Factors constraining development: Latin America | History Optional for UPSC (Notes) PDF Download

Internal Factors

Lack of Well-Defined Boundaries:

• The unclear boundaries of Latin American states, established during colonial times, have been a significant cause of disputes, especially after the discovery of valuable natural resources in these areas.
• For instance, the Acre crisis between Bolivia and Brazil was fueled by the desire for rubber, while the Chaco War between Bolivia and Paraguay, as well as the dispute between Ecuador and Peru, were driven by the pursuit of oil.

Vacillating Communities:

• Latin America is characterized by shifting communities where certain feudal families exert significant control over the economic and social fabric of these countries.
• No government can operate effectively without the backing of these influential families.
• Whenever these families wish, they can incite revolts and destabilize the government.

Lack of Democratic Traditions:

• Latin American countries have historically lacked strong democratic traditions.
• Although intellectual leaders in these nations proposed model institutions, there was a failure to appreciate and implement them.
• For many, authority was represented by a leader who commanded obedience, rather than an elected president.
• The absence of a democratic tradition for the lawful change of power paved the way for various forms of dictatorship, including both communist and military regimes.

Corruption:

• Corruption in Latin America is infamous worldwide.

Political Instability and Development Models in Latin America

Political Instability:

• Political instability has been a common issue in Latin American countries. Many of these nations experienced civil wars, leading to violence, poverty, and authoritarian rule.
• During the 1960s and 1970s, military governments were prevalent across the region.
• On April 2, 1982, Argentina's military junta attempted to seize control of the disputed Malvinas Islands by sending 4,000 soldiers. However, Argentina was defeated, exacerbating its internal problems and damaging its economy. In response to political and economic crises, along with public protests, the military agreed to transfer power to civilian authorities.
• This transition marked the beginning of a wave of democratization throughout Latin America. Since then, most countries in the region have achieved political stability.
• Nevertheless, some nations continue to experience political upheaval, hindering their political and economic progress. Since the 1980s, fourteen presidents in Latin America have been unable to complete their terms as mandated by the constitution.

Development Models:

After gaining independence in the early 19th century, Latin American countries initially adopted a development model focused on exporting primary products. However, this model underwent significant changes over the years.

• Import Substitution Industrialization (ISI): In the aftermath of the Great Depression in 1929 and especially after World War II, Latin America shifted towards the ISI model. This approach aimed to reduce dependency on foreign goods by promoting domestic production. In its early years, the ISI model achieved notable success.
• Challenges and the Lost Decade: By the late 1960s, the ISI model began to reveal its weaknesses. Combined with adverse external conditions, these flaws led to a severe economic crisis in the 1980s, a period often referred to as the "lost decade" for Latin America.
• Neo-liberal Model: In response to the economic difficulties of the 1980s, Latin American nations transitioned to a neo-liberal model. This involved privatizing state-owned enterprises, liberalizing trade, opening up financial markets, and marketizing the economic system. While these reforms yielded some positive outcomes, they also had serious negative consequences.
• Argentina's Crisis: For instance, in November 2001, Argentina faced a crisis when it failed to meet the fiscal deficit target set by the International Monetary Fund (IMF). In response, the IMF delayed the release of a credit line to Argentina. The President implemented strict financial regulations, leading to widespread public discontent and unrest. This turmoil resulted in the resignation of the President, and within a short span, Argentina saw the turnover of four presidents in two weeks.
• Regional Impact: Similar crises occurred in other countries like Venezuela and Bolivia, marking a significant shift in the political landscape of Latin America. Venezuela, once viewed as a model of democracy in the region, also experienced turmoil during this period.

Agriculture-Based Economy

• The economy of most republics relied heavily on a single crop, leaving them vulnerable to fluctuations in international markets. To address these challenges, improvements in agricultural techniques were necessary. However, to acquire machinery, expand transportation systems, and develop industries, they required capital. With a growing population, limited resources, and a low national income, these republics faced significant obstacles in capital formation.

