the new latin american landscape

T he Latin American landscape is changing, progress-ing toward stable democracy, economic growth, andimproved human development. However, old per-

ceptions of a subcontinent characterized by populist pol-itics, corruption, high crime rates, and economic instabil-ity persist, and these are acting as constraints oninvestment that would improve infrastructure, createjobs, and increase social welfare. According to the reportof the World Economic Forum on Latin America2006–2007, the subcontinent’s countries need to counterthese perceptions through better governance and in-creased transparency. On the other hand, it must also beadmitted that many economic and social problems re-main to be resolved.

For decades, Latin America has been accumulating asocial liability of considerable proportions. Forty percentof the subcontinent’s population lives in a chronic state ofpoverty, and 100 million people survive on less than onedollar a day. Inadequacies in education and health, food

insecurity in a large stratum of society below the povertyline, violence, unemployment, and lawlessness still fuelthe arguments of skeptics. The subcontinent’s populationrose from 200 million inhabitants in 1979 to over 562 mil-lion toward the end of 2007; investments are far below re-gional needs. For the sake of economic growth and a fairdistribution of welfare, the subcontinent should create atleast 5 million jobs a year (International Bank for Recon-struction and Development [IBRD], 2005) The region asa whole neither saves enough nor invests sufficiently.Roads and harbors demand better management and sub-stantial resources. Infrastructure, which is not good, is aprecondition for accelerating investments and providingthe poorest with basic sanitation.

This article will discuss these pressing economic andsocial problems openly and objectively, while arguing thatthe changing political landscape in the subcontinentseems poised to bring about a new era of democratic sta-bility, improvements in social equity, and new opportuni-

157

For decades, Latin America has been accumulating a social liability of considerable proportions. Pre-

cariousness in education and health, food insecurity in a large stratum below the poverty line, vio-

lence, unemployment, and unlawfulness sharpen the incorrigible skepticism of opinion makers. Nev-

ertheless, Latin America is an immense territory of possibilities to be exploited with independence,

pragmatism, and proper vision of the future. The most promising news is that the region as a whole,

despite insufficient progress in the smallest and poorest countries, is very close to meeting the tar-

gets in the fight against hunger. The greatest regional challenge is to harmonize economic expan-

sion and the social profit that it represents. © 2008 Wiley Periodicals, Inc.

The New LatinAmerican Landscape

Correspondence to: Jacques Marcovitch, Professor Titular da FEA/USP, Av. Professor Luciano Gualberto, 908–Sala E 121, 05508-900 Cidade Universitaria,Sao Paulo, SP, Brazil, 11 3032-3897 (phone), 11 3814-0439 (fax), [email protected].

FEATURE ARTICLE

By

Jacques Marcovitch

Published online in Wiley InterScience (www.interscience.wiley.com). © 2008 Wiley Periodicals, Inc. • DOI: 10.1002/tie.20191

03TIE50_3Marcovitch 4/4/08 12:13 PM 57

ties for business investment. Following an overview of thekey challenges facing the subcontinent, three countries—Chile, Brazil, and Mexico—that held elections in 2006and are considered to have significant and relatively sta-ble economies will be presented as a focus for discussion.The final section summarizes the emerging picture fromthe case studies and highlights conclusions that may bedrawn for Latin America’s future potential.

LATIN AMERICA: AN OVERVIEW OFTHE CHALLENGES

The Secretary General of the Organization of AmericanStates (OAS), José Miguel Insulza, summarizes the exist-ing picture in Latin America as follows: “We are not thepoorest continent; we are the most unfair continent” (Al-dunate, 2006). This is a reference to the persistence ofthe subcontinent’s major problem of income distribu-tion.

Acknowledging the 1980s as the decade of demo-cratic restoration and the 1990s as the years favoring eco-nomic reforms, however insufficient, the OAS leader pre-dicts a more complete democracy capable ofcontemplating equality and justice on a larger scale. Hedoes not think of a supposedly increasing leftist slant as aproblem among us but acknowledges the fact that hugesocial gaps still exist in the region despite the promotionof economic development and the adoption of democ-racy on a wider scale. This dilemma is the great challengeLatin American rulers have the obligation to face.

Insulza expects that energy will contribute to LatinAmerican integration as carbon and steel helped to inte-grate Europe. He mentions three new obstacles that standin the way: greater demand, high cost, and an unequaldistribution of energy resources in the subcontinent.Some countries are rich in oil, some have gas, and others,like Paraguay, generate significant hydroelectric power.Some countries, such as Venezuela, Argentina, and Mex-ico, are net exporters of energy; many others, includingChile, Brazil, and Peru, are net importers. Of course, hesays, countries tend to ask how they will supply themselveswhile an integrated market is in the making. Those whohave energy will have to sell it so that each country will beable to rely on safe and diversified alternative sources.

This reference to competitiveness leads us to theglobal report on the theme published by the World Eco-nomic Forum, in which the regional situation is charac-terized by frankly unfavorable figures. An analysis of thereport from the Dom Cabral Foundation, a partner of theWorld Economic Forum in Brazil, comments on the mostworrisome figures:

158 FEATURE ARTICLE

Thunderbird International Business Review Vol. 50, No. 3 May/June 2008 DOI: 10.1002/tie

Latin America is probably the great loser in this year’s report,in spite of the fact that Chile stands out as it ranks 27th for thesecond year in a row and consolidates itself as a competitivepower in several indicators. (Arruda, Tello, & Araujo, 2006)

Among the other countries, Costa Rica, Mexico, andPeru all moved up the rankings in 2006–2007. The otherlarge economies in the region—Colombia, Brazil, Ar-gentina, and Venezuela—lost competitiveness. The small-est economies, with the exceptions of Guatemala and ElSalvador, held the lowest positions in the rankings (WorldEconomic Forum, 2007).

At another level—that of social development—therehas been both progress and stagnation, in equal measure.In The Millennium Development Goals: A Latin American andCaribbean Perspective (Machinea, Bárcena, & León, 2005),11 UN agencies under the coordination of the EconomicCommission for Latin America (CEPAL) surveyed thelocal achievement of the targets set by the organization. Itreports that for the period 1999–2004, Latin America andthe Caribbean have made progress in the fight againsthunger, the upgrade of education, access to potablewater, and the reduction of infant mortality. But they arestill lagging behind schedule in regard to extremepoverty, universalization of basic schooling, and environ-mental deterioration.

The most promising news is that the region as awhole, despite insufficient progress in the smallest andpoorest countries, is very close to meeting the targets inthe fight against hunger, for undernourishment has di-minished in at least 15 of its 24 nations. It is also hopedthat this sad phenomenon will have been reduced to halfby 2015. Infant mortality for those under one year of agefell from 43 to 25 deaths per thousand live births—whichencourages the region toward a full commitment to meet-ing this important target.

If the tendency to drop out of school prematurelycontinues, 6% of children will fail to finish the educationcorresponding to their age bracket, which unfortunatelywill affect the achievement of the basic school universal-ization target. To date, Brazil and Mexico have performedexceedingly well, with enrollment rates at the 95% level.The sixth target, which concerns the AIDS epidemic, hasBrazil as an example of prevention, but progress is beinghindered by the existence in the region of 2.4 million in-fected people and the emergence of 200,000 new casesbetween 2000 and 2004.

The UN asserts that environmental sustainability tar-gets can be met in Latin America and the Caribbean,thanks to the good record in the provision of urbanpotable water. However, it adds the proviso that improve-ments in sanitation are lagging behind in Brazil, Bolivia,

03TIE50_3Marcovitch 4/4/08 12:13 PM Page 158

different rates in the several countries in the region aslong as it reaches an average of 2.9% per inhabitant be-tween 2005 and 2015. The greatest regional challenge,therefore, is to harmonize economic expansion and thesocial profit that it represents.

