Transformation of Modern Latin America, 1880 – 2000 Phase I: Initiation of Export- Import Growth...

Transformation of Modern Latin America, 1880 – 2000

Phase I: Initiation of Export-Import Growth 1880 - 1900

Landowners

autonomous, self-sufficient entities not market orientedEuropean industrialization provided market foodstuffs & raw materials L. A. market for goods

1880’s major changes

Argentina foodstuffs & pastoral goods: wool wheat & beef

Chile copperBrazil coffeeCuba coffee, sugar, & tobaccoMexico henequen, sugar, copper, & zincCentral America bananas & coffeePeru sugar & silver

Imported goods from Europe

Textiles, machines, luxury items, & other finished goodsunfavorable balance of trade createdas market lack of competitionas producer growing competition

Investments in L. A.British investments 1870 1913 85 mil. #s sterling 757 mil. #s sterling

2/3 foreign investment in L. A. Brit. 1913 main investment railroads Argentina, Mexico, Peru, & Brazil

Brit., France, & U. S. invested in mines in Mexico, Chile, & PeruL. A. investment was minimal in comparison

Export-import phase in raw materials ? what kind of labor needs did this create?

Dependency

The impetus & capital came from abroad L. A. became “dependent” economically and economic growth dependent, that is on decisions and prosperity in other parts of the world

19th Century Liberalism

Liberalism-intellectual rationale justification faith in progress free market through limited govt. maximization of individual libertiesrationale imported as well w/o the same socio-economic changes taking place in Europe

Results

L. A. opened their markets hoping to gain taxes & income for the ruling elitevision of creating Europe in L. A. only to be ravaged by imbalance of trade

Protective tariffs beaten back by economic liberalism, argued L. A. not well-suited, resources bargaining position, to violate the natural principles of free trade

only the elites were involved in the debate limiting the debate to 5% of pop. controlling the wealth & power elites at local, regional, & national levels

Immigration key to building skilled labor corps rather than development of native labor

Portugal, Spain, & Italypresumption of inferior native workforce

Rapid growth transformed societies

1. modernization of upper-class elites sought to maximize profits opportunities

entrepreneurial spirit emerged marking significant change in outlook seeking efficiency and commercial success not the semi-feudal system in place

2. new professional “service” group emerged to play additional economic roles commercial sector has two major groups A.merchants – many foreigners who tied to economies of European trade centers B. lawyers – representing both foreign and domestic interests—crucial during the export-import phase Assumed crucial new roles helping to determine

the institutional framework for new era

3. Political change

Large landowners began to take a clear interest in national policies & politics

began to pursue national political power & the era of the traditional caudillo was coming to an end

4. Quest for political power

Two forms A. Direct control – landowners & economic elites Argentina & Chile built strong & exclusive regimes with military support, with constitution (legit) political parties exist, but had little differences “oligarchical democracy”

B. imposition of dictatorship (caudillo) military forces Porfirio Diaz indirect rule applied by elites through dictator who did not come from the same class as the elites

In either case, the emphasis was on stability and social control, dissident groups were sur- pressed & struggle for power was contained within restricted circles one of the basic goals of these regimes was to centralize power, stripping the regional caudillos, to create powerful & dominant nation-states

Converse

Dom Pedro II in Brazil made significant headway toward the establishment of an ef- fective nation-state thereby also provoking a regionalist backlash that contributed to the empires overthrow in 1889

the aim of most regimes was to promote the import-export model appeared to be working political stability was viewed as essential to attract foreign investmentforeign in- vestment investment helped strengthened law & order

Railroads good example

Foreign investors would be reluctant to put funds into a country threatened by political disorder Once the railroads were built, as

in Mexico, they became important instru- ments in con-solidating central rule They could be used to dispatch federal troops to put down uprisings in almost any part of the nation

Transformation of Modern Latin America, 1880 – 2000

Phase II: Expansion of Import – Export Growth, 1900 – 1930

Early 20th Century some political reforms in larger countries

1912 – Argentina’s voting law opened suffrage to large sectors of the population & permitted the middle-class party, the so-called Radical Party to win the Presidency in 1916. 1890s – Chile changes occurred – parliamen- tary rule on a previously presidentialist system 1889 – Brazil the overthrow of the monarchy opened a period of limited electoral polity

Cuba’s separation from Spain and subject status to the U. S. makes it special Mexico – even where a large-scale revolution broke out in 1910, the generalization holds: the original goal of the revolutionary movement was not to transform Mexican society, but merely to gain access to the political system for excluded fragments of the country’s middle class.

