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Chapter 4

Latin America and Globalization

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Globalization

• Globalization: the process by which an increasing percentage of the world’s economy is traded across international boundaries, rather than being traded within a country’s boundary

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Development of Export Economies

• Since colonization the Americas have been a part of the global economy

• Early globally traded products– Because transportation was expensive only the

most valuable projects were traded globally• Remember Chris was looking for a short cut to the

Spice Islands—spices were high value

– Sugar, gold, silver

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Exports of the 1800s

• 1-Wool because although it is relatively low value it is not perishable so could be exported from Patagonia to Europe

• 2-Livestock exports– Initially as live animals on ship decks– 1900 UK bans the import of live beef due to hoof and

mouth disease– Development of refrigerated ocean going ships mean

that frozen beef and mutton could be shipped from Pampas and Patagonia to Europe

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Fertilizers-organic and inorganic• Guano fertilizer is bird droppings

– Islands off of Peru—arid so droppings are not eroded away– Excellent fertilizer

• Nitrate deposits from Atacama Desert– Nitrates go bust due to synthetic nitrates

• Both guano and nitrates were low value but not perishable, could be exported due to large steam powered ships, without the invention of these larger ships and steam power it would not have been profitable to export these products

• Improvement in transportation opens up the possibility for other low value bulky commodities to be exported

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Brazilian Rubber Boom

• Rubber trees grow naturally in the Amazon River Basin– 1840 invention of vulcanization increases

demand and use of rubber– Late 1800s rubber plantations established in

Asia that could produce cheaper than Brazil– Brazil couldn’t do rubber plantations due to

susceptibility to natural pests

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Brazilian Coffee Boom and Bust

• Coffee introduces to Brazilian highlands NW of Sao Paulo early 1800s– Labor intensive crop– 1929 world coffee price reaches $0.25 lb.– 1931 world coffee price drops to $0.07 lb.

• However, based on coffee Sao Paulo develops into Brazil’s most important manufacturing center and now largest city

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THE US and Latin America• Monroe Doctrine: 1823

– the American continents, by the free and independent condition which they have assumed and maintain, are henceforth not to be considered as subjects for future colonization by any European powers. .

• 1890s-1900s the US exercises it’s muscle and expands its territory– Spanish American War: Cuba, Puerto Rica, Dominican Republic,

Philippines– Panama Canal Zone– US Virgin Islands purchased from Dutch 1917

• Roosevelt Corollary (1904) to the Monroe Doctrine, the US will take responsibility to “supervise the internal affairs of countries of LA to insure US internal security.

• US establishes economic predominance in the region during the 20th century

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The Impact of WW I

• Altered trade relations, cutoff Germany• Latin American commodities that had markets in

Europe competed with US good– Whet, beef, cotton

• End of the war world market’s glutted with surplus

• Weakening of the finance and trade system that had been focused on London– Weaker trade between Argentina and UK because of

weak UK markets

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The Interwar Years

• Great Depression– World trade shrinks by 60% from 1929-1932

• Reemergence of Germany (Hitler) as a trading partner

• Improved living standards, rural-urban migration

• Many admired the expansionist geopolitical views of Germany

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Impact of WW II

• War in the Pacific cuts US and UK off of raw materials from Southeast Asia– Latin America steps in to provide some of the lost

commodities• Rubber, cinchona bark for quinine

• “Forces” Latin America to trade exclusively with the USA– LA becomes economically dependent on the US

• Markets, technology, financial services

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Impact of WW II-b

• Development of small-scale industry to produce what could no longer be imported from USA or Europe– Positive trade balances—exports exceed

imports

• Significant migration of Mexican laborers to the USA– Bracero program for farm workers

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Government Control of Economies

• Fascination with fascism– State directed industry, controlling imports and

exports, public works, agricultural self-sufficiency

• Fascination with autarky– Self sufficiency– ISI—import substitution industrialization

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ECLA• Economic Commission for Latin America

– UN Commission, first executive secretary Raúl Prebish—offices in Santiago, Chile

• CEPAL (Comisión Económica para America Latina)

– http://www.eclac.cl

• Latin America must industrialize– How do you catch up?– Impose protective tariffs to protect infant industries– Slowly reduce tariffs

• Reduction in tariffs didn’t happen

– Result as high-cost low-quality industrialization

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Post WW II

• Latin America disappointed not to be included in the Marshall Plan

• Exports of primary products increases

• Slow increase in demand for non-essential food exports as European economies recover– Bananas and fruit

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Latin American Manufacturing

• ISI important until 1980s– Steel industries, aluminum at Ciudad Guayana,

automobile assembly• Chile—plant in Antofagasta

• Brazil-FTEZ Manaus

– Consumer goods, textiles, footwear, radios, TVs

• Expensive and poor quality

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Postwar Trade Patterns

• Attempts to establish trade association within the region not particularly successful

• Creation of the European Union means reduces market access due to high subsidization of European farmers and preference for tropical imports from former colonies

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Alliance for Progress

• US fears a rise of communism in Latin America, late 1950s early 1960s– Cuba 1959

• Alliance for Progress 1961– Promote democracy, accelerate development, sponsor

agrarian reform, improve housing, working conditions, education, public health

• “The Alliance for Progress had little impact on any of the problems” (117)

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Why didn’t it work

• “The countries of Latin America were not ready to cooperation and implement the region-wide goals of the plan” (117)– “most of the aid helped to support the old regimes

rather than promote democracy and progress”

– “Few countries tackled the issue of agricultural reform”

• David the cynic: the goal was to protect US corporate business interests, not promote democracy and progress.

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The 1960s

• Land reform is a political, economic, social, and emotional issue

• Need to reform the hacienda system– Latifundai versus minifundia

• Land reform also requires other changes, can’t just “give” people land and expect things to improve– Roads, credit, agricultural extension services,

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Explosive urbanization 1960s

• High rates of population growth

• High rates of rural-urban migration

• Limited abilities to provide urban infrastructure leads to sprawling shanty towns

• Explosive growth of the informal economy

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1980s Lost Decade

• Debt problems in all countries stemming from the borrowing boom of the 1970s

• Terms of trade worsening– Prices of export commodities fall– Prices of imported manufacturing products rises

• Per capita incomes decline

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Lower Trade Barriers

• How to fix the problems of the 70s & 80s?• Neo-liberalism: increased trade, open markets,

eliminate inefficient state owned enterprises– Deregulation and privatization

– Maquiladoras

• Mexico joins NAFTA, no help from Europe and so strike the ‘best’ deal possible with the devil– Mexico so far from heaven, so close to the United

States

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Runaway World• Somewhat surprisingly the USA now runs a trade

deficit with Latin America– We import more than we export

• Have the economic tables been turned? Is the USA now dependent on Latin America?

• Latin Americas exports have come at a price– Weak workplace legislation, low wages, lax workplace

safety, use of chemicals in agricultural production that endangers the lives of the workers

• Benefits from the trade imbalance largely benefit those who are already wealthy, rather than improving living standards for the majority