What I will try to do is, using sort of a historic evolutionary approach to analyze anti-capitalism today in Latin America, and somehow try to asses the likelihood that,
eventually, in this sort of confrontation between, before socialists and capitalists, and now anti-capitalists and capitalists, the anti-capitalist fraction might win.
You recall that this morning Pepe Piñera, sort of presented the Chilean case as one model, and Chávez on the other side, as the other model. But then, he just came and said,
well, I´m very optimistic and I hope that the Chilean model will win. When going into this type of subjects, it´s very difficult to avoid labels, and I cannot avoid them, but what I will try is
sometimes give definitions.
You see, one has to talk about capitalism, neoliberalism, neoclassicism, and so on and, those things in general are labels for concepts, and one would have to spend a lot of
time to precisely define them and so on, and I don´t have that so I will use them rather loosely, but I´ll give you some idea of what I have in mind.
The other thing is, when one tries to do what I am trying to do, sort of talking about Latin America, then one confronts the problem that there is not such thing as Latin
America, there are twenty-one, or something like that, countries in Latin America, or almost thirty if you add the Caribbean; and of course, each one is different from the other, so there is no
such thing as Latin America.
However, and those of you who do empirical work on growth funds, know that the esteemed sort of Latin-American phenomena, you have to put a dummy in for Latin-America because
for some reason, Latin America behaves different from other regions, so there is a reason for that.
Well, the final thing, Roberto didn´t do that, but I want to warn you that you might be quite surprised with my outcome and maybe not like it very much. And that reminds me of
a story, in Chile, there is a good number of sort of German-Chileans like myself, and there are two persons, which are quite famous, one is called Otto and the other one is called Fritz. They
tell me that in Germany they don´t exist but in Chile we have them, Otto and Fritz.
One year, Otto was going to go to Germany to the Munich Festival, I don´t know if you know, in the Munich Festival you drink a lot of beer, and sing and so on, it´s a very
lively event; but he had a little cat, so he said to Fritz, "well
,Fritz take care of my cat while I´m in Germany"
,and Fritz said, "sure, I will do that as best as I can".
So, Otto went to München and when he was there drinking beer and having fun, he received a fax saying, "Otto, come back immediately, your cat died". So, Otto flies back to
Santiago and after he buried the cat, he says to Fritz, "you almost gave me a heart attack. What you should have done is to send me first a fax saying, well, the cat is on the roof of the
and then, you say, well the cat fell from the roof of the house. Then you say, the cat is in the hospital, and finally, you say, the cat died, that way I prepare myself".
Well, the next year, Otto again goes to Germany, and while he is drinking beer and having fun, he receives a fax from Fritz saying, "Otto, your grandmother is on the roof of your house". That
gives you an idea of how we think there.
Well, what I then want to do is, use certain facts and certain concepts, basically capitalism and anti-capitalism, sketch-out recent developments in Bolivia, Ecuador,
Salvador, Nicaragua, and Venezuela, which sometimes are pointed out as the anti-capitalist countries, to draw then, some conclusions about the future of anti-capitalism in Latin America.
In a nutshell, my conclusions are the following, will be the following: Relatively slow economic growth, coupled with very uneven income distributions and high poverty levels,
create conditions for populist leaders to gain popular support by promising different, socialist, economic systems to eliminate poverty and other ills.
In the past, these attempts have not succeeded in replacing capitalism in Latin America, and I believe, they are unlikely to do so now. I hope to be able to give you enough
information so that you can get your own conclusion.
I will now read here a paragraph, which I find absolutely amazing, it´s so well-written, and we will conclude something: "Imagine a wondrous new machine, strong and supple, a
machine that reaps as it destroys. It is huge and mobile, something like the machines of modern agriculture but vastly more complicated and powerful.
Think of this awesome machine running over open terrain and ignoring familiar boundaries. It plows across fields and fencerows with a fierce momentum that is exhilarating to
behold and also frightening. As it goes, the machine throws off enormous mows of wealth and bounty while it leaves behind great furrows of wreckage.