The reformist movements often produced a “co-operative democracy” – effective participation spread from the upper class to the middle class, to the continued exclusion of the lower class.

For the most part the goals were limited

attempt of the ruling elites to co-opt the middle sectors into supporting the system a cadre of professional politicians was a significant side effect, men who would devote their entire adult lives to the pursuit of political power.

the cadre as often as not represented the interests of the reigning aristocracy, but identified themselves as an identifiably different group, as prominent actors on the political scene, they would also become targets for the disdain and wrath of the military establishment.

For the elites this reformist formula appeared to work fairly well. WW I D for export-import economy integrating ito the global

world market

Political adaptations seemed to assure the long-run hegemony of national elites In fact, liberalism – both political & economic – was seen found wanting.

Latin Americans found their reality did not lend itself to copying the dogma of the legal institutions & philosophical phrases. They failed to understand that originally European liberalism was the ideology of a rising social class whose growing economic power gave it the political leverage to put its ideology into practice

Now what we have to ask ourselves is this anything more than Latin America lacked a large scale middle class or more fundamentally, Latin America had remained an agrarian economy whose export sector was matched, in most countries, by a huge subsistence sector

→Liberalism had a chance only because, after 1850, a small but growing sector of the society thought it saw its interests as different from those of the traditional sectors Specifically, the professionals – lawyers, doctors, military officers, civil servants, and the merchants – all constituted an urban interest that ascribed to the European liberal ideals without gaining the relative economic power.

their livelihood was usually tied to the agrarian sector even though they lived in cities. their clients, customers, and employers were men whose incomes depended largely upon commercial agriculture & the prosperity of this sector in turn, depended upon foreign trade.

For Latin America to abandon this system which they came to recognize as flawed would have meant

a cost for them in the short run, personally.

Protective tariffs, for example, would mean urban consumers paying higher prices for lower quality goods & could have resulted in reciprocal actions by their exporter nations. Liberals were, therefore, disinclined to advocate industrialization, which alone could have increased their number sufficiently to give them the political power that might have made possible the realization of liberal political ideals.

Economic & political liberalism cross-cut in yet another way.

Non-liberal ideas in economics, such as protective tariffs & controls on foreign investments, were often associated in practice with anti-liberal political ideals. Thus the connection was easily established: deviation from liberal principles in economics must mean authoritarian government, and it was therefore held in low regard.

Whenever proposals for government support of national industries were made, opponents charged, often to good effect, that a small group of selfish investors were seeking to profit at the expense of the public.

Latin American entrepreneurs were invariably under financed & inexperienced as every where in the developing world, they faced formidable competition from goods imported from the industrial countries without subsidies & protection they had little hope.

Latin American liberals appear to have been uncertain about an underlying assumption of liberalism, faith in the rationality & enterprise of the individual countrymen

Brazilians claimed the slaves were necessary in the tropical economy because those of European decent could not survive the kind of work needed.The event that transformed this atmosphere was

the spectacular collapse of the world capitalist economy of 1929 – 1930.

Transformation of Modern Latin America, 1880 – 2000

Phase 3: Import-Substituting Industrialization, 1930 – 1960.

