By Raul Zelada Aprili, a graduate student in economics at the University of Massachusetts-Amherst and Gerald Friedman, a professor of economics at the University of Massachusetts-Amherst. Originally published in the July/August issue of Dollars & Sense
For over thirty years after World War II, Latin American governments promoted economic growth and development through policies that favored domestic industrialization. Capital controls (restrictions on international capital mobility) and trade protections helped promote “import substitution”—producing goods domestically that previously had been imported—rather than exports. Most Latin American countries—including those, like Chile and Brazil, where democratically elected leftist governments were overthrown in the 1960s and 1970s—reversed course to adopt “neoliberal” economic policies. Rather than stimulating growth through import substitution, the new policies sought to promote export-led growth by exploiting the region’s main “comparative advantage,” low-wage labor. Labeled the “Washington Consensus” by British economist John Williamson, these policies failed to promote economic growth, but did dramatically widen the gap between rich and poor. In recent years, the return of democratic governance has led most Latin American countries to abandon the failed neoliberal experiment, bringing renewed growth and narrowing inequality.
Figure 1: Average Annual Growth Rates, Real Per Capita GDP, Selected Latin American Countries, 1951-2013
Neoliberal economic policies resulted in slower economic growth. In the 1970s and 1980s, Latin American governments adopted neoliberal—“free market” and “free trade”—economic policies, despite three previous decades of rapid economic growth under import-substitution policies. From 1951 to 1979, the annual growth rate in per capita income averaged 2.7%, led by Brazil’s average of over 4%. Growth dropped precipitously in the 1980s—known as the “lost decade.” Per-capita income fell throughout the region under the impact of IMF-imposed austerity programs. While economic growth revived in the 1990s, it was only in the early 2000s, after the election of center-left governments across Latin America (known as the “pink tide”), that the continent returned to the rapid growth rates of the pre-Washington Consensus period. One country that has not abandoned neoliberal policies is Mexico, the only large country in the region where economic growth has not accelerated significantly since 2003.
Figure 2: Exports as Percent of GDP, Latin America and the Caribbean, 1960-2013
Neoliberalism promoted exports, not income growth. Latin American countries’ foreign trade increased dramatically during the neoliberal period. The export share of Latin American GDP held nearly steady at around 11% until the 1970s; it then soared with the advent of neoliberal policies, beginning in Chile in the mid-1970s and then spreading throughout the region. Despite the subsequent slowdown in the growth of trade—due to the Latin American recession of the late 1980s and the world recession of the early 1990s—by 2003, over a quarter of the region’s GDP came from exports. Fast-growing trade, however, did not translate into comparable economic growth. Per capita income grew much more slowly during the neoliberal era than before or after.
Figure 3: Real GDP Per Capita (Constant 2005 US$), Trend and Actual, Latin America, 1960-2013
Neoliberal policies cost Latin Americans income, and continue to do so. From the 1950s into the early 1970s, successful economic policies raised per capita income growth rates to nearly 3% a year. Austerity policies during the debt-crisis of the 1980s lowered per capita income across the region. By the end of the decade, per-capita income was 30% less than what it would have been had growth followed the 1951-80 trend. From there, growth remained slow under neoliberal policies. By 2003, the region’s per capita income was almost 40% below the 1951-80 trend. In 2003, Latin America’s average per capita income was under $5,000, about $2,500 less than it would have been had growth continued at the rate of the import-substitution period. Since 2003, Latin American countries have been growing faster, but they have a long way to go to regain what they lost in the neoliberal era.
Figure 4: Average Gini Coefficient, Latin America, 1980-2008
The burdens of slow economic growth have not been borne equally by all Latin Americans. Historically, Latin America has been one of the most unequal regions in the world. The gap between rich and poor widened with neoliberal policies. Government policies to promote export-led growth concentrated the burden on workers and peasants. Trade liberalization and deregulation policies led to higher unemployment rates, which drove down wages and pushed workers into the low-wage informal sector. Governments exacerbated the trends by repressing labor unions and lowering minimum wages. Latin America saw a dramatic increase in inequality after 1980, with the average national Gini coefficient (the most widely used measure of income inequality) rising from 0.50 to over 0.53 by 2003. Since then, with the renewal of progressive economic policies in Argentina, Brazil, Chile, and elsewhere, the Gini has declined most of the way back where it was in the early 1980s.
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But, but…free trade and export led growth is good for everybody and a rising tide lifts all boats ‘n stuff! My econ profs all assured me that’s how things work! Anyway, it’s no fair using historical data to disprove theoretical assertions—that method of argumentation is strictly off limits in economic discourse…can’t remember exactly why, though… I think it had something to do with econ being a “positive science” or something like that…everyone knows history is biased.
