“The lights are going out all over Europe. We shall not see them lit again in our lifetime” famously intoned British Foreign Secretary Sir Edward Grey in the gathering dusk of August 4 1914 (there is now a fair consensus that Grey’s alliance with France and encirclement of Germany bore much of the responsibility for dousing them.) This year another continent appears to be disappearing into the gloom, at least economically: Latin America.
It shouldn’t be this way. After two decades of depression, commodity prices are at historically high levels, and many Latin American countries are rich in commodities – Mexico and Venezuela in oil, Brazil in agricultural products, Peru, Chile and Bolivia in minerals, etc. Traditionally, Latin American economies benefited from high commodity prices in the way one would expect; Argentina benefited from high grain prices during World War II, Chile from high copper prices from time to time, Venezuela from high oil prices in the 1970s, etc.
Indeed, to a limited extent high commodity prices are benefiting Latin American economies today. Argentina, which had an appalling slump in 2001-02, has enjoyed economic growth in the 6-8 percent per annum range in 2003-04, bringing its Gross Domestic Product per capita close to the 2000 level, but probably not all the way there. Venezuela, which had seen little economic growth in the preceding two decades, since the oil price bubble burst in 1982 and Latin America plunged into debt crisis, has enjoyed very high growth rates in 2003-05, as record oil revenues have been pumped vigorously back into the economy.
It is however clear to the reasonable observer judging by their long term results, that Argentina and Venezuela have over the last 50 years been among the worst run economies in the world. This was true when traditional politicians were running the countries, in the early 1990s, with Carlos Menem in Argentina (1989-99) and Carlos Andres Perez in Venezuela (1974-79, 1989-93), but it has become even more spectacularly true under the countries’ current leaders, Nestor Kirchner (2003- ) and Hugo Chavez (1998- ).
Kirchner and his predecessor Eduardo Duhalde defaulted on over $100 billion of international debt, thus naturally causing a short term rebound in the domestic economy. They also embezzled a substantial portion of the Argentine middle classes’ savings, thus proletarianizing the economy, and in the long run seriously impoverishing it.
Chavez meanwhile has used the windfall from high oil prices to produce a surge in government spending in two areas: transfer payments for Caracas’ slum dwellers, an important base of his support, and a massive build-up in Venezuela’s armed forces and international meddling capability, which he is using in an attempt to destabilize his neighbors. Oh, and 50,000 barrels per day of Venezuelan oil is being used to prop up the senile Stalinist in Cuba.
From this it is pretty clear that natural resources, far from enriching the people of Latin America and helping their economies to develop, instead produce slush funds for the most unattractive elements in the already unattractive governments of that unhappy region. The long run benefit to the people of Argentina and Venezuela from the current period of high natural resources prices will undoubtedly be negative, as the money has been not merely wasted but used in an active campaign to destroy the productive sectors of those societies and their economies.
In other countries of Latin America, the Argentine example, Venezuelan meddling and simple corruption have eliminated the optimism of the mid 1990s. In Ecuador and Bolivia, high natural resources prices have resulted in an abandonment of economic good sense. In Ecuador a leftist President has now been forced out of office by agitators of dubious provenance, while in Bolivia leftist forces backed by Chavez have prevented the construction of a gas pipeline that promised to bring the country substantial sources of much needed foreign exchange.
In Peru, the high hopes of the middle 1990s were dashed as the re-elected President Alberto Fujimori (1991-2001) was forced out of office, allegedly for corruption and was succeeded by the feeble Alejandro Toledo – there too leftist forces under former disastrous President Alan Garcia (1985-91) are poised to seize power. Uruguay has left the path of modestly competent government and relative prosperity it had followed for decades, and followed the siren song of a new Socialist regime.
In South America, three countries remain outside the spreading miasma of economic chaos, but it is most unclear how long they can remain there. In Colombia, the center-right and economically competent regime of Alvaro Uribe, elected in 2002, faces a guerilla war, which he appears to be winning, and vigorous attempts at subversion by the Chavistas, which he may well in the long run lose, probably through being replaced by a pro-Chavez government in the elections due in 2006.
In Brazil, President Luis Ignacio (Lula) da Silva, although a leftist, has made great play in the international arena out of not being a defaulter like Argentina and not being an anti-American agitator like Chavez. Any kind of world economic downturn, however, seems likely to tilt Brazil’s highly unstable foreign debt position into default, at which point the joys of stiffing international creditors and joining Chavez in anti-American polemics may well be too strong to resist.
In Chile, the moderate socialist regime of Roberto Lagos has been in power for five long years; the economy, buoyed by high copper prices, remains strong, but the political and economic safeguards built into Chile by President Augusto Pinochet (1973-89) are one by one being dismantled. Pinochet himself has been stripped of his constitutionally guaranteed immunity from prosecution by a politicized and corrupt judiciary. If the left succeeds in winning the elections due at the end of 2005, as well it may, Chile’s position as the anti-socialist example to the rest of Latin America, like Britain’s as the free market example to the rest of the European Union, may be only too quick to dissolve.
