Dossier: The US imperialism an its backyard
Transformations of the Latin American economy in the 90s
June 02, 2009
We are leaving behind a decade of intense imperialist colonization that brought in deep changes in the economic, social and political reality of the region.In the following article, we present an analysis of these transformations in the economic sphere.
This is part of a more extensive work, also elaborated from the point of view of the problems and perspectives of the Latin American revolution that comprehends aspects of the relationship with imperialism, the changes in the social structure, the dynamics of the bourgeois rÃ©gime and the problems confronting the labour movement. It is also a reflection on the tasks and challenges posed by the fight to build truly revolutionary workers parties, the Latin American sections of a reconstructed Fourth International.
By way of presentation, we will highlight some key aspects of the current Latin American situation briefly.
1 The region was hit with certain delay by the international economic crisis opened up in southeast Asia in 1997, plunging by mid 1998 into a hard recession that affected mainly South America, sparking off a deep economic, social and political shock. From the standpoint of the international situation, Latin America has become one of the main focuses of political instability and increased class struggle.
2 As we have pointed out in E.I. since last year, a preparatory phase was opening up in the region, a watershed that points to a superior stage of the class struggle. Such phase was characterized by the transformation of the economic difficulties and the growing pressure of imperialism in a political crisis, growing social antagonisms and an upsurge of the oppressed masses.
The turnabout of the international scenario encompassing the region and the suffocating weight of finance capital, on the basis of the whole consequences of the cycle of imperialist colonization that was typical of the 90s, all point out to a situation of intense exacerbation of the contradictions between the oppressed nations and imperialism, between the exploited classes and the exploiters.
These antagonisms are coming now to the surface, sending shock waves across Latin America: Ecuador, Colombia, Venezuela, Paraguay, Santo Domingo...
3 This situation affects with notorious unevenness and different tempos to the different countries and sub regions of a continent shattered to its foundations.
The area Northern Andean region has witnessed the most advanced developments:
Ecuador defaulted on the payments of its national debt, amid increased labour, peopleâ€™s and rural mobilization, with an extremely weak government and Bonapartist tendencies. In these days the High Command has took a public stance warning the leaders of a country they deem "ungovernable". A convulsed Colombia, where the unravelling of the "peace dialogue" illustrates the enormous difficulties to impose a "Salvadorean styled political solution "; Venezuela, where ChÃ¡vez has resorted to a Constituent Assembly to push forward a Bonapartist-populist project aimed at recomposing a political rÃ©gime in ruins, playing on the expectations of masses that are in a state of political effervescence.
Meanwhile, in Peru, plans to replace Fujimoriâ€™s regime have failed to materialize in the face of forthcoming elections, and the working class has launched protest actions, such as a new 24 hour general strike. To this chain of "weak links" of Latin American capitalism, we should add Paraguay, plunged in a sharp political crisis amid strikes and mobilizations, and Santo Domingo, another country on the verge of bankruptcy that might follow in the steps of Ecuador, amid great social unrest. The last day of a nation-wide protest faced a harsh repression, with one dead, 150 wounded and thousands of detainees.
The Southern Cone, on the other hand, i.e., Chile, Argentina, Uruguay, plunged in a severe recession that opened up a crisis within the Mercosur, although this combined with a relatively low level of class struggle.
Brazil, a key country due to its sheer size and regional role, was able to avoid an economic breakdown, in spite of both repeated financial tremors and the recession. Mexico "benefitted" from its subordination to United States via the NAFTA, but without being able to avoid the political instability rocking its "negotiated transition."
4 Washington has shown an increasing concern for the destabilisation running through its "backyard" and the necessity of a more direct involvement to contain those destabilising tendencies, to keep an iron grip on its regional agents. This is the actual meaning of US threats on Colombia, and of the current leap in the economic, political and military Yankee intervention in this country that seeks to maintain the status quo in the area, by means of direct supervision of the peace process there.
The misgivings of the USA are also reflected in its reluctance to abide by the Treaty Carter-Torrijos, eventually "devolving" the Panama channel (that remained through the whole twentieth century a symbol of Yankee rule in Latin America). Also in the "bail outs" of Mexico, Brazil, Ecuador, Colombia or Argentina, in which the US poured tens of billion dollars to prevent financial collapse .
The relative economic and political strength of the US acts as a lever that helps to maintain an equilibrium.
However, nourished by the recession and the suffocating plundering by finance capital that has lead to massive indebtedness, the contradictions generated by imperialist oppression come to the fore.
5 The unity of whole swathes of the bourgeoisie around the bourgeois-imperialist plan during the 90s is thus under enormous pressure. A so-called "productive" field with a developmental and protectionist perspective has come to life in different countries, as shown by tug of war bargainings between the Sao Paulo bourgeoisie and IMF-sponsored plans of Cardosoâ€™s government, or the so-called "bloc of production" in Argentina. Deep class realignments shake the social base of the regimes, in the face of the dissatisfaction of ruined middle sectors that even mobilized actively, like the agrarian strikes of Brazil, Uruguay and Argentina, transport stoppages in Nicaragua, Colombia and Ecuador, etc.
6 The oppressed are raising on a massive scale (although the proletarian struggle remains relatively the most backward element). Peasant struggles are on the run, from Chiapas and Colombia, to Brazil, Paraguay, or Chile. Since the end of last year, a wave of workers and urban protests swept through the Northern Andean Area in response to the "austerity drives". This has spread ceaselessly and revealed in its methods -street fights, nation-wide walk outs, etc. - the tendencies to a political fight against weakened governments also cornered by the economic crisis.
Although the strongest proletariats in the region have not done battle, the working class plays an active and growing role in such demonstrations, such as construction workers in Peru, the Colombian civil servants, etc. From mid 1999, the studentsâ€™ movement has come to the fray in several countries, reflecting the social crisis and a new mood in the middle layers: Chile, Argentina, Nicaragua and Mexico. The Mexican university students with their heroic strike at the UNAM, already in its fifth month, are clearly the vanguard of this process that brings another potential ally of the working class onto the scene. The fact that students have taken to the streets again is an important symptom of the sharp antagonisms running deep in society.
7 The political crisis nourished by recession has been the most dynamic element in this phase. Under pressure of imperialism and of the stubborn resistance of the masses holding back the bossesâ€™ offensive, the weakened governments have failed to rally a social base to deepen their offensive against the working class and the masses.
These conditions are a fertile soil for growing political instability, for recurrent "short circuits" in the weakest rÃ©gimes, as Ecuador and Paraguay, the inchoate political crisis undermining the Mexican "negotiated transition", or else the open crises in Peru, Chile, or Uruguay in spite of the electoral run ups in those countries. It is also at the base of new political phenomena such as Venezuelaâ€™s Chavismo. Not only Fujimori, Menem or Frei are losing political terrain as their time in office draws to an end. Recently elect governments as Mahuadâ€™s or Pastranaâ€™s are also proving too weak to launch a capitalist offensive at home. The attempts at Bonapartist governments, such as Paraguayan military Oviedoâ€™s failed coup, or Mahuadâ€™s aspirations have all foundered, reflecting the most general balance of forces.
8 A new strand of administration reshuffles via the ballot box is under way. This is driving the old and discredited, more directly neoliberal or conservative governments out of office, replacing them by "democratic oppositions" that have been strengthened in the last few years.
The victory of De la RÃºa in Argentina is the culmination of the electoral deviation started in 1997. Mrs. Mireya Moscoso in Panama will preside over the devolution of the Channel, preserving at the same time vital US interests.
Different strands of the Latin American equivalent of a "Third Way", are running for president in several countries in response to heightened "social temperature": ChÃ¡vez and his "Constituent drive" in Venezuela, the ascent of Lagos in Chile, and the relative majority enjoyed by the Frente Amplio in Uruguay.
Such replacement in the political personnel of the bourgeois governments seeks to reassure the continuity of the bourgeois-imperialist plan by consolidating the weakened mechanisms of the rÃ©gimes to rebuild their social base, acting as a preemptive bulwark against the tendencies to intensified class struggle.
9 These manoeuvres by the ruling class count on the invaluable collaboration of the bureaucratic and reformist leaderships of the working class and the mass movements, encroached in the bourgeois rÃ©gime, which try to tie the labour movement and the masses alike down to the needs of "productive" factions of capital and to those of "anti neoliberal" representatives of the bourgeoisie. In this way, they contain the tendencies to an independent irruption of the masses, driving them to the dead end of the bourgeois democratic rÃ©gime. Such is the role played by the union bureaucracy in Colombia or Ecuador, the Partido Travalhista and the CUT in Brazil, the Chilean CUT, the Uruguayan PIT-CNT and the CTA in Argentina.
Likewise, the Venezuelan left has dissolved itself in the Chavez movement, and the Stalinists, populists and Maoist everywhere also capitulate to them. Such is the role played by rank and file peasant leaderships, with "lefty" overtones, such as the Zapatistas, the FARC or the MST (Brazilian landless peasants).
10 The forthcoming period will show the increasing need to fight back the capitalist-imperialist offensive lead by the renewed political personnel of the bourgeoisie, and to break away from the class collaboration policies sponsored by the current leaderships. Sooner or later, we shall witness new independent mass upsurges. The conditions now ripening in this preparatory situation all point out in this direction. The rule of finance capital is pushing Latin America towards a new historical crossroad. We are heading for a widespread crisis like that of the 30s (under the impact of the Great Depression), that of the Post war (the result of an offensive launched by US imperialism), to that of the 70s (with the revolutionary upsurge in the Southern Cone). In the course of open clashes between the classes, the proletariat will have the opportunity to impose its own solution for the oppressed nations. Revolutionary Marxists need to get ready, both on theoretical and practical grounds, for this perspective.
