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Historiography: Economic Explanations of South American Integration

(Mar. 29, 2008) There are several ways of approaching the question of South American integration; depending on which facet of society you choose to analyze you get a different answer. The most popular explanations are economic, historical/cultural, and Brazilian.

The emphasis on economic explanations is succinctly explained by Vanden and Prevost who note, "In Latin America one cannot fully understand the political game without understanding its economic underpinnings."1 because of the strong influence of the Marxist school of structuralism economic explanations tend to focus on the region's dependent peripheral commercial status.2

Cultural explanations highlight the similarities that exist between the nations of South America, emphasizing the shared history of European colonialism and the similar historical challenges faced by many nations in the region.3

Finally, by "Brazilian" we mean those theories that view the current integration movement as an extension of Brazil's natural sphere of influence inside South America.

ECONOMIC EXPLANATIONS

Structuralist interpretations of South American economics, made famous by the dependency theory of Raúl Prebisch, became influential beginning in the 1940s and gradually gained followers until it became the official policy of the UN Economic Commission on Latin America and the Caribbean (ECLAC/CEPAL).4

This theory described North—South relations in terms of a wealthy center and an impoverished periphery, with the industrialized nations of Europe and the U.S. representing the "North" and the non—industrialized exporting nations of Latin America, Africa, and Asia representing the "South."

Briefly, based on extensive analysis of the relationship between primary goods and manufactured goods' prices, the Prebisch thesis concluded that the North benefitted disproportionately from its trade with the South because of the added value attributed to the manufacturing process, a factor that allowed profits to accumulate in industrialized nations while the South maintained a perpetual trade deficit with the North.5

The central premise to this theory is that the price of manufactured goods tends to increase while the price of primary goods tends to deteriorate over time. Accordingly, this vicious circle of trade deficit and increasing national debt could be broken through a state—controlled process of national industrialization.

The first application of this theory occurred in the late 1940s in Argentina and was referred to as import-substitution-industrialization (ISI). At the time it was thought that the best way to stimulate the industrialization process was through a closed national economic system that ensured a captive market at home by imposing high tariffs on foreign product imports.

The realization that domestic markets were too small to support the budding national industry gave rise to the second wave of practical application, referred to as CEPALian because it was championed by the UN Economic Commission on Latin America and the Caribbean (ECLAC/CEPAL) in the early 1960s. This time it was suggested that planned economies within small regional blocks could provide the necessary conditions for sustained economic growth by amplifying "internal" markets through the inclusion of allied nations, while limiting the overexposure to "external" markets experienced in the past. Specific examples of this in Latin America were the Latin American Free Trade Agreement in 1960 and the Andean Pact in 1967.

The late 20th century was marked by the accumulation of foreign debt and a series of failed attempts to manipulate national markets to stimulate growth to pay off foreign debt. The historiography of this period is relevant to our study because of the way it has come to assign guilt to different actors for the economic problems that occurred.

The accepted history of this period holds that the movements toward national and closed regional industrialization discussed earlier required large amounts of capital. After national financial resources dried up, nations began to borrow heavily from international lending agents.

Vanden and Prevost cite growing populations, an increased demand for "western consumer goods," the oil crisis of 1973—1974, and high rates of military expenditure in countries like Peru, Chile, Argentina, and Brazil as the major reasons behind the accumulation of debt in South America which "combined to radically increase the external debt in Latin America which jumped from less than [US]$30 billion in 1970 to more than [US]$230 billion in 1980."6

This coincided with a global economic downturn in the 1980s, a drop in commodity prices, and a series of natural disasters that cumulatively caused such poor economic performance that the 1980s are commonly referred to as the "Lost Decade."

In keeping with one of the prominent historical narratives concerning this period, a rejection of closed national and regional systems followed the Lost Decade as what came to be known as the Washington Consensus, a group of international financial institutions, including the International Monetary Fund (IMF), the World Bank, the Inter-American Development Bank, and the U.S. Agency for International Development (AID).

Many of the economists at these institutions were influenced by the neoliberal theories of Milton Friedman. In the words of Vanden and Prevost, they began "to first suggest and then insist on economic structural adjustments to the national economies" arguing that "Latin American nations must take the bitter pill of austerity…."7

In this reading of events, one in which the economic reforms were imposed on South American nations, the author actively assigns blame for the economic chaos of the late 20th century and on the Washington Group, and by virtue of association, the United States.8 Others argue that a lack of accompanying political reform, the endemic corruption present in the region, and insufficient time for the reforms to take effect were the main reasons for the failure of this economic model in South America.9

The first story has been used to political benefit by the Argentinean Presidents Nestor Kirchner and his wife Cristina Fernandez and the 21st century socialists: Venezuelan President Hugo Chavez; Ecuadorean President Rafael Correa; and Bolivian President Evo Morales, who utilize a populist discourse that demonizes US "economic imperialism."10

