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Little Giants

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On October 12th, Evo Morales won a historic third term as Bolivia’s President in a landslide victory against a slew of pint-sized opponents. The turnout was an outstanding 81% of registered voters – far better than the US average of 58% for recent national elections – and Mr. Morales took just over 60% of those votes. By any measure, it was a dominant performance by a man who has provoked ire in Washington, apathy in Europe, and inspired some Spaniards to sneer that he is “the President in the sweater”.

“Evo Morales ha venido a España con su jersey de lana gorda de indio cocalero y a uno le da la imagen de uno de esos niños pobres que enseñan en las postales de Unicef contándonos que se van a pasar la Navidad sin juguetes”.[1]

“Evo Morales has come to Spain with his thick, wool sweater of a coca picking Indian and brings to mind one of those poor children on the UNICEF postcards telling us that they will be without toys this Christmas.”

The Spanish might have reason to be piqued with Mr. Morales, since the Bolivian President was responsible for nationalizing around 20 companies with large shares of foreign capital since his ascension to power in 2006. Many, though not all, of these companies had large Spanish investments, and were heavily concentrated in the strategic petrochemical and electrical industries[2].  Along with expropriations in Venezuela and Argentina – especially the renationalization of Argentina’s YPF – Spain’s economic “reconquista” of Latin American in the 1990’s had suffered a serious reverse. The Spanish argued that Bolivia had not provided fair and objective compensation for their investments; Bolivia disagreed and also argued that the foreign firms had been systematically underinvesting in the business, in violation of both their contractual obligations and the original privatization terms. Without finding for either side, the European Parliament promised to continue observing the situation and urged that the matter remain one between the private investors and the Bolivian government.[3]

Another Latin American President who has faced ridicule and more than a little condescension is Uruguay’s José Mujica. Known for his laid back style, preferring his rustic farmhouse to the Presidential Palace in Montevideo, eschewing bodyguards, and donating 90% of his salary to charity; Mr. Mujica can irritate with his blunt manner, attacks on privilege and unabashedly socialist worldview. Nor do conservatives forgive his activities in the Tupamaros guerrilla movement back in the 1970’s when we organized and executed terrorist activities against the Uruguayan state; activities which led to his being shot 6 times and incarcerated for in La Libertad prison for 13 years. Yet in office, Mujica has shown himself to be a pragmatist rather than an orthodox leftist; he has continued the market-friendly economic policies of the Vázquez Administration and took the former Economy Minister, Danilo Astori, as his Vice President.

Finally, there is Rafael Correa, the President of Ecuador who many consider to be merely a sycophantic follower of Chavísmo and a beneficiary of Venezuelan political largesse, when he is considered at all. He is perhaps best known for his sheltering of Julian Assange, founder of Wikileaks, in the Ecuadorian embassy in London and his strange extension and then retraction of an asylum guarantee to Edward Snowden.  Mr. Correa is usually dismissed as yet another of the “leftist populist” politicians in the Chavez stripe: yet the Ecuadorian President has a Masters’ in Economics from the Université de Louvain in Belgium and a PhD in the same subject from the University of Illinois at Urbana-Champaign and speaks four languages fluently[4]. Contrast[5] this with Spain’s Prime Minister Mariano Rajoy, who has a Law Degree from the University of Santiago de Compostela, is a career politician and monoglot Spanish-speaker, yet he is not routinely dismissed as merely “another stuffed suit” or a “conservative right-wing” politician.

littlegiants

All three South Americans have been dismissed as radicals, extreme leftists, demagogues, even dangerous… though dangerous to whom is not typically stated.  They are also typically cast as corrupt, venal and authoritarian – at least Messrs. Morales and Correa are. In all cases, their election or re-election has inevitably been followed by the direst predictions of economic and social catastrophe, ruination and impoverishment. Those sorts of comments lead me to wonder whether the commentators have ever been to the Bolivian altiplano or the Ecuadorian highlands to see what poverty actually looks like.

