mean a blockchain, or do you mean a central ledger? And as you pointed out, we have a digital Euro.

We have a digital dollar. It's called reserves. We have completely digital currency that is maintained in a central ledger at Central Bank and is transferable back and forth between banks using 1970s technology that could be updated. Why do you need something else? Now we do need digital money, it's very useful.

I don't carry cash anymore. Most black people don't carry cash anymore, but we kinda have digital money. We have you own an account at a bank, which has an account at, which has euro deposits or reserves at the Fed, and you can digitally transfer that money to someone else. So you got digital Euros, they're private, digital Euros backed by, and ideally in my world, we would have narrow banks that are a hundred percent backed by reserves.

If I were in charge, that's where I'd go. Our plan for a digital currency is narrow banks. A hundred percent backed by reserves cannot fail. Zero financial crisis, zero run ever. And then they transfer money back and forth rather than the Central Bank doing it. Why? 'Cause I'm appealing to your libertarian sympathies.

I like private markets wherever possible. The government is good at providing this asset, a nominally risk-free security. But the government is not great at providing efficient consumer-facing websites. " Oh. I lost my password. Hey, JD Powell, could you reset my password?" When have you seen an efficient government?

If you wanna run a payment system in our countries, you need a massive consumer protection regulation, anti-money laundering scam protection. Private companies are much, much better at actually enforcing government regulation. Could you see the ECB or the Fed trying to implement a website that is compliant with all of its regulations?

It's no way they could do it, let alone implementing the quite effective anti-fraud, anti-money laundering things without bringing the whole thing. So privately run with the government backing i is my answer to the question also because of the privacy problem.

Rasheed: Okay. I was gonna say this project, as you might know, the digital Euro is done via the commercial banks and not via the Central bank, correct?

John: Yes.

If the government watches every single transaction you make, the implications are staggering. We had the Canadian truckers who had a protest against COVID and were shut out of their bank accounts. You wanna run for office, and somebody can leak every purchase you ever made.

Maybe you stopped, maybe you had a receipt for a parking ticket for parking in front of a cancer center. What were you doing there? So that by having it private and then backed by the government, then at least the government needs a subpoena in order to be able to access your financial records.

Now, the digital Euro seems to be deliberately hobbled. So you're allowed to have a digital euro as a person, but it's only 3000 Euros.

Rasheed: 3000, correct.

John: 3000 euros. What's the point of that? And now I have asked an ECB official. And it has to be linked to a bank account.

Because they said, we want this to be a means of payment, not a store of value. What's wrong with it being a store of value? Central Banks fundamentally love banks, and they subsidize the banking system, and they're fairly straightforward about it.

If we put in a digital euro, that is a very low-cost, seamless way of making all of your transactions, you will just store your money in the digital Euro, not in the local bank. And the local bank won't go on and buy government debt or invest in that local supermarket or all the things we love the local bank to do.

So it's trying to maintain the profitability of the existing banks and the structure of the current banking system. And so I asked, "Well, okay. So the way it works is if you spend 1500 Euros, then it automatically refills from your bank account.

What if you want to buy a car? How do you buy a car with a 3000 euro limit? Does it do, six times, and then refill it?" How does a business how does a business make business-to-business transactions with a digital Euro if it's limited to 3000? So it seems deliberately hobbled not to work. And I think the emergent thing is stablecoins, which amount to the stablecoins or narrow banks. If you have a stable coin that is a hundred percent backed by short-term government debt- you understand our Central Banks are just money market funds.

They issue euros or dollars interest interest-paying and they buy government debt. So, a stablecoin, and money market fund, and a Central bank are all the same things. They issue one Euro interest-paying deposit, and they hold government debt. So I think stablecoins are gonna be the big challenge.

Not for any real technological reason. They just allow an end run to the regulatory structure that has been there to defend the profits of the existing banks. And our Fed has rather scandalously not allowed narrow banks to come into being.

Rasheed: Why is that?

John: I have read the document issued by the New York Fed about why they did it, and it is a fantasy of various things that could go wrong. Now, why is that? I have a principle: don't assign motives to people without evidence.

But boy, does it look like they want to keep intact, if not the profits that cross subsidies implied by the local banks. But eventually, as we libertarians know, such efforts fall apart, and stablecoins, I think, are the way to go. The digital Euro, as it currently is, seems designed to assuage a political crowd that wants a digital Euro without creating something that will actually work.

And then there's the question of why we are doing this? Rather than having a central ledger-based, efficient payments system run through private intermediaries that are a hundred percent backed by reserves.

And that was the short answer.

Rasheed: But, so on that the narrow banking idea, stablecoin, CBDC meta idea is sometimes a bit confusing to people. More so because of the profit. Obviously, I know how stablecoins make money, but the intuition, so how then does a company make a profit if they're just doing narrow banking or such a money market fund?

I don't know if the ECB restricts narrow banking. I don't know if they have any here. But what is the basic intuition why people generally, you know, not just ECB or Fed staff, generally do not see why narrow banking is good?

John: There are a hundred fallacies out there.

So the main one is that somehow allowing narrow banks will reduce the supply of credit. The pizza is what it is, and how you slice it up makes no difference. So then it's about a cross-subsidy. The hope is that by allowing banks to have access to very low interest deposits that they will pass along those lower interest rates to lenders out of the goodness of their hearts.

When was the last time a monopolist lowered prices? If you had a monopoly on your inputs, you would lower the price of your outputs rather than just raise your profits. Things go back hundreds of years in a 19th-century economy with a very small federal debt; there was a need for money, and there was a need for lending. So it might've been fairly natural that banks issued notes, money-like liabilities that they used to, and those were, went into the safest kinds of assets they had, which were real estate loans. But that was the 19th century.

So we have enough government debt to back any possible amount of transactions, balances you could need, and much safer. And then that same money, it's just the form of the investment. The same money that is now being invested in banks via government-insured deposits could be invested in banks via equity and long-term debt.

And you would get a better return out of it, and the banks would pass on at the market rate of interest. Now, perhaps they would have to charge higher interest on their loans, but where is the low interest coming from now? It's coming from the taxpayer. Right now, we have a system where the banks issue deposits that are insured by the government, and every time there's a crisis are bailed out by the government.

And that's why the banks can pay such a low amount on deposits and turn them into risky loans. If you wanna subsidize risky loans from the taxpayer, why don't we just do it directly, rather than every 10 years, have a financial crisis and bail everybody out, rather than having a deposit insurance system that is undercharged?

And every time there's a crisis, they ensure something else, like they did in SBB. If you want taxpayer subsidies for lending rates, pass 'em. And, rather than hide it under granting banks this monopoly privilege and these implicit taxpayer subsidies.

Rasheed: So I have two more questions. So around the year 2000 thousand one, the US federal budget was about 4 trillion, and now it's over 7 trillion. And of course, that's not sustainable, that's gonna have a lot of debt pressure. But how do you think the US feasibly gets to a more sustainable budget point?

John: Economically feasible is easy, politically feasible, that's not my job. Economically feasible: reform the insane tax code. Just look at the news coverage of the Big, Beautiful Bill. Oh my god, what a mistake. Horrendous. We can have a tax code that raises revenue for the government at minimal economic distortion, and that would be great. I would just have a value-added tax. If you throw out the income tax, you throw out all the deductions and exclusions with it. You don't have to fight for 'em one by one.

The deduction for mortgage interest, the deduction for employer-provided healthcare, the deduction for my neighbor's Tesla, the Swiss cheese of our tax code.

Just throw the whole business out, the consumption tax is easy. Now you've raised 20% of GDP for the government with almost no economic damage. And there's a whole bunch of tax lawyers and accountants, and lobbyists who can drive for Uber, and it's wonderful. We can stop spending like a drunken sailor.

You look at what the US spends money on. And get outta the way for microeconomic growth. The best way for tax revenue is not higher tax rate, but higher income. Tax revenues is tax rate times income, raise income. And America we're only half as bad as Europe in regulatory sclerosis.

Right now, Europe has stopped its growth. The US growth is half what it should be. So that's the Cochrane program, which will grow the economy like crazy. And also make that easier. What are we gonna do? Both Europe and the US are wonderful places that we've had spectacular economies for hundreds of years now.

Surely we are not gonna go through a debt crisis simply because we can't do the obvious things. Surely we're not going to kill our economies with taxes. Tax austerity doesn't work. It just kills the economy. It does not engender a stable fiscal policy.

And surely we're gonna reform our spending. I use the word reform rather than cut. 'Cause we don't have any external problems. Nobody is invading us. Yeah, we have military problems, but compared to World War II, this is just nothing.

From an economic perspective, it's easy. From a political perspective, that's harder.

Rasheed: Last question. I've always been curious about this weird thing in the US, where it feels to me like the payment system in the US is very antiquated, especially relative to the weight dominance importance. The advanced financial instruments in the US are beyond par, but just the basic payments infrastructure is so old. I can send money to my friend here in, in Finland from Spain instantly. It takes days to send anything from Florida to California sometimes. Is there some reason for that?

John: Yeah. Our banking system is not particularly competitive, and I'm just gonna presume there are regulatory problems. It is so frustrating. I had to make a big payment recently, and my mutual fund no longer has check-writing privileges. So it took two days to get it from a federal money market fund into a bank.

And then I had to wire transfer from the bank, and I could, I had a $50,000 a day limit. So it took a while and 25 bucks a shot , 4% to use Visa and MasterCard. I haven't really looked into it, but my libertarian prejudices say there's regulations that are having the politically powerful feet at the trough, but absolutely, yes, this needs cleaning up.

Rasheed: So, John, thank you so much for joining me on the podcast. It's been a delightful conversation.

John: Thank you, and thanks for putting up with my lectures as answers. Your questions are fantastic, and I hope this has been useful for our listeners.

Rasheed: Thank you.

Almost two years ago I recorded a podcast with Tomás Mandl on his book Modern Paraguay: Uncovering South America's Best Kept Secret. If you have been following me since then you might already know that Friedrich Nietzsche’s sister moved to Paraguay with her husband to start a new German Colony to advance Nazi ambitions of Aryan supremacy. Perhaps, you already know that Alfredo Stroessner, the military dictator of Paraguay for 35 years (the longest Western Hemisphere Cold War dictator apart from Fidel Castro), gave Paraguayan citizenship to Josef Mengele, the infamous Nazi war criminal (“Angel of Death” in Auschwitz) and refused to extradite him.

Yet, on my first visit to Asunción last week none of that was on my mind. What was striking was the total absence of any aesthetic coherence of the city.

In a previous post, I talked about what I consider the spectrum of the Deepness of cities. In my view, cities can be economically developed but lack depth. Another mental model I use for my proxy of development when traveling is what I call aesthetic Coherence.

Trying to explain a mental model is always a bit fuzzy, but I mean something like this:

1. How well-planned does the urban design of the city feel?

2. How similar are the building designs in specific neighborhoods?

3. How well-marked and maintained are roads and pedestrian walkways?

4. How closely do street signs follow a specific design language?

In my mental model, a city like Madrid or St. Petersburg has high Coherence. But a city like Phnom Penh (Cambodia) or Kochi (India) has low Coherence.

If you walk around Phnom Penh or drive through Kochi, you will see a demure 1-story concrete building painted white next to an aggressively neon-lit 3-story building in brick and concrete with 4 different colors. Both were on a road without properly maintained pavement. This is a fairly common scene in developing countries in Asia. I am sure you have seen skyscrapers in Manila next to slums.

What this means is that private individuals can build however they please because there are no urban planning rules to follow, nor any government-imposed development master plan. We can argue how good or bad this is, I am just pointing out it is something you see.

What was surprising to me is how closer Asunción is to the southeast asian side of Coherence. I did not expect Asunción to remind me so much of Phnom Penh.

This was the view from my hotel room. It was actually (one of?) the nicest hotels in the city. The building itself, inside and outside, was quite elegant. I even found out that the King of Spain and the President of Panama recently stayed there. If you know me, this is apt indeed.

But it goes to show how even the nicest buildings in Asunción are usually just surrounded by dilapidated ones.

This is a common detail everywhere around the downtown areas. There is no real urban planning; private investors just build where they see fit. This dire lack of system-wide (public sector-led) urban planning could be seen in the fact that, generally, the government of Paraguay spends way less than any other Latin American country.

Problems with a Lean State?

As a percentage of GDP, government expenditure in Paraguay is around 19%, which is way below the South American average of 29%. In fact it is the lowest. Interestingly it is similar to Cambodia, also at 19%.

Given the big image above, I did not expect the city to have so many modern high-rise buildings like these:

So why? Is it a strong and expanding middle class?

If you know anything about Cambodian urban development, you would guess no.

But let’s think about that.

With a population supposedly around 7 million, Paraguay’s per capita GDP (nominal) is just around $6,276 USD. And only around 15% of the population have a tertiary level of education.

From my podcast, or elsewhere, you might know that about 62%-67% of all jobs in the country are informal. Only Peru and Bolivia have higher rates of informal jobs. In fact this informality in the labour market, coupled with Paraguay’s extremely low tax capture policy, means that government revenue is heavily limited. In a population of around 7 million, only around 300,000 people file taxes and contribute to the government tax collection base. Why does only 7% of the country pay personal income taxes in Paraguay?

Firstly, similar to Panamá, Paraguay only taxes Paraguayan‑source income. So then, foreign salaries, dividends, or portfolio returns are generally exempt from domestic taxation. Curiously, personal income tax as a whole was only introduced in 2012.

Secondly, demographics. Of the 7M total population, around 3.5M (15-65 years old) are in the labour force. But given the high rate of informal labour (hence do not pay taxes or social security contributions), the active formal labour force is just about 1.2M people.

Thirdly, Paraguay has a tax gate. That is, only those persons making over $11,000 USD gross income annually even need to file taxes. So, given these details, the National Directorate of Tax Revenue in Paraguay has noted that only 296,691 people meet all of these criteria to file taxes. Are you surprised by this?

In terms of total tax revenue, personal income tax only accounts for 6%, while VAT accounts for 52%. Yet, the VAT rate is just 10%.

This means that Paraguay has the lowest VAT rate in Latin America. Well below Argentina (21%). This is a main reason why many Argentines and Brazilians travel to Paraguay simply to shop (usually for commercial purposes). This is deepened by the fact that there are two large Free Trade Zones near the borders with Argentina and Brazil. You will not find many leisure tourists in Asunción. When I spoke to Paraguayans, they often confirmed that it’s mostly Argentines and Brazilians who come to the city to buy products, not to explore and enjoy.

Going back to the middle class consumption point. If only around 300,000 Paraguayans make up the domestic personal income tax base then it’s perhaps not a local middle class that is buying and renting the new modern high rise apartments in Asunción.

Indeed, 70% of the new housing supply is acquired by foreign investors as a capital preservation strategy. They are not bought by locals. These are often investors from Argentina, who, according to some data, account for 70% of all foreign investors. They buy the apartments and then rent them out. But to who?

Usually, foreigners who go to Paraguay for work purposes or new residents who take advantage of Paraguay’s quick and easy residency scheme and citizenship program. And the fun part is that these rental contracts are usually in dollars! Not the local currency (the Guaraní, PYG). Of course, Argentines buy property in Paraguay and prefer to receive dollars in rent.

So there is another part to this. Yes, foreigners are buying more and more property in Asunción, but why is that property being developed there in the first place? This is not simply a matter of demand creating supply. There is an interesting story on the supply side, too.

Whose Incentives?

Paraguay has a special set of regulations established with Law 60/90, approved in 1990 with various amendments since then. The basic premise of this law is that for approved projects (which was updated to include real estate) over $5M USD, the developers are exempted from most taxes, including: 0% customs duty and 0% VAT on importing capital goods and on buying locally made capital equipment; 0% withholding tax on interest/commissions paid abroad and 0% tax on dividends & profits from the project for up to 10 years. Since 2024, the project baseline has been raised to an investment of at least $13M USD for these exemptions to kick in.

On top of all of these, if you build real estate buildings in Asunción specifically there are additional tax breaks from Municipal Ordinances on top of Law 60/90. So developers have really attractive incentives for building in Asunción and attracting foreign buyers. There are even some more tax breaks if you sell more than 40% of your building units on pre-sale.

All of this is why you have modern high rises near to roads like this in walking distance from the presidential offices. Low coherence.

There is a lot more that I could say about Paraguay. Like how the War of the Triple Alliance (1864-1870) resulted in the death of 70% of adult men in Paraguay, giving the country the highest male-mortality proportion ever reliably documented for a nation-state in modern warfare. Yet, the general population of Asunción is quite attractive. Or I could talk about why Paraguay has one of the largest Mennonite communities. Maybe on why it takes an ungodly amount of time to receive your food when you order it in any restaurant? Perhaps in another post.

If you do not speak Spanish then you will have a hard time doing anything. But if you do speak Spanish, the Paraguayan accent sounds phenomenal and the people are disarmingly kind.

Tyler once pointed out that a common question in Paraguay is “¿Con factura o sin factura?” I can now confirm that everywhere I went, I was asked this.

Today’s edition covers June 2 to June 15

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The Top 5 Stories:

• It’s been a weird week in China-Panama-U.S. relations, so here’s a quick run-down:

  1. On June 10, the head of the Panama Canal Authority warned that the proposed CK Hutchison-Blackrock port deal could undermine the canal’s neutrality. Consequently, the PRC foreign ministry quickly seized on this in a news conference to implicitly justify its decision to hold up the deal. (Global Times)

  2. At the same time, President José Raúl Mulino denounced his predecessor over the $1.8 billion in cost overruns for the sensitive Chinese-built fourth bridge over the Panama Canal. In turn, he said he would file a complaint with the Prosecutor's Office.

  3. The next day, June 11, the U.S. Embassy in Panama City issued a statement claiming a strategic victory in Panama by helping Panama’s Ministry of Public Security replace seven Huawei-built telecommunications towers at the cost of $8 million in order to “protect the national security of our countries from the threat of the Chinese Communist Party.”

  4. However, shortly thereafter, President Mulino rebuked the Trump Administration’s implicit suggestion that the project was a response to Washington’s competition with Beijing. Additionally, Panamanian officials clarified that the project had been ongoing for nearly 10 years.

  5. Even amidst these U.S.-China tensions playing out in Panama, Bloomberg reported that a key result of the U.S.-China talks in Switzerland was to let a Chinese firm, like State-Owned Enterprise COSCO, join the Western consortium that elected to buy a network of global ports (including two near the Panama Canal) from Hong Kong-based CK Hutchison.

  • What to make of all this? Panama remains in a sticky position, and the Mulino Administration seems to be trying its best not to lean too hard into one relationship over the other. On the one hand, the United States is an essential partner, but on the other hand, ignoring China could impede Panama’s economic prospects. And with the Trump Administration taking wishy-washy positions, navigating this tight path will be even harder for Mulino.

• Looking to reaffirm his country’s ties with the ROC, Guatemalan President Arevalo traveled to Taipei to meet with Taiwanese President Lai and to find ways to deepen economic cooperation. The presidents signed a “Letter of Intent for Semiconductor Cooperation,” while the two sides later confirmed an agreement on mutual investment. When Arevalo later traveled to Japan, international media suggested that Tokyo’s embrace of Latin American countries like Paraguay and Guatemala was due to those countries’ relationships with Taipei. Unsurprisingly, however, the visit prompted Beijing to yet again urge Guatemala to break ties with the ROC.

