Latin America: Jaguars Awaken

Map

Human Development Index: Latin America and the Caribbean
		Human Development Index	Life expectancy at birth	Expected years of schooling	Mean years of schooling	Gross national income per capita	HDI rank
HDI rank		Value	(years)	(years)	(years)	(2017 PPP $)
		2021	2021	2021	2021	2021	2020
42	Chile	0.855	78.9	16.7	10.9	24,563	43
47	Argentina	0.842	75.4	17.9	11.1	20,925	47
55	Bahamas	0.812	71.6	12.9	12.6	30,486	58
58	Costa Rica	0.809	77.0	16.5	8.8	19,974	57
58	Uruguay	0.809	75.4	16.8	9.0	21,269	55
61	Panama	0.805	76.2	13.1	10.5	26,957	67
68	Grenada	0.795	74.9	18.7	9.0	13,484	70
70	Barbados	0.790	77.6	15.7	9.9	12,306	71
71	Antigua and Barbuda	0.788	78.5	14.2	9.3	16,792	71
75	Saint Kitts and Nevis	0.777	71.7	15.4	8.7	23,358	76
80	Dominican Republic	0.767	72.6	14.5	9.3	17,990	82
83	Cuba	0.764	73.7	14.4	12.5	7,879	73
84	Peru	0.762	72.4	15.4	9.9	12,246	85
86	Mexico	0.758	70.2	14.9	9.2	17,896	88
87	Brazil	0.754	72.8	15.6	8.1	14,370	86
88	Colombia	0.752	72.8	14.4	8.9	14,384	88
89	St Vincent & Grenadines	0.751	69.6	14.7	10.8	11,961	82
95	Ecuador	0.740	73.7	14.6	8.8	10,312	99
102	Dominica	0.720	72.8	13.3	8.1	11,488	106
105	Paraguay	0.717	70.3	13.0	8.9	12,349	100
106	Saint Lucia	0.715	71.1	12.9	8.5	12,048	104
108	Guyana	0.714	65.7	12.5	8.6	22,465	107
110	Jamaica	0.709	70.5	13.4	9.2	8,834	110
118	Bolivia	0.692	63.6	14.9	9.8	8,111	119
120	Venezuela	0.691	70.6	12.8	11.1	4,811	118
123	Belize	0.683	70.5	13.0	8.8	6,309	120
125	El Salvador	0.675	70.7	12.7	7.2	8,296	124
126	Nicaragua	0.667	73.8	12.6	7.1	5,625	129
135	Guatemala	0.627	69.2	10.6	5.7	8,723	133
137	Honduras	0.621	70.1	10.1	7.1	5,298	138
163	Haiti	0.535	63.2	9.7	5.6	2,848	162
	Developing countries	0.685	69.9	12.3	7.5	10,704	—
	Regions
	Arab States	0.708	70.9	12.4	8.0	13,501	—
	East Asia and the Pacific	0.749	75.6	13.8	7.8	15,580	—
	Europe and Central Asia	0.796	72.9	15.4	10.6	19,352	—
	Latin America and the Caribbean	0.754	72.1	14.8	9.0	14,521	—
	South Asia	0.632	67.9	11.6	6.7	6,481	—
	Sub-Saharan Africa	0.547	60.1	10.3	6.0	3,699	—

NOTE: Venezuela fell from rank 78 in the 2018 report to 118 in 2020, and to 120 in the 2021 ranking.
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 about 5,000 years ago in Middle America, in the areas of modern southern Mexico, Guatemala, and Belize, and reached the height of their "classical period" between 250 and 900CE. “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. Early versions of central planning and  communal agricultural labor.

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

II.  History

A.  European Pre-History

711CE - Muslim "Moors" from northwest Africa conquered the Iberian peninsula (Spain and Portugal) and later also conquered Sicily, and introduced their religious practices along with beautiful artistic and architectural traditions.

718-1492CE - The Reconquista (700-year struggle to regain territory from the Moors) began with the Battle of Covadonga, the first Christian victory over Arab-Berber forces. As territory was conquered, Muslims and Jews were forced to either leave Iberia or convert to Catholicism to stay, and some blended Christianity with their previous faiths.

1478-1834CE - The Spanish Inquisition imposed Catholic orthodoxy on those who converted from Islam or Judaism to Christianity during the Reconquista and eventually spread to North and South America.  Around 150,000 people were prosecuted, including about 4,000 who were executed.

A.  Colonial Period

1.   Authoritarian practices and institutions that developed in Spain during the Reconquista and Inquisition were transplanted to Latin America.

2.   Extractive motives. Distorted transportation systems.

3.   Top administrators were born in Europe; lower posts held by criollos (people of pure Spanish descent, born in America) and mestizos (people with mixed Spanish and indigenous heritage), leading to the rise of a middle class.

4.   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 maquiladora factories, but as Chinese wages began to outpace Mexican manufacturing wages, the maquiladora industry, now organized by IMMEX (Manufacturera Maquiladora y de Servicios de Exportacion), began to grow again. By 2014, maquiladoras employed 80 percent of Mexico’s manufacturing workers.

When Trump started a "trade war" with China in 2016, that gave another boost to Mexico as an alternate source of low-wage goods, and then the supply-chain disruptions of COVID and continuing deterioration of relations with China reinforced it. Now, foreign investors such as Foxconn (Taiwan) and Man Wah Furniture Manufacturing (mainland China) are opening huge facilities in Mexico to reduce transport costs and to strengthen access to the U.S. market. In 2021, Chinese companies were responsible for 30 percent of foreign investment in Nuevo León, second only to the United States at 47 percent. The U.S.-Mexico port of entry in Laredo, Texas, now competes, month-to-month, with Los Angeles as the most important shipping port to the U.S.

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”

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