Overall, let us say that no Latin American country atpresent fits the authoritarian model that was hegemonicin our region for decades. Most of the region is alignedwith the hallmarks of a democratic order. An up-to-dategeopolitical profile could clarify the panorama, which isoften inaccurately perceived abroad. Chile, Mexico, andBrazil have been displaying signs of political maturity indealing with problems that, while being unquestionablycomplex, are not insoluble, nor inevitably perpetual. Thesections that follow in this article consider the historicalpolitical development, the competitiveness indicators,and—because it is a relevant analytical base—the institu-tional framework of each of these nations.

These three countries all held presidential electionsin 2006. The political platforms of the winning candi-dates—Michelle Bachelet in Chile, Felipe Calderón inMexico, and Luiz Inácio Lula da Silva in Brazil—andtheir opponents will be analyzed, based on their pub-lished manifestos. Past, current, and proposed policies ineach country will then be examined in relation to thecountry’s performance on nine indicators of competi-tiveness, as used to calculate their overall score on theGlobal Competitiveness Index (GCI) in 2006–2007. Thenine indicators are grouped into three subindices, asshown in Table 2.1

Each country’s scores on each of the factors will becompared to:

1. The median score of the top 20 ranked countries over-all and

2. The median score of the ten countries immediatelyabove the case study country in the overall GCI rank-

Guatemala, Peru, and Haiti, whereas the Caribbean coun-tries have already met their respective targets. The reportconcludes there are 222 million poor people in LatinAmerica and the Caribbean, 96 million of whom are indi-gent, which corresponds to 18.6% of the population.However, if the current pace of governmental policies issustained, the target to reduce their number by half canbe achieved before 2015 by Brazil, Costa Rica, Mexico,Uruguay, and Panama.

Let’s take as reference three of the continent’s coun-tries with the most stable economies—Chile, Mexico, andBrazil—and whose combined populations account for60% of the continent’s total population. Table 1 presentsselected basic macroeconomic indicators and forecastsfor these three countries. The figures show that Chile hasa relatively high per capita GDP, with Brazil lagging be-hind despite moderately high GDP growth. Mexico’s lowgrowth rate, relative to Chile and Brazil, is in large partdue to that country’s vulnerability to the U.S. economiccrisis. On the other hand, Mexico has the lowest fore-casted inflation rate (based on Consumer Price Index),although all three countries appear to have inflationunder control. Mexico is also expected to attract the high-est level of foreign direct investment (FDI) in 2008, al-though it could be argued that forecast FDI levels in allthree countries fall short of what is needed to promotehigher growth.

However, with respect to development, the UN ad-vances the argument that high growth rates in LatinAmerica are not enough. The economy of each countrywill only contribute to meeting the millennium develop-ment goals if the neediest of the population benefit fromimproved income distribution. A Food and AgricultureOrganization (FAO) report on food safety (2006) alsopoints out the urgency of reconciling income distributionand growth, emphasizing that the latter without the for-mer diminishes its relevance. The FAO admits growth at

The New Latin American Landscape 159

DOI: 10.1002/tie Thunderbird International Business Review Vol. 50, No. 3 May/June 2008

TABLE 1 Brazil, Chile, and Mexico: Selected Macroeconomic Indicators

Brazil Chile Mexico

Population (millions) 2007 191.9 16.8 110.0 (a)

per capita GDP (US$ ppp) 2007 10,290 14,339 11,840 (a)

GDP growth forecasts (% change) 2008 4.5 4.6 – 4.9 2.8 – 3.1 (a), (b)

GDP growth forecast (% change) 2009 4.1 5.1 3.5 (a)

CPI inflation forecast 2008 4.1 3.9 3.8 (b)

FDI forecast (US$ billions) 2008 27.6 8.1 27.8 (b)

Sources of data: (a) Economist Intelligence Unit, January 2008; (b) Latin America Advisor 2008.


ings—that is, those that are close in competitivenesslevels.

The median score of the top 20 countries will be rep-resented as 100% for each factor, with other scores shownas a percentage of this “ideal” score.

Following the country case studies, the final sectionof this article will discuss common themes and prioritiesfor future policy in these countries, and in Latin Americaas a whole.

CHILE: VICTORIES ANDCHALLENGES

The fight to free Chile from Spanish domination at thedawn of the nineteenth century was led by BernardoO’Higgins, who had the support of the Argentinean gen-eral San Martin and his troops in the last battle of Maipuin 1818. This country, where the most enduring demo-cratic regime in Latin America would be later established(and last until 1973), began its independent life with adictatorship imposed by the freedom fighter himself, whoresigned in 1823. In the nineteenth century, Chile seizedthe mining region of Atacama from Peru and blocked Bo-livia’s only access to the sea.

However, only in 1970 was Chile’s visibility in theworld extraordinarily heightened, with the election ofSalvador Allende to the presidency. For three years, hecarried out bold socializing reforms and faced major in-ternal upheavals. The country went into recession, GNPdecreased by 25%, and inflation soared. Nonmilitant ob-servers on the left said the president’s mistake was to trycapitalism with no profit, and socialism with no discipline.The right and the moderate center took advantage ofthese problems. The Army, under the command of Gen-eral Augusto Pinochet, broke with its long tradition ofprofessionalism and deposed Allende, who died tragicallyin La Moneda Palace. This was the beginning of the blood-iest dictatorship on South American territory, which

lasted until 1990, when it ran out of prescriptions and, ina memorable referendum, democratic forces recon-quered the state.

Today there is a nearly unanimous positive view ofChile in every assessment of Latin America. The govern-ments of the Concertación2 have achieved political stability,and, since 1990, the country has stood out in the regionas the one that best harmonizes economic growth and in-come distribution. Further, it should be stressed that thesoundness of Chilean democracy, promoted with greatcompetence by succeeding governments of the Concertá-cion, is well reflected in the agreement to eliminate onceand for all the institutional debris of the authoritarian pe-riod. A new statute for the Armed Forces has fully re-stored the authority of the President of the Republic. TheArmy is no longer the sole guardian of order, for nowthere is also a Constitutional Court to guarantee the effec-tive supremacy of the constitution. In President MichelleBachelet’s 2005 election manifesto, an entire agenda isconsolidated to counter what it describes as “the persist-ent military intervention in politics” (Bachelet, 2005).

In addition, a legal framework has been set up to pre-vent unethical practices in election campaigns and ad-ministrative proceedings. In the future, only individuals,not corporations, will be able to make donations to candi-dates. A patrimonial declaration has become mandatoryfor all civil servants, including executive, legislative, andjudiciary authorities. In many aspects, especially in termsof institutional balance, Chile deserves to win the growingapprobation of the most critical observers of the LatinAmerican agenda.

The return to democracy has evidently broughtabout increased economic prosperity. In the period1990–2005, Chile grew at an average 5.7% annual rate,almost twice the percentage reached during thePinochet dictatorship. This simple indicator negates afairly widespread misconception that the sound economyis a legacy of the old regime to the democratic one. Fur-ther, the poverty rate of the Chileans during the dictator-

160 FEATURE ARTICLE


TABLE 2 Components of the Global Competitiveness Index

Basic Requirements Efficiency Enhancers Innovation Factors

Institutions Higher education and training Business sophistication

Infrastructure Market efficiency Innovation performance

Macroeconomy Technological readiness

Health and primary education

Source: World Economic Forum (2007).


network is one key area of weakness, with energy supplybeing another. Dependency on energy imports is provokingshortages of electricity and gas with possible consequenceson the rate of development. In our research interviews forthis study held in June 2006, we noticed that the most com-mon concern was energy security. Chile imports 72% (gas,oil, charcoal) of its annual energy needs; most significant isthe import of natural gas from Argentina. However, since2004, Argentina has been restricting the supply, spurringdemand for expansion of domestic capacity for electricitygeneration (U.S. Department of Energy, Energy Informa-tion Administration [US DOE/EIA], 2006b). Former Presi-dent Lagos approved new legislation on energy, andMichelle Bachelet is engaged to put into place a long-termenergy security plan so that the problem will not persist intothe next decade. This plan includes investments in genera-tion capacity, as well as renewed multilateral relations to tapnew energy providers. The bioceanic project connectingthe Brazilian port of Santos on the Atlantic through SantaCruz in Bolivia, and then linking to the Chilean port ofIquique on the Pacific, for example, might defreeze bilat-eral relations between Bolivia and Chile. Bolivian naturalgas then could help in the medium-term source diversifica-tion in the Chilean energy matrix.

