Research Project: The Causes of Latin America Economic and
Social Tragedy, and Possible Solutions (2003)

Josino Moraes
Latin America Economic Researcher
www.josino.net
email: josinomoraes@hotmail.com

Latin America (LA) in this text refers to all the peoples who live from Mexico to the Strait
of Magellan and speak Spanish or Portuguese. Cuba is not included in this analysis.

Part I.  Background

The broad questions in Latin America are why this part of the continent, with the possible
exception of Chile, represents an economic and social tragedy, and how to change such a
tragic situation.

Latin America exports people seeking for jobs, rather than goods, as was stated by
professor David S. Landes of Harvard. It would be important to include prostitutes as part
of these people, and drugs, as well.  Colombia is obviously the extreme example in Latin
America due to the narcotraffic guerrillas, a modern mix of pirates and terrorists.  
Exporting goods would be much better for all of those who dream of a better future for
mankind.  Today, it seems the first priority for the civilized world is the fight against
fanatic Muslim terrorism and its allies. But,  perhaps, it would be a good idea to consider
Latin America as a second or third priority. Besides, it could be taken in parallel with the
first one.

The biggest problem in LA seems to be the narcotraffic guerrillas -  Fuerzas Armadas
Revolucionarias de Colombia (Farc) and Ejercito de Liberacion Nacional (ELN) -  but an
eventual victory against them would not solve the LA problem.  First of all, complete
victory would be quite difficult due to the relationship between the society and the
Colombian Army.  The Army is one of the official corporations and probably has a lot of
privileges as the Brazilian Army does, and local "patriotism" only appears when the
national soccer team plays. In fact, it is just a matter of self-esteem. The people in LA
found out that they are good at playing soccer, then they feel like they are part of the
First World when this is the theme.  Sometimes they even feel superior to those nations
who won the fight against poverty and misery.

This is insightful.  During World Soccer Cup 2002 a foreigner in Rio de Janeiro wrote: " a
visitor from Mars - or the United States - might be excused for thinking war or some
plague has made Rio a ghost town".  In fact, factories, banks, etc., stop working during
the Brazilian games in World soccer Cups.  In 1989, a Brazilian plane crashed and several
people died due to a soccer game when the Brazilian team was struggling for a vacancy
in the 1990 World Cup.  The crew was so anxiously listening to the game that they typed
"southbound" instead of "northbound" on the computer!  Could anyone imagine Brazil out
of a Soccer World Cup?

The only solution to Latin America seems to be eradicating the local stupidities and
misery -  not hunger, it does not exist in LA -  through the working of a free market
economy. LA has just a kind of subcapitalism or subfree market economy.  The "sub" can
be added because there are many traces of a free market economy for the small and
medium private business.  The worst of all adversaries against the possible future of LA
are the hegemony of Marxism and insanity in the media, and in elementary, high school
and university education, which leads to a somewhat anti-American worldview.

What exactly is the LA misery?  It is a particular situation where part of the children are
raised in slums ("favelas, acampamentos, invasoes, ocupacoes", as it is said in Brazil;
there are the other LA equivalents) without education or any moral principles or order.
These children are raised without any expectation of participating in the economic
process.  They make enough money to eat but it does not help.


Part II.  Evidences of the Tragedy

1. State Decomposition

There are several evidences of the decomposition of the Latin American States.  Take the
Brazilian case as an example.  The State does not have complete control over the whole
territory and the monopoly of  force.  There are several areas called "favelas, ocupacoes,
invasoes, and acampamentos" (slums) in urban and rural areas where the police do not
enter, except on very special occasions like before elections or after the death of a well
known person related to one of these places.

In Rio de Janeiro, the local media talks about a "Parallel State". This makes sense.  
Sometimes, these "Parallel States" or "Micro States" within the Legal State determine the
closing of stores and businesses in local neighborhoods to respect the death of some
high-ranking drug dealer.  They have organized "quadrilhas" (cells) with from five up to
sixty men. They have military guns and operate with the techniques of Latin American
guerrillas.  They rescue their companions from prisons and penitentiaries.  Inside the
prisons, inmates have almost full command of their prisons and penitentiaries.  They
organize themselves within these prisons -“ Red Command, Capital's First Command,
Third Command,  etc".  They have guns and cell phones.  Once there were 18 prison
rebellions at the same time.

