Analysis: Why is Latin America poor but the US rich?

On July 4 of 1776, some 13 upstart settler colonies declared their independence from the British Empire, adopting a form of a regime based on what we call Kantian principles; a constitutional republic with different branches of government. A few decades later, their example would inspire revolutions in the rest of the Americas (except Canada, they were busy playing ice hockey) and led to the creation of states politically and socially very similar to theirs and like them, a land of opportunity for many. However, today the US truly stands out from other states on the continent (except Canada, their igloos are superior with better welfare) and rest of the countries remains plagued with poverty, a high crime rate and chronic political instability. Of course, I am heavily generalizing here and it should be noted that some Latin American countries such as Costa Rica and Chile are pretty awesome in terms of living. However, none has yet come close to the US in terms of wealth and power. Why it is that we see today the US of A as the global powerhouse and not any other American countries like Brazil or Mexico? Both of these countries had the resources, the population and size to become great powers yet they didn’t. Why is Latin America poor but the US rich? Let’s find out.

Not my president!

White House, Why is Latin America poor but the US rich?

Undoubtedly, governments play a big role in shaping how a country runs and hence by extension, the political system which influences the type of government you have is equally important. Not all democracies are the same, some are parliamentarian (The United Kingdom and the Commonwealth countries are an example), others are presidential (The US and other American countries except Canada) while others a mix of a sort (France and other European states).

Recommended book: Presidents and Assemblies by Shugart & Carey

In a parliamentarian democracy, the people vote for a party in an election and the party with the most seats then chooses a prime minister and he forms the government. Since the mandate to rule lies with prime minister’s entire party and not him, in case of any crisis, the party members can call for a vote of no confidence to have the prime minister removed or the prime minister may dismiss the government and call for fresh elections.

However, in the case of a presidential system, the President who forms the government and the members of the legislature are elected separately. Now, this leads to a dilemma, if both are independent of each other, what happens when both can’t arrive at an agreement? This is what the political scientist Juan Linz called the dual legitimacy problem; since both have a separate mandate to rule, the government can cease functioning if a compromise is not reached. In the US, this problem is somewhat mitigated by having an electoral system that is biased towards two major parties, ensuring that president will always have some sort of support in the legislature. However, in the case of most presidential states, a more (ironically) democratic form of an electoral system often leads to a great number of parties winning seats in the legislature translating to more diverse views the president has to contend with in order to reach a compromise. This increases the risk of a political crisis and if the president does not then step down or the judiciary isn’t independent enough to enforce mediation, democracy itself can become vulnerable to hostile take-overs as both parties use coercion as a means to end the deadlock. Some Latin American political systems have tried to overcome this by allowing the president emergency powers to rule by decree but this basically overrides the main purpose of a presidential system; checks and balances. What’s more, if a president already lacks support in the legislation, bypassing them to enact laws only adds to their antagonism. In Chile during Salvador Allende’s presidency, his failure to arrive at terms with the legislature and the political instability that followed gave the military a pretext to oust his government is a coup d’état and install a Junta under Pinochet.  In Bolivia, Hernán Zuazo was forced to step down due to a hostile congress and threat of a military takeover.

Another crucial difference that should be noted is the unlike in the US, the vice president is not directly elected in many Latin American countries, instead, a president’s successor is chosen by the legislation. This of course, gives incentives to the legislation to have the incumbent executive removed should he not come to terms with them. In her study, Kathryn Hochstetler concluded that since the 70s and 80s, when the South American countries returned to a civilian government, nearly 23% of their elected presidents have been forced to leave office before the end of their terms. Compare this to the number of Presidents forced to leave office in US’s entire history.

Is your right the same as my right?

Supreme court, Why is Latin America poor but the US rich?

Unlike movies, the real world is a damn complex place. What we think of as morals are just arbitrary values that became ingrained in us from being brought up in a particular culture and environment. What is considered right or wrong can very much differ from one society to another or even among individuals themselves. Take gun laws for example, it is a highly divisive issue in the States right now. Some would rightly defend on the grounds it is a matter of personal liberty and that armed citizens act as a deterrent to any ‘adventurous’ government seeking to establish greater control. However, the other side is also correct in saying that unregulated gun ownership increases the risk of homicides and giving an irresponsible person such deadly weapons are a recipe for disaster. Both are correct but the decision they arrive at depends on what how they weigh the negative and positive aspects together. It’s similar in all aspect of our lives when we make decisions, from choosing what dress to wear to determining what is rightful governance.

Recommended Book: The Social Construction of Reality by Thomas Luckmann

Legitimacy is the word we use to describe the strength someone’s claim has to rulership. Marx Weber identified 3 ideal types of what constituted a legitimate rule in different cultures, namely: legal-rational, charismatic and traditional. In the West, including the US of A, the first type is highly engrained in the dominant culture, a rule by a person is considered legitimate if it has been not only earned through legalistic means (e.g. through proper elections in a democracy) but the elected also adheres to the principles that govern his position (e.g. formal rules on what and what not a President can do). Let’s take public disapproval to the Vietnam war as a case study here. One of the major reasons for the widespread opposition was to the conflict being deemed unconstitutional and violating international treaties. In a more recent case of Iraq war, a poll taken days before showed that a majority supported the decision if it was approved by the UN security council. Adherence to legalist tradition is also why the US has never suffered a coup, for a rule violating the constitution would be deemed highly illegitimate and provoke a backlash.

