Traditionally public officials in the United States have acknowledged that decisions taken in Washington have important consequences to the domestic situations in countries around the hemisphere. These consequences may seem only to affect faraway peoples about whom Americans may or may not care, but they nevertheless can have serious implications for the United States as well.
For example, the past few years have seen a negative flow of Mexican nationals to the United States: In other words, more undocumented Mexicans have left U.S. territory than have entered it. This in part is due to the stability and moderate growth of the Mexican economy, which has been able to incorporate workers at higher rates than in the past. But if Mexico’s economy were to fall into disarray—or be pushed there by, say, a country to the north—then it is highly likely that Mexican workers will reverse the negative flow of Mexican nationals to the United States in search of better-paid jobs up north.
For Guatemala, El Salvador, and Honduras, the continued trafficking of illegal drugs to the United States—plus the illegal trafficking of weapons from the United States and concomitant militarization of public security in the region—has led to huge increases in violence. This in turn has led to an increase in the immigration rate from Central American countries to the United States.
Finally, the United States enjoys a significant trade surplus with Latin America in precisely those sectors that provide the well-paying jobs that American want. A decline in the economic fortunes of the region can easily translate into unemployment in the homeland.
Today the U.S. government is at great risk of making policy on Latin America based on not just xenophobia and bigotry, but also apathy and ignorance. U.S. news coverage of the region is severely limited: The media, for example, pays much more attention to killings in Baghdad and Aleppo than it does to those in San Salvador, San Pedro de Sula, or Acapulco. Yet arguably the latter have much more immediate consequences for American national security. Not since the pre-9/11 Bush presidency has the U.S. government made the region a priority. Awareness of the critical importance of the region within the majority of the U.S. population is virtually nil, while stereotypes of the region’s failures abound.
Latin American economic growth and political stability are not of marginal concern to the United States; they should be a central focus for the new Administration. Immigration flows and security risks are usually symptoms of larger problems that need to be thoroughly understood before policies touching on them can generate beneficial outcomes. To that end, what follows is a net assessment of developments over the past few years, along with estimates of their likely progressions and some suggestions for U.S. policy.
A Middling Decade
Despite the talk of a boom, Latin America generally underperformed other developing economies in the first decade of the 21st century. While some countries such as Argentina and Brazil saw their GDP increase (and then collapse after 2008), almost all of this growth was fueled by a return to dependence on primary commodities. These represented roughly half of all exports from the region and much of the growth was linked to a single consumer: China.
In many ways, the past 15 years was a repeat of previous economic booms in the region: based on few products sold to few customers. Moreover, Latin America remained relatively marginal as both a source of strategic commodities for any customer, and even more so as the destination of goods. One historical shift is that inflation has remained under control (with some exceptions) and global debt is no longer a dominant share of the regional economy.
A bright spot over the past two decades has been the lowering of inequality and of the population living in poverty. What some consider the rise of a new middle class in most of the region—even in smaller countries like Honduras and Panama—was arguably the most important social development of the past decade for Latin America. There were also significant improvements in basic human development indicators such as literacy and access to health. But the fragility of the growth and its narrow dependence on Chinese trade means that the millions enjoying improvement in their living standards may soon be hurled back toward the bottom. Certainly, many in Brazil are suffering a pervasive slide back from even marginal middle-clas status.
Despite improvements in distribution, Latin America remains the most unequal region in the world, with GINI coefficients above 0.5. Even when data aggregated by country show signs of economic dynamism—in Perú, Chile, and Colombia, for example—there is huge variation within those countries between urban and rural areas, and between regions. In the case of Mexico, north and south remain almost two different countries. Most Latin American countries, in other words, still have a dual economy. On one side there are sub-national regions linked to the world economy, where manufactured goods and agricultural exports are important sources of economic and social development, while still large swaths of the population, if not the majority, are engaged in low-skilled and low-productivity jobs regardless of their human capital. Subsistence farming is still common, and the informal economy thrives as a source of income for the families of workers that are not absorbed by the manufacturing and export sectors.
The dual characteristics of these economies also imply that the sizes of these countries’ domestic markets remains relatively small. Internet penetration and use (arguably the best contemporary indicator of a “global consumer” status) remain relatively low (in some countries below 25 percent). Dependence on external markets is partly explained by the absence of a large enough consumer base in the region.