There are some economic features which indicate the LA States degradation.  Again, take
the Brazilian case.  The basic energy sector - generation and transmission - which is
under public management is broken as a part of the whole broken State.  There is no
economic growth in such a situation.  The roads - the railroads are insignificant as an
option to the cargo freights - are in terrible condition.  In fact, the probability of
casualties in Brazilian roads is 30 times higher than in the USA.

Another interesting feature about the economic condition is the burden of the public
debt.  Since 1996 the cost of the public debt in Brazil is by far the highest among the so-
called "emergent" countries, running at about 8.0 to 8.5% of the GDP.  Public elementary
and high school education does not work at all.  Public health, instead of being improved,
has been worsening during the last decades.  In Brazil, besides the traditional yellow
fever, malaria, Chagas, schistosomiasis, etc, it now has leishmaniose and dengue -

mosquitoe aedes aegypti
-  in Campinas, SP, one of the richest parts of the country.  
Many small towns in the poor States have no fresh water which is one reason for these
diseases.  This has led Guaribas' population (Piaui, Brazil) to dispute president Lula's
hunger zero compaign. They say they are "hungry" for good water, not food.

Another feature closely related to the degradation of the LA States is the level, or
intensity, of corruption.  Once more, Chile is an exception. International statistics are
very clear concerning the increase of corruption in these latest years of "democracy" in
LA. In fact, it is the system of direct elections which resulted in Chavez, Gutierrez, Lula,
and to a real "democratization" of corruption. It is no longer simply the higher levels of
public employees who accept bribes; it has now reached the lowest level of public
employees.  This is the LA "democracy".  It is the democracy of bribery.  The most serious
product of this process is the corruption that has spread over innumerable police units  
and perhaps even into the Armed Forces.

2.  Economic Quantitative Evidences

This analysis does not deal with quantitative evidences as an input variable such as
natural resources, labor supply or human and physical capital; but only with the
quantitative evidences as a result of a macabre economic process. These quantitative
evidences are observable thanks to the monumental work of Professor Angus Maddison,
Explaining the Economic Performance of Nations. The data for the estimated 2002 GDP
per capita are mine.  I take the cases of Brazil and Argentina where fascist ideas have
prevailed over labor relations in the private sector. Besides, they are the two largest
countries in LA. Argentina is particularly interesting. It  can be said it was once part of
the team of developed countries.  In fact, in 1929 Ortega y Gasset wrote: "The
Argentineans are not content in being one people among peoples; they aspire to an
exceptional destiny" (cited by Guy Sorman in
A Nova Riqueza das Nacoes, pg. 35).

I started my calculations for 2002 from the 2001 GNI per capita, data from the World
Bank. I calculated them based on the following premises: For the capitalist countries:
growth rate of GNI per capita = 1%.

Argentina: growth rate of GDP per capita in 2002 = minus 10% and average exchange
rate 1 US$ = 2..00 pesos

For Brazil I take the estimated figure given by professor Ricardo Bergamini.

The figures are:

Argentina: 3,130 US dollars
Brazil: 2,650 US dollars
Capitalistic countries: 26,490 US dollars

These figures are taken as a percentage of average GDP or GNI per capita of the Western
European capitalist core and its offshoots, a total of 14 countries.  It was done this way
based on the reasoning of Professor Angus Maddison: "National economies do not grow in
a vacuum.  Their performance are strongly influenced by the opportunities or constraints
which arise from relations with other countries" (
The World Economy in the 20th Century,
OCDE, Paris 1989, pg. 25).  Look at these miserable results. After 2002 it is quite
dubious what Mr. Louis Emmerij, president of OECD Development Center, said in 1989, in
the same work cited above "The idea of a homogeneous Third World is no longer tenable,
given rapid growth in Asia, negative growth in Africa, and stagnation in Latin America". In
fact, fresh data and "estimation" for 2002 indicate that Africa is growing faster than LA.

The word stagnation is too weak to express Latin American current reality. The most
important reason to clarify this fact is that in both Argentina and Brazil, the farce of an
exchange rate of 1 to 1 against the US dollar is definitely finished. And there is no way
back.  So, the data for 2002 expresses almost the whole truth. If my estimated figure for
Argentina turns out to be inacurate, it will be due to the fact that Argentina has had an
exchange rate of 1 to 1 for  most of 2002 and finished the year at 1 US$ = 3.40 pesos. If
so were the case, the coming figure for 2003 would confirm my data.
     
