• J.S. Mullen

On the Prospects of Economic Development in Latin America

The question of the region’s future prospects is most often framed as an either/or question: should further global or regional integration be the focus of economic policy makers?

In considering the question of whether or not global or regional integration is a better answer to development in Latin America, we should first consider the specific problems generally endemic to every country of the region, which have historically undermined economic development and continue to do so. From the underdevelopment or underutilization of the labor force through lack of capital investment by the state in public services to the intentional exclusion of minorities and women (Ocampo 33), to pervasive rent seeking and dependence on foreign capital (Moreira and Stein 235), the region is also among the most unequal in the world by Gini Coefficient (Harris 75); all of which is to say that whether or not one or the other policies are adopted, increased global or regional integration, or whether more outright nationalist protectionists regimes ought to be instituted, without the development of more inclusive economic, political, and social institutions within each state, as well as aggressively redistributive fiscal policies to disrupt the entrenched generational inequalities, economic growth will continue to be suboptimal throughout the region.

These structural problems, the legacy of their specific geographic and institutional legacies, which have reproduced the basic racialized inequality regimes of the colonial period with only minor, superficial adjustments in their respective superstructures in response to changing international and material circumstances, need, therefore, to be addressed. For, as we have seen, even in cases where intelligent and well-meaning technocratic adjustments have been made with the aims of increasing economic growth, thereby creating a more wealthy society in the process, as with the Mesas Ejecutivas, their failure to grasp, as Harris does, the power dynamics that lie at the heart of all social, political, and economic interactions, relegates them to the status of near irrelevant footnotes in the final analysis, concerned as there are with superficial issues that are manifestations of this imbalance in power relations between capitalism and democracy.

Fundamental misunderstandings about what economic development is, what it is a function of, and how it relates to the superstructure are widespread, and evident in much theorizing about how to increase economic growth in the region. Beginning with Franko’s suggestion that economic development be conceptualized as the “economy evolving to adapt to the needs of a growing population,” there is every reason to think, if the process is not an infinitely recursive and inseparable one, that it is precisely the other way around. Indeed, Franko knowingly or otherwise tacitly acknowledges as much in admitting that it was the initial geographical situation of a locale that determined the modes of production and the institutions necessary to facilitate successful extraction of whatever resources were present to exploit (37). Even this admission, however, is made ambiguous by Franko’s choice of diction, variously describing the relationship as one whereby one “affects,” “impacts,” or “determines” the other – that is, the material base versus the socio-legal-political superstructure. While the former two may reasonably be used interchangeably, the latter certainly cannot without losing all meaning. Finally, mere primitive accumulation or the existence of a nominally independent commercial class do not of themselves constitute a capitalist class, or capitalist class relations (35). Following Marx’s later works, as well as Tilly and the most contemporary work by LeFrance et al, they are a specific set of social relations compelled by market imperatives produced by material circumstances.

That being established, with regard to Moreira and Stein, the problem is not with engaging in protectionist policies, but in having weak institutions that cannot prevent intrenched industries turning them into rents (235). Their outright dismissal of vertical market interventions ignores their success in places like northern Europe and Japan (236). Furthermore, while working to provide missing public goods, streamlining regulations, and solving coordination problems are immensely beneficial, neglecting targeted tax incentives for investments in the factors of production ignores the fact that it was precisely such policies that led to the highest levels of growth during the post-war period in the United States, for example (242-2). Institutional inability to prevent such effective means of stimulating broader economic growth through targeted polices, as Ocampo points out, is a common theme across the region (39). Further, even if new technocratic policies were successfully introduced and implemented, it would do little to ameliorate the generational wealth inequality – even where social spending were increased – because in lieu of any aggressive fiscal redistribution the new gains within the economy resulting from this increase in productivity will continue to accrue disproportionately to those at the top (34). Such levelling as Ocampo recommends, across industries and social groups, is unlikely to occur without significant domestic pressure (36), and further global opening by itself is unlikely to better the social situation or produce changes in this direction, as it takes the deliberate incorporation of social policies into the macroeconomic paradigm proper; otherwise the few large domestic corporations that can be successfully integrated into the global economy by virtue of their comparative advantage will capture and control the state, paving the way for reactionary populist demagogues (37, 40).

