Moments great and small

A work of unusual scope

By Peter Bate

On the surface, the century appears to have been a spectacular success. Average per capita income in the region quintupled. Life expectancy, a dismal 40 years in 1900, now averages 70 years. And seven out of eight adults will be able to read and write in 2000, up from one in four in 1900.

But despite these gains, Latin America has not been able to gain ground in the developed world. The average per capita income of the region's larger countries was 14 percent of that of the United States in 1900; it now stands at 13 percent. Industry has grown from 5 percent to 25 percent of GDP, but the continent's share of world trade fell from 7 to 3 percent, and commodities still make up more than half its exports. Despite the region's growth, Latin America and the Caribbean continue to be financially dependent on outside capital.

The disparity among incomes in Latin America, perhaps the region's most enduring stigma, was the worst in the world by the 1960s and has become even more skewed in the following decades. Today, two in every five Latin American families live in poverty.

This is a sampling of the paradoxes explored in the newly published Progress, Poverty and Exclusion, the first comprehensive economic history of Latin America and the Caribbean in the 20th century. The ambitious project, sponsored by the IDB and the European Union, was written by Oxford University economist Rosemary Thorp based on scholarly contributions (see "A work of unusual scope" on this page).

"The challenge of this book," Thorp writes in the introduction, "is to capture the century, with its lights and shadows--the positive and the negative." The 370-page volume seeks to place in a historical context the development efforts, strategies, choices, successes and failures of countries as radically different as Brazil, with 150 million inhabitants, and the tiniest states in the Caribbean.

Combining quantitative data and political economy--the interaction of political forces, institutional inheritance and economic outcomes--Thorp assesses the region's achievements and shortcomings during this century and traces their historical roots.

One such force was the transformation of internal economic structures in individual Latin American countries. In 1900, the lack of transportation and communications infrastructure meant that many national economies were divided into regional archipelagos of market activity. Thorp recounts that in 1900, if a thirsty customer ordered a "foreign" beer in Mérida, on the coast of Mexico's Yucatán peninsula, he was sold a Dos Equis from the town Orizaba, in the country's east-central region. Poor roads meant that Peruvian timber destined for Lima was shipped down the Amazon and around Cape Horn rather than over the Andes.

Roads, railroads and telephone networks gradually helped to connect these archipelagos, but Thorp also highlights the integrationist role played by public institutions such as central banks, which became almost universal in the 1920s. Public enterprises and development agencies grew as the role of the state expanded from the 1930s to the 1960s. This was followed by a shift toward free markets that began in the 1970s and 1980s, leading to the more recent restructuring or privatization of many state-run entities. In the last decade of the century, attention has shifted to strengthening regulatory and legal environments in economies that are increasingly dominated by the private sector.

Thorp also tracks the waves of economic expansion experienced by the region and traces their links to the global economy. She examines the disruptions caused by international episodes such as the two world wars and the Great Depression, regional debacles such as the debt crises of the 1920s and the 1930s, the all-too-frequent intervention of military forces in political and economic affairs and the "lost decade" of the 1980s.

Thorp mines these phenomena for clues to explain why, despite significant growth in per capita income during this century, Latin America still has the world's most unequal distribution of wealth. A crucial part of the answer, she says, can be found in the unexpected persistence of social and economic hierarchies established during the colonial era. For example, during Latin America's first wave of export-led growth, which started in the mid-19th century, labor was scarce. Immigration fulfilled some of the need, but rather than lead to a bigger helping of the economic pie for workers, the growth perversely spawned institutions that repressed labor movements and expanded the labor supply by dispossessing peasants.

"These developments simply extended the colonial inheritance of land concentration and the subjugation of Indian peoples," she writes. "Inequality was thus knit deeply into the fabric of the model and was part of its effectiveness in generating growth."

Income concentration remained a characteristic feature of Latin America throughout the next stages of development, because the expansion of public institutions, despite populist rhetoric, did little to threaten the interests of privileged groups. Even though the region clearly would have profited from having wider national markets, more domestic savings and greater investment in human resources, Thorp notes that the existing power structure and the short-term cost of change worked against decisive policies of redistribution. Efforts in that direction, such as land reform, tended to misfire for political, economic and technical reasons.

Closer to our times, the boom fueled by the quadrupling of oil prices in 1973 and a sudden increase in capital inflows ended abruptly with the debt crisis of 1982. Botched attempts at adjustment led to a major shift in the development model, placing emphasis on private sector-led growth, downscaling the state and liberalizing markets. The new approach, Thorp finds, has exacerbated inequality by worsening income distribution. But the author also sees hopeful signs in the pragmatism increasingly espoused by the region's leaders, particularly in their efforts to tackle social problems.