Originally Published at International Policy Digest (http://www.internationalpolicydigest.org/)
Toward Comparative Advantage
The innovation and integration set in motion throughout Central and South America over the past decade is replacing the notion that effective market strategies must be devised within the zero-sum framework. Unifying socio-political schemes and initiating region-centric policies has made regional comparative advantage Latin America’s primary focus over the past decade.
Casting aside some of the principles underlying Western-style capitalism will afford Latin America’s leadership the opportunity to distance themselves from the policies and programs that created rampant inequality and strained relations throughout the region.
Rising income disparities over the prior decades created greater regional vulnerabilities to unfamiliar and unpredictable forces, leading to economic instability and social dislocation. National governments responded by initiating programs that reinforced domestic and regional economies with the expectation that the process will be long and arduous, due primarily to the strain a nation must endure when replacing an old order with an alien system. Success in bettering the future is dependent upon forging strong relationships between the government and the private sector, focusing primarily on stewardship, which can cultivate the most profitable outcome.
Latin America’s success over the past decade is due to the public sector’s increased role in domestic economic affairs and regional integration, which has been a long-term response to concerns over the region’s economic strength and global competitiveness.
Globalization’s benefits have yet to be distributed equally as it has afforded developed countries the ability to strengthen and justify their relative dominance in regional affairs. Western interference in Latin American economies and the negative affects that followed led many regional leaders to slowly abandon the philosophy that all the policies that made the developed world richer could be universally applied.
Over time it became apparent that advancement in the capital market system is dependent upon one entity holding power over others. In the case of lesser-developing countries, the developed world’s desire to limit a nation’s comparative advantage to primary resource exportation was initiated to promote the developed world’s policies of self-interest.
Globalizing Inequality and the Case of Argentina
The system was never designed to be universally inclusive, as is apparent in the development and implementation of the General Agreement on Tariffs and Trade (GATT). In The Case Against the Global Economy, Jerry Manders and Edward Goldsmith outlined how this accord strengthened market integration by forcing the developing world “to accept all investments from abroad; give ‘national treatment’ to any foreign corporation that establishes itself within its borders…eliminate tariffs and import quotas on all goods…and abolish nontarriff (sic) barriers, such as regulations to protect labor, health, or the environment that might conceivably increase corporate costs”.
External influence was not the sole impediment to the advancement of a strong central authority, for many Latin American leaders had an incessant belief in the philosophy of a self-regulating private sector. This confidence in corporate self-regulation weakened national development, created policy inefficiencies, and fostered disinterest in market competition.
For Latin Americans, the inequality that arises from policies and programs instituted by IGOs is illustrated by Argentina’s slow economic collapse.
In 1994, the World Bank urged the Argentinean government to initiate social security privatization during a time of massive economic reform, exacerbating an already weakened national economy.
During this period, concessions also had to be made to the IMF in order to receive the finances already promised to Argentina to cover the nation’s debt. By 2001, the IMF forced Argentina to make a series of cuts to its existing social security program – an action that world not have been advised in the developed world.
The lending guidelines established by these institutions led to the enacting of reforms focused on benefiting the private sector.
Furthermore, they proscribed counter-cyclical policies that were used to insure the monetary investments of international investors made in regional markets. The domestic market situation coupled with external pressure led to a national economic collapse that has lasted over a decade.
For Latin America – particularly Argentina – globalization became the fundamental force in shaping international inequality and exclusion. The international community’s influence in regional affairs “undermined the ability of governments to manage their economies through national economic policies” and “called into question the ability of governments to pursue other national goals such as environmental preservation and labor policies”. Influencing the creation and implementation of domestic economic policies led many countries to construct increasingly protectionist agendas.
Protectionist policies were created “to insulate the domestic economy from international competition”; policies were established under GATT that no longer allowed “governments…[to] use tariffs and quotas as tools of national economic policy”.
