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05/07/2006

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Bild

I was a little surprised that both posts simply referred to "the Left" without taking note of the recently much-blogged-over argument that there are really two Latin American lefts, made by Jorge G. Castaneda in Foreign Affairs. Link here --

http://www.foreignaffairs.org/20060501faessay85302/jorge-g-castaneda/latin-america-s-left-turn.html?mode=print

Edward Bernstein

What is the appropriate response to crony capitalism. I think we have more of that in the US than we like to admit but I confess I cannot concieve of a cure.

Corey

"Chile's success during the past twenty-five years and Cuba's disastrous economy has influenced many Latin economists and some writers, but this has had less influence on election outcomes than I would have expected, even in Chile."

Perhaps this will be understood if you consider an alternative explanation for why Cuba's economy has been disastrous. Perhaps being subject to massive economic sanctions from the US, (as well as covert ops and endless propaganda) actualy had its intended destabilizing effect.

Lets not just pretend that the US government spent the last 50 years waiting quietly with Hayek for the end of history. We have been engineering that outcome with everything in our arsenal, in Southeast Asia, in the Soviet Union, and in Latin America.

If Latin American voters understand the failure of leftist regimes to deliver on their promises to be a result of violent interferance by the US and WTO (remember the Contras?) then of course they won't simply shift to pro-US governments.

I am no more an expert on the region than Becker or Posner, but at least I don't leave out the destabilizing efforts that have dominated US policy towards leftist governments around the world for decades when I analyze why there is a persistant backdrop of anti-US or anti-capitalist sentiment.

When Bectel briefly held the water industry contract in Bolivia it tried to ban collection of rain and charge people one quarter of their regular daily wage for water! Massive protests ensued. The drive for nationalization may well be a reaction to cronyism, but the cronies involved are based back home in the imagined "competitive" capitalist US.

Corey

"Authoritarian policies and government nationalization programs... "

"Democracy and competitive capitalism..."

Your rhetoric is showing. Nationalization can be the freely chosen policy of a democratic majority. Democracy is NOT confined to expression in societies that practice "competitive capitalism." You are simply using normatively loaded words like Authoritarian and Democracy to code a preference for your favorite economic system.

Well, I know from the recent printings that many of us are still reading Borges, Lorca, and Garcia-Marquez. Thanks for steering me away from Llosa and De Soto.

"Cruel leaders are replaced only to have new leaders turn cruel!"
"I am not a liberator. Liberators do not exist. The people liberate themselves."
- Ernesto Che Guevara

James

I wonder if one factor in the general decline of authoritarian governments is increased information amongst the population generally. In these days of the internet and satellite tv, it becomes much more difficult for authoritarian states to convince the population that they are doing much better than anyone else. Admittedly impoverished people don't tend to have either computers or satellite dishes, but it only takes a few of the lower middle classes to obtain them before the word would start to spread. I am sure that information technology has played a major part not only in economic growth but also liberalised living conditions in China and India, for example, though I don't own to any knowledge regarding Latin America.

N.E.Hatfield

Corey, And where is Che now? Dead in a hail of bullets in Bolivia. Once again the people have spoken!

Dude

I thought poor people almost *always* support leftist politics. The poor prefer direct government aid rather than some vague Invisible Hand that may eventually help them. Also, if the poor believe that the rich are benefiting from crony capitalism, then they want direct government intervention to redistribute "ill-gotten" gains.

One reason America's poor are less lefty than others is that most Americans sincerely believe they can succeed thru hard work. Government and corporate scandals chip away at this myth and fuel America's left.

Finally, it's not fair to link socialism with authoritarian governments & corruption. Democracies are also authoritarian & corrupt. But at least we can vote them out (though we never do!).

Corey

Hatfield said:
"Corey, And where is Che now? Dead in a hail of bullets in Bolivia. Once again the people have spoken!"

"I know you've come to kill me. Shoot, coward, you're only going to kill a man." - Ernesto Che Guevara (just before he was shot and murdered)

If by "the people" you mean CIA sponsored death squads, then I guess you are right. Its pretty perverse to transform murder into "the will of the people". Would you say the same thing about the death of Jesus, MLK Jr., or JFK?

