Economics-wise, that is.
Following the election results in Argentina and Venezuela, and the calls in Brazil for the impeachment of Dilma Rousseff, there are dozens of articles on the more-or-less imminent demise of socialist/populist/communist policies (including what Hugo Chavez named “21st-Century Socialism”) in our hemisphere.
All of which I consider overoptimistic, and premature, at best.
First of all, I see no signs anywhere of a true change in thinking.
I don’t see any clamor for free-market, pro-business, pro-innovation policy that moves the economic model away from an extractive economy and ever-growing state capitalism where governments use markets to create wealth that can be directed as political officials see fit. Additionally, Argentina, Brazil and Venezuela’s governments ignored the need to maintain and update their infrastructure, an integral part of any thriving, growing economy. I also don’t see a clamor for political institutions that promote and strongly support property rights.
What I see is people fed up with the politicians in charge instead.
Latin American economies are historically hugely dependent on government-owned and controlled commodities. The dependence makes the economies vulnerable to market changes.
Matt O’Brian writes in the WaPo on the effect of China’s collapse,
In other words, a butterfly flapped its wings in China and caused a political hurricane in South America. Between 2000 and 2014, China’s demand for raw materials of every kind was so great that their prices soared and the coffers of commodity-based economies did too. That gave South American governments the money they needed to redistribute to their poor, and they did. But a combination of bad luck and bad management has left them without much margin for error today—which they need now that commodity prices have come down as a result of China slowing down.
Mary O’Grady in the WSJ on What Really Sank Brazil. The media blame oil prices. The true culprit is years of antigrowth policies. In Brazil’s case, state capitalism increased protectionism and subsidies, and encouraged the Brazilian Development Bank (BNDES) and other state-owned banks to artificially pump up the economy through state credit,
The BNDES credit was cheap for the politically connected companies that the government wanted to save, but it has cost the nation. Subsidized credit also went to households. Mr. Lorenzon told me that currently the average Brazilian family is carrying an annual debt-service burden equal to 46% of its income. Currently the government’s largest real-estate lending program has a default rate of almost 22%.
To salvage its loans to domestic companies Brazil has raised import duties and promoted consumption of made-in-Brazil products. This has damaged innovation and development. Large offshore oil reserves aren’t likely to be developed as long as investors are hamstrung by Brazilian content rules requiring their equipment to be made domestically.
Brazil is reaping the fruits of a national industrial policy that cannot produce growth and prosperity. The credit bubble has burst.
Until and unless each of the countries mentioned understand that, and their peoples and institutions commit to true economic reform, don’t believe socialist/populist/communist policies are dead.
Far from it.
