Latin America: Still in Trouble

...And despite overall economic growth, real wages continued to fall in 1991...

...A social democratic program will have to accept deregulation while seeking ways to protect the poor and redistribute income and wealth...

...Growth for the region is again positive: GDP per capita rose by 0.8 percent in 1991, not a very dramatic figure, but striking by comparison to the recent past...

...The results were recession and unemployment...

...Key elements include the dismantling of protective tariff barriers, the withdrawal of subsidies to manufacturers, the privatization of substantial areas of state enterprise, and serious efforts to achieve fiscal balance...

...484 • DISSENT The challenge facing the Latin American left is not organizational but programmatic: the need for a coherent response to the neoliberal offensive...

...But it is hardly an appealing prospect for the masses of Latin America...

...The net transfer of resources from the developed world to Latin America went from positive to negative...

...This may well happen...

...The global dominance of neoliberal ideas, the "Washington consensus," has heavily constrained Latin American governments...

...In 1989 and 1990 the average yearly rate of inflation for Latin America as a whole was about 1,200 percent...

...Despite this impressive growth, and despite its long history (by Latin American standards) of democracy, Venezuela faced a serious military revolt in February 1992 and mass rioting in March...

...Although Collor won, nearly half the electorate voted for a leftist candidate from the labor movement...

...One reason for the seeming setback to the left, of course, was the devastating economic crisis in 1982...

...In the Brazilian elections of 1990, a runoff pitted conservative Fernando Collor de Mello against Workers party candidate Lula...

...The left still has a considerable following in many countries...

...These powerful agencies demand wide-ranging reforms aimed at increasing the role of markets...

...488 • DISSENT...

...Yet we would be willfully blind if we did not recognize the deep resonance of its appeal...

...This is partly driven by ideological considerations...

...The answer must be increased taxation of the wealthy...

...Restructured Economies But redressing Latin America's social injustices will require more than just money to pay for social programs...

...The policies required have little instant sex appeal: social democrats in Latin America will have to work hard to build the popular awareness that must sustain such a program...

...The left in Latin America is in disarray...

...Nor are voters fond of hearing proposals for increased taxes...

...In Peru, the social democratic left is largely concentrated in APRA, and faces considerable competition from a variety of extreme left organizations...

...If a government can, through largely symbolic measures, convince the international financial community that it will pursue "sound" policies, then investors will bring money into the country, thereby creating the basis for real growth...

...A case in point is Venezuela, the best economic performer in the region in 1991, with a per-capita growth rate of about 7 percent...

...Latin American governments hope that entrepreneurs will seek out new export products and markets, and will produce more efficiently for the domestic market in order to meet the sudden influx of cheap foreign products...

...At the end of 1991, GDP per capita was 8 percent less than it had been in 1980...

...But in the 1990s many began to fear that the moment had passed...

...The despair to which a decade of economic crisis, and its neoliberal response, have driven much of the Latin American population has found its expression in a chiliastic and authoritarian vision...

...the insurrectionary movements of the 1980s have dominated the left...

...Thus the picture is mixed...

...That there should be sizable support for a party that has many affinities with the Khmer Rouge is alarming...

...The economic dislocations fueled inflation...

...Yet governments can carry out reforms that will help a sound economic recovery...

...Latin American governments were implementing regressive economic policies...

...Finding the money to solve these problems will be very difficult...

...Stock markets in Chile, Mexico, and Argentina are booming...

...Gross national product increases, but the trickle-down effect on the incomes of the poor is slow to materialize...

...The obvious risk is that something could abort this long process of confidence building...

...Thus state managers must prevent political challenges that threaten the neoliberal order...

...In part, this means accepting some of the recommendations of the World Bank and the IMF, which demand a reduction in the role of the state in the economy and an opening up of markets to international competition...

...Elsewhere (in Chile and El Salvador), Christian Democrats came to power...

...The early 1980s were an economic disaster for much of Latin America...

...Real per-capita income rose on average at 2.5 percent per year during the 1960s and at 3.3 percent during the 1970s...

...At the same time, much economic activity is aimed largely at domestic consumption...

...Latin America had fast growth, but at a cost...

...A series of corruption scandals, a run on the currency, a collapse of the stock market, the imminent electoral victory of an "unreliable" opposition party, a military revolt, or political impasse and the stagnation of a government's reform program could trigger off capital flight and economic collapse...

...In short, designing a macro-economic policy suitable for an open economy in a relatively poor region is difficult but not impossible...

...From Neoliberalism to Repressive Populism With these economic dislocations came the wave of redemocratization...

...The trouble is, these economies are subject to forces often beyond the immediate control of Latin American governments—including world interest rates, attitudes of international bankers toward debt repayment, and demand for Latin American products...

