TCS Daily


Should We Despair the Lurch Left?

By Desmond Lachman - February 21, 2006 12:00 AM

It is as all too easy to despair about Latin America's political and economic future. As Venezuela's Hugo Chavez continues to export his Bolivarian revolution abroad and as Evo Morales, Bolivia's newly elected president, threatens to nationalize his country's natural gas industry, one can be forgiven for seeing frightening specters of the continent's sorry past. In particular, one might be excused for asking whether Latin America might be drifting yet again in the direction of the failed economic and social policies of the 1970s.

A soberer and more wide-ranging review of the region's-political and economic landscape suggests, however, that Latin America's democratic process is now well entrenched. It would also reveal that centrist economic policies are now very much the rule rather than the exception. As such, US anxiety over the continent's economic and political future would appear to be misplaced. And it's probably best that the US administration limit itself to engaging the continent in a constructive dialogue about fruitful economic and trade arrangements.

To be sure, over the past five years strong winds of political change have been blowing through the continent. Indeed, since 2000 left-leaning governments of one form or another have assumed office in Argentina, Bolivia, Brazil, Chile, Ecuador, Uruguay, and Venezuela. What is more, if the electoral polls are to be believed, there is a good chance that left-wing governments will soon take office in Peru and in Mexico. If that were to occur, most Latin American citizens would be ruled by some form of left-leaning government.

On the surface, the shift to the left across the continent might conjure up images of populist policies and a widespread rejection of the Washington consensus on economic reform. Yet a very striking feature of this shift away from the largely right-of-center governments -- which dominated Latin American politics in the 1990s -- to the largely left-of-center governments of today has been the decidedly peaceful and democratic way in which the shift has occurred. Other than Venezuela's Hugo Chavez, no Latin American leader is seriously thinking about jettisoning Latin America's return to democracy in favor of authoritarian military rule.

An alternation of power through the ballot box from right-of-center to left-of-center governments should be viewed as a healthy manifestation of the democratic process at work. Is this not something that one should expect in a democratic system -- particularly when the right-of-center governments of the 1990s were not able to deliver the promised fruits of adopting market-based economic reforms as quickly as they had led their electorates to believe? Should we not welcome this democratic alternation between right-of-center and left-of-center governments over the earlier alternation between military and civilian governments that had characterized Latin American politics in the 1970s and 1980s?

While Latin America's democratic institutions appear to be intact, there can be little doubt that anti-Americanism is on the rise throughout the region. This anti-Americanism was all too plainly on display at the recent Mar de Plata summit of the Americas. However, this anti-Americanism should be seen as part of a more global and Iraq-oriented phenomenon that is pervasive in Europe and the Middle East. It should also not be confused with a general rejection by Latin America of market-based economics.

For the supposedly left-leaning governments in the region like those of Brazil, Chile, and Uruguay all hew to open trade policies and all seek to make their economies more attractive to foreign direct investment. Even more striking perhaps is their conversion to the merits of sound public finances and to the benefits of a low inflation environment. To that end, they seek to abide by sensible fiscal policy rules and they do not challenge the independence of their central banks.

The one major Latin American country that proves the exception to this happy state of affairs is Argentina. For despite its long and sad history with hyper-inflation, President Kirchner's government seems to be unfazed by double digit and accelerating inflation. It also seems to have learnt little from the failed experiments with heterodox policies of the past, as it resorts to price controls and to increased government intervention.

Rather, in its eagerness to free itself of the constraints of IMF-style policies, Argentina finds it difficult to resist the temptation fully to prepay the IMF. It does so even though this might put an undue strain on its international reserves and external finances. But then Argentina has always prided itself of marching to the beat of a different drummer -- even at the expense of reducing itself to irrelevance in the global economy.

Desmond Lachman is a Resident Fellow at the American Enterprise Institute.

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12 Comments

Bad medicine
Lachman starts his homily by noting that "one might be excused for asking whether Latin America might be drifting yet again in the direction of the failed economic and social policies of the 1970s."

In fact, every commentator from within Latin America has assessed the trend toward independence from the US-sponsored "global economy" as a reaction to the failed policies of the 1980's, when rigid IMF prescriptions ruined every economy south of the border.

One only has to compare the current GDP's of these countries to see that swearing off their World Bank medicine has had the effect of freeing their economies to soar. Looking at the CIA's World Factbook, we see that Venezuela's economy is growing at a current rate of 8.3%-- after a disastrous attempt by the Right to paralyze the economy three years ago. They still have lingering problems with inflation, but everyone south of the border sees them as being on the right track.

http://www.cia.gov/cia/publications/factbook/geos/ve.html

Of course, half their revenues come from oil. So let's take a look at that terminal basket case Argentina.

http://www.cia.gov/cia/publications/factbook/geos/ar.html

What's this? Well I'll be darned. 8.2%. Those lefties sure don't know how to run an economy, do they?

By comparison, we really should check the figures for that monolith, the US of A.

http://www.cia.gov/cia/publications/factbook/geos/us.html

Now we're into the good numbers. We show a heady 3.5% growth rate. Way to lead the world, guys. I guess those Latins just need more of our magic medicine.

IMF is incompetent
Following IMF prescriptions has caused disastrous results world wide. They have only one prescription, austerity. It has never worked. Yet they keep using it.

