South America for the Chinese?

Last week, at an OECD lecture in Paris, I heard it said that, between 1965 and 2004, the economies of the world’s wealthiest countries (the US, Japan, Germany, the UK, France, Italy and Canada) accounted for an average of 65% of the global GDP. During that 40-year period, this figure remained almost constant, varying only by approximately three percentage points for any given year. In 2007, however – surprise! The percentage share for the G7 countries in the global GDP fell to 52%, marking a decrease of 13 points. In part, this change came from the increase in commodity prices and the subsequent exchange rate appreciation experienced in exporting nations. And part of it reflected the convergence phenomenon of the 28 emerging countries that grew beyond the 3.5% per year mark established during the preceding quarter century. Does this signify a shift in the distribution of global economic power? What role will 2009 play in this process?

The idea that emerging economies would suffer less than rich ones during the crisis, thus consolidating their relative advance, has fallen flat – the world’s most dynamic economies are undergoing an even more severe recession than the G7 nations. Over the last quarter, Singapore’s GDP has shrunk by 17%; whilst for South Korea that figure is 21%. Industrial production has fallen even further. Taiwan, for example, demonstrated a 32% reduction over the same period. The explanation is simple: Asian exports plunged after the advanced economies contracted.

Even in China, with its investment package, unemployment has increased in a startling manner. It takes time to transfer resources and labor from the exporting sector to the construction sector. But, whilst the US promises of incentives for the economy are moving slowly, China is putting into practice a fiscal incentive program equivalent to 15% of its GDP.

So, what implications will these changes in global power wring in South America over the long term? There are three possible scenarios. The first one is: more of the same. Neglected by the three current superpowers (the US, China and the EU), the forgotten continent will continue to be America’s backyard. This is a long established tradition that it seems practically immutable.

It took the US the entire 19th Century to build its hegemony in the Americas, before conquering it in the 20th Century. Thomas Jefferson, President between 1801 and 1809, viewed South America simply as the continent that should be under US control. The longest-lasting principle of American diplomacy came from President James Munroe’s doctrine, enunciated in 1823. He proclaimed that any interference by the Old World in the New would be considered “a direct threat to the US” and advised Europe to leave “America for the Americans”. At the time, the US military might was practically insignificant, which is perhaps why the world paid scant attention to the Monroe Doctrine. However, it was met with implicit approval from England, which saw it as an extension of the Pax Britannica.

The influence of the Monroe Doctrine was strengthened by Theodore Roosevelt in blocking the threat of European intervention in Venezuela and the Dominican Republic, in 1905. But, under President Calvin Coolidge, in 1928, the Clark memorandum rejected the Roosevelt Corollary and, in 1934, Franklin Roosevelt substituted military interventionism for a “good neighbor policy”. American influence was maintained throughout the rest of the 20th Century.

Now, this hegemony is being questioned. The wave of globalization that began before World War I and built up strength from the 1970s onwards, accelerated until the end of the 20th Century. In the same measure that this wave gained weight, geographic distances between countries began to lose importance. American dominance in the Western hemisphere, with its roots in proximity, could be coming to an end. South America’s natural resources are reaching all four corners of the world, in increasingly shorter times. China’s presence in the region has seen dizzying growth over the last ten years.

There are indications that Barack Obama wants to revive economic nationalism. Even if globalization comes to suffer because of this, the second scenario is a variation of the first, with the difference lying in substitution China for the US. Thus, the region’s growth would continue to be tied to the behavior of commodity prices.

The third, more optimistic scenario depends on the economic integration of South America’s countries. United, the continent would gain greater global presence. But, despite the advantages conferred by the dominance of only two (similar) languages and territorial contiguity, South America’s integration leaves a lot to be desired. The excessive volatility of exchange rates impedes a better economic coordination and sustainable agreements. Within Mercosur, trade barriers multiply. Argentina, Brazil, Paraguay and Uruguay were unable to defend a common position at the Doha round.

In mid-December, 2008, some analysts saw the possibility of Brazil leading a movement of converging Latin American interests at the Costa do Sauipe meeting that excludes the US and Canada. Brazil and Cuba united to remove Hugo Chávez from center stage. But, the meeting left it clear that ideological distances between our countries can be too much to bear. The proof of the division was evident in the absence of two Heads of State: Colombia’s Álvaro Uribe and Alan Garcia, from Peru. Garcia justified his absence by stating he does not sit down with dictators.