In the shorter term, construction of new hydropowerplants is under way, and the country’s geothermal capac-ity is being investigated. There is a great deal of potentialfor private investment in this area. A recent report (Mia,Estrada, & Geiger, 2007) found that Chile outperformed

ship exceeded 38%, but today it is a fraction over 19%.This clearly shows the relative performance of the oldand new regimes. Chile has a moderate tax burden andadopts macroeconomic procedures that inhibit soaringexpenses and inflation. Between 1990 and 2005, publicdebt shrank from 45% to 9% of GNP. This was achievedwithout compromising the flexible expenditure policythat aims to maintain production and employment levelsin the eventuality of a recession.

It is undoubtedly Chile’s strong macroeconomic per-formance that has led to the country’s high ranking(27th) in the Global Competitiveness Index. Figure 1shows Chile’s scores for each of the nine competitivenessfactors relative to those of the top 20 countries (the me-dian score for each factor representing 100% on thechart) and those of the ten countries ranked immediatelyabove Chile on the overall GCI.

The country’s score on the “Macroeconomy” factorin 2006–2007 exceeds both its nearest “competitiveness”rivals (as represented by the median score for the tencountries ranked above it) and the median score of thetop 20 ranked countries on the GCI; in fact, Chile wasranked seventh on this indicator. Chile’s key weaknesses,according to the GCI, relate to technology and innova-tion, and to infrastructure. In the GCI, this last indicatorrelates to transport, telecommunications, and energy.

In Chile, progress has been made in transport infra-structure. Management of the entire railroad network andthe harbors has been completely professionalized. The road



FIGURE 1 Chile’s Strengths and Weaknesses on the Global Competitiveness Index

Source: World Economic Forum (2007)


the other 11 selected countries by a considerable margin.The country introduced a public-private partnershipmodel for infrastructure development in the early 1990s,under which private contractors build and collect userfees for a development for a period of 30 years, afterwhich it is transferred to state ownership. By the late1990s, this scheme had attracted U.S. $3.6 billion in in-vestment in roads and airport development (Mia et al.,2007). However, more investments are urgently neededto close Chile’s infrastructure gap, relative to its nearestrivals on the Global Competitiveness Index.

Chile’s other main area of weakness, according to theGCI, relates to innovative capacity; the country is laggingin higher education and training, technological readi-ness, and innovation performance. Therefore, a surpris-ing weakness on Bachelet’s platform is planning forChile’s national innovation system. The investments inthis field are low, and innovations, when there are any, arenot adequately protected by Intellectual Property Rights(IPRs). However, even given weaknesses in the IPRregime, Figure 2 shows a significant increase in the levelof patent applications from outside the country since theearly 1990s, while the annual number of applicationsfrom residents has risen very little over the past 20 years.The government aims to increase spending on researchand development by 50% and promote a radical changeof course, promising: “It is not a matter of small changes.It is the formulation of a new policy.” However, a radicalinnovation policy is not universally welcomed.

It is surprising to find that, among entrepreneurs andthe Chilean media, there is the opinion—not shared bythis author—that small and continuous microeconomic re-forms would be more beneficial than a national innovationproject as planned by the government. Another debatableviewpoint found in Chile is that the emphasis on researchand development (R&D) could be a mistake; instead, thefocus should be on quality education. In fact, one prioritydoes not preclude the other, and they could complementeach other. Somewhat disquieting as well is the thesis thatthe country should concentrate on “technology absorp-tion,” rather than develop a national policy, with the partic-ipation of government, companies, and universities, thatcombines assimilation of imported technologies with ef-forts of local capacity to generate new technologies.

It is worth noting here that the GCI indices some-times mask uneven performance, as is the case in Chile inthe infrastructure score; a generally good record in im-proving transport infrastructure is obscured by a poorscore in regard to energy. A similar situation seems toexist regarding education and health.

Almost all the children in Chile complete primary ed-ucation, and approximately 90% finish high school.There has been remarkable growth in educational re-sources, teachers’ wages, and the time devoted to learn-ing. Thanks to democracy, 70% of today’s college stu-dents are the first ones in their families to have reachedthe university. Also, four out of every ten young peopleenter college. Nevertheless, a few deficiencies at the sec-

162 FEATURE ARTICLE


FIGURE 2 Patenting Activity of Residents and Nonresidents, 1985–2005

Source: WIPO (2007).


example, the tax issue is addressed with a degree of can-didness never before used in any government documentof any country. In short, running counter to every plat-form, Chile’s present government states that it is againsttax reduction and asserts this position categorically: “In-equality, extreme poverty, the clamor for quality educa-tion and a health system effectively protective of all citi-zens, and the fight against delinquency and drugs willrequire considerable […] resources. Therefore, we mustbe honest with the country and state that solidarity has acost and that we cannot afford to lower taxes” (Bachelet,2005). Even taking into account the fact that the coun-try’s tax burden is moderate (19% of GNP), such as-sertiveness is impressive considering the pressure still em-anating from strong segments of the economy.

It is worth mentioning that our 2006 research visit toSantiago coincided with the new government’s 100th day.We were able to witness the reactions to Bachelet’s commit-ment to 36 measures proposed for that term. The opposi-tion, of course, alluding to the previous government’s proj-ects sent to Congress, said, “The executive branch has onlytopped a ready-made pie with a cherry.” Also, from the in-terviews we conducted in Santiago, and in studying themanifesto presented to the Chileans by the then-candidateBachelet, it has been found that there are other challenges

ondary level caused a million students to take to thestreets in protest marches soon after Bachelet’s inaugura-tion. However, while enrollment figures are high, the rel-atively poor scoring on the higher education and trainingfactor—which the GCI report claims reflects quality of ed-ucation—suggests that qualitative improvements areneeded. Regarding education, as has already been men-tioned, Chile shows strong efficiency indicators, althoughthe same is not true with respect to applied sciences.3

Further, as primary education is combined in a singleGCI score with health, high enrollment figures may bemasking underperformance in healthcare provision. In-deed, Bachelet clearly recognizes that Chile faces prob-lems in health care. After the energy crisis and unemploy-ment, the treatment of diseases among the lower-incomebracket is the most pressing problem. Her programharshly exposes deep dissatisfaction with the performanceof private health (insurance) plans, where the servicesprovided fall far short of what is contractually promised.

Social programs are cornerstones of Concertaciónregimes. The democratic governments in Chile havetripled social expenditure, which today absorbs 70% ofpublic expenses. Housing provision is one notable area ofsuccess. In Latin America, during the 1990s, Chile was theonly country to reduce the housing shortage. In 2006, itwas once again the only country capable of guaranteeingthat the shortage will be eliminated within the next eightyears. However, key areas of weakness remain, despite theintroduction of new policies and legislation.

For example, the 1980 reform of retirement laws inChile, based on individual capitalization (and still thoughtof by many as not requiring any amendments), had threekey features: an increase in retirement incomes, an expan-sion to cover self-employment, and increased funding ofthe system. Bachelet has made the commitment to put for-ward a new bill on this matter. Reforms aim to reduce ad-ministrative costs charged by pension funds managers andimprove beneficiaries’ coverage.

Finally, it should be noted that despite the rise in gen-eral employment rates in Chile, women and young peo-ple are still the most affected by a lack of opportunities.On the other hand, those who work need legislation thatcan put a stop to the declining rates of collective bargain-ing. Bachelet’s manifesto states, “An economy is not mod-ern if less than 10% of its workers collectively negotiateworking conditions and salaries” (Bachelet, 2005).