These policies were utilized to not only protect domestic industries, but also to guard foreign businesses, already in country, from international rivalries.
Toward a Latin American Decade
During the contemporary period of economic stagnation, austerity programs, and bailouts, Latin America’s economies have improved by six percent. Economic growth is attributed to the increased injection of foreign capital into domestic markets over the past decade, which has been driven by gains in commodities pricing.
There have been both negative and positive affects to the new found interest in Latin America. Expanding regional economies caused currencies to strengthen in relation to the U.S. dollar and sparked fears of higher prices for imported goods.
Though costlier imports can have a negative impact on certain sectors of a national economy, stronger currencies illustrate Latin America’s growing economic prowess.
Improving currency valuations will assist consumers in purchasing goods and services from regional producers, attract investors into regional markets, as well as ameliorate Latin America’s comparative advantage.
The more pessimistic responses to valuation shifts have ushered in growing concern over whether Latin America’s economies are heading toward an inflationary period.
With many countries becoming increasingly reliant on imports and meager national surpluses slowly becoming modest deficits, concerns over the new policies being implemented are justified, particularly due to the region’s track record in the 1980s and 1990s.
Explanations for Latin America’s failures have centered on environmental degradation, corporatism, and international exploitation; a confidence game set in motion by an oligopoly feigning concern over national development.
Regional market stagnation and income inequality were a result of resource-dependent export markets being directed by private investors, coupled with socio-political frailty, which weakened national institutions, destabilized long-term economic programs, and led to the proliferation of informal markets and violent non-state actors.
National leaders have been slowly reversing the policies and programs that undermined regional development in the past, though, not surprisingly, this has brought about stark criticism from nations that espouse the values of unfettered free markets. The economic programs being implemented throughout Latin America have been derided as counter-productive by many in the global North; an interesting juxtaposition in contemporary economic policy in that while the more affluent nations implement austerity programs the global South is positioning itself for an economic resurgence.
Changes in domestic markets have been promoted through modifications in national policies and coincided with the counter-cyclical programs, which stimulated regional progress over the past decade.
The primary goal for national and regional development has been the shoring up of domestic economies and the security of regional resources. Latin American leaders have refrained from burdening their nations with too much risk, while refusing to halt investments in the policies and programs that have brought about the strongest economic growth in decades.
Latin America in 2012
For the past decade, Latin America’s domestic and regional markets have become increasingly reliant on commodities pricing and foreign investments; however, the currency crisis in Europe has caused many nations to focus on risk aversion policies.
Global economic failures exposed the dominating financial models’ insufficiencies and undermined the West’s ability to dictate domestic and regional policy development. It is due to the international economic collapse that developing countries moved away from global capitalism, vindicating critics of the market system.
The 2012 Latin American Economic Outlook, drafted at the Iberian-American Summit in Paraguay in October 2011, illustrated the shift in the region’s economic development between 2010 (5.9% growth) and 2011 (4.4% growth). Slowing in the region’s economies is due, in part, to domestic policies being initiated in Brazil to focus consumer demand and realign market progress enough to diminish possible over-expansion and over-heating in the domestic economy.
Brazil’s expanding economy has been aided by growth in the industrial and production sectors, which has reduced the nation’s demand for imported goods and services and diminished its reliance on commodities. These new policies; coupled with declining interest rates, loosening taxation policies, rising wages, and lowering unemployment; has allowed for a strong economic outlook for the medium- and long-term and has catapulted the country into becoming the sixth largest economy in the world – projected to be the fourth by 2020.
For continued success, Latin America and the Caribbean must focus on the development of domestic economies and social safety nets, in order to ensure regional security and stability. Failure to do so could lead to the reversal of the progress made over the past decade. Fears are growing as Europe struggles to stabilize its economies, but Latin America seems to have the correct policies and programs – reinforced by foreign investment, strengthening safety nets, and inflation modeling – in place to begin to balance the global recession against the increasing consumer demands of an expanding middle-class.