After more than a decade of state-centric policies, markets may finally be back in Latin America. Voters in the recent Argentinian election offered a stiff rebuke to advocates of big-government Peronist policies, opting for the economically conservative candidate, Mauricio Macri, as their next president.
The United States could take a lesson from the experiences of our friends to the south, as we enter our next election cycle.
For a large portion of the 20th century, the countries of Latin America devoted themselves to state-centric economic policies. Centered on high protectionist measures, en-masse unionization, and the nationalization of many key industries. These policies led to quick industrialization and growth in the short term, while driving the country down the road to serfdom in the long term.
In Argentina, it was the regime of Juan Domingo Peron that took this approach. That is, until the 1980s hit, when the massive debt, necessitated by an economy that failed to export at a competitive level, and rising interest rates in the U.S., dramatically impacted the borrowing capabilities of many Latin American countries. In the face of chaos, and a new wave of classical-liberal thought, Argentina and many other Latin American countries overhauled their systems with pro-market reforms.
These reforms were carried out in the true spirit of the free market. Unfortunately, remnants of the Peronist regime tainted the ability of the newly freed economy to function.
Powerful union groups kept wages artificially high, at the very time they desperately needed to fall to competitive levels. This crippled the reforms from the start, and lead to the eventual collapse of 2001.
Following the collapse, and the inability of prices to adjust to clear out government distortions, Peronists were voted back into power and protectionist policies were put back in place. This brings us to today, and the rebuke of these aforementioned inward-looking policies.
This highlights the problem with the protectionist politics so beloved by the government elite, eventually the party stops. Even after the stagnation of the 1970s, countries like Argentina went back to protectionism and hoped for the best.
The results could not be clearer. The condition of the country worsened to the point where even the illusory period of growth following the crash could not bail these policies out.
To paraphrase Margaret Thatcher, the problem with protectionism is that eventually you run out of other people’s money. Although keeping out cheap foreign goods and keeping your currency-value artificially high may keep your own state-run industries afloat, running government costs money. Money that won’t be made by the bloated, inefficient state run enterprises.
In the United States, we’ve had our own problems with protectionism. As much as we like to boast our credentials as a bastion for free enterprise, we have undertaken many crony-capitalist positions that limit foreign competition. Even moves like the Trans-Pacific Partnership, while a step in the right direction, really serve to facilitate trade within a specific zone, as opposed to the globalized economy as a whole.
Many political analysts are predicting that we may be on the precipice of a new paradigm in Latin America. Much like with the “pink tide” that once washed spurring the nationalization of many Latin American industries. This time, it may wipe out the Chavistas in Venezuela, and their statist allies around the continent, in favor of a more free-market approach.
Clearly, the citizens of these nations are beginning to realize that state benefits are not a free lunch. It is quite possible that this time around, the reforms could be carried out to the level necessary to stimulate the economy and restore a fair and stable system. The important thing is that this conversation is being had in a serious way.
In the current U.S. presidential race, these ideas have not been as successful. The leading candidates in both major parties have both established themselves as strong opponents of free trade. Both parties serve to channel a nationalistic fervor, the only difference being whether they prefer predominantly state or corporate rule.
The U.S. is still hung-over from the toxic cocktail of government intervention and corporatist policies, which lead to the 2008 financial crash. Now we’re at a turning point, with a real capability to get things moving again. To see our options going forward, we need not look to our our neighbors to the south. Peronism ruined Argentina. Markets can save it. The same holds true for the United States.
Brett Linley is a Young Voices Advocate, and a student at Hofstra University.