Getting 8% growth from a depressed economy is a lot easier than maintaining above long term average growth (3.5%) in an advanced economy running at close to full employment. Most of the EU15 are growing on the order of 1%, if that.

More medicine
I agree with all your points, of course. But just for fun, let's look at the medicine the IMF prescribes for the US:

*IMF Findings on the Effects of the Large, Combined Government Deficit*

On January 7, 2004, the International Monetary Fund released a report entitled U.S. Fiscal Policies and Priorities for Long-Run Sustainability. This report has received widespread attention. It begins with the following three paragraphs.

“U.S. government finances have experienced a remarkable turnaround in recent years. Within only a few years, hard-won gains of the previous decade have been lost and, instead of budget surpluses, deficits are again projected as far as the eye can see. The deterioration has not been restricted to the federal budget but has also taken place at the state and local government levels. As a result, the U.S. general government deficit is now among the highest in the industrialized world, and public debt levels are approaching those in other major industrial countries.

Although fiscal policies have undoubtedly provided valuable support to the recovery so far, the return to large deficits raises two interrelated concerns. First, with budget projections showing large federal fiscal deficits over the next decade, the recent emphasis on cutting taxes, boosting defense and security outlays, and spurring an economic recovery may come at the eventual cost of upward pressure on interest rates, a crowding out of private investment, and an erosion of longer-term U.S. productivity growth.

Second, the evaporation of fiscal surpluses has left the budget even less well prepared to cope with the retirement of the baby boom generation, which will begin later this decade and place massive pressure on the Social Security and Medicare systems. Without the cushion provided by earlier surpluses, there is less time to address these programs' underlying insolvency before government deficits and debt begin to increase unsustainably, making more urgent the need for meaningful reform.”

http://www.cbpp.org/1-15-04bud.htm

socialism
Can you name a single country that follows socialist economic policies that is thriving?

Re: More Medicine
It's always seemed odd to me that we want other, usually less well off, governments to follow IMF guidelines that our government, regardless of the party in power, has never followed. *putting on my tinfoil hat* Maybe it's a vast conspiracy to keep them in their place. *removing hat*

OT, speaking of tinfoil hats, I saw something the other day about someone who tested tinfoil hats to see if they would actually block radio reception. They don't. They act like an antenna. I can't remember where I heard it, and I'm too lazy to try to find a reference.

Socialism
"Socialism" is in the eye of the beholder. Call it what you will, the Latin nations that have moved from IMF-style market neoliberalism to their own, uncoupled economies are doing much better now for having switched.

You can find the proof as easily as I can, if you want to go back and see how their economies were doing under the old economic models.

Medicine
Get a grip beano, the socialism that is growing in ferocity in Latin America has nothing to do with reforms, the IMF, the World Bank or anything else. Rather, it has been the enormous worldwide growth in economies (globalization to the max-thank you USA) that has caused their numbers to spike. The fact is, none of the countries in Latin America really reformed their economies, they are still mostly led and owned by the same 15 wealthy families (quince familias)with some corruption thrown in. In Venezuala and other places where socialism is now popular, Chavez and friends stand in the for the families. It's never worked and it never will. Free markets require the rule of law, little or no corruption and government by the people and for the people to operate. Venezuala and all the rest will fail and do so miserably. As otherwise posted here, socialism has never worked and won't ever work. It is a seductive and dreamy philosphy that has always been used by evil men for evil purposes-Lenin, Stalin, Mao, Pol Pot, Mugabe, Castro, etc.

Socialist economies
tigertail-- You're saying that in these allegedly socialist economies, there is no rule of law? I think you'll want to give some citation, since no one else has observed that phenomenon. It would be quite interesting.

I suspect you're not the sort to look at the data, but you really should take a look at the track record down there. In every instance, for so long as a government has adhered to the neoliberal prescription bandwagon the economy hasdragged in the mud. Then once a reformist comes to power it usually takes 1-2 years to turn that economy around and restore it to peak performance.

Come back and argue your point, but please bring data.

Tinfoil hats
I've read that study. It was called something like "Calibrating efficacy in tinfoil hat use". A masterpiece.

Corruption
It is important to not that Latin American nations never had liberal economies. Governments were huge and delivered money to the upper class government employees through corruption and jobs to supporters. As bad as socialism is, and it is bad, it may be better if you are going to be corrupt and socialistic anyway to let the poor in a little on the corruption than, to restrict it to the upper class. My wife is from Honduras and her brother works for a political party and when his party is in power he gets a job at the Telephone company (government runs the phone company, power company, water company, medicine etc. etc there) at which he does very little. He has some college and is middle class. This is typical; the poor get none of this corruption. Maybe if the socialists pay a little of the money out to poor is it a little less bad.

Honduras
Interesting to note that Honduras is as far from socialistic as any nation on earth, having been managed as a subsidiary of the United States since 1910 or 12, when gunboats stepped in to preserve the primacy of the banana trade.

http://www.country-data.com/cgi-bin/query/r-5620.html

From then through the proconsulship of John Negroponte, during the Reagan years, our approach to this quintessential banana republic has been to imprison socialists where the sun don't shine. Don't blame their current status as one of Latin America's most retarded economies on V Lenin or J Stalin. We have made them what they are today.

socialism
Socialism is a well defined method of economic and political organization.

Given the poverty and misery caused by socialism, all over the world, I'm not surprised that you try to hide from it.

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