Now imagine that there are skilful hands on board, but no one is at the wheel. In fact, the machine has no wheel nor any internal governor to control the speed and direction.
It is sustained by its own forward motion, guided mainly by its own appetites. And it is accelerating.
That was written by a modern anti-capitalist, he is not a socialist, and he is an anti-capitalist. He has written it, of course, to destroy the capitalistic system in Latin
America, and they are trying to do this without any coherent system to replace it. Ok, now going to some of the facts I want to give.
One fact is that Latin America has the GDP per capita about 50% of the World Leader, the UK, in the mid eighteenth century, these are Angus Madison´s numbers, and this 50% has
been reduced to 25% in the mid 1950s; so there is a continuous deterioration of our GDP level versus the leader.
However, during all this period from the mid 18th century to the 1950's, Asia and Africa were even doing more poorly.
Since the mid 1950's however, and up to the end of last century, up to the year 2000, our GDP per capita continued to drop, and in some cases, at much faster speed than
before, relative to that of the leader. While Asia entered into a phase of conversion, so Asia switched over and started to grow, while we continued, and continued, and continued to fall in
relative GDP level.
Now, this of course creates frustration, doing so badly and during such a long period of time.
Next fact, our income distribution, as you know, are extremely uneven, and our poverty levels are extremely high. Our GINI coefficient is 50, but Mexico, Brazil, Chile, and so
on, have GINI coefficients which are around 60, so extremely uneven income distributions, compared with all the other regions in the world, Latin America is an exception.
Something similar happens with poverty levels, and so you see, in Asia they have about the same poverty levels, but they have much raw income levels, so that, you know, if
they would have the same income level as we have, they would have lower poverty levels. So that´s another fact to consider.
The third one, is that the economic growth record of capitalism has been far superior to that of socialism, and I´m not going to spend lots of time on that because I´m sure
you know, but one interesting comparison is Cuba and Chile.
If you take Cuba in the 50s, it had about the same GDP per capita level as Chile, about the same, and look what´s now, we have about four times as much as Cuba.
So, there is no doubt capitalism is much more efficient in terms of generating growth, but it has the other advantage of political freedom. So, in theory, capitalism should be
so much superior to any other system. Okay, now this point is extremely important,
that income distributions everywhere, have changed relatively little over time, and are probably determined by relative abundance of factors of production hundreds of years
and the work of Acemoglu, Robinson, Gallego, and others, sort of shows that there´s almost no change in income distribution, but there´s a tremendous relationship between
income distributions and the intensity of production factors many years ago.
We have an example, here we´ll talk about Chile, we have an example which is fantastic, between 1965 and the year 2000, we have gone through different, and very, very
different economic systems.
We had first, sort of an import substitution regime; then we had the centralized economy and Allende; then we had a regime, which essentially did not care about income
distribution, it did care about opportunities and so on, but not about income distribution,
and then, we have the present regime, which sort of wants to grow with justice, and so we had different systems. However, during all those years, income distribution hardly
changed. So you can change the economic system a lot and income distribution will change relatively little.
The fifth fact, is that in Latin America as a whole, economic systems have changed whenever we had a big crisis.
And so, before the Great Depression, Latin America had essentially free markets, export driven economy and when we went through the Great Depression and then World War II,
this was changed towards, as you well know, an import substitution industrialization regime, so there was a big shift in the economic system as a consequence of the Great Depression.
Now, between the Great Depression and the banking crisis of the 1980s, which was extremely strong, we had this
import substitution system, but when the bank crisis broke out, then we switched again in Latin America, towards open economies. Our markets are basically opened in most countries in
Latin America, and free markets, their free prices, and most enterprises were privatized in most countries.
So, each, sort of big crisis brought about a switch in the economic system.
The sixth fact, is that also between 1980, let´s say, and 2000, Latin America still did very poorly, but it was in the midst of the change, of the complete change in the
economic structure, as a consequence of the change in system.
Starting in the year 2000, our GDP per capita is converging towards those of the richer countries, so Latin America is doing quite well since the year 2000 with this sort of
free market, open free market economy.
