Stepping Out of the Cavern

Felipe Buitrago argues that while the 1980s were years of crisis for Latin America, the growing pains paved the way for future success

2400 years later, Plato's Cavern Allegory still rings true

2400 years later, Plato’s Cavern Allegory still rings true

In The Republic, Plato offers the image of cavemen chained to a wall. Their perspective to the outside world is limited to shadows flickering off a dank cavern wall, and thus, their observations and beliefs are subject to sever inaccuracies and distortions. This beautiful image is now referred to as the “cavern’s allegory”. A central theme of Plato’s dialogue is how humankind can unchain itself, such that we might have a direct sightline on the world.

In a similar vein to Plato’s cavemen who eventually understands a deeper reality beyond the shadows, Latin America seems to be coming out of its “middle ages”. With the benefit of hindsight, the catalyst of this coming of age was the so-called “lost decade” of the 1980s—a painful period of political, economic and social upheaval.

At the time it may have seemed that Latin America was fumbling through the crisis without direction or strategy. In retrospect, perhaps the region was simply experiencing growing pains.

If we take a look back on the 1980, we see the foundation upon which modern Latin American success has been based. For one, the period saw the end of the strongman as the default leader of Latin America, and a clear shift towards democracy. Two, the region finally began to accept its inherent diversity rather than peddling a false narrative of homogeneity. Finally, economic reforms put the region in a position to leverage its advantages and to avoid macroeconomic meltdown.

Like the unchained caveman, Latin America is now getting used to seeing a reality free from the previous distortions; free of  misinterpretations made while judging the world based only on shadows flickering in the dark.

Let’s take a closer look.

Dictators Need Not Apply

After century and a half of highly volatile politics, with one strongman filling the power vacuum left behind by another, a rare and unexpected consolidation of democratic stability spread across Latin America in the 1980s. The causes of this political transition could fill hundreds of books, each featuring different elements that all deserve proper debate. However, for the purpose of this article, all that matters is that it happened, and that, so far, it has resisted the test of time.

Sure, Cuba remains an outlier, and the remnants of the half-baked notion of “Bolivarian Socialism” still appeal to some people. But the greater trend appears irreversible.

The Cape: No longer fashionable for Latin American leaders

The Cape: No longer fashionable for Latin American leaders

In the 21st Century, contested elections from the local to national level are commonplace. Latin Americans are voting in hitherto unknown quantities, and they are demanding increased accountability of their leaders. Corruption scandals and public confrontation between government officials is a growing part of everyday life, but these clashes, in themselves, are indicators of transparency at work. Old and new elites are finding it increasingly difficult to rule independent of an ever-growing base of concerned-citizens. This is a tangible development that began in the so-called Lost Decade.

Many Latin Americas

Conventional wisdom, held across the political spectrum, from Ché Guevara to Wall Street fat cats, assumes that Latin America is composed of a homogeneous race of “Mestizos”, “Latinos” or “Hispanics” –you can pick your own preferred nomenclature, but the implication clearly suggested a Latin American homogeneity that never existed.

From “red necks” who believe that everything south of the Rio Grande is Mexico, to conspiracy theorists who believe that the US Constitution is tailored to prevent the unification of the Latin American peoples (yes, some people believe that), to a wide belief by many Latin Americans that a joint polity in the region is prevented only by the greed of the economic elites of every individual country, all fail to understand the complexity that underpins the region’s different societies.

Every region in the Americas, from the small island states in the Caribbean to the Great Plains of the US, is home to many nations. From the large populations of indigenous peoples in Mexico and Peru, to the decedents of Indians in Trinidad and Surinam, homogeneity is but a fiction of populist stump speeches –whether they are made from the right or the left. Even the very term Latin America is subject to debate and is outright rejected by Brazilians—about 40 percent of the population.

While history books might not cover it, the 1980s “Spring” of political democratization was coupled with a widespread internal recognition on the enriching character of Latin America’s diversity. Whereas the region had previously accepted the manufactured notion of racial and national homogeneity, the 1980s featured a resurgence of traditional customs at the local level, and this development has received an increasingly positive response from society at large.

The traditional social order is crumbling, and an expanding middle class is asserting its values. The tone of this confrontation can be stringent, and can lead to public protests that appear in newspapers from Ushuaia to Tijuana. This can be disruptive—and a lot of noise, to be sure—but that is what a changing social order looks like. That is what a changing social order sounds like.

And it’s a noise that was not heard loudly in the region before the 1980s.

Common Sense…From Washington

Back in 1989, John Williamson put together ten basic principles for macroeconomic stability, and in an effort to give it a marketable name christened them “The Washington Consensus”. These ten principles are nothing but common sense, but since common sense seems to be very uncommon—and even less so in the 1980s economic management of the region—it was very important to state the obvious.

Since Williamson’s marketing stunt has given rise to countless misinterpretations, not to mention all sorts of conspiracy theories, here are his ten points (simplified):

  1. Fiscal discipline (live within your means);
  2. Public spending focused key pro-growth and pro-poor services (Invest in the people);
  3. Tax reform, (everybody contributes, everybody benefits, no free-riders);
  4. Sensible interest rates (make money work for society, not the other way around);
  5. Competitive exchange rates (don’t mess with forces beyond control);
  6. Trade liberalization (real integration anyone?);
  7. Liberalization of inward foreign direct investment (nobody can make it on his own)
  8. Privatization of state enterprises (governments do government);
  9. Deregulation (cut down the red tape);
  10. Legal security for property rights (need no further comment).

Overall, most countries in the region have remained disciplined at using these common sense principles. Of course, the path to reform has not always been direct. Many reforms have been politically complicated and have been abused by corrupt insiders. This has, in some cases, required an emergency brake on liberalization. But besides clear statist shift by ALBA countries, and the occasional re-nationalization of a natural resource, the Washington Consensus—the real one, not the imaginary enemy created by radicals—has  been at the core of the region’s economic resurgence. The economic growth and poverty reduction are evident.

Growing Pains

They should have switched to Geico.

They should have switched to Geico.

As benefits such as low inflation, stable growth, and wide coverage of public services become the new normal, it is easy to forget what it was like not to have them and to take them for granted. Naturally, change did not come overnight, and adjustments are constantly demanding sacrifices. Whether political, social or economic, change is cumulative. It takes time for reforms to deliver their main benefits, and many reforms have been fully adopted just recently.

Getting our eyes used to the light has been painful. As for the cavemen, knowledge acquisition is a painful process because learning necessitates change, and accepting change is tantamount to accepting responsibility. Coming out of the social, economic and political cavern was the right decision for Latin America.

Now the region must remain out. Latin America must accept the burden of responsibility for the exposure to the elements, and while it may face inclement weather, it will be better than returning to the cozy shadows of the past.

Felipe Buitrago is currently an economic adviser to the Cultural Center of the Inter American Development Bank. Previously he has consulted governments in Latin America and in Europe. The views expressed in this editorial are his alone, and do not reflect those of the IADB. 

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