As an aside, for Ocampo, as well as several others, make brief mention of the Volcker shock, none of these countries should have been holding such large amounts of debt denominated in foreign currency – and should avoid doing so in the future. As currency sovereigns the repayment of debts or interest on those debts should be routine; however, as we have seen time and time again, whether in the early 1980s, late 1990s, or late 2000s, exogenous shocks within the global capitalist order can transform the burden of repaying foreign denominated debt overnight. It is no coincidence that the manageable, though not appealing, debt burden accumulated over the course of the 1970s because of a combination free floating exchange rates, the dual oil shocks, and persistently negative current accounts balances, became impossible to service precisely at the moment of the Volcker shock – when the cost of accessing U.S. dollars quadrupled in just a few years’ time. Compounded, this become unbearable, and was how the region came to be subordinated to international economic institutions such as the IMF. As a concluding point, such large holdings of foreign debt would not have been necessary in the first place had an effective redistributive fiscal regime, specifically one which taxed the owners of capital, been in place.

Beyond such technical questions, is the inextricably and interrelated fundamental question of power, specially as it functions to expropriate wealth to the parasitic crony capitalist class from the peasantry and proletariat. Only Harris makes explicit the power dynamics involved in the global economy, because capitalism is not a state system; it has never been. It is a global system of power relations, in which the subordinate suffer what they must and the strong do as they will (49). Specifically, by using the various international monetary institutions set up in the post-war period, the former western imperialists, and in particular the United States, were able to maintain essentially the same exploitive relationships with their former colonies, now via their transnational and multinational corporations – with the help of brutal terroristic regimes Washington funded. If global integration were really such a good idea, it wouldn’t have required force (50). As that is precisely what it took, in Indonesia, Brazil, Chile, et cetera, we may draw our conclusions on the basis of following the logic of this proposition inversely. Attempts to violate this global order, by Venezuela for example, are uniformly punished. The case of Cuba is illustrative of the logic of this international gangster capitalism. Harris properly goes further, explicitly pointing out the disciplinary aspects of the various capitalist regimes of Latin America (62). Apart from repression and anti-labor policies, employer unions and assassinations, toleration of right wing death squads, often with the complicity or knowing allowance of state security services, Modernization Theory or Development Theory, as well as neoliberal capitalism, also known as the Washington Consensus, were hegemonic imperialist ideologies that sought to impose on countries of the third world, often via indigenous elites educated in the west, the so-called Berkley mafia in Indonesia and the Chicago boys in Chile, western institutions and policies that acted to maintain the existing balance of power via the “informal imperialism of free trade” (69).

It is no coincidence, therefore, that industrialization proceeded in Latin America only once the rest of the western world had turned inward, erecting high tariff barriers, necessitating the development of domestic industry – the ISI period, beginning following the onset of the Great Depression (71). The assumptions driving the logic of ISI development were in fact the same as those that defined the successful arguments in the early United States, which rejected Adam Smith’s advice in 1776 and did precisely those things the logic of comparative advantage is meant to discourage. The erected tariff barriers, subsidized industry – refused, in short, to serve as a basic commodity export center. In all this, Prebisch was quite correct in his analysis (72).

Therefore, the question as stated, whether to pursue integration on a global or regional level, or to take a different, more nativist policy entirely, assumes a uniformity of interests that do not exist because of the divergent class interests that exist within every country in the region. For elites, further global integration has no obvious downsides. International monetary institutions will discipline fiscal policy at the same time international trade agreements lead to the dispossession of small landowners and business owners in favor of foreign transnational corporations or the few effective domestic corporate giants whose comparative advantage in a given industry allows them to dominate their respective states. For workers, as evidenced by the numbers the ISI years provided better growth and better jobs (75). The model was not without its problems, and here the poor institutional quality of the Latin American countries comes into play. Agriculture was neglected, capital accumulation was poor, and the trade imbalances that grew out of these basic facts large – all of which were rightly criticized by those of the loosely defined dependency theory school (76) – and in the absence of a reimagining of social property relations or the expropriation of their own corrupt elites or the nationalization of the holdings of foreign corporations, which of course risks provoking a reactionary backlash, something those in the region are acutely aware of, inter-regional development would be far better than engaging further with international capitalism, and certainly more productive than any isolationist stance under the current superstructural and material relations.

Works Cited

Patrice Franko, “Historical Legacies: Patterns of Unequal and Unstable Growth,” In the Puzzle of Latin American Economic Development (on Canvas)

Richard Harris, “Dependency, Underdevelopment, and Neoliberalism,” In Capital, Power, and Inequality in Latin America (on Canvas)

Ocampo, Jose Antonio. “Economic Development and Social Inclusion.” In Social Inclusion...Chapter 2: 33-40.

Moriera and Stein, Inter-American Development Bank. 2019. “Development Policies: From Protection to Global Integration” (Ch. 9) In Trading Promises for Results: What Global Integration Can Do for Latin America and the Caribbean

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