I think the dirty secret there is you need to have a boat…
A rising tide lifts all yachts while the rest of us are either in rubber rafts or inner tubes .
A rising tide doesn’t lift boats that have already sunk, it just submerges them further underwater.
I can see why people would think that policies that focus on export led growth would be better then policies that focus on domestically producing goods for local demand. It seems intuitive that the way for a poor country to get rich would be to focus on producing things to sell to rich countries. The problem is that export led growth makes your economy subject to the whims of the rich countries you are exporting to. While domestic production creates growth no only in producing the good but in the demand created in the local purchase of that good. And when you focus on local demand you can always export that stuff and are more subjected to the whims of your own economies demand.
I never understood why giving away actual stuff in return for little pieces of paper made much sense. I mean, what is wealth if not an abundance of stuff? Conflating a stash of paper (or digital) currency with having wealth is a common, though baffling, mistake…
It almost as though the whole global economic system were set up to extract the actual wealth of nations in the “Global South” for the benefit of those of us in the “North.” Which would, strangely or not, make it pretty much equivalent to the old Roman et. al system of demanding continual tribute from conquered peoples. At least in Roman times, though, they didn’t try to dress it up by claiming to be concerned with enriching the people they were looting. Our major advance over former empires would seem to be the addition of heaping helpings of hypocrisy.
Hudson makes the sly (but accurate) joke in Superimperialism that the aid between the west and other countries is much more like Feudal Aid.
https://en.wikipedia.org/wiki/Feudal_aid
I wonder if the loss of a positive public narrative is the next phase in the great Capitalist experiment. Due to time, technological advances in communications, and just plain everyday experience reveals to all the depravity and cruelty of the current system. How long can this be kept up?
Understanding the “actual stuff” argument is a good one. It leads to many positive ways to conduct our lives. Self reliance as an individual or a nation is a pathway to prosperity and wealth.
All else is the road of Empires. How do you keep the Empire afloat- tribute, violence, hubris, and hypocrisy.
“and a rising tide lifts all boats”
Well, couldn’t we guarantee that by having the monetary sovereign regularly distribute new fiat equally to the entire population? And by removing the government privileges whereby the banks circumvent the need to borrow the population’s purchasing power by creating (“loans create deposits”) their own purchasing power?
As Krugman reportedly said to Leitaer when they were students together, “Didn’t anyone tell you? Study anything you want but don’t mess with the money system.”
Yes, your system is much more to my preference than having the Fed back up bank loans–but until the oligarchs that run this joint are overthrown, it ain’t gonna happen.
Very interesting and well informed look at how a lower wage gap benefits economic growth.
This post knocks a central pillar out of Varoufakis’ “Greece ain’t no Argentina” argument. YV points to Greece’s unfavourable export mix, but Rosnick and Weisbrot (whom he claims to refute) already showed in a 2014 report that exports were not decisive in Argentina’s recovery, but rather the development of an internal market. I believe this is why Michael Hudson is so gung-ho about Grexit.
Of course this leaves open the question of major imports such as oil and medical supplies, but it bears noting that we were told the same thing in Argentina: you can’t unpeg the dollar because you aren’t energy autonomous and you won’t have medical supplies. All of these problems (and they still somewhat remain) were solved by strategic alliances with friendly countries like Venezuela.
And it also does not address YV’s other points about the mechanics of switching to draxmas and “soiling the waters they swim in”, but it is food for thought. Either way, at some point a cost/benefit analysis is needed of Grexit vs. continued austerity.
Greece is not Argentina, and you completely distort Varoufakis’ argument with Krugman and Weisbrot. He never said exports were not important for Argentina. He clearly acknowledged that. He said Greece lacks the export potential of Greece. See here:
http://yanisvaroufakis.eu/2012/05/16/weisbrot-and-krugman-are-wrong-greece-cannot-pull-off-an-argentina/
Hudson has done excellent work on other topics, but he’s off base here, and recklessly so. He and too many others keep treating a Grexit as if it were a mere currency devaluation. It isn’t. It also involves resolving the entire Greek banking system. No set of banks with this much in assets have been resolved, ever. A mere 12 day bank holiday in Cyprus severely damaged supply chains, doing lasting damage. If Greece’s bank holiday goes much beyond two weeks, it will do irreparable harm (as in cause widespread business failures in import and export businesses). And that’s before you get to the fact that Greece also will have serious payment system issues in going to the drachma, which means it won’t just have trouble due to the cost of imports (the J curve effect), it will have trouble paying for them at all. And Greece, unlike Argentina, is not self sufficient in food. We are taking about starvation. Hudson will have deaths on his hand if Greece acts on his advice.
