Latin America: The Student Years

When this commentator was at school, 25 years ago in provincial England, the future was Socialism. We railed against the capitalist pig moneyslave government of the day, refused to join the army cadet corps and instead organized community service volunteer rotas. One of my contemporaries wore Lech Walesa “Solidarnosc” buttons on his blazer (which may sound tame now, but was risqué at the type of school I went to) and used phrases like “Rather red than dead!” at the debating society. Of course those student years weren’t wasted, but on considering how the money is made to feed my own batch of budding revolutionaries (i.e. slap bang in the middle of capital market world) something has clearly changed.  

A typical story for many (including the button-wearer, now a member of Gordon Brown’s government) but it is also reflected in today’s LatAm. In the push for higher standards of living, education, healthcare etc, the continent has finally enfranchised the wider LatAm population into politics after decades of ambivalence. Previously the ‘have-nots’ would simply let the ‘haves’ get on with the job of ruling, but in the last few years the wider population has taken part in the political debate for the first time ever, voicing its concerns and promoting its agenda. This trend is the very essence of democracy and is most welcome, but like all good developments it has its growing pains.  

It seems that LatAm is currently experiencing its own version of ‘the student years’. Ruling oligarchies and military dictatorships are out of fashion. The poor majority has a new voice. The swing towards socialism is the trend, with governments in Argentina, Brazil, Bolivia, Chile, Ecuador and Venezuela as well as some of the smaller Central America states all professing to being “socialist” by nature. Even those countries with governments perceived as ‘non-Socialist’ and ‘investor-friendly’ are feeling this swing, with Peru’s García winning the 2006 election against the nationalist-socialist ticket of Ollanta Humala by a close 52% to 48%, and Mexico’s Calderón coming home with a wafer-thin majority against left-leaning López Obrador.  

The very word ‘Socialist’ carries baggage, and is often equated to “Communist” (especially in the USA). But scratching the surface of today’s LatAm makes it clear that this perception of LatAm Socialism is false. For example, the overtly capitalist regional quest for foreign investment is one of the strongest themes, with all the abovementioned states, as well as others deemed more ‘friendly’ to capitalism, actively searching out foreign partners to help economic growth. Venezuela’s administration may have put a few US noses out of joint recently, but its courtship of China and Russia, as well as new investment deals signed in 2007 with Norway, Portugal, and Japan etc (none of which ever score high on the radical nation Richter scale) makes the intention clear. The USA may or may not think itself welcome in Chávezlandia, but it still has plenty of room for regional involvement in Brazil, Chile, Argentina, etc, and among the ‘friendly’ states the recent free trade agreement with Peru has opened up wide-ranging opportunities for US-based capital.  

Juxtaposition of LatAm politics and economics is clear to those analyzing the economies, and beneath all the rhetoric there is serious money being made. Perhaps the best example is the Venezuelan banking sector. One might believe that banking, the veritable cutting edge of capitalism, would be frowned upon by the reactionary heart of the Bolivarian revolution, but profit margins give lie to that assumption. Along with Colombia and Pakistan, Venezuelan private banks were the world’s most profitable in 2007 and big Spanish finance houses will continue to boost already excellent profits via their exposure to Hugo’s 21st Century Socialism.  

In general terms, LatAm’s highest earning quintile is not looked upon with hatred, and the old Stalinesque ideal of using industrialization in the class war of the oppressed against ruling classes has never caught on in the region. The population aspires to be rich, and the thrust of regional economics is about bringing lower earners up, not higher earners down. Protests from the poor do happen of course, but come about when governments of all political hues are perceived as not doing enough to help lower earners. In short, the message from the grassroots is “I want to be rich, too”. To paraphrase Bones from Star Trek, “It’s Socialism Jim, but not as we know it.” Fairer distribution of wealth is something that concerns all states (be the concern real or just lip-service), but the understanding is that continued growth will allow more pie for everyone. There is plenty of room for wealth in the LatAm of today.  

