Francisco José Moreno and Alejandro Eggers Moreno
Wednesday, July 16, 2003

In 1966 Che Guevara traveled from Cuba to South America, his mission to incite the Andean cordillera to an armed struggle against capitalism and the United States. He failed and was killed by the Bolivian army in 1967. Today, American political and economic policies threaten to reawaken his dream.

Guevara, an Argentine doctor who had never been to Cuba before he landed there with Castro in 1956, was unfamiliar with the conditions that had made the revolt against the military dictatorship of Fulgencio Batista possible on the island.

His failure to ignite even a modest South American uprising was due largely to his ideologically driven fairy-tale theory of revolution, which did not take into account the importance of the middle classes in modern political arrangements.

He was blind to the fact that this was the class in a position to provide the ideas, leaders, organization and propaganda he needed, indeed the class from which he and Fidel Castro and almost every single leader of the Cuban revolt had come. Neither revolutionary rhetoric nor the appeal of his personality could substitute for its support.

During the Cold War years the middle classes of the Andean nations, as of the rest of Latin America, were on the side of the United States and opposed to the expansion of Soviet influence.

Small as this middle sector was in most countries of the region, its political influence was decisive. The rulers of these nations could not keep their populations on the American side without the active support of teachers, army officers, union leaders, journalists, technocrats, small businesspeople and practicing professionals.

Latin American governments, regardless of their character, tried to secure the support of their middle classes. When the government was an electoral democracy whose leaders depended on popular suffrage, it enacted economic policies that protected organized labor and national business interests. When the regime was dictatorial, and under no pressure to seek electoral validation, it would still try to benefit, and receive the support, of the middle classes even if it chose different groups to protect and benefit.

The region’s weak electoral democracies as well as its endemic military dictatorships acknowledged the need for support from the middle class, realizing, even when reluctant, its pivotal political position.

American policy during the Cold War was aimed at keeping the governments of the region in friendly hands and thwarting any effort from Communists or Soviet sympathizers to gain power. This objective was pursued with resolute pragmatism. As long as the government was friendly and anti-Communist, deviations from democracy or absence of perfect market freedom was never a concern.

Today this is no longer the case. Now that the confrontation with the Soviet Union has ended, the U.S. increasingly interferes with the internal economic organization and political life of Latin American countries. The United States, directly and through international institutions, insists on the immediate adoption of electoral democracy and the establishment of open markets, a dual push that has come to be known as the Washington Consensus.

After a decade of pressuring Latin American countries to toe the new economic line, it is clear that the forced creation of “instant” free markets has dire social and political consequences; that as a few benefit, the majority suffers.

Among those most directly and forcefully hurt by the reckless manner in which the IMF and the financial interests it represents pushed their economic agenda in the 1990s has been the region’s middle class. Those below the middle class in the socioeconomic rung have also been hurt, but the negative effect on them has been longer in coming and more muted for the simple reason that their starting point was lower and their expectations less.

The insistence on “instant” unregulated markets, given the social cost it comes with and the political antagonism it engenders, is providing the ingredient missing in Che Guevara’s dream for a region-wide anti- American revolt.

In the euphoria of the Soviet Union's collapse the United States began to insist on the adoption and implementation of specific economic policies. Under American leadership, the wealthy democracies of the Group of Seven (G7) put together a formula for all developing countries to follow.

This prescription called for the unrestricted movement of capital, for low inflation, for the dismantling of protectionist barriers, for the divestment of state-owned enterprises, for restrictions on the power of organized labor, and for acceptance of IMF tutelage.

In addition, the U.S. has taken it upon itself – not always with the enthusiastic support of the other Group members – to insist on the parallel adoption of electoral democracy.

But these demands are not asserted uniformly throughout the world. When they concern countries the United States cannot pressure or does not want to offend, they are not allowed to interfere with American interests. Pakistan and Saudi Arabia are neither pressured to conform to the principles and practices of electoral democracy nor to operate truly free markets. China is not mandated to democratize.

Latin America, however, became the testing ground for the Washington Consensus. Ever since President Monroe, the United States has claimed and enforced a form of supervisory control over its southern neighbors and has made sure they were ruled in a manner that it approved.

In the past that has implied sending CIA agents to Guatemala and Chile or Marines to the Dominican Republic and Panama, but now it means vigorously prodding and coercing Latin American governments to adopt an economic model beneficial to American financial interests within a form of government agreeable to Washington.

Following IMF formulas may or may not increase the aggregate wealth of a developing country, but it exacerbates its already uneven distribution.

The free movement of capital, the recruitment of foreign investors, the elimination of protections for national enterprises, the indiscriminate sale of state-owned assets, and the curtailing of organized labor’s power are all measures that widen the gap between rich and poor, and which hit the middle class especially hard.

These formulas bring fortunes to a few but hardships to the many while pauperizing, and hence antagonizing, the middle class in the process.

Abiding by IMF prescriptions within the boundaries of electoral democracy creates an inescapable quandary for local politicians. They are forced to accept both market liberalization and the dictates of the popular vote knowing full well that the effects of market liberalization will come down hard on most people, the very people whose support is necessary for political survival. These politicians are placed in a position where they must bring hardship on those upon whose support they depend.

Apparently, with so much attention paid in recent times to esoteric and convoluted economic reasoning, America's purveyors of foreign policy have lost track of one of the very basic principles of an electoral democracy: You cannot stay in power if you antagonize your constituents.

