Latin American’s ‘New Left’ In Crises As the ‘Free Market’ Collapses – James Petras

Latin America is entering a period of profound economic recession, financial crises, collapsing stock market quotations, prices, deep devaluation of its currencies, growing unemployment, declining revenues and the prospect of a prolonged socio-economic recession. The economic breakdown, which is still unfolding, affects the entire political spectrum, extending from the farright Uribe regime in Colombia to the social-liberal Chilean and Brazilian governments of Bachelet and Lula da Silva to the ‘center-left’ regimes of Evo Morales in Bolivia and Rafael Correa in Ecuador and even to the leftist government of Hugo Chavez.

It is not surprising to see that rightist regimes1, embracing neo-liberal doctrines and deeply enmeshed in free trade agreements with the US, following its path to economic collapse. The deepening crisis has affected, with equal or greater force, the so-called ‘center-left’ regimes of Brazil, Ecuador, Argentina, Bolivia and Nicaragua.

The uniformity of the collapse of Latin American economies raises important questions about the changes and claims of independence, decoupling and post-liberal models, which many regime leaders, ideologues and progressive US-European Latin American writers made over the past several years. The collapse of what some writers have referred to as Latin America’s ‘pink tide’ and other more exuberant publicists referred to as the new ‘revolutionary regimes’ (and other more prudent analysts called the ‘post-neo-liberal’ democracies) raises serious questions about the emergence of a new dynamic heterodox model no longer subordinated to the US. The simultaneous economic crises in Latin America and US/Europe call into question the degree of structural changes that were implemented by the center-left Latin American regimes. More specifically, the breakdown focuses attention on the continuities in financial systems, trade patterns, productive structure and free trade policies with their predecessor neo-liberal regimes. The claims of ‘de-coupling’ put forth by the pundits of the center-left have been proven to be without substance.

Faced with the collapse of the center-left economies, their former ideological cheerleaders have alternated between a deafening silence and avoidance of any structural explanations, and/or to simply project ‘blame’ on the ‘casino capitalism’ of the US. The latter posture begs the question of the center-left regimes’ domestic policies which opened their economies and made them excessively vulnerable to Wall Street speculation. Up to the recent collapse, the intellectual defenders of the ‘center-left’ had little to say about the Wall Street linkages, busying themselves with the temporary high growth rates, which they attributed to the ‘new heterodox model’.

The problem avoidance and external finger pointing adopted by the ideologues of the ‘New Latin American Left’ reflects a fundamental misunderstanding or ignorance of what was really going on within these countries. They substituted emotional gratification at rhetoric flourishes and symbolic changes and privileged invitations to private soirees with the ‘center-left’ presidents over hard analyses of substantive policies and structural continuities. Disentangling illusions from reality is the first step to coming to terms with the existing collapse affecting the region and the
disastrous consequences for the great majority of wage, salaried and informal workers and peasants.

The ‘New Latin American Left’ (According to Its Publicists) Despite the extensive and, in some cases, profound differences in social structure, levels of economic development and sheer wealth among Latin America’s ‘center-left’ regimes2 – their publicists, advocates and adversaries claimed they were breaking with neo-liberalism and pursuing a vastly different socio-economic model, a break with the past, a heterodox economic strategy which combined ‘market’ and ‘state’ in pursuit of what some claimed was ‘Twenty-First Century Socialism’.

This line of argument defined the ‘novelty’ of the new center-left by identifying twelve areas of ‘transformation’ or change. The ‘new center-left’ ideologues argued that, in contrast to the previous neo-liberal regimes (NLR), the center-left regimes (CLR):

1. Adopted a new more socially responsive economic model that pursued ‘mass inclusion’, cultural diversity and social justice;

2. Put an end to ‘free market neo-liberalism’ and replaced it with a ‘statemarket model’;

3. Began a process of ‘social transformation’ (Argentina), a ‘democratic and cultural revolution’ (Bolivia), ‘twenty-first century socialism’ (Ecuador), and a process of long-term high growth based on fiscal responsibility and social justice (Brazil);

4. Ended discrimination and exploitation of the indigenous people (Brazil and Ecuador) and empowered the Indian communities (Bolivia);
5. Moved to replace dependence on the Western markets and ended Wall Street domination through the pursuit of regional integration;

