All Commentary
Saturday, December 1, 1962

The Alliance For Progress Must

Mr. Fox is a market research executive now residing in Mexico.

The alliance for progress is foredoomed to fail. Both its pur­pose and its methods are defective. Its analysis of the problem misses the mark, and its proposed solu­tion will only aggravate the situa­tion it is intended to alleviate. The net effect will be disastrous. The waste of billions of dollars exacted from American taxpayers is seri­ous enough, but this is nothing compared to the harm of fanning into flames the smouldering anti-Americanism south of the border. Propaganda for the Alliance has led Latin Americans to expect miracles that are impossible. When these miracles fail to come off, the result must be bitterness and hatred toward those who held forth false promises.

Latin America does have serious problems. Its population is explod­ing. Far too many people live lit­erally from hand to mouth and go to bed hungry, sleeping on straw or bare dirt floors. Many go bare­foot from the cradle to the grave. With a few exceptions, as in Ar­gentina, large numbers of the peo­ple are illiterate. Sanitation is ne­glected and disease abounds.

No Latin American country has a firm tradition of either repre­sentative republicanism or parlia­mentary democracy. None has an electorate capable of making an orderly transfer of power from the “Ins” to the “Outs.” Most have bloated bureaucracies of incompe­tent, corrupt civil servants lacking understanding of the kind of in­stitutional framework essential to a free, industrialized, expanding economy.

Yet, abetted by the Alliance, the Latin American ruling cliques are bent on creating industrialized economies directed by govern­ments. Almost all of them, to the extent that they have any economic philosophy, believe in state plan­ning and direction of the economy. They are inclined to take the word for the deed, and to believe that enunciating a grandiose plan is equivalent to executing it.

It is impossible to help people effectively if they will not cooper­ate. It is doubly impossible to help them if they insist that a request for cooperation is an unwarranted and insufferable interference in their affairs and an impudent and insulting affront to their pride and dignity. This is the insur­mountable obstacle.

Latin American powers want United States taxpayers to give them billions of dollars with no strings attached. If we do, the bil­lions will be spent by corrupt and inefficient bureaucrats. If we in­sist on honest and purposeful spending for basics such as roads, education, water and sewage sys­tems, with controls adequate to minimize graft and insure compe­tent management, we shall be damned for interference in inter­nal affairs, interventionism, and imperialism. Either way, we are going to be even less popular than we are.

Latin American politicians and their advisers are most reluctant to acknowledge the existence of such principles as comparative costs, geographic specialization, and international division of labor. They are loath to admit or accept limitations of their powers. If a thing is technically possible, they are anxious to plan it, do it, and charge it to the American tax­payers. It is technically possible to build Diesel-electric locomotives in any Latin American country. In fact, they are on the list of things the Mexican government wants built in Mexico. There are at least three ways this could be done. The government could set up a wholly owned corporation, just as it set up PEME X to monopolize the pe­troleum industry. It could set up a joint venture backed by Mex­ico’s Development Bank, Nacional Financiera, with all-Mexican or mixed Mexican and foreign capi­tal and technical assistance and licensing agreements with some firm in the Diesel-electric locomo­tive business. Or, it could grant a monopoly to some foreign firm like General Motors or General Electric with a contract from its state-owned railroads to insure a profit to the builder. None of these methods makes sense, though each is technically possible. The simple fact is that Mexico does not offer a big enough market for Diesel-electric locomotives to make such an enterprise economically sound.

The Facts about Comparative Costs

There is no question that any country has the naked power with­in its own borders to undertake a program of industrialization and self-sufficiency. A country such as El Salvador or Honduras doubtless could build its own electronics in­dustry and manufacture its own television receivers and large-scale computers. There is also no doubt that United Fruit has the techni­cal skill to grow bananas in Bos­ton, where it has its offices. Never­theless, the cheapest way for United Fruit to get bananas is to grow them on its plantations in the tropics. The cheapest way for Latin America to get the kind of automobiles its roads and dis­tances require is to buy them from Detroit. No Alliance is going to change these facts of life about comparative costs.

By going along with and even fostering the notion that Latin American countries ought to in­dustrialize and manufacture their own automatic tools and petro­chemicals—under obvious disad­vantages of economy of scale, com­parative costs, and specialization of resources—the Alliance hurts both Latin America and the United States. Far better to let individuals do the things for which they are competent and have natural advantages.

The comparative or absolute natural advantages of Latin Americans are not limited to min­ing and growing bananas, cotton, coffee, and henequen. They can and do produce various fruits and vegetables not grown in the United

States and other countries. They have innumerable forestry and fisheries products. They have large unused pools of potentially indus­trious labor. They have, or can quickly develop, almost any num­ber of artisans and craftsmen cap­able of working with simple, low cost tools to turn out products readily marketable in industrial countries.

What Kind of Jobs?

The crying need in Latin Amer­ica is for jobs, a need that grows as an explosive birth rate and a falling death rate create a larger potential labor force each year. The most acute shortages in Latin America are the lack of imagina­tive entrepreneurs and the lack of equity capital for them to use. Given this state of affairs, it makes no sense to encourage the development in Latin America of “showcase” industries—in which Latin America has natural disad­vantages and which require large capital investments and relatively small numbers of employees. Auto­mobiles, petrochemicals, machine tools, and countless mass produc­tion items are best produced in large-scale plants with huge capi­tal investments and highly auto­mated processes. Yet these are the kind of investments that fascinate the political leaders involved in the Alliance for Progress.

Such projects hurt the citizens of Latin America by diverting available capital from economically sound to economically unsound uses. They also hurt the American citizen, taking from him tax dol­lars he could otherwise use for his own ends. The Alliance hurts Americans who want to do busi­ness in Latin America. It encour­ages Latin American governments to increase their discrimination against American products which their own citizens want.

By way of the Alliance, we tax ourselves to destroy existing jobs within the United States and to prevent the creation of other jobs. This reduces our own standard of living to no useful or lasting pur­pose. It is not true, as some labor leaders protest, that the Alliance will “export jobs.” Closing Latin American borders to imports from the U.S. means that job opportuni­ties here simply vanish; they are not exported. Products made lo-tally in Latin America at com­paratively high cost are sold lo­cally at higher prices than imports command. Thus, Latin Americans have less to spend for other prod­ucts and must go without some im­ports they would otherwise buy. The Alliance merely slows down the U.S. economy without helping Latin America.

Proponents of the Alliance for Progress are in the politically awkward position of having made promises that can’t be fulfilled, having sown the seeds of bitter disappointments. That the Alliance must fail is daily more evident. What remains to be learned by government officials in Washing­ton and in Latin American coun­tries is that the best hope for the kind of progress useful to individ­uals is through competitive pri­vate enterprise and voluntary ex­change—whether within or across political boundaries.      



Ideas on Liberty

What Is a “Less-Developed” Country?

No one seems satisfied with the term “less-developed country” or “under-developed country.” It does not exactly mean “poor country,” for some comparatively poor countries are progressing rapidly and resent the term. It does not fit the meaning of “countries where development is going on apace,” for it is scarce­ly applied, for instance, to Canada.,,, But among the “less-developed” countries, as the term is most often used, almost all have at least one thing in common. They are countries that desire capital but have not yet put into practice the methods of capi­talism.

Harold Fleming, States, Contracts and Progress