How much truth is there in these apocalyptic forecasts? The proof of governance is in the economic and social indicators of a nation; and all of these Presidents have had ample time to ruin their nations. I plan to compare the relative performance of Bolivia, Ecuador and Uruguay against Spain, one of their biggest critics, across a variety of economic and social metrics.

It is useful to consider a timeline of events as well, to understand what has happened in the period we are covering. Both Mr. Morales and Mr. Correa campaigned in their first terms on the need for constitutional reform, and both of them delivered on that promise within three years of being elected. Both constitutional referendums saw high voter turnouts – 90% in Bolivia, 75% in Ecuador – and both constitutions were approved by approximately 65% of voters. Both referendums had the participation of international observers[6] who declared the processes to be open and fair.

Both reforms included some provisions that were not particularly controversial:

  • Both established two term limits for the President, among other elected officials;
  • Both recognized the inviolable sovereignty of their respective peoples over natural resources (which provided legal justification for the nationalization of businesses in certain productive sectors like energy and food);
  • Bolivia also created an elected judiciary, reformed the election process to the Chamber of Deputies to a first past the post system, and introduced the possibility of recall elections for public officials;
  • Ecuador’s new constitution prohibited the state from yielding jurisdiction in private trade disputes to external organizations, leading to the country’s withdrawal from the International Centre for Settlement of Investment Disputes, but not the WTO.

More controversially however:

  • Both tackled land ownership and access to food as fundamental rights of the people;
  • Bolivia established a maximum land ownership ceiling of 5,000 hectares by a separate popular referendum (80% in favor, 90% turnout);
  • The new constitution turned Bolivia from a Catholic state into a secular state;
  • The Ecuadorian constitution liberalized drug possession, though not distribution or sale;
  • Ecuador also established and codified environmental rights to biodiversity and habitat protection, the first nation in the world to do so;
  • Ecuador recognized same sex marriage and recognized gender identity, again the first nation in the world to recognize it.

timeline

Neither constitution could be accused of being a naked power grab or a formalization of a one-party state; if anything, the Bolivian constitution reformed the distribution of governmental power and gave greater autonomy to the indigenous communities within Bolivia. The direct election of judges and the revised system for election of legislators is also arguably an improvement for Bolivian democracy.

It’s the Economy, Stupid

The foremost argument used against these “third world” leaders by their “advanced economy” critics is that their hair-brained, communist throwback ideologies and economic policies would inevitably lead to capital flight, mass divestment by foreigners, deindustrialization and shortly thereafter, economic ruin.

Those predictions have not come true. GDP and GDP per capita took a beating in 2009, the year that the Great Recession swept across the globe, but the Latin American markets quickly recovered their pre-recession rates of growth in 2010 and have largely maintained them. Bolivia had its best year since 2008 in 2013; Ecuador and Uruguay have regressed to their mean growth rates. That is still better performance when compared to the sterile austerity doctrines imposed upon the Euro area, which is slipping back into recession this year. The Spanish economy, after underperforming its Euro18 peers since 2009 is set to be one of the best in 2014; but there are increasing signs of headwinds for the economy in 2015 which might cause Spain to stumble again, even without considering the possibility of internal political disruption.

gdp

gdppc

The most constant theme heard is that the radical, unorthodox nationalization policies proposed by the populist governments of Latin America would first hurt and then scare away foreign investment:

fdi

There doesn’t seem to be much to this story. Bolivia suffered a very sharp decline in foreign direct investment inflows between 2002 and 2005 – but this was precisely the period before Evo Morales was elected President. One of the key issues of Mr. Morales’ 2005 platform was the lack of reinvestment by foreign companies in the Bolivian economy: he argued they were being sheared like sheep for the benefit of North American and European shareholders, in violation of the contracts and concessions signed with the government, whom he accused of being corporate patsies. The series of nationalizations undertaken by Mr. Morales since coming to office do not seem to have put of foreign investors. However cautious they may be, capital inflows to Bolivia have rebounded sharply from their 2005 nadir and now stand at 65% of their 2000 peak.

