LEFT vs RIGHT IN LATIN AMERICA
International Trade Columnist
International Trade Columnist
This column often concerns politics because it is politics more than any other factor which shapes the nature and scope of international trade.
The first modern work connecting politics, economics and trade is considered to be Adam Smith’s 1776 treatise ‘The Wealth of Nations’ which, most famously, contains the line that ‘trade is the lifeblood of nations’.
Former US Federal Reserve Chairman Alan Greenspan called ‘The Wealth of Nations’ "one of the great achievements in human intellectual history" and he believes Smith to be the founder of the free market economics which in the modern era have become the Holy Grail of right-wing politics.
The politics of the Right strives for free trade and individualism in the interests of unfettered capitalism while the Left strives for state control and collectivism; the politics of the Centre are a bit of both, combining state ownership and regulation with private enterprise.
For most of the past decade in Latin America right-wingers have ruled in Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay and Peru (Mauricio Macri, Jair Bolsonaro, Sebastian Peniera, Ivan Duque, Enrique Pena, Mario Abdo and Alan Garcia respectively).
Economic policies combining privatisations and austerity (known universally as “neoliberalism”) were the order of the day throughout Latin America during the last decade which saw an increase in regional poverty and inequality and caused a popular backlash which has recently seen over nine right-wing presidents perish at the ballot box.
The backlash against neoliberalism has seen a resurgence of the Left in Argentina, Bolivia, Brazil, Chile, Colombia, Honduras, Mexico and Peru.
In Peru the new president is Pedro Castillo, a socialist teacher from Peru’s poorest region in the Andes and an activist union organiser.
Latin America's new leaders are all being hailed by commentators as the ‘New Left’ as they have combined their progressive visions with a pragmatic willingness to compromise.
With the Right in retreat and an ascendant Left multilateral free trade groupings are destined to become less important in Latin America with a new focus on bilateral trade agreements as leftist leaders forge new paradigms to better serve their political interests.
Conventional wisdom holds that right-wing governments are better for business and that left-wingers are naïve dreamers who can easily destroy markets and economic prosperity (in this Venezuela and Nicaragua are the living embodiment of this view but they are more a salutary lesson on the dangers of fanaticism and autocracy than warrant condemnation of the entire Left despite the political convenience of doing so).
By definition leftists will pursue redistributive policies principally by increasing wages (which stimulates demand and consumer spending) the best example of which in Latin America was former and recently re-elected Brazilian president Luis Inácio Lula da Silva first two terms (2003 to 2010 incl.).
Lula's government’s anti-hunger and income-transfer programmes lifted at least 22 million Brazilians from poverty by increasing the minimum wage from USD100 to 205 per month and creating 13 million new jobs.
From 2003 to 2010 incl. Brazil’s foreign trade surplus increased (USD$13.1 billion to $33.3 billion) with economic growth rising from 1.9% to 5.2% which provided Lula with the resources to fight Brazil’s core poverty and invest in social programs.
Intractable neoliberal Jair Bolsonaro’s term (2019 to 2022 incl.) saw Brazil become poorer with the 22 million lifted into the middle class by Lula’s policies sink back into poverty as have millions more.
As soon as he was elected in 2019 Bolsonaro (pictured below left) reduced public investments, froze social welfare payments and banned new applications to the ‘Bolsa Família’ which is a system of financial payments to support poor families set up by Lula (below right).
In principle the Right wants open slather with free trade and unfettered markets when in practice according to its critics this means, as the neoliberal model is ultimately just wealth transfer in sheep’s clothing, markets actually shrink when consumer spending power erodes as industries move to low-wage economies and those whose jobs remain see their wages decline in real terms.
Neoliberalism’s critics also say that if “the proof of the pudding is in the eating” it should be consigned to the dustbin of history because in the 40 years since it was embraced as the touchstone of right-wing economics it has produced nothing but declining living standards for the vast majority of the people who’ve been sold its disingenuous dogma and particularly so in Latin America where the rich have got much richer and the poor, even poorer.
Credit Suisse's Global Wealth Report in 2021 records that the top 10% of adults held 85% of the world's total wealth compared to 38% in 1980, while the bottom 90% held the remaining 15% compared to 62% in 1980.
Even more daunting is that the richest 1% of the world’s population owned around 14% of global net wealth in 1980 and now after four decades of predominant neoliberalism in the Western hemisphere (excluding Africa) they have increased their share to 45.8% of global net wealth.
The advent of the ‘New Left’ throughout Latin America and particularly Lula’s win in Brazil pose no threat to New Zealand’s export markets there and indeed even holds the promise of growth compared to the moribund neoliberal economies voters have repudiated.
In a nutshell, leftist governments will inevitably implement measures which will ultimately flow through to increased demand for imported goods and services albeit the strength and durability of the demand will depend on the fiscal responsibility of individual governments.
New Zealand Trade & Enterprise reports that in 2021, New Zealand businesses exported NZ$1.16 billion in goods and services to Latin America (650 million people in 22 countries) a total that can be reasonably expected to grow under the region’s new political direction.
In the case of Brazil the New Zealand Ministry of Foreign Affairs and Trade says that given the similarity of both countries’ main export items (and this applies throughout Latin America), New Zealand’s economic relationship is dominated by investment, licensing of technologies, and services (including education, tourism, investment advisory services, environmental services and agricultural and land use services).
Underscoring the importance of services compared to goods in the Latin American context is Brazil which, in 2018 (the most recent Stats NZ data), New Zealand’s goods exports totaled NZD 90 million and the trade of services, NZD 234 million.
Prior to the Covid-19 pandemic Brazil was New Zealand’s most important education market in Latin America, with around 3,300 Brazilians studying in New Zealand and 17,000 Brazilian tourists each year (a third of all tourists from Latin America).
New Zealand exporters have no reason to believe their prospects in Latin American markets are diminished by the rise of new leftist governments when, as income inequality and the re-distribution of wealth is addressed, consumer demand can be expected to increase.
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