  • When President Arevalo was first elected, there was some initial speculation that his government might seek to establish diplomatic relations with Beijing in a bid to attract Chinese trade and investment. This visit and its modest substantive agreements will likely quell those concerns, at least in the short term.

• Antigua and Barbuda Senior Minister Sir Molwyn Joseph led a delegation of several ministers to China, including Shanghai and Hangzhou, to deepen collaboration in “health, agriculture, fisheries, the blue economy, education, and innovation.” The officials met with Chinese business leaders, academics, and government leaders to discuss issues like modernizing health infrastructure, “joint ventures that would help protect marine ecosystems,” and new training exchanges and cultural partnerships. Relatedly, China’s Ministry of Commerce hosted a 21-day seminar for students from Antigua and Barbuda on “climate change response and sustainable agricultural development.”

  • While A&B’s ties with China are quite consistently friendly, the country’s government has been quick to note that it is not picking one side over another. Just recently, Antigua and Barbuda’s foreign minister stated, “To the extent that we have the United States as our major trading partner... and China our number one development partner, I think we are enjoying the best of both worlds.”

• In an interview with the Financial Times, the Brazilian Vice Minister of Finance said that his country plans to issue “panda bonds”, which are bonds denominated in Renminbi for foreign creditors. As of this writing, it is unclear how much debt will be issued or when Brazil plans to begin selling the bonds.

  • Brasilia has long sought to wean itself off its dollar dependency, and its relationship with Beijing (especially through BRICS) has been central to achieving this goal. From a currency swap with the People’s Bank of China to ditching the dollar in bilateral Sino-Brazilian trade, this “panda bonds” news is just another step in Brazil’s long-term plan to be less dependent on just the U.S. Dollar.

• A judicial delegation led by the Vice President of the Beijing High Court, Ren Xuefeng, traveled to Peru, where they met with leading judges like President of the Judiciary Janet Tello Gilardi and Supreme Judge Ulises Yaya Zumaeta to discuss intellectual property (IP) issues. They later traveled to Argentina, where the two sides discussed the relative structure and function of their systems, as well as IP. At the same time, a couple of Chinese diplomats met with Brazilian federal district judges to present a gift to the courts.

  • Judicial engagement between the PRC and LAC governments isn’t new, but it’s certainly a bit more of a rarity than foreign ministry-to-foreign ministry or legislative engagement. In the past, judges from countries like Venezuela and Argentina have met with PRC diplomats and judges, though it is unclear if these meetings resulted in any tangible outcomes aside from a pleasant conversation.

Core Brief

Going Local: Chinese Provincial and Municipal LAC Engagement

As I frequently note in this newsletter, China does not engage as a monolith in the region; lots of government ministries and party departments — like the Ministry of Foreign Affairs and the CCP’s International Department — operate in LAC. But this engagement isn’t just dispersed horizontally across government, party, and business institutions; it’s also spread vertically across Chinese provinces and cities.

This week, I wanted to take a quick look at why and how Chinese sub-national authorities engage with the region. Though this is an incredibly complicated (and honestly under-researched) issue, generally speaking, a diverse array of actors from Chinese sub-national entities engage with LAC across all different kinds of issues in all different kinds of settings.

With all this diversity, it’s impossible to craft an overarching narrative about Chinese sub-national engagement in LAC. It seems there’s no one set model for Chinese subnational diplomacy. But in general, it is possible to say Chinese sub-national officials pursue a relationship with LAC both to support their own local economic and social policy goals as well as to support Beijing’s overarching national foreign policy.

A bit of background

It’s obvious that China is a big country, but before diving in, I want to emphasize just how big these cities and provinces are.

Of the more than 600 cities in the PRC, 18 have a population of more than 10 million, which is more than about half the countries in Latin America (such as the Dominican Republic or Honduras). The most populous province in China — Guangdong — has a population of about 127 million people, which is just a few million fewer than Mexico.

These cities and provinces are simply massive at the economic level, too. Of the 33 provincial-level administrative divisions1 in China, all but four have a GDP of more than $100 billion, which is roughly the size of Costa Rica’s or Venezuela’s entire economy. Even Mexico, the second-largest economy in Latin America, has an economy smaller than Guangdong or Jiangsu provinces, and is just about on par with Shandong and Zhejiang.

Why engage?

With populations and economies the size of countries, many of China’s massive cities and provinces naturally have interests abroad. As a result, these sub-national entities pursue sub-national diplomacy to support their economic development back home. Just like anywhere else (but on a larger scale), local and provincial officials look abroad to generate a positive trade and investment environment, learn new local government best practices, and advertise their home’s unique culture.

That said, Chinese sub-national entities don’t just engage with their LAC counterparts to advance their local interests; sub-national engagement also serves the national government’s concerns. When sub-national entities advance economic, social, and cultural ties, they often support economic development back home and a positive image of China abroad.

Recognizing this, the PRC State Council’s second White Paper on Latin America and the Caribbean called out these kinds of sub-national exchanges by name and promised to further encourage them. More specifically, it suggested that “local governments on both sides conduct friendly exchanges and cooperation, [and] share experience in local development and governance.”

Types of engagement

Political engagement, such as establishing sister-city ties or sending high-level delegations, often gets the most attention in the more local-level relationships. And frankly, it’s for good reason – Chinese provinces and cities have signed countless “sister city” and “sister province” agreements in LAC.

These types of agreements range from large and notable localities, like Beijing-Mexico City, to the more obscure, like Entre Ríos (Argentina)-Henan. Even a fairly small city, like the capital of Dominica, Roseau, has been pursued in Chinese sub-national diplomacy with its sister-city arrangements with Yiwu and Jining City.

That said, provincial and municipal engagement extends far beyond the vague lines of sister city arrangements. Provinces and cities often engage in high-level delegations that can lead to tangible new investments, trading relationships, or cultural and social exchanges.

Earlier this year, a business delegation from the Shandong Commercial and Investment Association visited Ñuble in Chile to discuss tourism, agriculture, and renewable energy. Just a few months later, the Ñuble city of San Carlos signed an agreement with a Shandong business association (and presumably some Shandong businesses) to build a new agribusiness industrial park. And in the realm of social and cultural exchanges, Hunan Province has been very active in the Dominican Republic. Its recent activities have included hosting a forum in the DR to promote cultural tourism and donating agricultural equipment.

What kinds of Chinese officials are engaging?

Notably, all these types of activities include a diverse array of Chinese actors. Though sub-national government officials often lead these delegations or sign these MOUs, provincial and municipal interactions can also include sub-national party, civil society, or business leaders. These city and provincial governments almost always have a staff just focused on international ties, and sometimes they employ officials to just focus on their city’s or province’s ties with Latin America and the Caribbean.

Yet this diversity belies the fact that sub-national engagement creates opportunities for LAC cities, states, and countries to creatively engage with their counterparts in new ways.

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The Roundup

Politics and diplomacy

• The PRC’s Special Representative for Latin American Affairs, Qiu Xiaoqi, led a delegation to Cuba to meet with President Díaz-Canel and to engage in “exchanges at different levels and tours of projects of interest in various provinces.” In a meeting with Cuba’s foreign minister, Qiu later emphasized infrastructure, biotechnology, and tourism cooperation.

• The Head of the Chinese Communist Party’s Society Work Department, Wu Hansheng, visited Venezuela to discuss “economic cooperation, energy, cultural exchanges, and social programs” with President Maduro. He later stopped through Brazil as well.

• Chinese Premier Li Qiang discussed “resetting” bilateral relations and rekindling economic ties during a call with Canadian Prime Minister Mark Carney. The call came days after Carney said that removing Chinese trade barriers on the country’s agriculture exports was a priority, as well as after Canada’s trade minister reviewed economic and trade concerns with the PRC’s Minister of Commerce on the sidelines of a WTO ministerial. (Global Times)

• During a reception marking the 53^rd anniversary of Chinese-Guyanese relations, President Ali noted that he had repeatedly discussed safeguarding Guyana’s sovereignty (presumably from Venezuelan coercion) with Chinese representatives. Meanwhile, newly-arrived Ambassador Yang Yang said that in addition to traditional fields like mining and agriculture, she looks forward to engaging on topics like “digital economy, green development, and artificial intelligence.”

Investment, finance, and infrastructure

• The Brazilian state of Bahia signed an agreement with China Railway 20th Bureau Group (CRCC) and China Communications Construction Company (CCCC) to build a $1.82 billion bridge between Salvador and Itaparica Island.

• Barbadian Prime Minister Mottley said that her government was in talks with a Chinese company to build and finance a 40% expansion of the Queen Elizabeth Hospital.

• Just as China Railway Number 10 Engineering Group Company completed construction of the 270-kilometer highway to Tacna, Peruvian prosecutors opened an investigation into irregularities in the tender process.

• A new $590 million wind farm by Power China opened in Chubut, Argentina.

• China Communications Construction Company started construction on the $83 million, 70 MW Enesolar-3 solar plant in Nicaragua.

• Bolivia and China signed an Economic and Technical Cooperation Agreement and an MOU on global development. The most tangible deliverable appears to be a 100 million Renminbi donation for jointly decided projects, as well as US$500,000 to fight natural disasters.

• Canada’s BC Ferries selected Chinese state-owned China Merchants Industry Weihai Shipyards to build four new large ferries; however, British Columbia's transport minister apparently raised concerns about the economic implications of the decision.

Trade and technology

• A new phytosanitary trade deal will facilitate Uruguayan soybean and rapeseed exports to the PRC.

• Peru’s massive blueberry industry is rebalancing towards the PRC due to U.S. tariffs, new trade opportunities due to the Port of Chancay, and growing Chinese demand.

• China recently hosted Honduran business representatives for a training on white shrimp cultivation to support that politically sensitive industry. Relatedly, the PRC donated 42 modules to expand the country’s System of Technological and Agricultural Innovation Centers (SCITA).

• Even as U.S. sanctions are looking to put a squeeze on Caracas, Venezuelan oil exports to China are stabilizing, and possibly growing, with “Chinese companies like China Concord Petroleum and Anhui Guangda Mining are signing secretive production-sharing deals to operate oil fields and pursue greenfield projects.”

Taiwan

• Even without formal diplomatic relations, the Costa Rican government dispatched five intelligence officials to Taiwan for national security training.

• Taiwan donated $2.59 million to St. Lucia to support “various social and developmental needs in communities throughout the island.” The bulk of the money will be used for the Small Infrastructure Initiative to rehabilitate infrastructure like roads and bridges.

• A Taiwanese EV trade mission will visit Mexico, Guatemala, Paraguay, and Brazil later this year. Relatedly, Taiwanese diplomats will also hold trade talks in Brazil later this year.

• Belize’s Minister of Foreign Affairs and Foreign Trade, Francis Fonseca, signed a “bilateral cooperation agreement” on unspecified matters with Taiwan’s ambassador.

• Paraguay will now export pork to Taiwan duty-free, according to the South American country’s trade minister.

Society and culture

• The general secretariat of the Andean Community and the Chinese Academy of Social Sciences (CASS) co-hosted a forum on mutual learning and high-level cooperation. Also at the forum, Beijing’s Ambassador to Peru almost word-for-word mimicked Xi’s recent pronouncements on security cooperation to suggest increased police cooperation.

  • Later, CASS signed an agreement with the University of Chile to strengthen academic and student exchanges.

• The Cuban ambassador to Beijing and the Shanghai consul general opened a Cultural Center in Zhejiang province.

• Deepening cultural ties, the Chinese embassy in Costa Rica hosted its first dragon boat race (in cooperation with the local Zhongshan Association). (CGTN) At the same time, the PRC’s ambassador visited a local university to mark the anniversary of the first Chinese arrival in the Central American country.

• Beijing’s Ambassador to the Bahamas, Yan Jiarong, met with the managing editor of the local paper, The Tribune, to discuss China-Bahamas media cooperation. (FMPRC)

• The University of Huaqiao agreed to launch a digital platform to teach Chinese in Argentina with the local Chinese Cultural and Education Foundation.

• In a bid to combat migration to the United States, Ecuador will require Chinese citizens to apply for a transit visa when transiting through the country.

  o This marks a big departure for Ecuador, which at one point was one of the only Latin American and Caribbean countries to not require a visa for PRC citizens.

Analysis and Opinion

• Nathan Attrill argued in the ASPI Strategist that Haiti and St. Lucia were the Taiwanese diplomatic partners most likely to flip recognition to the PRC.

• A new article from Hugh Harsono in the Small Wars Journal looks at how “China leverages open-source technologies and digital infrastructure as instruments of statecraft in Peru, advancing strategic influence through gray zone operations without conventional force projection.”

• In Americas Quarterly, Leland Lazarus wrote about the five pillars of future China-LAC ties that Xi Jinping highlighted in his speech to the China-CELAC ministerial, while Gregory Ross explained how “Chinese demand for South American commodities, expanding export markets in Asia and the Middle East... [are] raising the Paraguay-Paraná’s geopolitical profile.”

• Ryan Berg and Juan Carlos Pinzón Bueno argue in Foreign Policy that “the reprioritization of Latin America in the United States’ foreign policy, coupled with the high-level visits by cabinet officials, has placed China on the back foot in the region.”

• The pseudonymous A. Bermúdez wrote about Nicaraguan mining concessions to Chinese companies for The Diplomat, arguing that “the Nicaragua model may serve as a blueprint for Chinese engagement with authoritarian states.” Also in The Diplomat, Martin Brown questions whether Brazil’s burgeoning commercial ties with the PRC have given China too much “economic control.”

• Han Zhen explained how Chinese scholar Tang Yongyan has been documenting the Chinese-Cuban experience, which was “shaped by indenture, revolution, Cold War politics, and the painful erosion of transnational family bonds,” for the China Global South Project.

• Based on observations from a recent trip to Bogotá, Evan Ellis wrote about China-Colombian relations for CSIS. The Atlantic Council will host an event on the topic on June 20.

That’s it for now, see you again in two weeks!

Make sure you don’t miss the next issue of Chaufa 👇

Today’s edition covers May 19 to June 2

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The Top 5 Stories:

• The proposed Chinese-supported trans-Oceanic railway from Brazil to Peru continues to gain steam. In late May, the Peruvian finance minister hosted a meeting with the head of China’s railway administration and Brazil’s export promotion agency to discuss reviving the project. (Global Times)

  • First announced in 2015, the trans-oceanic railroad would connect South America’s Atlantic and Pacific ports via a rail line through Brazil, Peru, and possibly Bolivia. Though the very expensive idea has never gotten off the drawing board, U.S. coercion over the Panama Canal has likely renewed PRC companies’ and government officials’ interest in establishing an additional transit link to Atlantic-facing countries like Argentina and Brazil.

• Brazilian prosecutors filed a lawsuit against BYD and two of its contractors for creating conditions “analogous to slavery” at their factory construction site. The Public Labor Prosecutor's Office is seeking 257 million Brazilian reais ($45.5 million) in damages from the companies.

  • In late 2024, Brazilian authorities shut down Jinjiang Construction Brazil’s construction of a new BYD electric vehicle plant in Bahia after it discovered the company’s employees were working in “slave-like” conditions. Reportedly, the workers lacked access to their passports, lived in sleeping facilities without mattresses or adequate restroom facilities, and had their wages regularly withheld.

• A Confucius Institute opened at the Francisco Morazán National Pedagogical University (UPNFM) in Honduras. At the same time, UPNFM signed a cooperation agreement with the Zhejiang University of International Studies (ZISU) to establish student exchanges. Furthering education cooperation, the Central American country received unspecified “materials” from China to expand seven agricultural schools in the country, as well as a $100 million donation to support “education, infrastructure, [and] health” projects. (CGTN)

  • This is at least the fifth Confucius Institute in Central America,1 but it is the first such institute in Honduras. While these academic institutions are largely focused on promoting the Chinese language and culture, they serve as a valuable soft power tool in promoting a positive image of the PRC.

• Canada joined seven other countries with non-official diplomatic relations with Taiwan in expressing support for the nation’s inclusion in the World Health Assembly. Belize and St. Vincent’s representatives to the WHA also voiced their support for Taiwan during the session, while Taiwan’s other diplomatic allies, namely Guatemala, Haiti, St. Kitts, St. Lucia, and Paraguay demonstrated their support for Taiwan by attending a separate hosted reception.

  • Taiwan was a non-state observer at the WHO’s World Health Assembly from 2009-2015, but ever since the DPP returned to head Taiwan’s government in 2016, Taipei has been banned from formally attending the gathering. While returning to the assembly is highly unlikely in the near term, Taiwan has made returning to the assembly a priority by rallying diplomatic support from friendly countries.

• In a show of support for the ROC, Guatemala announced President Arevalo will travel to Taiwan (and Japan) in June. The trip will reportedly focus on advancing “bilateral projects related to Guatemala’s technology development.”

  • When President Arevalo was first elected, there was some initial speculation that his government might seek to establish diplomatic relations with Beijing in a bid to attract Chinese trade and investment. This visit will likely quell those concerns, at least in the short term.

Core Brief

Xi just isn’t the same: President Xi’s CELAC speech shows how China isn’t just focused on commercial ties

In early May, Beijing hosted heads of state, foreign ministers, and other representatives from nearly every Latin America and the Caribbean country. As discussed in Chaufa’s last issue, the IV China-CELAC ministerial’s joint declaration shows that the ministerial was a comparatively notable affair, with high-level representation and significant deliverables.

Aside from the joint declarations that I analyzed last time, the summit also featured a notable speech from President Xi. Unlike the declaration, which (at least in theory) reflects the joint priorities and aspirations of both China and the LAC attendees, this speech articulates China’s perspective on its regional priorities.

Admittedly, Xi’s speech is full of platitudes and vague pronouncements. But when compared to previous major speeches on China-LAC ties to regional leaders, Xi’s speech not only shows how the way PRC officials talk about cross-Pacific ties has changed, but also how China’s priorities and future agenda have shifted from narrow economic concerns to broader social, political, and security cooperation.

What Xi used to focus on

Xi has delivered countless speeches and comments in the past decade that touch on policies that impact China-LAC relations. For the sake of simplicity, I want to largely focus on two previous addresses: the 2014 speech at the China-Latin American and Caribbean Countries Leaders’ Meeting in Brasilia and the 2015 speech at the Opening Ceremony of the First Ministerial Meeting of the China-CELAC Forum in Beijing.2

The former was one of Xi’s most important policy statements on China-LAC ties, with him introducing the 1+3+6 formula that put trade, investment, and finance at the heart of the China-LAC relationship. During the speech, he also touched on each side respecting the other’s “core interests,” promoting people-to-people exchanges,3 multilateral collaboration through institutions like the UN, G20, and APEC, and strengthening bilateral ties through initiatives like the China-CELAC forum. But he spent nearly as many words describing economic ties as he did on these other four priority areas.4

In the 2015 speech, Xi also identified commercial ties and supporting LAC’s economic development as the relationship’s central driver. For example, at the end of the address, Xi offered two ways for China to help the region. One was a vague promise of “an independent foreign policy of peace.” The other was China’s outlook for a “medium to high rate of growth,” which he suggested would lead to very specific trade, investment, and tourism outcomes. Of the two, it was only the latter economic-focused promise that wasn’t just filled with vague platitudes.