Transformations of the latin american economy in the 90s
An increased drive to semi colonization
During the 90s, Latin America has been subjected to a new cycle of imperialist penetration, only comparable in its intensity and depth to the US onslaught in the postwar period.
This has lead to a an increased semi colonization of Latin America, and it chained the region as a whole to unprecedented dependence and submission to imperialism, probably not seen since the 20s and 30s.
This has also fuelled the restructuring and relative "modernization" of Latin America, which has thus plunged into a renewed and violent spiral of uneven and combined development, fostered by international finance capital.
The by-product of these have been dramatic changes not only in the economy, but in the class structure and the political sphere as well, a process that certainly has not ended.
The long term crisis of capitalist accumulation that started in the early 70s has both increased the parasitic nature, and a worsening of the systematic plundering brought in by the imperialist rule.
This is starkly revealed in the massive financial looting that took place during the "lost decade" of the 80s, and also in the decomposition of the productive forces of the region that the imposition of "neoliberalism" in the 90s has brought in its wake.
For imperialism, particularly the USâ€™, it was just a matter of resorting to a massively increased exploitation of the semicolonial periphery and the former bureaucratized workersâ€™ states, pushed to decomposition, to cushion their own crisis.
In the early 90s, due to a combination of conditions that we will summarize in the point 1.2, this offensive took the form of a drive towards the "emergent markets", mainly those in the Asian countries, and in second place Latin Americaâ€™s.
This allowed Latin America to regain its lost ground in the world market, attracting international finance capital flows, which then coupled to the phase of "weak growth" in the world economy that we have seen during the first years of the decade and whose main driving force has been the growth of the United States.
A spiral of unequal and combined development
Such "coupling" took place starting from Latin Americaâ€™s subordinate position in the world capitalist system as part of the backward periphery.
As Trotsky pointed out, the specific features of a national economy, however important, "constitute to an increasing degree, the elements of a superior unit called the world economy." 1 The latter cannot be considered as a simple sum of national economies, but like a superior reality created by the international division of labour, dominating upon the national markets.
The fundamental structural features of Latin American countries are their backwardness and dependence with regard to the advanced capitalist nations.
Now then, "The unequal development that is the most general law of the historical process, is not revealed, anywhere else, with the evidence and complexity with which it reveals itself than the destiny of backward countries.
Whipped up by material necessities, the backward countries are forced to leap forward.
From this universal law of unequal development flows another one that, for lack of a more appropriate name, we shall call a law of combined development, referring to the telescoping of the different stages of the road and to the combination of different phases, to the amalgam of archaic and modern forms.
Without resorting to this law, which must be naturally grasped in the integrity of its material content, it would be impossible to understand the history of Russia or any other country of backward cultural advance, whatever the extent of the latter."2 This gives us an essential key to understand the nature and limits of the relative " modernization " of Latin America during these years.
Let us point out here that although, like Trotsky said: "it is in fact in the economic field where the law of combined development manifests itself with all its intensity" 3, the latter not only bears its marks on the economy but on the social structure as a whole, and ultimately, on all the aspects of social, cultural and political life.
Since "a combined formation blends elements that are derived from different levels of social development. Therefore their internal structure is highly contradictory. The opposition of its components not only imparts instability to the formation but rather guides it to its ulterior development." 4
This dynamics governs the modest "leaps forward": capitalist modernization transforms, alters, and breaks down archaic forms, but it cannot overcome the backwardness or undermine the subordinate and dependent position of local capitalism.
Thus, those partial " leaps " obtained with enormous sacrifices for the masses, end up in new frustrations, in stagnation and decay. That is to say, they lead to a new historical crossroad, highlighting even more acutely the necessity of a revolutionary transformation of society.
Against those who assume that "globalization", hand in hand with the "emergent markets" and the "opening up of the economy", would work against the dependent and semicolonial nature of the Latin American capitalism, the living process of the decade demonstrates the validity of the Marxist interpretation of imperialism: imperialist rule consolidates and widens the gap separating Latin America from the advanced capitalist countries.
For imperialism, the region won importance like an area receptive of both finance and direct investment capitals, as a market for their exports and as a supplier of raw materials and commodities. It also worked as a source of financial rents and monopolistic superprofits as well as high profit rates in general. In some areas, it was also a source of cheap labour (Mexico) and finally, since it remains a significant portion of the world market, Latin America was the background for a growing concurrence between the big monopolies and for inter imperialist rivalry. These highlight all the essential features of imperialism that were already pointed out by Lenin almost a century ago, i.e., parasitism and the tendencies to decomposition. 5
On the other hand, "when approaching the different countries between them on the sphere of the economy and when evening out the level of their development, capitalism works with its own methods, that is to say, with anarchical methods that continually undermine its work, opposing a country and a branch of production to another, favouring the development of certain parts of the world economy, holding back or paralyzing that of other regions. Only the combination of those two fundamental tendencies, one centrifugal, leveling and inequality, both a consequence of the nature of capitalism, explains to us the living intermingling of the historical process".6 This drives to an extraordinary exacerbation of uneven and combined development that is reproduced inside Latin America as a whole, and also in each country taken individually: backwardness combines with state-of-the-art technology.
Now then, such renewed evolutionary spiral finds each Latin American country in a different stage, one that is shaped by all their previous history, and the specific dynamics of their insertion in the world economy.
From the point of view of methodology, this is an indispensable tenet to avoid blurring the concrete dynamics of each country, with all the its broad economic, social and political contrasts, in that of the region taken in abstract.
In the pages that follow, we sketch a general picture that does not seek to equal Costa Rica with Brazil, or say, Chile with Santo Domingo, but, above all, to give a key for appraising the dramatic changes endured by Latin America on the verge of the twenty first century.
Decadence and recovery
Latin America traditionally occupied a relatively advanced position in the semi colonial periphery. However, since the late 60s the region saw a decline in its position in the world market and in the international division of labour.
Since the onset of the world economic crisis in the early 70s, Latin America has fallen prey of a staggering financial plundering via a massive indebtedness that lead to the debt crisis in the 80s and to a long economic prostration (this came to be known as the "lost decade"). Meanwhile, Southeast Asia became the most dynamic area in the periphery of the world.
The protracted agony of a pattern of accumulation known as imports substitution was at the base of the crisis in the region 7.
This came to life after the Great Depression of the 30s as the result of the fragmentation of the world market, the retreat of the European powers and the obstacles blocking the road for the United States to become the dominant power in the region.
This "model" matured under the extraordinary conditions brought in by the Second World War, and saw its definitive decline with the end of the postwar capitalist boom in the late 60s.
Under these conditions, Latin America achieved a certain partial industrialisation in some Latin American countries (especially Argentina, Brazil and Mexico). Relying on the thrust of the proletariat, it was able to temporarily limit the greediness of foreign capital, boosting the internal market and the development of a local bourgeoisie by means of state-managed investments and some concessions to the proletariat as a bulwark against class struggle.
This mechanism prevailed with the help of the postwar boom. When it ran out of steam in the early 70s, it ushered in the end for the postwar model.
Latin American capitalism suffered a deep crisis of accumulation that combined economic causes, with the effects of a chronic political crisis and, essentially, the extraordinary development of the class struggle that would culminate in the revolutionary upsurge of the 70s (that pushed the bourgeoisie into the arms of imperialism).
It was not until the late 80s that the bourgeoisie and imperialism were faced with a combination of favorable regional and international conditions that allowed for a certain recovery of accumulation. This would take place as a part of what we have called the "unstable balance" of the 90s on an international scale 8.
Among the internal conditions, it was fundamental the strong ebbing of the class struggle that took place as a result of the accumulated effects of the defeats of the 70s and the 80s, while the bourgeoisie as a whole was willing to submit itself to the imperialist plan.
In the meantime, the recession caused by the siphoning off of the foreign debt "hit rock bottom" (thus lying the basis for a recovery through wage reduction and a lowering of the living standards of the masses). These local conditions combined with the relative strengthening of the United States and a mass of financial capital available in the advanced countries.
On these bases, by means of a series of agreements like the so-called "Consent of Washington" and the Brady Plan, the Latin American bourgeoisies accepted a new strategic pact with imperialism: they opened up the doors to a new cycle of penetration by foreign capital on a massive scale, giving in the levers of the economy and of national life to the unrestricted control of big monopolies (both national and foreign ones), in an attempt to kick-start accumulation and to find a way out of stagnation.
The vulgarly called "neoliberal model" was all about this. It relied on a systematic attack against the working conditions and living standards of the masses, to bring in a rise of the profit rate. It went hand in hand with the so-called "opening", and wholesome privatization aimed at handing profitable areas over to great capital and to facilitate the take over of the productive, commercial and financial spheres by the monopolies. Finally, "deregulation" sought to allow the free flow of capitals and turn both the States and governments alike in disciplined agents of the IMF plans.
In this way, at the beginning of the decade, the United States and the European powers showed a renewed interest in Latin America as a whole.
Countries like Mexico and Brazil figured in the list of ten priorities for the US international commercial and financial strategy, on a par with China, Russia and India.
