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Thursday, Oct. 28, 2010

Should the U.S. be worried as Latin America prospers?


Behind the excitement in the rescue of the 33 Chilean miners buried 623 meters underground for 69 days lies a mystery.

We saw close up the skills of the Chilean engineers in locating and rescuing the trapped miners. We saw the cooperation of the Chilean people in the face of this disaster. Yet, on the GDP-per-capita charts, Chile ranks far below most Western nations — much less than half the West European average for example.

Several of its neighbors — Peru and Bolivia for example — do far worse. Yet, one has only to visit these countries to realize that they are worthy nations with elite and middle classes equal to or better than what we see in many Western nations. So why the disparities?

A website* devoted to finding cultural reasons for per capita national income differences notes: There is no explanation for why Chile, a peaceful country that is 95 percent white, has a per capita income half that of Japan — a nonwhite country that has been nuked twice — other than the voluntarily chosen beliefs of the two populations.

By refusing to speak openly of how culture and ideas affect success, we are taking away what little the have-nots have and giving even more to the haves.

Cultural reasons for why Chile has lagged, despite its mineral and agricultural wealth, are not hard to find. One is the entrenched class differences in all Latin American societies, shown to some extent in those mine rescue scenes — the billionaire Chilean president with his trophy wife versus the miners, earning less than $30 a day for dangerous work in a remote location, and their humble families.

Another is the intense emphasis on family ties — something good in itself, but at the upper levels a major cause for much of the greed and corruption that helps entrench those class differences.

Most of all, it has been the Latin American subservience to the U.S.- imposed or influenced free-market policies that has done such harm to Latin American economies. Chile today may benefit from high prices for gold and copper. But like all Latin American societies (other than Brazil with its large domestic market) it lacks significant manufacturing.

And what Japan showed us long ago is that without manufacturing it is hard to prosper, that manufacturers can only survive if they have markets, and that initially those markets usually require protectionist policies. U.S.-style free market fundamentalism for the most part has denied such protection.

Try to set up an independent textile or electrical goods factory in any Latin American nation. Even if you have the advantage of cheap labor, your products will immediately be overwhelmed by the flood of imports not just from the United States and Europe but also from Japan, China, Korea, Taiwan and any of the other Asian nations that from the beginning set out to protect their domestic industries while subsidizing exports either directly or through artificially low exchange rates.

According to the fundamentalists, there is nothing wrong with all that. The Latin Americans can stick to producing the primary goods needed by the advanced economies and buy manufactures in exchange.

Rarely can exports of primary goods pay for all the goods an unprotected developing nation needs to import. Indeed, under the North American Free Trade Agreement. Mexico is unable to compete even with highly-mechanized U.S. corn production (it makes up by exporting illegal workers and drugs).

In the past, as trade balances collapsed, currencies became devalued, inflation spiraled and capital fled abroad. The International Monetary Fund and the World Bank then intervened with more U.S. fundamentalist economic dogma — austerity budgets, import tariff reductions and so on. Then as poverty worsened, the Latin American nations, including Chile, were thrown into decades of severe ideological disorder that the U.S., with its constant anti-leftwing interventions, did much to intensify. Growth was set back even more.

Now, finally, the Latin Americans have begun to get their act together. They are producing their own sensible economic policies based on their own trade and financial blocs. Finally their politicians have got together to produce the reconciling Contadora policies needed to end the decades of agonizing leftwing-rightwing confrontations.

Thanks to booming prices for minerals and some other primary goods, growth is finally under way. But most still lack the manufacturing industry needed to absorb unemployment — especially Peru, Colombia and Venezuela.

Could Latin America be about to extract a punishing revenge? During their many years of economic, social and political instability, Latin Americans lost confidence in their national currencies. Even the prices of rentals and secondhand cars would be set in dollars rather than the local currency. But the recent economic crisis has seen the dollar weaken against those once-despised local currencies. People no longer need to hold dollar deposits.

In Japan today, the pundits still blame the relentless fall of the dollar on China, or on U.S. stimulus spending and quantitative easing moves. In fact the real reason is far more worrying. Not just in Latin America but also around much of the developing world, the Middle East especially, people are beginning to realize how much they are losing daily by continuing to hold dollars.

For decades the U.S. prospered by the willingness of these people to use dollars for economic dealings. Now it is all going into reverse. What is still a stream of dollar-deposit cancellations could soon become a flood, leaving a wrecked global financial system in its wake. The U.S. could well begin to suffer not just the economic problems but also the political instability it helped cause for decades in Latin America.

Gregory Clark, a former university president and longtime resident of Japan, visits Latin America often. *Website on cultural reasons for per capital national income differences: Success-and-Culture.net


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