6. Developed regional political and economic organizations like ALBA, UNASUR and PETROCARIBE, which marked the construction of a new independent alternative regional economic architecture;

7. Promoted a new kind of participatory democracy in which the popular classes had a bigger direct say in the formulation of government policy;

8. Developed diversified markets, especially with Asia (China particularly), Europe and the Middle East based on greater economic independence, effectively ‘decoupling’ from the US economy and ending US ‘hegemony’;

9. Accumulated vast foreign reserves (tens of billions) based on promotion of an agromineral export strategy, thus creating long-term insurance against future downward movements i n t h e p r i c e s a n d d ema n d f o r e x p o r t c ommo d i t i e s ;

10. Amassed large-scale budget surpluses through fiscal discipline and avoidance of ‘populist’ spending on large social and infrastructure programs;

11. Pursued policies favoring greater social equality of opportunity, pro-labor income policies, easy credit, increased consumer imports and increased spending on food programs for pensioners, children and the poor;

12. Formed public-private partnerships between the state and foreign multinationals replacing foreign domination by equal partners and increasing benefits to the home country.

According to the promoters of the ‘center-left’ regimes, the ‘proof’ of the progressive, sustainable and dynamic character of these regimes was demonstrated by the period between 2005-2007 where high growth, high income, budget and trade surpluses and repeated electoral victories were the norm.

End of an Illusion: 2008 the Year of Reckoning

The success claimed by the center-left regimes (CLR) and their apologists were based on an entirely false set of assumptions and temporary and volatile set of structural relations with regard to trade, investment and financial linkages. When the onset of the financial collapse and economic recession first struck the US and Europe, the first response of the CLR was to deny that the crisis would affect their economies. For example, President Lula da Silva of Brazil at first blamed the ‘casino capitalism’ of the US and claimed that the Brazilian economy under his rule was healthy, protected by large reserves and would be hardly affected. As the effects of the financial breakdown and economic recession in Europe and Wall Street deepened and spread to Latin America, the CLR regimes and their intellectual defenders adopted a different posture. On the one hand they sought to deflect all the blame to the US financial system and thus avoid facing the structural weaknesses of their economic policies. On the other hand some writers looked to some of the recent regional organizations, like Bancosur and ALBA, as alternative sources for salvation or as mechanisms to ameliorate the effects of the crisis. Neither the CLR nor their intellectual defenders have demonstrated any willingness to confront the structural weaknesses and vulnerabilities of their socio-economic strategies over the past half decade. More specifically the CLR and their defenders refused to admit that the claims of ‘change’, and construction of 21st Century Socialism was in fact built on illusory assumptions.

The spread of the crisis from the US-Europe to Latin America is a result of the CLR’s continuities of the neo-liberal policies, the maintenance of the same ruling economic classes and the pursuit of economic strategies dependent on inflows of speculative capital, debt financing and the agro-mineral export elites3.

Despite the rhetoric of ’21st Century Socialism’ (Chavez in Venezuela, Morales in Bolivia, Correa in Ecuador and Ortega in Nicaragua), ‘independent model’ (Lula Da Silva in Brazil), and the ‘social-liberal’ model (Bachelet in Chile and Vazquez in Uruguay), the abovementioned regimes retained and even deepened the principle structural features and policies of the neo-liberal model. They remained highly dependent on the global market: in fact they all accentuated its worst features by emphasizing primary goods exports (agro-mining commodities) to take advantage of the temporary spike in prices. As a result they vastly increased their vulnerability to external shocks. With the onset of the world recession in 2008, the collapse of demand put an end to the big trade surpluses and provoked a big slide in all the relarelated economic factors: Foreign reserves plummeted. Government revenues based on export taxes declined precipitously. Local currency was devalued as both foreign and domestic investors fled to what they perceived as stronger currencies and safe havens.

All of the CLR based their development strategies on a strategic partnership between the nationalist capitalist class, the state and foreign investors contrary to the populist-nationalist imagery of Western intellectuals. At the very onset of the financial collapse, foreign capital began its massive flight outwards and upwards driving down the stock markets in Brazil and Argentina by over 50% and forcing a de facto devaluation as local savers and investors converted local currency into dollars, euros and yen. With the onset of the recession in the real economies of the EU and the US, national capitalists and financial elites responded by reducing investment in the productive sectors anticipating a sharp decline in demand for their primary commodity exports. This provoked a multiplier effect in satellite and related domestic manufacturing and service industries.

