lEEJ LIBERALIZATION and its Consequences

2. Economic performance and the state in Latin America Victor Bulmer-Thomas

This chapter begins with an examination of economic ,performance in Latin America with an emphasis on the 20th century. This is a long enough period to establish which countries have been successes or failures according to well established criteria. The data set used also allows for determination of tbe sub-periods in which success or failure Itas been most marked. The regional variations in Latin America’s economic performance have many possible expla nations. One of these is the role of the state. In the second part of the chapter I outline the theory of the state with reference to economic development, drawing anention to the different ways the state can influence the allocation of resources and affecttbe rate of economic growth. The state will have an impact on both the supply- and demand-side of the economy. In the third part of the chapter I look at the supply-side, focusing in particular on the markets for factors of production (land, labor and capital) and on technical progress. In the next part of the chapter I explore the impact of the state on the demand-side and I focus on both macro- and microeconomic policies. In the final section of the chapter, I draw out the main conclusions on the role of the state in Latin America using a chronological approach. This starts with export-led growth up to the 1920s, then moves to the inward-looking phase of development that began in the 1930s and ends with the neo-liberal experiment currently in progress.

ECONOMIC PERFORMANCE IN LATIN AMERICA SINCE 1900

At the begirming of tbe 20th century, after nearly a century of independence, few Latin American countries had achieved sustainable long-run economic development and none had acttieved the high expectations vested in U,e region at the birth of the republics. Although cross-country statistics are woefully inadequate, a clear picture emerges for 1900 in which Argentina and Uruguay can be classified as ‘successful’, Cttile and Cuba as ‘moderately successful’ and Mexico as a special case. The other Latin American countries were all failures as far as economic development was concerned.

13Economic performance and the stale in Latin America

There are several reasons for this judgment. First, of the nine countries for which we have figures on Gross Domestic Product (GOP) per head in 1900 (see Table 2.1), only four – Argentina, Chile. Cuba and Mexico – had achieved even ten percent of the comparable figure for the United States. There are no figures for Uruguay, but when GOP per head was calculated for the first time in 1940 it was the highest in Latin America, making it highly probable that Uruguay was among the leaders in 1900. I Secondly, illiteracy rates, for which we have data for all countries except the Dominican Republic and Nicaragua, confirm the superior stalus of Argentina, Chile, Cuba and Uruguay (see Table 2.1). Mexico, however, lags behind in 13th place, suggesting that the social development in the Porftriat02 fell far behind the econO/nic achievements; that is why I bave labeled Mexico in 1900 a special case.

The third statistic we can use is exports per head . ~uring a period of export led growth, such as Latin Arnerica experienced before World War I, exports per head are highly correlated wilh GOP per head. While the figures for 1900 are incomplete, we do have figures for c. 1912 (see Table 2.1) and the ranking of countries is unlikely 10 have changed by much in the intervening years. Once again, Argentina, Chile, Cuba, Mexico and Uruguay emerge as the success stories. The fourtb statistic is bank deposits per bead. Financial intermediation is a good proxy for the level of development and its depth can be measured by this indicator. As Table 2.1 shows, Argentina stands out, with Chile and Uruguay following at some distance. The other countries for which data exisl (for example Venezuela) appear to have had very shallow finance at the beginning of the century.

Argentina is the most straightforward case of a successful country if judged by the statistics in Table 2.1. It ranks first in GOP and bank deposits per head, second in exports per head and literacy. Uruguay ranks ft.rst in hteracy, second in bank deposits and third in exports per head (there are no figures for GOP per bead), but already by 1900 Uruguay had shifted from an export-led growth model to one in which tbe internal market was probably growing as fast as exports3 Chile and Cuba (still not fully independent in 1900)4 perform well in relation to the rest of Latin America, but lag some way behind Argentina on all four criteria. Mexico remains a special case, in which economic development had effectively been postponed by 50 years after independence in the 1820s as a result of the cycle of civil wars and foreign intervention.

The Latin America panorama is, therefore, a gloomy one at the start of the 20th century. Of the 15 failures,5 some were quite spectacular. Brazil in 1900 had a GDP per head only 4.8 percent of the US level despite the advances in industrialization since 1870. Many republics had exports per head valued at less than ten dollars while bank deposits per head outside of the southern cone were uniformly ‘low. Comparisons of GOP per head require the use of exchange rates and it might be argued Ihat these bias the results against Latin Arnerica.

14 Liberalization and its consequences

Table 2.1 Economic and social indicators/or Latin America: c.1900

GDP per bead illiteracy rate Exports per BanIc deposits Country as % of US (%)’ head ($)b per head($)b

Argentina’ 29.7 Bolivia Brazil 4.8 Chiled 19.1 Colombia 8.0 Costa Rica Cubad 18.4 Dom.Rep. Ecuador 6.0 El Salvador Guatemala Haiti Honduras Mexicoe 17.7 Nicaragua Panama Paraguay Peru 7.0 Uruguay’ Venezuela 7.2

Latin America 12.5f