Originally published on April 9th, 2019 at the Mises Institute’s Mises Wire.
Recently, Honduran president Juan Orlando Hernandez met with the board of directors of the association of Honduran municipalities (AMHON). In this meeting, AMHON expressed support towards the President’s request to congress to increase the number of police and military units fighting gang violence in the region. It remains unclear as to whether the request is to increase spending in the area of police and military, or just the reallocation of the individuals that make up these groups. While addressing the board of directors, Hernandez made the claim that “security creates investment, employment and income.” In other words, he claims security is sufficient to create development. But this is not true. Economic freedom and a balanced government budget create development.
In many places — especially places experiencing political strife and high crime rates — there is a common misconception that if order and security are increased within a nation, this will be enough to spur development. As a matter of fact, twentieth-century Honduran military dictators firmly believed in this, and this partly explains why these dictators heedless continued to suppress liberty within the country and to allow crony relationships between foreign investors and government officials. Meanwhile, the country experiences no drastic changes in development.
Attitudes have changed little in recent years. Over the past ten years, government spending on security has increased by 228% from 2.6 to 8.5 billion Honduran Lempiras. Although violence has drastically fallen, with a decrease in the murder rate from 85.5 per 100,000 in 2011 to 42.8 in 2017, there has been little to no change regarding development. As a matter of fact, according to the Human Development Index of the 7 Central American countries, Honduras is last and trailing significantly behind the others, while Honduran military spending is the greatest with $361.3 million. Guatemala is second and trails by nearly $100 million with $262.8 million, and Costa Rica and Panama do not have militaries. At the same time, public (government-owned) debt in the country has risen, from $5.5 Billion in 2012, to $8.9 Billion in 2016 and continuing to rise.
Even though security might be a necessary condition for development, it is not a sufficient one. Security alone certainly doesn’t create development.
Not surprisingly, according to the Index of Economic Freedom, Honduras scores poorly in the areas of rule of law and regulatory efficiency. Honduras also scores poorly on the World Bank’s Ease of Doing Business. Politicization of Honduras’s judicial system does not allow for effectiveness in title disputes and this is hindering for a country where 80% of its privately held land are either improperly titled or untitled. There are multiple price controls set in place, ranging from food to telecommunication and outdated regulations, making it difficult for entrepreneurship in the region.
Economist and economic historian, Sudha Shenoy, emphasized that economic development requires an environment where productive innovation can occur , and this is only possible through the expansion of capital structures and increasing the division of labor. Nevertheless, if government regulation stands in the way of this and property rights are not respected, then entrepreneurs are not able to expand these capital structures and further specialization that comes with the division of labor is not possible. The increase in spending on military and police are not aiding the development of the country, but instead further increasing public debt. Paraphrasing Ludwig von Mises, the mismanagement of public debt falls on the taxpayer and not on the government. The same mismanaged taxes in the hands of the entrepreneur are better allocated to aiding development.
In conclusion, President Hernandez, security does not create development, economic freedom does. Instead of increasing government spending on military and police, there should be a greater concern for the removal of barriers that inhibit entrepreneurship in the country and government debt and spending that misuses money that is better managed by the entrepreneur, only this way is development possible.
Ricardo R. Noé is a Honduran graduate student working towards his MA in Latin American Studies with a research emphasis on Central American political economy at the University of South Florida. He earned a BA in Economics at Southern Illinois University and is a Mises University Alumnus. He currently serves as Central America Freedom Institute’s United States Chief Operating Officer (US-COO).