The early 21st century did see the consolidation of democracy in Latin America. In no country does the military retain veto power over policymaking. Parties on different side of the political spectrum have risen to power, and, in a trend that signals democratic normalcy, divided governments that don’t lead to total paralysis have become common, such as in Mexico, Ecuador, and Colombia, where parties in power without a majority have been able to build legislative alliances.
Furthermore, though issues regarding security and violence remain, the fragility of the rule of law and the danger of arbitrary action by powerful strongmen have decreased. Recent events in Brazil and the ongoing chaos in Venezuela still demonstrate that respect for democratic principles remains threatened. Overall, the population is satisfied with democracy, but there are still moments in which lack of faith in the system could lead to instability. Nicaragua and Honduras are cases in point; though formally democratic, lack of respect for the rules of democracy has led to uncertainty. In Nicaragua, Daniel Ortega has been reelected more than once under accusations of voter fraud and intimidation. In Honduras, a coup supported by in the legislative and judicial branches of government pushed the President, Manuel Zelaya, into exile. In one case, the incumbent used his power to prolong his stay in government; in the other the incumbert couldn’t complete his term because of elite opposition.
In the past decade left-wing governments rose to power throughout the region, most promimently in Venezula, Bolivia, and Argentina, following widely divergent paths of failures and successes in political and economic fortunes. Though Venezuela seemed to successfully reduce poverty at first, excessive reliance on oil exports and eccentric economic policies have led to a deep economic crisis. Argentina, in contrast, was able to restart growth after its great crisis in 2001, but the failure of subsequent protectionist policies led to an economic downturn. In recent months rightist politicians who have exploited the failure of past governments in order to win elections have upended this leftist wave, though rightwing populism redolent of the Perón era has been mostly absent. This was the case in Argentina, where the Macri government assumed power with great expectations for pro-trade and pro-busniess changes in economic policy after Cristina Kirchner’s second, highly controversial, term. In short, the mechanisms for electoral democracy are working, meaning not only that there is vibrant political competition, but also that (except for a few cases) incumbents participating in elections accept the possibility that they might lose.
The most critical development of the past 15 years in the region has been the rise in violence, particularly in Central American and in Mexico. The failure of the Latin American state to guarantee its monopoly over the means of violence has been a noted characteristic of the region since independence. The latest wave of violence, however, does not share the historical ideological characteristics but represents an arguably more worrisome collapse of social norms and public life. With some exceptions, large parts of Latin American cities remain unsafe. The reliance on the Brazilian military to “pacify” parts of its urban centers during international events like the Olympic Games is an excellent indication of the challenges facing all of these governments. But nowhere has this achieved critical mass more than in those countries through which drugs flow to the American market.
Significant parts of Honduras, Guatemala, El Salvador, and Mexico are experiencing levels of violence unprecedented in peacetime. The implications of the increase in violence and the governments’ reaction to it are not only limited to public safety, but also to increased risks in exercising basic rights like freedom of speech.
In general, the decade has been disappointing for the region. Economic growth failed to lessen historical patterns of dependence and inequality. While democracy remains consolidated, the levels of violence represent arguably the most important threat to the long-term stability of the region.
More of the Same
Economic dependence on China does not bode well for Latin America. The decline in demand and the subsequent collapse of prices has led to deflationary growth if not outright income decline. The famous Economist cover of a rocketing Corcovado Christ is now more a subject of ridicule than inspiration. In the face of likely weak global growth, the model that the region has followed over the past decade (if not centuries) does not inspire optimism.
Unfortunately, the possible sources of relief seem limited. Shifting to domestic demand is made difficult by the still relatively small percentage of the population that could be called middle class (roughly a third). The announced renegotiation or cancellation of NAFTA does not inspire much hope in manufacturing investment for the U.S. market. However, a closing of the North American market might actually lead to a return to an emphasis in developing domestic markets, diversifying trade partners and retaking an explicit industrial policy. Whatever success these policies may have, new trade barriers would not be good news for American exporters.
Political and economic instability also make it unlikely that the improvements in inequality and poverty levels can be continued. This places the region in a pessimistic equilibrium: The absence of external economic stimulants further constrains the development of a possible replacement in domestic markets.
The threat of a more general de-institutionalization is also clear. The experience of Iraq should have taught the United States that sometimes an antagonistic state is preferable to the absence of any state at all. U.S. policy in the region (and in the rest of the developing world) assumes an institutional continuity, which seems far too optimistic. Our analyses are based on our understanding of domestic elites and institutions whose ability to fulfill obligations and commitments may be limited by discontent and still-limited state capacity. To assume that the commands stemming from a presidential palace hold sway throughout an entire national territory is to ignore the history of the region. Politically, the recent events in Brazil and the ongoing chaos in Venezuela indicate that the stability of regional democracy is not assured.