More moderate critiques of this model hold that neoliberal policies actually made a bad situation worse. To quote Vanden and Prevost again,

"Poverty and misery continue and have increased in some countries. Income and wealth have become even more concentrated in the hands of the wealthy few, although the spread continues to the middle class, Many argue that the social costs of this form of development are too high."[11]

In a somewhat similar tune, the Inter-American Development Bank published a report in 1999 entitled "Facing up to the Inequality in Latin America, Economic and Social Progress in Latin America, 1998—1999 Report" where they obliquely critique the neoliberal policies formerly proposed by their institution.[12] The IMF has also recognized the limits of the neoliberal model in an IEO report on the IMF in Argentina.[13]

What interests us is not whether the Washington Consensus was right or wrong, but how these interpretations assign responsibility for internal national decisions on external international institutions, therefore perpetuating a myth of a South America, dependent on the "North" not only for manufactured goods, but ideas as well; however, these accounts do not problematize the internal process of political and economic development in South America and shed little light on the role of South America as an actor in its own history.

The acceptance of this model of foreign dependency has legitimized the anti-US sentiment prevalent in South America today. This has affected the regional integration movement by crippling the US—led Free Trade Agreement of the Americas (FTAA) begun in 1989 by then—US President George Bush through the Enterprise for the Americas Initiative and furthered in 1994 by Bill Clinton at the Miami Summit of the Americas.

The collapse of the FTAA negotiations has been blamed on South America's subregional approach to hemispheric integration.[14] However, even without the support of South America, the U.S. was able to move forward on a North American Free Trade Agreement (NAFTA) with Canada and Mexico in 1994 and a Central American Free Trade Agreement (CAFTA) with limited coverage of the Caribbean in 2003, effectively creating a free trade zone that covers half the hemisphere.[15] South America's decision to abstain from this process of integration has set the stage for UNASUR and the process of negotiation we will study later on.

By Nathan Gill - Southern Affairs
www.southernaffairs.org

[1] Vanden, Harry E. and Gary Prevost. The Power Game. Oxford University Press, England, 2002 p. 146 [2] Ibid p.158 [3] Declaración del Cusco sobre la Comunidad Sudamericana de Naciones III Cumbre Presidencial Sudamericana, 8 de diciembre de 2004 [4] Interview with Francisco Carrion, Former Foreign Minister of Ecuador; Interview with Benjamín Ortiz, Former Foreign Minister of Ecuador; Moreno, Fernando. "La Integracion Latinoamericana" Instituto Chileno de Estudios Humanisticos. Santiago de Chile, 1978 p.30 [5] Frankenhoff, Charles A. The Prebisch Thesis: A Theory of Industrialism for Latin America. Journal of Inter-American Studies, Vol. 4, No. 2 Apr. 1962: 185-206 [6] Vanden and Prevost. (2002) p. 163[7] Vanden and Prevost 2002: 165 [8] For more on the South American critique of the Washington Consensus see: Morales Ayma, Evo. Construyamos con nuestros pueblos una verdadera Comunidad Sudamericana de naciones para "Vivir bien." La Paz, Bolivia, 2 Oct. 2006.; Dieterich, Heinz. ¿ALCA o desarrollismo regional?; and Feldstein, Martin. Argentina's Fall: Lessons from the Latest Financial Crisis. Foreign Affairs, March/April 2002 [9] Ortiz, Benjamín. Personal Interview. Quito: 5 Feb. 2008 [10] President Kirchner and Chávez' opposition to the Free Trade Agreement of the Americas (FTAA) at the IV Summit of the Americas see Council on Hemispheric Affairs. 21 Nov. 2006. [11] Vanden and Prevost 2002: 173 [12] "Inter-American Development Bank. Facing Up to Inequality in Latin America Report on Economic and Social Progress in Latin America, 1998-1999. [13] Independent Evaluation Office (IEO) of the IMF. The Role of the IMF in Argentina, 1991-2002: Issues Paper. July, 2003. 31 Mar. 2008 http://www.imf.org/External/NP/ieo/2003/arg/070403.pdf BBC. "IMF owns up to Argentina errors." London: 25 Mar. 2004. 6 Nov. 2006[14] Vanden and Prevost. 2002. p.172 and for a discussion of Presidents Kirchner and Chávezs' opposition to the Free Trade Agreement of the Americas (FTAA) at the IV Summit of the Americas see Council on Hemispheric Affairs, 21 Nov. 2006[15] The Dominican Republic was integrated in CAFTA in 2004 becoming the U.S.—Dominican Republic—Central American Free Trade Agreement (DR—CAFTA). Costa Rica, the last country to ratify DR-CAFTA, approved the agreement in a national plebiscite in 2007

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