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Losing Latin America

Kenneth Rogoff is Professor of Economics and Public Policy at Harvard University, and was formerly chief economist at the IMF. His last piece on Webdiary was America’s Anti-Environmentalists

by Kenneth Rogoff

When is the United States going to wake up to what is happening in Latin America? The growing influence of Venezuela’s leftist president, Hugo Chávez, is casting a dark shadow over the region. Some countries – Chile, Columbia, and Costa Rica, for example – remain committed to progressive growth-oriented and democratic regimes. But over the past year, allies of Chávez have come to power in countries like Ecuador and Bolivia, and just missed winning in a few others. In Mexico, Chávez’s admirer Andrés Manuel López Obrador would have seized the presidency, possibly for life, had he convinced just a quarter percent more Mexicans voters to support him.

With almost everyone else in the world successfully pursuing more flexible market-oriented economies, why is Latin America veering dangerously in another direction? Is it because some voters do not realize that the region has been enjoying greater economic stability than it has in decades? Is it because they don’t appreciate having single-digit inflation, down from a regional average of more than 300% 12 years ago?

Fortunately, at least half the voters in the region appreciate these improvements; otherwise, the situation would be far worse. Nevertheless, a growing schism between left and right has led to a distressing level of policy paralysis.

This is nowhere more apparent than in Mexico, the region’s second largest economy after Brazil. Despite its enviable location next door to the rich and booming US, Mexico’s growth has ranged from poor to tepid since its economic crisis a decade ago. Why hasn’t Mexico benefited more from the 1992 North American Free Trade agreement?

Part of the problem is the emergence of China, whose ultra-low wages provide tough competition for Mexico, where wages are merely very low. But Mexico’s real obstacle is a political system unable to achieve any consensus on essential economic reforms.

The new president, Felipe Calderón, has spoken of the need to break up Mexico’s monopolies. Where will he start, telephones or tortillas? There is all too much choice.

Peasants toil inefficiently on tiny plots of land, in a form of disguised unemployment similar to that seen in rural China. The state-owned oil company, which accounts for a major chunk of government revenue, is hugely inefficient, and invests far too little in new equipment and technology. Crime abounds. International comparisons of corruption are not flattering. Worst of all, the election loser, López Obrador, seems willing to throw the country into turmoil rather than accept the constitutional legitimacy of his defeat.

So how is the US planning to react? By following through on plans to build a 2,000-mile wall across its southern border.

Brazil, meanwhile, has exhibited commendable political and macroeconomic stability. Yet, if Brazil is to enjoy growth above the modest levels of the past few years, the country badly needs to reform its labor laws, open itself more to foreign trade, and improve the quality of its primary education system.

With Latin America’s two largest economies in a holding pattern on reform, it is that much more difficult for even the region’s high flyers, such as Chile, to achieve escape velocity into a sustained high growth orbit.

Mind you, even the weak growth of the last few years in Latin America marks the region’s best performance since the 1970’s, and incomes are actually catching up slowly to those in the US, Europe, and Japan. Nevertheless, Latin America remains the slowest growing of any of the world’s developing regions. It is not only China and India that are growing faster. Central Europe, Central Asia, and the violence-ridden Middle East are growing faster, too. Even Sub-Saharan Africa, with its wars and famines, has enjoyed more rapid growth in the past few years.

Does the pied piper of Venezuela offer a fairer and better way to grow? Unfortunately, no. Venezuela is merely being pulled along in China’s tailwind thanks to high oil prices. When oil prices collapse, as they will at some point over the next few years, Venezuela’s economy will collapse with them. Over the long run, commodity exporters need to innovate just as much as manufacturers do in order to maintain profitability. With Venezuelan oil production still running far below its level when Chávez took over, there is little doubt about how this story will end.

In today’s hyper-competitive global economy, there is no reliable "third way" for countries to avoid continued liberalization and market-oriented reforms. Instead, the current installment of Latin American socialism is all too likely to produce a re-run of tragic episodes from the past.

In this context, the US’s inexplicable indifference towards the region is both naïve and dangerous. The incoming Democratic US Congress has signaled that free trade deals with Peru and Columbia need to be "renegotiated." What kind of message does that send to the US’s few remaining allies in the region? If Americans don’t start embracing their friends in Latin America, it may take a generation to undo the damage.

Copyright: Project Syndicate, 2006.


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Latinos and leeches

Yes, Simon. They were "bitten" too many times from the late 'seventies onwards, as to the "new" economics. Much too much unnecessary mass suffering to ever be forgotten.

Angela, that was a powerful piece: gets at the stomach-turning fundamental underlying hypocrisy that underpins all the rest.

Now where did I put my sub-continent?

Lost Latin-America?? Kenny, dear, it was never yours to start with.

Globalisation, the worst kind of fiscal colonialism

Hi Simon, hit the nail on the head, loved your last line "small cabal of extremely rich leaches".