...Finally, there are a number of countries, such as Colombia and Guatemala, where either traditional oligarchic parties or newer but equally elitist authoritarian forces continue to dominate the political scene...

...But it could still recover its position and present itself as a plausible governing party...

...Once in office each of these governments shifted to neoliberal policies, betraying the expectations of their supporters...

...The magnitude of reorganization of the political economy of Latin America is striking...

...Convincing a large part of the electorate that this is the road to sustainable improvement is a harder task...

...Alberto Fujimori in Peru was elected as an alternative to the draconian free-market reforms proposed by right winger Mario Vargas Llosa, Peronist candidate Carlos Saul Menem in Argentina was elected by a mass working-class constituency on the promise of massive wage increases, in Venezuela Carlos Andres Perez was elected largely on the basis of his history as a pro-labor politician, and in Brazil large numbers of poor people voted maverick Fernando Collor into office on an anticorruption platform...

...Privatizing state-owned enterprises is also a central part of the policy package...

...The problems are obvious: dealing with massive poverty, coping with the social decay of the big cities, restoring decent living standards and economic security to millions of workers badly hit by the economic crisis, reducing the inequality of income and wealth, getting economic growth going without sacrificing the living standards of low-income groups...

...They have convinced the electorate that the old system no longer works...

...This apocalyptic view deserves no support from the left...

...Neoliberalism may offer a dim light at the end of the tunnel...

...But the hope that a largely parasitic and state-dependent bourgeoisie will transform itself overnight into a group of competitive risktaking entrepreneurs may turn out to be more fantasy than reality...

...One of the more startling recent events in Latin America is the political identifications of the figures backing neoliberal economic policies...

...But although growth was inefficient, the real culprit was the increasing indebtedness of these economies during the 1970s and the consequent debt crisis of 1982...

...The twin traumas of prolonged military dictatorship and hyperinflation have generated a great desire for stability and personal security...

...In the battle against inflation, Latin American governments—because of the importance of being seen (by the international financial community) to be orthodox—have little recourse but to apply severe recessionary measures, further driving wages down...

...For most of the postwar period, social democracies have accomplished this by a combination of industrial policy, Keynesian demand management, and a redistributive welfare state...

...And the limits to both redistribution and industrial policy are set by the need to attract foreign investment and to compete internationally with regard to labor costs...

...This is apt to bolster state finances for the next few years—until there are no longer any family jewels to sell...

...In Nicaragua and El Salvador the situation of the social democratic left is unpromising...

...In most places, social democrats are overshadowed by nationalists and radicals of one persuasion or another...

...But the new economic orthodoxy threatens to throw out the baby with the bath water...

...In office, these presidents have adopted an autocratic style, often ruling by decree, and appealing directly to "the people" in what some would see as a classical populist manner...

...most likely, Cuauhtemoc Cardenas, leader of the center-left PRD, was the real winner...

...The reform program also places much hope on shrinking the state economic sector...

...Governments have little tradition of relying on income taxes for revenue...

...It began as a defensive response to the economic difficulties of the 1930s depression and then, in the postwar period, became the conscious strategy adopted by most Latin American governments...

...But this is populism without redistribution, a demagogic populism—the other face of the neoliberal conjuring trick...

...Hence the appeal of Sendero Luminoso in Peru...

...Yet in the larger and more developed countries of the region a clearly identifiable mass base for a social democratic movement exists...

...In the sector producing goods and services, which are internationally competitive and where domestic production can be replaced by imports, deregulation is required to improve competitiveness...

...But as governments succeed in attracting foreign (and flight) capital, upper and middle classes are apt to prosper...

...The Colombian government carefully avoided accumulating a heavy foreign debt...

...This is the true measure of the depths of the crisis facing the continent...

...One possible response for social democrats is to accentuate the dualism of the economies...

...Examples include services in the welfare sector, such as education and health, and provision of basic foodstuffs...

...Between the Scylla of Sendero and the Charybdis of neoliberalism, the real hope for Latin America must surely lie in a return of social democracy to the forefront...

...At the same time, deregulating the economy also threatens various safety blankets for the poor established by the more statist regimes of the past...

...Given the dependent nature of these economies, the failure to stimulate exports was particularly serious...

...The paradox was that elected civilian governments were putting into practice the kinds of tough economic policies that military dictatorships had attempted—and, with the exception of Pinochet's Chile, failed—to implement in the 1960s and 1970s...

...This in turn triggered a massive outflow of flight capital...

...Despite the claims of Mexico's ruling party to have won the 1988 elections, detailed analysis suggests massive fraud...

...They amount to plebiscitarian "democracy," with strong populist and authoritarian overtones...

...Prospects for the Left With the economy in recession, most people are concerned with immediate survival...

...For democrats, a moment of historic opportunity seemed to have arrived...

