What Does Latin America Want? Tradition and Growth

Let me begin by stating my thesis directly: The teconomic system that Latin Americans will always choose, given a full opportunity, will be a combination of statism and populism. Though both Marxism and free enterprise have important and well-placed advocates, neither system appeals to Latin Americans in general, and both can be imposed only by repressive and undemocratic regimes.

The problem, however, is that in order to survive; any open society must meet certain minimal expectations of economic growth. Statist-populist regimes cannot do this alone, and so they must permit islands of wealth-creation in an environment largely organized for the distribution of goods and services. Thus the principal cause of political instability in Latin America is the permanent tension between two imperatives: the need of a para-socialist state for resources, and the need of a para-capitalist culture within that state for space in which to survive and reproduce.

In some ways this dilemma is like the one, which confronts all modern welfare states, most notably in Western Europe. In most Latin American countries, however, the level of urbanization and political development greatly exceeds the capacity of the economic system to satisfy demands. Historically, the gap has been partially closed by a public sector which is typically financed by huge government subsidies, and also by extensive social benefits — sometimes comparable to those available in mature industrial democracies — for a restricted but important urban political clientele. The cost has been underwritten at least in part by monetary expansion, by taxation on foreign corporations and, less directly, by concessional assistance and foreign loans, through either private banks or multilateral lending institutions.

In recent years the flow of these external resources has seriously diminished. That change makes the return of democracy in many countries a fragile affair, and explains the undercurrent of desperation in the rhetoric of a new generation of political leaders. Nurturing democracy in Latin America — as the United States is frequently urged to do — means assisting in the survival, in one guise or another, of what many might regard a “premature” welfare state.

For many years the conventional wisdom in the United States held that Latin America was inoculated against Marxism by the deeply Catholic beliefs of its population. Given the developments over the past twenty years — both in the church itself and throughout Latin America — nobody would want to make that claim today. It would be an error, however, to rush to the other extreme and assume that the entire continent is teetering on the brink of “one, two, many Nicaraguas.” To begin with, there is a difference between anticapitalist sentiment (which is widespread) and Marxist militance (which is not); political constituencies in Latin America seem to understand the difference, almost instinctively, and political leaders are quick to emphasize it in private. Vulgar Marxist rhetoric — including the notions of surplus value, exploitation, and imperialism — has been in common use since at least the 1920s and has been articulated by such decidedly unradical personalities as Victor Raul Haya de la Torre (founder of the Peruvian APRA); General Juan Peron; President-elect Victor Paz Estenssoro of Bolivia; economist Raul Prebisch; the military junta that ruled Peru from 1968 to 1979; and every Mexican president in memory. Indeed, the very ubiquitousness of anticapitalist ideas has drawn much of their sting and has also undercut the revolutionary potential of genuinely Marxist parties and movements. Populist movements — that is, broad coalitions of various social classes united under sometimes-incendiary rhetoric — provide the same frisson at much lower social and human cost.

It is also important to understand that Marxist movements have had their greatest success when they have abandoned an insurrectionary line to function as populist parties in a more or less open political environment. A case in point is Bolivia, where the Communist party, which had originally opposed the revolution of 1952, nonetheless survived as a viable political force in the following decades by advancing the “economicist” demands of the tin miners as aggressively as possible. In Chile the Communists played a similar role, not only in the copper mines but also in the Congress, where their deputies were always ready to champion the cause of displaced peasants, workers unjustly dismissed from government employment or private industry, and victims of police brutality. In fact, the Chilean party had become so deeply involved in the day-to-day business of democratic politics, that in the late 1960s it experienced a crisis of identity, and several schisms occurred among the more inflexibly “revolutionary” elements. Nonetheless — and perhaps for that very reason — to the end of the democratic period in Chile (1973) that party remained the strongest of its kind in all Latin America.

The basic complaint that Latin Americans have against Marxism as an economic system is that it does not accept the institution of private property — or its extension, private endeavor — even on an extremely small scale. It is important to emphasize this point. Many outsiders confuse opposition to the in-egalitarian distribution of resources or social power in a society with a frontal assault on the principle of ownership Actually, one should not underestimate the desire of Latin Americans — even very poor ones — to exercise some degree of personal control over their lives or the number (particularly in peasant societies) who already enjoy the benefits of the market economy. Regimes that attempt to interfere with the small-scale distribution of goods either succumb to massive protests and a vigorous black market (as in Bolivia or Peru) or find it necessary to mount the full apparatus of a totalitarian state (as in Cuba or Nicaragua).

