Of Note: Is the Populist Left in Latin America Bad for Business in the Region?

Is the Populist Left in Latin America Bad for Business in the Region?



Such of the world has taken notice of the recent renewal of populist trends spreading throughout Latin America. The region has produced leaders at the forefront of this trend who are disavowing economic liberalization, globalization, and their ties with the United States. Given that these conditions, which accompany the relatively modest prospects for regional growth in the near future, are not ideal for investment, the international business community may figure that investing in Latin America right now is not worth the risk. However, despite the challenges that exist, both populist policymakers and business leaders would be mistaken if they went their separate ways.

To understand why this is true, it is important to recognize the general historical context that has nurtured the current populist left movement. Simply stated, the motives behind this revival can be derived from the inability of the already shaky democratic and economic institutions in these countries to adequately respond to the needs of the people. "[G]iven the vast inequalities of power and wealth in Latin America, and with a large part of the population bereft of land and education, the region has long been vulnerable to populist politics and rebellions."¹ As the world's most unequal economic region, it is no wonder that the severe disproportional distribution of wealth and power has turned politics to the left.² Over the past two decades, the region has made some strides toward democratic reform and economic liberalization, but in most cases, without being able to adequately address the fundamental problems facing society. These conditions have provided fertile ground for the region's renewed populist and anti-globalization movements, most notably in Venezuela, Bolivia, and Argentina.

While largely ignoring the failures from within, the trend in these countries has been to scapegoat globalization and blame their problems on the infiltration of sinister capitalistic ideologies from abroad. Presidents Chávez, Morales, and Kirchner have backed up the rhetoric by nationalizing industries in their countries, particularly with regard to transportation systems and natural resources. Admittedly, the free market has never guaranteed fair and equal growth. However, "international integration of markets has given rise to measurable economic benefits in aggregate terms," and although the Chávez, Morales, and Kirchner governments may find it distasteful, their countries need globalization and foreign capital to grow. ³

From the perspective of a multinational corporation, these populist trends are discouraging. Ratliff points out that, "the 2004 Global Competitiveness Report of the World Economic Forum, for example, found even Botswana a much more attractive site for investors than most Latin American countries. In some places, as in Bolivia, active anti-foreign campaigns complicate or prevent foreign investment, presumably in the interests of the people."⁴ The same is true in Venezuela, where Hugo Chávez has aimed to be the thorn in the side of many U.S. and other foreign companies.⁵

So why should foreign investors bother? A combination of hostile attitudes toward foreign investment, potential risk from political instability, and low levels of education in most of the region present arduous challenges for firms if they choose to conduct business there. Moreover, "the bulk of young people in Latin America are not being trained to participate effectively in a highly competitive world and thus . . . most Latin Americans fall farther behind the people of reforming Asian (and other) countries, a trajectory that shows no sign of changing in the foreseeable future."⁶ Overall, at first glance, it would appear that the recent populist trends are further plaguing a tenuous situation in the region.

However, a savvy entrepreneur would think twice before completely writing off the region. First, leftist trends in Latin America are not all of the populist sort. Castañeda explains that while the left has rejuvenated its support in other countries such as Chile, Uruguay, and Brazil, they have essentially taken to heart the flaws...