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A view from The Economist: ‘US and Latin America, nobody’s backyard’

Sunday, September 12th 2010 - 07:29 UTC
Full article 5 comments
Tens of millions of Latinamericans have climbed out of poverty Tens of millions of Latinamericans have climbed out of poverty

Under the heading of “The United States and Latin America: Nobody’s backyard”, The Economist publishes one of its leading articles, supported by special pieces dedicated to the region’s potentialities, recent successes and shortcomings, mainly triumphalism and complacency.

Latin America’s new promise—and the need for a new attitude north of the Rio Grande

THIS year marks the 200th anniversary of the start of Latin America’s struggle for political independence against the Spanish crown. Outsiders might be forgiven for concluding that there is not much to celebrate. In Mexico, which marks its bicentennial next week, drug gangs have met a government crackdown with mayhem on a scale not seen since the country’s revolution of a century ago. The recent discovery of the corpses of 72 would-be migrants, some from as far south as Brazil, in a barn in northern Mexico not only marked a new low in the violence. It was also a reminder that some Latin Americans are still so frustrated by the lack of opportunity in their own countries that they run terrible risks in search of that elusive American dream north of the border.

Democracy may have replaced the dictators of old—everywhere except in the Castros’ Cuba—but other Latin American vices such as corruption and injustice seem as entrenched as ever. And so do caudillos: in Venezuela Hugo Chávez, having squandered a vast oil windfall, is trying to bully his way to an ugly victory in a legislative election later this month.

Yet look beyond the headlines, and, as our special report shows, something remarkable is happening in Latin America. In the five years to 2008 the region’s economies grew at an annual average rate of 5.5%, while inflation was in single digits. The financial crisis briefly interrupted this growth, but it was the first in living memory in which Latin America was an innocent bystander, not a protagonist. This year the region’s economy will again expand by more than 5%. Economic growth is going hand in hand with social progress. Tens of millions of Latin Americans have climbed out of poverty and joined a swelling lower-middle class. Although income distribution remains more unequal than anywhere else in the world, it is at least getting less so in most countries. While Latin American squabbling politicians blather on about integration, the region’s businesses are quietly getting on with the job—witness the emerging cohort of multilatinas.

As they face difficulties in an increasingly truculent China, no wonder multinationals from the rich world are starting to look at Latin America with fresh interest. Sir Martin Sorrell, a British adman, talks of the dawn of a “Latin American decade”. Brazil, the region’s powerhouse, is the cause of much of the excitement. But Chile, Colombia and Peru are growing as handsomely and even Mexican society is forging ahead, despite the drug violence and the deeper recession visited on it by its ties to the more sickly economy in the United States.

Two things lie behind Latin America’s renaissance. The first is the appetite of China and India for the raw materials with which the continent is richly endowed. But the second is the improvement in economic management that has brought stability to a region long hobbled by inflation and has fostered a rapid, and so far sustainable, expansion of credit from well-regulated banking systems. Between them, these two things have created a virtuous circle in which rising exports are balanced by a growing domestic market. Because they were more fiscally responsible during the past boom than in previous ones, governments were able to afford stimulus measures during the recession. There is a lesson here for southern Europe: Latin America reacted to its sovereign-debt crisis of the 1980s with radical reform, which eventually paid off.

The danger of complacency

Much has been done; but there is much still to do. Building on this success demands new thinking, both within Latin America and north of the Rio Grande.

The danger for Latin America is complacency. Compared with much of Asia, Latin America continues to suffer from self-inflicted handicaps: except in farming, productivity is growing more slowly than elsewhere. The region neither saves and invests sufficiently, nor educates and innovates enough. Thanks largely to baroque regulation, half the labor force toils in the informal economy, unable to reap the productivity gains that come from technology and greater scale.