What was new in the 2025 speech

This year’s speech had three main differences: a specific connection between the PRC’s One-China Policy and regional sovereignty concerns, contextualizing China-LAC relations by not-so-subtly criticizing the United States, and dramatically expanding the specific priority areas of bilateral cooperation.5

Taiwan and “National Sovereignty”

This year’s comments on “safeguarding sovereignty and independence, and opposing external interference” went much further than previous years by specifically linking the PRC’s desire to take over Taiwan with LAC’s historic sovereignty issues.

In the past, Xi touched on China and LAC countries minding their own business by “following the path of development suited to their national conditions.” Highlighting the PRC’s support for Panama gaining control of its canal in the 1970s, the region’s “campaign for 200-nautical-mile maritime rights,” and China’s opposition to the U.S.’s Cuban embargo, this year Xi directly linked these regional sovereignty issues to his desire to control Taiwan by mentioning the One China Principle by name.

While it is common practice for Chinese diplomats to connect the One China Principle to local LAC sovereignty issues, Xi’s explicit connection elevates the importance of China’s Taiwan concerns in a region that hosts seven of Taiwan’s formal diplomatic partners (as well as seven countries with non-official Taiwan missions).

Criticizing the United States

The second issue, criticizing “tariff wars”, “hegemonism”, and “unilateralism and protectionism” in a not-so-subtle dig at the Trump Administration, shows how the Chinese side is increasingly unconcerned about competition with the United States. In the past, the closest Xi came to criticizing the United States was by implicitly suggesting that the international order was insufficiently “just and fair.” By and large, Xi’s previous speeches solely focused on what China prioritized and offered to the region, rather than contrasting the PRC with LAC’s northern neighbor.

This time, Xi dedicated an entire paragraph in the middle of the address criticizing the United States. Aside from a dig on the U.S.’s Cuban embargo, he refrained from explicitly mentioning Washington or Trump in his speech by name. But his references to “geopolitical and bloc confrontation and the surging tide of unilateralism and protectionism,” “tariff wars or trade wars,” and “bullying or hegemonism” were a not-so-subtle refutation of the Trump administration and Washington’s broader policy trajectory. As the current U.S. administration prioritizes competition with China in the region, Xi’s speech suggests that his country plans to lean in, rather than back down, from a contest or conflict.

New areas of collaboration

Just like the China-CELAC declaration, Xi highlighted issues that he had never previously raised in one of these all-encompassing speeches.

One issue set that he never previously addressed was China’s support for natural disasters and pandemic relief in the region. Xi spent a whole paragraph on the issue, naming earthquake and hurricane response, as well as supplying medical teams, medical supplies, and vaccines as one of the key areas of bilateral cooperation.

Another new area was security issues. Aside from cybersecurity (which was mentioned in 2014), Xi’s suggestion to collaborate in “disaster governance, cybersecurity, counterterrorism, anti-corruption, narcotics control and combating transnational organized crime” identified all new areas of engagement on peace and security matters.

Other new areas of collaboration included “civilizational” topics and cutting-edge technologies. On the former, Xi suggested collaboration in the arts and archeological projects, as well as “combatting illicit trafficking of cultural property.” On the latter, he noted clean energy, artificial intelligence, and the digital economy, all areas in which the Chinese economy is increasingly competitive.

While for the most part, China has long worked on many of these topics in the region (and Xi and his subordinates have mentioned these issues in other speeches), Xi’s choice to give these non-commercial issues just as much, if not more, weight than commercial topics in a broadly-focused speech shows that the China-LAC relationship is graduating beyond one driven by trade, finance, and investment.

Xi’s explicit deliverables

Similar to the structure of the 2014 address, Xi separated China’s engagement into five buckets. But unlike the earlier speech, the specific areas of cooperation highlighted across the five topics (international solidarity [political ties], economic development, civilizational exchanges, peace and security cooperation, and people-to-people ties) were much less focused on commercial engagement.6

For reference, the following list of deliverables sprinkled throughout the address (some of which have been previously reported, but others I have not seen highlighted as much):

1. Solidarity Program

   1. Invite “300 members from political parties” to China each year7

2. Development Program

   1. CN¥66 billion RMB (USD 9 billion) credit line

   2. Expand cooperation in emerging areas such as clean energy, 5G telecommunications, the digital economy, and artificial intelligence

   3. Carry out the China-LAC Science and Technology Partnership

3. Civilization Program

   1. A Conference on China-LAC Inter-Civilizational Dialogue

   2. A Latin American and Caribbean Arts Season

   3. Joint archaeological projects, conservation and restoration of ancient and historic sites, and museum exhibitions

   4. Combat illicit trafficking of cultural property

4. Peace Program

   1. Organize law enforcement training programs

   2. Provide law enforcement equipment assistance

5. People-to-People Connectivity Program

   1. 3,500 government scholarships, 10,000 training opportunities in China, 500 International Chinese Language Teachers Scholarships, 300 training opportunities for poverty reduction professionals, 1,000 Chinese Bridge-funded placements, 300 "small and beautiful" livelihood projects

   2. Translate and introduce 10 premium TV dramas and audiovisual programs annually to each other

   3. China-LAC Tourism Dialogue

   4. Visa exemptions for five countries, with a promise to further expand visa exemptions into the future

What does this mean for the future of China-LAC ties?

Since President Xi’s trade, finance, and investment-focused speech at the China-LAC leaders’ summit in 2014, Chinese-LAC engagement has been a story of economic cooperation. From major infrastructure projects like the Port of Chancay in Peru, notable investments in countries like Mexico, and FTAs with countries like Ecuador and Nicaragua, the most eye-catching news stories about Chinese-LAC cooperation have almost always been commercial.

This year’s speech highlights that it is no longer the case that commercial ties are the driver of China-LAC relations.

Of course, this does not mean that economic ties are not important — Chinese companies, financial institutions, and government agencies will no doubt continue to deepen their trade, investment, and financing engagement with the region. But if Xi’s speech is any clue, over the next decade expect a broader range of Chinese state and non-state actors to raise the salience of China’s desire to take over Taiwan, explicitly criticize and compete with the United States, and expand China’s political, cultural, social, and security ties.

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The Roundup

Politics and diplomacy

• A close advisor to President Xi and Chairman of the Chinese People's Political Consultative Conference (CPPCC), Wang Huning, met with the President of Mexico’s Chamber of Deputies, Sergio Gutiérrez Luna, in Beijing. The two discussed enhancing parliamentary exchanges, boosting cultural cooperation, and deepening cooperation in infrastructure construction. (Xinhua) (China Daily)

• Cuban Communist Party leader Beatriz Johnson sat down with the head of the CCP’s International Department Liu Jianchao to expand inter-party ties. Meanwhile, Cuba was one of the more than 30 countries to join China’s newly-established International Organization for Mediation in Hong Kong.

  • The organization seeks to provide an “alternative” to traditional arbitration mechanisms.

• As part of her visit to China for the IV China-CELAC Forum, Ecuadorian Finance Minister Sariha Moya met with several major Chinese finance institutions, including CDB, China Ex-IM, ICBC, and the AIIB, to discuss financing new green energy and roadwork projects. At the same time, the head of an Ecuadorian exporters association held discussions with the Bank of China and Huawei on new technology cooperation opportunities.

• Uruguay’s president and foreign minister welcomed a delegation led by the Vice Chair of the Chinese People's Political Consultative Conference, with the two sides discussing enhancing diplomatic and trade ties.

Investment, finance, and infrastructure

• Ecuador suspended four of Chinese firm Terraearth Resources S.A.’s mining concessions in Napo for failing to follow environmental regulations.

• A Bolivian court ordered the immediate suspension of Chinese (and Russian) lithium contracts due to environmental and indigenous rights concerns.

• The Chinese ambassador to El Salvador confirmed that Chinese companies are in talks with the Salvadorian government to build a metro system in the country. The ambassador also said that the PRC’s embassy has had a military attaché in the country since 2024.

• Chinese Ambassador to Bogota Zhu Jingyang offered to provide new lines of finance to support Colombian infrastructure development if Washington followed through on its threats to veto multilateral bank financing to the country.

• Despite previous pushback from Beijing, President of CK Hutchison Victor Li defended his company’s decision to sell its global port assets, including two ports in Panama, due to “geopolitical tensions.”

• Chinese firm Yadea opened a $78 million electric motorcycle plant in Ocoyoacac, Mexico. Meanwhile, a delegation of business and government leaders from Hunan province discussed developing deeper business ties in Mexico City. (CGTN)

• Guyanese Vice President Bharrat Jagdeo defended Chinese nationals working in the country’s construction sector, arguing that “the Chinese may be able to do it [build hotels and infrastructure] faster and, in some cases, cheaper.”

• Ice cream firm Mixue will invest more than $600 million when expanding into Brazil, while Chinese automaker GAC announced it will build a hybrid and electric car factory in late 2026.

Trade and technology

• ZIM shipping launched a new weekly direct sea route between Xiamen and three countries in South America (Chile, Ecuador, and Peru). The route will start with 11 ships per week, with a capacity of 4,000-5,000 containers.

• During his visit to China for the IV China-CELAC Forum, Brazilian President Lula suggested that Chinese satellite companies could use his country’s Alcântara Space Center (CEA) for future launches.

• Venezuelan Minister of Industry and Production Alex Saab hosted a Chinese delegation to discuss trade cooperation and joint development.

• The Bolivian foreign minister signed a trade protocol on the sidelines of the IV China-CELAC forum with the PRC that will permit Bolivia bovine hide exports. Likewise, Uruguay signed a phytosanitary protocol to allow rapeseed and soy flour exports to China.

• Due to the Trump Administration’s tariffs, Canadian seaborne crude oil exports to China surpassed exports to the United States. This in turn shows how U.S. trade policy is forcing some companies towards closer engagement with the PRC.

Taiwan

• Paraguayan President Santiago Peña offered that his country could serve as a bridge between the United States and Taiwan, possibly by hosting a meeting between President Trump and Lai. Relatedly, Taiwan’s foreign minister suggested that Paraguay could act as a diplomatic bridge between Mercosur and the Asian island.

• Taiwan’s Ministry of Foreign Affairs said that later this year, the Asian country will permit Belizean white shrimp imports for the first time.

• With support from the Taiwan Technical Mission, St. Lucia opened a new Digital Development Centre in Dennery North.

• Taiwan donated $200,000 to the OECS’s Eastern Caribbean Solar Challenge, which will deploy solar panels in St. Lucia, St Vincent and the Grenadines, and St Kitts and Nevis.

• St. Vincent’s Unity Labour Party published an op-ed committing the country’s relationship with Taiwan.

Society and culture

• A Colombian education institute signed an MOU with three Chinese universities to strengthen academic, scientific, and cultural exchanges between the two countries.

• Dean of the Chinese University of Communication, Li Huailiang, met with the president of the Cuban Association of Journalists to discuss collaboration opportunities, including harnessing AI.

• The Chinese embassy in Barbados donated $130,000 in medical supplies to the Queen Elizabeth Hospital (QEH).

• In a press conference, Chinese Ambassador to the Bahamas Yan Jiarong said that a Hunan medical mission will provide free eye surgeries later this year. She also noted that her country will provide new grants to help with various projects in the country.

• The People’s Daily featured a story on how a TV show set in Brazil was one of the first popular and widely-watched TV shows in China after reform and opening.

Analysis and Opinion

• Speaking to AS/COA’s Latin America: In Focus podcast, Margaret Myers discussed “the shifting state of play in the U.S.-China competition, the Trump administration’s approach, and the view from Beijing to understand the changing picture for the region's leaders.”

• Writing in The Diplomat, Nand Bardouille argued that Caribbean nations are feeling squeezed between the United States and China.

• Guillaume Ptak wrote about how “from the Bahamas to Barbados, China’s footprint [in the Caribbean] is expanding through infrastructure, trade and diplomatic engagement” in the Washington Times.

That’s it for now, see you again in two weeks!

Make sure you don’t miss the next issue of Chaufa 👇

Today’s edition covers May 5 to May 18

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The Top 4 Stories:

• The PRC hosted the fourth China-CELAC ministerial summit in Beijing on May 13. Dozens of Latin American and Caribbean leaders met with their Chinese counterparts to announce new investments (including $5 billion in new investments just in Brazil alone), a new $9.2 billion line of credit, new visa-free access for five countries (Brazil, Argentina, Chile, Peru and Uruguay), and a pledge to increase Chinese imports of LAC goods. The summit also produced a joint declaration and an action plan. Three Latin American presidents, namely Chilean President Boric, Colombian President Petro, and Brazilian President Lula, attended the summit in person.1 Notably, President Xi used his speech to criticize U.S. unilateralism and protectionism. Interestingly, representatives from two Taiwanese diplomatic partners, Haiti and St. Lucia, also attended the summit.2

  • Compared to years past, this year’s China-CELAC ministerial was fairly consequential. Though the intermittently held ministerial (which is typically held every 3 years or so) provides a good opportunity for the PRC to announce new initiatives in the region and build on existing bilateral relationships, the China-CELAC mechanism goes far beyond this tri-annual diplomatic exercise. Chinese state and party officials regularly meet with their LAC counterparts through smaller, issue-specific gatherings on topics like political party cooperation, science and technology, and agriculture.

• Colombia officially joined the Belt and Road Initiative (BRI), making it the 23rd LAC country to align with President Xi’s signature foreign policy initiative. Petro’s government later announced it would also join the BRICS-aligned New Development Bank. In retaliation, the U.S. State Department promised to “strongly oppose recent projects and upcoming disbursements” from the Inter-American Development Bank to Colombia. In particular, this could affect the bank’s funding for future parts of Bogota’s metro project, which might be built by Chinese firms.

  • Given Bogota’s historically close relationship with Washington, Colombia's joining the BRI is a big deal in symbolic terms. Although it is unlikely that the Andean country will receive substantially more financing or investment just because of the agreement, the deal tangibly highlights Colombia’s warmer ties to Beijing.

  • With Colombia joining the BRI, only three LAC countries (excluding Taiwan’s diplomatic partners) are left to join the initiative: the Bahamas, Brazil, and Mexico.

• The Honduran secretaries of finance and energy led a delegation to China, where they discussed the Patuca II-A dam with the China International Development Cooperation Agency and signed two letters of intent: one on technology transfer with the Global Energy Interconnection Development and Cooperation Organization (GEIDCO), and another on strengthening commercial ties with the PRC Export-Import Bank (EXIM). The secretaries also discussed infrastructure project public tenders and concessional credits for climate-resilient infrastructure with Chinese companies.

  • Since Tegucigalpa established formal diplomatic relations with Beijing a few years ago, Sino-Honduran ties have been fast-tracked with major trade agreement negotiations, new infrastructure projects, and a notable presidential visit. However, some candidates in this year’s presidential contest have hinted that if they are elected, they would restart relations with Taiwan. Deepening investments and bilateral cooperation suggest that these political pledges are not deterring Chinese business engagement with the Central American country, at least for now.

• U.S. Secretary of State Rubio told a group of leaders from the Bahamas and East Caribbean “to make responsible, transparent decisions when selecting vendors and contractors... ensuring they are not vulnerable to privacy and security risks and exploitation by Chinese actors.” This comes as a host of U.S. officials used their platforms this week to warn about Chinese influence:

  • U.S. Envoy to Latin America Claver-Carone admitted that he had told Argentine President Milei that “as long as Argentina has the [currency] swap with China, [it] will not be free.”

  • Ambassador to Guatemala Bradley argued that “using Chinese technology or doing business with that country carries a risk.”

  • Likely future ambassador to the Dominican Republic, Leah Francis Campos, said that she would “tirelessly” work to counter Chinese influence in the region.

  • Newly arrived ambassador in Panama City, Kevin Cabrera, called the PRC a “harmful influence” in Panama.

Core Brief

How the 4th China-CELAC ministerial compares to past years

There’s been a lot of great analysis on the results and implications so far – I particularly appreciated Tim Padgett’s WLRN article and this Atlantic Council Q&A. So, rather than talk about what the summit means or how it could impact future relations, I wanted to look backward to previous summits and how this ministerial compares.

Between the especially high-level participation and the notable and relatively specific policy commitments like visa-free access for five countries and $9.2 billion in financing, this ministerial appears to be a diplomatic win for the PRC. Yet with some governments refraining from letting their foreign ministers attend the event, the ministerial also highlighted the trouble a lot of countries are facing in balancing ties between Beijing and Washington.

A bit of context

Before this year’s conclave in Beijing, Chinese and LAC foreign ministers have met in this China-CELAC ministerial format three times: once virtually in 2021, once in Chile in 2018, and once in China in 2015.3

Typically, these forums last 1-2 days and feature discussions between the Chinese and CELAC members’ foreign ministers on a wide range of issues. This, in turn, usually leads to the publication of both a bland joint ministerial declaration signed by all the participants and a work statement that plans the next few years of China-CELAC engagement.

Who showed up

Understandably, some of the most attention was paid to the LAC heads of state who met with Xi and took the headlines at the summit. Yet contrary to one commenter’s suggestion that only having three presidents show up to the forum “shows both a weakness of CELAC & China”, having multiple presidents attend a CELAC forum is outside the norm.

Of the three previous summits, only the first ministerial in Beijing had any heads of state or government as regular participants. Back in 2015, Costa Rican President Solís, Venezuelan President Maduro, and Ecuadorian President Correa of Ecuador participated, as well as Bahamian Prime Minister Perry Christie, who attended the event. But in the 2^nd and 3^rd forums, the only heads of state or government that showed up were the hosts (Chile in 2018 and Mexico in 2021), and even then, they only appeared to give opening remarks.

Why the low attendance by heads of state? Well, this should be expected, given that China-CELAC is mostly a ministerial organization, and the highest-level meeting is a ministerial meeting. Unlike the African equivalent, FOCAC, it has never really featured head-of-state-level interactions.

Given this context, having three very different presidents, even if they are all from the left-leaning camp, shows China’s continued attractiveness and importance in the region.4 Really, the only person who appears to have skipped who probably could have attended was Argentine President Milei, who planned to originally visit in January for a tentatively-scheduled summit date but who ultimately sent a low-level envoy instead.

When it comes to foreign ministers in attendance, it appears to have been a mixed bag of mostly left-leaning countries. Countries ranging from Mexico to Cuba to Uruguay to Peru, as well as nine Caribbean countries, dispatched their foreign ministers. But it appears that some other governments that are trying to mollify Washington at the moment, like Panama or Argentina,5 sent a lower-level diplomatic representative instead.

What’d they talk about

At first glance, something titled the “Beijing Declaration of the Fourth Ministerial Meeting of the China-CELAC Forum” would be a pretty dry and uninspiring document. And at first glance, you’d probably be right: like most summit-concluding statements, this one contains a lot of platitudes and vague promises.

