Latin America's backlash

AMALAISE is abroad in Latin America. In Mexico, guerrilla groups pop up in dirt-poor rural parts. Argentina's trade-unionists take to the streets against plans to cut welfare and ease labour laws. Brazil's landless clash with its trigger-happy police. Peruvians lose faith in their tough and reforming president; Ecuadoreans elect a proclaimed populist as theirs. Almost everywhere both rich and poor feel less secure, as drugs, guns and violent crime take an ever-stronger hold on the shanty towns that ring so many cities.
     Not all these troubles share a common cause: Colombia's guerrillas, far more numerous and nasty than Mexico's, have been active for 40 years. Yet one thread runs through them all (see page). A decade of democratic regimes broadly committed to low inflation, free economies and open trade has not, except in Chile, brought sustained growth; and, while laying the groundwork for that, it has both made old woes more visible and added some new ones. The region stuck to its chosen path through the buffeting of Mexico's 1994-95 currency crisis. But the rewards are still fairly meagre: it may grow by only 3% this year, and, with luck, by 4-5% next. And little of such growth as there is finds its way to the poor. For many, the wrenching changes brought by privatisation, trade opening, and monetary and fiscal prudence have meant bankruptcy, unemployment or the loss of state handouts.
     So is the region on the brink of a populist or authoritarian upheaval? Probably not. There is growth, after all: both Mexico and Argentina are recovering from recession. Income distribution has improved a bit--not before time--in Brazil, with the defeat of hyper-inflation. Ecuador's president, once elected, is forgetting some of his wilder promises. In Paraguay an attempted army coup last April was quashed. A recent poll region-wide found only 27% of respondents judging their own country's democracy as working well; yet 61% still see that as the best form of government. The voices of discontent have been unable to articulate more persuasive ways forward.
     Yet they cannot be ignored. Discontent springs from huge social needs. Sustained growth will in time do much to meet these. That means sticking firmly to market-opening. But there is much else to do on the long road from here to there.

The ways ahead
The challenge is to make both governments and markets more efficient. Beneath the impressive technocrats now managing most Latin American economies, most government agencies remain what they were before: overstaffed and undercompetent bureaucratic disaster-zones. In the creation of wealth, businessmen--and especially would-be businessmen, until they too learn who best to bribe--face networks of red tape. Over-regulation of labour markets hits job-seekers. Employment taxes hit employers, workers and would-be workers alike. Speedy, honest and open civil justice is needed both to ensure the enforcement of contracts and so--perhaps even more important--the confidence that they can be enforced; in practice, nearly all courts are slow-moving and too many corrupt.
     In the communal use of wealth, the bureaucrats' work would often be better handled by the private sector: pensions, say, or the upgrading of infrastructure. Outright privatisation has brought a rush of capital into telecoms; private concessions can--and in some countries do--improve ports, railways and (though Mexico mishandled its attempt) busy parts of the road system. But in poor countries most of such core areas as education, health care, water and drainage will remain, unavoidably, government's job. The trouble usually is not that it spends too much, but that it provides little value for money. Many tasks now done centrally should be devolved to lower levels of government (provided, notably in Argentina and Brazil, that these are subject to fiscal discipline). Devolution can go far: some Brazilian states have handed budgets directly to schools and parents--and got better education. In partnership with government, the region's multiplying self-help community groups can improve anything from primary health care to housing to environmental protection.
     Alongside such practical matters, Latin America badly needs to build confidence in the institutions of public life. It is trying to combine democracy with market economics in deeply unequal societies. That can never be easy. It is made harder still by widespread, and often justified, cynicism. The immediate winners from privatisation are usually the well-off; bad enough, in the public eye, but still worse if they are also the president's cronies. Police forces and law courts will seldom be popular; much worse if everyone knows that crime will go unpunished (or be committed) because their officials can be bought. The world, rightly, will never believe in the purity of politics; but at least parties and politicians need not be left free to prove blatantly how right that cynicism is.
     Habits and institutions cannot be transformed overnight: look at the opposition Mexico's president has faced in his steps away from one-party rule. Some countries' rigid constitutions, born as they rediscovered democracy but not yet market forces, make change even harder: Brazil's almost dictates bureaucratic inefficiency and fiscal laxity, while encouraging an anarchic party system that leaves law-making easy prey to special interests. But politicians and the powerful can be subjected to independent scrutiny. Outside Mexico, autonomous electoral bodies and free media have made most Latin American voting surprisingly fraud-free. The appointment of judges, enforcement of human rights, auditing of public accounts, conduct of privatisations and subsequent regulation--all can be improved by similar means.
     A populist reversal of Latin America's course is far from imminent, but the malaise is real. It should put governments and politicians under notice: they must complete their macroeconomic revolution, and complement it with speedy microeconomic and institutional reform, or risk seeing their hard-won gains eroded by cynicism and discontent.

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