The third edition of Victor Bulmer-Thomas's authoritative economic history of Latin America continues to illuminate our understanding of trends in regional growth. The story is complex. Bulmer-Thomas does not oversimplify broad trends; instead he teases lessons, often in counterpoint to popular perspectives, from the heterogeneous growth in the region. Although a shared colonial experience and a reliance on commodity exports create a common backdrop, diverse products and distinct policy environments differentiate growth profiles.
While the Spanish and Portuguese monopolised trade with their colonies, extracting gold, taxing subjects and creating royal monopolies, independence brought opportunities for policy variation. However, new governments did not dramatically alter the economic landscape. Although reliant on the external sector, nations did not enact Riparian free trade. Instead, fiscal policies were anchored to customs revenues, introducing a pro-cyclical macro bias. Paralleling today's trade with China, the region rode the strong demand for minerals and agricultural products created by the industrial revolution and its growing middle class in Europe. Independence left land tenure systems little changed, reinforcing the power of a small core of elites. Powerful domestic constituencies opposed realigning priorities; market interventions, including coercion of labour, kept rural sector wages low, masking price incentives to switch to capital intensive production in dual use agriculture. Other elites benefited from tariffs on import-competing industries, an important source of fiscal revenue for governments. The model remained intact.
Bulmer-Thomas suggests that export-led growth had promise. Despite volatility in the prices of resource based products, he contests the view that declining terms of trade dooms a country to stagnation. The region grew on the export platform, just not fast enough to keep pace with other western offshoots such as the United States. He calls our attention to the success Argentina built through product and market diversification prior to World War I, resulting in the tenth highest GDP in the world, outpacing France. Argentina was able to benefit from relatively open global markets, and experienced some success in transferring productivity gains from export to dual use agriculture. Alternative models would have faced constraints similar to those limiting export-led growth, spotty transportation networks, weak capital markets, labour scarcity, political instability and, with the exception of Brazil, small internal demand.
World War I changed the players but not the outcomes. The disruption of European trade routes repositioned the United States as the lead supplier for Latin America. American financing followed its firms. Oil won the commodity lottery, propelling Venezuela to the world stage. The disruption of trade was on balance a negative for Argentina, illustrating its dependence on an external surplus for investment in manufacturing. Bulmer-Thomas shows how the subsequent Global Depression also illuminated the cruel bluntness of the automatic adjustment mechanism for commodity exporters. If a country is running a current account deficit, contractionary measures are indicated to reclaim external balance. But the tragedy replayed again and again by Latin American exporters is that while the initial disequilibrium is in the other country's market, it, too, must swallow painful austerity medicine. The pro-cyclical nature of commodity dependence is reinforced by the fact that as exports fall, so do government revenues and the fiscal space to cushion the contraction. Brazil broke global rules with a loose fiscal policy to favour the industrial sector, but industry still remained junior partner to commodity based exports. A fall of 50 per cent in export values during the Great Depression also caused debt service problems and hard currency squeezes to pay for imports. The export engine did not provide import capacity. Nonetheless, the region remained commodity dependent, with the top ten products accounting for 70 per cent of regional exports.
World War II was a turning point in Latin America's position in the global economy. Mineral exporters benefiting from higher prices used accumulated reserves to purchase foreign-owned companies such as railways. This reinforced the tendency for greater state intervention, positioning most economies toward import-substitution industrialisation (ISI). Breaks in European trading routes encouraged stronger regional integration. The pivot continued toward the United States, particularly in trade in strategic materials. Macro challenges included the import of inflation through higher tradable prices, a harbinger for decades to come.
Postwar recovery brought a more open international economy; Bulmer-Thomas laments the region's failure to adapt to the liberalising external environment in the 1945–73 period. Factor price distortions driven by the ISI model as well as a lack of competition in protected, oligopolistic markets led to inefficiency. Policy objectives, not prices drove decisions. For example, until 1967 the Brazilian law of similars allowed companies to request protection on items that could be produced domestically, no matter the relative price differential. Bulmer-Thomas also considers the paradox of import substitution, namely that promoting light manufacturing requires importing necessary heavy equipment leading to trade imbalances. Again he details the heterogeneity of experience. Although ISI is often seen as ‘the’ regional model under the tutelage of CEPAL, he highlights that only the Latin America six of Argentina, Brazil, Chile, Colombia, Mexico and Uruguay broadly implement its policy tools. Other smaller countries are limited by scale economies and so graft some elements of ISI to export promotion (EP) models to address constrained trade balances. Regional integration paralleling the early European experience is experimented with to expand market size, but Bulmer-Thomas insightfully notes the fraught nature of Latin American integration efforts. Trade involves winners and losers. The winners capturing regional markets are not interested in providing compensation to the losers paying more for inefficient imports. Integration has a price and a willing regional patron has not emerged.
Bulmer-Thomas calls our attention to the overlapping nature of policies prior to the debt crises of the 1980s. Policy cocktails of ISI and EP were designed to shift export portfolios away from commodity dependence, but failed to open economies fully to global markets. Windfalls in resource based economies allowed investment in other sectors. But the tension between limited government resources and demands placed on the state by the private sector remained acute. A response to this pressure was the rise of SOEs, especially in capital intensive sectors, but this primed debt-led growth. Tools faced conflicting objectives; when exacerbated by price pressures, the fixed exchange rate regime was insufficient to provide both stabilisation and a long-run competitive rate.
Bulmer-Thomas's nuanced account attests to the complexity of models employed in any given period of Latin American economic development. His latent optimism for greater integration of the region into the global economy underscores that export diversification was possible given the right set of incentives. The prescriptions in the new economic model of export-led growth and a smaller role for the state were painful and imperfect. Lamentably, Latin America was distracted by domestic macro adjustments when the age of globalisation began. But both commodity-led growth and inward looking development were framed by the same entrenched elites in oligopolistic markets that reinforced colonial patters of asset distribution.
Bulmer-Thomas does not just analyse Latin America's external position but instead squarely situates it IN the world economy, and he finds the region lacking. He points us toward the national disconnects between policy and missed international opportunities driven by slow price adjustment triggered by absent and segmented markets. At the core of disappointing growth in Latin America is a failure to invigorate total factor productivity. Bulmer-Thomas is cautiously optimistic about fiscally prudent poverty alleviation tools, but does not connect this to how entitlement changes will impact productivity to promote shared growth. He closes on an upbeat tone, asserting that the forces of globalisation may galvanise missing productivity enhancing investments. But he is unclear on the concrete mechanisms to achieve equitable, sustainable growth.
Chapters are organised by historical period and presented with meticulous detail and carefully traced footnotes. Bulmer-Thomas characterises not only the economy but the prevailing academic and policy views of each time. This temporal approach is important in showing how micro components align with macro outcomes, but it makes it trickier for the reader wanting to learn, for example, how regional integration or poverty changes over time; one needs to track the topic across chapters. Although not neglected, the political is perhaps underplayed in explaining why Latin America does not meet its growth potential. But these are not criticisms, simply trade-offs explaining why Latin American growth fails to meet expectations. Bulmer-Thomas's richly detailed history clearly points to the lack of resilience to global shocks, inconsistent policies and the tricky nature of achieving internal and external balance.
