The New Latin America

Latin America has undergone dramatic changes during the past fifteen years. The military regimes that were dominant in most of the region’s countries have been replaced by democratically-elected governments. Formerly closed and highly protected economies are now more open and integrated into the global economy. Intraregional trade has also grown as a result of the formation of a number of sub regional trade blocs. Finally, relations with the United States have improved considerably, in great part because the end of the Cold War allowed Washington to place economic concerns instead of security issues at the top of its hemispheric agenda.

This is not, of course, the first time that Latin America has been democratic and had open economies. Nor is integration a completely new phenomenon for the region. And despite the considerable imbalance of power between the United States and Latin America, relations between the two have not always been hostile. In view of these observations, it is reasonable to ask whether this time around the changes will prove more enduring than in the past.

I believe that the answer to this question is "Yes." Democracy in Latin America today is considerably stronger than it was in the past. Electoral processes have become more transparent and less capable of being manipulated. Politics is also far less ideologically polarized. Parties of the left and the right have moved toward the center. Incumbent governments defeated in elections are more likely to relinquish power to their victorious opponents, even when the latter hail from the opposite end of the political spectrum. Democracy is also no longer mainly a top-down process. State and local government have grown in strength and importance. The proliferation of independent non-governmental organizations (NGOs) has made politics considerably more participatory than in the past. And these participants are better informed about the issues than ever before as a result of the spread of new technologies such as television, the fax machine and most recently, the computer and the internet.

The opening of the region’s economies is also more durable than in the past, in part because protectionism is not a viable alternative in our increasingly globalized world economy. Most Latin American countries do not have the resources to maintain closed economies and foreigners are increasingly reluctant to invest in such economies. Furthermore, despite the fact that Latin America’s more-open economies have not lived up to the expectations of its citizens, there is now a critical mass in most countries that has benefited from the economic reforms. The most dramatic reform, in this regard, is the virtual elimination of inflation, and even of hyperinflation, in many countries. Argentina and Brazil are good examples. Other important reforms include the privatization of many state enterprises, which has resulted in improved and more efficient services and the reduction of government expenses.

Economic integration has also gone farther than in the past. The earlier experiment with integration in the 1960s had an essentially protectionist rationale, which contributed to its failure. Integration today, in contrast, is being implemented in the context of the new market-oriented economies. As a result, market forces rather than negotiated decisions among governments are, for the most part, determining what is produced and where it is produced.

Finally, relations between the United States and Latin America are more constructive today than in recent memory. This is partially the result of the Soviet collapse, which left the United States as "the only game in town." Since Latin American countries no longer were able to take advantage of U.S.-Soviet competition to gain greater advantages from Washington, they wanted and needed access to the U.S. market and to U.S. capital. Latin American governments, therefore, dropped their anti-American international postures and instead emphasized the mutual benefits that could be achieved by greater cooperation.

Remaining vulnerabilities in the region. Despite Latin America’s impressive achievements over the past fifteen years, many problems remain. Perhaps the biggest threat to both the political and economic opening is the fact that the economic reforms have widened the already large gap between the rich and the poor in the region. In addition, there is dissatisfaction with the often unimpressive rates of economic growth and the high levels of unemployment resulting from the opening and restructuring of the Latin American economies. Finally, there is the perception that the new democratic governments have been unable to deal effectively with corruption, criminality (much of which is drug related), and growing threats to personal security that characterize many Latin American democracies.

Although the reforms are being blamed for many of Latin America’s current problems, the reality is more complicated. Corruption and political and economic inequality have long existed in Latin America. Furthermore, the unemployment and growing income inequality have more to do with the realities of the new global economy, which rewards the highly educated and penalizes the poorly educated, than with the so-called Washington consensus or any particular set of economic reforms. Finally, it is becoming increasingly apparent that the problem is not too much reform, but too little. Stated differently, those countries that have prospered most have been precisely the ones that have opened and restructured their economies most. The same can be said of the new democracies. Those countries that have acted most expeditiously in building and strengthening the institutions that democracy requires have the best prognosis.

The need for further reform. What, then, needs to be done? The unimplemented reform agenda includes political, economic and social reforms. High on the political list are judicial reform and the strengthening of the legal system. Without the rule of law, democracy cannot function and will ultimately fail. Effective legal systems are also required for well functioning market economies. In the economic area, tax reform, labor reform and social security reform should receive high priority. In their absence, capital and labor cannot be used efficiently and productively. High on the social agenda is education reform, followed by health and welfare reform. Democracies and market economies that do not have well educated and healthy citizens can only go so far before they stall, especially in our increasingly technology-driven world.

It will not be easy to implement this so-called second stage of reforms. There are many vested interests that will oppose them. Also, the region’s new democracies vary in their ability to work with them or oppose them. On the other hand, failure to implement the needed reforms will prove politically and economically costly, as we have recently seen in Venezuela and Ecuador. The big gap that exists between the rich and the poor makes large numbers of Latin American voters susceptible to the populist appeals of politicians. Valuable time and resources will be wasted on doomed populist experiments that attempt to reduce inequality by lavish spending rather than by implementing reforms to increase productivity. Once populism fails, these countries will have to implement the very reforms that they originally opposed.