And the final fact, of course, is that we are in the midst of a huge financial crisis and this kind of crisis is the one which has triggered a change of system before, and we
have the two models, we have the Chavez model and we have, if you want, the Chilean model. So, there could be a change in system.
Now, a few definitions, I´m going to go down here immediately. Capitalism comprises a wide spectrum of economic systems, from laissez-faire to pure capitalism, through social
market economics to state capitalism. So basically, capitalism is a sort of relatively wide concept, and at least the way I am going to apply it here.
Here, I wrote down which is most of the definitions of capitalism, probably I would say that land, labor, and capital must be privately owned, operated, and traded; that
investment, distribution of income, production, pricing and supply of goods, commodities, and services must be primarily determined by voluntary private decision in a market economy largely
free of government intervention.
That private rights and property relations are protected by the rule of law of a limited regulatory framework. Okay, however, and this is important, in a modern capitalist
state, legislative action defines and enforces
thebasic rules of the market
.In addition, the State provides some public goods and infrastructure and takes some limited actions to re-distribute income. That´s the definition of capitalism.
Okay, today, the anti-capitalists call the prevailing economic system of Latin America, neoliberal; a neoliberal system. Again, different countries in the region have somewhat
different economic systems but they probably have a common root, which I would call neoclassical. The anti-capitalists talk about neoliberalism and I would talk about neoclassical systems.
Now, which is in my opinion, my definition here such a system: is a system, a capitalist system, in which governments correct market failures. So, it´s not a classical
capitalism, it´s a capitalist system where you have government intervention to correct market failures, as long as that government action is not more costly.
As a result, and with some well-known exceptions, in Latin America today, production is in general in the hands of the private sector, and resources are mainly allocated by
relatively free markets.
So, you see, we have a basically capitalist system all over the place. However, governments implement anti-cyclical policies, regulate some markets, provide public goods, and
make some moderate to heavy investments in human capital of the poor.
So, this is basically, what we have is a capitalist system almost everywhere. If this system, the new anti-capitalist fight, because among other reasons, it has not eliminated
injustice and poverty and is generating environmental problems. So, the two main complaints against the system is that it has not eliminated injustice and poverty and that it is creating
Now, what is anti-capitalism today? The collapse of Stalinism and the fall of the Berlin Wall in the late 1980s and early 90s induced socialism and communism, which had failed
to adopt democratic and capitalist practices.
So you find, you know, democratic and capitalism adopted by the parties that called themselves socialist. Anthony Guiden modernized socialism in Great Britain; Fukuyama
proclaimed the end of history.
So, the idea was, you see, once the Great Wall fell, the socialist became aware that the system they had advocated for was inefficient, well that would have been the end of
the fight, right about there.
Now, the anti-capitalist movement is basically a movement, which started quite spontaneously, basically by a group of relatively young people. They react against neoliberalism
and are anti-globalization, anti-corporate, and pro-environment. You see, they are anti-globalization, anti-corporate, and pro-environment; and not against private property or anything.
This anti-capitalist sentiment is romantic, nostalgic of the pre 1930s. It feels that small is beautiful, favors cooperativism and participation. Is environmental friendly,
and values the local over the global, etc.
You see, it´s completely different from socialism. It´s a different movement, which has different purposes and different... Okay, but this is important for us here, when we
talk about Latin America, it is a sentiment which has made, up to now, very little inroads into political parties and into labor unions, and entrepreneurial associations in developing
countries, including Latin America.
Western anti-capitalism intellectuals expect, however, that this could change as a result of a major economic crisis, like the present one. But it´s a system which has not
been sold really, to the countries they want to sell it to
Okay, what is the anti-capitalist sentiment in Latin America? It´s basically, a system which has not had, up to now, any important influence on changes in the economic policy
in Latin America, of course in Cuba yes, but with the possible exception of Venezuela, Bolivia, Ecuador, and Nicaragua.
Okay, this is also very interesting, there is not one single significant anti-capitalist intellectual today in the world, in Latin America. In the past, I´m not going to take
much time about this, but in the past, you see, we had always very influential local intellectuals, which were advocating change within Latin America.
