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This Op-ed appeared in the reports
section of Hemisphere magazine in their January 1999 issue.
EMERGING MARKETS AND SUBMERGED HISTORIES
Cautionary Tales from Latin America
By Lowell Gudmundson
For nearly a decade now, in the post-Cold
War world of the End of History, with its economics-derived social
science, we have witnessed the growth of a global financial system
powerfully intertwined with so-called "emerging markets" (Russia,
Eastern Europe, Latin America and, more unevenly, Asia). At the
same time, the average US citizen has been bombarded with a withering
assault of simultaneously hopeful and authoritative prescriptions
for both economic and political development in this no longer bipolar
world economy. In its more low-brow versions ("one size fits all,"
"the market knows best," "shrink the state" or "investor confidence
above all else"), this recycling of a triumphalist political economy
made by and for the business classes in Thatcher's England and Reagan's
America represents the culmination of two decades characterized
by the abandonment and even repudiation of social democratic and
welfare-state policies. The same two decades have witnessed the
collapse of the Soviet empire and complex processes of (re)democratization
amid challenges to authoritarian and military regimes in many corners
of the world
It is more than a little ironic, then, that Latin American stock
markets and economies today are frantically seeking to insulate
themselves from the so-called Asian contagion and Russian collapse,
or, failing that, to be rescued by the IMF, World Bank, or US Treasury
Department. In what some swore would be the "last days" of the End
of History, it appears that area-specific and historically grounded
knowledge may yet prove relevant. The repeatedly mistaken and shortsighted
declarations of financial gurus (this generation's "Money Doctors,"
comparable to the US "experts" sent round the world, particularly
to Latin America, in the 1920s), for whom open markets equal democracy,
might better lead to a search for secular, less apocalyptic solutions
than to any celebratory wake for the End of History. As observers
of the more corrupt and authoritarian Asian regimes have discovered,
"crony capitalism" can have a problematic relationship with the
democratic strengthening of civil society, whatever the economic
performance indicators. Similarly, the emergence of so-called oligarchies
and mafias in control of recently privatized state properties in
the former Soviet Union, tied to a banking system as closed as it
is corrupt, as politically favored as it is insolvent, make a mockery
of words such as "reform," "private sector," and "competitive."
While general theoretical models no doubt prove useful for everything
from relative prices to democratic elections, they offer only tools
for the analysis of concrete historical circumstances, not an a
priori justification for its avoidance. Without invoking any in-depth
knowledge of the Asian or Russian cases, let us consider some cautionary
tales based on the Latin American historical experience that may
prove provocative, especially as regards the so-called Russian collapse.
What other region of the world has ever opened itself more fully
to foreign investment and export-led growth than Latin America after
roughly 1880 (up until the crash of the 1930s and the half-century
backlash of inward-looking, protectionist policies)? What other
region so fully supported policies to boost (not always successfully,
of course) investor confidence with open-door economics and revolving-door
politics, as often as not insured by military or strong-man rule?
And what other region so typically suffered from a recurrent inability
to develop domestic political coalitions capable of expanding civil
society and insuring the rule of law and democratic succession by
civilian authorities? Free trade was not only not synonymous with
democratic development in many Latin American countries; the two
concepts often proved mortal enemies. This was not owing to any
intrinsic incompatibility, but rather to the lack of a broad domestic
social base for the policies needed to promote exports and the patterns
of power and income distribution resulting from them.
Rather than consulting yet another international Money Doctor on
how to "get the prices right," how to downsize the state, or how
to restore investor confidence and a stable exchange rate, Russian
policy makers might want to consider some cautionary tales from
their former friends and comrades-in-arms in Latin America. As a
Sandinista riddle asked in the early 1980s, why is it that Latin
American nations suffer from so much political instability and the
US enjoys so much stability? The answer: There is no US Embassy
in Washington! Policy advice from those who will not directly suffer
the consequences of its implementation is advice one takes at a
certain risk. When one hears that Russia's so-called reformers must
merely stay the course, or adopt yet more radical approaches to
privatization while continuing to use banking subsidies to support
those relative few who have benefited from the reforms to this point,
one wonders whether any thought at all is being given to the sort
of political and social support base necessary for policies to succeed
in the longer term
Two chilling examples from Latin America may drive this point home.
The first deals with the privatization of land ownership, a major
bone of contention in Russia and Eastern Europe. The many theoreticians
who puzzle over the negative effects on economic performance of
a truncated land market incapable of attracting private bank credit
to expand production and increase productivity should recall the
socially polarizing resolution of this problem in vast regions of
Latin America in the late nineteenth century. In countries such
as Mexico and Guatemala, for example, despite a radical and often
bloody commitment by increasingly dictatorial regimes to "investor
confidence above all else," revolutionary violence at different
points in the twentieth century wiped out far more than just the
economic gains made in the name of clarity of property rights and
export-led growth. The social and historical paradox of farmers
unable to afford to buy the land they farm was as true of nineteenth-century
Mexico and Guatemala as it is of post-Soviet Russia. Simply entrusting
land reform to the market or to the tender mercies of Russia's new
"oligarchies" is no more certain to lead to long-term stability
or democratic development than it did in Latin America's indigenous
highlands a century ago. Today's Money Doctors, whose only medicine
is a watered-down mixture of demonizing the state and sanctifying
an equally abstract market, have no magic formula with which to
resolve the difficult questions involved in creating a socially
sustainable support base for whatever system of property rights
and politics emerges from these conflicts.
Guatemala provides a second example of a more overtly political
nature. The most alarming descriptions of mafia-style political
intimidation and influence peddling in Russia today should lead
all but the most committed true believer to question any easy equivalency
between market reform and democracy. Extreme concentrations of economic
or political power rarely persist for long without becoming intertwined
wherever one may look in the world, and certainly in both Russia
and Latin America. Guatemala's military-backed governments practiced
an officially sanctioned repression and butchery with few peers
in the modern world, routinely intimidating the citizenry with Mafia-style
kidnapping, torture and murder. It would be well to remember that
the United States consistently supported and even intervened to
help reestablish this type of regime, committed above all else to
international trade and investor confidence.
When stability and investor confidence are cards that can consistently
trump those of democratic process and citizenship amid the rule
of law, no amount of special pleading can change the fact that so-called
market reforms and democracy have permanently parted company. This
was Guatemala's tragic fate for most of the twentieth century, despite
its vehement membership in the "Free World" during the Cold War.
Averting a similar tragedy in Russia will require more than just
contemporary theoretical orthodoxy or financial stability. It may
even require the reemergence, rather than the submergence, of historically
grounded thinking, a decade or more into the perversely premature
celebration of its irrelevance by End of History types and post-Cold
War globalists alike.
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