LatAm political debate will surely become more sophisticated with time, case in point being the change in Brazil’s President Lula da Silva, whose transformation from worker’s party revolutionary to pragmatic leader of the continent’s star economy is still cause for wonderment in some circles. And as the collective consciousness of Latin America matures from ‘student’ to ‘adult’, the region’s perceived acceptability in the eyes of industrialized nations will improve. There will be rougher moments of course, and anyone with LatAm exposure should be prepared for periods of civil unrest and protests. But for the moment those wishing to invest in the region should ignore the political bombast and reactionary speeches, let the region get on with the job of growing itself and just get on with the task of doing what investors do best; investing. Perceived political risk is much greater than the reality, as the region grows those risks will lessen, and those with the gumption to strike first in LatAm will reap the greatest benefits.

4 Responses to "Latin America: The Student Years"

  1. Otaviano   January 2, 2008 at 10:31 pm

    Great analysis, Fellow Blogger Mark. And consistent with your frequent warnings against simplism with which many economic analysts treat the economics-politics nexus in Latin America. Those who follow mechanistically any generic and schematic benchmark to the countries in the region – expecting these countries to fit as mere applications of some abstract model – do not help outsiders to understand the subtleties of each case. “Keep the eye on the ball (profits)”. OK: risk-adjusted, actual profits! But, again, if this simple criterion were more closely followed, there would be more enthusiasm with the region as compared even to many Asian economies!

  2. Vitoria Saddi   January 3, 2008 at 9:48 am

    Mark, You are so right about the whole ‘socialism’ in Latin America! I wish it was true what those simplistic analysts say about Chavez. But as you emphasize private banking in Venezuela has never been so profitable.Congrats for another great piece.Vitoria

  3. Tim Shapiro   January 4, 2008 at 3:26 am

    Very interesting piece, Mark. In thinking about how “socialist” many of the countries in Latin America are today, I’m also wandering if “socialist” governments have substantially increased social spending on the poor since they have been in office (controlling for other factors like government revenue from exports) as well as if they have made any other serious social and political changes to help out the lower classes. I know Chavez has, but what about other countries in the region? You explain how many socialist governments have not really moved away from the free-market model and thus have not reversed many of the economic reforms that their predecessors implemented. This indicates that there is a new type of socialism in the region. If serious increases in social spending targeted at the lower classes and other policies intended to help these groups have been lacking, then this would also seem to indicate a new type of socialism in the region. It seems to me that income/wealth has not really budget over the years, despite socialist governments in office. For those that can’t rely on oil exports or other lucrative nature resources, do you think that these socialist governments would engage in greater state involvement in the market and implement policies leading to greater economic redistribution but can’t because they are constrained by international economic factors (short-term foreign capital, FDI, IMF/WB)? Does anyone have any thoughts? Thanks, Tim

  4. mark turner   January 8, 2008 at 1:06 pm

    Belated thanks for the comments.Tim; part of the conundrum you mention is a better explanation of my facile comment about “it’s socialism Jim, but not as we know it”. It really is time for the industrialised world to tear up the rulebook on what Socialism (with a capital S) means in LatAm and take each case at its merit. I believe you hit upon the point with your comments about how separate Latam states have more than one way of raising investment capital. What each administration does with the FDI etc is another issue altogether, and more dependent on political than economic arguments.If all that is a very roundabout way of saying “dunno really”, I apologise :-)As for a LatAm state without a lucrative source of natural resources: which country would that be? Working from the bottom up, Argentina has grains, Chile copper, Bolivia tin, iron ore, gas, Uruguay agro, Brazil…well, everything really, Peru, copper and metals, Ecuador oil, fruit, nascent mining, Colombia oil+gas, coal, nascent mining, and i hear Venezuela has a bit of oil left to pump, too. Further up the Central American states are rich in biodiversity, then Mexico with mines and oil is right up there with the best of them. That leaves us with Paraguay, and i can tell you their beef is just as good as the famous Argentine product (that comment will get me into trouble on my next visit to Buenos Aires if my Porteño pals pick up on it:-)Right now LatAm has something the world wants, i.e. commodities (both hard and soft). It gives them a good bargaining chip, does it not?