Growing Pains in the Developing Economies of Latin America
As protests flare in several South American cities, our founder takes a look at how we got here and what we can do to help bring about meaningful change for the disaffected masses who are simply trying to make a go of their lot in life.
Ten days ago, on October 13, Ecuador erupted in protest over the removal of fuel subsidies; a decision that caused the price of diesel to skyrocket from $1.04 a gallon to $2,27. Rural areas of the country that are dependent upon transportation were hit the hardest and disparate factions from the developing indigenous classes took to the streets – most peacefully, a small minority violently.
Five days ago, on October 18, when the Chilean government increased metro fees from $1.12 to $1.16, it sparked protests and rioting by thousands of students and others affected by the rising cost of living. The unrest damaged much of Chile’s subway infrastructure and equipment – a pride of Chile and the most modern and efficient in South America.
Last Sunday in Bolivia, in a controversial and contested presidential election where incumbent Evo Morales is running for his fourth term (in defiance of the constitution), first round election results were suspended. The result? Immediate protests in eight cities around the country and widespread accusations of electoral fraud. What is painfully clear is that Bolivians want more from their government.
In four days, on October 27, Argentina will hold its presidential elections – a watershed moment which has the potential to send convulsions through its economy and exacerbate already steep inflation which has been in excess of 30% for over a year. Potentially igniting another storm of angry people taking to the streets.
Might we be seeing a Latin America spring? A rerun of what we saw in the Middle East in 2011, as large populations of the disaffected revolted, overturning governments and stoking civil war in the process? Not so fast. This is too simplistic a caricature for a region experiencing the growing pains that come with years of reform and growth.
How we got here – The commodities boom
For most of the countries in Latin America (except for Venezuela and some small Central American nations), democracy has been making great advances over the past 20 years. The commodities boom in minerals and hydrocarbons, fueled by Chinese demand and investment, helped super-charge the economies of the region which are all rich in the stuff.
By many measures, poverty has more than halved since 2000 in the Andean economies of Colombia, Ecuador, Peru, Bolivia, and Chile. And year-on-year GDP growth in excess of 5% had become the norm. That started to change in 2014, when the plunge in oil prices and other commodities, coupled with the devaluation of South America’s principal currencies (which stifled efforts to pay off US dollar denominated debt), caused the South American economy to slow. At the same time, Venezuela continued its plunge into a political abyss, Brazil went into recession, Argentina moved to the right (away from the Kirchner/Peronist government which had ruled from much of the previous 70 years), and Latin Americans of all types began to move into a new economic reality.
By 2017, the massive Brazilian corruption scandal known as Lava Jato (Car Wash) was in full swing, implicating not only the construction giant Odebrecht, but also many of the region’s politicians. Revelations of bribes reaching a total of a billion dollars, fingered many of the region’s most powerful and upended whole governments. Ecuador’s most recent president is in self-imposed exile in Belgium (from where he’s said to be stirring protests back home), and a whole political generation in Brazil has been ousted with its revered leader Lula da Silva serving a 12-year jail sentence. In Peru, every ex-president since 2000 has faced bribery charges, with one currently under house arrest and another recently committing suicide as investigators closed in on him. In short, it’s been a rough few years to be a South American politician.
Cruel capitalism – Underinvestment in core services dents productivity and exacerbates poverty
Achieving the kind of economic development that reaches a wide swath of society and builds a meaningful middle class is a tough ask in Latin America. The task becomes even more challenging when you factor in that the judicial systems in much of the region are weak and used as proxies for political battles (case in point: Peru). Government corruption and ineptitude are easy scapegoats but they conveniently gloss over the role of that other pillar of developed society... The private sector.
Capitalism has failed many and the lack of investment by firms ranging from telecommunication to transportation hellbent on maximizing profits has stunted the growth of the region’s developing classes. The well-connected in these highly stratified societies – the 1% of Latin Americans who control the private industry – need to realize that their wealth and security is directly linked to the well-being of the masses. Latin America is still mired in classism, an ugly inheritance from colonialism that has yet to fully work itself out of a region 500 years after it began.