            1820     1870     1890     1913     1950     1973    1989     2002

Brazil        52%      36%      29%      23%      30%      33%    31%      10%
Argentina   na        60%      69%      77%      65%      48%    29%      12%

These data can be visualized below





















3.  Qualitative Evidences: Institutions and Culture

3.1. Institutions

The political power in LA is organized by copying the US system,  so there are the
Executive, Legislative and Judiciary branches.  It is quite difficult to choose which one of
them is the worst. The first main difference between the US and LA is that the Executive
branch here has   more power than in the States. It is a kind of "presidential kingdom".  
It is supposed that it is a heritage of the ideas of Auguste Comte positivism and a
history of dictatorships.  For instance, Brazil's Central Bank (Fed) chairman is just a
servant of the president. Hence, since 1942 Brazil has had eight different "currencies".

There are plenty of Constitutions in LA. Each group that comes into  power writes its own
Constitution.  There is one thing they all have in common: they live off taxes, as well
stated by the Brazilian Huascar Terra do Valle. Hugo Chavez, Venezuela, made a new
Constitution as recently as in 1999. Since 1824 Brazil has created eight major
Constitutions and the decree of 1930, made by the dictator Vargas which ironically seems
to be the most important of all those documents.  Besides, their formidable length - the
1988 Brazilian one is said to be the largest in the world -  there are an abundance of
amendments.  

The current Brazilian Constitution has had forty-five amendments in fourteen years while
the American has had only twenty-six in two hundred and fifteen years.  One other
interesting feature of the current Brazilian Constitution is that it has the so called
"clausulas petreas", or eternal clauses. What a different idea of that expressed by the
first American Chief Justice: "The people make the Constitution, and the people can
unmake it.  It is the creature of their own will and lives only by their wil".

A very important Brazilian institution is the Labor Justice, a specific branch of judiciary
created for solving labor "conflicts".  It employs as many as half of the Brazilian lawyers
and consumes as much as half of the justice budget.  It does not solve conflicts, but in
fact initiates them.  This is the worst institutional problem for the production of goods
and services in general.  I have not deeply studied the Argentinean case, but I am
convinced that it is very similar to the Brazilian case.  The origins of the problem for both
countries were the dictators Vargas in Brazil (1930) and Peron in Argentina (1943).
Vargas was under the strong influence of Augusto Comte's Positivism  and both of them
were under the strong influence of fascistic ideas in general, and in particular on
regarding labor relations.  

In Europe, after the great victory of democracy in 1945, those ideas were abandoned.  
But, in Brazil and Argentina they gained more and more strength and were regulated
more and more through laws, regulations, specific legislation, etc.  All of these ideas
stood against the principles of a free market economy. In 2002, Sao Paulo municipal
authority passed a law forbidding stores and shops of opening on Sunday, considered the
second most profitable day of the week.  After 20 years of producing goods in agriculture
as well as in the small furniture industry, I wrote a book giving my testimony and studies
about the subject:
A Industria da Justica do Trabalho - A Cultura da Extorsao (The
Industry of Labor Justice - The Culture  Extortion). I think, this culture of extortion
appears in different ways and in different degrees all over LA.

3.2 Culture

One must consider the most important cultural characteristics  of LA peoples today:

a) The stupid socialist idea that the State generates wealth, when in fact, in LA's
economies, it is the most predatory of all the elements involved. It destroys, through its
voraciousness for more taxes the small and still existent health of the private sector.

b) The culture of extortion against the companies as cited above and even against the
Legal State.

c) The culture of holidays.  If the holiday is on Tuesday or Thursday most people do not
work on Monday or Friday.  Any new excuse becomes reason enough for a new holiday by
the federal, state or municipal authorities.  Campinas, an industrial city of about 1 000
000 inhabitants, 60 miles from Sao Paulo has added two new holidays since 1998.
Besides, people take many "holidays" not recognized by law, like carnival in Brazil.  This
leads to the ultimate conclusion that people in LA do not relate work to wealth.  There is
no such reasoning for the cause-effect relationship.

d) The idea that bribery is normal just because almost everyone does it. This feature has
been worsening in the last years of "LA democracy" due to the local media.  It overdoes
the scandals in the high levels of public administration so that the lower levels conclude:"
If they do it, why not me?".  This irresponsibility in the media happens also in other
spheres of social life as well.  Sometimes, the media destroys the reputation of good
citizens.  In fact, the media here act as the Big Judge because the fines for libel are
ridiculous.  This seems to be another bill for the lack of a real judiciary.