As in past years, the summit declarations included a lot of backslapping, as well as vague commentary on the overlapping development trajectories of China and LAC and commitments to a multilateral rules-based international order. Yet when compared to previous declarations, the 4th China-CELAC summit declaration suggests there were some pretty massive changes in what was discussed at the summit (see here for the 2021, 2018, and 2015 declarations).

A lot of topics appeared for the first time in this document. Some topics, like AI governance and cybersecurity, Brazil’s Global Alliance Against Hunger and Poverty initiative, and China’s Global Security Initiative (GSI) and Global Civilization Initiative (GCI), reflect the newest policy issues and proposals.

Other issues, namely addressing Haiti’s political crisis, tackling transnational criminal organizations’ drug and human trafficking, combating terrorism, reforming the UN Security Council and global financial institutions,6 and affirming the One China Principle, are long-standing issues but were only mentioned in this document for the first time. This, in turn, reflects new priorities and areas of agreement in the China-LAC relationship, most of which reflect longstanding concerns of LAC countries.

The documents also highlight the deeper reach of Chinese diplomacy in the region. Like previous statements, the declaration recognizes Chinese cooperation with regional institutions like CAF and ECLAC. However, for the first time, the document notes the PRC’s connections with other regional organizations, namely Parlacen, Parlatino, FLASCO, and SELA. While these aren’t necessarily the most powerful organizations in the region, the references to these organizations certainly show China’s broader diplomatic reach compared to previous years.

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The Roundup

Politics and diplomacy

• President Xi met with Cuban President Díaz-Canel and Venezuelan President Maduro in Russia for the celebrations of the 80^th anniversary of the Soviet victory over the Nazis. The Cubans largely discussed political cooperation in international affairs, while the Venezuelans also emphasized trade and energy. (FMPRC)

• In early May, Uruguay opened a new consulate in Hong Kong expressly to promote new trade and investment opportunities.

• A Chinese delegation headed by the Director of the Ministry of Housing’s Office of Inspection and Disciplinary Supervision traveled to Peru to discuss anti-corruption cooperation in the infrastructure sector.

• Guatemala’s prosecutor accused President Arevalo of receiving a $13 million bribe in 2024 from a Chinese company to let the firm access a port on the Pacific coast.

• China’s ambassador and deputy chief of mission in the Bahamas met with the new commissioner of the country’s police force to discuss police exchanges and to express “gratitude and appreciation to her for the quick solution to the shooting involving a Chinese citizen.” (MFA)

Investment, finance, and infrastructure

• Due to the collapse of lithium prices, BYD and Tsingshan admitted that they will not go ahead with previously-announced projects to convert lithium carbonate into cathodes for batteries in Chile. However, the Chinese embassy later stated that the two firms were still interested in building lithium-related plants in the Andean country in the future.

• A few days before the China-CELAC summit, Chinese companies, including Huawei, CCSI, and Yutong, signed four agreements with Nicaraguan government officials on communications, technology, transport and military weapons.

• Ecuador’s state oil company signed a $105 million contract with Sinopec to produce an additional 12,000 barrels of oil a day in the provinces of Orellana and Sucumbíos.

• A consortium led by CCCC and CHEC that is building the fourth bridge over the Panama Canal asked its local workforce to stop striking against the local government’s policies and “to resume their functions as soon as possible.”

• A new $38 million multi-use community and government office building that was built by China Harbour Engineering Company was opened in St. Thomas, Jamaica.

• During a meeting between China Three Gorges (CTG) and the Peruvian energy ministry, the Chinese company pledged to expand its renewable energy investments, including in electrification, hydropower, and green hydrogen works.

Trade and technology

• MOFCOM Vice Minister Ren Hongbin led a Chinese business delegation to Argentina to explore agribusiness, energy, and transport opportunities. This comes as Chinese businesses continue to invest heavily in the country, with Fufeng Group planning to invest $400 million in a new corn processing plant in Santa Fe.

• To circumvent U.S. sanctions, over the past 12 months, oil traders reportedly rebranded more than $1 billion of Venezuelan shipments to China as being sourced from Brazil.

Taiwan

• The Taiwanese embassy in Belize facilitated a medical equipment donation from the Cao Zhong Zhi Foundation to the Caribbean country’s health and wellness ministry. Taiwan’s government also donated similar medical supplies to St. Kitts.

• Taiwan’s ICDF helped launch a new white rice marketing project in southern Haiti.

• St. Vincent and Taiwan co-hosted a forum on smart cities and cybersecurity. Remarks by Taiwanese officials focused on the country’s extensive CCTV system, which they claimed was essential for maintaining public safety. The two countries also announced a new $1.5 million initiative to support youth community involvement projects.

Society and culture

• Journalists from the Cuban television channel Canal Caribe attended a seminar hosted by the Chinese Ministry of Commerce on improving telecommunications technology and news programming.

• China’s Deputy Minister of Culture and Tourism traveled to Cusco and Lima to observe Peruvian culture and to share “good practices in the management and safeguarding of intangible cultural heritage.”

Analysis and Opinion

• Tim Padgett wrote a great piece for WLRN on how “America is shocked to find it's playing catch-up with China on infrastructure, and influence, in the Americas. But little will change until President Trump chooses partnership over punishment.”

• The Atlantic Council published a Q&A with its expert community on the outcomes of the China-CELAC ministerial, touching on issues like Colombia’s accession to the BRI, the diplomatic consequences of the summit, and the implications for the United States.

• As part of Ryan Berg’s testimony to Congress, CSIS released new photographic evidence of Chinese signals intelligence collection stations in Cuba.7 The news prompted U.S. congressmen to request a comprehensive threat assessment on the bases from the homeland security department, while the Cuban government naturally denied the accusations.

• Chinese Ambassador to Jamaica, Chen Daojiang, wrote a piece for the Jamaica Gleaner highlighting trade, people-to-people exchanges, and BRI infrastructure improvements on the occasion of the 4^th China-CELAC ministerial.

• Arturo McFields argued that “the US is crushing China in real time in the Americas” in The Hill, while Nand Bardouille wrote for The Diplomat that “China continues to mount a challenge to U.S. power and influence in the Caribbean Community bloc.”

• A new piece by Evan Ellis in The Diplomat examines the challenges recently re-elected Ecuadorian President Daniel Noboa will face in navigating a relationship with China.

That’s it for now, see you again in two weeks!

Make sure you don’t miss the next issue of Chaufa 👇

Today’s edition covers April 21 to May 4

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The Top 5 Stories:

• Chinese Foreign Minister Wang Yi attended a BRICS ministerial in Brazil and met with President Lula and presidential advisor Amorim to discuss “expanding mutually beneficial cooperation in finance, energy,” and trade. Lula also praised China’s response to the U.S. “reciprocal tariffs,” just as Chinese soybean processors picked up the pace on purchasing Brazilian beans. (Xinhua) (FMPRC)

  • As an aspiring global power and regional hegemon, Brazil has long forged close political ties with China in multilateral fora like BRICS. However, with the United States putting new levels of pressure on the region through tariffs, security threats, and other kinds of diplomatic coercion, Brazil seems to be harnessing its relationship with China to fulfill its longstanding desires, such as crafting an alternative the U.S. dollar, further expanding its global trade presence, and taking a more prominent global leadership role.

• Venezuela’s Vice President, Delcy Rodríguez, traveled to Beijing in late April to reportedly “consolidate joint policies and strengthen trade between both countries.” She met with Chinese Vice President Han Zheng, as well as Chinese International Trade Minister Wang Shouwen. The two sides also signed new energy, oil, investment, and health-related agreements. (Xinhua)

  • Chinese-Venezuelan ties have been deepening over the past few years, with the two sides agreeing to notable trade, technology, and political agreements over the past few years. However, given that China is also trying to maintain close ties with Guyana, this relationship is increasingly putting Beijing in a sticky situation as Maduro’s regime has increasingly threatened Guyana’s sovereignty.

• The president of Panama stressed that his government would no longer promote port development on the Isla Margarita, which is currently operated by Chinese firm Landbridge Group. Moreover, he suggested that Landbridge’s concession was “a badly given contract, it is a delinquent contract.” However, the Panama Maritime Authority later clarified that it was not aware of any possible sale of the Panama Colon Container Port.

  • This came as China’s State Administration for Market Regulation, the country’s top market regulator, said it was paying close attention to the proposed CK Hutchison-Blackrock port sale that would include two key Panamanian ports.

• Colombian President Petro will travel to China for the IV China-CELAC ministerial. As part of the trip, he expects to sign several new “trade treaties.” Petro isn’t the only one going alone — Chilean President Boric also confirmed he will be traveling to China (and Japan) for the ministerial. Relatedly, Chinese Assistant Foreign Minister Miao Deyu met with the ambassadors of Barbados, Colombia, Honduras, and Uruguay to prepare for the upcoming CELAC ministerial. (MOFA)

  • It remains to be seen whether other regional leaders, including Argentine President Milei, will travel to Beijing for the summit. That said, the fact that this major meeting is coming right as the Trump Administration has made China-LAC relations a foreign policy priority provides Beijing with an opportunity to flex its diplomatic muscles. Expect eye-catching new initiatives (though these may simply be re-packaged old projects, like the bi-oceanic corridor), bilateral agreements, and even multilateral accords.

• During a UN Security Council briefing on Haiti, a PRC diplomat to the UN attacked the United States for its role in Haiti’s ongoing security crisis. He notably called potential U.S. tariffs on Haiti as, “cruel and absurd, but also profoundly heartbreaking” (Global Times)

  • This isn’t the first time that China has pinned Haiti’s tragic security and political crisis on the United States – for example, China’s representative to the UN blamed the crisis on U.S. firearms trafficking back in 2024. But given China’s unique relationship with Haiti (they lack formal diplomatic ties, though each side has a trade office in the other’s capital) always makes any Chinese comments on Haiti’s political situation are notable.

Core Brief

Who shapes China’s LAC FP: The CCP’s International Department

It’s often easiest to describe Sino-Latin American and the Caribbean (LAC) relations in terms of “China” or “Beijing” making a certain decision. But in reality, China’s interactions with LAC involve numerous actors with their own distinct priorities and processes.

Last time, I discussed how the LAC-focused portions of the Chinese Ministry of Foreign Affairs (MOFA) operate, but this week I wanted to focus on MOFA’s underdiscussed little brother: the CCP’s International Department (ID)

Unlike MOFA, the International Department (formerly called the International Liaison Department) is not actually a part of the government of the People’s Republic of China. Rather, it is a ministerial-level department in the Chinese Communist Party (CCP) itself.

Though this distinction may seem trivial, it means that the department’s perspective and responsibilities differ significantly: rather than advancing the foreign policy of the country and interacting with other diplomats, the department is focused on “party-to-party exchanges and cooperation” to promote China’s foreign relations, showcase the CCP’s successes, expose party cadres to the world, and identify lessons from other countries to support the central leadership’s decision-making.

A quick background on the International Department

The modern iteration of the ID is a relatively new organization. Though the department predates MOFA by three years (it was founded in 1951), its activities for much of the 20^th century were largely focused on cultivating ties with other left-leaning parties around the world. This often meant engagement with LAC – think the Cuban Communist Party or the Shining Path in Peru – but it also limited the scope of interaction to only one portion of the region’s political spectrum.

It was really only after the 18^th National Party Congress in 2012 (which was the same congress that elevated Xi Jinping to the party’s top leadership position) that the party took a pre-eminent position in China’s foreign affairs. According to Neil Thomas, following the 18^th Party Congress, as well as 2017’s World Political Parties Dialogue, the ID has “enjoyed a markedly higher profile under Xi’s advocacy of a ‘new type of political party relations.’”

Because of these changes, over the past few years, the ID has taken a more prominent role in arranging meetings with local and national LAC leaders to promote the CCP’s political agenda. This doesn’t mean that the ID is any kind of replacement for MOFA or China’s other foreign policy-focused institutions, but rather it has given the CCP a distinct avenue for engagement with the parties that themselves operate the region’s democracies and autocracies.

Who makes decisions at the International Department?

Unlike MOFA, the head of the ID is quite active in maintaining relations with LAC countries. Not only has Minister Liu Jianchao (刘建超) (and former ambassador to the Philippines) headlined multilateral regional events like 2024’s China-CELAC Political Parties Forum and an ECLA meeting in Chile, but he has also traveled around the region to countries like Nicaragua and Chile.

Aside from Liu, ID currently has five vice ministers and two assistant ministers, but it seems that only three have regular interaction with the region. Vice Minister Ma Hui (马辉), a former ambassador to Cuba, appears to be the most active, traveling to countries like Argentina, Panama, and Peru. Vice Minister Li Mingxiang (李明祥) has served as an envoy to countries like the Dominican Republic, while Assistant Minister Zhao Shitong (赵世通) has met with Brazilian legislators in Beijing.

Underneath the vice and assistant ministers, ID does have a LAC-focused office called “Bureau V.”1 Not only does this bureau initiate and maintain relationships with LAC political parties across the political spectrum, but it also “carries out research on relevant political parties, political organizations, and countries in the region.”

The International Department’s LAC activities

So what do ID activities look like in Latin America and the Caribbean? Well, for the most part, they simply seem to be holding meetings that create relationships between the CCP and politicians of all political stripes.

Some countries do appear more favored than others. A great paper from Xinyu Zhang found that about 20% of the ID’s public meetings between 2013 and 2022 were between the CCP and the Cuban Communist Party. Mexico and Brazil also featured prominently, with each country hosting roughly 10-15% of ID’s regional meetings. But Zhang found that the ID has engaged in at least 19 countries over that period, showing that the ID’s focus is broad and not just limited to large countries or governments run by left-leaning parties.

The local leaders who participate in the ID’s meetings tend to be actively partisan politicians, though this can mean various levels of responsibilities or parts of society. Unlike MOFA, the ID isn’t as focused on non-political bureaucrats with technical specialties, such as a finance ministry official or a diplomat. But their meetings do range from heads of state to legislators to grass-roots party members to former presidents to even the occasional ambassador across the left-right political spectrum.

What is discussed in ID meetings isn’t especially clear from the read-outs, but it seems that the meetings are largely centered on political matters like the Taiwan issue, establishing regular party-to-party dialogues, or engagement in multilateral fora, rather than technical topics like financing, education, or health diplomacy.2 The ID also takes advantage of these discussions to explain China’s domestic political situation and to provide a model for other political parties and governing systems, though the extent of this activity seems to vary by country.3

What to take away

The CCP’s International Department might be a lot less famous than the PRC Ministry of Foreign Affairs, but it still plays a major role in advancing China’s foreign policy across the region. Though its scope is largely constrained to political parties and discussing political topics, the department engages with at least dozens of parties across the political spectrum and in every corner of the hemisphere, creating new avenues to advance the CCP’s political priorities.

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The Roundup

Politics and diplomacy

• In the midst of a relatively tense period in Sino-Guyanese ties, the PRC’s new ambassador, Yang Yang (杨扬), arrived in Georgetown. Yang previously served in Thailand and the MOFA’s Foreign Security Affairs Department.

• The Chinese ambassador to Chile accused the U.S. government of interfering in the development of a new super telescope in the country’s northern desert.

• A delegation of senior foreign affairs-focused officials from Heilongjiang traveled to Córdoba, Argentina, to discuss agricultural goods and machinery production. They also went to Antía to review economic and cultural exchanges.

Investment, finance, and infrastructure

• There was an arson attack on a hydroelectric plant owned by China International Water & Electric Corp CWE group in Biobio, prompting the Chinese embassy in Chile to warn that this kind of attack “seriously undermines the trust" of its companies in the country.

• China Harbour Engineering Company (CHEC) commenced construction in Mammee Bay, Jamaica, on a new section of road for the $700 million north-south highway project.

• China’s Wison New Energies signed the detailed feasibility study for an offshore LNG facility in Suriname.

• Officials from the El Salvadorian city of Chalatenango Sur asked the Chinese ambassador to help build three new wells that would cost $240,000.

• CMOC Group Limited of China reached an agreement to purchase the Canadian-owned Cangrejos gold and copper mining project in Ecuador. Similarly, an Australian firm sold its equity in the Cascabel copper mine to Jiangxi Copper Company Limited.

• Private Chinese firm Funfeng will invest $400 million in a corn processing plant in the Salta region of Argentina.

Trade and Technology

• A delegation of the PRC Ministry of Commerce and business officials led by Xiao Lu, the Department of Foreign Trade’s Deputy Director-General, traveled to Honduras to discuss agricultural product purchases. (CGTN) A large Chinese trade mission, including companies like ICBC, ZTE, and the Bank of China, also visited Argentina.

• China's Guangzhou Port opened a new direct trade route to the COSCO-owned and operated Chancay mega port in Peru. The new port also inspired Beijing’s ambassador to Lima to say that bilateral relations had entered “a new historical era.” A new direct route between Zhuhai and Brazil also opened.

• The U.S. Southern Command claimed that Chinese hackers recently infiltrated the Guatemalan foreign ministry’s computer network. The Central American country notably maintains diplomatic relations with Taipei instead of Beijing.

• To mark 7 years of diplomatic relations, as well as to provide a contrast with Trump’s 10% universal tariff proposal, the Chinese embassy in the Dominican Republic hosted a commercial event that featured two new major business cooperation agreements on coffee beans and minerals. (CGTN)

• While visiting the PRC, the Cuban Minister of Energy and Mines signed an MOU on bilateral geological and mining cooperation. Meanwhile, Lyu Weihong, the Deputy Minister of China’s General Customs Administration, traveled to Havana to discuss “training and administrative assistance in customs matters” with the Cuban Prime Minister.

• Ecuador’s trade ministry signed a new protocol with China’s customs ministry that will allow Ecuadorian companies to apply to sell dairy products, especially yogurt and cheese, in China.

Taiwan

• The St. Kitts Minister of State, Senator Isalean Philip, traveled to Taiwan to learn about ways to improve human health and social services in the Caribbean nation.

• The Taiwanese foreign minister said that he would welcome the possible re-establishment of relations with Honduras if the country’s next president chooses to do so.

• The mayor of Ciudad Juarez attended an event hosted by Taiwanese businessmen and the head of Taipei’s economic and cultural office in Mexico on foreign investment in the city.

• Taiwan’s government launched a new semiconductor training program for Guatemalan students.

• Haiti’s environment minister, Moïse Fils Jean Pierre, met with Taiwan’s ambassador to the country to review the “prospects for technical and financial partnerships to strengthen the Ministry's institutional capacity through the implementation of key [environmental and climate] projects.”

Society and culture

• The University of the West Indies (UWI), Cave Hill campus in Barbados, established a new research center focused on climate change in cooperation with a Chinese university and a $20,000 donation from the PRC embassy.

Analysis and Opinion

• The Diplomat published an op-ed by Evan Ellis on how the “next few months will bring a series of high-profile multilateral engagements between China and Latin American countries, as Beijing seeks to capitalize on discontent with Trump.”

• An investigation from the International Consortium of Investigative Journalists (ICIJ) found that while a Chinese secret police agency in Ecuador claimed to close its doors in May 2024, the organization has reportedly continued its espionage and surveillance operations in Quito.