The trend is similar in both Ecuador and Uruguay: falling or steady levels of FDI prior to the election of a popular front government, then an increase. Mr. Correa has not been able to sustain this level of investment in his economy; but the level of inflows from 2011 to 2013 are similar to those experienced between 2005 and 2007, before Mr. Correa entered office. Uruguay’s Popular Front governments (Tabaré Vázquez 2005 to 2010, José Mujica 2010 to 2015) have actually succeeded in providing a stable and attractive climate for foreign investors; there have been no nationalizations in Uruguay, and the social democratic model espoused is that of Brazil rather than Venezuela – yet it is very clearly a social democratic model, not a neo-liberal one.

Another common claim is that Latin American populism goes hand-in-glove with fiscal irresponsibility, as the political machines of the “Great Leaders” has to churn out ever greater hand-outs to satisfy the plebs, rather like the ever-more extravagant games held by the Roman emperors during the Empire’s decline. Social welfare spending has indeed gone up in all three of the countries we are studying, but has that lead inevitably to fiscal irresponsibility?

debt

Bolivia has done the best job reducing its debt-to-GDP ratio; since Mr. Morales came to office, it has fallen from 55% to an estimated 30% at the end of this year. Ecuador’s President Correa reduced the debt ratio of his country from 2007 to 2009, and has since increased it again. In 2014, it stands at the same level as when he took office, approximately 27% of GDP. Uruguay’s Mr. Mujica has increased his nation’s debt ratio the most among the three “populist” leaders, from 62% in 2010 to 66% in 2014. But the general tenor of the Popular Front administrations since they gained power in 2005 has been debt reduction.

Contrast with Spain’s disastrous assumption of debt since the crisis: this is a function of the employment situation, of rampant entitlement spending, and generally of GDP and debt moving in opposite directions. Strangely, no one accuses Mr. Zapatero or Mr. Rajoy of being populist fiscal profligates, yet that is the story the numbers would tell us. If that same curve had had the Spanish flag replaced by a Latin American one, you can be sure that critics would not have shown so much forbearance.

Social Metrics for the Masses

Speaking of the employment catastrophe in Spain, it seems the Latin American nations have performed rather well in terms of job creation:

unemp

All three Latin American economies are basically at full employment and all have reduced their level of unemployment from the time the “populists” took office. It would appear that conservative austerity politics are far better at preserving bankers’ compensation than workers’ livelihoods, which is precisely what one would expect. It is one of the key sources of venomous criticism, as the bankers and CEO’s don’t like having their bonuses taken away in order to create a few extra blue collar jobs.

That is indeed what is happening. The share of national income going to the top 10% of the population has fallen rapidly and significantly in all three social democratic nations. This has been mostly through a program of progressive taxation and transfers undertaken by the central governments. Spain and the Euro area are moving in the opposite direction, though by a very small margin off a very low base. The picture would be different, however, if we looked at share of national wealth owned by the top population decile[7]:

top10

The bottom 10% of the population still gets a raw deal, where ever they live; but conditions have improved moderately for the poorest inhabitants of the Bolivia, Ecuador and Uruguay. Especially those in Bolivia: though their share of national income is still pitiful – and Bolivia is not a rich country to begin with – it has doubled from the time Mr. Morales took office in 2006, going from a paltry 0.5% to approximately 1.0%. Is it any wonder that Mr. Morales is popular with the Bolivian poor? They have undergone a massive improvement in quality of life under his administration[8].