The Great Depression had catastrophic effect on Latin American

Latin American exports dropped in total value for the years 1930 –1934 was 48% below 1925 – 1929

This world depression put great pressure on the political systems of L. A. countries, with many military coups & attempted coups

Within 1 yr. Of 1929 Oct. crash, army officers had sought to take power or took power in Argentina, Brazil, Chile, Peru, Guatemala,

El Salvador, & Honduras Mexico went through a serious constitutional crisis & Cuba succumbed to a military coup in 1933

The Great Depression had catastrophic effect on Latin American

While the depression was not fully responsible for the political collapse of these regimes, its economic effects cast a shadow of doubt to the viability of the export- import growth model of growth, helping to discredit the ruling political elites, & made the populace more prepared to accept their displacement even by military regimes. From the 1930’s onward, the military reasserted its traditional role as a principle in L. A. politics

L. A. had two (2) clear options in its response

1. get even closer commercial links to the industrial nation to insure a steady share of the market regardless of the cost so the long term relationship would be secureArgentina & Britain 1933 Roca- Runciman Pact quotas in the English market exchanged for purchase of British goods & insurance of profits on British business in Argentina

L. A. had two (2) clear options in its response

2. the alternative was to industrialize, which had military support, because it fostered greater economic indepen- dence, by building its own industry, L. A. would be less dependent on European & U. S. for manufactured goods

    Military arms would need to domestically produced

    Domestic integration of industrial complex, agri- culture, & mineral goods would make them more self-sufficient, less vulnerable to foreign shocks

   A second purpose was to create jobs for the working

classes the continued to grow in size & importance

The L. A. proletariat was concentrated in the cities & struggles to organize & sustain union movements as opposed to the previous generations, it was now trying to exert power as a social force

Some, ie Chile, unions were free of government control, others, ie Mexico & Brazil, politicians recognized labor as a political resource & took a direct hand in stimulating (& controlling) labor organization

Whether perceived as ally or threat, the urban working class was seeking secure employment & L. A. leaders saw industrialization as one way to respond L. A. did not copy European Industrial form, instead they started producing manufactured goods that they had formally imported from Europe & U. S. (ISI) import-substitution industrialization→  The major countries, Argentina, Brazil & Mexico met with relative success & developed significant industrial plants that helped generate economic growth – initially the result was to generate momentum but there were limitations & draw backs

Social consequences of industrialization were complex 1.  the formation of an entrepreneurial capitalist class industrial bourgeoisie, Marxists  Chile – this group remained based in the landed elite  Mexico & Argentina – this group was comprised of a different social group therefore presented a potential challenge to the hegemony of traditional ruling elites  Either way the basic point remains that ISI

created a new power sector group in L. A. society

Of particular importance here was the role of the state in stimulating ISI growth, L. A. governments actively promoted industry , this was done in various ways

  erecting tariff barriers prices so high to allow domestic firms to compete  creation of demand by favoring local producers in government contracts military supplies  establishing government-run companies & investing directly in government firms Through protection & participation, the state in L. A. furnished critical impetus for the region’s industrial growth

As industrialization progressed, the working classes also grew in strength & importance, whether autonomous or state directed, union movements increased rapidly & the support (or control) of labor became crucial for the continuation of industrial expansion ... ..organized labor emerges during this period as a major action on the L. A. scene

 1.   continuation of co-operative democracy this in which industrialists & workers gained access to power – Chile good example where political parties were organized to represent the interests of new groups & strata in society pro-labor & pro-industrialist parties entered the Chilean electoral process, leading eventually to the tragic confrontation of the 1970s

 1.   most common response involved the creation of multi-class “populist” alliances   the emergence of an industrial elite & the vital- ization of the labor movement made possible a new, pro-industrial alliance merging with the interests of entrepreneurs & workers challenging in some instances the predominance of the landowning elite & landed interests    This can be seen by the example of: Juan Peron Argentina 1940s Getulio Vargas Brazil 1930s Lazaro Cardenas Mexico 1930s

