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 Editorials | March 2005 
The Return of the Left in Latin America
 Alvaro Vargas Llosa - The New York Times
The left is in power in Argentina, Brazil, Chile, the Dominican Republic and Venezuela. With this month's inauguration of Tabaré Vázquez as president of Uruguay, this trend is likely to continue. The year 2006 could bring a similar leftward shift in Mexico and Peru, while in Bolivia the Socialist opposition has been setting much of the political agenda since the fall of President Gonzalo Sánchez de Lozada in 2003.
Although this movement is hardly homogeneous (there are major differences between Venezuela's Hugo Chávez, Chile's Ricardo Lagos and Brazil's Luiz Inácio Lula da Silva), the continental pattern is clear.
Behind this tilt is popular frustration with the failures of the 1990s, a decade of reforms under governments of the right that were supposed to catapult the region toward development. Despite the success of many of these governments in curbing inflation, that failed to happen. Instead of decentralization and the creation of a free, competitive economy and strong legal institutions open to all, crony capitalism and authoritarianism grew.
Countries replaced inflation with new taxes on the poor, high tariffs with regional trading blocs, and, especially, state monopolies with government-sanctioned private monopolies. The courts were subjected to the whims of those in power, widening the divide between official institutions and ordinary people - one reason there is disillusionment with democracy.
This frustration opened the doors of power to the left. With some exceptions like Venezuela, this new left is trying to avoid the worst mistakes of the old, especially 1980s-style hyperinflation and open war against foreign investors.
Some of the results are impressive: Investment is picking up in Brazil, economic growth reached 8 percent in Argentina last year, and a Socialist president in Chile has overseen a drop in poverty. Despite a few authoritarian spasms in places like Argentina, the new governments are playing by democratic rules.
It would be a mistake, however, to think that all these governments need to do is stay the course. Unless they are willing to deepen reform, the continent is unlikely to break free of its recurring cycle of economic stagnation and political disillusionment. The good news, however, is that left-of-center governments in other parts of the world have put such reforms into place and lived to tell the tale.
Latin America's rebound owes a great deal to favorable international circumstances, from low interest rates in the United States to heightened demand for commodities by China and India. After experiencing little or no growth between 1998 and 2003, the region's economies have benefited from the high price of oil, minerals and other commodities like soybeans.
But investment levels are still low: 15 percent to 17 percent of gross domestic product in the majority of countries. Outside of Chile, poverty is not diminishing. Last year the region had a net capital outflow of $77 billion, not surprising considering that foreign investment has not yet returned with force.
In order to compete with economies that have undergone reform in East Asia and Europe, Latin America's left must dismantle corporatist states that hamper enterprise among those who are not close to government and, through legal privilege, mock the notion of equality before the law.
Many companies that were privatized in the 1990s still have effective monopolies and are in cahoots with regulators. Getting rid of these privileges could help to persuade the poor to embrace the idea of economic freedom.
Significantly reducing high sales taxes that were set in times of fiscal profligacy would lift a burden from the poorest citizens. Slashing the bureaucratic requirements that force citizens to spend up to 80 percent of their annual income if they want to set up a private company would also help to empower would-be entrepreneurs.
Decoupling the judicial and the political spheres could begin a legal reform process in which all citizens are given real legal protection. Such measures could turn current growth into sustained progress. More fundamentally, by reconciling human rights and free markets, two notions that have been sadly at odds across the continent, they could enfranchise millions.
Further reform is the best way to meet the current social unrest and prepare for when the prices of Latin American commodities go down or interest rates in the United States go up - a likely prospect if China's growth slows and deficits in the United States keep rising.
Other left-of-center role models for reform abound, from New Zealand to Ireland, Estonia and Lithuania. Ultimately, the real challenge facing Latin America's left is to avoid the temptation of being too conservative.
Alvaro Vargas Llosa is a senior fellow at the Independent Institute and the author of Liberty for Latin America. |
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