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Blogs by Erik Hare
Ordem e Progresso 2/12/2008 7:47:49 PM
The economy is on the minds of many Americans right now, which is the polite way of saying that things are pretty lousy. We’ve never seen a Fed cut the prime rate as much as 1.25 in eight days before, so we all have to wonder what the policy makers know that we don’t.
Things aren’t bad everywhere, however. We have only to look to our South to see a land of great opportunity developing. Way South, in fact, to the diverse and vibrant land known collectively as Latin America.
While we are fighting to reinvigorate our Democracy in the USofA, a new sense of freedom and optimism is a point of pride among many of our neighbors. There is still a civil war in Colombia and Hugo Chavez is still trying to turn Venezuela into a socialist state, but there are tremendous successes throughout the region. It’s also worthy of note that Chavez himself was renounced by a popular vote last December that has held; the will of the people has not been challenged.
What we see throughout the region is a new stability that has made it possible to make long range plans and secure capital on better terms. More importantly, the Mercosur trading block has imposed a new regimen of government restraint developed collaboratively among its partners. Mercosur has achieved jointly something that scolding patrons from the World Bank or US Government were unable to make happen. It’s all moving forward as a Latin American plan, not someone else’s. As prosperity begins to sink in, this will be institutionalized nicely.
Is prosperity within reach? In the last 5 years, the stock markets of Latin America have increased in dollar terms by about a factor of 4. That’s impressive by any measure, but what’s most important is that these companies are largely manufacturing, mining, and related basic industries. That means jobs, and from those jobs a developing middle class.
It’s what happens to that middle class that matters in the long run. The biggest problem that Latin American nations have had over the last few generations has been raising capital to sustain growth. Nations like Argentina are clearly large enough to generate their own capital, but Argentines typically did not trust their own government enough to keep their money in local banks. Anyone with a little scratch of their own made sure it was safe in a bank in Miami, denominated in US dollars. But this is what is gradually changing even more critically than the growing faith in Democracy.
The Argentine Peso is a good example. Over the last 5 years, it has varied between 2.8 and 3.2 to the dollar, most of the time right around 3.1. That stability, along with faith in the Mercosur regime of constraint, has allowed the nation to build its own capital reserves without heavy borrowing from other nations. For the first time that anyone can remember, they master their own economic destiny. Stability is the key.
Brazil is the real engine of the region, with nearly 200 million people and vast resources. It has the potential to challenge the USofA as an economic powerhouse. What has held them back has been an intractable concentration of poverty and official corruption. The recent gains have given them the possibility of turning the corner on these problems, which means that in our lifetime they could assume a key role on the world’s economic stage. Part of their success has been a focus on energy independence, which they have achieved, and the building of basic industries to support labor intensive operations such as car building. This “Brazilian Way” could yet make them a great and prosperous nation.
There is another dimension that has yet to take off, but could signal the arrival of Latin America. This has long been the playground of the USofA, an economic backwater that was kept isolated and enslaved. There are increasing signs of investment from Europe and Japan, mostly in Brazil, which mean that they have finally arrived on the world stage.
What does all of this mean? It means that running a nation is a matter of taking care of basics. More importantly, it shows that direct meddling from an outside power like the USofA doesn’t help create the basic institutions of Democracy and collaboration that are necessary to create real stability and prosperity. In recent years, the decline of a communist threat has led the USofA to keep its paws off largely off of the region, and the result is success. Success achieved on their own terms, in their own way.