Overall, though, Bachelet’s government started well.Her manifesto, which won the Chileans’ trust and se-cured her election, has the fundamental virtues of a clearand straightforward language free from unnecessary tech-nical terms and a perceptible component of sincerity. For



Overall, Bachelet’s govern-

ment started well. Her man-

ifesto, which won the

Chileans’ trust and secured

her election, has the funda-

mental virtues of a clear and

straightforward language

free from unnecessary tech-

nical terms and a perceptible

component of sincerity.


that have not been satisfactorily met by the four govern-ments of her political front. These include health care pro-vision and inequalities in employment. But on the wholethere was an attitude of appreciation. The Chile 21 Founda-tion acknowledged that most objectives had been accom-plished, as did the majority of the analysts we consulted.Bachelet’s second year, however, saw a dip in her popularity,and the government lost absolute majority in both cham-bers of Congress, as several senators and deputies from theConcertación became independent (Bachelet, 2006).

MEXICO: ON THE MOVE

Before considering the political picture in Mexico today,it is important to recall the July 2000 election of VicenteFox that put an end to a long and painful phase in the his-tory of the country. His victory over the Institutional Rev-olutionary Party (PRI), which had been in power for over70 years, was a welcome evolution in political culture. ThePRI, as is well known, is an inheritance of the MexicanRevolution that broke out early in the twentieth centuryand, in its first phase, was headed by the popular guerrillasoldiers Emiliano Zapata and Pancho Villa with the motto“Land and Freedom.” Both were defeated by the conser-vative faction, led by Venustiano Carranza, a representa-tive of the middle and upper classes of society.

Emiliano Zapata was a man of peasant mentality withan egalitarian vision of land use. He focused his attentionon agrarian Mexico and ignored the wish for moderniza-tion emanating from the center. The second national rev-olution was inspired by the urgent need for advances in in-frastructure, communications, and electric power, as wellas for modern management. Pancho Villa’s troops wereannihilated in 1915. Four years later, Zapata died in anambush. Other internal dissensions and murders fol-lowed, as is characteristic of many revolutions. Carranzahimself was killed in 1920, the year often considered to bethe end of the Mexican revolution. However, Pancho Villasurvived until his assassination in 1923, and sporadic out-breaks of political violence continued into the early 1930s.

Rebellious Mexico adjusted itself little by little to thePRI, a party whose ambiguous denomination (Institu-tional–Revolutionary) was reflected in its objectives. Be-tween 1960 and 1980, the economy fluctuated in cyclesthat were more closely related to prevailing circumstancesthan to any government policies or actions. In that pe-riod, per capita income rose by 99%, but soon afterwardthe country crashed, triggering a regional foreign debtcrisis. When at the dawn of the twenty-first century theNational Action Party (PAN) leader, the entrepreneur Vi-cente Fox, emerged victorious with a national political

and economic reform program, expectations werearoused most favorably, but they fell with the mediocreperformance of his government.

Apart from the benefits resulting from the PRI’s defeat,Vicente Fox will not go down in history as a great achiever.Most analysts assess his government as a failure. More indul-gent observers think he should be judged mostly for whathe did not do. For example, he did not raise taxes, and evenif limited by his lack of support in Congress, he did not over-step the boundaries of democratic rules. “Power did notdrive him mad,” said the writer Héctor Aguilar Camín, anobservant analyst of Mexican history (Salgado, 2006).

It has to be acknowledged that Fox assured the coun-try of its first period of macroeconomic stability in the last40 years, but in the entire second half of his governmentthe economic growth rate declined, hovering around amediocre 3%. The country created only 500,000 jobs an-nually—half of what was needed to guarantee employ-ment for Mexicans.

The widespread frustration among critics is under-standable. Since 2000, most of the electorate had ex-pected Fox to eliminate once and for all the sequels ofthe country’s 1982 crash, reap the benefits of the FreeTrade Area of the Americas agreement (FTAA), and copewith the causes of illegal immigration to the UnitedStates. The results were unsatisfactory. Even FelipeCalderón hints at his predecessor’s failures in his pro-gram. With his statement that a lot has been done butmore is still necessary, Calderón seems to confirm thenegative impression of PAN’s first term.

In the 2006 elections, the opposition chose populism.López Obrador’s pledges filled half a dozen pages underthe pompous title “50 Pledges to Restore National Pride”(Obrador, 2006). The document could be regarded as aninventory of existing challenges, but indicators for gaugingproblems and eventually selecting priorities are completelyabsent. What it amounts to is actually a list of promises withthe enticement of a minimum wage beyond inflation, to-gether with the lure of efforts to reach an agreement withthe United States to keep it from enforcing clauses in theFree Trade Treaty. It ends with the proposal of a referen-dum halfway through the term asking the voter if the pres-ident should continue in office. Justification for this pro-posal is short and simple: “the people are sovereign; as yougrant a mandate, you can take it away. The people put youin and the people take you out” (Obrador, 2006).

Even with the simplicity of his proposals, he was ableto strike a nerve in a large number of the electorate. Fe-lipe Calderón, who won by a less-than-one-percent mar-gin, acknowledged that his opponent’s vote was a clearmessage from the ballot boxes to adopt policies prioritiz-

164 FEATURE ARTICLE



tains solid parliamentary support to guarantee governabilityand insure substantial reforms required by the country.

The respected historian Enrique Krauze, a persistentcritic of López Obrador’s standpoints, identifies him asan architect of a “revolutionary threat” (Krauze, 2006).Although César Yañes, the spokesman of the defeatedcandidate, disclaims violent plans to overthrow the gov-ernment, Obrador clearly preaches the need for a revolu-tion in the country. This stance is opposed by the largemajority of Mexicans, who disapprove of violent manifes-tations of nonconformity.

In addition to the economic and social issues identifiedin his electoral program, Felipe Calderón faces a threefoldpolitical challenge to weaken the resistance of the defeated,unite the clearly divided country, and establish a reliablebase of supporters in parliament. Mexico is in movement.The question is whether it is moving forward, consolidatingdemocracy, or backward, aggravating the political crisis.The year of 2007 was decisive. Fight against crime and drugtrafficking, pension reform legislation, fiscal reforms, mod-ernization of the energy sector, competition, and regulatorylegislations to raise the size of the formal economy are a fewareas where tangible advances are aimed.

Calderón does not hide that his country’s economicperformance for 50 years, including the Fox period, wasunsatisfactory. Mexico was ranked 58th (of 125 countries)on the Global Competitiveness Index 2006–2007, movingup one place from 2005–2006 (World Economic Forum,2007). Figure 3 shows that the country has good potential

ing the poor sections of the population. In this, he showedhis willingness to move Mexico toward new horizons.

Although the winner’s manifesto (Calderón, 2006) ispractically silent about Fox’s administration, it has the mer-its of substantial analysis and the inclusion of indicators tosupport its content. The first paragraph demonstrates thatthe so-called Mexican Revolution left the legacy of an au-thoritarian society struck by recurring crises, which fordecades eroded the citizens’ purchasing power. On behalfof public interest, productive land, companies, and bankswere expropriated. The shortsightedness of these decadesled them to ignore the environment and irrationally ex-ploit nonrenewable resources like water, forests, woods,and oil. The situation prevailing in the country and keep-ing Mexico immersed in disorder and populist chaossnatched the possibilities of a better life from several gen-erations of Mexicans. Not surprisingly, the concept of Mex-ico as a “winner” permanently in search of prosperity is onseveral pages of the document (Calderón, 2006).

Also anticipated in the manifesto is a coalition devisedby Calderón that has allowed him to pass in his first year inpower most reforms proposed to Congress. Here we haveanother worthwhile lesson for the entire region. Yes, it isnecessary to build a leadership capable of garnering the co-operation of the opposition and keeping allies cohesive. Itis made plain that a coalition between two or more partiesin Congress is intended to avoid the difficulties faced by Vi-cente Fox. The coalition government must not limit itself toa plural ministry. It is imperative that the president main-



FIGURE 3 Mexico’s Strengths and Weaknesses on the Global Competitiveness Index



to improve its competitiveness ranking in the comingyears, as it already outperforms some of its closest rivals inthe rankings in several factors.

