Latin American Economic Liberation; J. Rivas-Micoud

History gives the answer. The 1776 North American revolution is usually presented as a political revolt of thir teen colonies against British rule. The rebel lion, however, responded to fiscal and eco nomic motives, for it principally sought trading and fiscal freedoms. The ensuing breakup of political ties was an effect rather than the cause of the revolt. And the Declaration of Indepen dence did not mention economic rights specifi cally only because they were implicit in the pursuit of happiness. This erroneous emphasis assumes that the A former Latin American diplomat who served in Europe and the United States, Jose Rivas-Micoud is a doctor of law and social sciences and a retired international banker. He has published numerous essays and articles in Europe, Latin America, and the United States, and has lectured ex tensively at colleges and universities. political liberties gained by the rebellion gave rise to economic freedom. The truth is rather the reverse. To assure and protect the economic liberties the colonists fought for, the United States needed to be politically independent.

And though some people were reluctant about it at first, political links with Britain were sev ered. The present United States political structures deri ve from the original struggle for a free market economy, and confirm that democracy thrives only when economic restrictions are re moved. The Paradox of Liberalism Genuine liberalism restricts government's role to the preservation of internal order and se curity, leaving individuals free to exercise their own initiative in society. Paradoxically, those original liberal notions reached modem America with an opposite connotation. Today, Amer ican "liberals" favor state intervention in the economy, government ownership or monopoly of numerous enterprises, and a vast state pater nalism to combat poverty. But the altruistic ob jectives of "liberal" welfarism are often trans lated in practice into increased rather than de creased poverty.

Moreover, all central economic planning not only discourages private sectors, but also favors the spread of totalitarian ideologies. Whether nazism, communism, or fascism, everyone-party rule from the outset demands total control of the economy. For the most ef100 THE FREEMAN. MARCH 1987 fective way to control human minds and wills is through their pockets. And history has shown that without economic freedom, no political or social liberty can survive for long. The Latin American Case Unlike the north, the struggle for indepen dence was essentially political in Latin America. The main objective was to break political ties with Spain and Portugal. In the process, the revolution hardly touched existing economic and social structures. The political indepen dence in Latin America was not accompanied by a commensurate economic liberation. Lacking the northern trading mentality, Latin American ruling elites persisted in a traditional Iberian disdain for commerce and manual labor. Privileged minorities clung instead to al legedly nobler careers in politics, the Church, and the military. Toil and manual labor were left to lower classes. Thus sharp class distinc tions remained as the social mark of Latin America. On one side, privileged minorities and landowning oligarchs thrived on wealth and power, while on the other, poor and ex ploited illiterate masses sank into misery.

Tied to long-held advantages, most Latin American rulers favored the colonial protec tionism that shut the area off from healthy competition. These barriers made local produc tion inefficient and costly, and remained largely unmodified by Latin American political independence. At that juncture, the two arms of the Western hemisphere followed opposite directions. Geared to trade and economic liberty, the United States chose political union. Shackled by commerce limitations, Latin America split itself into numerous states even though all shared racial, historic, cultural, and religious roots. While the United States was removing ob stacles to the free flow of goods, services, and people, the new Latin American countries clos eted themselves within rigid trade, customs, and exchange barriers. The results are eloquent. Under a free econ omy within a huge national market, the United States has grown to unparalleled levels of afflu ence and power.

Largely isolated, the disunited members of the Latin American community continue to be subjected to regional conflicts, civil wars, and recurrent military rule. Rigid class distinctions have hindered the emergence of a meaningful middle class. Deprived of local markets of ade quate size, Latin American industries did not attain rewarding proportions, and local produc tion became largely confined to basic raw ma terials and agrarian exports. In addition, Latin American governments claimed for themselves not only the proprietor ship of natural resources but also the monopoly to exploit them. In the process, private enter prises in mining, communications, utilities, in surance, and banking were nationalized. Pri vate sectors were thus relegated to secondary economic roles, though remaining as primary targets for taxation. The 'resulting and ever growing operating deficits of state-run enter prises often forced governments to resort to the monetary printing presses that fuel inflation.

Squeezed between state bureaucracies and privileged oligarchies, private savings and in vestments languished, and capital flight abroad mounted. Inevitably, when unleashed infla tionary pressures triggered wage and price con trois, real Latin American growth became ad versely affected and unemployment grew. The evidence of the American hemisphere is conclusi ve. The adoption of a free market economy not only sustains and develops political liberty , but also promotes economic growth and prosperity. Conversely, state intervention in the economy leads to bureaucracy, inefficiency, and corrup tion in the short term, and to poverty, social injustice, and political unrest over longer pe riods. The Debt Crisis Flooded with petrodollars in the 1970s, im pulsive international bankers joined short sighted Latin American officials to finance massive projects which often responded to na tionalistic pride rather than to sound economic reasoning.