N.E.Hatfield

Corey, and what of the Stalinist purges, not too mention the KGB's use of murder, assasination and intimidation? You might ask Trotsky and others about that one. It's all a question of power and the use of violence in the real world to grab it, maintain it or disrupt the opposition. Just remember, that when you point a finger, three fingers are pointing back at you. ;)

But let's return to the current rise of Leftist politics in Central and South America.

Jennifer

These original comments re: the leftward politics of Latin America and Mexico drip with the elitist arrogance that only an ivory tower academic could harbor. My dear Messieurs Becker and Posner, when is the last time you marched in the streets with the people, the dispossessed? When you have nothing to lose, why not bet the horse on leftist politicians? After all, they are only suggesting that we all share with one another a little more.

tibu

Corey didn't you get the memo?...the Soviet Union doesn't exit anymore....it failed!.

anshul

Well there sre two references to India in this article and I would like to clarify certain points about that:
1.India is moving away from socialism - right.
But there is a growing armed gurella movement in central and eastern parts affecting 30% of area.
2.Congress had to reform becoz there was no option left after 1991 crisis.It was not on free will.

Diego Luna

I agree with Bild's first comment. This is not so much about a rise of socialism but a return to populism.

Latin America has a long history of powerful social movments, weak political parties, a lacking middle class, natural resources dependence, foreign (mostly) US political medelling, and several high profile failed foreign investments and privatization projects. This combined with the lagging economic growth of the past 20 years had created a hot situation. For the most part these countries have a polar right and left of say 10%, but in between a huge % of the population that is frustrated and can be swayed with rhetoric and promises. For several years this had stopped, to a degree, out of frustration for teh failures of the 80s and the hopes that a more pro-market approach would trickle-down and lift all boats. But this sieve of corruption of course sifts away all these bennefits, failing to redistribute the key gains.

And now you have a couple of populists that have jumped in to seize this opportunity. Mostly they are able to do this due to the demise of the strong traditional political parties that dominated LAC politics from 1900-1970's/80s. Now there is no such thing as parties and platforms, just promises and speeches. For example, each time Fujimori ran in Peru he created a new Party. (Oh, and how terrible is the Peruvian election. I am actually routing for Garcia - a man who just 10 years ago had to flee with country to avoid arrest for stealing millions and millons of dollars.)

It will be interesting to see how things progress. My gues, and hope, is that this shift will not be as major as some suggest. Lots of rhetoric, but few will really take strong shift from the market. For example, Morales push for nationalization - will be more of a renegotiating. He is doing this to save face and keep his momentum. My guess is that during the next few months the terms will simply be renegotiated (they are probably slightly 'unfair' anyway, especially in light of current prices) and most will stay - all remaining very profitable. (Hey, congress is askingt the same questios of Exxon right? - not that that is ok either of course)

My real fear would be that this gives more confidence to Chavez - his contagion is what I really worry about.

You may also be interested in the 'new washington consensus' and the cost of pro-market reforms:
http://psdblog.worldbank.org/psdblog/2006/04/political_costs.html

Rodrigo Blanco

Mr. Becker speaks about a "disastrous" Cuban economy. But I can't help but question whether he's talking about the Cuban economy of today or of the post-COMECOM 90's? I think by anyones standards considering the economic blockade that the US still enforces their economy has actually performed quite spectacularly in the past three years and all signs point to the exit of the problems that beset them for since the collapse of the economy in 1991.

Jennifer

I still do not understand why oil, as a natural resource, should be a private commodity. Like water and air, it should be for the benefit of everyone, not just the very privileged few. The political philosophies of Chavez, Morales and Lula are that simple: for much too long outside foreigners have profited by pillage. Schools, roads, and not-starving-people are legitimate goals of the leftist movement in LA. Regardless of a party system or a static political platform, these leaders are realizing goals, not just making promises and speeches as some of us would like to imagine. Nationalization of the oil industries is a very important goal for these countries considering that they were "privatized" through theft in the first place.

son2

Dr. Becker,

I think you should have included with your explanations that anti-American and anti-capitalist rhetoric has gained ground in Venezuela/Bolivia/Argentina because of the perceived hypocrisy of neo-liberalist 'Reagonomics' of the 1980's.