He said Greece lacks the export potential of Greece
should be
He said Greece lacks the export potential of Argentina
Yes, thanks, was drafting when on the phone. Never a good idea!
We’ve been in contact with sources in contact with the Greek government. Greece does not produce enough calories domestically to feed its population, period. It would take at least a year to get there. If you were able to distribute all the calories perfectly evenly, you’d have the entire population at just above starvation levels. With a Grexit, you can expect a decline in existing food production (big increase in fuel costs and difficulty importing it at all due to payment system issues), so you can expect an impact on commercial fishing, for instance. But even airbrushing that out, tell me how you get people in the countryside where food is produced to share to the point where they are hungry (near starvation means a big loss in body weight) to make sure that people in the cities don’t starve?
OK, I’ll tell you: Greek people in the rural areas and Greek people in the cities are the same people, the same families. Everyone has a father, brother or cousin in the fields. Athens is not New York.
But, anyway, the idea that Greece wouldn’t be able to import even a fraction of the desired calories seems quite far-fetched. I mean, OK, they will have payment problems; but up to the point of starving? If they can buy heroine, cocaine, illegal weapons, marijuana and forced, imported sex (and they can, just as in any other Western country), won’t they be able to import something as common and legal as… food? It is not that they cannot afford it. I mean, if you talked about reduced mean consumption, OK, I’d agree. But starvation??
“Greece does not produce enough calories domestically to feed its population, period.”
Neither does Japan. I’m not sure that difference alone matters unless the country has nothing to trade with others for cash income. Unlike Japan.
Whether the Greeks could deeply discount their tourist business and thereby lure a steady flow of incoming cash I have no idea. They don’t have a lot else to offer, and without trading partners willing to facilitate that trade, even that strategy would be fraught with problems. Certainly their “brothers” inside the EU would be unlikely to help.
That said, direct assistance with food and other basics may very well be forthcoming from other parties having a long term interest in Greece. And “a friend in need is a friend indeed.”
You’d also have to calculate in lost EU farm subsidies, so the destruction would be even greater.
It will take a long time to formally remove Greece from the EU so those subsidies aren’t going to cease the minute Greeks introduce a parallel currency.
Uncooperative farmers not sharing the harvest. Stalin solved that one easy. Round up the Kulaks & off to the gulag. Others fall in line.
I agree that (ceteris paribus) a Grexit would be disastrous, much more destructive than Argentina’s case. And just to be clear I am saying that exports are not as important as YV (and Krugman) say they are.
YV argues that exports are bigger than the 12% number Weisbrot showed because of the tag-along effect of investors gaining faith in an economy that can export.
Is this anything more than the confidence fairy? It’s a 100% supply-side argument and exactly what was always promised by the Washington Consensus economists, because they do not see capacity or demand. So instead they have always told us to mutilate our own economies so that we can be more attractive to investors (internal or external).
Lastly, I agree Michael Hudson is being irrationally exuberant (not the 1st time; his views on the AIIB bank are cringe-worthy), but in the comparison there is also a misconception of the Argentine recovery: that it was just a matter of cutting the 1:1 peg and then everything’s hunky-dory. What most analysts skip is the role played by Brazil and Venezuela in buying bonds and providing fuel + Chinese currency swaps, etc. That is why I said ceteris paribus above: if the Greeks do decide to Grexit they’re dead in the water if they do not have economic allies who can help them with basic needs until they can get the economy back on its feet, and seeing public opinion here, I wouldn’t be surprised if Argentina was one of those allies.
I would like to see if the same conclusion holds true if you analyze commodity prices. Commodities are the largest exports in the region. Historically, Latin American countries boom when commodity prices do, but then they go bust. Not that I have the least sympathy for neoliberal policies. However, authors should have addressed the the commodity export issue.
Lovely post. I think it also explains party why Venezuela’s economy is doing poorly right now. Venezuela instead of doing more import substitution led growth just exported its oil and used the money to import goods.
Now, if only the “intellectuals” could explain to the peasants what the difference is between a neo-liberal, a liberal, an old-liberal, a neo-conservative, a conservative, a “progressive”, and Bernie Sanders maybe something could be changed.
Maybe simply call those terms “fancy words for looting.” Just like “humanitarian intervention” is also a fancy term for “looting”.
Sounds like the USA today.
Massive GDP, 70% of the nation living in or near poverty.
Declining wages means that American paychecks can’t cover the expense of food and rent.
The article makes a pretty good case that what economists (neo-liberal theorists mostly) have been calling “the middle income trap” for the last 40 years is just a euphemism for applied neo-liberalism.