Most Latin American countries could be called “capitalist” in the narrowest sense: their legal systems recognize the sanctity of private property; most major industries and landed enterprises are privately owned; the market plays a major role in setting prices and interest rates; the labor force is mobile; housing is individually owned (or subsidized, rather than supplied on a rental basis). However, in several ways the system differs from that practiced in the United States. First, it is less egalitarian: a smaller percentage of the population owns a larger portion of corporate wealth, and the distribution of income is vastly more asymmetric. Market forces — particularly for basic foodstuffs — • are not always allowed to operate. The labor movement is weaker and less well remunerated. There is extremely limited provision (in some countries, no provision at all) for social security and unemployment insurance, and where it exists it is confined to government employees and members of labor unions, who constitute a minority of the work force. Though public education exists, it is vastly inferior to private education; thus there is a high degree of generational replication across classes, although some social mobility does exist.

Whatever one may think of this system, it is certainly not democratic capitalism as we know it, even when (as is often the case nowadays) it coexists with democratic political structures. Indeed, the relationship between Latin American capitalism and Latin American democracy is a very nervous one — partly because the private sector in many countries has historically supported authoritarian regimes and partly because the democratic political class has never unambiguously defined its position on the rights and obligations of property. (Needless to say, the two postures are intimately related.) Even in the most modern countries, public life in Latin America is heavily influenced by the ethical values of the precapitalist era: personalism, family and corporate loyalties; compadrazo — according to which tradition is preferable to innovation: contracts are limited to persons one knows and trusts; and rapidly acquired private wealth is viewed as necessarily the consequence of theft. The most characteristic result is a kind of bourgeois revolution-in-reverse: self-made industrialists become landowners; marry off their daughters to the sons of penniless aristocrats; and, at an age when their counterparts in the United States are plotting corporate takeovers, retire to their estates.

Some may question whether this description is really quite up-to-date. It is true that the number of Latin American businessmen trained in the United States has increased enormously over the past twenty years, and their competence, as managers of large-scale enterprises, cannot be denied. Nonetheless, we are speaking here not of roles but of values: when the society magazines in Latin America still fold their local news notes into obsequious photo spreads of the royal families of Great Britain, Spain — even Norway and Sweden! — they are telling us that even fairly extensive economic modernization has not unsettled a profoundly anti- economic mindset.

Almost as great an obstacle to economic growth is the notion that the public sector is inevitably more productive than the private. This is the argument of Latin American politicians, journalists, and intellectuals — seconded by North American church people and academics. On the basis of evidence — whether from the oil industry in Mexico, the copper industry in Chile, the telephone system and the railroads in Argentina, or the tin mines in Bolivia — it is difficult to see how this idea got its start, unless by “productive” people mean something other than the capacity to generate a financial return. Nationalized mines and railroads provide any government with an instant source of employment, and therefore of lasting political support. Not surprisingly, they typically carry an administrative overhead that consumes a disproportionate share of what they produce.

They also satisfy the legitimate aspiration to control basic resources, and they prevent foreigners from enriching themselves on the national patrimony. Government interference in the marketplace can also distribute certain basic foodstuffs — typically, bread, beans, and cooking oil — to millions of people who would otherwise go without. It cannot, however, provide the incentive for farmers to produce them, which partly explains why PL-480 aid (the U.S. Food for Peace program) plays so large a role in the Latin American policy of the United States.

Governments, politicians, laborers, and consumers are not the only beneficiaries of statist economic policies — so, quite often, are important members of the business community. Indeed, in countries like Argentina and Brazil, it is difficult to say precisely where the line lies between public and private sectors, particularly in the so-called mixed enterprises deemed to be of strategic value or of compelling national interest. Family and political considerations also play a role in the awarding of contracts, the pricing of products, even the configuration of the tariff walls that protect a given industry from foreign competition. I refer here not to corruption in the ordinary sense of the term but to serious, systematic interference with normal market mechanisms. Inasmuch as this interference is accepted in many Latin American countries as part of the capitalist game, it is not surprising that people associate the system with privilege rather than with opportunity.