What can the United States do to help? The main responsibility for carrying out the remaining reform agenda resides with the Latin Americans themselves. If Latin America’s leaders are not committed to the reforms, little will be accomplished. Committed leaders, however, are not enough. These leaders must also effectively explain to the citizens of their respective countries why the reforms are in their interest, how they have benefited and/or will ultimately benefit from them, and what will be done to help them navigate the difficult transition between the old and new economy. Unfortunately, this has not been adequately done in much of Latin America. To bring about additional change, this must be an integral part of future efforts.

That being said, there is much that the United States, as the most powerful, wealthy and influential country in the region, can do to facilitate the deepening of the reform process in Latin America. There are already programs in place to strengthen electoral processes, judicial systems, law enforcement, economic institutions and the like. If Congress determines that these programs are working well, they should be continued. In those countries where there are special problems, such as Colombia, the United States will have to increase its military and economic aid to the democratically-elected government and work with neighboring countries to solve or at least contain the problem.

The most effective policy that Washington could pursue, however, involves adamantly pursuing the implementation of a Western Hemisphere free trade area. It is precisely in this area that U.S. policy in recent years has been most disappointing.

The expansion of hemispheric free trade is important both for the future viability of democracy and market economies in the region. Under the right conditions, it will make Latin American economies more productive and competitive. It will increase the potential for economic growth and job creation, thereby raising the living standards of the people of the region.

Not all of the benefits of hemispheric free trade, however, will go to Latin America. The United States is already benefiting from the opening and restructuring of the region’s economies. Latin America is already the most important market in the developing world for U.S. exports. By the year 2010, total trade between Latin America and the United States is estimated to exceed the combined U.S. trade with Europe and Asia. In addition, the strengthening of trade relations between the United States and Latin America will help reinforce U.S.-Latin American relations in other areas.

We have already seen this happen in the case of Mexico. Since NAFTA (the North American Free Trade Agreement), trade between Mexico and the United States has almost tripled. The country has become a powerful exporter of manufactured goods. Jobs are being created at a rapid pace in the new, more high-tech economy and GDP growth in Mexico has begun to accelerate. The economic reforms and greater integration with the United States have also facilitated Mexico’s transition to democracy. They helped decentralize economic and political power and gave democracy advocates a new forum outside of the country in which to press their case. Mexico’s greater involvement with the United States has, in effect, helped make the country’s political culture less authoritarian and more democratic. Finally, it has facilitated the ability of the two governments to work together.

Of course, one would never know that NAFTA has been a success from the debates and discussions that have focused on it. These give the impression that NAFTA has been a failure. Organized labor in the United States vociferously blames it for the loss of U.S. jobs, the decline in U.S. wages, pollution on the U.S.-Mexican border, as well as crime, corruption and increases in drug trafficking in Mexico. It is true that the picture from Mexico is not all rosy. Many of Mexico’s problems, however, preceded NAFTA. At the same time, the problems affecting U.S. labor have little to do with NAFTA and much more to do with changes in the global economy and the high-tech revolution. Unfortunately, the American public has not been adequately informed about the benefits of NAFTA to both Mexico and the United States. Instead, the administration has accepted the negative interpretation of NAFTA’s impact on both countries and has tried to ignore the whole issue of NAFTA. Nor did the administration press sufficiently hard to obtain a renewal of so-called fast track authority. To a certain extent this is understandable, given the political importance of organized labor to the Democratic Party, which controls the presidency. The fact that this is a presidential election year compounds the problem.

The next administration will have a new opportunity to spread the good word about NAFTA and to revive the momentum for establishing a hemispheric free trade area. Both Al Gore and George W. Bush are strongly committed to free trade. Furthermore, there are signs that organized labor has begun to reassess its position on a number of issues. Immigration is one of these. Instead of fighting immigration because it threatens U.S. jobs, the AFL-CIO recently called for increased immigration. In part, its reversal on the issue can be explained by the realization that new workers mean potential new recruits for the union movement.

A renewed push for hemispheric free trade, however, should not repeat the mistakes of the NAFTA campaign or the fast track effort. These campaigns focused too narrowly on the issues of job creation and the benefits that would accrue to the owners of capital in the United States and Latin America. The multi-faceted benefits that hemispheric integration will bring to the United States and Latin America must be explained. These benefits, which include the strengthening of democracy in Latin America, the possibility for higher standards of living in both Latin America and the United States, and better U.S.-Latin American relations, are as important to the free trade argument as is the increase in hemispheric trade itself.

Finally, the importance of U.S. leadership on the hemispheric free trade issue should not be underestimated. In the early 1990s, President Bush announced his Enterprise for the Americas Initiative, which included a call for the establishment of a Western Hemisphere free trade area by 2005. Few specific details were offered. Nevertheless, the promise of access to the U.S. market and a special relationship with the United States captured the imagination of a new generation of Latin American leaders and gave them an added incentive to open and restructure their economies and strengthen their democratic institutions. With the recent defeat of fast track, however, Latin Americans felt that the United States had broken its promise and left them to fight the difficult battles for reform all by themselves.

I have no doubt that a renewed U.S. commitment to hemispheric free trade will energize Latin American leaders to press ahead with the second stage of reforms, which includes judicial, regulatory, tax, educational and welfare reform. It will also reinforce Washington’s existing political, economic and social policies toward the region.

For these reasons, the creation of a free trade area of the Americas should be the number one priority of the next U.S. administration’s Latin American policy. All other U.S. policy initiatives pale in importance compared to the many benefits that hemispheric free trade would bring to both Latin America and the United States.