So, what US president will the one to dust off Theodore’s big stick?
Chile has suffered economic decline since Allende was overthrown? Really?
Venezuela and Cuba have prospered under leftist governments now in power for years? Nicaragua under Daniel Ortega (2x) has been transformed into a model of prosperity? Really?
The problem with this kind of generalized “analysis” is that it begins with the faith-healing assumption that economic/political policy fundamentally determines economic success. An utter nonsense denied by factual observation.
The advantage of generalized analysis (don’t understand your scare quotes) is it flushes out outliers like those caused by the US’s hysterical behavior towards Castro. “Fundamentally” *does not* mean everybody gets the same results, please check Webster’s. So, wha’ts your take — you seem to subscribe to a Great Man theory, apparently?
Actually, I subscribe to the reality that each country is different in its available resources, history, developed skills, and cultural assumptions. (A Google map view of the Caribbean island of Hispaniola should make this abundantly clear to any objective observer.)
Outliers cannot be ignored as a means to generate superficial “proof” of a preferred narrative which cannot survive the contrary evidence those outliers present. Narrative “X” cannot be regarded as true if it is plainly falsfied by an outlier.
For all its achievements (some of them impressive), Cuba isn’t a busted-flush workers paradise because the US refused to trade with them. Everyone else on the planet trades with Cuba and they have had access to virtually anything they might obtain from the US. Had the USSR not subsidized them with massively higher than market prices for sugar, that devout communist enterprise would have failed even further.
No, the problem for Cuba is that it has developed no valuable basis for trade with other countries and its ideological constraints have been the chief cause. In this case, the Great Man Theory has abjectly failed economically. Raul knows it but he’s stuck with Fidel until the last wheeze.
In other cases, however, the Great Man Theory has worked well to the unmistakable benefit of the national economy and the citizenry. Ataturk would be one undeniable example.
Almost everyone with any experience knows the inevitable danger of drawing conclusions from averages of anything. The “average” condition of life in Haiti and Dominican Republic only blurs the stark difference in these two countries which share the same island — but not the same culture and history. And surely not the same economic success.
It is plainly obvious that one-size-fits-all prescriptions for national economies succeed only inside the privileged ivory towers of academia and various government wonkeries where delusional thinking (if sufficiently convoluted) is widely admired.
The USSR subsidization of Cuban sugar at above market prices in itself hurt Cuba. The result was Cuban resources going towards producing sugar that was worthless and once the USSR collapse Cuba was stuck having wasted a bunch of resources.
Some estimates show that American trade with Cuban would expands its economy by 4bn or 6% a year[1]. Not only that but the primary reason Cuba was spending 6% of its economy on the military was because of fear of American imperialism. Those two things are massive dead loses for Cuba.
[1]https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=4&cad=rja&ved=0CDAQFjAD&url=https%3A%2F%2Fpublicpolicy.stanford.edu%2Fsystem%2Ffiles%2FMuhly%2C%2520Jasper%2520Cody%252002.pdf&ei=XGhwUOXvIMSQiQLelYDYCw&usg=AFQjCNHXOsUwGhAaBdNKf-i9E5sgZjY2iQ
Are Cuba’s problems radically different than other countries in Latin America? From my vantage point, most capitalist, US friendly governments have done a far worse job on food security, health care, education, the environment, among other things, than Cuba and their economies are’t any better for the majority of the populations there. Sure, Cuba has problems but what problems are unique to Cuba and what problems does Cuba share with other developing countries, especially in the region? Reading your post, it seems that all of Cuba’s problems are internal and unique to Cuba. I guess the Central American countries (for example), CAFTA signatories, are paradises compared to Cuba, with much better human rights records? I heard Honduras is a wonderful place for the press and union organizers, especially since 2009.
Chile has been slowly moving away from it Pinochet era polices ever since the return to democracy. THAT model has turned out to be a one size fits all model for other countries and it is a train wreck in its own right. There is a reason why there has been so much unrest in the country thanks to the privatized educational system, which the public wants to be radically transformed. Same goes with their pension system. The recent conservative president, Pinera, admitted when running against Bachalet a few elections ago, that the privatized pension system (so lauded by the Wall Street Journal and the international right wing) had utterly failed. Pinera, a conservative, said that only about 60% of the country had anything for retirement and of those who did, about half didn’t have enough to survive. He called for the state to play a larger role and independent polling (for example, by the non-partisan Latinobarrometro) has shown that the overwhelming majority of the country want a pension system like ours. The system is a huge, inefficient mess thanks to fees, administrative costs, etc. I realize that Chile is complex and does some things well, but whatever benefits working people in Chile have felt since Pinochet, it has been a result of moving slowly away from his policies. Look at the educational reforms being implemented.
