Though summer is still with us in the northern hemisphere, Latin America languishes deep in the winter of its discontent. Ten years after the international scene was transformed by the collapse of the Soviet Union and the end of the cold war, many Latin Americans have become disillusioned with their role in the new world order. The principal problem is that in spite of vigorous, in some cases drastic, market reforms, most of the region's economies are in the doldrums. More to the point, in spite of a significant return of foreign investment to the area in the early 1990s, the number of Latin Americans living in poverty has increased. Public services have deteriorated or in some cases even disappeared. And crime is rampant everywhere, even in cities such as Buenos Aires, where until ten years ago inhabitants boasted-with reason-that their streets were safer at 3 a.m. than those of New York or Los Angeles in daytime.

Although no coherent "revolutionary" movement has arisen to capture and ride this new mood, the region seethes with manifestations of discontent. Strikes, demonstrations, and road blocks have become the daily fare of Argentines. In Chile the far left, formerly discredited by its role in the Allende period, is making a serious attempt to split the ruling Christian Democratic-Socialist coalition. In Colombia the inability of President Andrés Pastrana to persuade the FARC guerrillas to seriously negotiate a peace agreement has led to widespread public despair. In Ecuador a civilian government nervously looks over its shoulder at both military and Indian groups, who nearly seized power jointly last year. And in oil-rich Venezuela, President Hugo Chávez dreams of reversing the current of history by aligning his country with Cuba, Russia, Iran, China, maybe even with Mars if people are discovered there, with anyone but the United States. As if to underscore the pessimistic mood, the number of Latins trying to emigrate-to the United States, Western Europe, Canada, Australia, or wherever-has probably reached unprecedented levels, particularly in Venezuela and Colombia, places with no previous history of massive expatriation.

The biggest change of all has been in the rhetoric of many politicians, who increasingly claim that "globalization" is the big enemy of Latin America and that a drastic change is needed in the prevailing economic model. Exactly what that change should be none of them states specifically, perhaps because none of them quite knows. But they argue in a broad way that integration into the world economy has favored the G8 countries to a disproportionate degree and that the process itself is the cause of the region's social woes-inequality, unemployment, and increasing poverty.

Disillusionment with Democracy

Fifteen years ago Latins talked about democracy as if it were a magical cure for all their ills. Today, the mood is tending to the reverse-for many the problem would seem to reside in the procedures by which people elect their leaders. In a poll conducted for the Economist by the Chilean public opinion firm Latinobarómetro and published in that magazine on July 28, the only country in the region where support for democracy was found to have increased in the past year is Mexico, presumably as the result of the election for the first time of an opposition candidate to the presidency. Even so, it grew by only a single percentage point—from 45 to 46 percent. This is considerably lower support than in Peru (62 percent), but even in that country, where an authoritarian president was deposed last year partly as the result of a massive grass-roots movement, the actual number of citizens favoring democracy over other systems dropped by two points.

Elsewhere the numbers are far more disturbing. In Argentina support for democracy has dropped from 71 percent in 2000 to 58 percent this year; in Bolivia, from 62 to 54 percent; in Brazil, from 39 to 30 percent; in Chile, from 57 to 45 percent; in Colombia, from 50 to 36 percent; in Ecuador, from 54 to 40 percent; in Panama, from 62 to 34 percent. Ironically, one of the few countries where democracy seems to be holding its own in the polls is Venezuela (57 percent, versus 61 percent last year). We say "ironically" because to any objective outside observer Venezuela is obviously on the road to some sort of messianic dictatorship-with popular approval in its initial phases to be sure, much like Hitler's in 1934 Germany.

Behind these numbers lurks a troubling fact. Many Latin Americans confuse the concept of democracy with economic well-being. This suggests a remarkably low level of political sophistication and civic awareness—underscored by the fact that the two countries at odds with this turn in public opinion, Uruguay and Costa Rica, boast long histories of firm democratic commitment and practice. In other words, the apparent support for democracy in Venezuela is really more a vote of confidence in President Chávez rather than an affirmation of support for elections, freedom of the press, the rights of minorities, an independent judiciary, and so forth. Its decline in other countries has nothing whatever to do with politics, politicians, or particular policies, but is simply a reaction to an economic slump.

The same poll, perhaps not surprisingly, also revealed that Latin Americans in general have lost faith in the institutions that we normally associate with constitutional democracy. Political parties ranked at the bottom, at 19 percent, but parliaments and the judiciary hardly fared better (22 and 26 percent, respectively). These were bested by the armed forces (39 percent) and television (49 percent), but the big winner was the Catholic Church, a whopping 72 percent. This is a remarkable finding in light of the fact that except in Cuba-for reasons easily explained—the church has been losing its hold on the popular imagination of Latin Americans for many years. (This is not the same thing as to say that it has lost all prestige, merely that its capacity to discipline its clergy and faithful on matters of doctrine has been greatly undermined by urbanization, secularization, and foreign influences, including—in many countries—missionaries from non-Catholic denominations.)

Even more paradoxical are the opinions of Latins on two crucial issues—free market economics and foreign investment. One would suppose that in an environment increasingly hostile to "globalization," neither would rank high in popular esteem. But in fact fully 52 percent continue to favor the former, and a whopping two thirds (66 percent) are anxious to see foreign investment in their countries. The same percentage applies to those who favor the U.S.-sponsored project of a Free Trade Area of the Americas. (The one country cool to this initiative is Brazil.) Approximately 70 percent claim to have a "good" or "very good" opinion of the United States—in comparison to 53 percent a mere six years ago. (Could this have to do with a growing intention on the part of many respondents to emigrate northward?)

