Ideologies: Walls to Latin America’s Development

The political and economic narratives that have characterized debates in Latin America have been deeply contaminated by Cold War dichotomies. With astonishing simplicity and even after the fall of the Berlin Wall and the evident failure of leftist radicalism, there are, practically in every country, groups that take that worldview as a reference to whip up the population and, when they have had the opportunity, to make decisions. There are numerous cases in which these ideas are inspired by a chronic anti-Americanism, but, in others, by a sincere conviction that socialism or communism have the answers to development.

Whatever the reason, these groups end up conditioning the debate and hindering the qualitative leap to policies based on the academia’s studies results and the trajectories of successful countries.

On the other hand, and also with a colossal superficiality, in all our countries there are political leaders and economists who, inspired by Friedman and Hayek (or by their personal economic interests), defend a role for market forces that ignores the recession and recovery from the crisis that began in 1929, Keynesian theories, the analyses of Raúl Prebisch and, above all, the policies practiced in every successful country, starting with the United States. It is because of this attempt to revive extreme proposals of liberal economic thought, which had already been criticized for their shortcomings, that we call this type of activism neoliberal.

Today we are experiencing a resurgent economic consensus in the U.S., which strengthens the participation of the state in the economy, protectionism, and the selection of “champions” as subjects of state subsidies.

“Resurgent”, because the reality is that the U.S. economic policy has always been far from what it preaches and what it imposes or encourages directly (as a condition for bilateral aid or for the signing of trade agreements) or indirectly from international organizations.

According to Norwegian economist Erik Reinert, “…since the founding fathers, the United States has always navigated in two worlds, Alexander Hamilton’s statist activism and Thomas Jefferson’s dictum that ‘the government that governs least, governs best’. With the passage of time and the usual American pragmatism, this rivalry has been resolved by putting Jeffersonians in charge of rhetoric and Hamiltonians in charge of policy.” Agricultural protectionism and direct state involvement in the financing and execution of projects in the technological field and many of the New Deal policies that were never eliminated are just examples of this permanent Hamiltonian view.

But since the response to the difficulties of 2008, state interventionism has expanded with particular force. In the face of that crisis, banks and car factories were nationalized and subsidized, and the Federal Reserve issued 13% of GDP to reactivate the economy. The Reserve used the unemployment rate as a criterion for this monetary policy, contrary to its neoliberal preaching (repeated as sacred dogma in most Latin American countries) on the inappropriateness of central banks taking this variable into account.

The current stage of deepening state interventionism is the result of the nationalist protectionism of the Republican right and the social and environmental commitments of the Democrats. The alleged threat from China further fuels such policies.

The strategy of this new interventionism seeks deep economic reform through state intervention, using the full arsenal of tools at its disposal, which are targeted at certain industrial sectors, certain firms and certain economic activities, and all selected by state entities, not by market forces.

The change that is being observed is not qualitative; such government activism has characterized the extraordinary development of the U.S. and every successful country. What is noteworthy are other aspects. Firstly, the fiscal dimension (close to 2 trillion dollars); secondly, the growth of the sectors impacted by this new interventionism and, thirdly, the open questioning of neo-liberalism and the willingness to defend the distorting model of market forces by prominent members of the U.S. establishment.

It seems that the Hamiltonian perspective is now also in charge of the rhetoric. In late April, none other than Jake Sullivan, the Government’s National Security advisor, indicated that it can no longer be ignored “that the economic dependencies that were generated during decades of liberalization had become dangerous.” He added that the policies “that had energized the American project in the postwar years (and, indeed, in much of our history) had faded. They had succumbed to ideas that promoted tax cuts, deregulation, privatization and free trade as ends in themselves. There was an assumption underlying all these policies: that markets were always best for efficiency and resource allocation.”

These words sum up the new Washington Consensus. At this stage of the game, when in terms of sustained economic growth or social development, the neoliberal preaching lacks achievements in Latin America, it is necessary that those who are addicted to pampering the sermons dictated from the North become aware of the Consensus prevailing today in those latitudes. This would greatly facilitate the debate and the construction of development policies in our countries.

The truth is that every successful economy, whether long-standing or that of Singapore, Israel, Taiwan, or the Republic of Korea, has implemented pragmatic, flexible and eclectic policies. And its leaders have not been blinded by the dogmas of the radical left or the neoliberal right.

China itself, while it is true that it has given enormous space to private property and the market, maintains the presence of the state in strategic sectors and makes profuse use of all kinds of incentives to achieve its economic and social objectives. It may be noted, from some geopolitically and economically interested groups, for the strong role of the state in driving development, but it is not a failure.

Indeed, many of the protectionist policies of the Trump and Biden administrations seek to counter China’s success, not by expanding the role of market forces, but by intensifying the role of the state. This is, despite the rhetoric, a recognition of the role of government activism. In short, the United States has decided to compete with China by distrusting in some areas the “invisible hand” of the market and relying on the “visible hand” of the state, precisely the one that is most visible in China. What a paradox!

Perhaps it would be an exaggeration to refer to the steps of convergence in the economic policies of both powers as the Washington-Beijing Consensus, but it would also be wrong to ignore the fact that in order to compete with “statist” China, the United States has decided to expand the role of the state in its economy.

The lessons for our countries are huge, and it is the native neoliberals who should learn them first.

Finally, if the radical left and neoliberalism leave room for an adult discussion on the best development policies, this is a necessary condition for Latin America to make the leap.

*Translated from Spanish by Janaína Ruviaro da Silva

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