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Latin America’s Future vs. William Faulkner’s Past

‘The past is not dead’, wrote Faulkner. For the sake of the world’s half billion Latin Americans, let’s hope he was wrong.

Latin America holds the world patent rights on the resource curse: ever since its gold and silver drew the Spanish conquistadors, the continent’s wealth has empowered exploitative, rent seeking governments in alliance with foreign customers and extractive industries who bribe, connive and otherwise do what it takes to get the resources out as cheaply as possible.

Agriculture worked much the same way: rubber, coffee, bananas, wheat, beef and now soy: Latin America’s dependence on commodities empowered parasitic governments in league with powerful economic groups (or populist movements and trade unions) and condemned the region to generations of booms and busts without ever quite creating the broad prosperity that countries with less resources (like Singapore and Japan) or better governance managed to obtain.

Sometimes it works, or seems to. Since the early 2000s, China’s voracious appetite for raw materials has led to an unprecedented injection of cash and loans into Latin America. Growth has been high, the region avoided the worst consequences of the 2008-9 crash, and many, too quickly, believed that the bad old days were gone for good.

For generations, reformers have argued that Latin America should use the prosperity that comes when the commodity cycle is hot to fund the change that could help the continent make the leap to a modern diversified economy less vulnerable to commodity price swings. But like the Arkansas farmer who never got around to fixing the hole in the roof (when the roof is leaking, you can’t fix it because it is raining out, and when it isn’t raining out, the roof isn’t leaking), Latin America doesn’t feel the need to reform when times are good, but can’t afford or manage reforms when things go all pear-shaped.

The good times are still rolling in Latin America, and in some countries there is more appetite for reform than in the past. But the window may be closing. As China reigns in its economic growth for 2012, the growth in commodity demand that has powered Latin America’s recent rise may stagnate. As the FT points out, China’s demand for raw materials like Brazilian metal and iron ore is projected to slow considerably over the next few years.

Arguably, a cloudy day is the best time to fix the roof. It isn’t raining yet, but the prospect of rain might just concentrate minds on the need to do something before the storm starts. This would be an excellent time for countries like Argentina and Venezuela to begin and Brazil to press forward with changes that could build the long term mass prosperity both countries want. History says they probably won’t, but things do sometimes change.

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  • ddh

    Good post, but please fix the error in diction.

    “As China reigns in its economic growth” should use the verb “rein.” It’s a horse–not a king–metaphor.

  • Jacksonian Libertarian

    Why is the development of mining and agriculture in the US and other Western Nations considered Development? While the development of mining and agriculture in South America considered Exploitation? Perhaps that is the Problem, the Cultural view of Development in the West is that it is Growth and a Blessing, while the Cultural view of Development in South America is that it is Exploitation and a Curse. Optimists and Pessimists, where one sees opportunity, the other sees theft. I submit that the view point of Western Culture has been successful in ceasing the opportunities for growth inherent in growing supplies, while South American Culture has failed to take advantage of their own supply strengths.

  • RedWell

    Good summation of the situation, though I think Jacksonian Libertarian only has half the story: yes, Latin Americans tend to wring their hands about exploitation, but the point of the “resource curse” is that history has channeled and limited the opportunities of reform. Wheras the Brits established a commerce culture in North America, the Spanish and Portugese set up feudal, extractive institutions in most of the Americas. Modern Latin Americans’ hands are a bit tied regarding this past…and they are correct that they have been exploited by the US and others. But, Jacksonian–along with WRM–, you are right that changing the culture of victimization and internal exploitation is the only real solution. After all, Canada relies upon extractive industries and agriculture, but it’s no Brazil.

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