How Chile cooled its ideological fever

Latin America’s Politcal Economy of the Possible, by Javier Santiso, MIT Press, $27.95/£18.95

Latin America’s political landscape has changed beyond recognition in the past five years or so. In country after country a new generation of leaders has emerged. Many of them – such as Luiz Inácio Lula da Silva, Brazil’s trade unionist president, or Michelle Bachelet, Chile’s and South America’s first elected female leader – have come from the moderate and market-friendly left, giving rise to the idea that a “pink tide” is rising in the region.

However, there have been some other trends, too. This year a more radical, anti-American strain of politics has been evident, in the radicalisation of Venezuelan politics under Hugo Chávez and the increasing influence of Venezuelan oil diplomacy in Bolivia and some other countries.

To make matters even more complex, in recent weeks the political barometer has swung sharply in the opposite direction, with the emphatic re-election of the rightwing Álvaro Uribe in Colombia and the narrow disputed triumph in Mexico of Felipe Calderón. Even the idea that a new generation is taking over has been put to the test. In Peru the electorate has just given a new lease of life to Alan Garcia, a 57-year-old moderate socialist who took the country into bankruptcy when he was president in the late 1980s.

In his book Javier Santiso, the chief development economist at the Organisation for Economic Co-operation and Development, provides insights that explain some of these developments. He argues that leaders such as Colombia’s Uribe or Brazil’s Lula da Silva may come from different political traditions, but both are moving towards a political centre-ground defined by a commitment to democratic politics, social reform and the market economy.

Borrowing a phrase from Albert Hirsch­man, the German liberal economist, Santiso calls this approach the “political economy of the possible”. For Europeans and North Americans it might sound like common sense, but good government based on democratically accountable institutions is unusual in a continent where politicians have often preferred to champion ideological models and abrupt sweeping change.

What Santiso calls an “endless waltz of paradigms” took Latin America from the liberal right in the 1930s to state-centred corporatism and radical socialist models of the postwar period and then dizzyingly back to the free market right in the 1990s. Ideology still has its appeal. Witness the domestic popularity of Chávez and his leftwing “Bolivarian revolution”. But “possibilism” rather than populism is becoming the dominant theme, argues Santiso.

This is an attractive argument and provides an interesting framework in which to measure the region’s political progress. It is a particularly valuable way to see Chile, the most successful economy in the region over the past two decades. Santiso attributes Chile’s achievements not to the blind application of free-market orthodoxy but to flexibility in policy-making from the mid-1980s onwards. In other words, the crucial moment was not, as the liberal right argues, the 1973 coup against Salvador Allende, the socialist president, but the catastrophic banking crisis of 1982, the product in part of economic policies pursued by the radical free-marketeers known as the Chicago Boys.

During the 1990s, when countries such as Argentina and Mexico implemented shock therapy and quickly sold off state property, a newly democratic Chile controlled its exposure to world financial markets and maintained its efficient copper company in public hands. The result was a relatively smooth encounter with globalisation, a decade of consistent expansion and a 50 per cent reduction in poverty levels.

Chile, says Santiso, is often presented as the “culmination of Latin America’s neo-liberal trajectory”. In fact, “the great lesson” to be taken from the country’s experience is “achieving distance from ideological fevers of all kinds”.

However, he is less convincing when he suggests that Brazil and Mexico – Latin America’s two biggest economies – have successfully embarked on the same development route. True, Lula da Silva and Vicente Fox of Mexico have pressed through important reforms and impressively maintained macroeconomic stability. But whether their pragmatic approach to reform amounts to very much is another matter. Neither government has made anything like the social progress of Chile, nor invested nearly as much in physical infrastructure. While Chile has grown at an average of more than 5 per cent, neither Mexico nor Brazil in recent years has been able to achieve expansion approaching half that rate. Mexico’s stability is now underpinned by growing integration with the US economy, but to equate the North American Free Trade Agreement with European-style convergence is overly optimistic.

The result is that while neither country is likely to imitate Venezuelan-style extremism, nor are they are as politically stable as Santiso suggests. Chile’s achievements signal a way forward for the region. Mexico, Brazil and most of the rest of Latin America, however, are still some way from emulating them.

The writer is the FT’s Latin America editor