Latin America – Economic Socialism in the 21st Century: Neoliberalism “Pure and Simple”

Maybe the real alternative is not financing development and redistributing income, but the very idea of development. What Latin Americans desire at this point in time is not development but escaping from it. The development model is more an ideological construct for the region’s elites and middle classes rather than for the peoples who are suffering it. It is a pretext to take control of natural resources at the commodities feast.

Ecuadorian economist Pablo Dávalo illustrates irrefutably how progressive governments apply extractivism, as well as monetary, tax and foreign investment policies that are really neoliberal, “pure and simple,” using contradictory discourse. On the one hand, they present themselves as revolutionary and anti-capitalist, while at the same time claiming economic neoliberalism to be inevitable, and thus condemning the region’s poor and territories to destruction and dire poverty. It is them, in our name. In the face of this deceit, peoples either reject development and rise up in favor of “Good Living” (Buen Vivir) or become subjected out of confusion to the interests of the re-emerging right. – Pueblos en Camino (Peoples on the Move)

Source: Pueblos en Camino

Alí Rodríguez and Extractivist Discourse

Alí Rodríguez is an important figure in the post neo-liberal transition in Latin America. He was Minister of Finance and in charge of PDVSA during the Chávez era, going on to be Venezuela’s Minister for Foreign Affairs, and finally, Secretary General of UNASUR. In a way, he embodies the historical and political moment the region is going through, as his statements give form to the discourse and political praxis of those in charge of the post neo-liberal transition, at least in South America.

In an article published by the online magazine ALAI[“Recursos naturales como eje dinámico de la estrategia de UNASUR” (Natural Resources as Dynamic Axis in UNASUR’s Strategy), Rodríguez exposes the extractivist discourse’s arguments point by point. Those purportedly objective arguments indicate that Latin America in general, and South America in particular, are not considered to be either technological or financial powers, but rather base most of their wealth on natural resources, and that it is time to use these natural resources to finance urgent tasks like development, as in economic growth, as well as income redistribution, as in health and education.

This discourse parallels those expressed and proposed by various political leaders in the region: for example, the metaphor employed by Ecuadorian president Rafael Correa, when he said that one should not be like a beggar sitting on a pot of gold, to justify land privatization by petroleum and mining corporations; “Geopolitics in the Amazon” (Geopolítica en la Amazonía) by Bolivian vice president Álvaro García Linera, which justifies extractivism in his country; and the “Seed Law” (Ley de semillas) also known as the Monsanto Law, by Cristina Kirchner of Argentina, opening up the agro-toxic and genetically modified market through the Growth Acceleration Program (Programa de aceleración del crecimiento, or PAC); the PT in Brazil, etc.

In reality, this is not a novel discourse, but has in fact been a fundamental part of the economic and political debate across Latin America since the end of the Second World War, with the Economic Commission for Latin America and the Caribbean, known as ECLAC (La Comisión Económica para América Latina y el Caribe, CEPAL) as its principal theoretical and political referent.

CEPAL theorists coined the term “structuralism” (estructuralismo) in order to describe the dynamics and forms taken by modernization and the development of capitalism in the region. Within Latin American structuralism, radical positions like the Dependency Theory emerged, while Latin American Marxist intellectuals largely criticized CEPAL’s structuralism for not considering imperialism and capitalism as the true obstacles to any development strategy.

One of their famous sayings is that under capitalism, the only development possible is underdevelopment (see André Gunder Frank). Within this debate, it was almost unanimously thought that Latin America’s specialization in exporting raw materials such as minerals, petroleum, agricultural products, woods and the riches of the sea, among other things, as the only thing produced in the region would condemn it to poverty and dependence on the world’s centers of imperialist power.

Even theorists most distant from any critical or radical position believed that Latin America had to get out of the trap imposed by unjust relations between the center and the periphery created by specialization in raw materials. They saw the exportation of resources as the continuation of the mechanisms of colonization and economic exploitation that have persisted since colonial times.

None of them thought that the revenue from exporting natural resources could result in either economic growth or income redistribution; on the contrary, they believed, taking into account the way land tenancy was structured and the form taken by political regimes, that revenue from exporting raw materials would only consolidate local oligarchies and turn the nation-state into an oligarchical and feudal state.

So nearly everyone agreed upon the necessity of industrialization, that is, the creation of value added to production, thinking in terms more related to the domestic market as opposed to the world market, which they always considered, justifiably, to be a threat. They thusly proposed significant changes to land tenancy, such as agrarian reform, changes to labour laws such as increasing minimum wages and strengthening labour unions, as well as proposing educational reforms guaranteeing free access to universities and greater social mobility, tax reforms oriented towards progressive taxation, sub-regional integration policies, and strict controls on direct foreign investment, among other proposals.

All these initiatives were lost under neo-liberalism. The IMF and World Bank crushed any redistributionist or endogenous growth policies. They imposed the re-primarization of the economy and insisted that revenues from extraction be used exclusively to pay foreign debt by way of “macro-fiscal rules.” They imposed an aggressive policy of privatization, deregulation, a complete opening of the economy, and labor and capital market flexibility.

