In the “Financial Times”, Michael Stott, editor for Latin America, recently headlined an interesting article on the region: “Latin America beats the world in wasting opportunities” (in English, original).
Accustomed to denominations such as “lost decade” or “mediocre growth”, Stott’s title leads us to wonder what is behind so many wasted opportunities.
Fold
We are, paradoxically, in an area that has been “blessed by the hand of God.” From the border of the Río Bravo in Mexico to Tierra del Fuego in Argentina, there is food and we are one of the largest producers in the world. We also have renewable energy. The best thing is that they are cheap and easily produced.
Furthermore, dictatorships have remained far away –with sad exceptions–. Most of the countries enjoy democracies, imperfect but democracies, and there are cities that are presented as success stories in reducing violence (Medellín, They are Paulo or San Salvador).
However, as Stott says, when it comes to economic development, “our presidents seem to have other priorities.”
“Many countries in the region are going through a phase of withdrawing into themselves and are at risk of missing out on the opportunities offered by the changing global context,” confirmed Carlos Felipe Jaramillo, World Bank Vice President for Latin America, in a chat with Stott.
The presidents of the region have returned to bring up old discussions about the development model, in which tariffs and statism prevail. The opponents, not so far away, blindly trust the let it bewith an orthodox vision of the virtues of the free market.
The advances are not ruled out either. With a significant increase in the middle class and millions of people who have been lifted out of poverty, the region has taken important steps in building a market model based on assistance. However, the numbers show that other regions with similar conditions have had more favorable growth rates.
An example of this is East Asia, the region that for decades has been regarded as a development model. Only in 2022 this region grew 5.8%, while Latin America reached 3.9%.
An important part of this phenomenon is the moment of insertion in international markets. East Asia entered the international trade networks before Latin America, which remained stagnant in a protectionism inherited from the industrial policy of import substitution, which benefited the monopolies and blocked the scarce export vocation.
But not only this
Although the above explanation is part of the phenomenon, Diego Sánchez-Ancochea, Professor of Economics at the University of Oxford, says that the regular growth of Latin America is also due to a set of different factors, such as excessive faith in the impact of economic reforms, the adoption of an extremely orthodox definition of macroeconomic stability and, above all, the weakness of the export sector.
lack of model
The ex-editor for Latin America of “The Economist”, Michael Reid, already said it in 2007: “Latin America needs a combination of macroeconomic stability, an open and investment-friendly economy and a robust social policy”.
Uruguay and Chile have open economies, economic stability and, with governments alternating power, have achieved a more expansive social policy. Colombia, Mexico and Brazil have also made progress in creating a mixed model, not at the levels of the former. In any case, productivity and growth rates are not at the level of East Asia.
Behind this condition there are lesser-known reasons. One of them is that the export model in Latin America has not been able to create more dynamic comparative advantages in the contemporary global context and, as a result, its growth rates are lower.
In general, it has remained in an agro-export model and has hardly produced goods with a high competitive advantage. “It exports primary goods and people. The current development model fully adopts the logic of integration into international markets and extends the old agro-export model”, explain the academics Esteban Pérez and Matías Vernego.
Not only the lack of comparative advantages explains the low growth rate. Politicians and industrial leaders have also had few long-term plans to accompany a State policy that seeks the export vocation. To put it another way: the left has had one idea of development, the right another, and so the decades have passed.
Again, this year confirms such a trend. With the 2020 crisis, the medium recovery of 2021 and the slight growth of 2022 (3.9%), Latin America is going through the path of a “lost decade”, that term that Luis Alberto Moreno coined at the time in 2013 during the oil crisis.
To avoid a new “lost decade”, its leaders don’t do much either. Instead of thinking about products that have a competitive advantage, they focus their efforts on expanding refineries and building naval bases. This is the case of the Brazil of Luiz Inácio Lula, a country with enormous potential to trade freely in international markets with quality products.
A little further down, in Chile, Gabriel Boric has promised to nationalize the production of a strategic mineral resource, lithium, and therefore has discouraged foreign investment interested in investing capital in Chilean territory.
More striking is the case of Mexico. Blessed by its strategic location to trade with the United States, Andrés Manuel López Obrador has chosen to suppress the investment promotion agency, attacks renewable energy companies and has halted construction on the region’s largest airport. And well, Argentina has set price controls coupled with sky-high tariffs.
Unacceptable to waste opportunities in the midst of a new and possible lost decade.