Progress in Ecuador and Uruguay has been more modest, but still significant: increases in share of income of 20% and 12% respectively. Spain’s poorest 10% have, by contrast, seen their share of the national income fall by 50%, the exact opposite of Bolivia’s gains. Unemployment, temporary contracts, the ending of social welfare benefits: all have contributed to this impoverishment. Of course, Spain is a far richer country, so that 1.5% goes much farther than it does in Bolivia. But the Spanish poor are undoubtedly left wondering where the bottom of this barrel is.

bottom10

The overall picture is nonetheless one where income inequality is falling in the social democracies, while it is rising slightly in Europe and slightly more in Spain:

gini

Even if detractors were to concede that economic performance has not been terrible, some social indicators and levels of impoverishment may have improved – a concession which is not likely to happen – they would still argue that all of this has been at the cost of political rights, civil liberties and rampant growth in corruption.

There are many metrics that measure the degree which a society enjoys political rights and civil liberties; I have chosen to use the Freedom House index[9] and the Polity indicator from the Center for Systemic Peace[10]. For a view at corruption in each country, I have used the Corruption Perception Index published by Transparency International[11].

political

polity

liberties

Both Freedom House and the Center for Systemic Peace see a deterioration in political conditions in Bolivia and Ecuador, though not in Uruguay, which is considered a full democracy and completely free. According to Freedom House[12], the worsening of conditions is due to a poorly functioning governmental apparatus, plagued by corruption; and by anti-corruption campaigns which are seen as more politically than judicially motivated, as they tend to strike those most critical of the government[13].

Ecuador’s case seems to be more extreme, though the change in the ranking is less. Voting in the 2013 presidential election is deemed to be generally fair and open, but Mr. Correa and his party had instituted rule changes to campaign financing and political advertising which tended to favor incumbents as being more well-known to begin with. Additionally, the parliament’s seat allocation formula was modified in a manner that favored larger parties over smaller challengers. Endemic corruption is also cited as a major detriment to the proper functioning of the government.

Neither country has been challenged on a deterioration of civil liberties, although there has been no improvement either. In both countries, corruption, drug trafficking and the impacts these have on the rule of law are the principal challenges. Additionally, Ecuador’s press freedoms are not as secure as they might be, with verbal attacks on the press and pressure on independent journalists occurring frequently.

All of these are nonetheless disturbing trends. While true that the power of the entrenched venal elites that have run these countries for decades, if not centuries, is not easily broken, there is no excuse for a dictatorship of the right to be replaced by a dictatorship of the left. Messrs. Morales and Correa need to balance their ambitious social agendas with proper safeguards for democracy and civil liberties, and most crucially with efforts to reduce corruption and enforce the rule of law.

So far, Spain has suffered no deterioration in its ranking of political freedom or civil liberties, though there is reason to believe that this might change. The Partido Popular has been stacking the already stacked electoral deck in Spain in their favor: the PP President of Castilla La Mancha, Maria Dolores de Cospedal, recently approved a law passed by the regional parliament[14], also with an absolute majority of the Partido Popular, which reduced the number of deputies to said body from 53 to 33. This seemingly trivial change actually has the important effect of redistributing votes in such a way as to greatly favor large parties, as more votes are needed to gain any seat, and in particular the People’s Party that formulated the law, since the apportionment of seats also depends on the number of votes cast in each province of the region. The net effect is that the People’s Party can keep its absolute majority in Castilla La Mancha with fewer votes than prior to the reform[15].

That is a play right out of Rafael Correa’s book.

The People’s Party is also debate a change to the way municipalities elect their mayors. Currently, the party that gains a majority wins City Hall; but in the event of a plurality, the parties must negotiate with each other in order to form a governing coalition that proposes a candidate. Thus, the party with the largest plurality short of a majority might find itself the loser of the election. Given that the People’s Party is the only conservative party of importance in Spain, it is more difficult for them to find allies than for the Socialists and others on the political left.

That’s would no longer be a problem under the new proposal. Mariano Rajoy would like the new law to award victory to the party with the largest plurality.  This would greatly favor the People’s Party which has no competition to the right of center; while the Spanish left is more fractured but also more open to collaborating with each other than with the PP. Had this electoral system been in effect in the last municipal elections in 2011, the Populares would have won three more large cities as well as eliminating the need to form coalitions in 5 more[16]. Mr. Rajoy has stated that he has every intention of promulgating this law prior to the 2015 local elections and over the objections of every other major political formation in Spain[17].

