WORLD
ECONOMY
IF YOU BELIEVE the latest publications of the World Bank and the
International
Monetary Fund, then Chile and
Mexico are success stories, on the same path to prosperity as South Korea,
Taiwan and the other "Newly
Industrialised
Countries." SOPHIE
JOANNY examines this claim.
LATIN AMerICA
T HERE are signs of an
upturn in the Latin American economy: the value of goods and services produced in each country (Gross Domestic Product, GDP) increased by an average of 3.5% per year between 1991 and 1993. Free market economists compare this to the 1.8% annual growth recorded between 1982 and 1990, and proclaim that the "lost decade" is over.
In fact, the low average growth rate of the 1980s includes several years (1984-87) when growth was as fast as it is now. The average is lowered by the years 1988-90, when year on year growth was less than 1%. And if we measure growth on a per capita basis, then growth across the region in 1993 was also less than 1%. Further, although industrial investments have increased since 1990, they represent a smaller part of GDP than in 1982, a year when the continent was in severe recession. Private investment is still not large enough to compensate for the destructive effects of privatisation and the collapse of public sector investments.
Other optimistic analysts point to the reduction in the proportion of GDP sucked up by banks in the developed world as interest and service charges on the region's foreign debts. Remittances to the first world for these debts, contracted long ago, now make up "only" 43% of export earnings, compared to 53.6% in 1982, the first year of the debt crisis.!
The current upturn is hardly the light at the end of the tunnel for Latin American capitalists. What growth there is is confined to countries such as Mexico, Chile, Colombia and, most recently, Argentina. International financial institutions still have Brazil and Peru on their list of high inflation, low growth contries.
A high price
As in Africa and Asia, the cost of austerity measures, or "structural adjustment plans" has been borne by employees, peasants and other workers, rather than by owners, investors and managers. Salaries have fallen in real terms compared to the early 1980s, and the fall in living conditions has been accelerated by cuts in health, education and social security. Cholera and other "conquered" diseases have reappeared. "Economic reforms" have increased inequality and poverty everywhere they have been applied. The peasants of Chiapas in southern Mexico, now in their twelfth month of armed insurrection, are among the victims of structural adjustment. Their revolt on 1 January 1994 was the real voice of Mexico on the first day of operation of the North American Free Trade Agreement (NAFTA) between the US, Mexico and Canada.
When you strip away all the fancy language used about the agreement, Mexico has only one single comparative advantage in the new common market:
fig. 1
GNP (average yearly rate of growth as a %) 1988-89
Argentina -4.1
Brazil 1.6
Chile 8.7
Colombia 3.7
Mexico 1.8
Peru -10.0 12
1992-93
1990-91
4.4
7.1
1.6
1.5
4.0
8.1
3.2
3.9
4.0
1.7
-1.4
1.7
Cheap labour. Yet Mexican labour was already cheap: The proportion of wages to Mexican GDP had already shrunk from 36% in 1980 to 28.6% in 1986. And the minimum wage was halved between 1980 and 1990.2
Those economists who admit this explain it by the destructive effects of the "lost decade". They assure Mexican workers that, after a few initial sacrifices, the living standard of the majority
1. IMF, World Economic Outlook, various years.
2. Cited by D. Félix, "Industrial Development in East Asia, Revue de la CNUCED.
Average yearly rate of inflation (as a %)
International Viewpoint #262 December 1994 of the population will begin to rise steadily. Similar illusions, reinforced by the short term results of the "Plan Real," were a major factor in the election of F.H. Cardoso as President of Brazil.
In fact, outside Brazil, Mexico, Chile and Colombia, salaries in industry continue to fall in real terms. In any case, increases in wages and production represent only a weak upturn after the severe decline experienced in recent years. Nor should we forget that the statistics only cover a minority of the economically active population - those with official employment in the industrial sector.
The governments of Latin America know that growing poverty increases the risk of a social explosion. The 1989 hunfig. 2
1988-89 Argentina 1711.0 Brazil 984.6 Chile 15.9 Colombia 18.7 Mexico 67.1 Peru 2032.9 Source : IBD (1993) (2)
WORLD
ECONOMY
1990-91 1992-93 1243.4 17.8 1689.4 1404.4
23.9 14.1
23.9 25.0
24.7 12.5 3956.1 60.8 ger riots in Venezuela, and the more "The governments of Latin recent looting of shops in Argentina are
America know that growing still fresh in their memory. Most governments have centralised their anti-poverty poverty increases the risk of and social control policies in the last few years to improve their control of the a social explosion." situation. By 1991, ten countries in the region had introduced programmes similar to the Mexican government's "Pronasol" policy, which aims to moderate pockets of "extreme poverty" 3 In Mexico, this policy was complemented by the PECE ("Pact for Stability and Economic Growth") introduced in 198788, and which is in effect an alliance with the largest capitalists to weaken the pillars of corporate trade unionism.
Few jobs
What growth there has been in recent years has created very few jobs. In Mexico tens of thousands of jobs have been created in "maquiladora" factories along the northern border with the US, but total industrial employment is 26% lower than in 1980, and still falling.4 Everywhere it has been applied, liberalisation has led to the weakening of the social fabric in the countryside and a rural exodus. This means that even those countries which are "succeeding" in World Bank terms, are not really changing their position in the international division of labour. In fact, deindustrialisation is progressing faster than in
Most of the rise in the region's industrial exports is confined to assembly of electronic components, or highly labour-intensive production of standardised consumer goods such as sports shoes, often on the basis of imported pieces. The only comparative advantage the Latin American countries can offer in these areas is the low salary of the factory workers involved. This is particularly the case in Central America and the Caribbean.