In case of most of Latin America, charismatic authority is the norm; the right to lead is by virtue of the leader’s unique abilities. This is why we see state leaders holding on to power even when constitution itself violated, a famous example of this is when the Peruvian President used the military to illegally shut down the national congress in 1992 and his popularity actually went up afterward. In fact, he was elected President three times! Now there is nothing wrong in this view of legitimacy, it just doesn’t work well with a presidential system, which is ultimately a government of compromises. A strong ambitious figure can frustrate the fragile balance of the system, lead to low political stability and thus, a breakdown of order. Charismatic leaders are most effective in systems where the government can enact policies decisively such as in bureaucratic dictatorships or ideal majoritarian parliaments.

I have money therefore I am

Brazil inequality, Why is Latin America poor but the US rich?

The Spanish and Portuguese Empire claimed all the best spots in the Americas for themselves early on, leaving the British and French to vie with each other for the relatively piss poor real estate up north. However, it was exactly this reason why the US (and Canada), were able to maintain a dynamic and resilient economy under a flourishing democracy while rest of the American countries easily succumbed to economic shocks and dictatorial regimes. Because the Latin states were rich in mineral resources and fertile land, its economy was based on exploitation, natives and slaves were put to work for their masters on their plantations and in their mines. Since the landed elites could grow considerably rich through utilizing human labor alone, there were little incentives for innovation. However, for the political elites, there were every incentive to keep the poor as poor so to minimize competition for the same resources and privileges; the ownership of land meant power after all. Democratic institutions in this environment either do not develop as control of resources shield elites from having to compromise with the masses or if they do develop, are difficult to sustain as the state deteriorates into a tug of war between the upper classes seeking to preserve their privileges and those seeking to redistribute wealth and empower the poor. A good example of this is the presidency of Juan Peron in Argentina and that of Salvador Allende in Chile. Both sought wide-ranging reforms and nationalization programs as a means of redistributing wealth but this invited hostile opposition from the upper classes, seeing it as a threat to their interests. They backed the army officers in toppling their regimes and undoing their legacy.

In America, however both during and much of the time after independence, the majority of the farms was small single family holdings. Not only did this create a large enterprising middle class, which had every incentive to innovate so to increase their humble income but also kept the political elite in check, as they did not enjoy the same level of influence in this more decentralized agrarian economy. Furthermore, after independence, Great Britain remained a great existential threat to the American elite, both militarily as a great power and ideologically due to monarchist factions. As a result, they had to compromise on a lot of privileges and thus, empower citizens with greater rights so to enforce their new legitimacy. The presence of a largely privileged middle-class in the US also meant that revolutionary ideologies never enjoyed the same level of support as it did in many other countries.

Recommended Book: Why Nations Fail by Acemoglu & Robinson

Greek philosopher Aristotle stated, as he himself observed in the city of Athens, that the middle-class are natural allies to democratic ideas and institutions. Because they act as a buffer against radical populist notion seeking to exploit the desperate poor as well as prevent the democratic state from being ‘captured’ by elite’s interest, the middle-class safeguards democratic institutions from losing its legitimacy as the majority began to feel that elections and political parties do help in advancing their interest. Furthermore, greater economic equality leads to a more resilient economy. Concentrating wealth in the hands of the few means that less money goes back into the economy in times of crisis as the rich prefer to secure money rather than spend. In the case of the middle class, however, since the majority spending is on essential goods (food, utilities and transport) in contrast to luxury goods, the cash keeps flowing back in the economy regardless of the troubles afflicting it.

Thus, in an environment of stability and individual freedom, market-capitalism can work as people are free to pursue their economic interest rather than just invest resources in their survival as in the case of highly stratified and unstable societies. This is the reason why countries with ample natural resources seldom succeed economically (e.g. South America and Sub-Saharan Africa) while countries with relatively little (e.g. Western Europe, East Asia) end up becoming economic powerhouses exploiting the former. Of course, the US has ample resources, this cannot be denied but until its westward expansion, it had little and the expansion itself was driven by middle-class pioneers. It shouldn’t be denied, however, that the relative decline of the middle class in the US in recent years is a worrying trend.

American Hegemony

CIA, Analysis: Why is Latin America poor but the US rich?

The last but equally important aspect that had plagued the American countries has been the overbearing presence of the continent’s most successful country, the United States. Whenever the domestic aspiration of countries of the continent clashed with America’s foreign interest, the outcome for the former has always been harsh (except Canada, they had daddy). From backing military coups to Operation Condor to the funding of right-wing terrorism, the presence of the global superpower may have done good by protecting the Latin American states from the ambitions of other great powers but have also done bad by leaving behind a terrible and bloody legacy in the history of its neighbors and hampered their aspiration for progress (this country being an exception).

A. R. Usmani

Historian | Researcher | Likes to live in the past because housing is much cheaper

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