For instance, these two guys, Víctor Haya de la Torre and Carlos Mariátegui, they were famous you see, and after the Great Depression, the Latin American School emerged the
one that sort of favored this import substitution industrialization (ISI) and the intellectual, one of the two, because there was a Mr. Zinger in the U.S., but one of the two
authors of this Latin American School of the ISI policies, was Raul Prebisch, he was the leading figure, and now there´s not one single Latin American anti-capitalist
Now, Prebisch developed a theory, I think it is important to say that Víctor Haya de la Torre and Mariátegui, the ones I mentioned to you before, they were intellectually
importan,t but had absolutely no effect on economic policies or social policies in Latin America, Raul Prebisch did.
Raul Prebisch was extremely influential in the adoption of economic policies in the region. Okay, but the interesting thing about Prebisch is that he was not an
anti-capitalist, he was not a socialist.
Since the ISI doctrine failed, and we grew very little, the Prebisch doctrine was evolved towards what´s called the Dependency Theory, which was a Marxist theory, in which,
again, was intellectually important, but had no practical effect whatsoever on economic and social policies in Latin America.
My point up to now, is that through history, we have had a lot of attempts to change the system and we had a lot of intellectuals with socialist tendencies, trying to sell us
those ideas, but they never were never implemented politically in Latin America, except in the case of Cuba.
When the 80s came and we had the debt crisis and we switched back to the market economy, the debt was costly during sometime and we didn´t sort of feel the benefits
Now, these changes, this going back towards an open market economy in the 80s, have been paying off. You see, since the beginning of the century the GDP per capita levels in
Latin America have, by and large, been converging towards those of the developed countries. Social conditions, this is very important for the argument I´m going to develop in a second, social
conditions have improved and social unrest has been minimal.
In spite of that, some natural-resource-rich countries, Venezuela, Bolivia and Ecuador, have in the last years elected governments which promise,
which promise, to replace the existent capitalist system.
Okay, here let me say a few things about Venezuela, which I think is the most important one of them all. Venezuela, together with Bolivia, Ecuador, and Nicaragua are today
often considered anti-capitalist countries.
They do have certain features in common, among those, they have democratically elected governments which, through constitutional means, are in the process of seeking to be
re-elected, several times; they condemn the neoliberal system; and in Venezuela, Bolivia and Ecuador, they have taken actions to, or nationalized oil and gas, but not other enterprises in
Up to now, what has happened in Venezuela, Ecuador, Nicaragua, and so on, has been the nationalization of a few big oil companies. I´m not saying that that is not terrible,
but it´s very different from what we had before, when we had the socialists trying to nationalize everything.
Venezuela, Bolivia, Ecuador, and Cuba created the Bolivarian Alternative for the Americas, it´s sort of a socialist trading block, but which has absolutely no
Now, I want to say this, in contrast, in Bolivia and Venezuela, Presidents Evo Morales and Hugo Chavez, have advanced somewhat more precise definitions of the economic reforms
they want to implement, and which, at least in part, have common elements with the ideas of new anti-capitalists.
In Bolivia an anti
and socialist communitarian reform is to be implemented under the sign of equity, multiculturalism, solidarity and protection of the environment. Now, let me say that the emphasis in
Bolivia is on the communitarian reform, that´s what Evo Morales is interested in, mainly.
Now, Chávez, without any doubt, the leading figure of the anti-capitalist reforms in Latin America, has proclaimed the Bolivarian Revolution, he has aligned with Cuba, but
this after a civilian led military coup, you recall, a few years ago.
And what they seek, is a popular democracy, economic independence, equitable distribution of income, and an end to corruption in Venezuela. That´s what this Bolivarian
revolution seeks. Recall, the Bolivarian revolution seeks democracy, economic independence, equitable distribution of revenues of income, and an end to corruption. They don´t want more than
that, and that´s what I think they agreed upon, no more than that.
