Today Dr. José Sánchez gave us a brief overview of Costa Rican politics, economics, and the resulting effects felt by the Ticos. Listening to him raised several questions that were answered by his information. Firstly, we learned about the development of Costa Rican politics and its hand in the economy. A question I posed for this topic was: ‘Why does the government tax so much only to recycle that money into the government and not back into the national economy?’. Another question I posed while learning about Costa Rica’s economy was: ‘Why is there not a larger focus upon exporting goods and services from the country?’. Finally, the last question I posed regarding the government and economy was this: ‘Why is the price of living so high compared to the monthly average income of families?’. All of these questions are analyzed and answered, respectively, using information from the lecture in the following paragraphs.
Walking around Heredia there are countless places where the infrastructure could use a major update. From roads, to plumbing, to housing, there are many places where government stimulus could fix these problems. What I learned today is that the price of living is so high in Costa Rica because of taxes: service taxes, income tax on employers, and other taxes that drive the prices of everyday items higher. Walking through shops and buying lunch at small businesses is comparable, if not more, in price to the United States. However, Costa Rica only has around 1.5% of the population. What this means is that the Costa Rican government is using this tax money to simply fuel itself in order to stay afloat. Rather than using all this money taken from taxes to restore and better the communities of Costa Rica, the bloated government uses it to simply pay its 1,000,000 employees while the people of Costa Rica deal with the struggles of a malnourished infrastructure. Taxes, such as a 9.84% tax on the employer per employee, that make it hard for small businesses to employ many workers. Many are forced into poverty or to governmental jobs where their salary is paid for by taxes. While the idea of a large government work force paid by taxes is a seemingly smart way to bolster the economy, it creates a loop of high prices and incentive to not work rather than work and have hard earned money taken away.
Another question I found interesting was the importing and exporting of goods to and from Costa Rica, respectively. Costa Rica, being a small nation, imports far more than it exports. With around 45 free-trade agreements, Costa Rica seems like a country that would be exporting a plethora of things from coffee, fruit, pharmaceuticals, among other things. However, these things account for a very small portion of Costa Rica’s GPD. This vast importation of goods contributes to a rising inflation, at around 6%, which outpaces the rate at which GPD grows, around 4-5% annually. This difference contributes to the colón losing value, called inflation. So, without means of exporting goods fast enough to counter the inflation rate, Costa Rica is stuck in a loop of depreciation. While this is a situation that inevitably leads to the appearance of recessions, it is law that 8% of GPD goes towards education. What this means is that while inflation still outpaces GDP growth it still means that the investment in the future of Costa Rica is growing as well. With more education comes a higher standard of living and hopefully Costa Rica can begin exporting more diverse things as students can begin to help remedy this problem in Costa Rica.
The final thing I questioned was something I have found contradictory while in Costa Rica: the price of living. The majority of workers in Costa Rica are unskilled and over 60% have not completed high school. These unskilled workers, on average, make a mere $529.70 (USD). With such a small wage, these Ticos are forced to pay prices that are elevated due to the inflation of the colón and the fact that the taxes are so high. So how do Ticos pay for things they need when they make so little? In many cases, people are forced into poverty while others enjoy a higher standard of living. And this separation of wealth will only continue to grow. The only way to combat this inflation and growing number of impoverished peoples is for the government to cut spending on itself. However, with a new left-wing party coming into power, it seems that these problems will only continue to get worse. Costa Rica is a place of beauty, but at a closer look it reveals problems that require attention in order to avoid a social and economic crisis in the future.