In addition to these legal, but highly questionable, infringements of political rights, the Partido Popular seems determined to undermine civil liberties as well. A proposed law[18] ironically called the “Citizen’s Security Bill” would illegalize a number of different types of public demonstrations, including some that are constitutionally protected as “spontaneous demonstrations of the public”, and make both organizers and participants liable for fines ranging from 1,000 to 600,000 euros. That includes anyone who retweets or reposts information on a protest in social media. The law would also prohibit the filming of police during even authorized demonstrations, as well as sanctioning those who distribute or disseminate such film in any way. Police would have full authority to impose these fines on anyone they felt was in violation of the new law without any requirement or recourse to a judge; the fines cannot be appealed, making the police on the spot the judge, jury and executioner. The law would also make illegal “offense against Spain” – whatever that means[19].

The last two initiatives are not yet laws, only proposals under consideration: if passed, we should expect Spain’s political freedom and civil liberties ranking to fall somewhat. The other issue that might impact Spain’s 2015 ranking is corruption: a scourge it has in common with Bolivia and Ecuador, though not to the same extent. That being said, the trend is not promising: scandal after scandal has hurt the perception of Spain’s institutions badly, as the chart below shows. Uruguay is now viewed as “cleaner” than Spain. It is doubtful that Europe would permit Spain to sink to the level of Ecuador or Bolivia: though Italy and Greece are not far from those levels with scores of 4.3 and 4.0 respectively. And Spain is not so far from Italy and Greece as its citizens might like to think.

corruption

Old Imperial Habits Die Hard

The rise of Popular Front governments in various Latin American countries shouldn’t come as a surprise to anyone: after a decade and a half of neo-liberalism and mismanaged privatization, very little of the resulting economic growth trickled down to the mass of citizens. The end of the Cold War also helped to end the open combat between leftist and rightist factions as these ideological divisions no longer made much sense with the collapse of the Soviet Union. Democracy officially swept over the continent; but it was a democracy that had the same old faces – and their sons’ – coming and going from positions of power. The fact that new regimes promising improvement and empowerment to those still waiting for the long-heralded benefits of market liberalization and democratic reform should win comfortable electoral victories is the foreseeable results.

Equally foreseeable was the reaction in the First World: a howl of outrage that anyone should question the dominance of North American and European multinationals. That the grip of a United Fruit or a Glencore, a Red Eléctrica or Repsol, should be loosened – and by some damned Indian at that – was of course unacceptable. To paraphrase Frank Herbert, the profits must flow. In another time, the offended party would simply have sent a gunboat and some marines to seize the nearest large city by the coast and demand compensation while threatening to overthrow the government[20].

Old habits and outmoded language die hard on both sides. If Europeans and Americans remains imperially condescending towards Latin Americans (and Africans), then too Latin Americans frequently refer to a form of overt imperialism and ideological struggle which no longer exist. Yet a double standard still exists: when Europeans interfere in “pure market operations” involving the foreign purchase of one of their champion corporations, that is rational national interest at play, at most a “charming, foolish idiosyncrasy” such as the French might have over their yogurt production. Let a Latin American government nationalize a strategic sector of its economy, and it is suddenly Che Guevara come again, on fire and riding a Harley.

The fact remains that – so far – Latin America’s leftist governments have neither bankrupted their nations, ruined their economies, nor destroyed democracy. With the possible exception of Venezuela, which is suffering at least as much from Mr. Maduro’s own personal failings and incompetence as from Mr. Chavez’s mishandling of the economy, none of the social democratic states are performing badly. Compared to their more free market neighbors, like Chile and Colombia, the “populist” governments do slightly worse in short-term economic performance, but far better in social and human development metrics.

blocs

Lessons can be learned from the smallest nations in Latin America, and we ought to wish them every success; for history proves that democracy comes with wealth, not the other way around. In any event, the hysteria and the hypocrisy should stop: they are simply not justified by the facts.