Chile, Mexico and Argentina were portrayed as model "emergent markets". In this way, Latin America was incorporated in the weak and unstable cycle of recovery of the 90s in the world economy, subject to those mechanisms typical of imperialistic penetration, covered up with the ideology of "globalization". Latin America became the second area of destination for foreign capital, after East Asia (see chart 1).
In contrast with what happened during the 70s and the 80s, a growing part of the flow of foreign capitals went to direct investment, and no longer to new loans (see chart 2).
This injection of foreign funds, along with booming markets and good prices for regional exports of raw materials, and the recovery of the domestic market, fed an economic recovery, although of an unstable and weak nature.
This plan would come across abrupt oscillations: what we have called a "short cycle of growth" in the first quarter of the decade that was abruptly interrupted by the recession caused by the "tequila" crisis in 1994-95, and then a more unstable and shorter expansion in 1997-98 (that would end in the current recession).
However, the weakness of the growth of the 90s and the tendencies to stagnation are not only illustrated in this series of "stop-go" convulsive movements, typical in the life of Latin American capitalism, but also highlight the fact that the achievements of Latin American capitalism have been very modest.
There has been a certain recovery regarding the prostration of the 80s, but it has remained very weak as to the levels of the 50s or the 60s. Such weakness of the growth was expressed in the tendency to financial convulsions (as the "tequila" crisis) and to relapse in stagnation. Still taking into account the best period in the decade, the CEPAL recognizes that: "the rates of growth of the gross product have been moderate,(3% a year in 1990-96), below historical average performance (5,5% a year between 1945 and 1980)"11. The short recovery of 1997 and 1998 has ended up in the deep current recession, highlighting strong tendencies to stagnation. This is all the more noticeable if we chart the evolution of the GNP per head of population, (see chart 3).
But still more important is that under conditions so favourable to capital such as those imposed during the 90s, "the rate of domestic savings had fallen to 25,8% of the regional GNP in 1980, to 18,8% in 1995 (...) The rate of investment in Latin America -around 21% of the GNP in 1995 â€“ reached a historical low that bears no comparison with other regions of the world." 13 In spite of the "opening ", Latin American economies have not been able to leap forward in terms of international competitiveness (a reflection of the low relative productivity of the region). The dynamism of its exports is based, to a great extent, on interregional trade, and the external trade still has, except for Mexico, little weight compared with that of the domestic market, in comparison, for example, with Southeast Asia. This, along with the outlets and composition of international trade, are good indicators that show the limits of Latin Americaâ€™s dynamism of the 90s.
Commodities have become an increasing proportion of Latin Americaâ€™s exports, and the latter are more and more subordinated to the MNCs (the industrial exports of Mexico churned out of the "Maquilas" are just an annex of US industry). While above half of Southeast Asiaâ€™s GNP is made up of external trade, in Latin America this proportion is considerably lower (except for Mexico, due to its links with NAFTA and Chile) ( see chart 4). A growing proportion of this trade is made within the region â€“between neighbouring countries- while it loses ground in the big markets of the world (a converse dynamics to that underpinning the ascent of South East Asia).
"Opening" and "regionalization"
A characteristic feature of the economy in the 90s was the widespread "opening up", in response to the need of an increased internationalization of capital that sought to offset the crisis of accumulation worldwide.
This was expressed in Latin America both in a massive "opening" to foreign capital and the import of all kinds of goods on one hand, and in the signing up of regional and sub regional agreements in pursue of big scale economies suitable for the requirements of big capital, on the other.
This development entails just an increased subordination as a whole to the strongest faction of capital: Yankee monopolies that have played a major role in the different "integration agreements" (followed by European MNCs and some big Latin American trusts). It is also instrumental in the strategy pursued by the MNCs in this period: a massive expansion of trade within a given concern, by means of which these giants dominating the world economy organize production to a virtually planetary scale.
"Regionalization", then, is one of the "new" aspects of this renewed cycle of colonization, its impact being all the more evident in Mexico and the Caribbean basin.
AFTA, NAFTA and MERCOSUR
The project of an Agreement of Free Trade for the Americas is the cover up for the US strategy of subordinating the whole continent to a much more direct and unrestricted dominion by its monopolies. It highlights an objective tendency of US imperialism that will cast its shade on the twenty first century. The NAFTA agreements are part and parcel of such strategic move by US corporations, to tie the hands of Canada and transform Mexico into an appendix of the US economy, as a closed market that supplies oil and other raw materials, and mainly a reservoir of cheap labour through its "maquilas". Such "integration" constitutes a qualitative leap backwards from Mexicoâ€™s modern record, leads to a deep fragmentation of its economy and accumulates insurmountable contradictions between the imperialist master and the oppressed nation.
The "Mercosur", an "integration" fostered by those MNCs based both in Brazil and Argentina and by big local corporations, looks forward to negotiating their entry in the bloc engineered by the Americans for 2005 15 in the best conditions possible. Hand in hand with the "opening", "deregulation" and privatization, it is an attempt to enlarge their narrow domestic markets, moving to "big scale economies" attractive for big capital. On the other hand, the growing presence of European investments in this part of the region, that is regarded by the local bourgeoisies as off setting US pressure, stands as a potential source of clashes with US monopolies.
The growing trade war between Brazil and Argentina, highlights the narrow limits of "integration". The Mercosur was in full swing until mid 1998. Both recession and the devaluation of the real delivered a harsh blow to it. The exchange between its members has been in free fall ever since, a 25% drop. 16 This crisis
reflects a hard fight for the markets (footwear, dairy products, steel, cars, sugar, etc. are some of the disputed branches)17 confronting the different local bourgeoisies. It is also manifest in the wave of devaluation across the region (Brazil, Mexico, Colombia, Chile, etc., have all switched from "exchange bands" to the "free flotation" of their currencies).
The bourgeoisie is unable to overcome the barriers of the national states on whose existence depends its accumulation and rule. It cannot mount a truly unified market or bring in a full harmonious integration. "Integration" at the behest of monopolies and imperialism just deepens the decomposition of the national productive forces, and leads to increased concentration and a massive centralization of capital in the hands of imperialism that collides with national frontiers.18
Those who imagine a harmonious "mundialization" of capital and a peaceful evolutionary "integration" of Latin America to it are totally wrong. The organization of a big unified bloc ranging from Alaska in the north, to Cape Horn in the south, under the direction of US capital, is an endeavour that exceeds the economic and financial might of US imperialism. A decisive advance by it entails a gigantic enterprise of direct colonization that cannot be imposed by peaceful means. This means that it will depend on the outcome of political, economic and class struggle developments of historical magnitude and a world scope.
Latin America, a minor scenario of the international capitalist competition
The onslaught launched by the US monopolies on Latin America is a major prop underpinning their trade disputes with Japan and Europe. Between 1990 and 1997, Latin America has been the most dynamic outlet for the USA, buying a 20% of US exports (Japan and East Asia buy a 25% altogether)19. This has allowed the US to off set part of their trade deficit with Japan and Europe. The trade deficit with Mexico is instrumental in its fight against the Japanese, Chinese and Asian competition in general (a driving force underpinning the extension of "Maquilas", not only in Mexico but to other countries of the Caribbean basin as well).
Thus: "The American companies concentrate manufacturing industry and in the services (telecommunications and energy). In this way, they profit from certain advantages in the manufacturing sector (low wages, geographical vicinity and privileged access to the American market) to increase their competitiveness in their own market and challenge the Asian companies." This is clearly seen in the case of the NAFTA with Mexico and in the spread of the Maquilas to several countries of Central America and the Caribbean by means of the so-called HTS 9802 regulation". 20 Of their production of passengers’ vehicles in Mexico, three quarters go to the American market. Resorting to the textile industry based in the Caribbean basin, US companies compete against the "Chinese challenge" in their own market.
A report issued by the CEPAL states: "The United States, main investor in Latin America and the Caribbean. In the nineties, the region has become the developing region with more interest for American investors, what explains that it has ended up representing 20% of its total FDI (if the financial centers are excluded, the regional participation decreases to 11%). American direct investments in the region increased from 10,14 billion dollars to a historical record of 23,78 billion between 1990 and 1997." 21 For US-based MNCs, Latin America makes up 8,3% of the total sales, and 8,5% of their exports. In the case of manufacturing, this proportion is of 9,9% in sales and 6,2% in exports, out of the total share worldwide. Quite a significant proportion, indeed.
In this way, US monopolies reassure a dominant position for themselves in the region in most of the big industrial branches. In 1997, of 48 major companies of foreign capital operating in the region, 24 were American, 22 Europeans (6 German, 4 French, 4 British, 3 Spanish, 2 Swiss and 1 Dutch), 1 was Australian and 1 was Japanese.22
However, if this hegemony is complete in Mexico, it is weakened and comes up against a strong concurrence in the South Cone and Brazil. The US corporations are at the head of the car making sector (52,4% of the sales) but with a strong European concurrence (41,7% of the sales)23 that has a bigger influence inside the Mercosur, where European corporations are dominant.
An aspect of the massive penetration by foreign capital that has been left in the shade is that Latin America becomes even more an scenario for the concurrence among the giants of world capital.
The most spectacular fact today of this concurrence is the mergers and acquisitions (M&A) frenzy that is transforming the map of big MNCs.