• Arguing in Dialogo Americas that “China has significantly strengthened its penetration in the Caribbean,” Sabina Nicholls suggests that “China’s presence in the Caribbean is part of a long-term strategy, where the economy is only the first phase of a broader model of domination.” Fox News published a similar story that relied heavily on Rear Admiral Peter Brown’s (ret.) comments.

• Leland Lazarus and Wazim Mowla were quoted in a Politico piece on China’s presence in the Caribbean. Meanwhile, Leland was interviewed on China-South America relations for ABC.

• Writing in The Hill, Arturo McFields suggests that the Manzanillo port “expansion represents a double threat to Mexico’s relationship with the U.S., because it would increase trade with China and open the door for greater fentanyl-related chemicals coming from Beijing.

• Chauncey Jung argues for The Diplomat that “Canada and China have vastly different approaches to major global issues, and these differences will not disappear. As a recent victim of Chinese arbitrary trade practices, Canada should not see China as a reliable trading partner despite facing difficulties with the United States.”

That’s it for now, see you again in two weeks!

Make sure you don’t miss the next issue of Chaufa 👇

Today’s edition covers April 7 to April 20

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The Top 5 Stories:

• Guyana’s Foreign Ministry rebuked China’s Chargé d’Affaires, Huang Rui, after he offered that Guyana and Venezuela should resolve Caracas’ aggression against Guyana through “friendly consultations and negotiations.” He also noted that Beijing “never intervenes in the internal affairs of other countries.” In response, the Guyanese foreign ministry said that China “needs to be principled in its position to respect Guyana's territorial integrity and not to appease Nicolas Maduro's serial violation of international law.”

  • China is among the largest investors in Guyana at the moment, including in the country’s booming oil sector. That said, these tensions are a long time coming, as China has long sought to maintain its deep ties with Caracas at the same time as building its relationship with Georgetown, and it has recently been frustrated by Washington’s insistence on competing with Beijing in the Caribbean nation.

• A Chinese delegation led by Qu Yuhui (the Foreign Ministry’s Deputy Director-General for Latin American and Caribbean Affairs) attended the CELAC summit in Honduras and met with at least 15 delegations1 on the sidelines to prepare for the China-CELAC ministerial in the PRC on May 13. President Xi also sent a message of congratulations to the gathering, noting that a “century-old transformation that is accelerating” with the Global South "growing strongly.” (TeleSur) Later, Colombian President Petro (who took over CELAC’s President Pro Tempore role) talked over potential deliverables from the upcoming China-CELAC summit with the Chinese ambassador.

  • China’s Special Representative for Latin America, Qiu Xiaoqi, also traveled to Honduras, meeting with the old CELAC host, Honduras, and new host, Colombia. Later, he traveled to the Dominican Republic and Costa Rica.

  • Altogether, these developments show how China is building on over a decade of diplomatic work to shrewdly take advantage of the discontent fostered by the Trump Administration’s aggressive policy towards the region. May’s China-CELAC ministerial should be closely watched for new initiatives or projects that could further diversify the region away from the United States.

• U.S. tariffs on Chinese goods, as well as fees on Chinese-built ships, are concerning business and government leaders in the Caribbean. A senior Bahamas hospitality business leader warned that the move could negatively impact both cruise ship tourism and food imports, since the country is dependent on the United States for 70% of its foodstuffs. Relatedly, a company in Trinidad and Tobago said that it would have to raise prices on feminine products due to tariffs, while an economist in Dominica and the Chamber of Commerce in Antigua and Barbuda cautioned about how tariff-induced price increases will be passed on to consumers. That said, policymakers in other countries like Jamaica said that they do not expect any negative repercussions from U.S. trade actions, at least for now.

  • The U.S. Trade Representative recently announced its plan to charge a fee on shipping fleets that own Chinese ships. However, after successful Caribbean lobbying, the policy will exempt owners of vessels servicing the Caribbean and U.S. territories. Still, the policy will “levy fees based on net tonnage or each container unloaded” and, along with U.S. tariffs on a variety of goods, could still raise prices for both U.S. and foreign consumers.

• Chinese company Tianji International proposed a $500 million investment for a port in the southern Peruvian city of Tacna. The proposal would improve existing infrastructure to strengthen the region’s logistics. Meanwhile, a delegation from China State Railway Group traveled to Brazil in a bid to restart the “Central Bi-Oceanic Railway Corridor” from Brazil to Peru

  • The Tacna port proposal comes right after the Chinese firm COSCO opened the controversial mega-port at Chancay, which has recently come under scrutiny from Peruvian regulators. Despite the controversy and scrutiny, the Chancay port is currently in operation and would be an essential part of any bi-oceanic trade corridor.

• During a visit to Panama, U.S. Secretary of Defense Hegseth praised the country’s withdrawal from the Belt and Road Initiative and warned that “China will not weaponize [the Panama] canal.” He later claimed that the PRC’s military presence was “too large,” arguing that “Beijing is investing and operating in this region for military advantage and unfair economic gain.” In response, the Chinese embassy accused the United States of blackmailing Panama.

  • Trump and Hegseth have both tied the administration’s desire to assert more control over the canal to China’s presence in the Central American country. However, the Panamanians have been steadfast in their commitment to retaining sovereign control over the waterway, with President Mulino rejecting Trump’s assertions that he will “reclaim” the canal.

Core Brief

The Shape of China’s LAC Foreign Policy: The Foreign Ministry

Though it’s been a few months since Chinese President Xi last visited Latin America, the region has seen no shortage of visits from Mainland officials. Just in the past two weeks, a special envoy, a senior Chinese Ministry of Foreign Affairs (MOFA) official, and a leader from the State Council (effectively China’s cabinet) traveled to the region.

With all these figures coming and going, what role does China’s foreign ministry play in the PRC’s LAC foreign policy? Who are these leaders, and what do they do? Though the Chinese government will always be a bit of a black box, this article starts a series investigating and mapping the different institutions that shape and implement the PRC’s foreign policy across Latin America and the Caribbean.

China’s Foreign Ministry: A Brief Background

Unlike in other countries, the Chinese foreign ministry is a relatively weak state institution, as it is focused on implementing, rather than designing, China’s foreign policy. A major reason for this is the centralized nature of policy decision-making in the PRC’s party-state regime. Most major foreign policy decisions are decided by the Chinese Communist Party’s (CCP) Central Foreign Affairs Commission, often relegating MOFA to an implementation space.2

At the same time, MOFA’s relatively weak position can also be attributed to its numerous competitors in the foreign policy space: aside from the usual suspects like the commerce ministry and the military, Chinese foreign policy implementation actors include the CCP’s International Liaison Department, numerous provincial and local governments, and the party’s United Front Work Department.

That said, MOFA still plays several important roles in Chinese foreign policy. First, it uniquely runs regular press conferences that communicate the CCP’s thinking on day-to-day foreign policy issues. And like most foreign ministries, MOFA manages the PRC’s embassies and consulates throughout the region, allowing it to take the lead in hosting most meetings in-country and maintaining relationships to government officials and civil society on the ground.

Mapping MOFA’s LAC Policy: Senior Leadership

Given its relatively marginal status in China’s foreign relations, it should be unsurprising that MOFA seems to lack a dedicated Vice or Assistant Minister just for LAC affairs.

That doesn’t mean that those at the top don’t engage with the region; of the seven Vice and Assistant Ministers, Executive Vice Foreign Minister Ma Chaoxu (马朝旭), head spokesman and Vice Minister Hua Chunying (华春莹), and Assistant Minister and head of the Policy Planning Department Miao Deyu (苗得雨) have taken a particular interest in the region.

In just the past few months, Ma greeted the Brazilian Deputy Foreign Minister, while Hua hosted a group of young Latin American scholars and met with a senior Uruguayan diplomat. Miao seems to have responsibilities for regular engagement with locally stationed foreign diplomats, having just met with the Peruvian, Cuban, and Brazilian ambassadors. That said, LAC is just one geographic priority area of many for these policymakers, so it is unlikely that they are too deeply involved in the day-to-day of LAC foreign policy implementation.

Outside of the Vice and Assistant Foreign Ministers, MOFA also has Special Representatives – according to Baidu, these officials “enjoy the treatment as the highest leader of the government or the organization” on their particular issue area. Since 2015, MOFA has had a Special Representative leading the government’s work on LAC affairs, and since 2021 the role has been filled by retired ambassador to Brazil and Mexico Qiu Xiaoqi (邱小琪).

With his lengthy experience and relatively high rank in the CCP (he’s been a member of the Chinese People's Political Consultative Conference), Qiu is probably the most visible member of the PRC’s foreign policy in the region. Aside from his recent regional visits highlighted above, Qiu attends LAC-related events around the PRC, such as the opening ceremony of the China-Latin America Sustainable Food Innovation Forum and a book launch at the Brazilian embassy.

Mapping MOFA’s LAC Policy: The More Junior Leadership

Much of the day-to-day management of MOFA’s LAC policy in Beijing falls into the hands of former Ambassador to Mexico Zhang Run.3 In his 30-year career, Zhang has almost exclusively focused on LAC policy, having served in Venezuela, Chile, and Argentina as well as three stints in the LAC department. Zhang just returned to the Foreign Ministry a few months ago, but he’s already traveled to Cuba and introduced himself to the LAC diplomatic community in Beijing.

Underneath Zhang, the LAC affairs department has three Deputy Director-Generals: Qu Yuhui, Tang Lingyun, and Sun Yi. None of these officials are senior enough yet to have served as ambassadors in the region, but they all certainly have notable language skills and LAC-related experience: Qu worked as a spokesman in Brazil, Tang served in Barcelona and was an alternate observer at the OAS, and Sun was a counselor at the embassy in Buenos Aires.

It's a bit of a black box on who serves under the Deputy DGs, though prior research has suggested that each of the Deputy DGs manages a couple of divisions. In turn, each of these divisions has 4-6 desk officers working on a particular issue or country. Though today these are fairly junior officials, many of the senior leaders started their careers at the bottom rungs of the LAC affairs department, suggesting that one day they too may work as the lead implementers of MOFA’s LAC agenda.

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The Roundup

Politics and diplomacy

• Zhang Laiming, the PRC State Council’s Deputy Minister of the Development Research Center, discussed the example of China’s economic modernization in Havana with Cuban government and party leaders.

• Uruguayan defense officials met with Chinese diplomats and executives from the Chinese company Norinco to discuss possible weapons sales to the country.

• The Vice President of Venezuela met with China’s ambassador to review bilateral cooperation on energy, mining, agriculture and advanced technology, as well as special economic zones.

• Canadian Prime Minister Carney named China as the country’s greatest security threat in an election debate, specifically criticizing the PRC’s election interference and aggression in Asia. These comments came after Canada’s Privy Council accused Chinese media of pushing false stories about Carney to influence the election.

• Even though the United States already has significantly fewer embassies in the Caribbean than China, the New York Times reported that the Trump Administration is planning to close the diplomatic outpost in Grenada.

• Beijing congratulated Ecuadorian President Noboa on his re-election, stressing that “under the leadership of Noboa, Ecuador is expected to continue to make significant progress in its economic and social development.”

Investment, finance, and infrastructure

• Argentina extended its $5 billion bilateral currency swap with China through 2026 amid its IMF negotiations. It did so despite Washington’s suggestion that it would delay the IMF deal if Buenos Aires continued the agreement with Beijing.

• A couple of companies from Yantai City in Shandong Province discussed new “zero-carbon” investments and partnerships with Barbadian schools and businesses at an event hosted by the Association of Barbados-China Friendship (ABCF). The discussions came as China donated another 30 electric buses to the island nation.

• The head of the Mexican Senate, Gerardo Fernández Noroña, met with the PRC embassy’s commercial section head to discuss continued commercial ties in the midst of Washington’s increasingly protectionist trade agenda.

• Chile’s Minister of Energy, Diego Pardow, agreed to an MOU on clean energy cooperation with the Director of China’s National Energy Administration, Wang Hongzhi.

• The PRC’s competitor to Uber, Didi, announced a new $170 million expansion in Brazil to deliver food through a platform called 99Food. (People’s Daily)

Trade and Technology

• Nicaraguan President Daniel Ortega welcomed Huawei’s regional president for Latin America to discuss new bilateral cooperation projects, including telecommunications modernization.

• In response to the U.S.-China trade war, Chinese oil refiners’ purchases of Canadian crude have soared to more than 7 million barrels a month.

• Bolivia officially started exporting chia seeds to China, opening a new market to a growing local industry.

• After an initial investigation, Chile froze a joint astronomical project in Antofagasta between the Catholic University of the North and China’s National Astronomical Observatory of China. The project had previously drawn concerns from the United States, and in response, the PRC embassy said that it trusts Chile will hold an “independent position” on the project.

Taiwan

• To reduce exposure to the Trump Administration’s tariffs, Taiwanese firms like Foxconn-subsidiary FIH Mobile and auto parts manufacturer Hiroca Holdings are looking to shift production to Mexico.

• Taiwan’s International Cooperation and Development Fund signed an agreement with St. Kitts and Nevis for a $13 million loan that will support water security and resilience at the Basseterre Desalination Plant.

• President Peña said that Taiwan will donate four helicopters to Paraguay’s military later this summer.

• The ROC donated four drug testing kits to the Royal Saint Lucia Police Force to enhance “the RSLPF’s capacity to respond to drug-related offences.”

• The St. Kitts and Nevis National Assembly passed a resolution endorsing Taiwan’s engagement in international organizations, while the country’s government issued a statement condemning China’s growing aggression in the Taiwan Strait.

Society and culture

• Costa Rica granted asylum to 16 Chinese nationals who had originally been seeking asylum in the United States, marking one of the first times that the Central American country has taken such steps.

• The Colombian government eliminated visa requirements for PRC citizens in a bid to boost tourism to the country.

Analysis and Opinion

• Chatham House published a podcast featuring Yu Jie, Evan Ellis, and Bruno Binetti on “the growing battle for influence in Latin America between the US and China.”

• The Financial Times published a piece on how Brazilian farmers are poised to benefit from the U.S.-China trade war as the PRC switches its soy and beef imports from the United States to the South American country. Meanwhile, the New York Times had a piece of analysis on how a U.S. critical minerals mine in Brazil is reliant on Chinese mineral processing.

• The China-Global South Project recently published two notable articles: one by Eric Olander on China’s and Brazil’s ramped-up engagement, and another by Alonso Illueca on “how Panama is now a frontline in the U.S.-China strategic competition.”

That’s it for now, see you again in two weeks!

Make sure you don’t miss the next issue of Chaufa 👇

Watch the full episode on YouTube or follow the transcript below.

Show notes

This episode celebrates Classical Liberalism and Cosmopolitanism: a real-world demonstration that open markets and open minds can deliver prosperity.

• In 1990, less than 1% of the Spanish population were foreign residents. The foreign-born population was even smaller, with immigrants accounting for about 0.5% of residents.

• In 2023, Spain alone accounted for 23% of all naturalizations in the European Union

As of 2025…

• 14% of residents in Spain are foreign nationals.

• Nearly 20% of Spain’s population was born outside the country.

• 1 in 7 residents of Madrid were born in Latin America.

Spain flipped from near-zero immigration in 1990 to one of Europe’s most cosmopolitan melting pots today. We discuss how free-market reforms, EU membership, strong historical links and a now-legendary liberal social scene in the core cities delivered the greatest success story of integration in recent history.

Follow the co-hosts on X Diego: diegodelacruz | Rasheed: rasheedguo

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Full Transcript

This transcript was automatically generated by AI and lightly edited by our team. We don’t catch every error, so if you spot one, send us a message/email via shem@cpsi.org.

Rasheed: Hi everyone, and welcome back to the podcast. Today, we are going to be touching on one of the most important topics in Spain and perhaps one of the most controversial topics: immigration. And Spain is one of the strangest outlier examples of rapid immigration and integration of people into the country.

In 1990 less than 1%, less than 1% of the span population were foreign-born. And in 2025, almost 19% of the population here in Spain is foreign-born. This is an increase. And of course, I'm joined by my cohost, Diego, to discuss this topic.

Diego: It's great to be here. As always, I want to thank everyone who's following the podcast, commenting on the podcast, and even asking for suggestions on how to translate it into Spanish.

We've gotten some requests, but it's great to know that people are following and listening, and watching. And yeah, you bring up a great topic for today because indeed most of this growth that essentially, as you said, like a foreign-born population, went from less than 1% to almost 20%, it happened in the 21st century because the growth in the nineties was very limited.

So we're talking about how in 25 years, in just one generation, Spain has gone from having little to no migration. It was a country of migrants. Spaniards were leaving the country on a net basis. To a country where you see one out of five of its citizens being foreign-born.

Let me give you another amazing stat. In the last five years, 80 to 90% of new workers, of new active workers, were not born in Spain. So 80 to 90% of job creation has actually gone for migrants, not for the local population. Those figures are remarkable. And immigration is a contentious topic sometimes in Spain.

But not all sorts of immigration are problematic in the eyes of most Spaniards. All of the Latin American migration has been welcomed with open arms, and that represents the bulk of the people coming into the country. We'll talk about that, and there are some interesting facts.

Rasheed: We'll get to that for sure.

I wanna start on this, before the rise. Back in the 1980s, early 1990s, there were essentially no immigrants in Spain. The first immigration law in Spain was only passed in 1985 under PM González, I believe. What was the context for starting the immigration boom in Spain?

Diego: The context is that you didn't even have a law because you had no migrants, right?

Spaniards have left the country in waves at different points in our history because our industrialization was quite late. There were some waves of migration in the 19th century. Many of them were Gallegos. Galicians, like me. Galicia is a region in the northwest of Spain. And that is why in some territories in Latin America, Spaniards are called Gallegos.

Okay. And then in the 20th century, following the Civil War and after the first years of the Franco regime, which were a time of poverty in Spain because of archaic economic policies, the economy was essentially closed off to the rest of the world. Something that may sound familiar to those who are following the tariff debates these days.

People left en masse this time, mostly to Europe. So, come the 1980s, Spain essentially had to pass immigration laws because it was acquiring what is known as the acquis communautaire, which is essentially the laws of the European Union. If you want to join the European Union, you need to enact a series of laws and regulations.

This was part of it because there was no need to regulate immigration if you had no immigration whatsoever. And for most of the eighties, and at least the first half of the nineties still the case remained that less than 1% of the population was foreign born. So that's the context and the backdrop before all of this happened.

Rasheed: So then what happened?

So immigration ticks up. Very mild in the mid-1990s, and then just boom right after that. So what happened early in the mid-1990s for immigration to start the, creep up?

Diego: If you notice and we'll talk about it in more detail later on. Latin Americans, who represent the bulk of the migration coming to Spain, speak the same language, pray to the same God, and dance to the same music.

That's something I like to say when explaining this bluntly and easily to people who are new to this topic. And that in principle was the same in the eighties or the early nineties, right? So, it is not like there was any change in that sense. The cultural appeal of the country certainly was the same as it is today.