“Pinera, a conservative, said that only about 60% of the country had anything for retirement and of those who did, about half didn’t have enough to survive.”
This is true.
“[Pinera said the pension system] had utterly failed.”
Sixty percent coverage is hardly an utter failure and he said no such thing. Pinera agreed with Bachelet that the system needed reform to expand coverage to lower-wage workers who could not benefit. And Bachelet did undertake changes with Pinera’s support.
“Reading your post, it seems that all of Cuba’s problems are internal and unique to Cuba.”
It is Cuban solutions to its problems that Cuba most suffers from.
That doesn’t make it unique. (We could say the same for the US.) But it has been a matter of choice not imposed from without. The decision to grow sugar cane but not convert it to a cheap nation-wide fuel for power (initiated in Brazil by a right-wing dictatorship) was solely a Cuban government decision.
Relying on oil imported from Russia was therefore a self-inflicted wound owing to a lack of imagination and foresight — not because of a lack of local resources, skills, opportunities, or visible and nearby examples of how the economy could be importantly advanced by better use of its own wholly owned resources and greater self reliance.
While LatAm countries differ, most share a history of being systematically and (often brutally) plundered under foreign colonial rule. The only economic “development” was to improve the means to extract raw material and ship it off to the mother country for consumption.
Higher manufacturing or other industrial revolution enterprises were never encouraged and the body of the people were for all practical purposes (and sometimes literally) enslaved. Most of these countries have continued to wallow in their own version of colonialist exploitation ever since.
Striking the chains off a slave doesn’t alone make him a free man. That comes only when he takes full ownership of himself and all his works.
I refer you once again to Haiti and Dominican Republic as contrary archtypes which painfully demonstrate that important distinction.
DR isn’t a perfect country, of course, because perfection is a standard no nation meets. But thousands of Haitians migrate to DR and no one from DR migrates to Haiti.
People voting with their feet is a far more reliable measure of reality than an academic “analysis” which manages to miss the point entirely.
Monoculture is a remnant of the colonial period, as you probably know. To say that Cuba grew sugar just by choice is inaccurate, the country has (like most other developing countries) tried to diversify its economy. Many developing countries, with even more resources and wealth, have tried to diversify their economies and have failed. What you pointed out in your post was that Cuba does in fact share many problems with other developed countries, which is obvious.
Regarding its ideological rigidness, that is true to an extent, but only to an extent. Cuba has progressed on non-economic issues (say gay rights) and economically as well. For example their move towards agroecology forced them to challenge basic beliefs in Marxist-Leninism regarding small, largely independent farmers as well as organic agriculture. During the early years of the revolution, organic agriculture was considered counterrevolutionary since it was believed that organic agriculture produced lower yields. That has changed and agroecology is now of central importance. Cuba has opened up its economy, especially since the “special period” following the fall of the USSR. However, that opening up has led to a huge spike in inequality within the country, with things like meat production being prioritized for tourists in Havana vs. the general population. I have been reading about how Cuban authorities have been talking to the Chinese about their market reforms and have been mentioning the NEP in Russia. Well, that is also a one size fits all model. There is a debate now as to which direction to go, the pariticipatory socialist model found in other parts of Latin America or the “market socialist” model found in places like China.
I lived in China for a year and a half. It has made lots of progress. However, the environmental destruction in China is hard to put into words. I lived in the mainland, close to Hong Kong. Beautiful beaches there, perfect weather year round, yet no one swims in the water or drinks the water because of how polluted it is. There are also massive differences in wealth between the coastal regions and inner China (which isn’t tons different than it was 200 years ago, save for cell phone stores here or there), the urban vs. the rural parts of the country. Would Cuba be willing to destroy its environment and to see such a massive increase in wealth? Maybe, but this is a problem all developing countries face, once again, and it would likely mean the slow death of the revolution. You can find polls and books on this too, whatever YOU think of the revolution in Cuba, the people there overwhelmingly support it, even with all its faults.
