By: Dr. Alfonso Dingemans
The Left Turn
Twenty years ago, it was much easier to describe the economic organization of Latin American countries. The debt crisis, which spawned the so-called “lost decade” of the 1980s, had given the final blow to the import substituting industrialization (ISI) project. characterized by both the dirigiste dogma, in words of Deepak Lal’s (in)famous book-title, and an inward-looking development strategy. The economic chaos was so profound that something had to be done, and quickly. Sooner or later, all countries would swallow the “bitter pill” of pro-market reforms, better known as the Washington Consensus, to a greater or lesser extent. Even Cuba had to give in, although it hardly became Latin America’s China, neither in terms of economic success, nor in terms of the breadth and width of its pro-market reforms.
At first, everything seemed to go well. After decades of suffocation, market forces were finally released, under the auspicious and watchful eyes of the IMF and the World Bank, unleashing a very promising economic future. The 1994 Tequila crisis was a major complication (and scare) for the region’s economies, but it was effectively contained by the jumping in of various actors of international financial institutions. The Asian crisis, however, was a whole different story. The damage it caused to the Latin American economies was considerable. For instance, in Argentina, it triggered a chain reaction of events which eventually would lead to the collapse of its economic organization, accompanied by public rejection, and a dramatic rise in the poverty levels. In other countries, like Chile, the damages were much better contained. Nevertheless, a new spirit invaded the region, in line with its well-known bipolar social psychology: the Washington Consensus had to be replaced, because it was the root of all social problems. True, it wasn’t (and isn’t) a recipe for guaranteed success, higher earnings come with higher risks, and many social issues demanded, in times of low or negative economic growth, urgent attention. But Latin America’s social problems did under no circumstance begin with the implementation of the Washington Consensus reforms. The fact that populist Presidents promised that these reforms would end poverty altogether, is quite a different story. And so is the fact that many pro-market reforms were accompanied by outright corruption. In sum, for many Latin American citizens, pro-market reforms became tainted words.
At the turn of the century, not many (centre) right-winged governments had survived, which prompted many observers to talk of Latin America’s “left turn”. These newly elected government can be divided in three large groups. First, we have the “renovated” left of a more pragmatist calibre, comparable to the doctrines of the European Third Way. This means that the market is accepted as an essentially benign and useful force, but which must be kept on a relatively short leash. The nagging question is to determine where the State ends and where the market begins, and how to make them work together in stead of against each other. Examples would include the administrations of Michelle Bachelet in Chile and Luiz Inacio “Lula” da Silva in Brazil.
Second, we have the (often but not always left-wing) populist governments, in the sense of economic populism coined by Dornbusch and Edwards, which promise to solve the people’s “real” problems, listen to them, and acknowledge the same common enemy, the uncontrolled market, and sometimes bluntly “the” market. State interventionism is a necessity, the problem is that they are more often than not riddled with corruption and technical inconsistencies. Examples would include Nestor Kirchner, Cristina Fernandez de Kirchner in Argentina, and Alan Garc(í)a in Peru.
Third, we have the “romantic” or dogmatic left, which returns to the Marxist discourse, vehemently anti-capitalist, of the 1960s. Words like “imperialism”, “subjugation”, and “exploitation” are back on the agenda, which is now called “Bolivarian”. The market should not only be subdued, but, according to some, even wholly replaced by central planning, allocation and distribution. In sum, it ultimately seeks the replacement of capitalism. Examples of these policies include Hugo Chavez in Venezuela, Rafael Correa in Ecuador, and Evo Morales in Bolivia.
This “left turn” is not circumscribed to the ideological left, since the right-wing parties have picked up, at least in their discourse, many of their issues. For example, no self-loving candidate, with any hope to win the elections, would dare to defend the market as blindly as in the nineties. No candidate would consider disregarding the social dimensions of economic policy. This heightened social sensibility, across the political spectrum, is a result of a certain social learrning-process which arguably began in the 1980s with the debt crisis.
The Latin American Way
But are these differences a problem? Beyond any personal appreciation one could have in favour or against one position or another, differences are normally considered an opportunity for learning. Common sense dictates that social phenomenons are so complex that in this post-modern world not many would dare to claim to possess the “final” truth in terms of public policy and development strategies. Alas, this is precisely what defines and summarizes the Latin American (economic) way.
Since Independence, the pendulum has moved continuously between two extremes: suffocating State intervention versus uncontrolled market deregulation, and exaggerated optimism versus exaggerated pessimism in market forces and world markets. Means are confounded with ends, and enjoy an unreasonably long, and unaltered, lifespan because of a vehement and unchanging belief in its truth. This is true for the belle epoque of economic liberalism in 1870-1929, for the ISI period of 1930-1980, for the “pure” Washington Consensus period 1980-2000, and is probably true for the current period, too.
The problem of this dogmatic approach is that the opportunity for learning is not seized. It is impossible to predict the future or outcomes with exact precision. Plans, i.e. the means employed to obtain certain goals, should be corrected according to its performance. As long as the goals are being obtained, there is nothing wrong with changing the means. On the contrary, by continuously monitoring and adjusting the means, the grasp on the existing causal relationships is improved, not matter how little. In the end, at least that is what we hope, convergence is obtained between the goals and the obtained results.
If means are unreasonably defended, crisis (which are inevitable) will have disproportionately disruptive effects, since small adjustments are delayed until small adjustments don’t longer suffice. At that moment, all hope is lost, and major, often hastily devised, profound reforms are put in place, and back goes the pendulum. And our experience with the causal relationships will be reduced to nil, and all our economic, social and sometimes even political advances and improvements will have melted away. Back to square one.
Peru’s uncertain economic future
Without a doubt, Peru has taken yet another left turn with elected President Ollanta Humala. To what extent is far from clear. His political record suggests one thing, his recent campaign another. Judging by his ideological affinities, one would be tempted to include him with Chavez, Correa and Morales. The difference is that Peru’s economy has faired more than well during the last years. Economic growth is fairly stable, exports are growing steadily, and its competitiveness is improving rapidly. “Never change a winning team,” the saying goes. But this team has lost few matches, or at least had to put up with some counter goals. These lie in the social realm, since the social indicators show less colourful results, and this is probably what contributed to Humala’s victory.
The question is therefore: to what extent is the newly elected President willing to change Peru’s economic model? If history teaches us anything, odds are that he will be tempted to follow the sadly known Latin American way of radical change, disregarding the lessons learned and the accumulated knowledge. The Peruvian markets share this fear: when the election results were announced, Lima’s stock market plummeted various points. On the other hand, his recent travels through the region emphasized moderation, political and economical, more than anything. This means that the jury is still out.
Our only hope is that Humala will break with the Latin American (economic) way and will introduce ajdustments rather than radical change in an effort to continue to build upon the successes and improving the failures, rather than impose a new, all-explaining world vision which would force all actors to begin from scratch.
President Hugo Chavez is an iconic figure like Che Guevara and Fidel Castro, millions are breathing a sigh of relief that he isn’t on his death bed. Although Chavez has cancer, hopefully he will be around for many more years. 