The historical ties between these nations were also similar. So that's not what can explain this, because if it were about culture, then these migration waves should have been coming in for a long time before they did. But Spain first acquired membership in the European Union, then began transforming its economy.

But a significant improvement took place in the second half of the 1990s under President or Prime Minister José María Aznar. Okay. Aznar came into a country where unemployment was higher than 20%. And the currency was often devalued four times in the previous term of his presidency, between 93 and 96. And essentially, there was no economic appeal in coming to Spain.

That's why most Latin Americans were making their plans to go essentially to the US. That was the de facto destination. And that started to change after Aznar came to power and decided that Spain had to join the Euro and had to enact sweeping reforms to get the economy growing and to pay off the debt and reduce it, and to increase the disposable income of Spaniards. Also, the labor market had performed so poorly under González that when he came to office, the socialist prime minister and president who joined in 1982 as president; when he came to office, there were 12 million people employed in Spain.

He left office in 1996. There were 12 million people employed in Spain. So, not a single job was created under his watch, which is 14 years without any net job creation. Four terms. Yeah, four terms. So he was immensely popular at the beginning, immensely unpopular at the end.

He's popular these days again. So, like he's been able to, reposition himself as a statesman. But certainly, what was not encouraged was a mess. And he enacted a lot of supply-side reforms. There was massive privatization, liberalization of industries such as telecommunications, air travel, energy, and essentially labor market flexibility that came with it.

And as a result of all of this, Spain started to create jobs, and unemployment when he was leaving office was closer to 10% after it had been as high as more than 20% when he came into office in 1996. So in those eight years, the economy was transformed fully. Spain was able to join the Euro from the get-go, so did Italy, which was incentivized by Aznar to follow suit and do the same, and migration started to pour in, and it certainly did.

Rasheed: So, just to make sure people are following, Aznar was from PP.

Diego: Oh yeah.

We have two big parties. It's PP and PSOE. And PP is the popular party, which is a conservative party, if you will. And the socialist party is the one that had been in power from 82 to 96. So, 14 years of socialist rule, no job creation, and quite a rigid economy, currency devaluation.

So, on with Aznar 1996 to 2004, there were supply-side reforms, and there was job creation. There is accession to the Eurozone, and therefore, there is no longer a devaluation. That's essentially proven to be a dramatic shift in the economic conditions that Spain could offer to migrants.

Rasheed: One of the dramatic shifts in terms of employment, I thought, under Aznar, was the construction boom.

So from 1997 until around 2006, there were some years where Spain built more homes than Germany, France, and the UK combined. That is just shocking

Diego: Yes. And, however, if you notice the period, most of the housing units that were started were because more family units needed housing. In his first term and most of his second term, that was not an issue. The numbers were staggering. But after all, a lot of migrants were coming into the country. The first million came in just a couple of years under his watch. And so that called for a lot of home development, construction development, and so on.

In later years, when Zapatero, a socialist prime minister, took over as president... We call them the president here in Spain. That's why I keep referring to them both as PMs and presidents. From 2004 to 2007, that's when that reasonable increase in construction just went completely wild, and a real estate bubble was inflated and eventually left Spain in very dire condition.

But that was later on. It did hurt many of these migrants, those who were employed in construction, but we'll come to that later.

Rasheed: So, under the Aznar boom, was there a concurrent policy of trying to promote migration into Spain, or was it like so many things are happening, the migrants just started coming themselves?

Was there also a push factor, or, sorry, a pull factor, to getting migrants in explicitly by the Aznar administration?

Diego: It wasn't so explicit. I guess it was just implicit. We could just argue that if your economic conditions get better and you have labor shortages in some industries, and if the cultural conditions were always there, it just seems like a natural thing. If we just pick someone randomly around Europe today and we tell them, "Hey, did you know that one out of five people living in Spain are migrants and that most of them come from Latin America?"

I don't think that they would be shocked. It sounds natural, right? But the thing is that it wasn't coming in naturally before these economic reforms were put in place. The Euro gives you a lot more purchasing power than the peseta. So it also makes sense because most of these families, one of the things they do when they come from humble beginnings, in many cases, they need to send remittances back home, send money back to their families. It's not the same to send euros as to send pesetas. So all of these factors were changing and evolving, and it just became a natural situation. But most of the push factors in Latin America were also self-inflicted policy mistakes, and we'll touch upon some examples.

The Ecuadorian case is very evident. They went through a hyperinflation in the early 2000s. They also suffered some natural disasters or complications with climate, such as the El Niño phenomenon, which led to massive flooding, very bad crops, and so on.

And essentially overnight, you had half a million Ecuadorians living in Spain, and three years later, there was essentially just a symbolic number of them. They opened the door, and then came the Colombians. More recently, it's been Venezuelans, so it's been ongoing for other nationalities.

Peruvians have never come en masse in one particular period because their country is doing better. But Argentinians have come in greater numbers when the worst times of Peronist rule. So it's been ongoing for 25 years, but it was never an explicit call of " guys, come over". And it was never an explicit push factor on the Latin American countries, saying, "there are no jobs, you need to leave."

It was more of a natural reaction of people just voting with their feet and finding solutions and finding a country that suited them better than others. The US is still the main destination, but Spain has become a strong second.

Rasheed: When you mentioned that if you ask some normal European outside of Spain, "Hey, do you know that Spain is more than one in five foreign?

They're like, "yeah, that seems right." But now that's a thing that just seems so natural because you come to Madrid, go to Barcelona, go to Valencia. Of course, they're gonna think, "yeah, this is what Spain looks like." But 25 years ago, nothing like this was the case in Spain. Oftentimes, when a foreign person comes to Spain, or my friends when they come to Madrid, they would come here, we'd go to a restaurant, and they were like, "Oh, it's so Spanish." I'm like, not a single person here has a Spanish accent.

Diego: I'm Galician. So my experience in my earlier youth with diversity in terms of ethnicity, or like even foreign-born population, was very limited.

I would travel abroad for exchange programs with school, and that's how I would get a sense of the world. But I don't think I ever saw a black person in my first 12, 14 years of life in my city of Santiago de Compostela, not even a tourist. Same for other ethnicities. So that experience has certainly changed, but still today, you see how migration is starting to grow in other territories of the country. Venezuelans, many of them have also gone to my home region, Galicia. Some of them have gone to the Canary Islands, which has great weather, and also even more similar culture in the same laid back and enjoy life sort of approach.

But the Venezuelan population wasn't that large until one decade ago. So yeah. It's certainly been a big shift that happened rather quickly.

Rasheed: It's a very dramatic transformation. I think the last statistics from the European Union relative to Spain are that, within the context of European naturalization, 23% of all European naturalizations in the given year happen in Spain.

Diego: Yeah. And yeah, we represent around 7-8% of its output population. So that shows you that, like we are doing three times more than in principle, you would think. Another great statistic is that in some years we've done 50% of them.

So, one out of two at the peak of the migration flows into Spain. Not all of these flows are from outside the EU. Those that come from outside the EU are mainly from Latin America. There are also many cases of Moroccans coming into Spain, which is a very large nationality in the country.

Diego: And within Europeans, there was a big influx of Romanians. However, these Romanians have now been in Spain for 30 years. They're growing older, and most of them go home. So the Romanian population came here to live their life and work, but they are retiring back home with their Spanish pension that lasts longer in the Romanian economy. That's interesting. But yes, today, certainly a country of migrants. And then in Spain, Madrid is a great example. We're both based in Madrid. Right now, one out of seven people living here is from Madrid. One out of two people working in Madrid was born either in another region in Spain or another country. So this is an open city. It always has been. And it was originally a place where, you know, after all the free market reforms, people from other parts of Spain were coming. Now people from all over the world are coming as well,

Rasheed: And Madrid is a particularly strange scenario. I believe you mentioned in your book that there is this idea of the lack of accent in Madrid, which is a good thing in some respect. " Hey, Madrid has no accent, therefore you're from Madrid." Since when have you realized this, let's say almost extreme, but a good way, extreme Cosmopolitanism of Madrid happening?

Diego: That was an explicit policy pursued under Javier Fernández-Lasquetty, who was the key mind behind the liberal reforms, the classical liberal pro-market capitalist reforms that Madrid has enacted for the last 25 years.

He was a member of the government of Governor Aguirre. He was also a key regional minister under Governor Ayuso. And he was also the Secretary General of a very influential think tank. And he always pushed this idea of the "Nuevos Madrileños", the New Madridian. The concept here is that it doesn't matter where you come from, Panama, China, Morocco, or Ecuador.

You're welcome here. You're just one Madrileño more. And that was the explicit pull factor that was trying to lure in this population, recognizing its value and giving tax incentives and other sorts of advantages to people who were coming into work to invest or to just live in the region.

There was also a natural drive to increase tourism in Madrid because Madrid was underperforming. If you walk around the city, it has an obvious appeal as a tourist destination, but it has traditionally underperformed compared to Barcelona. So with so much economic growth and cultural development, Madrid has outshone Barcelona as a tourist destination these days, and that results in a lot of people getting a taste for it, and then just deciding to live here.

Rasheed: So let's be more explicit on the push factors of Latin America. Because it wasn't always the case that there was such a big need to leave Latin America, but in the last 25 years, 30 years, it's more intense now in some countries, especially the collapse via socialism in Latin America. At the same time, this growth of free market classical liberalism in Spain, especially Madrid, has a big shift in immigration numbers.

Diego: Safety is a significant element when you consider coming to Spain because Spain is a very secure country, and Madrid is a very secure capital. This may sound normal to those who have been born with it, to use the term that the woke universities use.

Those of us who were privileged in that sense, but, so I acknowledge that privilege, but many Latin Americans do not have it. Just ask a Salvadorian, all of the extremes that Bukele has gone to, to have some sense of security and safety in the streets and all around the country.

That's always been an issue. So that was a big decision why people also considered leaving. Considering these other push factors, you have insecurity, which I just brought up. You have socialist experiments that have failed miserably. The greatest example is Venezuela, which right now has more than 8 million people living abroad, which represents 20 to 25% of its population.

They've essentially driven out one out of four Venezuelans with massive inflation, expropriation of private assets and goods, rampant violence on the streets, sometimes higher homicide rates than Afghanistan during the war years. So that's a big driver.

The failed socialist policies in Ecuador, Venezuela, and other Latin American countries have driven people out. And then, just structural poverty is also an issue in Latin America compared to the us and it is also compared to Spain, like actual poverty. Not risk of poverty numbers, but actual poverty in Spain is at around three, 4%.

Coherent with a developed nation. Not, 40, 30, 20% like you'll see in some Latin American countries, even 80, 90% in the socialist countries of Cuba and Venezuela.

Rasheed: So we have now this massive inflow of Latin Americans, Moroccans also, we'll get to that at some point in another episode. But what about the integration?

So from my perspective, I think the integration in, at least Madrid, is shockingly good. But we can maybe push back to see if that's true. But how, from your perspective, growing up in Spain, think about its number in more dramatic ways now?

How has the integration happened? Good. Is it contentious?

Diego: Immigration was never a relevant topic until recently. When it became a hot topic, almost. Everywhere in Europe.

Rasheed: How recent is that?

Diego: The last six years, I would argue. Okay. A bit before the pandemic and these days and there's been a lot of pushback against the sort of migration that does not integrate or assimilate with some of the basic elements of your society, of your economy, of your culture, et cetera.

Because people see someone acting differently, behaving differently, and sometimes there are also some problems involved with it, such as insecurity or crime and or lack of economic integration. So that's become an issue, a huge issue, mostly speaking about Europe, so it's a big topic in Germany, in France. It was a big topic in the election in Italy.

And the UK has also been discussing these topics a lot. Although they're no longer in the EU. As for Spain, I don't think there was any contestation to this migration coming in from Latin America for a very long time because they're essentially filling in for jobs that Spaniards do not take up initially.

Their second generation may be competing in the labor market, but we have more people employed today than we did when all of these waves started coming in. So, essentially, there has been labor integration in that sense. So I don't think that's been a big issue. However, the same is not necessarily true with the Northern African and Middle Eastern migrants.

There is contestation against that sort of migration, and that has become a bit more problematic because there is this sense that these migrants do not always integrate. These migrants take in public subsidies and money, and there is some truth. There is some propaganda behind that discourse.

But I think it is mostly on point when you do see the numbers that crime rates are higher for those groups. Economic integration is lower for those groups, and subsidies are also disproportionately given out to the population coming in from those nations. So that conversation should be had, but it should be had openly and honestly, because if you just target immigration completely, then you're leaving out the fact that maybe there is something that should be done about some of the shortcomings on that end. But all the other incoming migration has been so positive to Spain, and especially the Latin Americans. That would be a big mistake. So it's become more of an issue these days.

Vox, which is the populist right in Spain, has spoken about this extensively, and it has caught on as one of its key or core messages. But I don't think they're targeting Latin Americans either in their discourses, it's mostly focused on the Northern African and Middle East countries, which essentially ties down to Moroccans.

Because the vast majority of them come from Morocco.

Rasheed: So that's a key point. So Vox talks a lot. Talk is perhaps even a nice word to use in this context. They propagate a lot of information about migration to Spain. But even when you check the AI images of the different quotations that they show on Twitter or Instagram, you will never see an image of a Latino.

Never. It's always some person who looks very Arabic or specifically Moroccan in the propaganda imagery. Or for example, it'll go further and have ladies in full veil and so on. They don't ever point out any kind of issues with Latin Americans in Spain, which is a very key distinction when it comes to the immigration conversation in Spain.

It's almost not even implicit. When people have arguments against immigration or migration into Spain, they usually have one kind of group in mind.. We're in other countries. That might be the case also, but it's so explicit, I think, in Spain. And just to give a quick number when it comes to this conversation globally. So people outside of Europe tend to, when they think migration issues, they often think the UK, or I think Germany, for example, now, especially with the AFD rise in particular. So Germany's population between 2000 and 2003 increased by 3%. During the same period, 2000 - 2003, Spain's population increased by 19%.

And yet, when you think of immigration problems, you don't think of Spain? You think Germany or you think the UK.

Diego: And that kind of shows you what I was going for before, when I was saying that most of these migrants that come from Latin America, pray to the same God, speak the same language, and dance to the same music, probably reggaeton these days. Spaniards love it, and it comes from Latin America. So that creates a more homogeneous interaction with the local population. I think on the cultural side, the language has never proven that much of an issue for Moroccans, but they do learn it, but of course it's not the same as it being your mother tongue, as is the case with Latin Americans. And culturally, we are quite separate. For instance, the way you position women in society, and other ways of understanding life. And these cultures are meeting this increasing resistance. And a very interesting case here is the comparison between Madrid and Barcelona.

Because Madrid has a lot of foreign-born population, most of them are Latin Americans. And Moroccans represent quite a large share of the migrant population in Barcelona. The perception of immigration in Madrid is that it has created jobs. It has created businesses. It has created a more plural and lively culture.

If you talk about migration in Barcelona, suddenly the conversation becomes about crime, lack of integration, that sort of ordeal. So that represents a clear example of these differences in the way your migration population is spread. It shows you that the outcomes may be different.

And that case can certainly be made with the numbers in front of you. But I think that it's always important to remain committed to the basic idea that if you make Spain a country where one can work honestly and progress, and make a living, if you don't hurt your neighbor in any way, shape or form and just pursue your own life, everyone should be welcome.

And it's more of defunding the sort of programs that may incentivize non-working type of migrants coming into Spain. And also culturally, I think a greater degree of tolerance should also be in the mix than we see these days with this heightened rhetoric around migration.

And then on crime, you need to be tougher because that's the only way people don't see a perception of injustice. Because if there is more crime coming in from a migrant or a local group, that's not really what should matter. What should matter is the actions of that individual and how they should be treated before the law.

Rasheed: So the point you mentioned just now about culture and affinity in particular, I think that is us sitting here in Madrid, we get what that means. But to spell it out a bit... So, for example, you go to a bar in Madrid and you hear Carol G, who's Colombian or here, or Bad Bunny, from Puerto Rico.

Shakira will come to Madrid and perform 10 concerts in the Real Madrid stadium, and sell out all 10 concerts back to back.

At the same time, you would have Rosalía, a famous Spanish singer would go to Bogotá, sell out concerts every single time she's there.

Diego: And Latin Americans probably support Real Madrid, if they have good taste in football, if they don't, they probably support Barcelona.

Rasheed: On both sides, the Spanish norm-

Diego: The soft power is completely interlocked.

Rasheed: Spanish-born people listen to Latino music. Latino-born people listen to Spanish music.

Diego: The most popular show on Netflix that was ever produced in Spanish was called "Money Heist" in Spanish, "La Casa de Papel"; it was produced in Spain, where it was not a hit. Latin Americans made it a hit, and then Spaniards started watching.

"Elite" is a teen drama, a high school drama. Highly sexualized, though, for high school. But my high school wasn't like. But the Latin American population that watches this on Netflix made it such a hit that it became a bigger hit here. Reggaeton singers reference the Spanish actresses on the show. So that's how much the cultures overlap. It's as if you're speaking of the same conversation. I have students in my university coming from both sides of the ocean, and it's like teaching the same group.

Rasheed: It's a very important thing to explicate to listeners because it's such a close tie. Another point is this idea of naturalization, which we mentioned a couple of times already. So, Spain has a very strange rule in the Civil Code, Article 22.1.

A citizen of the former Spanish colonies, so essentially all Latin America, except Brazil and so on, plus the Philippines, Equatorial Guinea, after two years of legal residence in Spain, they can qualify for citizenship, if you're from one of these countries. Two years is a very quick time. So that's why oftentimes, when you see the data about the population groups that live in Spain, if you're not careful, you miscount. Because after two years, Venezuelans become Spanish. So people in Spain know how to count properly, but oftentimes when you see data from America, for example, I realize no.

That data cannot be correct because they miss this two-year thing. But also this two-year rule that comes to acquiring Spanish citizenship has, I would think, a very strong view when it comes to integration. Because you're not just a person who has a cultural affinity to Spain.

You are now a Spanish citizen, you have citizenship after two years of living in Spain. So that has a very big impact as well. And I think people don't realize how much Spain has put into the legal workings. Again, there wasn't like an implicit call to come, but since you're here and you're already so like us, why don't you become Spanish very quickly?

And you'll see also in the political parties where the political parties in Spain, from PSOE to Vox, even to PP, they have these programs where they know when Latinos come, they join the party because in two years you're gonna vote. So let's just start now. So, even the cultural element of politics is geared towards newcomers as well.

Diego: If you're not a citizen, but you're a resident, you can vote in the local election. That's right. That's interesting. So first off, you can travel visa-free in many cases if you're doing this for travel. So many people actually got their first taste of Spain under the sort of scheme that you just get on a plane, land, and you're here, and you just see it.

Okay, so that's interesting because it gives them immediate access to not just Spain, but Europe. They can travel around. And this is already a tourist visa, but the fact that it's completely free of bureaucracy helps a lot of nationalities. Venezuelans had that, and it facilitated a lot of them coming in to just see what the country was like and whether they would entertain moving over.

And many people who moved illegally also used this visa-free situation to just come here and then just stay without papers, like we say in, in Spanish "sin papeles". But then it's easy to get those papers if you've been working in the shadow economy for a couple of years.