On the basic indicators of competitiveness, Mexicoscores poorly in two areas: institutions and infrastructure.Given the recent political history already described, theinadequacy of the institutional framework is hardly sur-prising. Calderón’s program includes some key reformsin this area. For example, there are plans to centralizepolicies to support small and medium-sized companies,which are responsible for the generation of 42% of GNPand 64% of jobs in the country, within a single federal de-partment. In addition, the tax collection system—accord-ing to Calderón’s platform—will be radically simplified,especially in regard to income tax, which will have a uni-fied tax for all income levels (Calderón, 2006).

In Calderón’s program, a large section was devotedto infrastructural problems. It acknowledges that theUnited States, as the country’s main trade partner, hasseven times more kilometers of road per inhabitant thanMexico. The document goes on to reveal other gaps: theMexican railroad network has grown only 4.5% in thelast 25 years; domestic airports are saturated; and har-bors are characterized by extremely low intermodal ca-pacity, subutilization, and reduced importance in thesupply of merchandise. A corrective strategy, includingnew means for private public partnership (PPP) invest-ments, is being implemented. For such purposes, a newagency, Pro Mexico, was created in 2007. However, theinfrastructure gap regarding energy is even greater thanthat for roads and air transport, according to Mia et al.’s(2007) report. Despite being the world’s fifth-largest pro-ducer of oil, Mexico is a net importer of refined petro-leum products, natural gas, and coal. These are all im-portant in regard to electricity generation: over 80% ofthe country’s generating capacity is provided by conven-tional thermal sources.4 The dependence on imports en-tails high expenses for the productive sector. Calderón’sprogram reports on this problem.

Energy policy is one of the few instances in which Fe-lipe Calderón gives President Vicente Fox some praise forhis initiatives. He acknowledges that legal reforms have ex-panded the participation of private investors (Calderón,2006). Costs have become a little more competitive, andthe private installed capacity has boosted the supply ofelectric power. However, more comprehensive and in-depth energy reform is needed. The costs of state electric-ity generation remain high—for fuel and similar technolo-gies, nearly twice as high as those of private producers.According to Mia et al. (2007), Mexico’s general invest-ment environment is good, ranking second only to Chile

among the 12 Latin American countries analyzed, but thecountry has a relatively poor score on infrastructure-spe-cific investment factors. This may be a result of the ongo-ing transition in which Pemex, the state-owned energycompany, is only gradually losing its former monopoly inenergy supply and distribution. Pemex is lagging behindtechnologically and is one of the least productive in theworld. Calderón has introduced a new fiscal regime todraw in more resources, broaden the nonoil tax base, andimplement better corporate practices.

Further to this point, there is a great deal to be donein science and technology. Mexico’s scores on the GlobalCompetitiveness Index that relate to innovative perfor-mance and potential—specifically, higher education andtraining and innovation—are still weaker than their clos-est competitors in the rankings. Figure 4 shows that, likeChile, most patent applications still come from outsidethe country, with residents’ annual level of patent applica-tions remaining as low as it was 20 years ago. Unlike Chile,however, nonresident applications have been falling in re-cent years in Mexico, which is indicative of a general tech-nological stagnation in the country.

The President gives the previous government creditfor such initiatives as the creation of research funds andfiscal incentives for companies investing in R&D. How-ever, total investment in R&D is still well under 1% ofGNP. Of this total, close to 75% is government invest-ment, while the private sector contributes only 25% (Or-ganisation for Economic Co-Operation and Development[OECD], 2007a). The GCI scores for technological readi-ness and business sophistication, as shown in Figure 2,however, are relatively high. In combination, these figuressuggest that firms are underinvesting in innovation at thedomestic level, and that the Mexican education system islagging behind in terms of quality education to produceinnovative graduate employees and entrepreneurs.

The lack of opportunities for young people between20 and 24 years of age is becoming critical. Unemploymentin this age bracket is twice that of the general rate, which is3.8% (CEPAL, 2005). Although this is less than rates in theEuropean Union, the United States, and other Latin Amer-ican countries, it represents an increase of 72% in the lastfew years and stems from a chronic employment genera-tion incapacity in the local economy. This is, perhaps, thereason that none of the final election candidates made acommitment to set goals in this field.

Although Calderón (2006) does not spell it out, theproblem of migration to the United States is, arguably, achallenge as great as that of economic growth. Calderónproposes, in a general sense, the internal creation of jobsas a way to avoid the emigration of workers. Deepening

166 FEATURE ARTICLE



policies: “The program I propose is built on presentgains, extending the benefits to population sectors not re-ally aided by the programs in progress and collaboratingwith municipal authorities to facilitate access to infra-structure” (Calderón, 2006). In Fox’s administration, asin no other, important advances in housing provisionwere recorded. Today, between 250,000 and 300,000houses are built each year, and over a period of five years2,549,000 credits have been granted for the acquisition ofhomes. Moreover, this sector has enabled the generationof more than 2.5 million jobs (Centro de Investigacion yDocumentacion de la Casa [CIDOC], 2007).

Mexico’s recent economic and social performance, ascan be seen from the above discussion, has been mixed,and this is reflected in Calderón’s manifesto. The docu-ment is more critical than vainglorious. It highlights thedisrespect for the Rule of Law in Mexico and the low rateof law enforcement. It explicitly mentions the interna-tional rating by the World Economic Forum on law abid-ance, according to which Mexico had performed badly,and had decreased in rank in the period leading up to the2006 election. It can be argued that this factor is relatedto the country’s poor income distribution. Measures thatincrease the potential income of the poorest, includingimproving the quality of education and training and pro-moting the creation of employment opportunities—byencouraging further private investment, which in turn re-quires institutional reform—are key to Mexico’s futuredevelopment potential.

programs that use remittances to foster development insome of the country’s regions, a measure headingCalderón’s short list of procedures, does not properly ad-dress the issue of replacing the lost skills of the migrants.The design of his foreign policy focuses on the fact thatMexican immigrants build up resources for the U.S. econ-omy, and on this basis argues for an agreement for betteraccess to services for these workers in the recipient coun-try. But it is clear that Mexico is lacking both in job oppor-tunities and in skilled workers: this is reflected in incomedistribution in the country.

Income distribution is one of the lowest in LatinAmerica. It is candidly admitted in Calderón’s programthat the wealthiest 10% get 35.6% of domestic income,whereas the poorest 10% of the population get only1.6%. Approximately 11 million Mexicans lack potablewater, and 23 million have no basic sanitation (Calderón,2006). Not surprisingly, therefore, the social issue wassingled out by the winner, after the election, as a key pri-ority. As a result, Calderón proposed an ample revisionof the ongoing social programs to sharpen their focusand widen their scope. The manifesto’s proposals in-clude a single register for welfare recipients, measures tocombat child labor, and microcredit for family producers(Calderón, 2006).

However, with respect to housing, Calderón’s mani-festo plans do not go much further than what was under-taken in Fox’s administration. In this item in his mani-festo is the only instance of unstinting support of ongoing






BRAZIL: REELECTION ANDCONSEQUENCES

In 1985, when redemocratization took place, José Sarneytook office facing an annual inflation rate of 215%. In1989, at Collor’s victory, the IPCA (Broad and SpecialConsumer Price Index) broke the annual record of1,972%. Even with the Real Plan, Fernando Henriquebegan his first mandate with Brazil’s risk coming close to930 points, which was largely due to external factors.When he was reelected in 1998, he faced the Asian andRussian crises with a trade deficit of U.S. $6.5 billion. In2002, Luiz Inácio Lula da Silva obtained his first mandatewith the dollar in the R$4.00 range, inflation about 12%,and the Brazil risk at 1,446 points. At his reelection, thetrade balance surplus was nearing U.S. $45 billion, infla-tion was below 3%, the risk had plummeted to 211points, the exchange rate was fluctuating, and the dollarwas stable at R$2.10. By 2006, the economy was entirelyunder control.