Why are these multinational companies closing their factories in the USA/Australia/UK etc and opening them in China and now One Steal opening in Vietnam?

Is it not an irony that Rogoff is commending the labour market forces of China - i.e. a totalitarian regime that dictates what appalling conditions the workers toil under and how few if any environmental protections are required for the China that people have to breath and drink and eat upon. And I don't think Bogotá is such a good example to compare with Caracas, despite the former's slaving to US companies and foreign policy.

The only reason such countries as China are booming is that multinationals under the banner of globalism, that the Goldman Sachs think tank which pawns such as Rogoff propagandise for, are able to plant their factories with no labour or environmental restrictions. In these totalitarian countries they can produce products with profit margins that they can slaver over, as they preach "democracy” and "freedom" from their think tanks. Freedom from any restraint to make profits is the real freedom, just as that arch, now dead, “economist" Friedman preached. Forget freedom for the worker, freedom to have a safe working environment, freedom to live in healthy air and have healthy food, to have uncontaminated children, not deformed and cancerous from such things as Perchlorates etc.

The smaller countries are force to "open" their assets for sale, and sold off they are, again to the multinationals, as we saw in Yeltsin's Russia and we even see here in our own country. Any idea who owns our resource-raking Fatprofits companies? RioTinto? Xtrata? Don't look too hard. Same kind of mob who tried to sheak the Russians' assets at rock bottom prices. Putin kicked them out so he is not target numero uno for the likes of Sachs et al. Pity he was elected democratically, makes no difference if you don't toe the line.

Sure, the mantra is bringing prosperity and the rights will follow ... well the rights history here suggests they are not granted but must be fought for and often with violence. In these countries where the armies are known for their massacres of protestors I think the factories are safe with their profit margins and the elite can party with their Bahamas/Cayman bank accounts.

I read an interesting statistic. We know the US is in trouble with its debt and balance of payments, especially with China. Of that imbalance, one half is from importing goods from China made by US based firms, most of whom moved their manufacturing from US soil, like Wal-Mart. Think about that. The threat to US fiscal security is from its own goal, by those with hearts of greed.

And the same media program was talking of the massive labour upheavals and suffering as the factories from overseas companies were replacing the State-run factories, the latter closing and actually leaving people out of work there and thus more desperate to work in the overseas-owned factories.

The coalmines in China are another area our media doesn't cover. The terrible toll there of death and morbidity from accidents in overseas-controlled mines is well-known by locals, and the owners include Australian based companies (although even that is mostly in name only nowadays). They do not have the same protections that our underground miners have from accidents and also from long-term lung damage.

Shameful really, but heck, cheap coal for the economy and the economy is all that matters isn't it? Gotta run those factories for the multinationals, who also own the coal that is coming from Australia and want to send the uranium too and build their nuclear plants ... to run their factories.

You can't eat money.

But back to South America...

Today we hear Pinochet is dead at 91. A man put in place by the PreCons that came before in an American-backed violent coup to replace the elected leader. To murder and torture at will as long as the industry and financial and organised crime networks stay in profit. To replace Allende, the leader elected by democratic vote. That says it all and nothing has really changed. Chavez et al have all been elected. As should Obradoz if there wasn't so much “questionable" vote counting. That Mexican election was a classic "Ohio/Florida" and that is why there have been huge protests. Mexicans take their voting power much more seriously than Americans.

The democracy of a country and freedoms and rights of their people are in conflict with the globalisation aims of the multinationals, which are backed by the US might. All seen so clearly in Perkins’ book, Confessions of an Economic Hit Man – in time for Christmas shopping.

For those who support the mantra of globalisation, perhaps ask what does it really mean? It hasn't helped Africa so far, which has been "globalised" for a century. Nor PNG.

Would factories really be set up there if they had to pay fair wages and conditions and obey EPAs? If the dealings were done openly and properly competitively rather than under the carpet and overseas accounts?

That is a true level playing field. That is what Oxfam and CAA and others call for. That is when the developing countries can truly reap the benefits of gradual sustained development for the long term.

When China and Vietnam are democracies with human rights in place in law then, then we should applaud investment that is sustainable. As it is now, the factory moves on to the next cheap deal, just as it does here in Australia.

Globalisation is doublespeak for monopolisation of the profits and power with impunity for the local consequences. The worst kind of fiscal colonialism.

Lost the plot

And so we wander aimlessly down the road to oblivion, secure in the knowledge that on a finite planet the miracle of infinite growth, without consequence can continue forever. God save my kid from the witless drivel being pedalled here. Unless and until the paradigm we operate under is changed we will always have debt, poverty, and winners and losers. I suggest the author is sore because a number of South American leaders have rejected the IMF's agenda, much of which results in public assets being acquired by private capital and being run for private profit, as opposed to public good.

I am not saying that private profit is not without benefit to a society, but society does not exist to provide enormous benefit to a small cabal of extremely rich leeches.

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