The big local corporations, some of them with operations worth billions of dollars (like in Brazil, Mexico or Argentina) are dwarfed by these monstrous corporations that operate at the level of the whole globe, manage dozens of billions worth of capital and have hundred of thousands of workers in their staff.24 This entails growing economic and political repercussions.
Let us take a look at some examples:
The French group Carrefour, after its merger with PromodÃ¨s will be the second world giant -competing with Wal Mart- in its field (retail trade and distribution), and it will be at the top of the ranking in Mexico, Brazil, Argentina, Colombia, Venezuela and Chile 25.
In turn, the agreement sealed in Paris has changed the perspective of the whole retail market in Argentina, since it has unified in a single group to North-TÃa, Carrefour, Unimarc, Lozano, and DÃa. It is a very strong blow in the trade war at home opposing Wal Mart and the national supermarket chain Coto.
The Spanish oil corporation Repsol, thanks to the acquisition of most of YPFâ€™s shares in Argentina and other businesses in the region, has become the tenth oil company of the world.
Another Spanish giant of the electric industry, Endesa, took over Enersis, thus keeping a virtual monopoly of electricity distribution in Chile and enjoying a privileged position in the South Cone.
Brazil produces half of Latin American steel, up to now in the hands of mostly local capitals. Now, the French group Usinor has taken over the steel mills at Acesita and Tubarao and the German giant Thyssen is looking for a participation in CSN. The Brazilian company Gerdau has bought a steel plant in United States and is positioned as the biggest regional group, with a total production of 9 million tons and investments in Chile, Argentina, etc. The Argentinean group Techint, would be the second regional group, with investments in Italy, Mexico, Venezuela and Brazil. The entry of MNCs, fuelled by the privatization in Brazil, gives a new dimension to the "steel war" that up to now had seen clashes between those local trusts. "All this takes place in a market ridden with overproduction, low prices and dumping" 26 This way, the Mercosur â€“and the whole region with it-, is nothing but a platform for an ongoing trade war of world scope waged by monopolies.
Concentration and centralization of capital
In the 90s, the concentration and centralization of capital have both undergone a massive growth, a development that is typical of the imperialist phase of capitalism that in semi colonial countries benefits foreign capital first and foremost. In Latin America this takes place amid widespread backwardness and a congenital weakness of local capitalism, under pressure of foreign capital and the control of the MNCs operating in the region, along a handful of big local corporations â€“native monopolies -, increasingly linked to them.
The decisive levers of the Latin American economy are thus increasingly left in the hands of imperialist capital that is a source of growing disintegration for the local economies, along with an increased financial, technological dependence on imported inputs, etc. We have a glimpse of the enormous concentration of capital if we take into account that barely a thousand companies control half of the Latin American GNP churned out by a 400 million-strong population.
For Marxism, concentration means the expansion of existent capitals, that hold control of the market and displace the weakest competitors. Centralization is a merger of capitals, via a take over, acquisition, etc., under a unified capitalist control. Both developments -that in real life mingle with each other- have endured a colossal expansion, fuelled by the application of the so-called "neoliberal model" ("opening", privatization, "deregulation", etc.) and the massive inflow of foreign capital has also played a major role in it.
Through different ways (participation in privatization, associations, joint ventures, technological transfer, financial and stock market mechanisms, etc.) this has led to a close intermingling between foreign capital and the superior layers of the native bourgeoisie.
The weight of foreign capital
The historically decisive role of foreign capital has increased still further. Latin America was a receptor for a renewed massive inflow of capital exports spurred by so-called "globalization". This flow was first a combination of new loans, portfolio investment (in shares, bonds, etc.) in the stock exchanges of the new "emergent markets" and the acquisition, in exceptional conditions, of state-owned companies and privatized utilities.
Later on, mainly in the second half of the decade, an increasing proportion of direct investments went to oil and mining facilities, the car industry, wholesale trade, the "agro business", mainly to the acquisition of already existent local companies. This inflow of FDI aimed to conquest a dominant position in the local markets, and also to exploit exportable raw materials and commodities. A reduced part of it went to the construction of new plants, taking advantage of tax breaks and all sort of perks guaranteed by the local states.
Privatization played a fundamental role, since it allowed the transfer of public services at low prices (through debt-capitalization) into the hands of foreign (and to a lesser extent native) capitalists. Privatized utilities were transformed into highly profitable companies and sources of monopolistic super profits, such as telecommunications, the energy, etc. "The CEPAL informs that the value of the privatised utilities in Latin America was worth 59,94 billion dollars between 1990 and 1995, standing out the sale of Mexican public assets, worth about 25 billion and those of Argentina, worth above 16 billion." 27
Let us also point out that this includes a very unequal dynamics between those bigger economies, attractive for foreign capital and with bigger borrowing capacity, and the poor and smaller economies whose backwardness and vulnerability were vastly increased in the decade. The inflow of capitals has gone mainly toward three or four countries: Brazil, Mexico, Argentina and Chile (that together account for 85% of it). An enormous proportion of such inflow went, first to privatization and then to the acquisition of companies of local capital, to a handful of highly profitable branches (telecommunications, services, finance, mining, etc.) producers of raw materials for export, or else those yielding monopolistic rents. Secondarily, FDI went to the car industry since they captured a relatively profitable domestic market. The expansion of manufacturing (cars, electric appliances) in the Maquilas in Mexico and secondarily in Central America responds to the peculiar conditions of the NAFTA. In sum, CEPAL sums up the three goals pursued by the Multinationals as follows: search of raw materials, search of "efficiency" (cheap labour); and access to domestic and regional markets.
Hence, "In 1996 the 50 biggest foreign companies operating in Latin American economies had a 110 billion dollar turnover in sales, an amount above the GNP of several countries of the region, even those of middle size such as Colombia, Chile, Peru or Venezuela" .28 Another paper by CEPAL points out: "Between 1994 and 1997, the foreign companies increased their relative presence among the 500 biggest companies in the region, from 29% to 33% of the total sales of this group. In 1997 they concentrated in only three countries (88%) -Brazil, Mexico and Argentina - and in just six economic activities (84%) -car industry (26%), food, beverages and tobacco (19%), trade (11%), electronics (10%), oil (9%) and the chemical industry (9%). Almost 50% of these foreign companies are American and 38% come from European Union countries". 29 Moreover, the combined sales of the 20 main MNCs in the region were worth above 144 billion dollars in 1997." 30
Thus, in 1999, of the top 1000 Latin American companies, 58% are in the hands of foreign capital, 34,7% of local capital and only 7,3% are state-owned (let us point out in passing that the 4 at the top of the ranking are among the latter: Pemex, PDVSA, PetrobrÃ¡s and EletrobrÃ¡s). Of the total turnover in sales of these thousand of giants, foreign companies account for 47,2% of it 31 and their sales amount to 27% of the regional GNP (only a part of them are made by the whole foreign companies in the region).
In Brazil, according to a report, in the period of 1994-98, 39 state-owned companies and 650 private companies were taken over by foreign corporations. The 6.322 existent companies of international capital in Brazil have 1.400.000 workers and their net capital is worth US $273 billions. 32 Let us recall that the process of privatization and "opening" still has a long road to go in this country. Argentina has undergone, along with Chile, the most spectacular take over by "foreigners" (as illustrated by the article about the Argentine economy), and foreign capital has conquered key positions there.
The dominance of international capital has grown apace both in the finance and banking systems. In Argentina, foreign-owned banks account for 40% of the deposits, in Mexico and Brazil still stands around 12 or 15%. However, of the 200 major Latin American banks, at least 70 are already branches of world banks 33, in a quick denationalization process. Spanish banks such as Santander, Bilbao Vizcaya (BBV), Central Hispano (BCH); the Hong Kong Shanghai Banking Corp (HSBC); the Canadian Bank of Nova Scotia, along with big US banks: Chase Manhattan Bank, Citicorp, Bank Boston, etc. all regard Latin America as a major base of operation.34
The big Latin American corporations
The nineties have also been a "golden age" for Latin American big capital. Let us point out that the enormous concentration and centralization of capitals that benefited foreign companies mainly, has also boosted the ascent of a handful of big local corporations in each country.
They profited from state protection, joined in privatization, supported the implementation of "neoliberalism" and the offensive against the working class. This native big bourgeoisie combines businesses in the industry, banking, the land, trade and services. Top corporations have spread abroad, turning into regional trusts, part and parcel of the emergence of a local finance capital, tightly subordinated and closely intertwined to imperialist finance capital, acting both as an agent and minor partner of the latter in the plundering of the region.
Conspicuous representatives of this cream of the bourgeoisie are the 24 families or corporations in Mexico, as Carso, Vitro, Televisa, Banacci, Cifra, Ica or Cemex. In Brazil: Bradesco, Gerdau, Votorantim, Camargo-Correa. In Argentina: Bunge y Born, Macri, Sodati, Techint, PÃ©rez Companc. In Chile: Luksic, Matte, Angellini. In Peru: Romero, BentÃn, Nicolini, Brescia. In Venezuela: Cisneros o Polar. In Ecuador Noboa stands out. In Colombia: Grupo Santo Domingo, Sindicato AntioqueÃ±o, Ardilla-Lulle, Mendoza. In Uruguay: Strauch y Soler, etc. 35
In the ranking of the thousand major companies of the region published by the Gazeta Mercantil, 347 private groups have sales worth 270 billion dollars, i.e., 20% of the regional GNP in 1997. Half of these groups are Brazilian, what highlights the decisive weight of Brazilâ€™s economy in South America. These GGE (Big Economic Trusts), although they face the growing concurrence of imperialist monopolies, still retain dominant positions in a handful of productive branches: steel, foods, agriculture, construction, communications, etc., or important participation in others.