These findings go far toward explaining why Latin American countries are so difficult to govern these days. On one hand, most citizens apparently subscribe to the broad objectives of a democratic capitalist society; on the other, they have little or no faith in the capacity of their institutions to take their societies where they want to go. (The poll also found that most Latins do not trust their compatriots on an individual basis and lack confidence in themselves.) Although there is much talk about the Chávez experiment offering an alternative model, most countries do not possess Venezuela's oil revenues, and even in Venezuela these have not prevented the number of people living in poverty from increasing as a percentage of the whole.

A Cycle of Failure

Why have policies that worked well in the northern hemisphere failed to do so in the south? It is foolish to try to answer such a complex question in a few paragraphs, but we will try anyway. Unlike Europe and the United States, urbanization in Latin America preceded rather than followed industrialization. Throughout the twentieth century all Latin American cities, but particularly capital cities, grew rapidly and far out of proportion to the size of the nations. Thus, around the time of the First World War, the principal task of government was to buy social peace in urban areas—in the countryside the population was dispersed geographically and in utter thrall to landowners and local law enforcement officials. Pacifying urban dwellers was accomplished through the creation of primitive welfare states, the imposition of price controls on foodstuffs, and the expansion of the public sector to provide both blue- and white-collar employment. Educational policies likewise were aimed at pacification of potentially dangerous political publics, such as the children of the middle class. This explains why, almost everywhere, educational budgets were (and indeed to this day continue to be) disproportionately tilted toward universities, radically shortchanging primary and secondary education, particularly outside urban areas.

After the Second World War, a new expedient was layered on top of the model described above—import-substitution industrialization. This was accomplished through artificially high tariffs, government subsidies and purchases, special access to foreign exchange, and in some cases direct investment by government agencies like CORFO in Chile. At the same time, the gradual nationalization of major extractive enterprises—oil in Mexico and Venezuela, copper in Chile, oil and minerals in Peru—and formerly foreign-owned public utilities like telephones and electricity created new sources of middle-class employment for key political constituencies.

As early as the late 1960s, this economic model had become radically unproductive and could only be sustained by heavy foreign borrowing. Indeed, the Latin American "debt crisis" can be understood as nothing more than the inability of states to continue to find money abroad to subsidize economies organized to consume rather than produce. That crisis, so-called, was temporarily postponed in the 1970s as the result of the Middle East oil embargo and the subsequent flood of petrodollars that Western bankers recycled throughout the Third World. When it finally became clear in 1989 that the United States and Western Europe were unwilling to sustain new loans to Latin America, the latter had no choice but to reform.

The Case of Argentina

Without doubt some of the changes over the past decade have been dramatic and far-reaching. A case in point is Argentina, which privatized its airlines, telephones, many of its electrical companies, even its state oil company YPF (the only such enterprise anywhere in the world to lose money in the 1970s). While the sale of such companies did lead to the downsizing of personnel, they also stanched the hemorrhaging of resources, brought an end to endemic inflation, and attracted much new foreign investment. Moreover, many public services-—particularly telephones—leapfrogged generations of technology to become truly world-class for the first time.

What did not happen in Argentina, and indeed in many other Latin American countries, was a serious attempt to retrain redundant workers. The real beneficiaries of privatization have been personnel who were already well-educated, typically in private schools or in foreign universities. Instead of addressing the issue of human capital formation, the Argentine government blithely assumed that having made these adjustments, the country would simply sit back and luxuriate in an endless flood of foreign investment. While it did indeed receive a very considerable amount during the first half of the 1990s—and witnessed the massive return of Argentine resources formerly in safe haven abroad—the administration of the day failed to address the qualitative dimensions of economic modernization, particularly in the field of education. Its successor began toying with educational reform early last year, but was driven to dropping the project under protest from teacher's unions, which form (or at least then formed) an important part of the government's political constituency.

There has been much talk in Argentina, and indeed elsewhere in Latin America, about corruption and how it has supposedly subverted the goals of economic modernization. Up to a point such remarks are valid. But, as Moisés Naím points out in a brilliant recent study of his native Venezuela, "the belief that corruption is the main culprit behind the country's woes is at the core of Venezuela's political and economic instability" (emphasis added). Such notions, he continues, make the presumption of honesty the only relevant credential in the recruitment of leaders, overriding any concern about qualification or technical competence. "Proposals to create new wealth or [to] reform policies that stimulate corruption are seldom advanced or simply overwhelmed by the anticorruption crusade."¹ In Argentina, for example, it is probably not an exaggeration to say that many people who voted for President de la Rúa in 1999 imagined that the simple act of electing him would put an end to corruption—real or imagined—and as a result, automatically produce an economic boom in Argentina. De la Rúa's apparent failure to reactivate the economy can therefore be attributed—wrongly to be sure—to corruption in high places.

The Only Show in Town

In times past, moments such as the one Latin America is currently experiencing usually produced military governments. Not all of them were as sanguinary and repressive as the ones that ruled the continent in the 1970s, but none—with the single exception of the Pinochet regime in Chile—displayed a particular talent for economics. In any event, today none of the military institutions of the region apparently aspire to relieve the civilians of the tasks for which they have been elected. This means that even if democracy as a system is declining in popular esteem, nondemocratic alternatives are simply not on the agenda. The politicians are left with no choice but to get down to business. Democracy, markets, globalization—as the English say, the whole bag of tricks—constitute the only show in town and will remain so unless and until the antiglobalization forces can come up with a credible and workable alternative. Eventually even the Venezuelans, with all their oil, will come to recognize the fact. Meanwhile, the rest of Latin America's leaders need to examine their societies more carefully to see what other changes are needed to make the prevailing model work.

Notes

1. "The Venezuelan Story: Revisiting the Conventional Wisdom," forthcoming in Foreign Policy.

Mark Falcoff is a resident scholar at the American Enterprise Institute.