Now Chavez himself, has adopted the slogan, the slogan of his government is called: Socialism of the XXI Century, now this is a concept developed by Heinz Dieterich, who is
Now, which are his ideas? I´m just going to mention a few, this sound very much like socialism, this sounds very much like socialism; the first one is prices and values
democratically determined by those who directly create values; then the use of plebiscites to decide upon important questions, and so on.
So, Chávez does have a definite sort of socialist ring to his ideas. Up to now, the economic development of these countries, of Venezuela, Ecuador, and Bolivia, have been
relatively satisfactory, but this has a lot to do with the fact that the prices of oil were relatively high.
In spite of these high prices of oil, Chávez and Morales face very strong opposition and it remains to be seen if they will be able to implement their reform programs, I have
lots of doubts, even under the assumption that to make these reforms is their main goal. My guess is that the main goal is power, especially of Chávez, the main goal is power for the purpose of
So, now let me, now we have all this facts, which are a lot of facts, let´s try to analyze them to see what we can conclude. The first thing, the new anti-capitalist mentality
is essentially a romantic concept which has very little influence among political parties, labor unions, and entrepreneurial associations in general, and in Latin America in particular.
I doubt very much that the present financial and economic crisis will change that. It´s so romantic, and so on; that I think the crisis will have very little effect on
However, we have seen that income distribution in Latin America, is relatively very uneven, which led, among other factors, to very disruptive political instability in the
region. If you look at the region, the region has always been politically very, very unstable, very unstable, in the nineteenth century and the twentieth century, terrible; governments change
one after the other, but we will talk about it in a bit.
Given this uneven income distribution and democracy, center-left and center-right, coalitions alternated in power. So we always had changes in economic policies, from one to
the other. This has been proven with game theory. If somebody is interested I can give you literature. So one kind of easy to prove why this government rotated so much in Latin America.
Since the left, center-left coalitions were seeking basically income redistribution and the center-right coalitions order and economic growth, economic policies were
continuously and drastically changing. You never knew which policies the next government would implement.
If we consider that often changes in government took place in violent manners, military coups there are a lot of... sometimes 18 military governments in the region, the
environment was, of course, hardly conclusive to do growth. That is a very important fact, as far as I am concerned.
Moreover, this inequality and the economic politics it inspired became an invitation for intellectuals to put forward economic systems essentially socialist, which promise
distributed justice, we already talked about the intellectuals who sort of promise distributive
And for potential political populist leaders to pick up some of those ideas and run their electoral campaigns based on them. So, we have the conditions for populist to promise
Then, the Berlin Wall fell, and this is again another sort of, very important point, and political leaders all over the world fully recognized the failure of socialist
policies. As a result, socialist ideology became to accept private property and the market as the best resource allocation mechanism.
Socialists today accepted, you know, although they still have not come to think it was it, of course. But basically, they accept the market.
This is why, for example, the reformed socialist governments in Argentina, Chile, Brazil, Peru, and Uruguay; among others, have fully adopted the existing capitalist
institutions. You see, so we have socialist governments in name, let´s say, but, you know, essentially promoting capitalist policies.
Economic policies under these renovated socialist regimes are, however, not too different from those other regional countries, like for example, Colombia, Costa Rica, Mexico,
Panama, whose leaders are certainly not socialists, not even renovated.
In fact, income distribution in Latin America poses a political constrain to the type of economic institutions a country can have, if it wants to develop, and this is today
acknowledged by all parties concerned. My point is that, today, in Latin America, all governments, either on the right or on the left, recognize that you have to deal with the problem of uneven
Why? Because otherwise you don´t have social peace, and if you don´t have social peace, you don´t have the possibility of development; or you have these rotating government
policies, which don´t allow entrepreneurs to try to somehow make a prediction of what the future will be.
So, you need social peace, just as you need order, you know, to be able to develop; and this social peace problem requires some effort in income redistribution, and everybody
has accepted it, on the right and the left.
There seems to be objective limits, based on past experience, to tolerance of income inequality. Any country which exceeds those limits risks social and political disruptions.