This local economic power, instead of allowing for certain autonomy as to foreign capital, as proposed by Mexican president Salinas de Gortari and now by Brazilian head of state, Cardoso, has been helpless even to defend its own terrain in the face of the concurrence of worldwide giants. At the same time, it has been a valuable agent of the take over by imperialism, on which they depend for financial, commercial, technological and even political support.
The boom of "business agriculture"
The 90s have witnessed a strong drive towards capitalist modernisation of agriculture in the whole region, a development that goes back long ago and that started to grow apace already in the 70s. It encompassed not only export sectors, fuelling the growth of Latin American sales abroad in the 90s, but also those that supply industry and the domestic market. This has led to a significant revaluation of the land and an increase of agrarian rent. The boom of "commercial" or "entrepreneurial" agriculture, as opposed to traditional landed property (minifundio-latifundio- big estates and small plots) was encouraged by a price recovery and enhanced export prospects for a whole series of products: cereals, coffee, tropical fruits, soya bean, meat, timber, etc. Capital inflows to the land thus soared, even foreign capital (dominant in commercialization, seed and fertilizers production, etc.) took over the lands and introduced new techniques and equipment.
NestlÃ©, Cargill, Bunge y Born, Nidera and a handful of monopolies, the Standard Fruit and United Fruit among them control the trade of agricultural products, fertilizers, seeds and credit all alike.
The other side of the coin of the advances made by agrarian capitalism is a true agrarian counter reform that has been at the base of the upsurge of rural movements from the Chiapas revolt onwards.
The massive displacements of peasants in Guatemala and Colombia affecting more than a million and a half people, and fuelling the tendencies to civil war in the countryside, are a reflection of this development. We do not have global data on this process at hand, but it is enough to take a look at a point in case: Brazil. In 1995-96 the establishments above one thousand hectares that in 1970 were 0.7% of the total and possessed 40% of the land, today represent 1.0% and own 45% of land. In the meantime, from 1985-86 to 1995-96, some 941.944 concerns disappeared, most of them -662.448- with less than 100 hectares. 36 Meanwhile, a single landowner owns a estate in the Amazon whose surface is bigger than BÃ©lgicaâ€™s 37 ,while there are 4,5 millions of land less peasants. 38
This process went along an increased intertwining between the big agrarian landowners and the national bourgeoisie, and also a leap in an irrational exploitation of all the resources: the soil, the forests, fishing, etc.
A massive leap in the exploitation of labour
It is a common place for international agencies to claim that "Latin America is the most unequal of regions". A tenth of the population stands at one end, the bourgeoisie and the well off layers of the middle class concentrate in their hands above 40% of income, and a handful of rich Latin Americans figure among the biggest fortunes of the world 39. Above half of the population stands at the other end, with a 10% of national income.40 In the last two decades, the concentration of wealth in great scale has grown apace, an intense process of transfer of revenues and property into the hands of foreign capital, the big bourgeoisie and the privileged layers of the middle class. This went hand in hand with an enormous increase in the rate of exploitation of the working class.
Alongside this leap in the exploitation of the proletariat, the spoliation of the toiling masses as a whole has also increased, thus boosting the concentration of a massive surplus in the hands of big capital through multiple mechanisms: financial usury, commercialization, taxation, high prices of the services, tolls, etc. This process of regressive distribution of revenues not only affects the working class, as we pointed out, but also the peasantry, small farmers, owners of workshops and artisans in the cities, shopkeepers, etc.
The exploitation of the proletariat
The most general condition underpinning this recovery of capitalism in the region and the massive inflow of foreign capitals was the imposition of a brutal increase in the exploitation of the work force. It took two decades for the bourgeoisie and imperialism to impose the current levels of exploitation, in what constitutes a deep economic counterrevolution against labour. They did it by pushing ahead with casualisation, outsourcing, precarious jobs, the lengthening of the working day, wage cuts, the elimination of old labour conquests, etc. Furthermore, the bourgeoisie has also thoroughly capitalised on a swelling vast army of unemployed.
Country after country, the statistics show a steady lowering of real wages that already are well below the wages in the advanced capitalist countries. Along this, the production per worker has massively increased, specially in big industry. On these basis there has been a relative, weak recovery in productivity (essentially based on an increased exploitation of the labour force, and not in the increment of investment). In this way, the rates of exploitation of the proletariat have sky rocketed. Chart 5 illustrates this dramatic development.
According to the ILO, "59% of Latin American workers labour in the "informal sector" (i.e., they do not have a permanent job). The indexes of open unemployment would reach 9,5%, that is to say, an average above that registered during the crisis of the Latin American external debt in the 80s." 42 Official statistics conceal a dramatic reality: in several countries, open unemployment is around 20%. Above half of the labour force is either unemployed or underemployed, and "self employment" of those in the informal sector ("cuentapropistas") in many cases is tantamount to the most desperate forms of survival.
However, in spite of the "downsizing" of labour (by means of privatization, the concentration of capitals, outsourcing, etc.), there is a notorious high percentage of the labour force concentrated in the big companies.
A more detailed survey would enable us to analyze the role played by this massive concentration of profits in the hands of big capital that underpins the high rates of return, interests, etc. charged by finance capital for its "contribution" to production. In the second part of this article we shall deal with the significance of these data from the point of view of the social structure, the composition of the working class and the perspectives for the class struggle.
A regressive rationalization and "modernization"
Instead of bringing in harmony and uniformity, the process of "modernization" endured by Latin America during the 90s under the dictates of finance capital has fuelled more violent contradictions on all grounds.
As Trotsky wrote: "because of the universal nature, mobility and dispersion of finance capital that penetrates everywhere, a driving force of imperialism, this fuels even more those two tendencies. Imperialism forces diverse national and continental groups to come together as a whole at a much faster and deeper pace, brings in the most intimate vital dependence among them; it approaches their economic methods, their social forms and their evolution levels. At the same time, it pursues this "goal", its main purpose, with procedures of such antagonistic nature, leaping forward, and bringing in such convulsions in the backward countries and regions that it disrupts the unification and leveling of the world economy, with a violence and convulsions with no precedent in history." 44
The validity of this thesis is recognized, to a certain extent, by a renowned investigator, Pierre Salama:
"Liberalization has two apparently opposed, but complementary, effects. On one hand, it deepens the convergence of the modes of accumulation and labour of the underdeveloped countries with that of the developed countries; on the other hand, their heterogeneity increases. This paradoxical aspect of growth in an open economy was pointed out by Parvus and then Trotsky, at the beginning of century, but also by certain researchers of the development of Latin America (...) to defend a view contrary to those surveys carried in terms of dualism. With liberalization, these two aspects become predominant". 45
The reason is that, far from bringing in a harmonious development of the productive forces in the region as a whole, liberalization entails a massive process of decomposition and rebuilding of the latter with a strongly regressive nature. Big capital concentrates and breaks through in some areas or branches of high profits, in a drive that is instrumental to its necessities of accumulation, both at home and abroad, at the expense of a disintegration and degradation of the whole economy.
"Growth" is fundamentally concentrated in a few countries that get the bulk of foreign capital inflows, Brazil and Mexico mainly, and to a lesser extent Argentina and Chile, while most of the countries in the region lose ground and lag still further behind.
Meanwhile, the gap between Latin America and advanced capitalism grows abysmally: "The evidence of the steady increase in the unevenness among the Latin American countries, on one hand, and between these and the developed economies on the other, is irrefutable. Already in 1978, the income per head of population in the countries at the core of the world economy was positively five times above that of those lower- revenues economies, and 12 times above that of lower-revenues economies in Latin America. By 1995 the gap had widened almost 7 and 30 times respectively." 46 This polarization is reproduced within each country, where some few branches concentrate investment while entire regions stagnate or directly collapse.
An intense geographical reorganization takes shape, reproducing both the concentration and centralization of capital and the unevenness of capitalismâ€™s tempo on the map: the Mexican frontier and some industrial hubs (Monterrey, etc.), the corridor of the Mercosur from San Pablo to Buenos Aires, Santiago, and some other restricted areas. Thus, while some branches as a whole are evened up (like telecommunications or finance), the existing gaps have been widened (e.g., the relative industrialization of each country). This results, once again, in an unheard-of sharpening of all the economic, social and political contradictions.
Sequels of a renewed spiral of unequal and combined development
Let us highlight some aspects of this process:
a) The "reshaping" of industry
A deep restructuring of the regional industry took place, a contradictory "reshaping" process, a regressive process of disintegration and partial dismantling of the old national productive infrastructure in most countries, built during the "imports-substitution cycle". The disappearance or radical shrinking of whole branches, coexists with a renovation and the introduction of new equipment in some areas of interest for the domestic market or exports (such as the car, iron and steel industries or else food processing).
For example, the state-owned company Codelco in Chile, has a decisive position in the copper world market (16% of the world production) and is the most profitable and modern facility there. The recently privatized Embraer is one of the few aeronautical companies that is able to compete in the business jets market on an international level, with a 1.3 billion dollars annual turnover. PetrobrÃ¡s is the leader in off shore oil extraction technology. Techint dominates the world market of seamless tubes for the oil industry. However, they are a handful of "success stories" (fostered by the state in previous years) against a background of widespread economic decline.
