Latin American economic policy during the worldwide depression of the 1930s would have a lasting effect on the macroeconomic policies of the region and cause significant long-term economic mistakes to arise. In the 19230s, Prebisch theorized that the economic problems of Latin America were tied to their agrarian based economy and external constraints. (Birdsall, 12). He argued that the problem with being a mainly agrarian society was that economic problems in the rest of the world would have a great influence on demand for exports and therefore the nations’ economies were tied unhappily to the rest of the world. He therefore recommended that the nations of latin America concentrate on internal development and industrialization, promoting a sort of economic isolationism that did okay until the early 1960s when the industrialization process required major investment of capital. Many of the states had eliminated personal wealth at least to some extent and no internal money was available for these capital improvements.
In the 1970s, the governments of the region understood the need for capital development and taking advantage of good loan terms and a reasonable debt carrying costs, the nations of Latin America quadrupled their national debt to $176 billion (Birdsall, 13). While carrying costs were low, the plan seemed a good one, but then in 1979 with a rapid increase in oil prices and a sharp decline in the cost and desire for primary goods that the were manufactured in Latin America, the cost of debt service grew exponentially and interest rates continued to rise. In addition, the region saw a great deal of capital flight; that is, those who has large amounts of money to invest took their money and left the country or simply invested their money elsewhere. As a result of trying to make up for the lack of international capital investment during the previous era, the government took on huge debts in order to invest in their countries. Conditions improved until exorbitant inflation began to take its toll of the governments and they began to look for new sources of revenue to pay the national debt.
The new sources of revenue located during the so-called lost decade of the 1980s and early 1990s only served to further hinder the nations’ economies. They returned to a sort of pseudo-protectionism, enacting or increasing import tariffs, restricting imports and increasing taxes. At the same time, because of the burgeoning national debt, they reduced national investment in the economy and attempted to move to an economy led by the private sector. But the promised effects of Prebisch era had never materialized and the nations did not have the infrastructure, labor force or production rates necessary to attract significant foreign investors and the toll of the new taxes on the national economy was great. The country had to look to private sources (banks) t help fund the debt service and the inflation kept growing at out of control rates. The nations took severe action to combat the rising inflation including attempts to regulate currency exchange and strict fiscal policies. Seeing the error of the new tariffs and trade barriers, the nations finally saw the problems of the Prebisch theory and began to remove trade barriers and encourage international investment.
But at least initially, the decisions were too little too late. Mexico had suffered such a huge inflation rate that the devaluation of the peso was in crisis proportions and when American banks began to call due their loans to Mexico and Mexican companies, the resulting crisis had a a ripple effect on all the economies of Latin America. Throughout the economic cycles, the problem appears to eb that the nations were largely reactionary—overly so. They bounced from one extreme to the other, never stopping to consider a centrist policy that would have helped them to avoid such extremes as complete isolationism and complete dependency.
Question #2—Klein and Petras have very differing views about the market forces which drive Latin America and would likely disagree significantly about the future of those countries. Klien argues that the neo-liberal movements of the region are a return to policies enacted prior to American involvement in the inner workings of the region and represent the antural progression of things. She argues that even anti-American pronouncements like the President of Ecuador’s statement that he will allow an American military base in Ecuador so long as the Americans allow an Ecuadorian military base in Miami are simply an attempt by the region to restore its own homogeny and negate the impact of American-based capitalists like Milton Friedman who had a negative impact on the economies of the region. Petras argues that the left-wing rhetoric of the region is something akin to Soviet rhetoric and will become more centrist in actual action as the presidents solidify their power bases and begin to understand the realities of the world economy. Some, like the president of Bolivia, Evo Morales, have already begun to see the growing conflict between the trade unions and financial investors, both national and international and has toned down his rhetoric regarding the necessary actions to secure the state. The problem with his toned down rhetoric is that despite his new definitions he intends to nationalize the oil fields and therefore destroy much of the national investment in his country.
After just reading Birdsall, the observations of Klien and Petras seem to be more business as usual for Latin America. After a brief entry in the world market, they have once again decided to take their ball and go home, attempting to eliminate their international debt and domestic discord by once against claiming their natural resources for the state. It is a sad observation that neither commentator can draw the line back to Birdsall’s analysis of the economic history of the region and seek only to classify it with regard to the impact of political ideology on economic policy. Neither writer accurately addresses the economics of the issues, pointing instead to popularity on the world stage and potentially biased election results as a commentary on the successfulness of the neo-liberal leaders. Furthermore, Klein does not even compare apples to apples. She remarks about president George Bush’s failing national approval ratings, based on opinion polls, and compared them to Hugo Chavez’s election results. The two measures of approval are not one and the same. Whether or not Klien supports Chavez’s stance, comparing his election returns to Bush’s election returns would have been more appropriate. Chavez still wins in terms of popular approval, but comparing the latest opinion poll of a lame duck president to actual vote totals gives Chavez an unfair basis of comparison.
In addition, although klien uses a military analogy to open her statement, she then strays from it, talking about Latin American economics. She only returns to military issues when it is tiem to take pot shots at the American president. Whether he insight is accurate is irrelevant; her article is not cohesive because she cannot stay on topic:the economic of Latin America. She lacks historical perspective and confuses social and political ideology with economic policy, a problem that most people seem to suffer from. Petras seems to have a slightly better understanding of history, but does not take the time to adequately explain the relationship between politics and economics nor the potential worldwide backlash that may accompany the growing liberalization of Latin America.
Question #3—In his treatise “The Wealth of Nations”, Adam Smith argued that as the labor of a country becomes more specialized, it will become more productive. If then the argument of the Venezuelan committee is that the labor force ahs become so specialized that it no longer needs a 40-hour work week, then it is possible the they are in keeping with Smith’s theory. However, since the ad seems to promote the concept that the reason for a shorter work week is because people need more time to relax, it would tend to indicate that the Venezuelan is progressing from a colonial nation to an industrialized nation and that therefore the work of the nation is being done somewhere else.
Though Latin American leftists would likely not agree with Smith’s conclusions regarding the tendency of the developed nation to look for new labor sorces via imperialism or colonization, the theory has stood for 230 years without major disagreement. Therefore, the question should be asked what labor market are the Venezuelans exploiting so that they can move to a 36-hour work week. While much of the industrialized world has moved to a shorter work week, the fact that Venezuela is poised to join them implies that it is prepared to move beyond the scars of colonization into a world power in its own right. For a region long seeped in the tradition of blaming colonial overlords for their economic dysfunction, Venezuela may be forced to rethink its own imagery and admit to becoming an overlord themselves.