Latin America's Troubles Prove that Economic Growth Does Not Guarantee Political Stability

November 26, 2019 1:45 PM
Photo Credit: 
REUTERS/Luisa Gonzalez

The flames of political instability have lately consumed Peru, Ecuador, Chile, Bolivia, and Colombia, following upheavals earlier in Venezuela and Brazil. Economic factors have always played a role in igniting unrest, and many Latin American countries enjoyed prosperity resulting from a commodity boom that began in the early 2000s and went bust a few years ago. But something more complex better explains recent events in Latin America: the fact that economic growth did not bring social mobility in the rigidly segmented societies in Latin America.

While it lasted, the commodity boom raised living standards and enabled many middle-class Latin Americans to enjoy higher economic status. Some studies have shown that the commodity boom enabled nearly 80 percent of Latin American citizens to move from poverty to the middle class in the 2000s.

But upward mobility does not necessarily produce economic stability. On the contrary, a revolution of rising expectations, to use a phrase popularized in the 1950s, can derive from abiding resentment of inequities even among those whose economic fortune has improved. This was the insight of economists Albert O. Hirschman and Michael Rothschild in the 1970s, who used the metaphor of cars stuck in traffic in two lanes in a tunnel. When the cars in one of the lanes start moving, the passengers in the cars that are in the lane that is not moving are temporarily relieved by the positive expectation that they will eventually move like the other lane. But if they never move or start moving more slowly, they may become angry that they are not moving at all or not as fast as the cars in the other lane. If cars in both lanes had stopped and then started moving at the same time, the ones in the lane moving more slowly may tolerate the other moving faster for a while—until their tolerance snaps.

In stratified societies, those who benefit immediately from higher growth may be thwarted by other barriers to equality. They understand that they do not have access to all they desire because of discriminatory practices in health and education, for example. Hirschman uses the term "truncated mobility" to describe the frustration and alienation when doors to advancement are closed to some, even in an environment of economic growth. For a time, those not benefiting from mobility (the "nonmobile") will not share the same alienation—they just hope that their lives will improve soon. But, eventually, they too lose patience and blame the system as rigged against them, sowing the seeds of revolt.

Added to this mix is the resentment of the "elites" in Latin America, who begrudge the social gains of minorities, including indigenous people, those of African descent, or simply the "poor" living in slums. Even members of the upper middle classes lack access to quality public services, such as transportation, education, and health, and feel truncated mobility, resentful that finite public resources are mobilized to narrow the inequality gap rather than helping them attain their goals. In effect, they derive negative welfare from social mobility.

Once social mobility causes frustrations to rise, among the traditional middle class who feels others are benefiting at their expense (e.g., groups that benefit immediately from social policies such as cash transfer programs) and those who fail to benefit immediately (the "nonmobile"), it is only a matter of time before social unrest erupts. This unpredictable situation leads to a key policy conclusion: Growth must be accompanied by redistribution of its benefits.

It is not just economic stagnation that produces political volatility, or even simply the presence of a weak institutional environment that impedes broader social mobility. Economic growth and social mobility interact to light the fuse. The political class cannot afford to be complacent in the face of frustrations of those who do not feel "represented" in the economic system. Trust in political leadership and in institutions might break down in these circumstances. Polarization sets in as it has in the elections in Latin America during the 2017–19 cycle.

Eroding trust in politicians produces another consequence. As politicians ill-suited to address popular concerns emerge, left-wing and right-wing politicians come to rely on institutions that people continue to trust: the military and the Church (e.g., Catholic fundamentalists in Bolivia, Catholic fundamentalists and Evangelicals in Brazil).

These risks continue in Venezuela and Brazil. Venezuela continues to teeter on a cliff, avoiding collapse in part because President Nicolas Maduro has efficiently deployed military and paramilitary forces to squash demonstrations and Juan Guaidó's attempts to overthrow the regime. Conditions are so dire that those who have remained in the country are too concerned about daily survival to protest.

Brazil, on the other hand, has a right-wing government that calls out the poor for "not saving enough" and a minister who wishes to dismantle the country's already feeble welfare state by a series of constitutional amendments. Brazil illustrates the point that economic growth can be detrimental to political stability if social mobility is not guaranteed as well.

As Hirschman noted nearly 50 years ago, development policies need to move beyond growth and into the realm of social justice in order to foster a politically stable environment. Failing that, Latin America is likely to remain caught in a never-ending cycle of political, social, and economic distress.