I asked a thoughtful Brazilian businessman what he thought of the U.S. reaction to the terrorist attacks of September 11, 2001. He said, “It’s not ridiculous, but it is exaggerated.” Many in Latin America share the sentiment. There is unease throughout the region about how obsessed the colossus to the north is with Central Asia, the Middle East, and issues of “security.” There is even, perhaps, a longing for the country of old described by President Calvin Coolidge: “The business of America is business.”
After being pummeled by recession and the burden of foreign debt in the 1980s, all Latin American countries (even, in its own peculiar way, Cuba) opened their economies to the play of market forces. In the ensuing decade-the 1990s-economic growth resumed. But 2000 was the end of growth. Indeed, according to the United Nations Economic Commission for Latin America and the Caribbean (CEPAL) in 2001 and 2002 the economy of the region contracted. And 2003 was another tough year. Latin Americans are not sure what comes next or just what they should do to propel their economies forward.
The intellectual puzzle in Latin America is why the countries of the region are not growing. All, or almost all, the reputed barriers to economic growth-from state enterprises to subsidies to ruinous tariffs-have been removed. Natural resources abound; the labor force is young and energetic; economies are linked to the world economy. Why is there no “take-off”? The Venezuelan economist Ricardo Hausmann, now teaching at the Kennedy School of Government at Harvard University, shrugs his shoulders: “Economists have discredited many potential hypotheses . . . the truth is we still don’t know what leads to economic growth.” Still, as he acknowledges, economic growth is all-important for the region. Wages are low because of weak-or insufficient-demand for labor. In many countries, too, the labor force is growing rapidly. In Mexico, for example, more than two million Mexicans enter the labor force every year. Growth is needed to generate employment, stimulate wage increases, and produce the resources needed to combat poverty and inequality.
The behavior of newly elected presidents in Latin America is shaped by three factors: (1) the perceived “bequest” they have received-their sense as to whether or not the economy has been well managed by their predecessors; (2) the discipline of the financial markets; and (3) reigning ideas about how to stimulate growth-or promote more equitable growth. Venezuela’s president, Hugo Chávez, concluded that he had inherited a pitiful country, and he has run roughshod over it, all the more so because oil revenues free him from dependence on international bankers. In contrast, Brazil’s president, Luiz Inácio “Lula” da Silva, concluded that his predecessor, Fernando Henrique Cardoso, did a reasonable job, and that he...
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