Latin American Political Economy Essay ⋆ Political Science Essay Examples ⋆ EssayEmpire

Latin America’s political economy has been marked by major swings from outward-oriented, liberal trade policies in the late nineteenth and early twentieth centuries, to some of the most sustained efforts at import-substituting industrialization (ISI) in the mid-twentieth century, back to significant experiments in neoliberal, market-oriented reforms in the late twentieth century. Economic development strategy proved to be the most contested issue on the policy agenda in Latin America in the twentieth century. Agrarian interests and transnational capital have preferred free trade and liberal investment policies since the 1880s and earlier, while populist coalitions of the domestic business class, workers, and many peasants have advocated protectionism and state control of the economy. International actors, especially from the United States and including international financial institutions such as the International Monetary Fund (IMF), have played critical roles as they have pursued their investment and trade interests or pressured Latin American governments to adopt orthodox economic policies.

While the Latin American political economy has been strongly influenced by free trade liberalism emanating from Britain and the United States, a homegrown challenge to liberal hegemony has come from dependency theory. Dependency theory grew out of Latin American intellectuals’ reflections on the constraints posed to economic development and democratic politics given the region’s place as a primarily natural resource or agricultural exporter in the global capitalist economy. Dependency writers emphasize the historical roots of contemporary underdevelopment and nondemocratic practices. Latin Americans’ choice to focus on primary product exports owing to their comparative advantage in those goods worked to their disadvantage because the terms of trade favored the manufactured goods purchased from the industrialized nations. Dependency writers emphasize class conflict as the driving force in Latin American politics, seeing the local bourgeoisie as the agents of transnational capital and highlighting the role of the United States in perpetuating the dominance of economic elites. Dependency writers provided an intellectual basis for ISI pursued by regional governments in the mid-twentieth century.

Phases In Latin American Economic Policy

The Iberian empires strived to maintain tight mercantilist control of their colonial economies but were often thwarted by smugglers who sought to trade more directly with Britain, its American colonies, and northwest Europe. The destruction wrought by the wars of independence (1810–1825) caused many newly independent republics to turn inward to rebuild their economies. However, conflict between those preferring free trade and those favoring greater central government control of the economy emerged early in the post-independence period. International demand for primary products—foodstuffs, nitrates, fertilizers, and industrial ores—grew as Europe and North America industrialized in the late nineteenth century. Landed elites and mining interests responded by promoting an export-import model of economic growth. Significant volumes of British and later American capital flowed into the region to finance the building of railroads and ports and the development of mines and food-processing factories.

The export-import model built the fortunes of the landed elites of the Argentine and Uruguayan pampas; coffee growers in Brazil, Colombia, and Guatemala; and U.S. and British mining, sugar, and fruit-growing concerns in countries ranging from Chile to Guatemala to Cuba. The middle and working classes grew as immigrants and country dwellers flowed into the burgeoning cities to service the growing economy. When the 1929 stock market crash depressed demand for Latin American exports, those urban sectors became the social bases for ISI, promoted by populist leaders Getúlio Vargas in Brazil and Juan Perón in Argentina, as well as by Mexico’s Institutional Revolutionary Party (PRI) and then most other governments in South America in the 1940s and 1950s.The ISI model generated tension between those sectors favoring the export-import model, especially agricultural exporters who preferred free trade, and the industrialists and workers who would be protected by tariffs and other restraints on trade.

ISI proved successful in terms of replacing imports of consumer goods. Countries with small domestic markets sought to expand them by forming common markets such as the Andean Pact and the Central American Common Market. However, domestic firms proved resistant to tariff reductions, the ISI economies remained dependent on the advanced industrial economies for capital goods imports, and the capital intensivity of Latin American ISI did not absorb the rapidly growing labor supply. Frequent balance-of-payments crises provoked the imposition of orthodox structural adjustment policies demanded by the IMF to resolve such external disequilibria, yielding little in the way of new economic growth but exacerbating political conflict in Argentina and Brazil. By the late 1970s, economic stagnation, a highly skewed income distribution, and growing external debt resulted, despite attempts by harsh authoritarian regimes to reinitiate industrial growth with both orthodox and heterodox stabilization programs.

Under military rule, Chile in the late 1970s adopted the neoliberal strategy of removing trade barriers, deregulating financial markets and inviting in foreign investors, cutting government subsidies to both consumers and domestic producers, and privatizing state-owned enterprises. While other countries initially sought to weather the debt crisis-induced regional depression of the 1980s through heterodox strategies such as wage-and-price freezes and the surprise introduction of new currencies, most eventually joined Chile in adopting neoliberalism, beginning with Mexico and Bolivia (1985), followed by Argentina (1989), Peru (1990), and finally Brazil (1994).The orthodox policy mix adopted by these nations came to be called the Washington Consensus, reflecting strong advocacy by the IMF, the World Bank, and the U.S.Treasury.

While neoliberalism’s strongest performer, Chile, has experienced more than two decades of sustained economic growth, the diversification of its export products and markets, and increasing opportunities to invest in other Latin American economies, Chilean income distribution remains severely skewed. Mexico has maintained economic growth by yoking its economy to that of the United States via the North American Free Trade Agreement (NAFTA). However, hundreds of thousands of Mexicans emigrate to the United States annually because Mexico’s national economy cannot create enough jobs to meet the growing labor supply. Argentina and Brazil decided to avoid the worst aspects of global economic competition by creating the Southern Cone Common Market (MERCOSUR). Argentina’s pursuit of neoliberal policies came to an abrupt end in the economic crisis of 1999 to 2002, during which the IMF refused to bail out the nation it had regarded as an exemplar of orthodox policies after a decade of supporting its fixed exchange rate, arguably the source of that crisis.

Continuing Challenges

Neither the trickle-down distribution model in force when liberalism has been in vogue nor the more direct redistributionist policies of populism had much impact on the pattern of income distribution inherited from colonialism. Education policies create too few highly trained scientists and engineers and too many barely literate individuals for the region’s economies to effectively capitalize on investments in high technology industries. Many elites continue to advocate free trade in the belief that only competition can force their societies to become efficient, but critics suggest that only those who already have capital or have benefited from a high-quality education, namely the elite itself, will benefit from free trade.

Bibliography:

Burns, E. Bradford. The Poverty of Progress: Latin America in the Nineteenth Century. Berkeley: University of California Press, 1980.
Cardoso, Fernando Henrique, and Enzo Faletto. Dependency and Development in Latin America. Translated by Marjory Mattingly Urquidi. Berkeley: University of California Press, 1979.
Frieden, Jeffry. Debt, Development, and Democracy: Modern Political Economy and Latin America, 1965–1985. Princeton, N.J.: Princeton University Press, 1991.
Frieden, Jeffry, Manuel Pastor Jr., and Michael Tomz, eds. Modern Political Economy and Latin America:Theory and Policy. Boulder, Colo.:Westview, 2000.
Haber, Stephen. Political Institutions and Economic Growth in Latin America: Essays in Policy, History, and Political Economy. Stanford, Calif.: Stanford University, Hoover Institution Press, 2000.
Stokes, Susan C. Mandates and Democracy: Neoliberalism by Surprise in Latin America. New York: Cambridge University Press, 2001.
Teichman, Judith. The Politics of Freeing Markets in Latin America: Chile, Argentina, and Mexico. Chapel Hill: University of North Carolina Press, 2001.
Weyland, Kurt. The Politics of Market Reform in Fragile Democracies: Argentina, Brazil, Peru, and Venezuela. Princeton, N.J.: Princeton University Press, 2002.

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