Latin America: Jaguars Awaken

I.    Environment

A.  Subregions

1.   Middle America (Mexico and the 6 nations of Central America)

2.   South America (12 independent nations and French Guiana)

a.   Northern nations (Colombia, Ecuador, Guyana, Venezuela, and Suriname) are separated from the so-called

b.   Southern Cone (Argentina, Bolivia, Brazil, Chile, Paraguay, and Peru)

c.   Western Rim (Chile).

3.   Caribbean area (24 nations and territories, many of which are not "Latin").

B.  Indigenous Cultures

1.   Mayas - settled 2,000 years ago in Middle America. “Greeks of

Latin America”. Built magnificent pyramids and palaces, and astronomers developed accurate calendar.

2.   Aztecs - Powerful society in Mexico early in 14^th century, used advanced agricultural techniques. Later, used ruthless force to extract tribute and subjects of human sacrifice.

3.   Incas - Largest, most organized American empire late in the twelfth century. About 20 million people from southern Colombia to central Chile. Central planning, communal agricultural labor.

Summary - Experience with social, economic, and political development, authoritarian organization, and colonial exploitation long before the Europeans arrived.
 

II.  History

A.  Colonial Period

1.   Spanish struggle to free their country from the Moors. Authoritarianism.

2.   Extractive motives. Distorted transportation systems.

3.   Natives suffered from conquest, slavery, disease.

4.   Top administrators born in Europe; lower posts held by criollos and mestizos, leading to middle class.

5.   Growing population needed more food-- dualistic system of latifundios and minifundios.

B.  Independence

1.   Forces for independence. America example ports to British ships, weakening the system of colonial control.  All free by 1824;

2.   Few internal structural reforms

C.  Import Substitution, State Control, and Revolution

1.   Export-led growth continued until the 1930s,  then ISI, supported by ECLA. Real incomes nearly doubled between 1950 and 1973. 

2.   Deficiency of ISI strategy-- authoritarianism. Perón, Castro, Allende  examples.

D.  Export Promotion and Market Reform

1.   Brazilian military leaders adopted export-oriented development strategy and an open door to foreign investment. For several years, this strategy seemed successful.

2.   Pinochet in Chile, beginning in 1973.

3.   Debt crisis, late-1980s and early-1990s

Table 2.2. Real Per
Capita GDP, 1998–2003

(Average annual percent change)

Source: IMF

II.  Agriculture

A.  At 25 percent, ag. share of the work force is large.

B.  Plantation and Hacienda

C.  Revolution and Land Reform

III. Industrial Organization

A.  Microenterprises are the norm; larger companies account for most of employment and sales.

B.  Informal Economy

C.  Big Business and Multinationals - The 500 largest companies account for about one-third of the gross product of the entire region.

D.  Maquiladoras - after 1966, using treaty between Mexico and the United States that created special duty-free zones. Symbolize flight of manufacturing jobs to factories in Latin America. Lose special tariff status in the year 2001, and all of Mexico will, in effect, become a free-trade zone.

E.  State Ownership and Privatization

1.   Long history of state participation, going to Incas and Aztecs.

2.   During 1930s, dissatisfaction with foreign owners led to expropriation and nationalization of energy, telephone systems, and other public utilities. For example, a dispute over wages and benefits in 1938 led to seizure of the Mexican oil industry from 17 companies, and to the creation of a state-owned petroleum monopoly, Petróleos Mexicanos (PEMEX), still the largest company in Mexico.

3.   Also in 1930s, ISI led to the establishment of state-owned manufacturing companies. This process continued after World War II, and accelerated during the 1960s.

UPDATE: New York Times, 2/22/05
Latin America Fails to Deliver on Basic Needs
By JUAN FORERO

L ALTO, Bolivia - Piped water ... runs tantalizingly close to Remedios Cuyuña's home. But with no way to pay the $450 hookup fee charged by the French-run waterworks, she washes her clothes and bathes her three children in frigid well water beside a fetid creek.

So in January, when legions of angry residents rose up against the company, she eagerly joined in. The fragile government of President Carlos Mesa ... then took a step that proved popular but shook foreign investors to their core. It canceled the contract of Aguas del Illimani, a subsidiary of the $53 billion French giant Suez, effectively tossing it out of the country and leaving the state responsible...

The battle surrounding Aguas del Illimani, which provided water for El Alto, is revealing of the anger over privatizations that many here say they were never consulted about and never asked for, but were put in place as a condition for loans from the World Bank and International Monetary Fund.

"It is O.K. for a foreign company to be here, but they should charge the Bolivian rate, not like in the country where they come from," said Mr. Choque, as he worked on a new school that will have running water only because residents have pooled resources to pay for the hookup. "Not everything can be free. We can pay a little. But we just want a fair price."
 

IV. The Labor Market

A.  Difficult to develop stable systems of collective bargaining. 19^th century legal codes in many countries prohibited workers from signing binding contracts with their employers.

B.  Generally, labor unions were illegal until early twentieth century. Earliest unions, encouraged by the Catholic Church, allowed workers to pool resources in a social insurance system; usually no attempt to bargain with employers. Eventually, when unions attempted to organize strikes, governments often supported employers with military force.
 

C.  During Great Depression, more labor codes to protect rights of workers. With growth of state-owned enterprises, governments unable to serve as impartial referees.

D.  Now, privatizations, efforts for more cooperative relationships, consultation - Economic Solidarity Pacts in Mexico; spread to other countries.

E.   Labor market inflexibilities - Laws prohibiting temporary employment and requiring large severance payments for "unjust" dismissals; severance payments are larger than similar payments in Europe; relatively high social security payroll taxes. Chile shifted to a system based on personal saving, rather than on taxation.

V.  Inflation and the Financial Sector

A.  Inflation

1.   Consumer Price Inflation Rates

2.   Traditional approaches: Monetarism vs Structuralism

3.   Alternatives: Political instability, ISI reduces financial discipline, indexation.

B.  Financial Repression and Liberalization

If nominal interest rates are controlled while inflation accelerates, real interest rates become negative, so credit markets and market-oriented financial institutions cannot play their normal role to stimulate savings or efficiently allocate financial resources. Governments increase intervention: Credit rationing, foreign exchange regulation.

Debt crisis made all these problems worse, forced reforms, restored capital inflows (for better or worse).

VI. The Church, the State, and the Poor

A.  Poverty during the 1980s -- debt crisis and regional distribution of income.

B.  The Role of the Church -

1.   Traditional charitable role of Roman Catholic church,

2.   Liberation theology,

3.   1995 Bishop's meeting in Mexico City.  The ruling neoliberal orthodoxy "unnatural and inhuman," and eventually "will fall by itself, perhaps more rapidly than communism."

C.  Public Programs to Reduce Poverty

1.   Education - World Bank analysis -  if the macroeconomic environment is stable, two-thirds of the absolute poverty in Latin America could be eliminated by improving educational facilities and increasing average schooling to nine years.

2.   Public health expenditures needed.

3.   Social security systems underfunded, most countries (including relatively high-income countries such as Mexico) do not have an unemployment compensation program.

http://www.eclac.org/publicaciones/xml/3/33873/LCG2386_P_I.pdf

From the Latinobarometro 2007 report:
http://www.latinobarometro.org/