And then there’s Mexico. Far from being a beacon of hope to the rest of Latin America, a triumph of the North American Free Trade Area and free market reform and a reliable ally to the United States, the regime of President Vicente Fox has been a huge disappointment. Free market reforms have been totally neglected, the economy (largely in consequence) has stagnated and anti-American rhetoric has surged in volume – it is notable that after September 11, 2001, while France’s Le Monde proclaimed “We are all Americans now” Mexico City saw massive anti-American demonstrations rejoicing at the terrorists’ achievement. Now the wholeheartedly anti-capitalist PRD, and Mayor of Mexico City Andrez Manuel Lopez Obrador, seem poised to win the 2006 election, after Fox has abandoned a misguided attempt to convict Lopez and thus make him ineligible for election.
In the fevered atmosphere that is Latin America today, if oil and resources prices remain high, can anyone doubt that a Lopez regime in Mexico would see a huge surge in anti-American activity and governmental looting of business and the middle class? Perhaps the only consolation is that, if U.S. immigration controls remain as lax as they are currently, there will be few anti-American mass demonstrations in Mexico City. Instead, the city will be echoingly empty, silent as a tomb, its traffic and pollution problems solved, with just the occasional deadbeat scurrying out of the shadows to mug the few remaining tourists – its entire population having taken the option of illegal immigration across the U.S. border.
Woodrow Wilsonism – the promotion by all available means of democracy and U.S. ideals across the world — has only a few successes to its name, but nowhere has it failed as badly as in Latin America. In normal societies, the entrepreneurial classes would naturally be pro-American, since that’s where the money is, while the established blue collar workers would seek to start small businesses and join them. Populist governments, that damaged the economy and made property insecure, would be booted out at the next election.
In Latin America, this doesn’t work. The main sources of wealth are minerals, controlled by the region’s corrupt governments. Exchange rates are boosted by the flow of mineral wealth, so penalize small traders. The economies are unstable, so businesses large and small are at risk of both expropriation and bankruptcy, and depend on government to provide a “safety net” for their losses. The best source of increased income for the working class is a government job, with a secure index linked pension and no heavy lifting. Inequality is appallingly high, and increasing steadily with economic failure. Whichever party is in power, the economy doesn’t work too well, while even populism can’t stop the flow of wealth from minerals, which depends entirely on a world market controlled by foreigners and prices set in Rotterdam, London and Chicago.
The popularity of attacks on the free market and the United States does not depend on geography or poverty – one can see it only too clearly in France. Nevertheless, in a society in which economic success is so dependent on outside factors, and so wholly controlled by the government, it is little wonder that the appeal of economically illiterate populism is irresistible. The control mechanism of democracy, by which economic failure results in a removal of the failed government, is in Latin America broken; in that continent Lee Kuan-Yew could not succeed, and Fidel Castro never finally fails.
The solution for the United States is to revert to an earlier model of foreign policy, as far as Latin America is concerned. If democracy produces only populism, economic illiteracy and anti-Americanism, it is folly to promote it, however attractive it may be in theory. Instead, the United States must revert to its Eisenhower-era practice, of dealing with Latin American governments according to their economic and political actions, and not according to some theoretical democratic ideal.
The objective should be to find leaders of whom it can be said, as President Franklin Roosevelt remarked of the Nicaraguan dictator Anastasio Somoza García, “He may be a son of a bitch, but at least he’s our son of a bitch.” Somoza was a corrupt and evil man, but he lasted 40 years after that remark was made, during which Nicaragua did NOT suffer its eventual fate of becoming still more corrupt, still more impoverished and thoroughly anti-American to boot.
If a Latin American country democratically elects a reasonable government, well and good; if it follows decent economic policies and treats the United States with respect it should be given all the assistance the U.S. can afford, and U.S. companies should be encouraged to invest in it. If a Latin American country elects a damaging leftist, such as Lula, but one who is prepared to work with the United States, then relations should be minimal but correct – no point pouring money down an economically inept rat-hole. But if a Latin American country elects a Chavez, or an Alan Garcia, or the Bolivian Marxist agitator Evo Morales, then the United States needs to use its power not to prop up that government, however democratically elected, but to subvert it and to hasten its replacement with something better. Can anyone doubt that citizens not only of Venezuela but also of Colombia, Bolivia, Peru and Ecuador would be better off if the U.S. had provided proper military and logistical support to the 2002 coup that toppled, agonizingly briefly, the regime of Hugo Chavez?
Democracy is not an ideal, it is a voting mechanism. The ideal is freedom, and in too many countries in Latin America, democracy is its enemy.
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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)
This article originally appeared on United Press International.