Crony capitalism, income equality, etc. are certainly factors that fuel leftist political movements in those countries. But I think, in the first-order approximation, people there feel that the G-8 countries, the IMF/World Bank, the US have been forcing the nations of Latin America to adopt neo-liberal economic policies (with the threats of cutting off loans or investment), which policies subsequently hurt farmers and small business-owners who are out-competed by foreign imports. I was in Bolivia in '99, and this was the constant refrain at that time (I think it was shortly before Morales's first run for office).

'The American government says we can't grow coca, we must grow pineapples and yucca. But because of competition, our farmers can't sell those crops for enough money to sustain themselves. Meanwhile, the United States imposes tariffs to protect their own farmers! It's hypocrisy!'

I was interacting with educated Bolivians and American social workers (with, admittedly, a leftist bent), but this was the kind of thing they were preaching at the time. I know that the bulk of Bolivia's financial problems are due to corruption and policies that discourage investment (I mean, that's how I interpret your post), but the rhetoric was all about American hypocrisy. Is it true, though? Are we hypocritical about agricultural tariffs?

Also, 'the unequal access to education and financial capital that has produced an unusual degree of income inequality in most of these countries' has another name: old-fashioned colonial racism racially imbalanced social structures.

RAMON

Mr. Becker speaks about a "disastrous" Cuban economy. But I can't help but question whether he's talking about the Cuban economy of today or of the post-COMECOM 90's? I think by anyones standards considering the economic blockade that the US still enforces their economy has actually performed quite spectacularly in the past three years

THE CUBAN ECONOMY HAS PERFORMED VERY BADLY IN THE PERIOD 1959-2000 AS REPORTED BY MADDISON. IT HAD A DISMAL PERFORMANCE OF 0% GROWTH IN PERCAPITA GDP IN THE ENTIRE PERIOD ONLY BETTER THAN HAITI.

AFTER 1990, GROWTH AS REPORTED BY THE GOVERNMENT HAS BEEN MEDIOCRE AND VERY GOOD IN THE LAST 2-3 YEARS. HARDLY A LONG RUN TREND. MOST LIKELY, IT SERVES THE "AHORA SI" DISCOURSE THAT FIDEL CASTRO USES FROM TIME TO TIME.

IT IS HARD TO MEASURE THE PERFORMANCE OF THE ECONOMY WHEN THE NUMBERS CANNOT BE TRUSTED. THE GOVERNMENT CHANGED THE DEFINITION OF GDP WHEN THEY NOTICED THAT IT WAS TOO SMAL BECAUSE "IT DOES NOT REFLECT THE VALUE OF FREE SERVICES". THE MEDIA HAS REPORTED THAT THEY WOULD IMPUTE PRICES TO MEDICAL AND ACADEMIC SERVICES AS IF THEY WERE SOLD IN A CAPITALISTIC ECONOMY. HOWEVER, THE WAY THE IMPUTATIONS ARE MADE AND THE WHOLE CALCULATION PROCEDURE ARE SECRET.

ONE OF THE PROBLEMS OF THAT TYPE OF ECONOMY IS THAT CONSUMPTION IS EXTREMELY UNBALANCED. THE ECONOMY PROVIDES EDUCATION, HEALTH, AND OLYMPIC MEDALS AS IF IT WERE AN EUROPEAN COUNTRY BUT PROVIDES FOOD, HOUSING, CLOTHING, ENTERTAINMENT AND ELECTRONICS AS IF IT WERE AN AFRICAN COUNTRY.

EVEN WHEN THEY WERE UNDER THE PROTECTION OF THE SOVIET EMPIRE (THE "BLOCKADE" ARGUMENT WAS VERY WEAK), THE EFICIENCY AND PRODUCTIVITY WAS VERY LOW. IT IS HARD TO ARGUE THAT CUBA'S PERFORMANCE IS MOSTLY DUE TO THE EMBARGO. THE CENTRALY PLANNED ECONOMY WAS A FAILURE EVEN IN COUNTRIES OF EASTERN EUROPE LIKE RUMANIA WHO WERE NEVER UNDER EMBARGO FROM THE WEST.

Bastiat

Jennifer... you offer an abundance of low-hanging fruit. I'll simply pluck the first plum that caught my eye:

"I still do not understand why oil, as a natural resource, should be a private commodity. Like water and air, it should be for the benefit of everyone, not just the very privileged few."

Oil shouldn't necessarily be a private commodity unless you happen to be interested in producing it efficiently and buying it at the lowest cost possible. (And yes, for the wag-in-waiting, I do realize that many externalities of oil and gas use aren't priced in the end products.)