3.3 The Social Tragedy or The Current  LA War

This tragic economic scenario at work over the last decades led obviously to what can be
called the social pitfall. It is indicated by the existence of several kinds of ghettos.  The
Brazilian case illustrates the same for all over LA. In urban areas there are "favelas"
(since the beginnings of the 20th century in Rio de Janeiro and since 1960 they have
spread into the big cities and so on), and "ocupacoes e invasoes" (since 1990), and in the
rural areas there are "acampamentos" (since 1980).  Here, rising levels of violence
suggest a new phenomenon, a new type of war which could be called the Latin American
Internal War (except for Chile; Argentina and Uruguay are just seeing the beginning of
this phenomenon due to their past of relative richness. Bolivia is a very particular case).

A large number of the people who live in these slums are excluded from any productive
process.  It is an economic situation process quite worse than slavery because at those
times slaves had a function in the economic life of society.  At the present, these people
have no economic function.  They begin their lives playing with guns and learning how to
kill for fun.  They are a new kind of two-foot animal, however,  much more dangerous
because they have two free hands.  This is the basis of what could be called the LA War.

The LA War does have important economic consequences. Huge public and private
resources have to be allocated as authorities try to contain the intensity of this new sort
of war. It is a continuous cycle from the social tragedy into the economic pitfall; a vicious
circle.  The economy generates more misery which then worsens the economic situation.  
For example, road-transport companies spend a lot of money trying to defend themselves
against the attacks of cells of hijackers, which raises the cost of freight.  This is an
important item because most of the transport in LA is by road.  Even many small
businesses have to hire people to defend their property.  An important part of the
working force is just standing in front of these small businesses instead of producing
goods.  This presents a real picture of a degraded State.  Some years ago the
InterAmerican Development Bank estimated a cost of 10% to 14% of GNP for security
purposes in LA.

Part III.  Trying to Explain the Tragedy

It has been a working hypothesis that the official corporations, public companies'
employees, legislative houses and in general all classes of politicians have been
gradually taking over and destroying the state power in the last decades.  At the same
time that taxes rise and the public debt/ GDP increases permanently  - especially as the
debt becomes more and more of short term kind - public services deteriorate at incredible
rates, in all areas.  

A recent study on tax ranking for 2002 shows that Brazil has the third highest tax rate in
the world, just below Sweden and Switzerland.  LA countries are divided between those
who work and pay taxes and those who live off taxes, the latter of which is increasing in
number over time.  In fact, it can be said that pensions only exist for the public and
public companies employees. In fact, many public pensions continue after death.  This is
the case for public pension employee's unmarried daughters, who deliver babies but never
get married.  In some cases it can even be extended to granddaughters.  It also happens
in the case of old public employees' young widows.  The pension of such a public
employee usually lasts decades.

About 99% of small businesses have to withhold money unlawfully in order to survive. For
the owners, it becomes an extra load to bear. The main idea here, is that the existence
of a healthy state is the condition sine qua non for escaping from the current course to
the economic and social pitfall.  If these ideas are consistent, the pre-condition to
reverse this situation is a nation rebuilding or state rebuilding pari passu with a grass
roots change in the local culture into a free market economy and a society without
entitlements.

The second most important feature in trying to explain the tragedy is the lack of "social
capital"  in the concept of James Coleman, cited by Francis Fukuyama: "the ability of
people to work together seeking for common targets in groups or organizations".  This is
the center never in LA.  The immediate question that arises is: Why don't we have social
capital in LA?   The answer is quite simple: it is a consequence of contaminating LA
societies with Fascist and Marxist ideas, which has long destroyed trust among people.

Trust is the most important pillar of  social capital. Alan Greenspan in 1999 at the State
University of Grand Valley said "without mutual trust, no economic system works".  In
fact, the works of Alain Peyrefitte,  
A Sociedade de Confianca , and Francis Fukuyama  
Trust give us broader insight and improve our knowledge of the importance of trust and
the creation of social capital as a premise to economic success.

In LA, Argentina provides an outstanding example of the difference between human
capital and social capital.  It has a magnificent human capital, and  however it is the
best example of economic chaos in the world. Fascist, since Peron and Marxist ideas,
have been destroying its social capital. Japan and Argentina are the two extreme points
of success and tragedy in modern economic history.  In 1870 they had about the same
GDP per capita according to Angus Maddison and in the data for 2002, as I calculated
here in part II, 2 , the relation is 13:1.

