What went wrong with Latin America’s Left Regimes?

Latin America Left Leaders use.jpg

     Increasingly, right-leaning governments are replacing left regimes in Latin America or, if left governments continue to cling to power, they are adopting policies normally associated with the political right. There has been a shift back to some neoliberal policies that contributed to poverty and inequality in the past. Sympathetic observers placed great hope in the left regimes that came to power between the late 1990s and the mid-2000s—these regimes seemed to be on the right track since they reduced poverty substantially and made inroads into high levels of inequality. What went wrong?

A New Latin American Left?

 Demonstration demanding the release of former Brazilian President Lula

Demonstration demanding the release of former Brazilian President Lula

     The Latin American Left appeared to be a new breed of social reformers, with leaders pledging to maintain macroeconomic stability and expand exports. Even the more radical left leaders (Bolivia, Argentina, and Ecuador) retained an important role for foreign capital (albeit with increased taxation). Only Venezuela under Hugo Chavez and Argentina under Cristiana Fernández de Kirchner nationalized private companies. However, with the decline in commodity prices in 2011/13, countries fell into economic crises, and in three cases Venezuela, Brazil, and Nicaragua into deep political crises. 

     Public deficits shot up. The worst offenders were Brazil and Argentina. In 2015, the Brazilian deficit reached 10.2 percent of GDP and Argentina’s public deficit stood at 7.4% of GDP. Economic growth has slowed and job creation has declined. Social spending dropped in some cases and there are doubts about whether governments will maintain it in others. Poverty reduction has stagnated. At the same time, corruption has emerged as probably the most pressing issue of the day in virtually all of these countries, with charges being contemplated or laid against prominent former left leaders. The most well-known case is that of former Brazilian President Luiz Inácio Lula da Silva, currently in jail but nevertheless still the most popular presidential candidate in his country.

The End of the Commodity Boom and the Return to Neoliberalism

     The mainstream interpretation of these developments is that Latin America’s left governments failed for the same reasons similar populist regimes failed in the past: they mismanaged their economies and played fast and loose with the institutions of liberal democracy. Crony capitalism is at the root of the problem, according to this argument.

 Brazilian President Michel Temer and Argentine President Mauricio Macri

Brazilian President Michel Temer and Argentine President Mauricio Macri

     Hence, the mainstream sees the removal of the left regime in Brazil through congressional coup, the elections of the right governments of Mauricio Macri in Argentina and Sebastían Piñera in Chile as predictable and positive developments. These regimes are resurrecting neoliberal policies rejected by their predecessors. The Brazilian leadership is currently developing plans to privatize the state owned electricity company, airports and other sectors, to deregulate the state petroleum company, and to further open the economy to international trade and investment. There are also plans for reform of the labor laws to achieve greater labor flexibilization, making it easier to hire and fire. President Macri is in the process of reducing subsidies on basic public services and reforming the labor code to reduce the costs to employers The fact of widespread protests against these reforms suggests they are politically polarizing and will generate increased political instability. In Ecuador, left President Luis Moreno, elected in 2017, has cozied up to Ecuadorian business leaders, holding frequent meetings to facilitate their participation in the development of economic policy. Critics have claimed that a recent law passed by the government substantially reduces taxes on businesses thereby decreasing funds available for social spending.

     Is it fair to say that the political and policy failures of the Latin American left are mostly responsible for these changes in regime and this shift back to neoliberalism? 

The Latin American Left was not perfect

 Former Venezuelan President Hugo Chavez and current Nicaraguan President Daniel Ortega

Former Venezuelan President Hugo Chavez and current Nicaraguan President Daniel Ortega

     It is the case that unfortunate political choices have played a role particularly in the cases of Venezuela and Nicaragua, where corrupt and brutally repressive leaderships have made political and economic crises much worse than would otherwise have been the case. However, as I have noted in the case of Venezuela (and the same is true of Nicaragua), there are important contextual histories behind these cases. Both are cases of extreme political polarization; in neither case can one argue that the opposition is a democratic opposition. When that opposition takes power, you can bet on it being just as corrupt and repressive as the left regime it replaces. This point does not justify the behaviour of these left regimes—but it does help us understand it. Changing the way the political game is played requires a more fundamental transformation that the simple election of a government whose leaders are concerned about social justice.

     It is also important to distinguish between the issues of the authoritarian behaviour of regimes and the use of repression, on the one hand, and leaders’ commitment and achievements in reducing poverty, its attendant deprivations, and inequality, on the other. Consideration of the East Asian cases tells us that repressive authoritarian regimes can be very good at promoting growth and poverty reduction. So, let’s for a moment, set aside the much discussed authoritarian tendencies of most of these regimes (the exceptions being Chile, Uruguay, and Brazil) and consider what could have been done to avoid the current imbroglio.

The Structural Constraints on Change in Latin America

 Ecuador's President Luis Moreno meeting with business

Ecuador's President Luis Moreno meeting with business

     In general, policy options for these regimes were fairly limited. Chile has relatively little corruption and very good economic policy management. The country’s Economic and Social Stabilization Fund, for example, has successfully addressed the potentially destabilizing impact of fluctuations in copper prices. However, this good management has neither reduced inequality much nor did it prevent the political right from being elected. As I have noted elsewhere, the turn to the political right in Chile was not a simple case of policy failure and mismanagement, but one of a government doing everything it could do, but that not being enough.

     Probably the most important domestic constraint on the left is the enormous power of countries’ private business sector, whose political clout increased with market liberalization; market reform increased the role of the private sector in the economy, giving it ever greater political power. Now more than ever, it was the responsibility of the private sector to invest and stimulate economic growth. Left governments recognized the importance of economic diversification and most endeavoured to enlist private sector involvement in achieving this goal. Neo-developmentalism was the term given to these attempts at industrial policy (broadly defined). This strategy required co-operation between government and private sector and in the case of Ecuador, for example, called for research and innovation involving close collaboration between universities/research institutions and industry—a strategy designed to lead to the replacement of commodity exports by a more diversified profile. One of the major obstacles to this strategy was the private sectors’ refusal to engage in any sort of collaboration with the state. In Chile, the left centre regime attempted to diversify exports through the establishment of an Innovation Council. With the country’s most powerful business interests sitting on the Council (unavoidable given their power), the Council’s recommendations were singularly unoriginal; it supported diversification only into areas closely related to what was then currently produced by the county’s biggest exporters. Brazil’s foray into neo-developmentalism involved the continued availability of inflated government contracts as the chief mechanism to secure private sector co-operation. 

     Another structural obstacle relates to the structure of the global economy and its mode of operation. The rapid surge in demand and prices for commodities encouraged countries to increase spending on pressing social needs, pay less attention to criticism from the private sector (given a source of revenue relatively independent of it), and, in some cases, allowed governments to ratchet up the level of radical rhetoric. This rather sudden turn of events, combined with legacies of business-popular sector political polarization, contributed further to the failure to achieve business-state co-operation. Moreover, expansion into a more diversified export profile is considerably more difficult than in the pre economic globalization era. Now production occurs through global production chains involving the spread of production across a number of countries. As Mexico discovered when it diversified from its heavy dependence on petroleum exports to manufactured exports, countries of the Global South are likely to remain confined to the low paid, low technology, end of global value chains. Only South Korea succeeded in moving up global value chains; but that was a different time and under a very different set of circumstances.

     Latin America’s left governments were far from perfect. However, their fall from grace needs to be understood within the region’s historical and current political context and the limitations imposed by the global economy.