The major obstacle to the development of democratic capitalism in Latin America, however, is fear of empowering ordinary people. Property enfranchises; lack of property renders one dependent. The entire hierarchical structure of Latin American political and social life rests upon this fact, producing some peculiar paradoxes. Advocates of land reform typically oppose the awarding of simple titles to the peasantry — ostensibly because they believe collective exploitation of holdings is more efficient, but more fundamentally because they fear that enfranchisement will lead to exaggerated individualism, the primacy of private agendas, and the loss of revolutionary ardor (all of which is true). Governments prefer not to part altogether with the ultimate political resource — the capacity to offer employment. Modern banking, which introduces an element of impersonality to credit decisions, is subversive to the political hegemony of ruling parties. And of course in countries with large Indian populations, “white” ruling elites fear that enfranchisement will undercut their control of native populations; that is one reason why church-sponsored cooperatives have met with such bitter resistance in Central America and Colombia.

Having said all of this, I must step back and look at Latin American economic systems as they appear to ordinary people. First, they are advertised as capitalist by both their advocates and their opponents. (Actually, the former place emphasis upon the term “property,” which need not be capitalist at all.) Second, the fruits of the system are distributed in a very (sometimes radically) inegalitarian fashion. Third, the system is incomplete; that is, it lacks the capacity to ensure anything approaching full employment. Fourth, the “safety net” is limited, so that unemployment is a horrendous catastrophe. Fifth, because job opportunities are limited, unions are weaker and are able to deliver less from private employers than from public firms, particularly when they are affiliated with the ruling party. Finally, the state is naturally seen as an equalizer that intervenes to tilt the private economy more nearly in the direction of the public weal. That all sorts of counterproductive trends are generated in the process does not fully undercut the statist- populist commitment of the vast majority of Latin Americans.

Can hybrid economic systems work indefinitely? This question seems wholly gratuitous: the statist-populist model has already been in existence some sixty years. As noted at the beginning of this essay, however, during most of that time the model has survived through inflationary monetary policies or, indirectly, by the infusion of external aid. In the foreseeable future, neither course will be viable. It is now generally recognized that inflation is the most serious obstacle to economic growth, and reluctance to recur automatically to the printing process is growing. Foreign private investment — from which governments have derived a large and reliable tax..., base — is moving out of Latin America to Canada or the Pacific Basin; and neither Western European nor Japanese capital seems likely to replace it. Concessional assistance will probably remain available to some of the Central American countries (El Salvador; Honduras; Costa Rica; and, from some sources, Nicaragua) but not to the larger economies in which there are nonetheless great numbers of people in dire straits — Peru, Colombia, Chile, Brazil, even Argentina. Nor is there an easy solution to the debt crisis, which involves $360 billion in foreign obligations. I do not wish to go too deeply into an issue that deserves an essay of its own; but it should be obvious that, even assuming the best possible case for Latin America — that the entire debt is capitalized by the Western governments and Japan — the region’s credit standing will take some time to recover fully. Probably some arrangements will stretch out the debt over many more years, and some countries will adopt the Peruvian practice of partial moratoriums on payment, keyed to their balance of trade. However the matter is ultimately sorted out, it will never be possible to return to the situation that prevailed until 1973, in which most Latin American countries could obtain as much credit as they desired.

This situation places acute pressures on the newly democratic governments of Central and South America, which must, all at once, manage a return to the rule of law and satisfy economic expectations pent up over long periods of authoritarian rule. For the first time in many years, Latin American democracies have no choice but to reexamine the imperatives of wealth creation, not with a view to becoming democratic capitalist societies (which will probably never happen) but merely to sustain their statist-populist model over the longer term. Moreover, they may have to go further than in the past and, for example, lift subsidies on certain articles of prime necessity, cut the deficit§ of state enterprises and revise foreign investment codes. President Alfonsin has been making such hard decisions in Argentina, where, in spite of predictions of devastating political fallout, he seems so far to have enhanced public confidence.

Nonetheless, such reforms might undercut the stability of these countries before they have a chance to work. Much also depends upon commodity prices, interest rates, and other developments out of the control of any Latin American government. But one thing is clear: these reforms are the only way to save these societies as reasonably open and responsive political systems. If this effort fails, one can anticipate the worst of both worlds — authoritarian political systems combined with permanent economic regression. Policy makers in Europe and the United States should view their dilemma with sympathy and generosity. Likewise, Latin American economists and public figures should strive to maintain the balance between public and private spheres, so that this point of no return is never passed.


  • Mark Falcoff

    Mark Falcoff is an American scholar and policy consultant who has worked with a number of important think tanks, such as the American Enterprise Institute (AEI), the Hoover Institution, and the Council on Foreign Relations.

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