Latin America: Jaguars Awaken

Map

		Human Development Index (HDI)	Life expectancy at birth	Expected years of schooling	Mean years of schooling	GNI per capita
HDI rank	Country	Value	(years)	(years)	(years)	(2017 PPP $)
		2019	2019	2019	2019	2019
43	Chile	0.851	80.2	16.4	10.6	23,261
46	Argentina	0.845	76.7	17.7	10.9	21,190
55	Uruguay	0.817	77.9	16.8	8.9	20,064
57	Panama	0.815	78.5	12.9	10.2	29,558
58	Bahamas	0.814	73.9	12.9	11.4	33,747
58	Barbados	0.814	79.2	15.4	10.6	14,936
62	Costa Rica	0.810	80.3	15.7	8.7	18,486
67	Trinidad/Tobago	0.796	73.5	13.0	11.0	26,231
70	Cuba	0.783	78.8	14.3	11.8	8,621
74	Grenada	0.779	72.4	16.9	9.0	15,641
74	Mexico	0.779	75.1	14.8	8.8	19,160
79	Peru	0.777	76.7	15.0	9.7	12,252
83	Colombia	0.767	77.3	14.4	8.5	14,257
84	Brazil	0.765	75.9	15.4	8.0	14,263
86	Ecuador	0.759	77.0	14.6	8.9	11,044
88	Dominican Rep	0.756	74.1	14.2	8.1	17,591
94	Dominica	0.742	78.2	13.0	8.1	11,884
101	Jamaica	0.734	74.5	13.1	9.7	9,319
103	Paraguay	0.728	74.3	12.7	8.5	12,224
107	Bolivia	0.718	71.5	14.2	9.0	8,554
110	Belize	0.716	74.6	13.1	9.9	6,382
113	Venezuela	0.711	72.1	12.8	10.3	7,045
122	Guyana	0.682	69.9	11.4	8.5	9,455
124	El Salvador	0.673	73.3	11.7	6.9	8,359
127	Guatemala	0.663	74.3	10.8	6.6	8,494
128	Nicaragua	0.660	74.5	12.3	6.9	5,284
132	Honduras	0.634	75.3	10.1	6.6	5,308
170	Haiti	0.510	64.0	9.7	5.6	1,709
	Regions
	Arab States	0.705	72.1	12.1	7.3	14,869
	E Asia & Pacific	0.747	75.4	13.6	8.1	14,710
	Europe/CentAsia	0.791	74.4	14.7	10.4	17,939
	Lat Am & Carib	0.766	75.6	14.6	8.7	14,812
	South Asia	0.641	69.9	11.7	6.5	6,532
	Sub-Sah Africa	0.547	61.5	10.1	5.8	3,686

Venezuela fell to rank 78 in the 2018 report to 96 in the 2019, and now to 113. If you can stand it, see this terrible PBS NewsHour report on the crumbling
Venezuelan health care system.

For background on the crazy version of populism that eventually led to the Venezuelan meltdown, see this 2008 Frontline documentary about Hugo Chavez, the former leader.

I.    Environment

A.  Indigenous Cultures

1.   Mayas - settled 2,000 years ago in Middle America. “Greeks of Latin America”. Built magnificent pyramids and palaces, and astronomers developed an 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 in the Andean region 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

II.  Agriculture

A.  Share of total employment fell from 20% (for the full region) in 1992 to 14% in 2013. However, that's still much higher than 2% in North America. Agriculture accounts for about half of total exports from Argentina (the world's largest exporter of soybeans) and about 60-70% of exports for Nicaragua and Uruguay.

B.  Before 1910 in Mexico, mainly small holdings with no titling of land. Afterward, during the presidency of Porfirio Díaz, privatization that created plantations and haciendas. Many small holders lost their ancestral land to large estates.

C.  Revolution and Land Reform
In Mexico, that led to the Revolution that forced Diaz to resign in 1911. However, disputes over land ownership have continued throughout the region. Latin America still seems to have the greatest inequalities of agricultural land holdings in the world, and recent econometric evidence suggests that this reduces productivity.

III. Industrial Organization

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

B.  Informal Economy - according to IADB, it accounts for 54% of employment and these workers have no access to hospitals and other social services.

C.  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. Lost special tariff status in the year 2001 when all of Mexico became a free-trade zone, however that has not stunted their importance. NAFTA triggered a rapid expansion of manufacturing in Mexico. In the year before NAFTA, there were 2,114 maquiladoras with 500,000 workers. Within six years, more than 1,400 new maquiladora plants opened and maquila employment doubled to 1.3 million. After China entered the WTO in 2000, there was a decline in growth of maquila factories, but as Chinese wages began to outpace Mexican manufacturing wages, the maquiladora industry, which was renamed IMMEX (Manufacturera Maquiladora y de Servicios de Exportacion) in 2006, began to grow again. By 2014, maquiladoras employed 80 percent of Mexico’s manufacturing workers.

D.  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.

4.   During the 1990s, Latin America led the developing world in privatization, accounting for about 56% of all privatization revenues, and reducing the state-produced share of GDP to nearly the level of high-income "industrial" countries. 

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 explanations: Monetarism (too much money creation) vs Structuralism (too little land reform and other structural change)
But these are unsatisfying.

3.   Alternatives:
(1) Political instability encourages governments to look for quick fixes for unemployment. The Friedman/Phelps acceleration hypothesis suggests that you can reduce unemployment below the natural rate temporarily by accelerating inflation, but the cost of keeping unemployment below the natural rate in the longer run is continual acceleration of inflation.
(2) ISI reduces financial discipline, because it protects the economy from imports, and doesn't emphasize export competitiveness.
(3) Indexation - Friedman thought that tying wage and other contracts to price indexes would remove the Central Bank's incentive to inflate. Instead, it may have reduced political resistance to inflation.

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, arose in connection with reforms in the Church with the 2nd Vatican Councilclarified (1962-1965), and  with the publication of Gustavo Gutiérrez's book, A Theology of Liberation in 1971, popularizing the phrase, "preferential option for the poor."

3.   Liberation theology was opposed by Pope John Paul II (born in Poland, was Pope from 1978-2005), but a 1995 Bishop's meeting in Mexico City declared that the ruling neoliberal orthodoxy "unnatural and inhuman," and eventually "will fall by itself, perhaps more rapidly than communism." Now, Pope Francis, a product of his native Argentina, is far more supportive of the tenets of liberation theology. As he wrote in 2020 in Fratelli Tutti:
"Development must not aim at the amassing of wealth by a few, but must ensure “human rights – personal and social, economic and political, including the rights of nations and of peoples”.[99] The right of some to free enterprise or market freedom cannot supersede the rights of peoples and the dignity of the poor, or, for that matter, respect for the natural environment, for “if we make something our own, it is only to administer it for the good of all”

C.  The Impact of Covid-19

1.   According to a January 2021 report by the International Labor Organization, "Over the past 10 months, the labor markets of Latin America and the Caribbean have regressed at least 10 years, and the crisis is far from over. We are arriving to 2021 with employment in intensive care...  Some 23 million men and women were inactive and stopped seeking employment given the lack of opportunities in the context of the pandemic."

2.   Many Latin American countries, including Mexico and Peru, do not have an unemployment insurance program. Exceptions include Chile and Brazil, which have wage replacement rates similar to the U.S. and Canada. Payments continue for only 5 months in Brazil, but for 1 year in Chile. During Covid, Brazil has initiated a wage subsidy program to encourage employers to hold onto workers. Source: IMF Report.

From the Latinobarometro 2018 and 2020 reports:
http://www.latinobarometro.org/