Notwithstanding past imprudence and errors of lenders and borrowers, the Latin American debt burden has grown to pose a formidable LATIN AMERICAN ECONOMIC LIBERATION 101 threat. Strained Latin American financial re serves cannot meet existing payment schedules unless they are rescheduled and considerable infusions of new credits are added. To assure, however, that new financings will not -be throwing good money after bad, all new credits should be conditioned to the implemen tation of growth-oriented local policies that allow greater economic roles to private sectors in the borrowing countries. The current equation in Latin America in volves an economic frame built by official con trols and regulations, by numerous govern ment-owned monopolies, and by large military expenditures. This frame holds a picture of anemic savings, feeble investments, large un employment, chronic fiscal deficits, unabated inflation, and widespread poverty.

To improve the picture, something drastic must be done with the frame. For the reversal of deteriorating conditions will come only after Latin American states undertake a realistic pro gram to attain the final Latin American eco nomic liberation. The treatment must comprise prescriptions that may be unpalatable to politicians and bu reaucrats. It must begin with a prompt shift of Latin American government roles. From being state capitalists, they must switch to becom ing mere overseers of a totally free market economy. Latin American states should gradually but decisively transfer government-owned enter prises to the private sector as soon and as widely as possible. Such privatization should look for local sources when available or to for eign investors when necessary. The public sector should retain only what is essential to as sure an orderly transition and to prevent abuses and frauds.

To promote savings and to encourage invest ments, sensible tax reform with realistic fiscal incentives should be enacted. And to reduce fiscal deficits, military spending should be drastically cut. The resulting savings could be diverted to eventually eradicate illiteracy in vast areas of Latin America through better edu cation. To expand local markets and to foster inter national trade, artificial exchange rates and protectionist barriers should be eliminated. Statue of Simon Bolivar (1783-1830) in Manizales, Co lombia. Bolivar, leader of South American indepen dence, inaugurated the first Pan-American Conference. The conference was organized in the interests of peace and for the improvement of commercial relations among the former Spanish colonies. Despite the efforts of Bolivar and other leaders since, Latin America has remained disunited. The removal of artificial exchange rates and trade barriers would soon establish propitious conditions for the development of a free, stable, and unified Latin American currency.

Additionally, the dismantling of interstate trade and exchange barriers should soon result in a freer and wider interchange of capital, labor, and production within the whole region. Despite past attempts such as that of Bolivar in Panama in 1824, and more recently that of the Latin American Free Trade Association and of the Andean Pact, Latin America continues disunited economically, financially, politically, and socially. But the hour for a genuine Latin American integration may be at hand. A Private Inter-American Bank To accelerate such integration, Latin Amer ican leaders should encourage the promotion and establishment of a privately-o~ned inter102 THE FREEMAN. MARCH 1987 American· commercial bank. This new private inter-American bank would have branches and operations in every country in the hemisphere. Its capital should be subscribed and paid by private investors of all American states. The bank's management should be under the control of its board of directors with members from the private sector freely elected by the stockholders without any official interference or pressure.

The inter-American bank would operate ac tively in all banking fields and in foreign ex change, would extend credits in local and for eign currencies, and perform all banking ser vices of large banks headquartered in financial centers like New York, London, Frankfurt, Paris, and Tokyo. The United States can playa pivotal role in such Latin American endeavors by persuading other industrial countries to liberalize trade and facilitate Latin American exports. For only when they earn sufficient foreign exchange will Latin American borrowers be able to discharge their foreign obligations and pay for needed imports. These prescriptions may appear ambitious at first. They will probably encounter great skep ticism, when not resistance, from the vast in terests that currently benefit from the existing restrictions that would be eliminated in a freer market. But common sense begins with the rec ognition that to share and enjoy wealth, it has to be created or produced beforehand.

The United States has convincingly proved that the best scenario to create wealth lies wher ever individual self-interests are freely allowed to take risks and reap rewards in a market economy. It also shows that when free econ omies are firmly entrenched, political freedoms become inevitable. Learning from this example, Latin American leaders should now move boldly to help re move all barriers and obstacles to a free market in the region. For once Latin American econ omies are unshackled , their rapid recovery would soon silence all critics and skeptics. And the ensuing popular support would add irresist ible momentum to an irreversible historic trend; a trend toward the eventual integration of all America. D In Future Issues ... April • "Liberty and Individual Responsibility" by Dwight R. Lee • "Supply-Side Economics and Austrian Economics" by Bruce Bartlett • "Women and the Market" by Sam Staley • "The Ethics of Entitlement" by Hans F. Sennholz May • "How the Fed Fooled Farmers" by Jay Habegger • "Laissez Faire as a Development Policy" by John Semmens • "Wilderness Cathedrals and the Public Good" by WilliamC. Dennis • "Liberty and Property" by Joseph S. Fulda 103 Welfare States at War by Hans F. Sennholz T he new international crises sparked in the Middle East, and the constant danger of another world war, need not surprise the student of contemporary interna tional relations and economic policies. The ide ology of socialism and interventionism has swayed our foreign relations, and the policies of Welfare States have destroyed international peace and order ....