Fixing these problems requires Latin America’s political leaders to rediscover an appetite for reform. Democracy has brought a welcome improvement in social policy: governments are spending on the previously neglected poor, partly through conditional cash-transfer schemes, a pioneering Latin American initiative. But more needs to be done, especially to improve schools and health care, if everyone is to have the chance to get ahead. Also needed is a grand bargain to tackle the informal economy, in which labor-market reform is linked to a stronger social safety-net. And, even if some things like infrastructure and research and development plainly need more government spending, the worry is that triumphalism over escaping the financial crisis may prompt a return to a bigger, more old-fashioned state role in the economy—despite the failure of these policies in the region in the past.

Getting these things right will be easier if relations with the United States improve. Latin America needs to shed its old chippiness, manifest in Mr Chávez’s obsession with being in the hated yanqui’s “backyard”. More sensible powers, notably Brazil, should be much louder opponents of this nonsense. As they start to pull their weight on the world stage, working with the United States will become ever more important.

The attitude of the United States needs to change too. Worries about crime and migration—symbolized by the wall it is building across its southern border—are leading it to focus on the risks in its relationship with the neighbors more than on the opportunities. This is both odd, given that Latinos are already the second-largest ethnic group north of the border and self-defeating: the more open the United States is towards Latin America, the greater the chances of creating the prosperity which in the end is the best protection against conflict and disorder. After two centuries of lagging behind, the southern and central parts of the Americas are at last fulfilling their potential. To help cement that success, their northern cousins should build bridges, not walls.
 

Categories: Economy, Politics, Latin America.
Tags: economy, Latam.

Top Comments

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  • Think

    Yet another big smelly bucket of horse manure from the Economist....

    Sep 12th, 2010 - 08:20 am 0
  • Fernando_A

    “the more open the United States is towards Latin America, the greater the chances of creating the prosperity which in the end is the best protection against conflict and disorder”

    Wrong, I live in the US and I can tell you with certainty that dealing with illegal immigrants isn't an issue for them. What is seemingly “beyond their control” is allowed to happen because it's convenient, illegal immigrants do what no one else would for a fraction of the cost. The only reason they pass laws against illegals is to satisfy the bigots and nationalists who don't even know what the hell they're talking about. I hear things like “well, they don't even pay taxes!!”. Well, if you get payed by check your income tax is deducted automatically, and if you're illegal you don't get a penny back at the end of the year. If you get payed under the table the employer can pay you whatever he wants, in which case he is the one not paying taxes. The only reason recent laws against illegal immigration have been passed is because of unemployment, that's where the extra pressure comes from.

    How exactly does the US benefit from the prosperity of South America? If it were up to them South America would go back to the stone age. And how many times did this article mention Hugo Chavez? Cleverly spacing it out throughout the article, there was no vail.. editor, no subtlety.

    Sep 12th, 2010 - 09:58 am 0
  • JoseAngeldeMonterrey

    Fernando,

    I don´t agree much on the article´s point that the US should do more about Latin America, I am not sure we need the US to do somethings for us more than we need ourselves to more things for our own sake.

    Inmigrants, legal or illegal, make three or four times as much in the US as they would do in Latin America, not all the jobs they take are minor little jobs american´s don´t want, in fact many americans are unemployed precisely because a lot of these inmigrants are skilled and prepared to take on their jobs for a lower pay, but that pay is still much higher than in our countries and that´s very reason why they moved overthere, but yet another powerful motive is the high upwards social mobility of the US society.

    Many inmigrants who first arrived as illegal imigrants, later got some form of regularization, be it because of an amnesty, like the one Reagan signed in 1986, or because they were petitioned by a US firm to get their residence. Many of them are now prosperous people and it is a fact that the latino population in the US is one of the largest latin american markets in the world with high purchasing power. Many Mexican Americans, Cuban Americans, Puerto Ricans, Argentinians, and other inmigrants are now successful businessmen, atletes, artists, singers, even senators, congressmen, city mayors. Obama himself is the son of an inmigrant just like Dilma in Brazil. That single fact speaks volumes about a society´s openness.

    Sep 12th, 2010 - 12:42 pm 0
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