Comparative Advantage vs. Industrial Restructuring:

• Latin America is endowed with biodiversity, forests, mineral resources, and optimal conditions for agricultural production. Historically, the export of primary products made some Latin American countries among the wealthiest in the world. For instance, in the late 19th century, the European demand for agricultural produce surged. To boost food production, Argentina welcomed foreign capital and international immigrants, leading to a substantial increase in agricultural exports to Europe. During this period, Argentina experienced one of the highest economic growth rates globally, earning the title of the world’s warehouse of grain and meat. Even in 1950, Argentina was wealthier than Japan and on par with Italy, Austria, and Germany.
• It was only in the 1950s that Argentina began to focus on developing its heavy and chemical industries. This shift meant that Argentina missed the chance to industrialize before and during World War II.

International Competitiveness

Many Latin American countries struggle with international competitiveness. One major factor is the lack of technological innovation, primarily due to insufficient research and development (R&D) capacity. The education system in Latin America has two significant flaws:

• Overemphasis on Higher Education: There is a greater focus on higher education at the expense of primary education. This imbalance means that while Latin American scientists can achieve notable recognition, ordinary workers lack the necessary skills, hindering labor productivity.
• Low Educational Quality: The overall quality of education is not high, further impacting the region’s competitiveness.

Latin America also ranks low in terms of the proportion of R&D expenditure in GDP, which contributes to its limited international competitiveness.

Social Issues in Latin America

• Poverty: Nearly 40% of the population lives in poverty, with 15% experiencing extreme poverty.
• Income Inequality: Countries like Brazil and Bolivia have a Gini Coefficient above 0.6, indicating high income inequality. Many other Latin American countries are close to this figure.
• Public Safety: Latin America, along with Africa, has seen a rapid increase in murder rates, contributing to worsening public safety.
• Impact on Development: Social problems have severely hindered the region's socioeconomic development. The lack of public safety has made the investment climate unfavorable, deterring foreign investors. Additionally, poverty and income inequality have eroded people's trust in the government.
• Social Movements: The rise of social movements in recent years has further threatened the region's political stability.

External Factors

Political and Economic Interference by the USA (Neo-Imperialism):

• Even after the process of decolonization, the influence of colonial powers remains strong in these countries.
• The USA's policy towards Latin America can be seen as a form of covert imperialism. The USA attempted to expand its influence in the region by establishing puppet governments, intervening openly in internal affairs, and instigating wars that lacked justification. The goal was to exert control through financial means and military intervention. However, some countries, like Cuba, have managed to resist American influence.
• The USA's involvement has led to tensions in countries such as El Salvador, Nicaragua, Guatemala, and Grenada, posing risks to peace and stability in Latin America.

U.S. Economic Situation:

• Latin America’s deepening reforms have increased its integration with the global economy. This close integration also means that the region has become more dependent on the global market. The U.S. is a significant trade partner, major provider of capital and technology, and a primary source of remittances for Latin American countries.
• The U.S. factor is crucial in influencing Latin America’s development prospects. When the U.S. faces economic challenges, Latin American countries are likely to feel the impact.

Prices for Primary Products:

• The fluctuation of prices for primary products such as oil and grain in the global market is a critical factor determining Latin America’s development prospects, as the region is a major commodity producer.
• Crashes in commodity prices have had a negative impact on the Latin American economy.

Foreign Capital:

• The inflow of foreign capital is expected to play a crucial role in Latin America’s future development.
• Due to the region’s long-standing low capacity for capital accumulation, it has been heavily reliant on foreign capital.

China and India:

• In recent years, China and India have emerged as significant factors influencing economic development in Latin America. The growth of these Asian nations has not been a zero-sum game for Latin America and the Caribbean (LAC), but the potential benefits are not being fully realized.
• The World Bank report highlighted three ways in which Latin America could benefit from the economic rise of China and India:
• Large Markets: China and India can provide substantial markets for Latin American products.
• Sources of Capital: These countries can be important sources of capital for Latin America.
• Cooperation in Science and Technology: There is significant potential for cooperation in science and technology between Latin America and these Asian nations.
• However, Latin America’s trade with China has been increasingly asymmetrical, leading to a growing trade deficit with China.

Globalization:

• Globalization has imposed significant costs on Latin America.
• The opening of markets has led to the closure of many small- and medium-sized enterprises in the region due to foreign competition.
• Additionally, short-term capital inflows, associated with financial globalization, have increased uncertainty for Latin America’s financial system. As a result, the Latin American economy has become more dependent on the economic conditions of developed countries.