poor inheritance

In the going backwards post I lamented that Venezuela was headed even further off the course of progress. Quibbling over whether these regimes in Latin America were more of the left or right misses the bigger point. They are essentially operating in a manner antithetical to freedom as a result of their earlier history.

Western Europe had the initial common belief structure of Latin Christendom. But that initial belief structure evolved differently in different parts of Europe as a consequence of diverse experiences. In the Netherlands and England the experiences fostered the evolution of the belief structure in directions that led to modern perceptions of freedom. In contrast, Spanish experiences perpetuated not only an aversion to economic activity but also beliefs underlying the medieval hierarchical order.


The Latin American story starts with Spanish (and Portuguese) colonization of the new world. The entire pattern of settlement, trade, and development was geared to the extraction of precious metals for the Crown. It was an authoritarian system rules from Madrid. Neither self-government nor competitive markets existed. The Crown granted exclusive monopoly privileges to selected merchants and trade was confined to a small number of ports in the whole of South America. The objective of the Spanish mercantilist structure was to implement the movement of precious metals to Spain, not to promote the development of Latin America. Such a pattern of settlement and extractive economic policies had profound implications for Latin America after independence.

The defeat of Spanish armies resulted in the fragmentation of the former colonies into new republics. Many of these adapted a version of the United States Constitution as a model for independence, but the consequences were radically different. Without the heritage of colonial self-government and well-specified property rights, independence disintegrated into a violent struggle among competing groups for control of the polity and economy. Capturing the polity and using it as a vehicle of personal exchange in all markets was the result.

Establishing order became a goal in itself, thus creating and perpetuating authoritarian regimes -–the phenomenon of “caudillismo” became pervasive.


Under the royal system, rights were granted to individuals and groups based on personal ties to the Crown. The result was huge land grants to wealthy individuals and the church; rights and privileges to the military; and a series of local monopolies in production and trade. Self-government was completely absent.

There was no shared belief system about the role of government, the state, corporate privileges, and citizenship. There was, however, a common set of beliefs built on personal exchange which fostered strong personal relationships but undercut the construction of institutions of impersonal exchange. The absence of consensus about legitimate ends of government and how society should be organized resulted in failure to police limits to the state.

Yet inherent political instability did not completely halt economic growth. In Latin America it produced neither economic collapse nor stagnation but continuing instability, extensive rent seeking, political authoritarianism, adverse income distribution, and an inefficient provision of public goods, with slow economic growth.

The result was not a universal protection of property rights but a selective protection confined to the relevant asset holders. Two centuries after independence the historical contrast between North America and Latin America continues to provide the underlying basis for the contrasting performance. The United States retains a robust system of federalism, democracy, limited government, and thriving markets. Much of Latin America is still characterized by stop-and-go development, fragile democratic institutions, questionable foundations of citizens rights, personal exchange, and monopolized markets.

source

The economies of the region will continue to experience inconsistent progress until they can overcome this legacy. The needed institutional changes, if they are to occur, will require a change in beliefs and attitudes and some enlightened leadership either from a grass roots movement or elected officials. I'm not holding my breath.