Despite both Fernando Henrique Cardoso’s and Lula’s efforts, the South American union continues to be fragmented. Is it possible that, among the reasons for the lack of dynamism in our countries’ economies is not only the curse of natural resources, but also an inability to create an integrated free market region?

12 Responses to "South America for the Chinese?"

  1. Juan   February 11, 2009 at 10:16 am

    Prof. Cardoso,Very interesting. One question on the FTA, I guess the South American FTA. If we were to have a free trade area in South America’s do you fully believe that there can be very significant gains in growth if a large percentage of the regions exports are commodities? Would South American domestic demand be large enough? Is free trade in South America an argument for overall benefits from freer trade or are there tangible synergies that you see could increase growth substantially,besides natural gas in the Southern cone?Thank you

    • eliana   February 11, 2009 at 12:20 pm

      Half of Brazilian exports, for example, are manufactures (and not commodity based manufactures). And all gains would not come from trade alone, but also from investment in common infrastructure and better policy coordination.

  2. sage   February 11, 2009 at 3:30 pm

    the spanish speaking countries have hisotrically been unreliable & unstable. their elites – especially colombia, etc. have been brainwashed by us propaganda.add to this the physical barriers – amazon & andes & the southern continent is seperated by nearly insurmountable barriers.the heart of south america is diverse all inclusive (um pais de tudo) portuguese speaking brazil. brazil’s interior is sparsely populated. the continent’s future depends on brazil’s dynamism & the ‘interiorization’ of it’s economy. brazil’s core interests lie in incorporating uruguay, argentina, paraguay, eastern bolivia & peru into it’s economic & political orbit. chile is a self serving island & the others are essentially basket, the future of south america is really the integration of the southern cone region +peru, as peru provides brazil access to the pacific & china. on the other side, the southern cone links to southwest africa – angola, namibia & south africa, who have a relative cultural affinity to brazil.brazil’s large domestic market, sophisticated management talent & diversified industrial base will drive this process. unlike the us which has historically been an outwardly aggressive hegemonic power, brazil is more of an introspective, consensus seeking, peaceful power, so this process of integration will by definition slower & longer, but happening it definitely is. brazil today, for the 1st time in it’s history is a well managed country.the us is an overextended, technically bankrupt (if not for the $ being the reserve currency)empire & is in long term decline a la britain. brazil is a self sufficient ascendent power.

    • Neper   February 13, 2009 at 6:44 am

      “the heart of south america is diverse all inclusive (um pais de tudo) portuguese speaking brazil.”A very typical Brazilian delusion of grandeur. It’s very interesting to see the high opinion Brazilians have of themselves vs the opinion outsiders have of them (samba, favelas and corruption, a large Central American country). The divide and rule tactics at the disposal of outside powers are much more powerful than any Brazilian capacity. You’ve never been able to control Spanish-speaking countries in 200 years, why now?. You have no nuclear weapons. Exactly in what league are you playing?

      • Fabio Milan   February 27, 2009 at 12:13 am

        Brazil does not have and will nor have nuclear weapons. It is self a reliant country, it should not seek local hegemony nor to control spanish speaking countries — they’ve been a different culture since the beginning of the Spanish colonization. Brazil have been a country at peace since 1870s, and should remain so. It should consern only in consolidating its economy and long ter relations with immediate neighboors and varying strategic alies, yesterday it was US tomorrow is China. It really does not matter.The standar of living of all Brazilians are steadly getting better and our people should only be interested in Brazil only and not try to become an hegemonic power.

  3. Barry K   February 13, 2009 at 12:32 am

    The long life expectancy of Brazils energy assets mitigate a long term interest from energy needy countries. The strengthening value and stability of Chinas currency will make trading with the Chinese more desireable.

  4. boosha   February 13, 2009 at 6:47 am

    Excellent article, Mrs Cardoso. Latin American countries must increase the regional trade in order to replace their global business shrinkage. During these bad times for many economies, it is quite good for them when we don’t see the “forgotten continent” in the headlines. While Latin America is overcoming its state of poverty and economic inactivity, unfortunately many stronger countries are experiencing the opposite way. Raised in the difficulty and practiced on creativity, Latin American adults have the crisis antigen in their blood. Used to be the underdog, the region has everything needed to become energy independent, has resources enough to produce its own food and one thing that makes the difference for any kind of company in the world: an internal market with a huge emergent middle class and strong basis for growth in the next decade. Its main economy, Brazil, is now the 5th biggest car market of the world, overtaking the UK and Germany, according to a recent global report.

