The Hindu Business Line : South America is turning pink

The free market, liberalisation and privatisation policies of the right-wing leadership in South and Central America do not seem to be getting results.

A postcard-size flier announced that Raymond Lotta was a `Maoist political economist' and the topic of his speech was `Socialism is much better than capitalism, and communism will be a far better world.'

I did not think this could happen in the US. I thought that all the Maoists, having run away from China when Deng Xiaoping declared `to get rich is glorious' landed in South Asia. Mao's ideas, while being taken seriously by a political party in India, have also influenced groups responsible for regular killings and property destruction in Nepal and India. But how did one of them make it to the US?

With the collapse of the Soviet Union, and China now full of capitalists, I thought sheer age progression would do away with the rest of the communist sympathisers in the world. At the risk of being considered a sympathiser, I attended the talk held on a university campus.

Communism and socialism are still bad words in the US. Politicians running for office wake up in a sweat at the thought that one of their detractors may label them a `socialist' or even a `liberal' for that would end their political career. The American media regularly hints that all the problems in Europe are because of the socialistic element in European politics.

Even today, the application for becoming a naturalised citizen specifically asks, `Are you a member of the Communist Party?' Yes, there is such a party in the US!

Thin end of the wedge

Mr Lotta's lecture tour may just be the thin edge of the wedge in the northern part of the continent, for slowly South and Central America have been turning various shades of pink.

Brazil pioneered the trend by electing Mr Luiz Lula da Silva as President in 2003, and he is likely to get another term. Mr Lula, a former lathe-operator and trade union leader, has a long tradition of socialism. The US has gradually reconciled to his policies, which have been hardly radical. While sticking with tough monetary policies, he has not given up on dealing with the vast social inequalities of Brazil through poverty relief programmes.

Socialism at the helm

Venezuela elected the bete noire of the US. Mr Hugo Chavez, an unabashed socialist and a friend of Mr Fidel Castro, has been using his profits from high oil prices not only domestically but by helping his neighbours.

The US accuses him of buying influence through his aid! The US was seen by many as being up to its old tricks of encouraging coups and trying to change regimes, when the opposition in Venezuela mounted protests that nearly toppled Mr Chavez. He and the US leadership have been calling each other names. The US Defence Secretary has likened Mr Hugo Chavez to Hitler and he in turn calls Mr George Bush `Mr Danger'. Yet, the US treads softly since Venezuela is the fifth largest supplier of oil to the US.

Now, much to the chagrin of the US administration, Mr Chavez has been exporting his socialism to the US. He has been supplying millions of gallons of heating oil to poor Americans at a 40 per cent discount, a decidedly socialist thing to do and causing much irritation among the administration. Yet, he has made many friends among the poor in Delaware, Pennsylvania, and New York City.

US NERVOUS

Bolivians elected Mr Evo Morales, who is also in favour of a government directed economy. He sees the need to renegotiate contracts entered into with multinationals for exploiting the country's mineral and energy resources.

A former coca farmer and member of the country's indigenous people, he also wants to de-criminalise coca cultivation by encouraging its use as an ingredient in consumer products. The US is getting nervous, having invested money and weaponry in trying to eradicate coca cultivation.

Now, Peru seems to be the next pin to fall. Mr Ollanta Humala, a former army officer and considered a radical nationalist, is expected to win in the elections on April 9. Even with an economy doing well, many Peruvians in the south have not seen the benefits. Mr Humala believes in high taxation and also greater involvement of the government in the economy. He also wants to end the US-sponsored campaign to end coca cultivation. He may even want to re-negotiate contracts for mineral and gas entered into by previous right-wing regimes.

The Argentine President, Mr Nestor Kirchner, faced with high inflation, has resorted to price caps. Uruguay is also headed by a left-of-centre leader.

In Ecuador, indigenous groups are protesting against their country having free-trade negotiations with the US. Central America is also seeing a Leftist surge. Mexico is also likely to elect a populist leader in July.

Why is South America

going left?

With all the rhetoric about globalisation, a regional arrangement called `Free Trade of The Americas', the importance of the private sector, and small government that has been promoted by the US, it must give us pause to wonder why left leaning leaders are being elected in the South. The answer is very simple. They gave their own versions of right-wing leaders a chance but nothing happened. Now democratically elected socialist leaders are coming to power.

The principles of the Washington Consensus appear to be slowly getting buried in South America. Free market, liberalisation and privatisation policies have not helped poverty alleviation and the need for strong interventionist policies are being seen.

The poor have continued to struggle, and the benefits of the growth and globalisation have not trickled down. But the socialist leaders also need to realise that rather than a heavy hand of quotas and price caps, they need a softer hand of monetary and fiscal policies so as not to send all the wrong signals for resource allocation. These new leaders have very little leeway available for them to make their promises come true. They are bound by their agreements with the usual suspects — the WTO, the IMF and the World Bank. They have their obligations to their other neighbours.

The fresh-out-of-college finance experts sitting in New York, by altering credit ratings at the mere whiff of events they do not understand, continue to make billions flow in and out of those countries who have risked full capital market convertibility.

Striking a balance

But with the level of poverty and skewed income distribution in those countries, if the new leadership can level the access to opportunities a bit, it will still be a major contribution. The leaders need to demonstrate that they can tone down the capitalist and free market policies without frightening away the investors or stagnating their own economies and thereby killing the goose.

This will be a great challenge with a powerful neighbour in the North waiting for the slightest sign that they are slipping. The US does not miss a single opportunity to criticise the policies of its southern neighbours, sending further shivers in the markets.

They would instead go a long way in building their goodwill in the South if they tolerate the rhetoric of populism and socialism that emanates from there and help the countries achieve their objectives with the political stability and democratic processes that the region is slowly getting.

(The author is professor International Business and Strategic Management at Suffolk University, Boston, US. Feedback can be sent to cgopinath@Suffolk.edu)

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