The industrial infrastructure, even in those countries that had conquered a certain level of development, as Mexico, Brazil and Argentina, has disintegrated, and those most complex, or cutting edge branches are abandoned altogether in favour of imports.
Industry thus loses its vertical integration and becomes dependent on imported inputs, while Latin American goods, except for a certain number of raw materials and semi manufactured goods (and some special production niches) disappear from the world market, since they are helpless to compete with a qualitatively superior industry in the metropolises or with cheap Asian exports. Besides, part of the regional markets are taken over by US, European, Japanese and Asian imports.
All in all, the average productivity of the Latin American economy is just a fraction regarding that of the advanced capitalist countries. The relatively modern foreign investments overlap to the average backwardness of a disintegrated local industry, technologically backward and retreating.
The car industry, the "pride and joy" of the 90s, provides an interesting example. Mexican car makers have a productivity in tune with international levels, almost twice as much (33 cars per worker) the one registered in Argentina and Brazil (19,5 and 17,8 vehicles per worker respectively). The difference is that in Mexicoâ€™s case, it was all about taking advantage of the low wages to supply the US market and challenge Japanese competition in it.
US companies, in particular Ford, made strong investments in state-of-the-art equipment while Mexico reduced the "national" component of auto parts to hardly 30%. Thus, we are confronted with big "assembly plants" for the most important market, such as that of the USA, taking advantage of a cheap and "disciplined" work force. The aim of Mercosur, on the other hand, is to profit from the local markets taking advantage of substantial tax breaks and state subsidies. 47
In this way, the contradictions and the backwash in Latin Americaâ€™s "pseudo industrialization" drive 48 are further deepened, becoming more dependent that ever on foreign inputs, equipment and technologies alike. This development has increased its disproportion and deformations to their utmost, under the aggressive pressure of the world market and the impositions dictated by both the MNCs and imperialism. The relative weight of a rickety-born and deformed industry has decreased in the whole national economies, while services, trade and finance have all grown disproportionately. Additionally, while there has been a steady renovation in those branches of services and transport deemed the most profitable and tempting for big capital (as the telecommunications), there is a strong delay in infrastructure, since the states cannot afford a sustained modernization drive there, and private capital has no interest in it. These disproportions as a whole reveals the regressive character of the restructuring and modernization imposed by big capital.
b) The "agrarian question"
The quick capitalist drive and penetration in the land, so much in traditional areas of the export agriculture, like in new areas with a growing participation of foreign companies (e.g. Central America) was fuelled by the "agribusiness" boom. This combines with the stagnation and even the ruin of vast sectors of small farmers and an enormous devastation of the soil, the forests and the water, with proportions of an environmental catastrophe: forest razing, soil exhaustion, pesticide pollution, etc.
Next to the unproductive big estates (latifundios), millions of low -productivity small properties subsist. The "modern" sector controlled by a reduced layer of capitalists encompassing both old big landowners and new "investors" blocks the expansion of a strong agrarian market for industrial production and, ruled by profit-making as it is, brings strong imbalances in rural production. For example, the replacement of crops for domestic consumption by export agriculture has lead many Latin American countries to the absurdity of having to import basic staples, such as rice, wheat or beans. Barefoot and hungry journeymen go to work in estates equipped with modern machinery and state-of-the-art biotechnology for exports. An increasingly impoverished peasant agriculture, in turn, remains the basic source of food supply for the cities.
The unequal, regressive and strongly polarized "modernization" of agriculture has reinforced the wall already built by rural backwardness blocking the advance of the productive forces in agriculture. Far from alleviating or superseding the fundamental problem posed by the agrarian question â€“at the heart of Latin American capitalismâ€™s backwardness -it hardly modifies its ways of manifestation, increasing the contradictions and the urgency to remove this obstacle.
c) The massive drive to finance in the Latin American economy
The massive drive to finance in the Latin American economy stands in sharp contrast with sub industrialization, and illustrates the extreme weakness of the constrained capitalist accumulation, rather than its maturity.
Banking and finance have undergone a hypertrophic growth in a region that badly needs to import capitals to sustain its economic dynamism, feeding it with a massive indebtedness by national and provincial states, companies and middle class households all alike. Speculation of all kinds, in the stock exchange, currency markets and financial instruments, attracts a growing proportion of capital that is not reinvested in production, but is exported abroad towards international financial circuits. At the same time, credit for agriculture and the industry is costly and scarce.
The parasitic behaviour of the banking system threatens to bankrupt entire states, forcing them to carry out onerous bail outs of the businesses of the national bourgeoisie, like in Mexico, Colombia, Ecuador, Paraguay, etc. 49 It is also the source of growing financial convulsions and a major driving force fuelling the intertwining of interests between the national bourgeoisie and foreign capital, through outstanding financial mechanisms such as the stock markets and the national debt. It comes as no surprise that four of the main creditors of the broken Ecuadorian state are Ecuadorian magnates.
Another remarkable element is the boom of "illegal business" by the banking system and those layers of the bourgeoisie closely connected to the drive to finance, as well as those linked to drug smuggling (money laundering, etc.), arms smuggling, tax evasion, etc. All of them are worth hundred of billions and use the fiscal havens of the Caribbean basin and Panama as a base for their operations. Let us also say that drug smuggling along with other "dirty business", besides being a source of colossal enrichment for some bourgeois cliques, is also an agent of decomposition in the main institutions of the state, as illustrated by Colombia, Bolivia, Paraguay, Mexico, etc. The mass of capitals accumulated in the hands of national and foreign big capital, seeing the lack of investment opportunities in the local economies, move to the international financial circuits, lowering even further the already low levels of investment and reproducing the paradox of the chronic lack of capitals in economies that are net exporters of these.
An aggravated backwardness and dependence
Therefore, the result of these developments as a whole is a deepening of the backwardness and the dependence of the region. These features, from the economic point of view, concentrate both the nature and the dynamics of the process that Latin America has gone through during this decade.
The "leap forward" of Latin America under pressure of both the world market and imperialist capital reproduces the backwardness and the subordination, slips into stagnation sluggishly (through a series of convulsions) exacerbating and deepening the contradictions. Furthermore, it has not led to the "take off" dreamt of by bourgeois economists (it does even usher in a phase of relative expansion), but is leading instead to renewed stagnation, to new crisis and the most severe convulsions.
Some people have pointed out that the new capitalist "model" imposed in the 90s was to put an end to the drawn out historical crisis opened up in the 30s that import substitution was unable to overcome. They claimed that, in allowing for the incorporation of Latin America now in a "globalised" capitalism, it would unleash a renewed phase of long term growth.
However, the spurt of recovery and relative growth of the Latin American economies, as we have just seen in this decade now coming to an end, enshrines the embryo of its own failure. The command of the economy has been put in the hands of international finance capital, which has been given the mission of pulling it out of the quagmire and to "modernize" it, and has sustained Latin America with a rope tied around the neck that tightens all the time.
The initial "reviving" effect that allowed for a certain recovery of the economy and a rerun of capitalist accumulation , is no longer able to offset the more parasitic and retrograde character of imperialist dominion, which has been exacerbated due to the decadence of the world capitalist-imperialist system. Latin American capitalism thus enters the twenty first Century bearing its mark.
The "open veins of Latin America"
This was the title of a famous book in which Eduardo Galeano denounced the imperialist plundering of Latin America. Its proceedings have massively intensified in these years, boosting an increasing siphoning off of resources from the region towards the centers of world capitalism. Let us take a closer look at the main mechanisms of this untenable bleeding.
A renewed cycle of indebtedness
The whole cycle of the 90s was based on a renewed monumental leap in the indebtedness of the region, an expression of the acutely parasitic nature of international finance capital. The Latin American external debt that is already
well above 740 billion dollars, increases around 7 or 9% annually 50, while an astronomic amount of liabilities that must be paid with new loans keep piling up in the short term. To this, we must add an enormous mass of foreign loans taken by companies and private banks that add up to a global sum (private and public debt altogether) worth above 820 billion. 51 The paybacks of this debt, i.e., the payments already done, added up to an astonishing 722 billion 52. Almost the equivalent of the total debt! This unpayable mortgage that pushes constantly to stagnation and leads to impose recessive policies to upkeep a steady flow of payments will drive, sooner or later, to a renewed "crisis of the debt."
We will resort to several charts provided by James Petras and Henry Veltmeyer in their "Latin America at the end of the millennium", an article published in Monthly Review of July-August of this year, to trace the evolution of the debt (see charts 7 and 8).
