The Roots of Poverty in Latin America

What Accounts for the Stark Differences Between the United States and Latin America?

Few things stand out in such stark contrast as the economic and social differences between the United States and the countries of Latin America. Since gaining its independence from Great Britain in the late eighteenth century, the United States has offered virtually unlimited opportunity for a growing population, along with a rising standard of living for practically everyone. The countries in Latin America won their independence from Spain and Portugal in the early decades of the nineteenth century, yet their societies, for the most part, have experienced far less of the economic prosperity and little of the wider political and personal freedom enjoyed by their neighbor to the north.

The contrast is even more peculiar when it is remembered that a good number of these Latin American countries emulated the constitutional order of the United States when establishing their own independent political regimes. Almost invariably, however, political dictatorships were soon combined with monopolies, privileges, corruption, and persistent poverty for the broad mass of the population.

And while the United States was torn apart by a destructive four-year Civil War in the 1860s, America’s history since then has mostly been one of domestic tranquility and political stability. This stands, again, in dramatic contrast to the violent political regime changes that have occurred throughout Latin America in the form of civil wars and revolutions during the last two centuries.

Trying to explain this great difference between the United States and Latin America is the task taken up by Guillermo Yeatts in his recent book, The Roots of Poverty in Latin America. A native of Argentina, Yeatts is an economist by training and a successful businessman by vocation. He is also a devotee of classical liberalism and active in many free-market organizations in both North and South America (including FEE).

The United States, Yeatts explains, grew out of the British tradition of respect for the individual and his rights to life, liberty, and property. The rule of law, restraints on governmental authority and power, and belief in the value of freedom of trade and enterprise were the institutional ingredients at the founding of the American Republic. Indeed, at the heart of many of the grievances enumerated in the Declaration of Independence against the British Crown was the spider’s web of mercantilist regulations, controls, and taxes that restricted the economic liberty of the American colonists.

The Latin American experience, Yeatts points out, was very different. Imperial Spain was an absolutist monarchy that exported all the worst features of a command economy and authoritarian political system to its colonies in the new world. Trade monopolies in agriculture, mining, and commerce were imposed throughout the territories under the sway of the rulers in far-off Madrid. Ruthless and corrupt imperial governors worked hand-in-glove with an imported and privileged aristocracy that claimed complete power over all whom they ruled, whether they were native Indians or colonists brought over from Spain or other parts of its world empire.

Every aspect of life in the Spanish American domains was rigidly regulated through price and wage controls, import and export regulations, and occupational and professional guild privileges. Positions of local political power were purchased from those higher in the chain of monarchical authority, and this power was absolute over those below. There existed no sense of “rights” as the British colonists knew and demanded them along the eastern seaboard of North America. There were only “duties” to fulfill, holders of power to be obeyed, and sundry privileges that were available for purchase and sale.

There were many attempts to establish more-enlightened regimes closer to the United States model. In the late nineteenth and early twentieth centuries, Argentina did so with great success, and was considered one of the leading “Western” economies around the time of World War I. But the cultural residues of the Spanish authoritarian past have, unfortunately, kept dragging the countries of Latin America back to the policies and practices of the “ancien regime.”These forces were only reinforced throughout the twentieth century under the influence of socialism, fascism, and nationalism.

The 1990s, Yeatts says, did see reforms toward greater freedom and market opportunity that in fact brought economic and social improvements. But they were introduced only under the pressure of economic failure and earlier hyperinflations that had pushed these countries to the brink of collapse. But even as these reforms were introduced, the wider arena of “public policy” was dominated by an ideology of “rent-seeking” (the buying of favors and privileges from the government to avoid the pressures of market competition), and a pattern of democratic demagoguery that took the form of a flood of government spending and foreign-funded deficits to win the favor of “the masses.”

Yeatts does not want his story to be one of seemingly total despair and pessimism. He believes that the forces of globalization will continue to pressure Latin America to adapt and become more open and competitive. He hopes that this will push these countries to practice greater fiscal and monetary restraint, as well as introduce a greater degree of rule of law and legal transparency.

But he realizes and emphasizes that ultimately what is needed in Latin America is a change in the political-philosophical underpinnings of these societies, away from their authoritarian past and toward the ideas and values of a classical-liberal society. He also knows this will not happen overnight.