Most populist regimes had two key characteristics1.   they were at least authoritarian:   they usually represented coalitions against some other set of interests ( such as landed interests) that were by definition prevented from participation, & this involved some degree of both exclusion & repression2.   they represented class interests – workers & indus- trialists – groups bound to be in conflict among themselves The maintenance of such regimes therefore depended in large part on the personal power & charisma of individual leaders Peron & VargasIt also meant that, with or without magnetic leadership, they

would be hard to sustain in times of economic diversity

Phase 4: Stagnation in Import-Substituting Growth, 1960s to 1980s

1960’s presented new challenges created by the economic strategies applied to the post-1939 industrialization policies    These new challenges fall into both economic & political challenges 

1st the Economic Sphere

In the economic sphere inherent problems were the first to emerge out of this

  ISI because of the very nature of the beast  The ISI was structurally incomplete domestic producers had to first import the capital goods to produce consumer products  This meant, ultimately, that the economy was still dependent on the industrial nation, but now on a different level

1. One of the major problems was the uneven terms of trade inherent in the world market where L. A. principle exports (coffee, wheat, & copper) underwent a steady decline in purchasing power, while capital goods remained high  Industrial growth reached a bottle neck quantity of primary goods might/would only depress prices

2nd

As domestic products began to reach points close to or at saturation levels the national D ran into a lack of buyers at prevailing prices & credit terms

  only so many durable goods could be sold, especially in markets with the extreme unequal distribution of income

  this situation might have been avoided if a multinational L. A. Common Market had been formed before the rush to individualize, hence a competitive rather than complementary market formed   this competition hindered the attempt by the economists calling for a regional market because once again the short term costs this in turn means examining the cost factors of production

3rd

Closely related to these issues was the relatively high degree of technological production processes employed in L. A. industry. This was heavy capital-intensive investment which called for a smaller work force compared to 19th century Europe & United States which has three (3) results

  a. fewer people employed than elsewhere

  b. need for educated work force – immigration

 c. limitation of consumer market to employed the size of the unemployed population still continued to go

2nd result, again unintended in the 1960s began to pose a serious threat to the prevailing social order

military coups: Brazil 1964, Argentina 1966, & Chile 1973

in all three (3) cases, the most important decisions were made (or subject to veto) by the top ranking officers of the military  Many of the officers were well educated men, who had either gone to school in the U. S. or had been trained by those who had been schooled in the U. S.

They saw their situation as one in which the need for investment was paramountStimulation through investment would over come the stagnation in the economyTo accomplish this, they reasoned they needed to dismantle, perhaps even crush, the collective power of the working classThe more organized the working class, the more difficult the task became 

All three (3) military regimes created a “command economy” when it came to labor

relations.

  once assuming power, they took control of the decisions concerning labors most vital interests – wages, working conditions, fringe benefits, and the right to organize  Chile outright strikes were virtually nonexistent between 1973 – 1979

  Brazil between 1968 – 1978 saw the most repressive years with a relaxation beginning in 1978 after the “miracle” economic turn around for Brazil

Argentina’s stronger tradition of union initiative was harder to suppress, but here labor leaders there were forced to show great prudence

The question that appears to be needed, at this point, to be asked is why repression or heavy

handed tactics needed to be applied ?

In all three cases the economies were suffering heavy inflation & extremely dangerous deficits in the balance of trade payments which made their economies vulnerable to total collapse

  There was a need for stabilization in all three (3)

cases in order to attract public & private capital  All three required stabilization programs to be launched  Traditionally in L. A. the labor movements resisted stabilization programs because in capitalist economies they had only succeeded in carrying out economic stabilization programs by producing a drop in real wages usually very large.

