Failed Latin American Policies Applied at Home

We’ve all heard stories of Latin American dictators and corrupt presidents pillaging their countries. Some were like Anastasio Somoza Debayle in Nicaragua who poured IMF earthquake relief funds into a personal bank account. Others chose quieter, backroom dealings to give absurd concessions to a privileged elite and American and multinational firms. The “Banana Republic” has a special place in U.S. iconography.

To encourage foreign investment, dysfunctional Latin American governments adopted neoliberal economic policies. Countries sold off state run ministries and public services. Politicians eliminated taxes for their friends. Sectors dominated by foreigners were quickly opened up by deregulation, providing multinationals with tax-free zones and letting monopoly forces dictate market structure. Policies designed to alleviate poverty and to encourage competitive local markets were co-opted by powerful business interests. Without legal safeguards, labor classes faced downward mobility as they competed for smaller wages and fewer benefits (Think of impoverished populations accepting less and less pay for a sweatshop job due to excess labor supply). There is little disagreement that gifts to the elite eroded an already fragile Latin America.

The conservative wind blowing across the US is more than a little reminiscent of the neoliberalism of Latin America in the 1980s. It wants to eliminate social programs – claiming deficit concerns, but never publicly stating the rewards to rich beneficiaries or the detriments to the working poor. It proposes cutting taxes for the elite – in the same fashion dictators never take from their friends. It champions deregulation –letting businesses pursue monopoly power without considering the havoc that can be caused by an unregulated banking system or energy delivery system. At the same time, our job markets are struggling, with unemployment at 9.6% last month, while per capita income levels continue to drop.

Starting under Reagan, with help from Milton Friedman and Cold War sentiment, the neoliberal school rose to power. Under the guise of “modern economic theory,” the US government strong-armed small nations into giving away any and all wealth (resource wealth, monetary wealth, and a wealth of labor supply). Americans witnessed riches pouring into the US economy, adding to unprecedented levels of GDP. While Latin America was facing economic collapse, life in the US was good.

When neoliberalism fell out of style in Latin America, riches stopped flowing as freely from abroad. Corporate greed started finding targets closer to home. Americans are feeling the detrimental effects of this unsustainable predatory system with the collapse of the housing and debt markets. Unfortunately, since the US’s experience with unrestricted free markets in the Reagan era is a memory of prosperity (and a forgetfulness of CIA supported dictators), Americans have trouble pinpointing the root of the US’s current struggles.

Giving free reign to market-dominating, corporate interests hurts America. The US economy is hovering at unemployment levels close to 10%, yet investment banks are reaping record profits. Executives at the top forty companies this year earned well over $140 billion. The rest of the country is angry and confused. Greater inequality leads to less competition, thus less homegrown innovation, fewer American jobs, a less stable US economy, a smaller middle class, and certainly a weaker recovery from an economic crisis. But fixing a dysfunctional economy takes time, and without fast-paced visible progress, it takes a substantial amount of time to tell whether a policy is working. In the meantime, people don’t know who to trust.

Economics has evolved since Adam Smith envisioned “the invisible hand” of free-markets. Nowadays, regulation exists to prevent monopolies, enhance stability, and maximize healthy competition. But with smooth talkers playing to populist anger, Americans are manipulated to believe in a government-approved prescription of poison. With yesterday’s election, the US is one step closer to reliving that devastating history of economic failure. This time, though, the victims live within our own borders.

This Op-Ed was originally intended for The Boston Globe last week. Unfortunately, the editors elected not to use the essay, as only days after my submission, Nicholas Kristof published a piece in the NYTimes that touched on similar themes. Once the waiting period expires for the Times to read my response to Kristof's "Our Banana Republic," I'll post that short editorial as well.

Failed Latin American Policies Applied at Home