Part IV.  The Hard and Possible Solutions

1. The National Solution

1.1  Creation of Conservative Institutes in LA

Creating or supporting the existing conservative institutes in LA would help. Brazil
already has six small ones.  The goal would be to spread the basic idea that a free
market economy and not a privileged society is the only way to eradicate poverty and
human misery.  These units should not be just study centers of conservatism as they
exist today in Brazil but real pillars of the political struggle.  The first target people
would be the businessmen - small, medium, large, and even the private oligopolies and
monopolies - because they have more sensitivity in these areas.  

They can understand faster because they are more educated than the average and their
sufferings - mainly the small and medium businessmen - are more significant.  The rich
people have to be convinced that living among the miserable is not a good business.  If
the goal is achieved, the idea could gain some economic support for the political battle.  
Another point would be to infuse free market economy ideas into the Army.  Fortunately,
they are anti-Communist, but unfortunately they have been under the strong influence of
Comte's  positivism.  The point would be raising forces for the political battle.

1.2  Creation of an Alternative Media

The media in LA is under the strong influence of a mix of Marxism and idiotism.  Marxism
has a long history in LA.  The European immigrants brought it in the end of the 19th
century. It has had a successful history because of the favorable existent social
conditions, something that did not happen in the USA.

Besides the media, Marxism is deeply integrated into our education system.  Signs of
Marxism are everywhere. Marxism brought the feeling of envy from an individual point of
view to a social level.  In our countries the employees first envy the employers and then,
in the second step, hate them.  The LA media teaches society and vice-versa to hate the
successful nations, and above all, the leader of them, the USA.  

This idea came up to my mind when reading a headline of one of the most traditional
newspapers in Brazil about the seven-member crew dead on the shuttle Columbia in
February 2003.  When all the civilized world was shocked by such a horrible fatality - the
death of seven servant heroes of humanity - it said: "Stunned, country seeks a positive
message".  And the beginning of the report began like this: "As happened on 9-11, the
USA wants to grow against adversities".  It was quite hard to read such a comment at
that time.

The insanity of the local media has two faces.  One of them is just to explore and make
money, mainly through television, by preying on the lamentable mental state of our
peoples.  The second face is a methodology for destroying society's ability to think and
memorize.  This is a curious process, and a vicious circle.  The more the society becomes
stupid the more the media feels the necessity of becoming more and more stupid to feed
back the new high level of stupidities.  The media creates national heroes to raise
people's self-esteem.  They don't worry about Nobel prizes, for instance.  In Brazil and
Argentina these heroes are the soccer players, and in Venezuela the beauty of their
women, just because they have won some universal beauty contests.  If a new good
player appears in any kind of sport, even if it is an exotic one and unusual for LA culture,
everybody becomes interested.  

This is the case of tennis in Brazil; in the current days "favela" boys are learning how to
play tennis.  If a Brazilian female model becomes an international known top model she
is said, by the local media to be the most important in the world.  There is not a rational
connection with the real world.  The local media creates an imaginary world where LA is
part of the developed countries.  The high levels of violence which clearly indicate a new
type of war in LA is said to be "normal"  based on this reasoning: the violence does exist
in the whole world, including the developed countries.

The media loves mysteries. If there is no mystery it creates one; it is part of this
macabre game.  It never raises the questions of why, how, under what circumstances,
etc.  Besides, the causes of LA misery are always said to be outside itself -  a Leninist
axiom - that reminds me of a  Freudian concept, a self-defense mechanism called
displacement.The result of this interaction between media and society in LA also reminds
me  of  Goehte's thought:

Who, in three milleniums,
Is not able to realize
Live in the ignorance, in shadow,
At the mercy of days, of time

These are the pre-conditions (1 and 2) that are necessary to wake up the people who pay
taxes and open the way to a change in the LA future. The viability of this solution would
strongly depend on conservative international support like CATO institute, Fundacion
Nacional Cubano Americano, etc.  Even the developed countries have to be convinced that
helping LA in  this way is cheaper than shutting borders and fighting against the Latin
American international drug dealers.

2. The International Solution

This is the most unlikely in the short-term.  This idea was suggested by a great
economist: the late Rudiger Dornsbush.  A team of international economists, preferably
originating from small developed countries, provided with all this tragic data and their
tendencies, would arrive in LA  asking: "These are the facts gentlemen; may we help to
find the way out to the future?"  Perhaps,this should be the goal and purpose of this type
of research project.