The double exposure to financial shocks and world recession was a direct result of the one-sided export market policies pursued by the CLR. The leaders of the CLR paid lip service to ‘regional integration’ (ALBA, MERCOSUR, UNASUR), even setting up an entire administrative structure and initially investing marginal resources to the effort. The regional rhetoric was dwarfed by the ongoing and growing ‘integration’ in the world market, which remained the motor force of their growth. Given their deep involvement in the primary commodity boom, the regimes maximized the importance of markets outside of the Latin American region. With the downturn, even the regional integration scheme (MERCOSUR) faces disintegration as Argentina turns protectionist.

The temporary trade and budget surpluses were used to further deepen the primary sector expansion (expanding infrastructure to and from productive sites to shipping centers on the coast), increase the wealth of the agro-mineral elites, and encourage a huge influx of speculative investors who inflated stock valuations (doubling and tripling prices in the course of two and three years: Price/earnings ratios reached bubble proportionThe reactionary/retrograde model of the CLR, built on the ‘primarization’ of the economy and the boom in speculative investment, was ignored by almost all Western intellectuals who were dazzled by and chose to focus on marginal ‘populist’ measures: Lula’s $30 dollar (45 Reales) monthly food basket for 10 million poor families (who became part of his electoral client machine in the Northeast); Kirchner’s promotion of human rights and 150 Peso ($50 USD) monthly unemployment benefit; Evo Morrales cultural indigenismo and ‘joint ventures’ with the international oil and gas companies (falsely dubbed ‘nationalization’) and Rafael Correa’s declarations in favor of 21st Century Socialism and increased social spending.

The ideologues of the CLR failed to analyze the fact that these marginal increases insocial spending took place within a socio-economic and political framework, which retained all the structural features of a neoliberal economy. With the collapse of overseas primary commodity prices, the first reductions in government programs are directed at…the poverty programs that provided a fig leaf to the rapacious speculator-agro-mineral driven economic model. The entire ‘left spectrum’ ignored the fact that the balance of payments and budget surpluses, which funded social reforms, were dependent on the inflow of ‘hot money’. The latter, by its nature, enters easily and flees rapidly, particularly in response to any adversity in their ‘home market’, not to mention in the face of a worldwide financial crash. Thus the already meager social measures adopted by the CLR were fragile to begin with, highly dependent on the volatile behavior of highly speculative capital and world markets.

The claim of the CLR that Latin America was de-coupling from the US market, through greater ties with Asia (China, Korea, Japan and India) and developing into a world power (as part of the BRIC bloc – Brazil, Russia, India and China) has been demonstrated to be false. Brazil’s agro-mineral exports to Asia were highly dependent on world prices determined by demand from the US, EU as well as many other regions and countries. The deep world recession and credit collapse has profoundly affected Asia’s exports to the US and EU, which, in turn, has led to a decline of Latin America’s primary exports to Asia. None of the Asian countries can maintain their commodity imports from Latin America because they are not able to substitute domestic demand. The class polarities and class rigidities in China limit mass consumption. Latin America did not ‘de-couple’ – it was part of a global chain, which tied it to the vagaries of the US and EU economies. The attempts by Brazil’s President Lula to blame Brazil’s crises on US ‘casino capitalism’ in order to deflect criticism from his policies of deep structural dependency on primary commodity exports and hot money is besides the point: The Brazilian regime’s policies opened the door wide to the full adverse effects of the downfall of US speculative capital.

None of the CLR deviated from the neo-liberal ‘export model’ nor did they make any effort to dynamize the domestic market or mass consumption via redistributive policies. Industrialization was subordinated to commodity exports. Urban incomes between capital/labor favored profits over wages. Interest and royalties remained highly skewed in favor of capital thus weakening domestic demand. Support of the agro-export elite and the the centerleft regimes were neither popular, nationalist, nor a break with neoliberalism, this does not mean a near term turn to the left – for the simple.