Rasheed: See, that's also a very strange thing about Spain. Spain has this tacit liberalization of open borders for Latin Americans, where you come to the immigration border and they know a large chunk, especially Colombians and Venezuelans in particular, will come into Spain on tourist visas, and just stay for a long time.

Diego: You come in legally, but then you stay longer than you should. Which de facto makes you an illegal alien in the country. But like you said, you get a job offer here...

Rasheed: Just get a job. Just get a job.

If you work for a while, there are normal legal procedures to get your papers, and eventually you can become naturalized. Yes, it will take longer, a few more years than if you just come in legally and have a job from the get-go. But there is this acceptance, this is a thing that happens.

And we aren't gonna push back that hard against it. Spain has had these waves of regularization, even from the time of Gonzales. So there was a regular regularization process where you had amnesty for these non-legal immigrants.

But this thing is not irregular. It has happened four or five times. So I think the biggest wave was under Zapatero. It was like 700,000 people regularized.

Diego: And then, when you do apply for a visa in Spain, for Latin American countries, the acceptance rate is normally 80 - 90%.

That's quite high. So that shows you that if you just want to do everything properly, as one probably should, you're essentially going to be granted that residence permit. Then you have that two-year window in which you can live in the country as a resident, and then you could apply to be a Spanish national.

And then there was also a Golden Visa program in place for those of higher income. And it wasn't necessarily like this trump card that he's outing for, like people that are investing $5 million and then get American residents. Immediately. Essentially, you bought a home, a regular home you could get the Golden Visa.

So it wasn't so much of a Golden Visa. You just invest in a home, then you are allowed to come into the country. So a lot of higher-income, but not necessarily rich individuals who were considered in Spain, decided to come to Spain, so that now they're living here, and they have their citizenship.

They are European citizens, not just Spanish. So that gives them more flexibility, whether they may want to change and live in Italy for a while or whatever, that's part of the deal when you're a Spanish citizen, you're also a European citizen. So that's all that happened quite naturally.

And yeah, like you said, if you notice, although there hasn’t been an explicit call to, just bring all of Latin America over to Spain, the laws reflect the fact that we see this fairly naturally and that there's not a lot of tensions around that, for sure.

Rasheed: There's also this cultural affinity. It's security, but it's also the Spanish values, the much more liberal values of Spain compared to most of Latin America. So this to me is very crystallized when you think of, for example, gay rights.

So there's a fairly popular singer in Spain, La Cruz.

He does reggae music, but it's very gay themed instead of your typical heterosexual themes from reggaeton. And he's from Venezuela. He said I could never make this music in Venezuela, but here in Madrid, I'm a popular singer. Then, when you come to, Barrio Chueca (gay district), for example, you will see almost every gay person in Latin America knows Chueca, and they wanna go to Chueca. So it's that kind of liberal policy. It's also the free market economics, but also the very classical strong value of Spain, which also has this benefit. People come in and they're attracted to it and they want to inhabit it.

Diego: Spain is very tolerant in that sense. Also, there's a lot of intermarriage between Spaniards and Latin Americans. There's a joke about it. "Why wouldn't we do this today when we were doing it 500 years ago?" Referencing the fact that the number of children that were born out of Spaniards and indigenous population in Latin America was extremely high, much higher than in other empires in which there wasn't so much quote unquote inbreeding.

So that blend, that mixture, that fusion it's a reality today. You see a lot of inter-racial couples from both sides of the Atlantic. Maybe not interracial, but both of the same ethnicity, but a Spaniard and maybe a white Spaniard with a white Latin American as well.

And I myself have tried that because I'm married to an Ecuadorian, so I certainly know what I'm talking about. But that's quite recurrent these days. There are even numbers. I may pull a number for you before we end the podcast about it. But I think there's an Oxford University study that shows that Spain has the highest intermarriage rates with the foreign-born population of all of Europe.

And that's the number I was thinking of. We blend, we mix up.

Rasheed: There, there's one thing you said before recording about the deep-rootedness of Spain's more cosmopolitan view to the Hispanic world, which you link back to Cádiz, in the 19th century.

Could you discuss that a bit more?

Diego: Yeah. Some of us on the classical liberal end of things and most people on the conservative side of things, we see the experience and the times of the Spanish Empire as a positive era that led to greater integration, greater globalization shared values, shared cultures, and the, there was a lot of things that were not positive at this time.

But when you notice the things that were going on at those very same historical periods in other parts of the world. One cannot say that the situation was very different. In fact. A case could be made that indigenous populations today are much larger in the former Spanish territories than in the territories of other empires, which would suggest that, instead of suppressing them, there was more of a tolerant approach.

Many of the early human rights theories were constructed under the Spanish Empire. Of course, I don't want to go down a rabbit hole. I'm aware of all the negative elements of the Spanish Empire. I'm just saying that most of the positive ones get overlooked. And so coming from this perspective, that is shared by most people on the center right of the political spectrum, maybe some on the center left, definitely not those further on to the left, which are extremely negative about the Spanish identity today and in the past.

But among those who are, one interesting topic is that beyond the rules, the Indian laws that call for the protection of the autonomous populations of the Americans, and so on. There was a very interesting case, a very interesting example. Right before the former Spanish territories left Spain, they were granted be considered of Spanish citizens. Because the 1812 Constitution, which is a classical liberal constitution that's resembles the ideas of the American Revolution recognizes that the values and the rights enshrined in this charter are given to all Spaniards from both hemispheres, referencing the fact that there were Spanish territories in Europe, but also in America even, in Asia.

So that was quite a progressive approach that classical liberals have held onto, still these days, and since classical liberals are hegemonic and libertarians are hegemonic politically in Madrid, and conservatives are also hegemonic politically in many areas of the country, that has remained the case.

One example, former Franco Minister Manuel Fraga, was very good friends with Cuban dictator Fidel Castro because of the many historical ties between his home region of Galicia and the former home region of Fidel Castro's family, which was Galicia.

Rasheed: Yeah, this is a very fair point.

Diego: Franco and Castro. They're both of Spanish origin. Franco is Spanish. And they're both of Galician origin. So watch out for Galicians, we're dangerous.

Rasheed: So this constitution you mentioned, which in Spain is now referred to as "La Pepa".

This was such an important landmark document in just thinking about classical liberalism in general, but it's not well known in the English-speaking world.

Hence, we're gonna discuss it a little bit. So La Pepa was also one of the core documents that motivated a lot of the Latin American revolutionaries, like Bolivar, for example, to fight for freedom. Not necessarily against Spain in some sense, but the idea of Spain was very different at that time.

So there's some nuance involved there. But the idea was that freedom, respect, self-governance, liberty, those ideas that were discussed in Cádiz in 1812.

Diego: With Latin American deputies. In that constitutional assembly, there were representatives from all the Spanish territories in the Americas drafting that constitution.

Rasheed: That's right. There was a very curious period of inspired history when the monarchy had ended. This is essentially it was a non-monarchical period. They were moving to Republicanism, inspired by the French, inspired by the Americans. So they thought, "Hey, we have this large Hispanic world. We don't want the monarchy, we're going away from the old regime into a more classical liberal Republican regime." And they wanted the people from Latin America, from the Philippines, to come and have a say in what the Hispanic world governed from  Cádiz, in this case, would look like. And that's why they have these people come in from Latin America.

And then that mentality filtered back into Latin America. So this idea of a cosmopolitan Hispanic world it's probably a better term to use.

Diego: You say that Hispanidad? Yeah. That's the concept. In fact, in this podcast, we're referring to Latin American populations as Latinos.

Which is not necessarily wrong. But that concept was pushed more by the French in the years of their influence in different Latin American territories, Mexico being one example. The idea here is that our languages and culture derive from the Latin Empire, the Latin language, so we're all Latinos. But I don't think Latin Americans see themselves as culturally equivalent to or similar to the French. But the term has stuck.

But the more appropriate term, if you want to be very specific about these things, I think it's Hispanic. Because the idea of Hispanidad ethnicity is that there is a common culture, a common history, a common language, and a common set of values, sets of values and goals, even if you wish, that are shared by all of these populations living anywhere from Mexico to Argentina.

And of course in Spain. Sometimes that's also discussed as the Hispanosphere or the Iberosphere, if you want to include the Portuguese and the Brazilians. So yeah, that's always been there in historical terms. And it explains why this exodus of Latin Americans coming to Spain has proven to be natural.

Rasheed: Yeah. Deep links.

Diego: We touched upon crime and problems with integration. There were some problems initially. Now that I remember, with some gangs and violent activity in Madrid. Documentaries are even coming out now discussing the Latin Kings or the Dominican Don't Play.

These were gangs that were active here in Madrid. But the police tackled that full on. So that probably could have been an issue back in the day. But today, the crime rates are extremely low in Spain overall. It's true, they're larger for immigrants, but when you circle the numbers, it's not because of the Latin American immigrant, but rather because of other sorts of migration populations.

So that's why the assimilation has been very easy.

Rasheed: So, just before we leave the La Pepa topic, I think at some point we had discussed this, and you had mentioned that when you were younger, one of the core conversations that got like classical liberals going was La Pepa.

But now it's not the case anymore. It's more of different things like Bitcoin, for example.

Diego: Yeah, 'cause classical liberals and libertarians today, I think, they read less. I'm sorry. But that doesn't mean they're not well informed of the issues of the day. A lot of these younger libertarians and classical liberals know more about many topics than I knew at their age.

Okay. But history, I don't think it's their forte, and in 1812, Spain was under French occupation. And many of the Goya paintings...

Rasheed: Napoleon.

Diego: Yes. Under Napoleon. And the Goya paintings of May 2nd, May 3rd, which are so famous, and you can find them online, of course.

And you can see the Prada Museum. Those represent the resistance of the people against the French invasion. And the Constitution was essentially passed in 1812 in Cádiz. It's right in the south of the country. It's a city where boats would depart to go to America.

So it even looks a bit like Havana. They both have the boulevard with the buildings and so on. So that constitution was like a document that a lot of classical liberals and conservatives used to refer to as much as the Americans do, with their constitution as a precedent for what the movement stands for these days.

And if we're talking about Hispanic integration, it's even more so the case because you had Latin American, South American, and Central American deputies present in that assembly. Like, how more modern can you get? You don't see that today in the 21st century anyway.

Rasheed: That's true. It's always funny how, in some ways, now Madrid is getting back to that Hispanic cosmopolitan life it was 200 years ago.

So one of the issues that comes up a lot in Spain now, of course, is the fertility crisis, which is quite poor in Spain, like most other European countries.

Diego: That's an understatement.

Rasheed: But at the same time, we mentioned this dramatic increase in population, a dramatic decrease in Spanish-born fertility. Spain has not been suffering from this issue. Do you think this is probably one of the key pro immigration arguments as well in Spain?

Diego: It is. Even when they talk about the debt of the social security, they even make these crazy protections, so that hundreds and thousands of migrants will come in every year. That's not necessarily sustainable, not necessarily going to be the case. If you have such an aging population, your economy is going to have lower levels of entrepreneurship, risk-taking, and so on.

And you may become an old museum where tourists come, and not so much active production is an output are done. So that is why we should look at that carefully. Fertility it's down the toilet. It's one child per woman. The replacement rate is almost double, right?

So it's extremely low. The fact that so many migrants have come into Spain has rejuvenated and increased the size of the population, but at the same time, these migrants start having fewer children than they do in their home countries once they move to Spain. And the second generation Hispanics or Latinos who come to Spain have children at a very similar rate. So that's not going to be a fix for the fertility crisis. It can be a fix to having a larger population, but it doesn't fix the fact that you need to have more children to boost the fertility rate. And because we're living in a welfare state, either you boost fertility or you cut down on the welfare state, but you can't have your cake and eat it.

Rasheed: So, one of the counterarguments to a lot of the immigration, even Latin American immigration, is that they say that Latin American immigration is primarily on the lower end of the jobs spectrum. So, lower-income jobs, more remedial things, activities like that. And that may also have borne out in some of the data.

So in 2000, 2022, Spain, GDP per capita rose by about 12,000 euros compared to Germany at 20,000, or even the Netherlands at 30,000. So Spain had, rapidly increasing population. But not. A concomitant increase also in GDP, but this again is the last 10 years, primarily the PSOE.

In this case, is this gonna be a problem?

Diego: I think the stagnation of the Spanish economy is evident when you look at the gap that we have with other main European nations. We are where we were in 1999 in terms of our GDP gap with them. But that's just a comparison from 25 years ago.

Now, if you see how that has evolved, you can read it among party lines because GDP per capita under Aznar went up to be almost on par with the European average. Then decreased under Zapatero, then increased under Rajoy, and then decreased under Sanchez. So these socialists, they do have a habit of impoverishing people whenever they govern.

And Spain has been no different from that. So with a lot of migrants, Spanish GDP per capita and incomes were growing under Aznar and Rajoy, and with a lot of migrants, GDP per capita and incomes are stagnating under Zapatero and Sanchez now. So I think it's a question of poor economic policy making here in Spain whenever the left comes to power, and sometimes the right is not doing the best it should.

In terms of economic policy, say the first two years of the highway weren't that good, but you clearly see it in the convergence or divergence ratios that Spain got closer to the EU average under the PP rule, under the right-wing parties, and further away when the left has been in power.

Same with unemployment and other figures.

Rasheed: So, to conclude, now I want to come back to Madrid. Madrid has been very liberalismo-focused, capitalismo-focused, especially in the last few years. And at the same time, there's been a dramatic increase in foreign-born residents of Madrid, primarily from Latin America.

So now one in seven Madrid residents is from Latin America, born in Latin America. I wonder if that has an impact on the level and strong appreciation for capitalism, especially in Madrid, given that Madrid is itself much more liberal in the European sense. So that's a libertarian in America.

Diego: Yeah, but you make a great point.

You suddenly have so many people coming in. Is that going to change the paradigm? Are these people of different political values, and are they just coming for something else? I don't think it's the case because there's a poll by Ipsos MORI that shows that support for capitalism now in Madrid is 70% higher than it is in Barcelona.

And then you have the votes, which are the best way to poll whether this increase in foreign population has led to less or more of these free market policies. And then you notice the recurring topic of every election that has taken place over the last 20 years in Madrid is that the center has won.

And it has always been with a free market platform. Like the PP has in Madrid, PP can be a lot of things nationally. But it's a free market group. A free market political party in Madrid. It was under Governor Aguirre, it is right now under Governor Ayuso, and a poll just came out yesterday saying that essentially she would get, not yesterday, last week, sorry, that she would get 73 MPs in a regional assembly that sits 165 MPs. Plus, more popular Vox has 12 additional seats. So, essentially, the socialists have been out of power for more than 30 years now in Madrid. And I don't see that happening anytime soon because who were they (immigrants) fleeing when they came to Madrid, the sort of dictators and populists and just bad left-wing politicians that many of the citizens were fleeing?

Ask a Venezuelan to vote for a socialist, and I don't think they'll be very supportive of that. Yeah, we'll see about the second generation, but for sure it's not the case right now.

Rasheed: It's a good point, 'cause I remember I saw the video when Ayuso won, the last election in 2021, and came out with the balcony.

And you see flags, you see Cuba flags. You would see Venezuelan flags, you see Spanish flags. See Colombian flags waving. And that's such an interesting thing.

Diego: I can tell you I was inside that campaign, and I can tell you how happy and how proud everyone was that this was going on.

They've even held events specifically for Latin American migrants and so on. But the fact at the end of the day, like what Ayuso said then, is that we are all Madrileños and we all want to live free. Madrileños from Chamberí, which is a district here in Madrid, Madrileños from Chueca, which is the gay district in Madrid, millennials from Chamartín, which is a Northern district in Madrid.  Madrileños from Cuba,  Madrileños from Venezuela,  Madrileños from Ecuador.

She made this comment explicitly. That was her victory lap. In her victory lab. She decided to stress the relevance of openness in the economic sense against the COVID-19 restrictions, which were ongoing at this time. And in terms of just being tolerant of everyone coming over to Madrid to just work. And by the way, it's slowly becoming a hot destination for Anglo-Saxon remote workers.

Well-paid American and British, and other European professionals, startups, and so on. So that is a topic for another day, but that's also become appealing. Because if it's so appealing to Latin Americans, maybe that gives you an example that maybe it's a tolerance society overall, not just for Latin Americans.

Rasheed: So, essentially, then Madrid is probably the shining city on the hill when it comes to radical cosmopolitanism policies, while at the same time maintaining very key pro-free-market liberal values policy at the same time, which people think is impossible to do.

But Madrid has shown it works, and it works well. So Diego, that is this episode, and I am looking forward to our next topic. We're not sure what it is yet, but it will be very good again.

Diego: We're always back and forth. There's so much going on. But yeah, give us your comments, share it, spread the word. We'll be here next week for the Capitalism Podcast.

Rasheed: That's right.

Today’s edition covers March 25 to April 6

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The Top 5 Stories:

• The Trump Administration’s Special Envoy for Latin America (and former IDB President) Mauricio Claver Carone is reportedly pressuring Argentina to end its currency swap arrangement with China as a precondition to Buenos Aires receiving a new IMF credit line.

  • Although Milei is one of Trump’s staunchest supporters, it is unclear whether Argentina could afford to end its swap arrangement. And while Milei has continued Argentina’s deep relations with China in the first year of his administration, a previously planned trip to Beijing (which in turn might infuriate Washington) appears to have been at best postponed and at worst scrapped.

• China was a constant topic of conversation during Secretary of State Rubio’s trip to the Caribbean. After Guyana’s president promised “different and preferential treatment” for the United States, China’s embassy expressed dissatisfaction with Washington’s ties to Georgetown. In Suriname, Rubio also complained about the quality of Chinese highway construction work in Guyana, though it appears that the road in question was actually built by local contractors.

  • During the visit, Guyana’s government also joined its neighbors (including Barbados, Antigua and Barbuda, and St. Vincent) in expressing concerns about a U.S. proposal to charge a fee on any Chinese-built ship visiting U.S. ports. Reportedly, since many vessels operating in the Caribbean are Chinese-built and need to stopover in the U.S. as part of their trade routes, USTR’s proposal could disproportionately hurt the Caribbean.

• After Trump threatened to impose a 25% tariff on any country that imports Venezuelan oil, Chinese imports of Venezuelan petroleum skyrocketed to the highest level in almost two years, and China’s foreign ministry condemned the sanctions. The PRC also expressed its support by having its ambassador meet with the South American country’s deputy foreign minister.

  • Last year, China was Venezuela’s largest oil customer, purchasing more than 500,000 barrels of crude and fuel per day. This development shows how Sino-Venezuelan ties are unlikely to be severely impacted by U.S. sanctions.

• China’s commerce ministry paused a multi-billion dollar deal that would have handed over control of dozens of ports, including two near the Panama Canal, from Hong Kong-based CK Hutchison to a consortium led by U.S. firm Blackrock. Days later, Panama’s comptroller general accused CK Hutchinson of irregularities and breaches of contract.