What you apparently miss here is that gasoline doesn't magically show up at the pumps of service stations. First, a highly-educated geologist studies seismic data of underground rock strata over hundreds of thousands of square miles. Then someone risks his own personal capital, or that of his shareholders, or that of taxpayers. He rents a drilling rig for severla hundred thousand dollars and drills a very deep hole that has a small chance of striking a deposit containing oil.

If after many attempts and more hundreds of thousands, if not millions, of dollars invested in the process he's lucky enough to find some oil he faces a new challenge. He must pump it to the surface, store it, transport it to a refinery, refine it, and then turn it into a saleable product (gasoline, heating oil, diesel fuel, paraffin, plastic.) This entire process, needless to say (although apparently I need to say it) is very expensive.

And, just a reminder, after investing these millions of dollars in risky development of oil and gas the producer is not guaranteed that he will make a return on his investment commensurate with the risk he or his investors, took.

History, fundamental economics and common sense demonstrates that governments usually do this poorly and wastefully, largely because the people they employ have inferior education and technical skills and the capital they are risking is not their own.

Competition disciplines. No one competes with the government. And the government doesn't have to bother with subjecting its funding desires to the judgement of those who fund it. It simply exercises its power of coercion and levies taxes.

Someone, perhaps a Nobel-winning economist from Chicago named Friedman (egads!), once observed that people generally spend other people's money more carelessly than they spend their own or the cash of those to whom they are financially obligated.

When you state that oil should be "for the benefit of everyone" what benefit exactly are you talking about? Let's take Bolivia since it's the locus of the idiocy du jour regarding expropriating private property. What can the average Boliovian do with a barrel of oil other than trade it for something useful?

The Bolivian government invited British Petroleum, et. al. into the country to develop oil and gas resources because, one presumes, these companies bid higher than their competitors for the privilege and because the Bolivian state oil company is not competent to do the work. (I have read knowledgable Bolivians confirming the latter observation in the paper within the past week.)

And why did BP and others bid higher than their competitors? Because their employees have the expertise to extract the resources more efficiently. Thus they pay the Bolivians more money in royalties (which is, in case you're interested, anywhere from 40-80% of the revenue from oil sales) than their competitors. And that money goes directly into the Bolivian Treasury. Or, more accurately given the nature of Latin American government, into someone's bank account in Miami or Zurich.

Only one reason exists to produce oil and gas: to manufacture a product that a consumer desires to buy. Petrol for the car; plastic for the shampoo bottle; natural gas for the water heater; kerosene for my camping stove. The consumer is the only reason why anyone produces anything.

Thus the "benefit" of which you're speaking accrues to the consumer who purchases a product derived from oil and gas. All other beneficiaries are subordinate. These include the Bolivians employed (if they possess the requisite skills) to man drilling rigs, drive trucks, fabricate steel, concrete, glass and everything else that the oil production process requires.

The benefits also accrue to those who lend their capital to the oil and gas producers and who expect a return commensurate with their risk (for oil and gas exploration this is actually around 15-20%; add on a hefty premium to that to account for the political risk of oeprating in places like Bolivia.)

This capital does not magically appear, either. Individuals who have worked and saved decide to risk their capital in these investments. Or, if we're speaking of a state company, the gov't taxes people and appropriates this to the oil and gas business.

The best state-run oil and gas companies, such as PdVSA (the Venezuela state oil company) pre-Chavez, are/were very competently staffed. But because they weren't subject to the discipline of private capital they were generally wasteful compared with private producers.

Efficient production resulting in products that the poorest among us can afford to purchase generally results from private capital funding production. In oil and gas a simple continuum ranging from (1) extremely competent and fiancially responsible to (3) utterly incompetent and fiscally profligate ranks as follows:

1. ExxonMobil
2. PdVSA pre-Chavez (professionally skilled engineers, geologists, eocnomists, etc...) or current-day PetroBras
3. PdVSA post-Chavez (politically appointed generals, cronies and assorted political hacks.)

FYI I watched PdVSA slide from (2) to (3) as I sat at a conference table periodically with them over the span of four years. I often wonder where the competent engineers and businessmen with whom I dealt are now. Washing windows in Caracas?

Gotta love populism.

