Essay on “The Economic History of Latin America Since Independence” (1994) by Victor Bulmer-Thomas

If we had to summarize in only one word the reasons why, according to Victor Bulmer-Thomas, the “economic development of Latin America since independence is a story of unfulfilled promise” (410), that word would probably be “timing.” As he himself writes only a couple of pages after the one we quoted above, “[t]iming has not been kind to Latin America. […] Timing is not a matter of chance, however” (412). In fact, far from being a matter of chance, the bad timing of Latin America’s economic policies is a reflection of the region’s inability to escape its peripheral status and to become integrated in the world market in favorable terms, an inability that is the result of bad decisions taken at the worst possible times by leaders and citizens who somehow missed the whole picture, as it were, and pretty much condemned the subcontinent to its present economic condition.

Bulmer-Thomas delineates a history in which there are two main phases after independence: the first one “corresponds to traditional export-led growth based on primary products,” which stretches from the nineteenth century until the Great Depression, and the second one “corresponds to inward-looking development,” which gained momentum after the Second World War and ended in the 1970s and 1980s. These decades are, by the way, the period in which the third phase was beginning, one “based on the promotion of nontraditional exports,” but also one whose ultimate consequences could not yet be analyzed by the author, given that his work was first published in 1994 and that he does not seem to be the kind of academic who deals in predictions (411).

The problem, according to Bulmer-Thomas – and to get back to the bad timing –, is that during the time when Latin America was concentrating on export-led growth the whole world was entering a period of supremacy of manufactured goods in the international market. Likewise, when the leading paradigm in the region was inward-looking development, the whole world was experiencing a veritable explosion of trade, which more or less passed the countries of Latin America by. Finally, even the third phase, the one of openness to the international market and to free trade, seemed to have come a little bit too late, since the booming years of international trade were starting to be a thing of the past.

All along the way, of course, there could have been different outcomes. Even though Latin America’s exports were primary goods in a time that favored the export of manufactured goods, export-led growth was not bad per se: the fact that it did not lead to a general development of the non-export sector, and hence of the economy as a whole, was. Besides, the lack of diversification both in products and target markets made the region particularly sensitive to external influences like crashes, wars, and export competition. Thus, most countries of Latin America ended up living in a kind of worst case scenario:

“The worst situation was clearly one in which exports were concentrated in a single product and single market and in which the productivity of the nonexport sector was unaffected by export growth. Under such circumstances export-led growth was almost certain to be a failure. […] [S]uch cases were found all too often in Latin America, even during the so-called golden age of export-led growth” (57).

That this situation was allowed to take place had a lot to do with the ideology of the elites. During the course of the nineteenth century, liberalism established itself as the prevalent philosophical current in Latin America, and, as Bulmer-Thomas puts it, it “emphasized the need to expand the export sector on the assumption that, in some ill-defined fashion, export growth would enhance productivity growth and structural change throughout the economy. Export growth, it was assumed, was virtually the same as export-led growth” (49-50). This was not the case, however, and the failure of the local elites to transfer resources from the export sector to the non-export sector made it impossible for the subcontinent to develop a process of protoindustrialization of any significance (41). Apart from Argentina, no Latin American country displayed an export-led growth that was “transformative” (as opposed to “additive” or “destructive”) of the rest of the economy and, thus, no country benefitted in the long term, and as a whole economy, from the periods of boom of export of primary goods (83-84).

In other words, a policy of conscious diversification of export products, accompanied by an effort to transfer capital to non-export sectors and to advance the organic development of manufactures, would have been desirable, but nowhere in Latin America, apart –perhaps– from Argentina and Uruguay, was this applied.

The example of Argentina is a particularly interesting one, however, because at the end of the nineteenth century it had one of the world’s highest levels of income per head, yet some decades later it became a model for inward-looking development and thus, according to Bulmer-Thomas, the blueprint of what had not to be done but, tragically, was done: “If Argentina was the undisputed success story during the first phase of postindepence development, the opposite was true in the second (inward-looking) phase. […] Although agricultural protectionism in the developed countries hurt Argentina badly, it was the accumulation of (avoidable) policy errors during the inward-looking phase that finally led to the republic’s fall from grace” (416).

If anything, Bulmer-Thomas seems to believe that the mistakes committed during this phase, in which manufacturing was emphasized and practically implanted from above in societies where it had not developed organically, are even worse mistakes than the ones that had led to the subcontinent’s position as a provider of primary goods in the international market. The picture of Latin America in the time of desarrollismo and under the influence of CEPAL that he paints in the ninth chapter of his book is, in fact, pathetic: “The price paid for this industrial success was high. Shielded from international competition, much of the manufacturing sector was both high cost and inefficient in every sense” (283); “[t]he lack of dynamism of export earnings might not have mattered if the inward-looking model had succeeded in eliminating the need for imports – but it did not succeed” (285); and “although the excesses were often unnecessary the model – even in a less-distorted form – still cannot be defended. In semiindustrialized countries import suppression made no sense […]. Furthermore, the model was adopted […] just when the world economy and international trade were embarking on their longest and fastest period of secular expansion” (288). Once again, timing was crucial: “The timing of the model could not have been worse” (288).

To avoid the negative results of this economic model, Bulmer-Thomas argues, it would have been necessary to apply it earlier in history and most especially to replace it with an export-led growth model earlier than the 1970s and 1980s (and, one is tempted to say, without the “political repression” the new model was “coupled with” [335], as the author writes in a striking understatement). Indeed, he almost cannot find anything redeemable in this model, and he laments “the decline in the share of world trade” (326), the accumulation of debt, the damage of economic sectors other than manufacturing, and the unequal distribution of income that inward-looking development was unable to alleviate (424), among other results of the model.

As for today, Bulmer-Thomas seems to be neither optimistic nor pessimistic. He favors fiscal reform in order for resources to be liberated that can be, then, invested in economic sectors other than export (421). Writing at the beginning of the 1990s, when the specter of hyperinflation had not yet abandoned Latin America, the author emphasizes the need to combat inflation (after all, “[t]he losers from inflation acceleration […] were the poor” [423]) and to somehow reduce inequality (the “somehow” here is literal, for there is no concrete suggestion to achieve this, as far as I can tell). Finally, Bulmer-Thomas definitely supports integration in the global market and export-led growth, as long as it includes a “transfer of assets to the domestic private sector” which then can be directed to “enhance the competitive environment” and to “technical progress and total factor-productivity growth” (428-429). But, as he concisely puts it in the closing sentences of his book, “[t]hose countries that stumble through the incompetence, corruption, or greed of their elites can expect to be severely punished” (429). In a Latin American context polarized by the likes of Hugo Chávez and Evo Morales – political actors who literally could not figure at all in the Latin American future Bulmer-Thomas is elaborating on –, and in which some of these tasks are being accomplished by supposedly “socialist” leaders, it remains an open question to which degree the author’s conclusions are still relevant.

(Crédito de imagen de thumbnail: https://www.chathamhouse.org/expert/professor-victor-bulmer-thomas-cmg-obe. Crédito de imagen de inicio de post: https://www.amazon.com/Economic-History-Independence-Cambridge-American/dp/1107608554).