Any democratic regime that aggressively implements policies having a negative impact on its population will eventually be voted, or forced, out of office and replaced by one with a different agenda. This is what has brought about the election of Hugo Chávez in Venezuela, Lula da Silva in Brazil, Lucio Gutiérrez in Ecuador, Néstor Kirchner in Argentina, and what may be bringing the Sandinistas back to power in Nicaragua and the former FMLN guerrillas in El Salvador.

This blindness to the political consequences of forcing governments to adopt policies that do not work is also what is behind the revival of the Shining Path in Peru and the increasing instability in Bolivia, Paraguay and Uruguay.

It is telling that the only two countries in the region that went through some degree of economic liberalization without political turmoil were Mexico under the institutional dictatorship of the PRI, and Chile under Pinochet. But the dictatorship option is no longer available.

The U.S.'s dual call for electoral democracy and the immediate creation of an unrestricted free market in Latin America demands the impossible. In order for free market policies to succeed, they need to be created and safeguarded by a stable government and public institutions – that is, by a democracy with middle class support.

But since the rash implementation of free market policies, especially the unregulated flow on capital in and out of a country and the reckless privatization of public assets, harms and antagonizes the majority of the population, it automatically destabilizes any democratically elected regime.

Looked at from the other side, a democratic government needs the support of its people, or of a substantial portion of them, to survive – a support which the sudden opening of local markets under international pressure and without careful preparation is quick to dissolve.

The IMF-mandated policies of the 1990s have left Latin America's middle classes hurting and angry. Their disillusionment pushes them now toward those promising to take their interests into account, often populist leaders who may, or may not, have a constructive alternative in mind, and who for the time being will be riding the popular discontent created by economic policies that have brought most of their people nothing but grief.

In Argentina, when the market reforms of the early 1990s failed to produce the promised benefits, the middle class became angry and then desperate. As the national government continued to ignore their interests, middle class citizens took to the streets in a fury, bringing down four presidents in 10 days.

It should come as no surprise that interim President Duhalde and the newly elected President Kirchner have begun to move the country away from unquestioned obedience to the IMF and the policies of the last decade.

In Venezuela, the middle class's anger at years of economic policies that ignored their basic needs and corroded their living standards led to President Chávez's populist regime. The previous administrations had tried to forcefully open local markets, disregarding the hardships such economic measures brought upon the population and the contribution they made to official corruption.

Chávez was to garner ample support simply by offering an alternative to American-dominated economic policies and by promising a crackdown on an institutional corruption that had run amok.

Ecuador floundered in the mid 1990s, after implementing economic policies that hurt the middle class and created runaway inflation. The government formally declared its president insane in 1997, defaulted in 1999, and underwent a coup in 2000 after the president threatened to replace the national currency with the dollar; then the new government did exactly that.

In Peru, the newly elected president, an ex-IMF official still committed to the policies of his former employer, has sunk to record levels of unpopularity and goes from crisis to crisis while the Maoist guerrillas of the Shining Path show signs of coming back to life.

Colombia is a volatile and chaotic nightmare, as the political and economic woes of the country intersect with drug trafficking and drug money while American entanglement in the country, through funds and personnel, grows without much public notice.

Outside the Andean region, Lula’s Brazil may become a rallying beacon of opposition to American policies and interests, and Uruguay, El Salvador and Guatemala could easily elect former leftist guerrillas to run their governments.

Faith in the munificence of the perfectly free market has replaced traditional American pragmatism with an inflexible dogmatic approach to policy-making that undermines the stability of the countries it affects.

America must heed the words of Milton Friedman when he notes that "there is an intimate connection between economics and politics." Economic measures always have political repercussions. Flexibility, not dogmatism, is required to synthesize the two and to produce a state that is both prosperous and stable.

Whatever the ultimate value of a free market economy, the Latin American experience has convincingly shown that economic policies cannot be untied from their political consequences: They will be accepted or rejected in direct proportion to the benefits they bring about.

No theoretical sophistry about “long-term benefits” can prevent a political blowback if the policies fail to deliver. Insisting on them regardless of political consequences runs counter to American national interest and, ironically, it is a backhanded way of fueling Che Guevara's dream of a hemispheric anti-American revolt.

Francisco José Moreno, Ph.D.
President, Strategic Assessments Institute (consulting firm), Agoura Hills, Calif.
Director, Center for Advanced Political Studies (think-tank), Agoura Hills, Calif.
Vice President of Philip Morris International (in charge of Latin America), 1980-1993.
Professor of Political Science, New York University, for 21 years.
Lecturer of Economics, UC Berkeley, for two years.
Adviser to Prime Minister of Spain Adolfo Suárez during the transition from the Franco regime to democracy.
Adviser to the presidents of Argentina (Menem), Mexico (Zedillo) and Venezuela (Pérez and Caldera).
Author of three books and over 30 academic articles.
Contributor to the Christian Science Monitor, the Dallas Morning News, the Miami Herald and the Hartford Courant.

Alejandro Eggers Moreno
Vice President, Strategic Assessments Institute.
Contributor to the Los Angeles Times, the Christian Science Monitor, the Baltimore Sun, Newsday and Pacific News Service.
Former Latin American correspondent for La Información newspapers.

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