An incessant bleeding
Along with the debt paybacks, that are the main mechanism of financial plundering, one that already demonstrated its terrible sequels in the 80s, the outflows of earnings have also gained new weight, including all sorts of financial services that constitute a massive exaction of indispensable resources of the whole continent. This highlights a wholesome imperialist plundering, in its most parasitic and destructive forms.
a) Payments of patents and royalties
As J. Petras and Veltmeyer denounce, the rates of profits of US FDI amount to 12% (according to estimates of the US Department of Trade) but they would be up to 22 and 34% according to CEPAL estimates. Less than half of them are reinvested. "Even according to official reports, the magnitude of the benefits sent home -on the base of CEPAL estimates - would total 157 billion dollars for the last three years alone. This provides a crucial source of fuel for the process of global accumulation and the expansion of the US imperialism." 55 To these we shall add patents, royalties and licenses. As Petras points out, "Between 1982 and 1992 these flows of payments [to the US alone] totalled above US $1.30 billions, but through the 90s they were well above a billion per year." 56 In 1997, the remittances made by US corporations branches reached to 1.7 millions, and these have grown quickly ever since. Another report points out that in 1998 alone, some US 6 billions were sent abroad from Brazil in concept of profit.57 Around 3 billion a year leave Argentina for payments of this kind 58 (see chart 9).
b) Markets and exchange terms
Latin America was an outlet for the glut of goods in United States in particular. Both currency stabilization and the beginning of a renewed cycle of massive indebtedness accommodated this development. Latin America thus was flooded by imports, mainly from the USA, which hence enjoyed a sizeable commercial surplus with the region that has enabled it to cushion an important part of its own deficit with Japan and Europe. This increase in Latin American imports has worsened the trade deficit, which is covered by means of a ceaseless stream of renewed borrowing. Against what the pundits of economic opening claim, capital goods constitute quite an exiguous proportion of the imports (that also replace goods previously manufactured at home), with consumption goods for a middle class and luxury market at the top of them.
This results in all-round increase of both the trade deficit that is financed with renewed borrowing, and of the current account deficit. The latter has soared to around US 75 billion for the whole region (3,5% of the GNP), having been reduced through a harsh recessive austerity drive to the level of 1998 (4,5% of the regionâ€™s GNP, a level only comparable to that of the early 80s, before the onset of the crisis of the debt).60
c) The "flight of capitals"
The sums of money kept abroad by wealthy Latin Americans are astronomical. According to some estimates, there are "US 200 billion in deposits of Mexicans abroad". 61 The Argentine bourgeoisie might have deposited around US 70 billion in overseas accounts. A similar amount has been stashed away by the Brazilian bourgeoisie. The same happens in every single country. The free flow of finance capital along with Panamaâ€™s "fiscal havens" and those in several islands of the Caribbean are key levers for such all-round siphoning off of cash by native capitalists.
To the latter we must add the fraudulent accountability of MNCs (which include overvalued self-imports, self-loans), freight and transport fees charged by shipping MNCs, the bleeding caused by sumptuary expenses (tourism and real estate investment abroad, etc.) made by the Latin American bourgeoisie and the upper layers of the middle class. All these mechanisms that we have analysed lay bare the true nature of imperialist spoliation.
The meaning of the current recession
The recession unleashed in mid 1998 engulfed South America mainly and had two epicentres: the Southern cone and the Northern Andean region. It brought about a harder and deeper fall than the so-called "Tequila effect" of late 94-95. During 1999 most South American countries saw their GNP fall from 3 to 7%. Industry went down still more abruptly in several countries. This recession entailed an extremely high cost for the workers and the masses in the whole region (unemployment reached its highest level ever in the last 20 years, a fact even reckoned by the ILO), and lead to the imposition of hard austerity packages by most governments, to keep up with debt paybacks no matter the cost.62 Output fell to the level of the previous two years, while borrowing and fiscal deficit both grew in most countries, ushering in financial crises such as those in Brazil and Ecuador, and sparking off a trail of devaluation. Brazil, Mexico, Chile, etc., all surrendered currency parity and moved on to the flotation of their currencies, i.e., a devaluation spree that sought to "let their currencies fall", frightened by the perspective of capital stampedes like those that shattered Ecuador and brought Brazil on the verge of a financial explosion (see chart 10).
After more than a year in recession, the bourgeois media have shown a reborn optimism predicting that a recovery is in the horizon. The argument relies on the modest signs of revival in Japan and Southeast Asia, and in the relative recovery of oil prices and other regional products for export.
Furthermore, the recession did not seriously hit Mexico (its GNP grew 3%, "benefiting" from the NAFTA), and Brazilâ€™s retraction was more benign than expected.
However, such optimism appears at best as premature and groundless.
It is premature, because it remains to be seen what will be the dynamics of the world economy, particularly the United Statesâ€™. The enormous instability running deep in the world economy, the jittery volatility of Wall Streetâ€™s oscillations,
the growing difficulties of China - where many predict a likely devaluation -, the feeble position of Southeast Asia; all of them are sings warning us against writing off renewed convulsions, including a worsening of the international slump opened up in 1997.
It is groundless, because the devastating situation in the region forces us to ask the "optimists": why do you keep smiling? The uncertainty of the world market for the Latin American products and the strong decrease in cash inflows (and the ensuing rise in the price of new loans) both point out to a reversion in the situation of the early 90s. The access of Latin American products to the world market has become more difficult and the prices are unstable. The flow of foreign capital is drying up, and the burden of paying for its services is growing, overwhelming an extremely destabilised region with liabilities. Latin America is in a severely weakened internal position, and more vulnerable than ever to renewed shock waves coming either from the international crisis, or else the most vulnerable countries in Latin America itself.
Of course, a recovery cannot be ruled out. So far, both the bourgeoisie and imperialism were able to stave off an economic explosion (like the one that was looming in Brazil), and prevented the recession from turning into an open depression. Except for Ecuador, and to a lesser extent other countries of the Andean area, the masses have not come to the fore, thus making time and a giving new lease of life to the ruling class.
Although the current situation in the region cannot be worked out from that of the whole world economy, or the developments in the United States in particular, Latin American capitalism has its own dynamics. The issue at stake here, considering the fundamental tendencies of Latin American capitalism in the current period is: what is the meaning of the current recession? Is it a temporary mishap, after which the upward curve will be resuscitated? Or does it point out to a watershed followed by a downward curve? The ups and lows in the tempo of the economy are inherent to capitalism, as much as breathing for an individual.
As Trotsky wrote, it all boils down to establishing whether these oscillations reveal a state of health or of underlying disease. 64 Applying this method, it seems quite evident, along the lines of our analysis above, that the prognosis of Latin American capitalism remains "serious condition".
The dynamics of Latin American capitalism, also tributary of the curve of the world economy, particularly that of the US, is towards stagnation and decline. The abrupt oscillations are part and parcel of this tendency. The recovery that followed the post "tequila" recession has been more short lived and restricted than that of 1990-94. The current recession, in turn, is far deeper and widespread than that of 1995-96. In the march of regional capitalism, the "start ups" have been every time shorter and weaker, and the "stoppage" more abrupt and sharper.
However, this hardly explains anything. The "tequila" slump of late â€˜94 exposed the limits of "neoliberalism", highlighting that the game was over for the so-called emerging markets in Latin America. The current recession is a watershed pointing to the exhaustion of the limited chances of expansion brought in by the drive to semicolonization in this decade, under the impact of the world economic crisis on the region.
Latin America has plunged into an enormous instability, which heralds turmoil and convulsions. For that reason, the recession is a catalyst, a developer and accelerator of the deep antagonisms and economic, social and political contradictions accumulated in the previous period. The "vivifying" influx in the short term of the inflow in foreign capital can no longer conceal the parasitic sucking of resources -via the new open veins of Latin America- indispensable to avoid stagnation and prostration. If a recovery were to gain momentum -when, how and how deep still remains to be seen -, it would be very unlikely that it might absorb the contradictions and the ongoing turmoil across Latin America.
It is worth noting the remarkable "sensibility" that both Washington and the IMF showed before the difficulties of the Latin American countries. With the precedent of the Mexican bailout in the aftermath of the 1995 "tequila" crisis, 1999 has witnessed ample commitments to "help" Brasilia (to stave off a collapse in the summer), the current negotiation of a "package" with BogotÃ¡ (maybe worth 3 billion), the "offer" made by the IMF to Argentina (around 10 billion) and even the "patience" shown towards Ecuador in the negotiation of a new bailout. Only imperialismâ€™s fear of a major collapse in his "backyard" is to account for such solicitous attitude. To illustrate the enormous contradictions simmering in the Latin American economy, let us dwell on the financial "bottle neck" created by imperialist plundering.
The "powder keg" of the current account deficit
The issue of the external deficit, the Achillesâ€™ heel of the economies of the region that so much concern has risen among the analysts, boils down to the question of whether the fragile balance achieved will uphold, under pressure of the bleeding caused by rent-hungry foreign capitals on one hand, and the access to new resources on the other.
"The payments of debt interests and remittances rose to 2,5% of the regionâ€™s GNP, but in some countries (Chile, Costa Rica, Mexico, Dominican Republic among them, above all Ecuador, they took a much bigger share)", the CEPAL points out. Brazil has to pay back more than 35 US billion worth of liabilities next year. In Argentina, "the pile-up of foreign debt payments will force the country to refinance around 15 to 20 US billion next year". 65
According to the World Bank, between 1997 and 1999 the flows in the financial markets towards countries in the periphery have fallen 47% (US 135 billion in 1997 against 72 billion in 1998); bank loans have gone down 58% (60 billion in 1997 against 25 billion in 1998) .66 Furthermore, the cost of new loans has tripled. Therefore, capital inflows nourishing the economy have increasingly dried up.
Only the relative maintenance of direct foreign investment (apparently during this year, it would stand around US 60 billion, a very considerable amount, although half of it went to Brazil 67), has ameliorated the untenable position of the external flank. Meanwhile, there has been a credit crunch and the issuing of fresh bonds of Latin American debt was jeopardized and their cost soared.