As for your assertion that:

"Regardless of a party system or a static political platform, these leaders are realizing goals, not just making promises and speeches as some of us would like to imagine. Nationalization of the oil industries is a very important goal for these countries considering that they were "privatized" through theft in the first place."

Please. The only goals that Hugo Chavez and Evo Morales are realizing is accruing and consolidating power. The lot of their people won't change because the problem with the system is a lack of fundamental property rights and competent government.

And "privatization = theft?" Wake up. Government permits private companies to bid on resource development. It sets all the rules for entering the country and operating there. The Bolivians signed contracts with PetroBras and BP. Morales has abrogated these contracts and stolen private property. Your stale Marxism has it exactly backwards.

BP will simply go elsewhere. Morales may win some support from domestic constituents. Bolivians will lose regardless. You extol politics that impoverish the poeple whom you claim to support.

Corey

"You extol politics that impoverish the poeple whom you claim to support."

Oh gee, thanks for the primer on investment capitalism. Managers of ExxonMobil good, government bad, and those guys at Enron were the smartest of them all. Where would we be without billionaires to find oil in the ground and declare it to be their property? What would the scientists who invented refining and plastics with public funding have done without multinationals to take the benefit of their inventions from them?

Isn't it funny how in order to bid and compete for the acquisition of oil property you already have to have a lot of property. You have a point though, nationalization can lead to the oppression of the people. (see Saudi Aramco) However, the people we are trying to help are already oppressed and impoverished. You extol politics that ignore the impoverished on behalf of the rich capitalists you so clearly support.

I am reminded of a 1944 quote from Orwell:

"Capitalism leads to dole queues, the scramble for markets, and war. Collectivism leads to concentration camps, leader worship, and war. There is no way out of this unless a planned economy can somehow be combined with the freedom of the intellect."

You said:
"And "privatization = theft?" Wake up."

I prefer Proudhon's version: "Property is theft" Wake up.

N.E.Hatfield

Ah yes! Rhetoric and idealism is fine in its place and time, but in the end it doesn't put the food on the table, clothes on ones back, roof over ones head, or energy into the system to make everything run, etc. etc. But thats OK, we can all live on idealism and rhetoric. Personally, I prefer real food.

Anyone remember "Animal Farm"? Before quoting Orwell, perhaps you need to understand the man's ideas. ;)

Corey

"Anyone remember "Animal Farm"? Before quoting Orwell, perhaps you need to understand the man's ideas. ;)"

Perhaps you need to reconcile the quote with your assumption that one book satirizing Lenin and Trotsky makes Orwell a committed capitalist. Perhaps you could also read his "Homage to Catalonia" or "Down and Out in Paris and London" or "Keep the Apidistra Flying." I could loan you these books.

No one is asking you to live off idealism. Just don't be suprised when poor people in Latin America with little food on the table anyway respond to it.

N.E.Hatfield

Now did I say Orwell was a committed Capitalist or Marxist or even imply it? The real world is neither black nor white, but is multiple shades of perpetual gray. Something Orwell understood, all too well. As for your books keep them. I've got acess to signed copies. ;)

postkey

"When it is discovered that left wing governments usually do not end up helping the poor very much, they tend to be voted out of office."

The economy in Venezuela has grown 17.3 per cent in 2004 and 9.3 per cent in 2005 and the official rate of poverty has fallen from 54 per cent to 38.5 per cent (CEPR). Venezuela has been declared free of illiteracy by UNESCO.
Infant mortality has been significantly lowered. 70% of its citizens previously marginalized now have free health services in their community. Almost half the population is studying.
Poverty has dropped to 37% in 2005.
So much for not helping the poor!

lonesome moderate

"The overall trend during the past several decades in practically all countries of this region has been toward more open economies with greater competition within industries, with much more reliance on private enterprise, and with a reduced role for government mandates, government-run enterprises, and cronyism."

In what countries is cronyism being reduced? I would think that, if cronyism really was on the decline, then the free market reforms of the past twenty years would have had more of a positive impact on people's lives. My impression is that, outside of Chile and maybe a very few other countries, this is nearly as bad a problem now in most of Latin America as it was thirty years ago.

lonesome moderate

Diego Luna - you've done an amazing job of boiling the economic and political realities of a whole continent down to a few insightful paragraphs. Many thanks for that--do you ever post anywhere else?

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