Of all the relationships that the next U.S. president needs to repair around the world, none has a higher priority than Latin America. In fact, Latin America’s unaddressed poverty and inequality is approaching a major national security concern for the United States.
Latin America is in trouble. Of 550 million Latin Americans more than 200 million live on $2 per day or less. The gap between the rich and the poor is the largest on earth. Alarmingly, the Latin American standard of living has not markedly improved in the decades since democracy has been adopted universally in the region, which has turned many of the poor against democracy.
A comparison between Latin America’s lackluster economic growth between 1973 and 1998 (1 percent per year) and the powerful economic engine driving Asian prosperity (3.5 percent per year, not including Japan, over the same period) underscores the point.1 The gap has increased since 1998. While Latin American poverty inched downward from 43 percent to 36 percent, Asian poverty fell dramatically from 50 percent to 19 percent. This represents a huge potential challenge to U.S. security in its own “backyard.” Poverty inevitably foments conflict, instability and huge migratory movements—and the U.S. is notably unprepared for the impact these trends can have on its own economy and stability.
The key tools for fighting these trends are education, the rule of law and the encouragement of wider property ownership and credit. If the new U.S. president wants to improve relationships with Latin America dramatically, then he must consider how to make these tools accessible to the 200 million Latin Americans living on $2 per day.
He would be pushing against an open door. In 10 nations with GDP per capita ranging from $7,000 to $13,000 and including 401 million people, Latin Americans are demonstrating that they understand how to produce wealth, compete globally, distribute economic opportunity, and reduce poverty—if slowly. The region’s two giants are leading the way: Brazil at $8,000 GDP per capita and Mexico at $10,000 GDP per capita. It is very much in the U.S. interest that the success of Brazil and Mexico
spreads to include the entire region.
There is already a road map that can serve as a guide for how this can be achieved.
The best anti-poverty policy is a wealth-creation program based on providing the tools that Latin America’s poor can use to help themselves. “What matters is what works and what doesn’t,” President Leonel Fernández of the Dominican Republic has said. “A fiscal deficit is neither of the right nor the left—it’s a problem of management.”2 The language of development understood by the poor is not about ideology or macroeconomics—it’s about tools. There’s no reason why Latin America can’t do what Spain and Portugal did since the 1970s. And there’s no reason why the U.S. can’t be the playmaker for Latin America’s wealth creation the way the European Union (EU) was for Spain and Portugal. While popular attitudes in the U.S. preclude the same comprehensive trade and aid package provided by the EU, the U.S. can develop a more integrated policy of fostering macro trade policies combined with micro programs that provide support to families, small businesses and communities.
The U.S. political and economic system is superior to any wealth creation engine in history because it diffuses investment, education and technology most efficiently—and it stands today as the most productive in the world. Consider the 45 million Hispanics who migrated to the U.S. from all over Latin America, most of whom were poor, and 12 million of whom are illegally in the country. Those 45 million Hispanic Americans produced $1 trillion in 2006 while 550 million Latin Americans produced $2.4 trillion the same year, effectively $22,000 versus $4,363 GDP per capita.3 The reason Hispanic Americans produced five times as much as their families back home is they have access to wealth-creation tools in an efficient economic and political system.
How can these successes be replicated around the hemisphere? One answer is by supporting efforts to share the tools of wealth creation, such as securing access to private property and micro-credit. Television, the computer and the cell phone can provide an environment for education directly to those who need it. The content must include programs on “how to” start a business, secure property title, get collateral for a loan, manage a small business for a profit, develop niche market for local products, find alliance partners, connect to globalization via the Internet, become an independent contractor, learn about the roles and responsibilities of shareholding and corporate governance, and train teachers to be more effective. My organization is already engaged in the last item.5
Many effective grassroots-education models are available, from the charter schools in Bogotá to the Fe y Alegria schools run by Jesuits in a dozen nations. Mexico and Brazil provide a monthly stipend to poor families whose children attend school and health clinics regularly, which has reduced poverty. President Lyndon Johnson’s War against Poverty and its community action programs—Volunteers in Service to America (the domestic version of the Peace Corps), legal services to the poor and Head Start—can also serve as a model. And of course the Peace Corps itself could be expanded to include retired executives to help enterprises owned by the poor in Latin America.
The Peruvian economist Hernando de Soto has campaigned for years to formalize and universalize private property titles. He helped 1.2 million Peruvian families get titles in recent years to cut through his country’s bureaucracy to obtain business incorporation papers. That program should spread accross Latin America.
The real engine of growth, innovation and poverty alleviation is in the spirit of entrepreneurship of the region’s indigenous population. Enterprises owned, directed and managed by the 200 million poor in Latin America—of whom more than 50 million are indigenous or mestizo—could make a huge positive difference in their lives, as the 200 indigenous enterprises of Alaska did for its Natives. A generation ago, most Alaska Natives were living on $2 per day in desperate poverty but today are in the middle class. Alaskan natives own a $1.3 billion oil-services company, the largest zinc mining company in the world and a half-billion-dollar, global-financial services company, as well as firms that are among the largest and most profitable in Alaska. By capitalization of $960 million in the 1970s—funds coming from a government settlement of land claims to clear the way for oil development—Alaska’s indigenous enterprises have earned close to $40 billion by 2008, marking this as the most successful anti-poverty program known to humankind. Indigenous people from Mexico to Bolivia have been trying to form these enterprises for years now. The U.S. could show them how—if it had a good working relationship with Latin America.
Such a program could build on initiatives already started by USAID and the Inter-American Development Bank that promoted exchanges between North American indigenous groups with counterparts in Ecuador. New efforts should seek to include the tens of millions of indigenous people living in poverty in the region. In this process, governments and multilaterals alike could harness private sector support to create regional capital markets that could provide investment for indigenous enterprises.
It is very much in the self-interest of the U.S. to play the role of playmaker. If Latin Americans produced as much income as Hispanic-Americans, its 2006 GDP would have exceeded $12 trillion, and the U.S. would not be worrying about immigration, conflict, instability, and terrorism from south of the border, but sharing enormously in that prosperity itself. But how it approaches this is, in many ways, the most important issue.
Many Latin Americans feel that the U.S. has long attempted to unilaterally impose its rules for development and democracy on Latin America through trade, aid, foreign direct investment, the World Bank, and the International Monetary Fund. In the last decade, American power has fallen in every one of these areas. The U.S. needs a new approach that is co-created with Latin Americans and which combines elements of President John F. Kennedy’s Alliance for Progress, President Harry Truman’s Marshall Plan, and a modern, high-tech public-private partnership. The U.S. needs to reach out for that partnership with Latin America through a relationship of respect, dignity and equality. Perhaps a renewal of the spirit that launched the first Miami Summit of the Americas can help us go beyond trade to restore the same sense of common purpose and spirit that inaugurated the event in 1994.
Endnotes
1 Angus Maddison, The World Economy: A Millennial Perspective (OECD Development Centre, 1998).
2 Michael Reid, Forgotten Continent: The Battle for Latin America’s Soul (Yale University Press, 2007), 11.
3 Economist’s World in Figures, 2007.
4 See <www.cisneros.com> for the AME and CL@SE education programs operating in a dozen Latin American nations.
5 Nicholas P. Sullivan, You Can Hear Me Now: How Micro-loans and Cell-phones are Connecting the World’s Poor to the Global Economy (John Wiley & Sons, 2007).