The recession was compounded by a fast increase in the weight of financial liabilities (paybacks of both public and private debt, remittances of profits, etc.), and was aggravated by a more restricted access to higher cost credit. Meanwhile, those states already running swollen fiscal deficits, and with enormous internal debts (Brazil!) have seen a fall in their revenues. All these are an explosive combination clouding the horizon of Latin American capitalism.
Another element in the crisis is given by the position of regional banking in several countries: the Ecuadorian financial system broke down during the previous currency stampede, whereas in Mexico, the banking system is tottering on the edge burdened by US 65 billion-worth liabilities. It has been hardly propped up by means of the state-run FOBAPROA.
Massive indebtedness is also threatening to drive some big Latin American trusts to the wall: several Argentine companies, Soldati plc and Alpargatas among them, have to renegotiate debts worth above 2,5 US billion. The Brazilian BNDES was forced to manoeuvre to bolster the restructuring of the foreign debt of 90 Brazilian companies that have issued equities abroad, Globopar, a media trust controlling Rede Globo among them. 68
The warning launched by Ecuador whose recent moratorium on its 96 million-worth interest liabilities "represents the first de facto default of a Brady bond", is a clear symptom of things to come, in spite of the small amounts of funds involved. From now on, "Brady bonds will never look the same". 69 That is because Ecuador has to earmark 54% of its budget to debt-servicing, what puts it on the verge of a wholesome default, and other countries might follow suit (the Dominican Republic government is facing a critical economic situation and a strong mass resistance, and it has threatened a few days ago to go down the same road).
Such financial picture resembles in several key aspects the conditions prior to the crisis of the debt in 1982 that ushered in a serious economic prostration in the 80s. The prospect of renewed shake outs as the "tequila" crisis, the Brazilian "hyper devaluation" or the Ecuadorian bankruptcy are all looming in the horizon. Brazilâ€™s contradictions, Argentinaâ€™s vulnerable position, the tottering Mexican banks, all of them could spark off renewed shakes that can make true the nightmare of new defaults, runs on the currency and capital flight.
But there is also an intensified struggle for the markets of the region between the MNCs (like we have illustrated above), and with the big local trusts, threatened by the frenzy of purchases, mergers and acquisitions that are the most outstanding feature of capitalist competition worldwide. Within each country there are also growing disputes between the different capitalist fractions (between exporters, those dependent on the domestic market, the banks, the weakest sectors of the bourgeoisie) that revolve around who is to bear the brunt of the crisis. This results in an intensified pressure on the governments and fuels all sort of political tensions.
Ultimately, this picture of crisscrossed conflicts is a clear example that the bourgeoisie does not regard the current recession as a temporary mishap. On the contrary, they feel acutely that there will not be enough for all. Recession has precipitated an extraordinary development of all the economic antagonisms, and these are beginning to translate to the relationships between the classes and to the core of the ruling class, openly bursting out in the sphere of politics.
It has also inchoately reflected in the policies of both the United States and Europe toward Latin America, in the differences as to strategic orientation between close partners like Brazil and Argentina (they are evident in the case of Colombia or else in the "dollarization" debate). These rows have fuelled the realignments of different capitalist wings from Venezuela to Argentina, and a growing political instability in the whole area.
1 Leon Trotsky, The Third International after Lenin, El Yunque editorial, Buenos Aires.
2 Leon Trotsky, History of the Russian Revolution, volume I, SARPE editorial, Madrid, 1985, p. 33.
3 idem, p. 36.
4 George Novack, Understanding history, Pluma ed., Buenos Aires 1975, p. 124.
5 V.I. Lenin, Imperialism superior phase of capitalism, Anteo editorial, Buenos Aires, 1974.
6 Leon Trotsky, The Third International after Lenin. El Yunque editorial, Buenos Aires, 1974.
7 This was characterized by a strong state intervention, with state-owned companies actively fostering capitalist accumulation and the expansion of the domestic market directly, and protecting the native bourgeoisie by means of tariff barriers. It combined policies to attract foreign investment and leaving some areas under state control, or else in the hands of home-based capital.
8 Cf. International Strategy (Estrategia Internacional). From NÂ° 7 onwards, we have dedicated several articles to analyze this question.
9 Taken from James Petras and Henry Veltmeyer, Latin America at the end of the millennium in Monthly Review, July-August of 1.999.
10 According to data of the World Investment Report, UNCTAD, 1996. Taken from Le Monde Diplomatique, September 1999.
11 CEPAL, The gap in equality.
12 Data of CEPAL, 1998.
13 G. FernÃ¡ndez S., The future is no longer what it used to be, in Nueva Sociedad NÂ° 153, p.34.
14 Panorama of the world economy NÂº 2, C.E.I., December 1998.
15 Right from the start it was subordinated to American interests, a fact highlighted by the signature of the "4+1" agreement with Washington in 1991.
16 Data of ClarÃn.
17 The crisis has proved that in spite of the interweaving of interests and common business within the framework of the Mercosur, the bourgeoisie still operates to a great extent on national basis, inextricably tied to their states, on whose support they depend closely.
18 There is no possibility whatsoever to go back to relatively closed domestic markets, much in the way of the "autarchy" of the 40s. The necessary economic unification of Latin America is a task that demands breaking away with imperialism. Only the proletariat in power can achieve this, within the framework of a Federation of Socialist Republics of Latin America, a demand already put forward by Trotsky and the Fourth International alike in 1938 that has proved its historical validity.
19 CEI, Panorama of the World Economy NÂº2, December 1998.
20 Data of CEPAL, The changing presence of the multinational corporations in Latin America, 1998.
21 Data of CEPAL, idem.
22 Data of CEPAL, idem.
23 Data of CEPAL, Foreign direct investment in the Latin American car industry. 1998.
24 Data concerning mergers in the car industry, in the banking system, etc.
25 ClarÃn, 31/08/99.
26 ClarÃn, 12-09-99.
27 World Bank, Privatization. Condition for success, Washington, 1995. Taken from Nueva Sociedad NÂº 153.
28 CEPAL, The biggest multinational companies present in Latin America and the Caribbean.
29 Survey by CEPAL, idem.
30 Data of CEPAL, The changing presence of the multinational corporations in Latin America, 1998.
31 Gazeta Mercantil Latinoamericana, 22-09-99. Article from ClarÃn, 24-09-99.
32 Data from Folha de Sao Paulo, magazine Carta Capital and Censo Empresarial de 1995, a survey carried out by the Central Bank. Taken from an article by Adelar Pizetta, The MST facing a crisis: resistance and alternative experiences.
33 Gazeta Mercantil Latinoamericana, September 1999.
34 CEPAL, The changing presence of the multinational corporations in Latin America, 1998.
35 Data taken from Nueva Sociedad NÂº 151.
36 Quinzena NÂº 280, quoted by Sem Terra, June 1.999.
37 Magazine Veja, March 99.
38 A survey by the MST mentioned above.
39 The magazine Forbes has ranked several Brazilian, Mexican and Argentine tycoons among the top 500 rich of the world.
40 Data by SELA.
41 J. Petras y H. Veltmeyer, op. cit.
42 ClarÃn, 23/08/99.
43 ORIT, The Chairman’s Report 1998-99.
44 Leon Trotsky, op. cit., p. 95.
45 Pierre Salama, Poverty, employment and inflation in Latin America, in Nueva Sociedad NÂº 156 (July-August 1998), p.112.
46 World Bank data, taken from CristÃ³bal Kay, Structuralism and the theory of dependence in the neoliberal period, in Nueva Sociedad NÂº 158 (November- December 1998), p. 101.
47 CEPAL data, The biggest multinational companies present in Latin America and the Caribbean. 1998
48 We have taken this concept from MilcÃades PeÃ±a, op. cit.
49 The FOBAPROA has poured US 65 billion to bail out the Mexican banks. Ecuador lost 1.5 billion to prop up its broken bank system. Colombia lost around 6 billion. Hundred of millions were poured by the Paraguayan government into the local banks and financial institutions last year to no avail, etc.
50 Le Monde Diplomatique, edition for the South Cone, September 1999.
51 PÃ¡gina 12, 5/09/99.
52 Jorge Beinstein, Let us take distance from the ruling centers, in Le Monde Diplomatique, edition for the South Cone, September 99.
53 Taken from James Petras and Henry Veltmeyer, Latin America at the end of millennium in Monthly Review, July-August 1999.
54 Petras and Veltmeyer, idem.
55 Petras y Veltmeyer, op. cit.
56 Petras y Veltmeyer, op. cit.
57 Data from Folha de Sao Paulo, magazine Carta Capital and Censo Empresarial de 1995, a survey carried out by the Central Bank. Taken from an article by Adelar Pizetta, The MST facing a crisis: resistance and alternative experiences.
58 Taken from Fundamentals for the PTS programme, a draft for internal use.
59 Petras y Veltmeyer, op. cit.
60 CEPAL data.
61 Le Monde Diplomatique, edition for the South Cone, September 99.
62 CEPAL points out in many articles that the governments implemented recessive policies -"overreacted", in their words- to earmark resources available to fund these payments.
63 The Economist, 11/09/99.
64 Cf. Leon Trotsky, Nature and dynamics of the world economy and the transitional economy. Published by CEIPLT, Buenos Aires, 1999.
65 ClarÃn, 12/09/99
66 Eric Toussaint, The crisis of the debt: analysis and proposals, in magazine Viento Sur, NÂ° 44, July 1999.
67 CEPAL, Short term report, first quarter of 1999.
68 Quinzena NÂº 280, CPV, 30/07/99.