Another area of growth is "non-traditional exports" — either the processing of raw material exports to add value (for example exporting wood pulp rather than logs, or fish flour rather than fish) and the development of export-oriented agribusiness at the expense of food production for local consumption. This was the strategy behind the Chilean "success story" of the 1980s. Now Colombia, Peru, Ecuador and Costa Rica are attempting to export their grapes, kiwi fruits and cut flowers, all produced during the northern "off season". These countries face two difficulties. First of all, non-traditional sectors require heavy investments in infrastructure. Secondly, the demand for the goods prioritised is not infinite, and competition is developing fast. There is every probability that, in the long term, the farmers will face the same problems as coffee and cocoa producers.
In Mexico, there is also a growth in the export of machinery, chemical products and automobile motors. These "modern" sectors are, of course, where foreign capital is most present. Mexican capital is limited to intermediate industries (cement) and goods for local consumption (beer). Most of the recent wage increases have been in these sectors. The potential for their modernisation and the development of new technologies is extremely limited.
Far from the "Korean" model which the World Bank wishes to see be applied in the Latin American countries, the economic systems are still dual models. There is limited industrialisation in specific sectors, which are divorced from the economic fabric of the country, and which do not lead to substantial importations of technology, significant increases in productivity, real increases in the purchasing power of the population, nor an extension of the internal market, which would stimulate demand for other local products. There is no dynamic link between transnational capital, exports and the internal market.6
This does not mean that this "regime of disarticulated accumulation" cannot enjoy a certain viability. But the important question for revolutionaries is whether the capitalist system is moving into a new period of expansion in Latin America, or whether we are simply witnessing a survival strategy, which is being implemented in the hope of better days to come. Can the region's capita-
3. See V. Soria, 'Nouvelles politiques d'ajustement et relégitimation de l'Etat au Mexique. Le rôle du PRONASOL et de la privatisation des enterprises publiques, Revue TiersMonde, volume XXXIV, no. 135, July-September 1993.
4. 'Examen de la situación económica de México', Banamex, volume LXX no. 826, September 1994.
5. M. Husson, "La modernisation libérale de l'économie mexicaine', Problèmes d'Amérique latine, no. 2, JulySeptember 1991.
6. ibid, p. 138.
13
Industrial wages in real terms
"'...accumulation will be not only extremely vulnerable, but technologically and dependent..."
International Viewpoint #262 December 1994
WORLD
ECONOMY
1980 1988-89 Argentina 100.0 90.1 Brazil 100.0 78.7 Chile 100.0 101.3 Colombia 100.0 122.3 Mexico 100.0 61.1 Peru fig. 3
1990-91
1992-93
79.9
77.5
88.0
97.3
106.7
114.2
130.9
134.5
65.8
71.0
100.0 60.2
Venezuela 100.0 48.0
Source: IDB (1993), ECLA (1993), World Bank (2) lists and politicians develop a new strategy based on the experience of planning and import substitution in the 1950s and 1960s ? Can the growth in inequalities boost profits sufficiently to overcome the difficulties which the capitalists face?
More capital
For the first time since the beginning of the Debt crisis in 1982, more capital now arrives in Latin America than is sucked out by investors and banks in the most developed countries. The coun tries which have seen the largest net capital influx are Mexico and particularly Bolivia, where capital inflow increased from an average of 6% of GDP between 1983-89 to 11-12% in 1990-91 and 22% in 1992-93.7
While welcomed by local elites, this capital brings with it certain problems. Short term and speculative in their nature, these investments risk fuelling hyperinflation, encouraging local speculation, and the over-valuing of the currencies of more than one country.
financially
14
37.9 39.6 40.2 40.6
Latin American governments now face the following dilemmas:
• increasing interest rates to attract investment and deposit capital normally discourages productive investment, depresses economic activity and increases the risk of a return to recession. The financial austerity programmes which some governments in the region employ to "sterilise" capital flows of their inflationary aspect only reinforce the tendency towards reces-
• The increase in monetary reserves which results from the influx of new capital can push up the rate of exchange, makeing a country's products more expensive for foreign buyers, even though a whole growth strategy might be based on increasing exports.
Revaluation of the Mexican peso in an attempt to reduce inflation contributed to the country's trade deficit from 1987 onwards. At the same time foreign investors chose to import much of the equipment and intermediate products
Which they used in their Mexican operations. This kind of vicious circle is unavoidable so long as foreign capital maintains its speculative aspect. Foreign bank loans in 1974-82 financed an increase in consumption by the local elites, capital flight towards the most developed countries and the development of speculative capital markets in many countries of the region. This situation contributed substantially to the debt crisis of the follo-
The model for growth in most Latin American countries is capable of creating the conditions for a new form of capitalist accumulation. But this accumulation will be not only extremely vulnerable, but technologically and financially dependent on the multinationals and first world bankers providing the capital. The creation of pockets of export-oriented industry will reinforce polarisation and exclusion within Latin American societies, with only minimal transfer of technology and skills. In other words, any growth now will increase the factors which will cause instability later. *
7. R. French-Davis, D. Titelman and A. Uthoff, International competitiveness and the macro-economics of capital account opening', Revue de la CNUCED, 1994.