But this denunciation of 1990s reforms has not been accompanied by new and concrete policy proposals. If the market and openness are out, what should replace them? The closest there is to a new policy blueprint is the so-called Consensus of Buenos Aires, recently signed by presidents Luis Inacio Lula da Silva of Brazil and Nestor Kirchner of Argentina. But a close reading of this document shows that it is nothing more than a wish list that deplores “poverty, inequality, hunger, and illiteracy.” Who doesn’t want to fix those problems? In the document, not a word is said on how to actually improve the quality of education, or how to persuade teachers’ unions–which have opposed modernization, decentralization and testing–to participate in this important effort.
Opting out of the international trading system through protectionism or regional trade accords, as some critics of the Washington Consensus have suggested, is not a promising option. Trade openness is the most effective mechanism to promote productivity, efficiency and competitiveness. And it will only be through productivity gains that Latin American nations will be able to achieve higher standards of living.
It is true that mistakes have been made. In particular, many countries allowed their currencies to appreciate, hurting exports. Public-service companies were often privatized before appropriate regulatory frameworks were in place. And allowing the free flow of speculative capital during the early stages of the reform process increased the region’s vulnerability to external shocks.
But it’s also true that in some countries, particularly Chile, the reforms paid off, generating a virtuous cycle of rising productivity, improved competitiveness, higher employment and better wages. The region’s old scourge, inflation, was brought under control.
Three policy areas will be important going forward. First, exchange rates should remain at competitive levels in order to encourage exports. Indeed, too many times in the past Latin American countries have succumbed to the temptation of allowing their currencies to strengthen beyond what is reasonable, thus fueling speculation. And every time the outcome of this process has been the same: a growing trade imbalance and an eventual collapse of the currency. Second, the region must weed out corruption and promote transparency. If the public perceives that corruption is fading, the market-oriented system will gain more legitimacy. And third, education reform is a must. Recent studies indicate that throughout the region the quality of education is dismal.
The future Latin American policy agenda should be to improve institutions and incentives; to promote competition and efficiency; to implement policies that raise productivity; to truly help the poor and the destitute, and to make sure that globalization becomes a fair process. The agenda should not be to bring back bureaucrats, xenophobic autocrats and corrupt politicians to run the economy. We have been there, done that. It doesn’t work.