Yet, it has been argued that in the 2006 presidentialelection, Brazil came out divided. That was the outcry inthe headlines following the first round. What was thebasis for such a diagnosis? The author will argue simplythis: a misinterpretation of the vote, stemming from theorigins of the voters, their respective social strata, andpresumed schooling. With the votes in, a distribution ofregional and social preferences became noticeable, whichis hardly unusual in democracies. Since most of the poorand insufficiently educated voted for Lula, especially inthe states in the north and northeast, it was soon con-cluded that Brazil lives in a dangerously fragmented na-tion on the brink of conflicts between regions and be-tween social classes. There was no evidence, though, touphold the belief that the country was “split in half,” ir-reconcilable and willing to fight on grounds not deter-mined by the Constitution.

In fact, the election campaigns were conducted inan orderly way, with both candidates taking balanced po-sitions and neither seeking a confrontation that went be-yond the boundaries of democratic order. Their respec-tive government program proposals differed only on“secondary” issues. In more than 20 years of electoralpractice and having exhausted an authoritarian regimethat lasted almost as long, never had Brazil demon-strated such solid institutions as in this election. Recur-ring political turbulence at the level of government,which seriously undermined political relationships forover a year and a half, at no time paralyzed republicanlife. In the heat of the crisis, faced with the serious mis-

demeanors committed by the government’s allies, theopposition refrained from advocating the president’simpeachment. Nor did they seek to incite popular con-frontation on the streets.

Although interrupted by two long arbitrary phases,the participation of the Brazilian people in the selectionof their leaders and representatives shows that Brazil is inan auspicious phase of political development. In terms ofelectoral participation, Brazil is now the third-rankeddemocracy in the world. Its electronic voting system al-lows results to be known on polling day itself, and it hasmechanisms to prevent fraud. Historically, Brazil hascome a long way. During the colonial period, only 1% ofthe population could vote. In the early republic, partici-pation rose to 3%, but the 1891 Constitution adopted theextreme criterion of licensing voters according to incomeand excluding women and free slaves. The first president,Prudente de Moraes, was elected with the votes of 2.2% ofthe population. Fifty years later in 1946, following a 15-year-long dictatorship, General Eurico Gaspar Dutra wonthe election with the ballots of 7% of Brazilians. In 1960,when the so-called Jânio Quadros “phenomenon” oc-curred, Jânio came to power with the votes of only 10% ofhis fellow countrymen. Luiz Inácio Lula da Silva, Brazil-ian’s 35th president (the 17th by direct vote), obtainedthe support of 31.1% of the total population—which is60.8% of the voting population.

It has been argued that there were no major differ-ences in 2006 between the manifestos of Geraldo Alck-min, the opposition candidate, and Luiz Inácio Lula daSilva. In an interview with Clarín, a Buenos Aires newspa-per, former President Fernando Henrique Cardoso pro-claimed that the distinction between them was to befound mostly in the “style” of the respective candidates(Cantelmi, 2006). However, when analyzed more care-fully, their programs emphasize quite different areas.

In Alckmin’s manifesto (2006), and with the main ob-jective of attracting foreign investments, he offered fewertaxes, strong fiscal adjustment, and cost containment ofgovernment expenditures below the GNP growth rate. Hepresented pragmatic objectives in respect of foreign pol-icy, giving top priority to trade relations with major mar-kets. As for infrastructure, he defended public-privatepartnerships in the energy sector, autonomy of regulatoryagencies, and decentralization of the transportation sys-tem improvement programs. The expansion of basicschooling and technical schools, including pecuniary in-centives for teaching performance, was also an item thatwas strongly emphasized in his manifesto.

Lula’s campaign program (Silva, 2006) differedfrom Alckmin’s chiefly with regard to foreign policy.

168 FEATURE ARTICLE



Nevertheless, Lula’s charismatic leadership hasbeen facing enormous challenges. Such leadership hasnot been enough to induce a radically moral adminis-tration and push Congress through stalled reforms,among which are urgent fiscal, tax, and government ad-ministration reforms. A set of institutional proceduresto control the swelling of the federal bureaucracy withapparatchiki, historically practiced by every faction inpower, is imperative. This problem has continued tohinder the efficiency of the government machine. Thisis one of the key institutional weaknesses reflected inBrazil’s weakest scores on the Global CompetitivenessIndex, as shown in Figure 5.

There are significant institutional barriers to in-creasing investment potential. The World Bank’s 2005report Doing Business in 2006: Regional Profile of LatinAmerica/Caribbean shows that Brazil performs very badlyon regulatory factors associated with business. Perhapsthe greatest problem is the Brazilian tax systems, whichthe report describes as “among the most complex andburdensome in the world” (IBRD, 2005). This system iselaborated more fully in Economic Growth and Income Dis-tribution in Brazil, in Zockun’s chapter entitled “The Cur-rent Tax System: An Obstacle to Economic Growth andto More Equitable Income Distribution” (Zockun,2007). The author describes the range of taxes appliedat federal, state, and municipal levels, including no lessthan four separate value-added taxes. There are alsosubstantial differences in the tax rates and collection ef-ficiency between different regions of the country. It isclear that tax reform must be a key priority to encouragebusiness investment.

Lula insisted on consolidating Mercosul, commerciallypresent in the emerging countries of Asia, Africa, andthe Middle East, and aggressively opposing the subsidiesadopted by the United States and the European Union.Lula, a more flamboyant character, showed unrestrainedemotion. During the campaign, he gave very publicprominence to his social program achievements, andthis was probably decisive in his victory. He had bene-fited 11 million families with his income transferenceprogram, put 19% of the population above the nationalpoverty line, and induced the generation of approxi-mately 6 million formal jobs.

President Lula’s victory is clearly linked to the expan-sion and consolidation of the social programs in his ad-ministration. Some of the figures supporting this conclu-sion have been presented in a 2006 study coordinated bythe economist Marcelo Néri from the Getúlio VargasFoundation with the title of “O Segundo Real ” (The Sec-ond Real). In particular, some of the indicators emergingfrom the National Household Sample Survey (PNAD)carried out by the Brazilian Institute of Geography andStatistics (IBGE) make the 2006 electoral event quitecomprehensible. Health, an unresolved social challengein Brazil, was part of Lula’s manifesto, but he preferredciting figures from his first mandate to discussing newplans. In fact, as he stated, the budget for the governmentsystem rose from R$28.3 billion in 2002 to R$44.3 billionin 2006, and there was improvement in the Family Healthprogram, with a 56% staff increase (Silva, 2006).

Comparing the “first real ” (1993–1995), when therewas an increase in income around 12%, with the socialpolicies of Lula’s government, as the article underscores,the real increments favored “every segment of the popula-tion,” while in the 2003–2005 period the yearly incomegrowth was more significant for the “poorest.” These werethe people who made annual gains of 8.4% in their in-come against a yearly growth of 4.8% for all segments. In2005, the income of the poorer 50% went up by 8.56%,way above the increase obtained by the medium andricher strata.

It would be fair to summarize the 1990s in Brazil asthe decade of inflation stabilization and universalizationof basic schooling. The current decade (up to 2007) hasbeen one of reducing the income gap and generating for-mal employment. The two decades are phases of the sameprocess; thus, it is analytically irrelevant to debate the po-litical ownership of the recent distributive policy. How-ever, the hard fact is that the population at large, little in-terested in historical sequences and now better providedfor, identified Lula as their benefactor and opted for himat polling time.



President Lula’s victory is

clearly linked to the expan-

sion and consolidation of

the social programs in his

administration.