...The development strategy that has predominated until the last few years in Latin America has involved active state intervention—in the FALL • 1992 • 485 form of protectionism, market regulation, subsidies, and the like...

...Popularly elected governments have kicked their supporters in the teeth and yet retain, however tenuously, sufficient popular support to govern and even to win elections...

...Existing income-tax systems are inefficient and cover only a small proportion of the working population...

...Mexico, Brazil, and Chile, for example, have I would like to thank James Rule for his assistance in improving this article...

...The region's economies require fundamental restructuring...

...Under-reporting and tax evasion are massive...

...Particularly as growth resumes there will be increasing demands from the poorer sections of society for measures to improve their standard of living...

...Throughout the postwar period, the region's economies suffered from endemic inflation and balanceofpayments difficulties, leading to continual political turmoil...

...The challenge for social democracy in Latin America arises from the tremendous pressure for immediate and substantial improvement in the lot of the working poor...

...The immediate consequence of the debt crisis was a substantial reduction of inflows of foreign capital and increased payments on the debt...

...In order to persuade foreign financial institutions, potential foreign investors, and the owners of flight capital that their country is once again a secure place to make fat profits, Latin American governments have become more orthodox than the pope...

...In Brazil, Argentina, and Peru, center-left governments were voted into office...

...But both protectionism and government employment as patronage created numerous inefficiencies...

...As a result, Latin America now faces tremendous pressure from international financial institutions like the IMF (International Monetary Fund) and the World Bank, and from the international financial community more generally...

...For a long time, it worked...

...The new democracies had to consolidate themselves at a moment of extraordinary economic difficulty...

...The Price of Neoliberalism Latin American governments are playing a game of smoke and mirrors with international investors...

...With the end of the cold war, any form of state intervention in the economy is now suspect...

...Besides its eschatalogical promises, Sendero also offers a personal sense of power and discipline and of belonging to a community of true believers...

...During the period 1981-1990 Gross Domestic Product (GDP) per capita dropped by 1.2 percent each year...

...Small wonder that there was widespread dissatisfaction and a willingness to countenance violence...

...Labor's share of total income fell steadily from 44 percent in 1988 to 37 percent in 1989 and 35 percent in 1990...

...large, well-organized left-wing parties...

...An Outmoded Order Why is such far-reaching rethinking necessary...

...And inflation had been brought down to a regional average of about 200 percent a year...

...here imports are not likely to replace local products...

...In themselves, these policies have a great deal to recommend them...

...In this sector, a social-democratic government can intervene with a wide range of measures (such as subsidies for basic foods, increased wages for teachers, and so on) without having to worry too much about market distortions...

...Another reason was the collapse of communism in Eastern Europe and the ex-Soviet Union—further strengthening the world dominance of free-market ideology...

...A similar situation holds for the Radical party in Argentina, though here there is also the difficulty of the historical capture of the organized working class by Peronism...

...By the late 1980s, many governments had adopted extreme versions of free-market economics, known in Latin America as "neoliberalism...

...In the highly unequal societies of Latin America, this represents a challenge of the first order...

...Managing these expectations is not an impossible task, but it is certainly fraught with danger and requires great political skill...

...In 1991 flight capital began to return in a major way to Latin America...

...Yet deficit spending by government in a situation of high inflation is far too risky...

...The seizure of power by President Fujimori in April of this year was only the most dramatic illustration of this trend...

...An imbalance FALL • 1992 • 487 between prosperity for the rich and continued hardship for the working class (as well as for large sectors of the middle classes) can create an explosive situation...

...Latin America's postwar model of economic growth is now regarded (quite incorrectly) as having been a complete failure...

...As a result it largely avoided the debt crisis and managed to maintain satisfactory growth while maintaining a variant of the protectionist growth model...

...In some countries real wages dropped by as much as 50 percent during the 1980s...

...Social democratic parties lost much of their support...

...Having presided over a collapse of the economy at the end of the 1980s, APRA has lost much of its support...

...it involves a complete abandonment of the growth model of the postwar period...

...Accompanying these measures are efforts to weaken the power of labor unions, either through reform of labor 486 • DISSENT law or through state intervention in industrial disputes...

...Yet the inflation-prone and increasingly open economies of Latin America today offer little scope for Keynesian demand management...

...They cannot rely on charismatic appeals and quick-fix solutions by populist leaders...

...But is also represents an effort to fight inflation by reducing subsidies and curtailing inefficient and bloated state administration...

...Neoliberalism makes already highly unequal societies yet more unequal while at the same time it cuts out such safety nets for the poor as had been provided by welfare and labor legislation...

...The weakening of party systems, the plebiscitarian conduct of the presidents, the total irrelevance of campaign promises all militate against democratic politics...

...To some degree, this recourse to orthodoxy has worked...