  • President Trump has been using Chinese companies’ presence near the canal as a rationale to threaten to take back the waterway since last year. As a result, in early March, a consortium led by U.S. asset management firm Blackrock signed a $23 billion deal with CK Hutchison Holdings to purchase dozens of ports worldwide.

• The St. Lucia-China Friendship Association celebrated its 20^th anniversary. Meanwhile, Paraguayan businessmen and officials virtually discussed economic cooperation with Chinese academics for the fifth “China-Paraguay Seminar.” (CGTN)

  • While both countries lack formal ties with Beijing, civil society organizations and events like these continue to foster low-level ties with the PRC.

Core Brief

The Curious Case of St. Lucia’s Taiwan Ties

This week, the St. Lucia-China Friendship Association celebrated its 20th anniversary with a small gala and a promise by its leaders to move to a new generation in the hopes of deepening ties with the PRC.

Aside from possibly Belize, St. Lucia appears to be unique among Taiwan’s Caribbean diplomatic partners1 in having a friendship organization with the mainland — if other countries in the region have similar organizations, they are much less public and prolific in their meetings.2 There could be a number of reasons for this, but more likely than not it reflects St. Lucia’s unique history with Taiwan and the PRC.

St. Lucia’s Complicated PRC and ROC Ties

Initially, Taiwan and St. Lucia established diplomatic relations in 1984, and for the subsequent 13 years, Taiwan provided development assistance to St. Lucia, including by “propagating new strains of fruits and vegetables and introducing (new) agricultural techniques.”

Yet like many countries, St. Lucia switched relations from the ROC to the PRC in the 20^th century under left-leaning leaders. When the left-leaning Labour Party came to power in 1997, St. Lucia established official ties with Beijing in a bid to improve the local economy and further economic development.

Originally, the country sought to maintain commercial ties with Taiwan, possibly through an unofficial trade office. But in the end, the Taiwanese ambassador reportedly refused any further commercial engagement and withdrew his country’s presence from the island.

Re-connecting with Taipei

Despite St. Lucia’s seeming alignment with the One China Principle, when St. Lucia’s right-leaning United Workers Party returned to power in 2006, the prime minister who had established diplomatic relations with Taiwan in 1984, John Compton, re-offered formal ties with Taipei. Yet in a bid for compromise, he hoped to maintain relations with Beijing while establishing formal ties to the ROC.

In a reversal of the events of 1997, Beijing’s foreign ministry expressed its “indignation and opposition” to a country trying to break the One China Principle by holding diplomatic relations with both Taiwan and the PRC. It subsequently withdrew all formal links with the Caribbean country. Despite the Labour Party returning to government in 2011 and 2021, St. Lucia has since remained a steadfast diplomatic partner to Taiwan.

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The Roundup

Politics and diplomacy

• The Canadian Security Intelligence Service (CSIS) warned that both China and India were likely to interfere in the country’s upcoming elections, which the PRC’s foreign ministry denied.

• Honduran businessmen and the head of the country’s legislature met with a business delegation from Jiangsu to discuss possible investments and “strengthening of parliamentary relations.”

• Qiu Xiaoqi, China’s Special Representative for Latin American Affairs, will travel to Costa Rica in the coming days to meet with the President of the Legislative Assembly, Rodrigo Arias.

• The Vice President of the PRC National People’s Congress Standing Committee traveled to Colombia to discuss commercial, cultural, and economic ties, as well as legislative exchanges.

Investment, finance, and infrastructure

• China Communications Construction Company Limited (CCCC) officially started construction on the $80 million “El Hato” solar plant in Nicaragua.

• A Chilean parliamentary delegation traveled to Beijing, Hangzhou, and Shenzhen and signed an MOU on clean energy cooperation with the PRC’s National Energy Administration.

Trade and Technology

• Though Chinese investments in Mexico may be cooling at the moment, the head of the Campache port discussed trade cooperation with his counterpart at the Port of Guangzhou. That said, Mexico placed new tariffs on Chinese steel nails at the beginning of April.

• At the same time that Prime Minister Carney said that China does not share Canada’s values on trade, Beijing’s ambassador suggested that his country was interested in increasing bilateral trade.

• Uruguay’s Ministry of Education and Culture (MEC) and China’s Ministry of Science and Technology (MOST) inaugurated a new cooperation initiative on nano-pharmaceuticals, nanotechnological biosensors, and implantable biomaterials.

• A Brazilian congressional delegation met with officials from the CCP’s International Department, business leaders from Sinomach Corporation, and researchers at China Agriculture University to discuss agricultural mechanization and bio-input production.

Taiwan

• The Taiwan Technical Mission and Belize’s Ministry of Foreign Affairs signed a grant agreement to promote “women’s economic empowerment in the Adjacency Zone.”

• Taiwan’s Simply Help Foundation donated 1,000 pairs of shoes to St. Lucia’s Ministry for Equity, Social Justice, and Empowerment.

• Despite lacking diplomatic relations, the Honduran foreign minister said his country was looking to regain access to Taiwan’s market for shrimp exports. However, several days later, the foreign minister denied that his government had made contact with Taipei.

• The ROC embassy in St. Kitts donated unspecified “medical equipment and supplies” to the country’s Joseph N. France General Hospital (JNF).

• Paraguay’s president indirectly accused China of launching cyberattacks on the small South American country, noting that the United States has helped the country respond.

Society and culture

• China’s foreign ministry donated about $150,000 to renovate four soccer fields in Honduras. The two countries also signed an MOU on dengue control and other agreements on new ambulances and agricultural equipment.

• Cuba and China are planning to launch a joint tertiary education program with the University of International Studies of Hebei.

• The Argentine-Chinese Cultural Association (ACCA) and the Faculty of Foreign Languages of the Southwest University of Science and Technology (SWUST) signed an MOU to promote and strengthen bilateral cultural exchange.

• A delegation from Shanghai discussed “heritage protection of historic urban constructions” with Chilean public works and agriculture officials, while a delegation from the Chinese Red Cross signed an MOU with its Chilean counterpart.

Analysis and Opinion

• Noting that “a decisive majority of internationally recognized sovereign states accept China’s fiction that Taiwan is a part of its territory,” Sasha Chhabra argues for GTI that “Taiwan has relied too much on ‘diplomatic allies’” (including those in the Caribbean) in its diplomacy.

• Per CSIS, Evan Ellis provided testimony to the Senate Foreign Relations Committee on “PRC influence in the Western Hemisphere and its impact on Taiwan’s allies in the region.”

• Laura Lesmes Diaz argues in El Tiempo that Colombia must diversify its exports away from the United States to China, but that Bogota needs “an intelligent strategy and quintupling its effort if it wants to boost China as a market.”

That’s it for now, see you again in two weeks!

Make sure you don’t miss the next issue of Chaufa 👇

Today’s edition covers March 11 to March 24

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The Top 6 Stories:

• Guyana’s President Irfaan Ali said that the Trump Administration’s plan to charge fees on shipping fleets that include Chinese-built or flagged vessels could particularly hurt Caribbean hydrocarbon-exporting countries like Guyana, Suriname, Trinidad and Tobago. However, Bahamian business officials have suggested that their country could act as an intermediary for companies looking to avoid the fees.

  • Secretary of State Marco Rubio is expected to visit Jamaica, Suriname, and Guyana at the end of March. These countries’ leaders plan to raise the issue of fees on Chinese ships during the visit.

  • The U.S. Trade Representative announced the Section 301 investigation into Chinese shipping and possible fees on PRC-built vessels in late February.

• The Trump Administration announced a new 25% tariff on any country that imports oil from Venezuela, which will be effective on April 2. China is currently the largest importer of Venezuelan oil (68% of Venezuelan exports in 2023), so the tariff would likely largely target the PRC.

  • Other countries, including the United States, Spain, Cuba, and Singapore also purchase Venezuelan oil, but at a much smaller percentage.

  • Washington has already placed a 20% tariff on Chinese exports, and is likely to at least double that with the “reciprocal tariffs” planned for April 2. Beijing might prefer a roughly 40% cumulative tariff over a 65% one, but given the Trump Administration’s inclination to unpredictably impose tariffs on its trading partners, this tariff probably won’t end Venezuelan oil exports to China.

• Chile’s foreign ministry said that it is reviewing the agreement between the Chinese government and the private Catholic University of the North for access to the Ventarrones Astronomical Park. The review comes in part because Washington’s embassy “has been clear for some time in expressing its concern” about the cooperation and its possible military applications.

  • The Chinese-Chilean Ventarrones cooperation is one of many space cooperation projects that have drawn DC-based analysts’ concern. However, the level of cooperation at Ventarrones pales in comparison to the Espacio Lejano Station in Argentina, which has been directly administered by the China National Space Administration for years now. If U.S. pressure increases in the region, this could be the next project to cause a raucous.

• Chinese officials have reportedly started to push back against the Black Rock-CK Hutchison (CKH) Holdings port deal that included two key Panamanian ports. A Beijing-affiliated newspaper article critical of the deal was republished by Hong Kong’s government, while the Wall Street Journal reported that President Xi was “angered” by the transaction. Still, the Economist argued that China probably won’t block the deal.

  • Amid this kerfuffle, the deputy head of the CCP’s International Department, Ma Hui, led a delegation to Panama to meet with local political party leaders. (Xinhua)

  • President Trump has been using Chinese companies’ presence near the canal as a rationale to threaten to take back the waterway since last year. However, while this deal would ideally mollify his administration’s greatest concerns, shortly after the deal was announced, Trump still insisted that his administration planned to “reclaim” the canal.

• The PRC’s Ministry of Commerce delayed its approval of EV firm BYD’s potential new plant in Mexico due to concerns that the facility’s proximity to the United States could allow North American companies access to the firm’s advanced technology and know-how.

  • In response, Mexican President Sheinbaum said that the investment had only been proposed and had never been formalized. Yet this comes as the Chinese Chamber of Commerce in Mexico suggested Chinese investment in the country has slowed because of trade uncertainty from the United States.

• Just weeks after Ecuador had granted Sinopetrol (and a Canadian firm) the exploitation rights at one of the country’s largest oil fields (Sacha), the Ministry of Energy canceled the company’s contract over Sinopetrol reportedly not paying the $1.5 billion deposit on time. In response, the Chinese embassy called for the Ecuadorians to “provide a fair, equitable, transparent and non-discriminatory commercial environment for foreign companies, including Chinese companies.”

  • Sacha is Ecuador’s most productive oil field, producing 75,000 barrels per day (or 15% of Ecuador’s output). Earlier this month, an Ecuadorian trade union had criticized the government’s decision to let Chinese and Canadian firms take over the Sacha oil field.

Core Brief

Taking stock of the Trump Team’s China-LAC obsession

It’s been just over two months into the second Trump Administration, and from tariffs to Twitter (X) feuds, the administration’s foreign policy strategy and priorities are coming into focus.

Last summer, I wrote about how a second Trump term could influence China-LAC ties. Specifically, I highlighted that the new administration’s blueprint, called Project 2025, highlighted three areas of concern, namely: “disrupting Chinese fentanyl flows through Mexico, near-shoring manufacturing away from the PRC, and combating the regional ‘external pressure’ and ‘security threats’ from the PRC (such as through Beijing’s support for countries like Venezuela and Cuba).”

Though “near-shoring” has mostly gotten short shrift, so far the campaign’s priorities appear to more or less be the administration’s strategy. But whether it’ll curtail China’s role in the region remains to be seen.

“External pressure” and “security threats”

Even before Trump took the oath of office, he had been complaining about Chinese influence at the Panama Canal. In just two months, this has resulted in threats to invade Panama, Secretary Rubio’s first foreign trip being to Panama, an eventual deal for Panama to withdraw from the BRI, and the sale of two Chinese ports. Yet these have still not seemed to mollify Trump himself.

Other external threats highlighted by the administration so far include: China’s intelligence presence in Cuba, the possible political pressure created by Chinese investments, and Huawei’s cybersecurity threat to Costa Rica.

Some of these have long been flagged by the DC-based security community, while others are new concerns. Altogether, if the administration can plausibly claim that China is pressuring a LAC country or creating a security threat for the United States, it seems that Trump’s team is going to try to eliminate that “threat.”

Fentanyl flows

One of Trump’s first actions after his inauguration was announcing new tariffs on Mexico, Canada, and China for their supposed role in fentanyl trafficking to the United States. Though the 25% tariffs on the North American neighbors were paused, a 20% tariff on PRC exports was put into effect.

What’s missing? Any substantial negotiations, it seems. Canada and Mexico have largely re-packaged previous commitments to try to push off the new administration’s complaints. And while the Biden Administration set up some talks with the Chinese over fentanyl precursors, which did appear to have some limited results, the PRC and Trump’s team haven’t been interested in the same.

The near-shoring conundrum

Rather than taking a “near-shoring” approach to trade decoupling with China, the administration seems to be following an “America-shoring” policy. Though Trump’s team has been putting tariff after tariff on Chinese exports, (so far) they don’t seem interested in actively redirecting that trade to the U.S.’s southern neighbors. No FTA negotiations have been announced, nor have any grand trade or investment initiatives like the Americas Partnership been proposed. Instead, the administration is threatening tariffs on its closest trade partners through a “reciprocal tariff” proposal and a million-dollar fee on any goods shipped on Chinese ships, regardless of the country of origin.

What’s more, the previous administration’s efforts to near-shore some industries, such as semiconductors, to LAC might be on the chopping block. Take, for example, the CHIPS Act. The law provided new funds for Washington’s regional partners like Costa Rica and Mexico to develop their semiconductor industries. But with Trump’s aspirations to repeal the law, the financial incentives for these projects are probably at risk.

What’s next?

The past few weeks have seen quite a few LAC countries pull back from engagement with China. The cancellation of Sinopetrol’s lease of Ecuador’s largest oil bloc1 to an investigation into space cooperation in Chile, to Mexico floating new trade barriers on Chinese exporters all indicate that the region is preparing for yet more Trump Administration complaints about Chinese “external interference.”

While some of these actions might be independent of the current White House’s concerns, they certainly will help feed into Washington’s narrative about the dangers of engagement with the PRC. Moreover, they show that the region is preparing for more complaints and coercion from the next four years of this administration.

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The Roundup

Politics and diplomacy

• After traveling to Panama (see above), the Deputy Head of the CCP’s international department visited Brazil and met with local officials, including Vice President of the Senate and ruling Workers Party member Humberto Costa. (CGTN)

• Chinese Premier Li Qiang sent a message of congratulations to Stuart Young on assuming the premiership in Trinidad and Tobago. (China Daily)

• Even as Ottawa has sought to reduce tensions with Beijing, Canada’s foreign minister revealed that the PRC had recently executed four Canadian citizens over drug offenses.

• The PRC’s Special Representative for Latin American Affairs, Qiu Xiaoqi, discussed “deepening practical cooperation in various sectors” with Venezuela’s ambassador. (VTV)

• A new scandal is brewing in Argentina related to the National Institute of Tourism Promotion (INPROTUR) paying local firm Puken Media S.A. $200,000 for promoting Argentina’s tourism industry on Chinese social media like Weibo and WeChat.

Investment, finance, and infrastructure

• 163 Chinese workers who had been building a BYD plant were rescued by Brazilian authorities. The plant’s construction was stopped several months ago over concerns about the workers’ slavery-like conditions. Still, BYD is planning to build two new research centers in the country.

• China will donate a $2.4 million mobile wastewater treatment plant to the island of Roatán in Honduras, with the project’s financing, construction, and technical assistance managed by Chinese firms.

• Nicaragua’s government both announced that CCCC had started construction on a $68 million, 67MW solar project in Darío and that Min Fu Steel’s new $50 million steel recycling plant would begin operations this summer. The plant will be the largest in Central America.

• The Venezuelan transportation ministry signed a “strategic alliance” agreement with a Chinese firm to construct, install, and maintain steel bridges across the country.

Trade and Technology

• China’s customs administration and Bolivia’s land ministry signed a phytosanitary protocol to facilitate sorghum exports without volume limits.

• The Argentine and Chinese customs offices agreed to new health protocols that would re-permit for poultry exports from the South American country to the PRC.

• Venezuela’s Minister of Agriculture, Julio León Heredi, signed an agreement with China to formalize a “sugar strategic alliance” and to promote sustainable development in the agriculture sector.

• China’s ambassador to Dominica announced that a Chinese firm plans to open a “Distribution Center of Chinese Goods in Dominica” that will supply local retailers.

• The Peruvian government launched yet another anti-dumping investigation into Chinese exports, this time into hot-rolled carbon steel tubes.

Taiwan

• The St. Kitts and Nevis foreign minister reaffirmed his country’s commitment to Taiwan during a trip to the country. He also reviewed possible investment opportunities in meetings with Taiwan’s president, foreign minister, and other officials.

• Taiwan’s foreign ministry congratulated Belizean Prime Minister Briceno on re-election and committed to deepening ties with Briceno’s government. Belize is expected to maintain diplomatic relations with Taiwan under a continued People's United Party (PUP)-led government.

• A delegation from the ROC’s National Security Bureau led a training program with its Guatemalan security and defense counterparts. Notably, this marked the first time that the Taiwanese intelligence service Special Service Command Center participated in this program.

• Taiwan and St. Vincent launched a new $1.16 million, two-year agriculture training project for young farmers, while the TX Foundation donated $110,000 in educational supplies, and the Simply Help Foundation offered $66,000 in goods to the social development ministry. At the same time, a Taiwanese medical mission recently started its work in the country.

• A delivery of 20 Taiwanese electric buses just arrived in Paraguay. The vehicles are part of a broader donation from Taiwan.

Society and culture

• The Francisco Morazán National Pedagogical University (UPNFM) of Honduras and the Zhejiang University of International Studies (ZISU) signed an MOU to establish the country’s first Confucius Institute. (CGTN)

• The Chinese government donated four small planes to Bolivia that can seat about 50-60 passengers each to facilitate flights in the interior of the country.

Analysis and Opinion

• A new report from the Atlantic Council by William Piekos on how China encourages Taiwan’s diplomatic allies to end their recognition of Taipei argues that “the key to Beijing’s success lies in the use of positive economic inducements, buttressed by the promise of economic growth and investment. While additional variables are at play—including “subversive carrots,” coercion, and personal ties—recent switches have been accompanied by lavish promises of aid, investment, and trade.”

• The New York Times published a piece by Keith Bradsher on how Chinese officials are increasingly worried that “Washington’s pressure could force Mexico to close its market to Chinese goods in exchange for a reprieve from American tariffs.”

• Arendse Huld wrote for China Briefing about how Sino-Canadian relations could evolve under either a Carney or Poilievre government.

• The Diplomat published a piece by Evan Ellis on the current state of Sino-Mexican ties amid the tensions created by U.S. tariffs.

• Chinese Ambassador to Jamaica Chen Daojiang wrote an op-ed for the Jamaica Observer about how “China is willing to further strengthen exchanges of experience in state governance with Caribbean countries” in the context of the recent CARICOM summit.

• Ewan Palmer wrote about how “China's rising influence in the Caribbean and Latin America in recent years has raised concerns about its potential political and economic impact on Florida” for Newsweek.

That’s it for now, see you again in two weeks!

Make sure you don’t miss the next issue of Chaufa 👇