What Can Washington Do?
Latin American governments, popular opinion with them, will react negatively if they see their nations’ interests adversely affected by U.S. policy, but, more importantly, their domestic politics could change dramatically in response to symbolic gestures of U.S. coldness or even aggression. Both Mexico and Brazil have retaliated when U.S. policy has affected, in the first case, trade agreements or, in the second, restrictions on travelers. There is also a latent distrust in Latin America for the United States based on past experience that has included direct political interventions. This distrust is generally latent because anti-Americanism tends to be fueled by governments that use the United States as a rhetorical scapegoat, or that genuintely feel threatened by it. But the democratic normalization of Latin America also means that nationalism and anti-Americanism can easily become part of political campaigns and government postures, even when it is not used for narrow political purposes. A rise of new anti-American sentiment from a broader popular base would further restrict policy options and could affect U.S. interests in the region.
An intelligent U.S. policy toward the region would first recognize the fragility of political and economic arrangements there. Democracy and the market have dominated the region since the 1980s, but the United States cannot assume this will always be the case. The best chance for a continuation of a Latin America that is not a burden to the United States is the consolidation and relegitimation of the rules of the political and economic game. There are three interrelated threats to the stability of the region: economic stagnation, inequality, and violence. Each of these in turn can create three threats to American national security: an increased flow of undocumented migrants; a further decline in the beneficial performance of U.S. goods in the region; and, finally, the rise of governments less willing to cooperate with the United States on diplomatic and hemispheric security issues.
Given its lack of a strong domestic market, Latin America needs a market for a broader and more productive set of goods. The case of the Mexican economy serves as an important lesson. Alone among the countries in the region, Mexico has reduced its dependence on primary exports and boosted the role of manufactures in international trade. This has led to significant growth, not just in absolute terms, but also of a working middle class in industrialized regions—an essential ingredient for stable democracy. Mexico paid for these by accepting the sudden and costly reconfiguration of its agricultural sector, thanks to cheap NAFTA imports. It has begun the difficult transition to becoming a supplier of manufacturing jobs, but only due to its integration with the U.S. economy. The United States does not provide other Latin American countries with this kind of advantage. The possibility of a continued open American market would encourage investment in the region and also provide for a lower-cost alternative to the western Pacific.
These are the kinds of jobs that lead to a reduction in the rampant inequality that still afflicts these countries. Relieving this inequality is not just a moral imperative; its presence encourages disruptive rather than constrtuctive political challenges to the status quo. In the long term, it also makes Latin America ever more dependent on foreign markets, robbing it of the critical organic sources of dynamic growth. The experience of East Asia is relevant here. First fueled by an export boom, these economies were able to grow their domestic markets so as to make trade dependence less of a structural concern. Over the past few years, China has been attempting a similar transition, one that would also mean an expansion of its market for U.S. products.
There is no better case for the severe limitations of commodity export-led growth than the illegal drug market. Responding to a perpetual demand for drugs in the United States, these commodities bring profits that are socially and economically empty. The production and transport of drugs depends on low-wage labor. The illegality of the profits makes investment into more legitimate sectors difficult, and often undermines the integrity of banking and financial institutions. The lack of institutional property guarantees means that the market has developed an alternative governance system relying on naked terror and violence. This, in turn, leads to fragility and a pervasive sense of danger that erodes political and economic confidence.
A Win-Win Scenario
Imagine an American policy toward the region that took seriously the geopolitical links that bind the hemisphere together. Imagine a policy that took the potential of Latin American economies seriously. Imagine a drug policy that accepted partial American responsibility for the violence that still afflicts the region. The United States should assume a hemispheric perspective that takes into account the consequences of its own actions and inaction. If a neighbor’s house is on fire, it is silly to build a wall.
A wise U.S. policy would focus around the following three macro-policies:
- Maintaining trade agreements with the region that result in both jobs in the U.S. and economic benefits throughout the region.
- Recognizing that immigration is not necessarily a burden on the United States but is often a dynamic source of growth.
- Realistically reappraising the “war on drugs” to take into account what prohibition has cost the region in human, political, and economic terms, and the alternative presented by the legalization of marijuana in several U.S. states.
It’s true, perhaps, that the likelihood of such proposals being taken seriously by the Trump Admninistration is small, but no one can say how long the Trump Administration will endure. There is always hope.