 

Sources and Notes

 

[1] Alfonso Ussia, Editorial, La Razón, 06 January 2006

[2] Sabsa – airport services; CLHB – hydrocarbon logistics and storage; Transredes – hydrocarbon transportation; Entel – telecommunications; Chaco – natural gas production; Air BP – aviation fuel; Corani, Guaracachi, Vallehermosa, and Empresa de Luis y Ferza Eléctrica – power generation (electrical); Metalúrgica Vinto-Antimonio – antimony foundry; Transportadora de Electricidad – power grid distributor/operator; Electropaz, Elfeo and 2 wholly-owned suppliers  – power generation and equipment. Pablo Gonzalez and Manuel Baigorri, “Spain’s Iberdrola Has 4 Units Taken Over by Bolivian State,”Bloomberg, 30 December 2012

[3] “Answer given by Mr De Gucht on behalf of the Commission,”European Parliamentary Questions, 18 March 2013

[4] Spanish, English, French and Quechua.

[5] Mr. Rajoy graduated from the university in 1978 at the age of 23, passed the examination for Public Property Registrar in 1979, completed his obligatory military service in 1980 and was elected as a Deputy for the Alianza Popular (later Partido Popular) in the Galician Autonomous Community in 1981. He has been in politics since then.
For complete contrast, Mr. Mujica has a high school diploma and entered but never completed the Law course at the Alfredo Vásquez Acevedo Institute. Mr. Morales did not complete his final year of secondary education. Mr. Mujica is also a monoglot Spanish-speaker, while Mr. Morales speaks Aymara and Spanish.

[6] “European Union sends Election Observation Mission to Ecuador,” Europa, 15 September 2008
“Bolivien Verfassung,” Direct Democracy, 25 January 2009

[7] Wealth data is far harder to collect than income data, which is typically supplied by central governments from tax declarations. Wealth requires market valuations of sometimes illiquid assets which not always declared or properly valued.

[8] The fact that he is mestizo and speaks Aymara is also important; previous Bolivian presidents have all been descendants of white Europeans, speaking only European languages.

[9] Freedom House was established in 1941, and its Freedom in the World report has been published since 1972.

[10] The Center for Systemic Peace was established in 1997, but its database of valuations goes back to 1800.

[11] Transparency International was established in 1993 and has published the Corruption Perception Index since 1996.

[12] Freedom in the World 2014 Report: Bolivia, Freedom House, 2014

[13] Freedom House cites the case of Senator Roger Pinto Molina, who was indicted for corruption and criminal charges after he had accused the government of corruption. Mr. Pinto spent 15 months in the Brazilian embassy in La Paz before finally escaping to and being granted asylum in Brazil.

[14] “Castilla-La Mancha aprueba la reducción de diputados en sus Cortes,” El Pais, 21 July 2014

[15] “GRÁFICO: Por qué la reforma electoral que ha aprobado Cospedal en Castilla-La Mancha beneficia al PP,” Eldiario.es, 21 July 2014

[16] Ángel Calleja, “La reforma electoral del PP: un cambio de reglas que puede virar en su contra el patrón de voto,” 20 Minutos, 27 August 2014

[17] Marisol Hernández, “Rajoy ignora a Pedro Sánchez y cambiará la Ley Electoral,” El Mundo, 20 August 2014

[18] Ley de Seguridad Ciudadana, Rights International Spain,

[19] Clearly an afterthought additional to nab Catalan demonstrators in a law which mostly seems aimed against Podemos, Occupy, 15M and similar organizations.

[20] The justification for the Franco-Spanish-British bombardment and occupation of Veracruz, Mexico in 1862 as well as the seizure of the Chincha Islands, Peru in 1864.

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