Regarding Chile, what I said was accurate. You missed the second part of what I said (although my numbers, and memory, were a little off, see below). 70% of the people either have nothing for retirement, or not enough to survive. So, only 30% of so have enough to retire and they have to exist in a horribly inefficient system. Take a look at the overhead costs of the Social Security system (2-3%) and compare it to Chile or other privatized systems. There was a poll done by Latinobarometro (which I can’t find), that asked respondents in Chile and Argentina who should manage the pension system. Over 90% said the state. If you look at the bottom graph in this link, you can see the the opinions of those in the region (as to whether the state or the market should manage these services), and this is in a region that has put into place “free market” reforms more than any other. They speak from experience.
http://www.economist.com/node/12607297
http://www.nytimes.com/2006/01/10/world/americas/10iht-chile.html?_r=0
“Chile’s social security system requires deep reforms in all sectors, because half of Chileans have no pension coverage, and of those who do, 40 percent are going to find it hard to reach the minimum level,” Piñera said in a televised debate with Bachelet on Wednesday. “This has to be confronted now, and we agree with Michelle Bachelet and will, I hope, join forces behind this large undertaking.”
“To say that Cuba grew sugar just by choice is inaccurate”
Perhaps I didn’t make my point sufficiently clear. The problem is not that Cuba grows sugar cane any more than growing sugar cane is a problem for Brazil.
The important difference is that Brazil turns sugar cane into a substitute fuel displacing petroleum at very low cost. This advances the national economy. Meanwhile, Cuba is still producing it as a sweetener for soda water and remains broke and petroleum dependent on other countries. Dumb.
I’m pretty much agnostic about differing political narratives government officials rely on to prop up their respective regimes until they allow plainly flawed rhetoric of dead philosophers to displace ordinary common sense.
To the exact point…
Had the Brazilian cane-to-ethanol fuel program been initiated by a righteously Marxist government (rather than an evil right-wing dictatorship), perhaps the Cuban government might have noticed and followed suit.
Since they did not (for whatever reason)…
Cubans today are still wheeling around in ancient, bailing-wire American gas-guzzlers which burn expensive imported petrol whereas Brazilians are motoring along in nifty new cars (assembled in country) which universally run on cheaper, cleaner, abundantly available fuel grown in their own back yard.
Oh, and when it comes to irrational waste of natural resources, it would be hard to top the American political decision to subsidize US wheat farmers to produce ethanol rather than food. (Especially when we could probably buy it for a song from Brazil.)
Oops … I said “wheat”, which of course should be “corn”. My bad.
Forgot to mention your last comment, about voting with their feet. People have left Cuba for the US for the same reasons they leave Mexico and Central America for the US, the same reason they leave Turkey for Germany, northern Africa for Europe and southern Africa for South Africa; higher living standards. It is the result of unequal economic development, which can be left at the doorstep of capitalism. Any time countries try to develop they necessarily but heads with capital since their development would necessarily come at the expense of foreign enterprises and capital. If a country were to actually develop they’d have enterprises, industries and food production that could meet local needs and would not rely upon imports for these things. Development for most of the world necessarily comes at the expense of transnational capital, which is why the CIA and the NED have been so active in places like Latin America all these years.
Just wanted to also reiterate, in regards to health care, education, the environment, food security, sports even, Cuba has accomplished a lot, despite its, at times, ideological rigidness (surely isn’t the case in places like Chile too) and its difficulties. It does have problems, some may be unique to Cuba, but most aren’t. If you want to argue that Cuba’s problems aren’t found in other countries in the region, point them out.
I refer you to my attached comments above. The idea that national economies are only permitted to develop with outside help from evil capitalists is well past its sell-by date. I suggest you dump it and move on to more productive thinking. Karl Marx was a brilliant analyst of British society. He was also an incredibly ignorant futurist.
If you want an example of a modern country which had every conceivable advantage of internal resources and totally blew it, please consider Russia back when it was the USSR.
If you want a contrary example of a country which had far fewer internally available resources and is forging ahead, consider China. Despite its many flaws (which you cite at length), the modern Chinese leadership who bumped the murderous, inept ideologues aside and focused on Chinese competitive advantages have re-shaped their economy like a silver bullet. Not without cost, to be sure. But Chinese leadership is no longer encumbered by dead ideology except in name only (to retain power).
One key difference, of course, is that nominally “communist” Chinese leadership recognizes the vital importance of predictable and binding rule of law whereas nominally “capitalist” Russian leadership still doesn’t get it.
How utterly predictable. Here I am comparing Cuba, favorably for good reason, with other Latin American countries and you respond with the USSR (which was a dirt poor, backwards, country to begin with and was destroyed by both world wars far more than any other country. Your point would have applied to Brazil, massive amounts of natural resources and wasn’t utterly destroyed by the world wars, more than the old USSR anyway).