However, it is Brazil’s poor macroeconomic score thatis the single biggest factor in the country’s poor rankingon the Global Competitiveness Index. The country is onlynow beginning to recover from a series of crises datingback to the early 1970s. Stringent fiscal policies that wereinstituted in the 1990s to stabilize the economy had ad-verse impacts on growth and employment. However, ac-cording to the most recent Economist Intelligence Unitprofile on Brazil, this actually created “favourable interna-tional economic conditions.” Lula’s proposed economicpolicies, if we are to believe in his commitments, will keepinflation under control and interest rates on a downwardtrend, and it will foster growth at a higher rate than thatin the first mandate.

Brazil’s third major competitiveness weakness is in-frastructure. The infrastructure policy formulated forLula’s second term considers alternative energy sources,two large hydroelectric power plants, the construction ofthe North-South railroad, and greater efforts toward har-bor expansion and highway improvement (Silva, 2006).Indeed, it is the transport network, even more than en-ergy infrastructure, that is highlighted in Mia et al.’s 2007analysis of Brazil’s infrastructure gap, with roads beingthe key area of need. Overall, Brazil ranks second toChile in attractiveness for private investment in infra-structure, scoring particularly well in access to informa-tion, and their private investment track record. Thecountry tops the region in some of the detailed indica-tors, including the quality of statistical information, and

the transparency in decision making. Political stabilityfactors are also favorable, according to the report (Mia etal., 2007). The key weaknesses are the macroeconomicand regulatory environments, which is consistent withthe weaknesses highlighted in Figure 5. Brazil’s business-related regulatory problems are also highlighted in theIBRD/World Bank’s 2007 report Doing Business in Brazil:2008. These are among the administrative reforms thatwill continue challenging Lula’s government duringtheir current term.

In regard to energy, Brazil is the largest consumer inSouth America. In the electricity sector, there is a large re-liance on hydropower, which, while it helps keep percapita CO2 emissions comparable with the rest of the con-tinent, has some weaknesses that future energy policymust address. The first is that with 35% of total energysupply coming from hydropower, energy shortages arecommon in times of low rainfall. The second is that thehydropower generating stations are remote from the cen-ters of high electricity demand, and this has resulted inestimates of transmission and distribution losses of 16%of supplied electricity (U.S. Department of Energy,2006a). However, Brazil has significant capacity to engagein the development of other renewable energy sources,having an established track record in the production andexport of ethanol and strong innovative capacity in itsstate-owned energy company, Petrobras.

Indeed, Brazil’s scores on the GCI show that thecountry scores well above its overall ranking when it

170 FEATURE ARTICLE


FIGURE 5 Brazil’s Strengths and Weaknesses on the Global Competitiveness Index



under way in Congress; ProUni (University for All Pro-gram), which initially offered 200,000 scholarships toneedy students in private colleges; and the creation ofnew federal universities (Silva, 2006). However, Haddad(2007) argues that more basic reforms in teacher train-ing, pay scales, and career structures are needed to evenout the inequalities in educational provision betweenhigh- and low-income families.

Despite the more favorable economic outlook, thefact remains that 47% of Brazilians earn the equivalent oftwo minimum wages or less. But this persistent social du-alism dates from long before the elections, and the elec-torate was conscious of this. Extreme poverty, which madelife difficult for 28.2% of the population in 2003, fell to22.7% in 2005. This was a consequence of more job of-fers, a real rise in the minimum wage, expansion of socialsecurity benefits, and, above all, the Family Allowanceprogram, whereby the government aids the neediest fam-ilies. Perhaps as a result, a poll conducted on the eve ofthe 2006 election found that Lula’s administration had53% approval (very good/good), the highest rating of aBrazilian president since the redemocratization of thecountry.

DISCUSSION AND CONCLUSIONS

Despite the relatively stable political trends, it is usual tohear in some European circles that democracy in Latin

comes to innovation factors: higher education and train-ing, technological readiness, and innovation perfor-mance. One indication of this is the propensity for resi-dents to take out patents. Figure 6 shows the relativeresident and nonresident patent applications over thepast 20 years for Brazil. Referring back to Figures 2 and 4earlier, it can be seen that Brazil’s level of patenting activ-ity amongst residents, relative to nonresidents, is more fa-vorable than those of Chile and Mexico.

The problem in Brazil is that the population is, to alarge extent, polarized in terms of educational levels, andthis is a major contributor to the inequalities that persistin the country. Whilst the country scores relatively well onthe GCI on health and primary education, this indicatormasks an admitted deficit in the quality of education atthe lower levels. In a recent book, Economic Growth and In-come Distribution in Brazil, Sérgio Haddad’s chapter on ed-ucation argues that increased enrollment in primary edu-cation has actually contributed to poor quality, in that ithas created a shortage of qualified teachers; as a result,class sizes have grown and many children in publicschools are taught by unqualified or underqualifiedteachers (Haddad, 2007). If the country is to be built onits current innovative capacity, there needs to be a widen-ing of opportunities for quality education and progres-sion to tertiary education. The government has alreadylaunched initiatives in education. Lula’s platform particu-larly emphasized FUNDEB (Basic Education Fund),






America is at risk and that populist outbreaks threatenregional stability. This article argues that this viewpoint isnot grounded in reality. The bottlenecks are in the econ-omy rather than in politics. Present-day social inequali-ties in Latin America are reflections of a long history offailure in government policy to match economic growthwith equitable human development. Increasing democ-ratization has made governments more accountable tosociety for these failures. Latin America as a whole is asubcontinent that is seeking to harmonize developmentand income distribution. Here are to be found state-of-the-art entrepreneurial activities and islands of modern-ization in all fields, although there are also intolerablelevels of privation. But economic and social reform is along process.

It was in this context that the World Economic Forumon Latin America 2007 reached the Santiago Consensus,an agreement on the region’s top-five priorities that is de-scribed as “an action program for achieving and sustain-ing higher productivity and growth with equity” (WorldEconomic Forum, 2007). The priorities are:

• more investment in education, with a focus on quality;

• improved environmental sustainability policies;

• increased Government and private investment inR&D;

• increased efficiency in tax collection and trans-parency in spending; and

• increased private and public investment in infra-structure.

With the exception of environmental sustainabilitypolicies, which have not been discussed in this article,5

these priorities are in keeping with the findings of thethree country case studies presented here. Using thecompetitiveness factors used by the World EconomicForum, the key problems relate to institutions, infrastruc-ture, and innovative capacity. It can therefore be seen thatthe examples of Chile, Mexico, and Brazil highlight somecommon social and economic concerns, which areshared, to a greater or lesser extent, by most Latin Amer-ican countries.

The account of the electoral battles in these threecountries does not reflect a continuation of old LatinAmerican politics: rather, an analysis of the manifestosand early programs of action of the winning candidatesshows a willingness to form political coalitions and workon institutional reform. If encouragement of innovativecompetitiveness in Latin America is crucial, we think it isan analytical error to oppose leaderships like those ofLula, Chávez, and Bachelet, as if there were a real con-

tention for the scepter of command. There is a growingopinion among the most realistic observers that LatinAmerica has no need for sole leadership.

Of course, a more in-depth political analysis of LatinAmerican countries would reveal greater political com-plexities than have been presented in this overview. How-ever, we can refer to the latest book by Héctor AguilarCamín, México—A Cinza e a Semente (2002). In this, thevictorious warrior evoked other times and other landswhen arriving in a country that he was to reorganize. Hewould say to his comrades that his challenge was to dis-tinguish between the ash and the seed: the ash as a use-less leftover and the seed as the hypothesis of a new be-ginning. This is the panorama that is dawning in Chile,Mexico, and Brazil.