In this sense, social peace could be seen as a public good, and this is my basic point,
that we should look at social peace to understand what´s going on in Latin America. We should look at social peace as a public good, and as such, governments might have a role
to play in providing it. Now, at the same time, Latin America is also short of human capital, and that which exists is also very unevenly distributed.
It is therefore possible, like most countries in the region are doing right now, like most countries in the region are doing right now, to redistribute and increase
simultaneously human capital by, targeting and increasing, when appropriate, social expenditures in education, health, and housing for the poor; and, financing those expenditures out of general
revenues, which are provided largely by middle and higher income families.
So, what you do is you not distribute cash, you do not redistribute cash. What you do is you redistribute the possibility for income. You tax one group and you provide
financing for education, health, and housing to the other group.
By the way, in the case of Chile, number six in the economic... 85% of the budget goes to social expenditures, targeted as no other country in the world does, on the poor. If
we would make a ranking, it has been made, the ranking on who targets best expenditures on the poor, is Chile.
So, Chile is financing 85% of social expenditures, which go to the poor, through taxes on the middle and upper income classes. Now in terms of GDP, if somebody might say, well
you don´t spend much, we spend about average for a country of our GDP level.
And we spent 22% of GDP, about 17% of those social expenditures, they are all targeted on the poor, that´s the thing. Although government finances such social expenditures,
they can, as the case of Chile and other countries proves, be produced and delivered more efficiently by the private sector.
You see, in our case, the government finances this 17 or 18 % of GDP of social expenditures, but most of that, is produced by the private sector. Now, the trick consists on
replacing supply subsidies with demand subsidies granted directly to the families.
So, if you ask me, which is the great contribution of the economic reforms in Chile is, it´s not having opened the country to international trade, free market and so on,
everybody knows that.
The big contribution of Chile is to have transformed supply subsidies, while the government was offering directly social services, into demand subsidies for the families, so
that you introduce competition into the process of these social services.
So, we have now competition in education, we have competition in housing, in public housing, we have competition in public health, and so forth. We switched subsidies from one
side to the other and I think that was a great idea.
Therefore, the change in the socialist ideology after the 1990s and the adoption in many Latin American countries of government financed social expenditures to benefit the
poor, is beginning to generate a set of broad policies agreed upon by center-left and center-right politicians.
Moreover, this solution, truly capitalist institutions and heavy government transfers to finance investments in human resources targeted at the poor, seems to be working as
witnessed by the recent experience.
Now, will the present economic crisis become so deep and the example of Venezuela so powerful, as to generate again a switch in Latin Americas economic system?
Well, my answer is the following: given the above broad economic and social policy consensus and the weakness of the anti-capitalist movement in Latin America, I cannot
imagine, that at this time, the region will experience an economic system change of any significance.
This, could happen so in one of two countries, Venezuela might be one of them. But basically, I am extremely positive about the possibility that market policies, and so on,
will win this confrontation with the anti-capitalist.
Actually, after having listened to me you might come to the same conclusion I have, I think the chance is almost null that we are going to have a big system change as a result
of this crisis or as a result of these anti-capitalist ideologies. Thank you very much.
Question:Unfortunately this ambiguity in the meaning of the word capitalism is exploited by those who are opposed to free markets, because they label the current economic
systems as capitalism, and capitalism is also used for free enterprise or private enterprise.
Therefore, what they say is, we have all these problems that you mentioned, caused by capitalism, which is meaningless if capitalism simply means mixed economy; so, what they
are slightly doing is claiming that is private enterprise and freedom that is causing these problems like poverty and pollution, and the remedy is intervention.
So wouldn´t it be better, rhetorically, if those who favor free markets would avoid the word capitalism, which makes it look like capitalists, the owners of capitalism are
benefitting at the expense of labor. After all, much of the economy is labor and not just capital. So wouldn´t it be better to just avoid the world capitalism, which gives fuel to the enemies,
and use private enterprise or free markets;
or if you want to describe the current economy, it´s a mixed economy, that way is clear it´s a mixture of government and market.