On China; there were 84 Chinese companies listed in the most recent Fortune 500. All but six were state owned enterprises. China has a number of financial problems, which this site covers better than I could, but public finance has been central to its development, as had massive amounts of protectionism. There is also no private property in China, all land, rivers, lakes and the air are publicly owned. You could buy a permit to use the land but it can be taken back, with some compensation. In recent years, because of the massive amount of inequality in the country, the government has been attempting to create a “socialist countryside”, with massive investments in public health, housing and pensions. Now, they have grown massively, but to claim THAT is anything you’d approve of is a bit ironic. Not tons different than the old USSR actually, just a different time, country and context. China’s long term problems are environmentally and socially related and there is no hope what so ever for the capitalist system to deal with that, markets either. I have a background in ecological and environmental economics (not a Marxist economist, although I like some of his books, like the third volume of Capital, more than most any other from that time) and can have a conversation about that if you would like.
Also, social democracy in the west is a variant of socialism. It was socialist democracy that brought the NHS to Britain, Medicare to Canada and Social Security to the US. Social democracy is itself an outgrowth, in part at least, of western Marxism. It was a more moderate, reformist Marxism, but it was partially an outgrowth of Marxism. Beyond that, as Ha Joon Chang (no socialist) has said, Marx has a lot to say about labor market history, the history of the development of capitalism and was a great economist historian. He teaches Marx’s economics for that reason. I appreciate Marx’s economics just as I appreciate Ricardo and Ricardo was dead wrong about austerity, among other things. Ricardo believed in the labor theory of value and even when discussing free trade, he did have assumptions in his argument that have nothing to do with the world we live in (like the fact that capital will not stay put, as he assumed, and labor isn’t perfectly mobile, which he also assumed). I can appreciate Ricardo though because he had a lot to say that is still applicable to the world we live in. Same with Marx.
The problem is right-wing think tanks (almost all think tanks) have their own ‘facts.’ Other than shipping fruit off season, what economy does Chile have? The third world economy has stark depressions (due to financialization) followed by rapid growth. You can’t use the nadir of the depressions as a bench mark of growth.
Even with your outlier of Cuba, in the 1980s it had 5 percent annual growth.
Huh? It might help if you bothered doing some homework. There is a compelling critique to be made of the insanely distorted picture the Chicago Boyz defenders try to run, but you are far from the mark. You don’t do our side any favors by offering rhetorical handwaves. Anyone who knows Chile would roll their eyes at what you wrote because copper is one of their biggest exports. And BTW that’s so important to them it is still substantially under state control, a big gaping hole in the “radical deregulation and unions busting were such a great success story” blather. Woodpulp is the only agricultural product in its top five exports. Lordie.
I hate to come down on you so hard, but this site is to promote critical thinking, and starting with a lazy remark discredits what you wrote. To debunk right wing arguments, we need to hold our side to standards of accuracy and care.
I was under the impression that Cuba does very well on the human development index versus many of its neighbours.
Breaking news: Bolivia is teaming up with Cuba to bust the global pharma monopoly.
“The government of Evo Morales sets to cover the majority of the domestic demand without the need to resort to foreign laboratories.”
Actually, I admire the analysis that omits the countries you name (except Venezuela), bh2.
Could Pinochet’s coup have an economic impact? Could the Cuban embargo, or the (illegal) war on Nicaragua? Answering those questions would require some analysis above and beyond simply looking at economic success/failure.
Omitting those considerations keeps the analysis (relatively) short and sweet. And yes, Venezuela isn’t out of the weeds. The current regime’s bet on a commodity (oil) has certainly influenced that, but no one disputes income inequality and the needs of the poor are being addressed by the lefties, in contrast to, say, the U.S.
It might also be instructive to factor in NAFTA in the Mexican economic calculation. Although the figures above show overall modest growth in the Mexican economy post-NAFTA (1993), these were certainly turbulent times. The Clinton administration had to produce a $20 billion bailout loan so Mexico could deal with capital flight after NAFTA (and so we could bail out U.S. banks in trouble down there). Economist Ravi Batra (Greenspan’s Fraud) observes Mexican real incomes declined 34% in the wake of NAFTA–a figure not equalled in America since the Great Depression.
Note: After the Soviets withdrew their oil subsidy in Cuba, its GNP declined 34%. It produced such a food crisis that I’ve read an average Cuban lost 20 lbs.
Not the Americans, but Harvard-educated Mexican President Carlos Salinas Gotari first proposed the NAFTA concept to Bush 41, and given Mexican economic stagnation pre-NAFTA reported in the graphs above, who can blame him for trying the solution his gringo economics professors proposed?
Salinas Gotari was so widely despised in Mexico that he retired…to Ireland. I hear he’s back now, but imagine still inside a security cordon of world-beating strength.
“Omitting those considerations keeps the analysis (relatively) short and sweet.”
And pointless.
Did you get past the line you quoted?