In summary, it was noted in the introduction to thisarticle that perceptions of political instability in the re-gion continue to handicap much-needed investment,which in turn reduces the competitiveness of LatinAmerican countries. The article has shown that demo-cratic regimes in some countries have been instrumen-tal in improving economic and social conditions, whichthemselves are prerequisites for political stability andrespect for the rule of law.6 According to a recentOECD report:

Latin America is showing the world a face with attractive newfeatures: more stability in its macroeconomic environments,and greater pragmatism in policy and institutional reform. Re-gional success, measured in terms of economic growth, foreigninvestment inflows or export dynamism, may not yet be as im-pressive as in parts of Asia, but many significant developmentsare quietly under way. (OECD, 2007b)

However, to consolidate these developments, manychallenges in the promotion of economic growth and theelimination of poverty are still to be met. Income distribu-tion is still the continent’s major development concern,and increased private investment in infrastructure and in-novation are key goals. In addition, democratic gover-nance should be better linked to public finance. In thisregard, the financing of political campaigns should be ad-dressed, taking into account that Latin Americans are ex-tremely critical of politicians. The introduction of privatepension funds is also much needed, to provide domesticsavings for development financing. Finally, trade relationswith China and India should increasingly move fromcompetitive to complementarity. When progress is madein these priority areas, Latin American countries will beable to slough off, once and for all, their historical pop-ulist political mantle.

172 FEATURE ARTICLE



Centro de Investigacion y Documentacion de la Casa (CIDOC). (2007).Current housing situation in Mexico—2006, Mexico City: Author. Avail-able at http://www.shf.gob.mx/files/pdf/CHSM_2006.pdf

Comisión Económica Para América Latina y el Caribe (CEPAL). (2005,July). América Latina: Proyecciones de población urbana y rural—1970–2025. Boletín Demográfico No. 76.

Economist Intelligence Unit. (2007). Profiles of Brazil, Chile andMexico.

Food and Agriculture Organization of the United Nations (FAO).(2006). The state of food insecurity in the world 2006. Available athttp://www.fao.org/docrep/009/a0750e/a0750e00.htm

Haddad, S. (2007). Education and exclusion. In J. Marcovitch (Ed.),Economic growth and income distribution in Brazil (pp. 201–226). SãoPaulo: São Paulo University Press.

International Bank for Reconstruction and Development (IBRD).(2005). Doing business 2006: Creating jobs: Regional profile of LatinAmerica/Caribbean. Washington, DC: IBRD/World Bank.

International Bank for Reconstruction and Development (IBRD).(2007). Doing business in Brazil 2008. Washington, DC: IBRD/WorldBank.

Krauze, E. (2006). El Mesías Tropical. Letras Libres, Mexico. Availableat http://www.letraslibres.com/index

Machinea, J. L., Bárcena, A., & León, A. (2005, June). Objetivos de De-sarrollo del Milenio: Una mirada desde América Latina y el Caribe.CEPAL. Available at http://www.eclac.org/publicaciones/xml/1/21541/lcg2331e.pdf

Mia, I., Estrada, J., & Geiger, T. (2007). Benchmarking national attrac-tiveness for private investment in Latin American infrastructure.Geneva. World Economic Forum.

Néri, M. C. (2006). Miséria, desigualdade e estabilidade: O SegundoReal. Rio de Janeiro: EPGE-Fundação Getulio Vargas.

Obrador, A. M. L. (2006). 50 compromisos para recuperar el OrgulloNacional. Available at http://www.amlo.org.mx/50compromisos/50compromisos.doc

Organisation for Economic Co-operation and Development (OECD).(2007a). OECD science, technology and industry scoreboard 2007:Briefing note on Mexico. Available at http://www.oecd.org/dataoecd/19/52/39695478.pdf

Organisation for Economic Co-operation and Development (OECD).(2007b). 2007 Latin American Economic Outlook. Paris: OECD Devel-opment Centre. Available at http://www.oecd.org/document/

Salgado, E. (2006). O Perigo é López Obrador Perder. O Estado de S.Paulo, 25(6), A24.

NOTES1. The GCI methodologies may warrant some critical discussion, but thisis outside the scope of this article: the accuracy of the indices suffices forthe objective here, which is to provide a comparative overview ofstrengths and weaknesses.

2. Concertación de los Partidos por la Democracia (Coalition of Parties forDemocracy).

3. Interviews with Joaquim Cordua, Fundacion Chile, June 2006.

4. U.S. Department of Energy (2007) Country Brief for Mexico.

5. Though important, ranking second in the priorities agreed upon bythe World Economic Forum for Latin America, there was not space fora proper evaluation of environmental issues in this article.

6. It is not pertinent to suppose that the victory of sandinismo in the elec-tions in Nicaragua might change the general picture outlined here. Aremaining question in the political terrain is Cuba’s destiny, not only be-cause of the uncertain outcome of the situation caused by Castro’s ill-ness, but as a result of the new domestic scenario in the United Stateswith the democrats’ success in the legislative elections.

REFERENCESAlckmin, G. (2006). Programa de governo. Available at http://www.es-tadao.com.br/ext/eleicoes2006/plano_alckmin.htm

Aldunate, F. (2006, October). No somos el continente más pobre.Somos el continente más injusto. Revista América Economía (Interviewwith José Miguel Insulza, Secretário Geral da OEA).

Arruda, C., Tello, R., & Araujo, M. (2006). O Brasil na competívidademundial: Análise do WEF Global Competitiveness Report 2006–2007.Fanudação Dom Cabral. Serie: C10615.

Bachelet, M. (2005). Programa de gobierno. Available at http://www.gobiernodechile.cl/programa_bachelet/programa.pdf

Bachelet, M. (2006). Plan de 100 días: Las 36 medidas de la PresidentaMichelle Bachelet para sus primeros días de gobierno. Available athttp://www.modernizacion.cl/1350/article-105839.html

Calderón, F. (2006, June 20). 100 acciones prioritarias de gobierno.Available at http://www.inep.org/content/view/4045/44/

Camín, H. A. (2002). México—A Cinza e a Semente. São Paulo: Bei Ed-itora.

Cantelmi, M. (2006, October 20). Nuestras diferencias son por cues-tiones políticas y morales. (Interview with Brazilian Former PresidentFernando Henrique Cardoso.) Clarín.



Jacques Marcovitch is a professor of business strategy and international relations at the University of SãoPaulo. He is a senior adviser to the World Economic Forum, and senior fellow of the International Institute ofLabour Studies/ILO (Geneva). Among his past appointments are president of University of São Paulo and direc-tor of the Institute for Advanced Studies. He is the author of Pioneiros e Empreendedores: A Saga do desenvolvi-mento no Brasil (2003, 2005, 2007) and Para Mudar o Futuro: Mudanças Climáticas, Políticas Públicas e Estraté-gias Empresariais? (2006), both published by Edusp/Saraiva (São Paulo) and editor of Economic Growth andIncome Distribution in Brazil: Priorities for Change? (2007), published by Edusp (São Paulo).

The author wishes to thank Kathryn Stokes for her valuable contributions to the revision of the paper, and EmilioLozoya Austin for his useful comments and suggestions on an earlier draft.

03TIE50_3Marcovitch 4/4/08 12:13 PM 3

Silva, L. I. L. d. (2006). Programa de governo. Available at http://www.estadao.com.br/ext/eleicoes2006/plano_lula.htm

U.S. Department of Energy, Energy Information Administration.(2006a). Country analysis brief: Brazil. Washington, DC: Author.

U.S. Department of Energy, Energy Information Administration.(2006b). Country analysis brief: Chile. Washington, DC: Author.

U.S. Department of Energy, Energy Information Administration.(2007). Country analysis brief: Mexico. Washington, DC: Author.

World Economic Forum. (2007). Global competitiveness report2006–2007. Available at http://www.weforum.org/pdf/Global_Compet-itiveness_Reports.

World Intellectual Property Organization (WIPO). (2007). Patent appli-cations by office (1985–2005). Geneva: Author.

Zockun, M. E. (2007). The current tax system: An obstacle to economicgrowth and to more equitable income distribution. In J. Marcovitch(Ed.), Economic growth and income distribution in Brazil. São Paulo:São Paulo University Press.

174 FEATURE ARTICLE



the new latin american landscape

Documents