Latin America Shifts Left: It's the Economy

Evo Morales' election in Bolivia, with an unprecedented (for that country) 54 percent of the vote, is seen and analyzed here mostly in political terms. He is a former head of the coca growers union and opposes the U.S.-sponsored attempts to eradicate the production of coca. He has talked about nationalizing the natural gas resources now owned by foreign corporations. "We're not just anti-neoliberal, we're anti-imperialist in our blood," he proclaimed at a recent campaign rally. These things will be more than enough to ensure that he does not get a fair hearing here in the United States.

But we would do well to step back from the politics for a moment and look at this election in economic terms. This explains a lot what is happening in Bolivia, and indeed across most of the region. Bolivia is the poorest country in South America -- its GDP (or annual income) per person is only $2,800, as compared to $8,200 for the Latin American region and $42,000 in the United States.

Bolivia has also been subject to IMF agreements almost continuously (except for eight months) since 1986. And it has done what the experts from Washington have wanted, including privatizing nearly everything that could be sold. Among the most notorious was the water system of Cochabamba, which led to the famous "water war" against Bechtel (the buyer) in 1999-2000 after many residents got priced out of the market. The country's Social Security system was also privatized.

But nearly 20 years of these structural reforms -- or "neoliberalism" as Morales and most Latin Americans call it -- have brought little in the way of economic benefits to the average Bolivian. Amazingly, the country's per capita income is actually lower today than it was 25 years ago. And 63 percent of Bolivians live below the poverty line.

So Morales' declarations cannot be dismissed as just populist campaign rhetoric. In fact, the economic failure of the last 25 years is both regional and unprecedented. For Latin America as a whole, income per person -- the most basic number that economists have to measure economic progress -- has grown by about 1 percent for the first five years of this decade. From 1980 to 2000, it grew by only 9 percent. Compare that to 82 percent for the 1960-1980 period -- before most of the neoliberal reforms began -- and it is easy to see that this is the worst long-term economic failure in modern Latin American history.

Here in Washington, most economists and policymakers have either ignored this profound regional economic failure or maintain that is has nothing to do with the structural reforms of the last 25 years. On the contrary, they argue that the reforms did not go far enough -- and that is the position of the Bush administration as well.

But most Latin Americans aren't buying it. This difference over economic policy -- much more than drug policy, the war in Iraq, immigration, or Cuba -- is the main thing that has set Washington on a collision course with most of Latin America. Evo Morales is now the sixth candidate in the last seven years to win a presidential race while campaigning explicitly against "neoliberalism." The others were in Argentina, Brazil, Venezuela, Ecuador and Uruguay. And there will likely be more in the near future, as there are 10 more presidential elections scheduled in Latin America over the next year.

The connection between a set of policy reforms -- implemented at different times in different countries -- and the economic failure of the last 25 years cannot be proven in a scientific sense. And each country's story is different. But there is considerable evidence that many of the policy changes since 1980 that have been advocated by Washington have contributed to this economic disaster.

Fiscal discipline is a good idea, but when the economy is in recession, it may be better to run a budget deficit, as we do in the United States. Inflation is always something to watch out for, but central banks can get carried away and set interest rates too high, stifling economic growth. This is especially true if they are completely unaccountable to anyone outside the financial sector or foreign financial markets.