To give but one small anecdotal example, your author has for the past ten days been trying to get basic internet set-up in his new apartment in Lima, Peru from one of the country's duopolies in telecommunications Movistar, a Spanish transnational which dominates the market. After multiple trips across the traffic-congested city to speak to anyone in an office who can give me a straight answer on the delay, all indications are that it will be a while longer. This in a district that is one of the most developed in the country’s capital, and home to some of the top ranked restaurants in the world. It’s an incredible failure not on the part of the government, but of a private company (granted, the weak government does allow such behavior) whose externalities stemming from a lack of investment in infrastructure are a cost being distributed amongst the millions living in Latin America.
I am one of the lucky ones. I have the flexibility to work from home, can afford a taxi to efficiently get me to the Movistar offices, and can check my iPhone for important work messages en route… My income and place in society allow me to mitigate such a major disruption as living without internet for a few weeks. But if I lived on 10 dollars a day, had to take a two-hour bus ride – with my child in tow – from the outskirts of the city to reach Movistar’s offices, losing a day’s wages in the process, the disruption would be a whole lot crueler. Kicking me when I’m already on the ground.
Just this week, the Nobel prize was given to three economists who revealed that the gap in productivity between the most and least efficient producers is widest in developing economies like Latin America’s. Or said another way, challenges to productivity lie at the heart of poverty reduction. Those protesting on the streets of South America are mad. They are mad that capitalism, in cahoots with their governments, has not provided them with a level playing field to compete against those of the connected class who have hosts of drivers, nannies and others to take the brunt for the damage to productivity wrought by dysfunctional economies.
The aspiring classes of people on the streets of Quito, Santiago and La Paz, just want a chance. They want access to the secure middle-class lifestyle promised by the flashy ads on their smartphones. And while most of the protests are a peaceful call for meaningful change, a minority of people has resorted to violence and vandalism – an unfortunate side-effect that often accompanies freedom of association and speech. This thuggery though should not shift our focus from what lies at the core of the protestors’ discontent, nor invalidate the will of the masses in a region where protest and cacerolazo (literally, the banging of pots) has shaped the region’s political present.
Latin America – A region of democracy with its own way of being
You may have asked yourself why a company that specializes in vacations to South America would write such an involved piece on the history and economics of the region. The answer is simple. Much of our team lives on the continent, and feel the societal convulsions on the ground in Ecuador, Chile and Bolivia. The future of South America is directly linked to our future, and it’s important that we share a bit how we see it with the many folks who put their trust in us to bring them to this part of the world.
It’s also our responsibility to think about those who fuel a large part of our clients’ experiences, from small shop owners, to guides and local support staff. They are the ones affected most by the disruption and they are the ones that our company and our clients need to support the most. South America, with all its contradictions and its raw and authentic culture, is not the ideal place for drinking umbrellaed daiquiris poolside. South America is dynamic, often rough around the edges, but immensely rich in culture and passion. Beyond the images of street protests and burning buses, lies a region where democracy, tolerance and poverty are making great advances.
At SA Expeditions, we will always ensure the safety and comfort of our travelers, while at the same time not blindfolding them to the real nature of such a dynamic region. And we hope our small efforts to bring others into the region for tourism and exploration will continue to bring high-value and functional economic activity to the aspiring classes who just want a piece of the middle class. Our visitors are not just observers, their visits can make a positive impact both in sharing the real struggle of development in Latin America with the world and in leaving some direct economic injection along the way.
We would also like to put our flag in the sand by saying that we stand with the peaceful protestors in the streets of Latin America’s capitals. And we hope that those who run private industry will worry less about how the protests might affect their profits and focus instead on understanding the deeper, pent-up anger of a region still healing the scars of 500 years of colonialism.
About The Author: Nick Stanziano co-founded SA Expeditions and currently serves as its Chief Explorer. He is a dreamer and a thinker; someone who will always wonder at what lies beyond. Originally from California and resident in Peru for a decade, he straddles two worlds. He has a BA in South America Studies from the University of California and a trans-global MBA from Saint Mary’s College of California. Nick believes wholeheartedly that tourism has the potential to bring dignified income to the forgotten people of South America and the world.