All three (3) military regimes claimed the countries woes were due to incompetence,

dishonesty, or treachery of politicians, as an “anti-political” force the military would be

free of the usual burdens of politics

the military, however, was very aggressive against the radically leftist politicians & labor leaders, few if any channels remained open to the opposition

Chile which had been the most open democracy was also the most repressive instituting draconian measures, abolishing all political parties & burning electoral rollsArgentina’s military government took stern measures in 1976, suspending Congress & all political parties, but no completeBrazil’s military which came to power in a relatively bloodless coup in 1964 

Regimes pursuing this path became known as “bureaucratic authoritarian” states & they

have several characteristics

 1. they granted public offices to people with highly bureaucratized careers military, civil service & large corporations 2. Political & economic exclusion of the working class & control of the popular sector

3. Reduction of near – elimination of political activity especially in the early phases of the

regimes  4. Problems were defined as technical, not political they were to be met with administrative solutions rather than negotiated political solutions  5. Bureaucratic – authoritarian governments had sought to revive economic growth by consolidating ties with international economic forces revising, once again, the terms of dependency on the global world system

Specifically leaders of these regimes often forged alliances with multinational corporations

  to establish credit & gain time, they also needed to come to terms with their creditors, such as the U. S. & European banks & the international lending agencies (such as the World Bank & the Inter-American Development Bank)  it fell to the young economists who had frequently been trained in the U. S. to bring about the needed changes because they were usually the most internationalized members of the new ruling coalition

in Chile the group’s nickname Chicago Boys was not always applied lovingly

While it appeared in all three (3) cases that it was the military that was in charge the bureaucratic-authoritarian regimes were in reality fragile coalitions made up of local industrialists who felt threatened by multinational corporations & the militaries instinct to annihilate any militant opposition aroused opposition from the middle-sector supporters

  a major point is the military rule in these three countries did not endure  1979 about 2/3 of L. A. lived under military control, by 1985 nearly 90%

were ruled by far more relative democratic governments – excluding Chile    civilian presidents were elected in Peru 1980, Argentina 1983 & Brazil 1985

  however, in all cases the military wielded a great deal of power, however, the transition created more political “space”

in which the public (including social sectors once poorly represented) could engage in open politics

This process took place during L. A. worst economic period since the Great Depression

& a debt crisis was beginning to emerge

  in order to pay i on the obligations Argentina, Brazil & Mexico had to pay

the equivalent of 5% of their Gross Domestic Product GDP

  by the end of 1986, 22 to 25 L. A. nations (excluding Cuba) had a per capita lower than in 1980 Argentina & Peru the 1986 figure was below 1970

  this economic crisis exceeded those which had contributed to military coups in the 1960s

Phase 5: Crisis, Debt, and Democracy, 1960s—1990s

Economic growth l970s often relied on external borrowing

petroleum-exporting countries abrupt increases, 1973-74 & again 1979-81, world price of oil made massive deposits in international banks

banks sought to lend out this money to capital-starved but creditworthy clients

– Prominent bankers Europe & U. S.decided that L. A. countries looked like good potential clients at profitable interest rates

– especially if their governments were committed to maintaining law and order.

a frenetic cycle of lending and borrowing began

Between 1970 & 1980 Latin America its external debt from $27 billion to $231 billion

annual debt-service payments (interest plus amortization) of $18 billion

Commodity prices real interest rates bankers became reluctant to make still more loans

Countries of the region experienced difficulty meeting obligations on the debt

August 1982 Mexico declared its inability to pay

U.S. govt frantically put together rescue package for Mexico

it provided only short-term respite it covered interest payments only

major Latin American debtors

Argentina, Brazil, and Mexico-had to pay yearly the equivalent of 5 % of their GDP

Caught in a squeeze between export earnings & debt-service

“neo-liberal” ideas called for “structural adjustments” 1980s, international authorities imposed strict

terms on Latin American borrowersU.S. govt private bankers, & especially, the

International Monetary Fund (IMF)If the governments would undertake

fundamental economic reforms, they could qualify for relief from debt burdens

reforms always included opening up economies to foreign trade & investment

-reducing the role of the govt-promoting new exports-taking steps against inflationThis amounted virtually to a complete

repudiation of time-honored ISI strategies

most Latin American governments accepted IMF-sponsored conditions with little choice

Chile & Bolivia, first succeeded in carrying them out

Mexico made significant headway by late 1980s

Argentina and Peru in the early 1990sBrazil, the largest country of all, would resist