  5. sage   February 13, 2009 at 4:53 pm

    neper is obviuosly a shit for brains delusional united statean. it’s very interesting to see the high opinion united stateans have of themselves vs the opinion outsiders have of them (genocidal murderers w/ democ[rat]ic ideals, state sponsors of terror, world’s biggest crooks, con artists & hypocrites)neper also needs a little geography lesson, a subject not covered at the trailer park trash school he attended before dropping out in 8th grade. the ‘large central american country’ you buffoon is actually in south america. it is also larger than the cuntinental usa. which outside powers is this moron referring to & who exactly are these powers going to divide & rule in brazil – be specific, you monkey.brazil has never had a need to control the spanish speaking countries. it does not engage in state sponsored terrorism a la the us model. incorporation & control mean 2 different things. lil neper is not fluent in his own language. the world’s 2nd & 3rd largest economies (japan & germany) dont have nuclear weapons either. nuclear weapons are obsolete, biological weapons are the future you raving idiot.brazil is now the world’s 6th biggest economy & has a strategic relationship w/ china & the eu along w/ good relations w/ russia, us, japan & pretty much every other country on earth.

    • Guest   February 22, 2009 at 10:34 pm

      Sage:No offense but you seem the delusional “shit for brains”, and I believe that Neper was expressing South American opinion not United Statean, although that seems your preferred poison. Frankly Brazil is a resource rich nation, with abundant natural resources, significant problems related to poverty, and would do better increasing along lines of a sustainable economy rather than raping its resources and sending them half way around the world, but hey if China wants to use its dollars to pay for oil development off the coast, let it, although China better had hope demand around the world develops quickly, or see the vast debts hidden at the provincial or municipal level, or all those loans turn quickly NPL.

  6. sage   February 25, 2009 at 3:52 pm

    guest,if neper is expressing a so. amer. opinion then it must be ‘spanish speaking monkey brains’ – even worse!many ‘developed countries also have ‘significant problems related to poverty’ – the difference being the relative ratios.since the beginning of the cardoso admin. brazil has had in place policies geared to maintaining stability & sustainable development.based on your terminology of ‘raping resources & sending them 1/2 way around the world would put brazil in the same category as ‘advanced developed’ anglo-saxon countries such as australia, canada & usademand around the world & in china will pick up as a new model replaces the current broken model.vast debts hidden at the provincial or municipal level – are you refering to ‘advanced countries’ such as spain, italy, ireland, new zealand, usa, etc……if yes, then such debts are already npl.

  7. Fabio Milan   February 27, 2009 at 12:30 am

    As a Brazilian I find it amusing this notion of a mighty Brazil — it’s not in our blood, in our history. We will not ever become a military superpower. It would take a World War II type of situation to make us militarize ourselves and build nukes and wage war. It’s been a long time since last time we were involved in a large scale war effort – 1870s if I’m not mistaken. What I do beleive will happen is that Brazil can become a economic power, it has the good fortune of having a growing and demanding internal market that has its needs met by the Brazilian industry. This fact alone will allow Brazil to grow this year of 2009 a solid 1.5% to 2.0% when most of the world is facing a steep ressetion. Of couse, there still is a long way to go in the road to development — but year after year, more and more people make a decent living in Brazil, the problems are solved, and our democracy gets older and more stable. It’s been a long road since the days of hiperinflation of my childhood, it’s been a long road since the days of chronic economical instability and unchecked corruption in the government.Things change. It just requires persistance and time.

  8. sage   March 2, 2009 at 12:38 pm

    fabio, that’s exactly what I am referring to – Brazil as an economic power. i pray brazil to never become a military power, just to have a strong defence & deterrance against predatory, aggressive foreigners (primarily anglo-saxons & europeans). this implies brazil master the technologies for this. brazil will find it’s own way on it’s own terms & make it.unlike the anglo-saxons & some european groups, brazilians are not predisposed to international genocide, crimes against humanity, wars of aggression/expansion & imperial adventures.