Latin Americans saw the loss of their most important rights as the economy faltered and poverty increased. When the continent’s social movements mobilized against neoliberalism and finally defeated it, their economic and political proposals had sovereignty, income redistribution, and the recovery of a Social State, radically differentiated from a Neoliberal State, as their goals.

So it is strange to hear the rhetoric that Latin America should once again specialize in the exportation of primary goods, because it is retrograde and hides the true intentions. In effect, discussion of how revenues from natural resources will finance economic growth and income redistribution is neoliberalism, pure and simple, sweetened by the presence of “progressive” governments proposing that this be undertaken by state-run companies.

In reality, this is the discourse of the transnational commodity companies, because it is them who direct the international distribution market and its connections with the financial markets of futures, swaps, options and derivatives, independently of whether or not the production or extraction of resources is done by a national or transnational company.

Furthermore, this is a manipulative discourse because natural resources revenues have never financed any development strategy and even less so, any income redistribution, as shown by the history of Latin America, as well as the rich and profound theoretical debate on Latin American structuralism.

Rodríguez’s proposal, among other things, is really the discourse that expands the limits of extractivism, trying to get the population’s necessary consensus so that they believe the revenues that could come from extractivism might help them escape poverty. But the reality is that expanding extractivism creates more poverty and makes the poor more vulnerable, while destroying the environment, water sources, biodiversity, ancestral cultures, and causing environmental losses and irreparable economic externalities.

Caption Food Sovereignty, Yes: Prioritize local and regional production over exportation, Authorize countries to protect themselves against underpriced imports. No: Allow public assistance to small farmers, Guarantee the stability of agricultural products internationally.The expansion of extractivism privatizes lands and makes extraction revenues a geopolitical wager. Why then do the governments of the region bet on extractivism on the false argument that it will finance growth and income redistribution? Because this discourse conceals the fact that none of these governments has created an agrarian reform that returns the land to the indigenous and the campesino small farmers, and they’re not going to do it because those lands are precisely the object of dispute with extractivism’s transnationals; and neither have any of these governments returned to workers the ability to organize in labor unions to fight for better salaries and better working conditions, quite the contrary, as capital’s dialectic has always preferred it that way, under the argument that private investment creates wealth and growth.

These governments have also not gone ahead with a progressive tax policy that collects taxes from the most powerful economic groups and their businesses, so that the resources from direct taxation provide alternatives to extractive revenues; on the contrary, the tax burden continues to fall on the backs of the poorest and the rest of the population.

Are there alternatives to revenues from extraction? Of course there are, but in the same way that neoliberal discourse used to decree that “there is no alternative” (to quote Margaret Thatcher), the extractivist discourse thusly shuts out discussion of alternatives. The first alternative is in sight, and that is using monetary policy to finance both development and income redistribution.

But there is a fear of using monetary policy to help the people, and this stems from colonization of the currency, both in theory and practice, by the IMF and the neoliberal episteme. They fear using the currency because of its inflationary effects and thus grant private banks the power to regulate monetary policy.

The most revealing example is perhaps the government of Evo Morales, who, at the end of 2010, decided to apply an economic adjustment that raised the price of gasoline to compensate for the fiscal deficit (Presidential Decree No. 748 of December 2010), while at the same time having international monetary reserves of $9.73 billion (USD), corresponding to more than a fifth of Bolivia’s gross domestic product at the time. And not just that, as earlier he had confronted the country’s police who were demanding modest increases in their base pay (they were asking for a minimum wage of 2,000 bolivianos, which at the time was about $250 (USD), which could have been financed by a small portion of the Bolivian government’s international monetary reserves.

Another paradigmatic case is the government of Brazil with its interest rate policy and liberalized capital markets. The different governments of the Workers Party (the PT) revealed themselves in this sense to be as neoliberal and orthodox as their predecessors, respecting  private banks’ management of monetary policy and interest rates, the latter considered to be among the highest in the world.

They also fear applying a redistributionary tax policy affecting groups in power, with perhaps the best example of this being the government of Rafael Correa in Ecuador. During his administration, 2007-2013, Ecuadorian economic groups obtained total revenues of about $150 billion (USD), yet paid only 2% income tax. In fact, by the year 2013, they already controlled almost half of the country’s GDP. A progressive tax policy would demonstrate that the destruction of the Yasuní natural preserve, unique in the world for its biodiversity, was a strategy more aimed at protecting the interests of the wealthiest economic groups and extractivist corporations than a wager on redistributing income and financing development, as the Ecuadorian president tried to justify it.

Nevertheless, maybe the real alternative is not financing development and redistributing income, but the very idea of development. What Latin Americans desire at this point in time is not development but escaping from it. The development model is more an ideological construct for the region’s elites and middle classes rather than for the peoples who are suffering it. It is a pretext to take control of natural resources at the commodities feast. For organized sectors and social movements, the present discourse is not about development but about “Good Living(Buen Vivir), whichfrom the statements made by the continent’s social organizationsappears to have nothing to do with either development or economic growth.

Pablo Dávalos is an Economist and former Vice-Minister of Economy of Ecuador. He is the author of various books on economics and an activist with the Ecuadorian Indigenous Movement.

Translation edited by Nancy Piñeiro.