To the very last word. I didn’t misunderstand your basic assertion that “short and sweet” offers some worthwhile measure of value. I simply disagreed with it because:
In fairness to Ortega, who I admire as a pragmatist and for his adherence to the democratic process, he’s also managed to bring in real muscle (the Chinese) to sponsor building of the new canal which has been considered for a century or more but never launched.
While this giant project isn’t without risk to the natural environment, it will displace the prevailing social environment of misery and poverty. The greenies will hate it, of course, but they neither live nor vote there.
Someone has commented that, if completed, the canal will make Nicaragua the richest country in Central America. If that comes to pass, Ortega will earn great credit for that economic transformation.
Darn, thinking this piece would be an excellent wrapper for a memorial bouquet, I looked up Milton Friedman’s burial place. Unfortunately he was cremated and his ashes dumped in San Francisco Bay – not that I would ever actually do such a thing. It amazes me that books like Shock Doctrine and articles like this haven’t swayed even a large minority of economists and world leaders to abandon their Bible: “The Social Responsibility of Business Is to Increase Its Profits” and the neoliberal disasters it unleashed. Upton Sinclair was right:
Good starter article, thanks. Would be interested in more posts on the US influence in Latin American economic policies.
Has anyone read “Markets in the Name of Socialism: The Left Wing Origins of Neoliberalism”, by Johanna Bockman? Just wondering what anyone thought of the book. It did change how I think about neoclassical economics a bit. I still think it is nonsense, just thought that the use of that school of thought among socialists was interesting, and forgotten by lots of people. I knew that socialists like Lang, Lerner and Kalecki used some neoclassical tools but I didn’t realize how widespread neoclassical economics was used by socialist economists in the 20th century.
Interesting, Yves is projecting a Biafra type starvation scenario onto a First World country if they do not submit to the Capitalist masters. I’m certain that Bono would write a song and gather the music community to avoid this Socialist caused disaster. Russia and China would probably provide humanitarian assistance to the poor Greeks if the Troika went further to the Dark Side even if it was just for PR and to embarrass the West.
You like shooting messengers. Not a good way to come up with a decent understanding of a situation and what the best course of action might be.
In addition, Greece is not a first world country.
I tell you realities that are based on information coming from sources close and friendly to the Greek government, and you assume solutions that don’t exist and won’t happen. China is a food importer not exporter, and if you bothered to look at a map, is not geographically positioned to help. As Mark Ames says of Russia, “Never depend on Moscow for your survival. Just ask Serbia how well that worked out.” Russia is also not as keen to do much for Greece as the pro-Russia faction in the Greek government would like the public to believe. Even diehard Syriza supporters who have some knowledge of Russia say the same thing.
The fact is that Europe probably would provide humanitarian aid. A famine would be bad for their image. But that means a Grexit results in even less Greek control over its own destiny. The state is so hollowed out and incapable of providing services (it is having trouble getting ballots to polling stations in time for Sunday’s election, for instance) that the odds are high that European organizations would need to move in and assume quasi-governmental roles to deliver these services, as well as other elements of humanitarian aid, such as assistance for petroleum imports and pharmaceuticals. Greece thus incurs a lot of pain but remains a European dependency.
The world doesn’t need any more “failed states”, look at Libya (and the resulting humanitarian boat crisis), Egypt (basket case supported by the Saudis) not to mention Afghanistan, Syria, Iraq, Yemen, Venezuela. The spectre of a failed state of Greece, not because they were drone bombed like Libya, double-crossed like Egypt, or politically bombed like the Ukraine, but because they were financially bombed is not a good precedent.
I think this Naked Capitalism article is the perfect explanation as to what was the flaw in our economics professors teaching us that free trade is the universal solution to all problems economic. What they should have taught us is that if you have a well functioning domestic economy, and other countries have good domestic economies, too, then increasing global trade can make everyone a little better off. If you destroy your domestic economy in pursuit of more exports, then this will lead to an inevitable race to the bottom among countries. Instead of setting up a system with built in incentives to race to the top, this emphasis on increasing exports over domestic consumer demand is sure to have built-in incentives for an ever faster race to the bottom.
Whatever the arguments, the fact is that our world is still ruled by force. The old pacific coexistence has a long way to go. 20% of the developing countries live in the “first world”. Not enough & pure naked capitalism won’t solve that. I wish these countries could reach the welfare state of the first 30 countries on top (socialism at the bottom of the pyramid). But it seems impossible: i) strong interests against; ii) such level of consumption would need three or four planets. We either become more rational or we disappear. Democratic socialism as the central system on earth? Whem? In 100 or 200 years? Or the usual barbarism for half the people?