Venezuela’s President Hugo Chavez and Bolivia’s President Evo Morales are closely linked, and many fear they represent a new trend away from democracy, open markets, and the United States in Latin America. Overlooked are substantial differences between these two countries and from their Latin American neighbors.
What Venezuela and Bolivia do share is the weakness of their political institutions which results in large part from their history with democracy. Democracy emerged in Venezuela in the late 1950s and Bolivia in the early 1980s after elites joined together to form a “pact” that established the rules for the new governments.
These pacts brought stable democracy to both countries no easy feat in Latin America. But, these agreements left many policy issues particularly economic issues permanently off the agenda. They also encouraged the development of cartel-like political parties, more interested in staying in power than truly representing their own populations.
These dynamics excluded large percentages of the population in both countries from politics. In the face of economic turmoil, these poorer populations searched for someone to represent their interests and found outsider candidates Hugo Chavez and Evo Morales. Their elections ended the cozy arrangements between the traditional political parties and challenged the rules of the political game.
But here is where the outcomes in each country diverge. Due to Venezuela’s oil wealth, Chavez has vast resources to satisfy his heterogeneous political base – creating new schools, health care clinics, affordable housing, and food subsidies. Morales, in contrast, does not have the public resources to provide so abundantly for his supporters. Instead, divisions within his own coalition are emerging, questioning his ability to balance campaign promises with the country’s economic realities.
Politically, Chavez has successfully consolidated power retaining control now over the judiciary, the public bureaucracies, and the Congress. In Bolivia, we see a political standoff between the Morales’ political coalition and his opposition. The opposition including the traditional political parties – retains control of several governorships, and for the last six months has stymied any substantive debate within the Constituent Assembly. These political divisions are now leading to social unrest and violence. In short, the battle between these two sides has yet to be won.
These separate outcomes in Venezuela and Bolivia are both worrisome for democracy. But since they result from domestic factors, their spread throughout Latin America is unlikely. It shows that to counter these trends, however, we need to pay more attention domestic institutions, and less to the grandstanding of particular political leaders.
On Monday January 8th, two days before his inauguration to a third term, Hugo Chavez announced that he would deepen his socialist or Bolivarian revolution by nationalizing companies that are deemed to be strategic to the national interest. Specifically, he singled out the telephone company CANTV and the Caracas utility company, EDC. Since both are at least partially owned by U.S. companies (Verizon and AES respectively), this shocked not only Venezuela’s domestic financial markets but also Wall Street.
Chavez’s ability to carry out these nationalizations rests on the confluence of political and economic power he holds. In recent years he consolidated political power in Venezuela by undermining the independence of the judiciary, the national electoral council, the bureaucracy, and he gained complete control of the Congress. On the economic side, high oil prices provide Chavez the resources to compensate the private owners of these or even other companies in Venezuela. Venezuela now holds over $50 billion dollars in international reserves, providing a war chest for not only his social programs but for expenditures like nationalizations.
What is important to understand is that it is unlikely his efforts will spread to other Latin American nations. Most of the recently elected leaders in Latin America (there have been twelve elections in as many months) are turning toward free markets, not away from them. Leftist leaders in countries such as Chile, Brazil, Uruguay, and even Argentina are opening their markets while also instituting broader social protections, including social security, health care, and assistance programs. Even those leaders who may be more ideologically inclined toward state intervention in the economy, such as the presidents of Bolivia and Nicaragua, don’t have the luxury of strong oil revenues. So large-scale nationalizations are unlikely outside of Venezuela. In many ways this is an isolated, anachronistic turn to socialism, ironically buoyed by global capital markets and the increasing demand for oil due to globalization.
Finally, some commentators are pointing to the Iranian President Ahmadinejad’s visit to Venezuela (his second in five months) as a threat to U.S. interests. These meetings, and strategic agreements signed at them, are less important than many fear. While there are several reasons why the United States should worry about its relationship with Iran, the alliance with Chavez will not seriously influence these foreign relations. We should keep or foreign policy strategies and decisions toward each country separate, as their shared anti-Americanism shouldn’t negate their vast differences.
For more thoughts on Chavez’s announcements, please check out my interview with Mike McKee from Bloomberg earlier this week about this development:
Bloomberg interview
Over the last eighteen months Presidential elections occurred in twelve Latin American countries. While Hugo Chavez and his anti-American tirades grab most of the headlines, these elections actually show the rise of a new Left in Latin America. In contrast to Chavez’s more socialist populism, these new leaders promise to balance market-friendly economics with broader social policies and protections.
These new governments have already shown their commitment to free markets. In less than a year, Chile’s President Michelle Bachelet has signed free trade agreements with China, New Zealand, and Singapore, and is negotiating new accords with both Japan and Australia. Alan Garcia of Peru appointed a well-known private banker as Finance minister and vocally supports free trade agreements with the United States, Canada, and many Asian countries. Brazil’s Luiz Ignacio Lula da Silva was re-elected based on his conservative first term economic policies. Tabare Vazquez of Uruguay also continued the orthodox economic choices of the previous government, attracting both Finnish and Spanish foreign investment for Uruguay’s cellulose industry.
Even the more rhetorically radical leaders are governing or likely to govern near a pragmatic center. During his first year in office, Bolivian President Evo Morales drew back from his more populist campaign appeals. He cancelled the nationalization of the mining industry, and is now negotiating gas contracts with foreign companies. While peppering campaign speeches with anti-American quips, Nicaragua’s Daniel Ortega left the Sandinista’s economic ideology behind. During his first weeks in office he has already started courting domestic and foreign investment, promising to uphold contracts and maintain open markets. Rafael Correa’s of Ecuador began moderating his promises in the final weeks of the presidential campaign, and even reached out to U.S. ambassador, Linda Jewel. In fact, only Venezuela’s Hugo Chavez, supported by oil revenues – represents a firm holdover from the political past.
Yet while rejecting old-style socialism, Latin American voters did turn left. The winning candidates all reached out to the large portions of the population that have not benefited from economic reforms. They promised to improve the social welfare of ordinary citizens. Now in office, they are pushing forward to create jobs, eliminate hunger, and provide better access to education, social security and health care.
This shift Left reflects the real needs of Latin America’s populations. While Latin America’s economies have grown in recent years, these benefits have not trickled down. Some 25% of the population still lives in poverty. The difference between the haves and have nots stubbornly remains one of the most pronounced in the world.
More positively, this political turn reflects the spread of democracy. As more open and inclusive governments take root, politicians are responding to voter demands. The winning electoral campaigns focused not just on overall economic growth but also on increasing economic opportunities, particularly for the poor.
These newly elected leaders now will try to soften the rough edges of globalization while continuing to compete in international markets. This is a difficult balancing act for any leader, and many will not meet the challenge. But as Leftists, they have an opportunity to build a social consensus behind the long-term investments necessary for real change in these countries. To that end, this new Left represents the best chance for strengthening the economies and the democracies of Latin America.