IMF formulae until mid- 1990s

Real economic output (GDP) per capita

By 1990, more loans were made just to cover current interest (i)

payments of L. A.’s total external debt to $417.5 billion

From 1982-1989 L. A. transferred over $200 billion to industrialized nations

equivalent to several times the Marshall Plan

in 1981, 1982, 1983, 1988, & 1989-& showed cumulative of almost 10% over the decade

In this context of economic crisis

Latin America turned away from authoritarianism & toward democracy

coalitions behind bureaucratic-authoritarian regimes turned out to be relatively fragile

Local industrialists felt threatened by multinational corporations

military’s instinct to annihilate any militant opposition aroused protest from intellectuals, artists, & middle-sector representatives

some military leaders chose to return to the barracks-and let civilians take over what seemed to be an “unsolvable problem”

Pressure also welled up from below

A conspicuous feature of L. A. politics throughout ‘80s was in civic participation

ordinary citizens began insist on their rights & demand accountability from governments

In part this resulted from the uniting of opposition forces produced by the brutality of military repression

2nd was commitment to electoral process, people clamored for free & fair elections

3rd a consequence of all these processes, there appeared a new cadre of civilian, middle-class, well-educated presidents in Brazil, Argentina, and Chile

Most regimes were not complete democracies

In many countries the military still wielded considerable power

Marxists left by the 1990s was largely divided after years of repression (including physical elimination) by military dictatorships

Marxists were demoralized, & discredited by collapse of communism in East Europe & the Soviet Union

in some countries the left was still denied effective participation in politics

Key topics, land reform, stood no chance of serious consideration

Human rights suffered continuing violationsAnd many crucial decisions, especially on

economic policy, were made in high-handed & authoritarian fashion

early 1990s, L. A. at last began to reap rewards accepting stringent reform policies

ave infl throughout the region 130 % 1989 to 14 % in 1994

Brazil postponed its reforms until 1994response= international investors looked with

favor on L. A.The inflow of private funds from abroad

from $13.4 billion 1990 to impressive total of $57 billion 1994

The inflow from Europe, Japan, & U. S.

Result = ave L. A. from only 1.5 % 1985-89 to respectable level 3.5 &in 1990s

Problems lingered nonetheless

new private funding “portfolio” investments paper stocks or bonds rather than “direct” investments (such as plants or factories)

Portfolio investments be highly mobile & notoriously volatile & can leave almost instantly

when U.S. Fed. Reserve started i rates early 1994, investors began to anticipate improved returns in the U.S. market

This expectation led to a 14 percent drop in capital flows to Latin America in 1994

Mexico crashed December 1994, foreign investors fled markets throughout the region it came to be known as the “tequila effect”

implication painfully clear: despite impressive & often courageous efforts at economic reform, L. A. remained vulnerable to vagaries of world financial markets

structural problems existed

1. persistence of povertyinternational standards, nearly 40 % pop. L. A. qualified as “poor” in mid-1990s2. long-term problem was inequality since 1950s, L. A. has displayed the most

uneven distribution of income world more than Africa, South Asia, & Middle East & situation was getting progressively worse

early 1990s, the richest 10 & of households L. A. were receiving 40 & of total income, bottom 20 & was getting less than 4 %

Social equity thus came to pose a major challenge for the region

late 1990s, political spectrum in L. A. encompassed a broad span

one end might be called “electoral authoritarianism,” its harshest form Guatemala

other end was “incomplete democracy,” with many cases lying in between

After long struggle tyranny, Chile resumed its position, along with Costa Rica, as perhaps the most democratic country in the region—despite continuing autonomy of the armed forces

Showing a remarkable degree of political openness, Argentina and Brazil transferred presidential power through free and fair elections

political institutions were notoriously weak Partly as result of the military dictatorships especially the judiciary, the legislature, & the

civil service, as well as governmental ministries and institutions

Peru faced perhaps the starkest institutional vacuum of the entire region