RL:Well, you see, it depends on what you... I have, I like another expression for the Chilean model, I like the expression social market economy. Why? Because it´s a market
economy, where the government plays a very important role in correcting some of the, what we call market failures, but plays a very important role in providing education, health, and service
for the poor you see. So, I prefer that to free enterprise.
Free enterprise is part of the system, but social market economy, in which the word social is not used exactly in the same way the Germans use it, but in a more technical
sense of correcting for market failure, seems to me a better expression. In general, what I have felt, when talking to people outside of Chile, is that they rather like this expression, is an
expression which does not generate any negative reactions, because it has the word social, which is like...good
Question:There is a real split, in which a certain element of the population voted very heavily one way and the indigenous population voted very heavily the other way, and the
election really became, according to the people I know down there, including my brother, a case of class warfare;
and I was wondering if you see this happening throughout Latin America or if this is just happening in a few instances such as Venezuela and Bolivia?
RL:I think this problem of indigenous population against the "whites", let´s say in quotes, is a problem in Bolivia, might be a problem in Ecuador, might be a problem here in
Guatemala, but I don´t think it´s a general problem in Latin America.
But, I do think that if you look at our history, the Latin American history, economic history, these big differences in income, which basically are differences in education,
that these big differences were the cause of our huge instability; and therefore, of this sort of, almost two century-long diversions, income diversions.
So, I blame that for this, and I think really, the way you put it, that if you look at education specially, but also, perhaps public health, and so on, as a public good which
you have to provide to achieve social peace. Just as you need social peace, you need order, and so on, to be able to grow, if you look at it that way, which is by the way, the way we have
looked at it in Chile, that way, then everything changes because it is not anymore redistribution, it´s not anymore.
It´s a government providing a public good, which is necessary for development. Unfortunately, I´m not an economic historian, a world economic historian, but my guess is that
if we go back to the 18th century or so, the beginning of the 19th century in Europe, you find that this is exactly what happened in most European economies.
That somehow, the elite agreed to finance these sort of education, health, and so on, for the poor; which allowed in those countries to have peace, and therefore, growth. And
I think it is now allowing us to grow, I mean, I say us Latin America, to grow.
Look, we have had almost no, as far as I know, we have had no military take over in the last twenty-five years or so, in the region. And this is fantastic, there was nothing
like that ever before in the history of..., and it has a lot to do with this.
It has a lot to do with the fact that we became aware that you had to develop human capital, and that the way to do that is by financing in a progressive way, let´s say.
Question:I do have a problem sir, with what you told us today. You talk about social peace, about the benefits of social peace, but you tell us nothing about the consequences
of using political power of the state to change this distribution of income.
What is the economic cost of doing that? And incentives to perform, you said nothing. Let me add, you started by giving us information and the relationship between GINI
coefficient and poverty and you show very strong positive correlations.
I do not know of any theory, that´s very misleading, because I do not know of any economic theory that says that more equality is better than less equality, and every time you
want to create benefits, like you are suggesting, you have to address the issue of the cost, there is no free lunch.
And, if you force, if you use political market place to change distribution of income, you are going to affect the incentives of those, you are going to create negative
incentives for those people who are the most productive, and your average income is going to go down, not up.
RL:Yeah, no, I couldn´t agree more. But let me tell you where the missing link is, there is no doubt that if you have pure income distribution the effect on growth would be
negative. There are so many regressions made on that and I think that it is quite clear,
if you want to receive something, you have a cost. But, but, if you use that money you collect and provide with that money education, and so on, for the poor, on the one hand
you make the poor more productive, that´s clear; there is no doubt because you are creating human capital.
But it´s more important, more important in my argument, my argument is that the benefit of having a society that lives together well, is so large that it exceeds by a lot, the
cost of collecting taxes and... now, what you can do, and what we have done, and Pepe Piñera explained that a little bit about that, is try to raise those taxes in the less distorting possible
What he did not say, but it´s what I´m telling you now, is true, we´re trying to collect taxes in the least distorted possible way. But through that we are trying then, to
spend heavy amounts really... Let me finish one thing and I am going to be ready. If you ask me, personally, the basis of the studies we have made and so on, would you go easier on social
expenditures in Chile, I would say yes.
