I spent a week in Guatemala in November, at the impressive Francisco Marroquín University…
On 14–18 November 2021, Universidad Francisco Marroquín in Guatemala City celebrated its fiftieth anniversary by hosting a regional meeting of the Mont Pelerin Society. Both institutions are truly remarkable. The UFM was founded by businessman and entrepreneur Manuel Ayau in 1971 when he realised that in his country the Marxists controlled education, particularly in the social sciences. What he and the group around him wanted was a university based firmly on freedom of thought and expression and the pursuit of truth. The Mont Pelerin Society was founded by Friedrich von Hayek in 1947, with the participation of Ludwig von Mises, Wilhelm Röpke, Karl R. Popper, Bertrand de Jouvenel, Milton Friedman and other distinguished thinkers in the classical liberal (which nowadays means the conservative-liberal) tradition. It was meant to be, and indeed has been, an international academy where ideas could be freely discussed and debated. The Mont Pelerin Society has been identified by friends and foes alike as the main intellectual force behind the rapid recovery of Germany, Austria, and Italy after the Second World War: German Chancellor Ludwig Erhard, Austrian Finance Minister Reinhard Kamitz, and Italian President Luigi Einaudi were all members. The Society was also quite influential in the 1980s and 1990s when politicians such as Margaret Thatcher in the United Kingdom, Ronald Reagan in the United States, Sir Roger Douglas in New Zealand, Václav Klaus in the Czech Republic, Mart Laar in Estonia, and David Oddsson in Iceland, implemented ambitious, comprehensive, and ultimately successful, programmes of liberalisation, privatisation and monetary and fiscal stabilisation.
Why are Some Countries Poor?
At the regional meeting in Guatemala, a new book was distributed to all participants, Ayau’s Revolution: The Creation of Universidad Franciso Marroquín, by the late Thomas Landess. It tells the story of Ayau. His father, the owner of a gas plant in Guatemala, died in 1930 when Manuel was only five years old, and the widow moved soon thereafter with her children to the United States. Ayau received his education in Canada and the United States and became a mechanical engineer. He returned to Guatemala in 1950 and took over the family’s gas plant. He now encountered the same problem as does every thinking person in Latin America: Why were Canada and the United States so much richer than the Latin American countries? The Marxists had an easy answer: Exploitation by the Yankees. But this explanation did not make sense. The United States was not rich because Guatemala and other countries in the south were poor. Foreign trade had always been a small fraction of U.S. trade, and her economy had started to grow almost from the beginning. The United States was rich because her economy, initially largely free, encouraged innovation and entrepreneurship, while her government provided the necessary defence of private property rights and economic freedom. Guatemala had remained poor, on the other hand, because she had pursued the modern version of mercantilism, under which government handed out favours to its supporters and protected them from competition. There certainly was exploitation in Guatemala, but it was exploitation by local monopolists and corrupt officials and politicians.
Ayau had an inquisitive, probing mind. He was still searching for adequate answers when one day a friend gave him a pamphlet from the Foundation for Economic Education, an institution in New York promoting economic freedom. Its Director, businessman Leonard Read, had been one of the founding members of the Mont Pelerin Society. Ayau found the case for freedom outlined in the pamphlet cogent. He visited the FEE headquarters next time he was in the United States and returned to Guatemala loaded with books and pamphlets. Then, he and a small circle of like-minded businessmen started seriously to study the works by Hayek and Mises. They found their arguments strong: that socialism was bound to fail because the planners could never utilise all the knowledge dispersed among the individual agents operating in the economy and that a free economy was feasible because order could arise spontaneously by incremental mutual adjustments, facilitated by the price mechanism and by time-tested practices, without anyone designing or intending this order. In 1959 Ayau’s group set up an institute, Center for Economic and Social Studies, and gradually they established contacts with leading economic liberals abroad such as Mises, Hayek, and Friedman. In 1964 Ayau became member of the Mont Pelerin Society.
The Real Problem: Institutions, Not Individuals
It became increasingly clear to Ayau and his friends that the real problem in poor countries was about institutions, not individuals. It was not that better rulers were needed, but that bad rules impeded progress. Ayau discovered that many other members of the Guatemalan business community only paid lip service to free enterprise. What they really wanted was a comfortable government-protected monopoly in their own little corner. They supported crony capitalism, not entrepreneurial capitalism. Ayau also realised what Hayek had always emphasised that social reforms required a long-term strategy, such as the Fabian socialists in England adopted. In the end, people are governed by the ideas they accept, often tacitly, about the way in which the world works, and the task was thus to change their ideas, even if it would take decades. The task was to make Adam Smith’s invisible hand visible and consequently to make the politically impossible possible. In Guatemala at the time there was only one university, San Carlos, and it was dominated by Marxists. Ayau and his group therefore decided to establish a university which would not be a training camp for revolutionaries or a breeding ground for fantasists. They founded Universidade Francisco Marroquín in 1971, naming it after the first bishop of Guatemala who was also a renowned translator of works in Central American languages. Ayau was the President of UFM until 1988, while also attending to his business interests. The University is dedicated to ‘the education and spreading of ethical, judicial, and economic principles of a society of free and responsible persons’. From the beginning, it charged higher fees than other universities in Guatemala, but it also prided itself on providing better education. Scholarships are made available to gifted students of modest means. The thinkers and writers who have accepted honorary doctorates from UFM include Nobel Laureates Friedrich von Hayek, Milton Friedman, James M. Buchanan, Vernon Smith, and Mario Vargas Llosa. In 2021, UFM had 2,800 students enrolled. It is located on a spectacular campus close to the centre of Guatemala City, in a green valley.
I first met Ayau in the autumn of 1980 at the general meeting of the Mont Pelerin Society in Stanford. He was then the outgoing President of the Society and in his Presidential Address he discussed the so-called calculation debate of the 1920s and 1930s between Mises and Hayek on the one hand and some socialist economists on the other hand on the feasibility of socialism. The socialists had to concede the strength of Mises’ and Hayek’s arguments and in response they constructed a model of ‘market socialism’ which has however nowhere been implemented, unsurprisingly as it is sheer fantasy, ignoring the need for real capital transactions to price capital realistically. Then I often ran into Ayau at MPS meetings, most notably at the regional meeting I organised with Harold Demsetz in Iceland in the summer of 2005. We became good friends. Ayau was a handsome man, not very tall, with delicate features, energetic and sprightly, always cheerful and friendly. His strategy was never to attack his opponents personally, and rather to provide the strongest arguments possible for his positions and then to add one or two jokes to lighten the mood, but his firmness of purpose and clarity of vision were nevertheless evident. He enjoyed great respect in Guatemala, and internationally as well: He served for example on the Board of the venerable Liberty Fund in Indianapolis for many years. It is indeed a small miracle that Guatemala did not, despite many difficulties, tread the same disastrous path as Cuba and now Nicaragua and Venezuela, and this can largely be attributed to the efforts of Ayau and his group. Ayau passed away in 2010, but the UFM is flourishing, as the superbly organised and successful regional meeting of the Mont Pelerin Society in Guatemala City demonstrated.