However, when you talk to the politicians, two years ago, I talked to the then outgoing President of the country, who is an economist, who has a PhD from Duke, so I asked him,
Mr. Lagos, you are an economist, you know that social redistribution has cost, so how did you decide where to stop?
And his answer was exactly my argument. He said look Rolf, what you have to do is to redistribute the least possible to keep social peace. That´s his answer.
Question: Well, let me just ask you a question. If debt redistribution is positive in some way, why do you need the government?
RL:Because if you just distribute income, that´s your point, I suppose, that you just take money from here and you put it in the other side; well, that money is going to go
into drinking, and food, and parties, instead of going into capital.
I know that some of you will say, well, why don´t you let people do whatever they want to? If you let people do whatever they want to, then we go back to our past. So, I
warned you that this would be quite controversial.
Concept of Latin America
Behavior of Latin America
Otto and Fritz anecdote
Anticapitalism and capitalism
Conditions for populist leaders
Previous attempts to replace capitalism
One World, Ready or Not, William Greider
Selected economic facts
Poor economic growth record
Uneven income distribution levels
Capitalist economic growth versus socialist economic growth
Cuba versus Chile
Income distribution change over time
Change in economic systems in Latin America
Free market before the Great Depression
Import-substitution industrialization regime
Change in the economic structure
Current financial crisis
Modern capitalist state
Neoliberalism versus neoclassical thinking
New anticapitalist fight
Anticapitalist sentiment in Latin America
Lack of significant anticapitalist intellectuals
Víctor Raúl Haya de la Torre and José Carlos Mariátegui
Debt crisis in the 1980s
Development of social conditions
Anticapitalism in Venezuela, Bolivia, Ecuador, and Nicaragua
Bolivarian Alternative for the Americas (ALBA in Spanish)
Economic ideas of Evo Morales and Hugo Chávez
Socialism of the XXI Century
Analysis and conclusions
Constant changes in economic policies
Effects of inequality
The fall of the Berlin Wall
Reformed socialist governments
Reformed economic socialist policies
Tolerance of income inequality
Likelihood of change in economic system
Question and answer period
Wouldn't it be better to use terms such as private enterprise or free market instead of capitalism?
Is class warfare a possibility in Latin America?
What is the economic cost of using the political power of the state to change the distribution of income?
If debt distribution is positive in some way, why do you need the government?
Rolf Lüders explores the recent anticapitalist sentiment that is growing in Latin America, especially in Venezuela, Cuba, Bolivia, Chile, and Argentina. He defines the concepts of capitalism and anticapitalism and explains how the latter differs from socialism. Lüders also explains how major economic events affect the entire economic system and illustrates the change of income distribution over time, using Chile as an example. He quotes well-known anticapitalist William Greider and briefly describes the Bolivarian Alternative for the Americas. He also describes the shared economic thinking of Bolvia's president, Evo Morales, and Venezuelan leader Hugo Chávez. In his conclusions he emphasizes that social peace is essential to economic development.
Plenary Session II, "The Roots of the New Anti-Capitalist Mentality"
Thirty-Fourth Annual Conference, APEE
April 6, 2009
A New Media - UFM production. Guatemala, April 2009
Camera: Mario Estrada, Mynor de León; digital editing: Luis Barrueto; index: Sergio Bustamante; content revisers: Sebastian del Buey, Daphne Ortiz, Jennifer Keller; transcript: Lucía Canjura; transcript reviser: Sofía Díaz; publication: Mario Pivaral / Carlos Petz
This work is licensed under a Creative Commons 3.0 License Este trabajo ha sido registrado con una licencia Creative Commons 3.0
Rolf Lüders is professor at the Institute of History, Pontificia Universidad Católica de Chile. He was Minister of Finance and Economy of that country during the period 1982-1983. He was also a prominent member of the Chicago Boys. Lüders is author of numerous economic articles, including: “The Economic Commission for Latin America: Its Policies and Their Impact” and “Understanding Development in Chile: Are the 1930s a Turning Point? – Introduction.”