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  • Free Politics and Free Markets in Latin America
  • Jorge I. Domínguez (bio)

Never before in the history of Latin America have so many countries had constitutional governments, elected in free and competitive elections under effective universal suffrage, that also pursue market-based economic policies. Early in the twentieth century, many Latin American governments favored open economies, but rulers were chosen either by narrow oligarchies or by military officers. By the middle of the century, many Latin American governments were democratically chosen, but pursued statist policies that sought, as far as possible, to sever the links between their nations’ economies and the world market. Thus the combination of the 1990s—an era of free politics and free markets—is truly without precedent.

This may explain why scholars, policy makers, and many ordinary citizens have found it hard to believe that democracy and open markets can even coexist, much less thrive jointly. The 1970s were pervaded by a seemingly well-grounded pessimism about the ability of Latin American democracies to implement sound, growth-friendly economic policies. There seemed to be an elective affinity between sensible economic policies and bureaucratic-authoritarian regimes, and also between economic malperformance and the demagogic populism of civilian politicians. 1

In the late 1980s and early 1990s, democratic rule returned to Latin America at about the same time that it was making its dramatic entrance in Eastern Europe. During those years, the democratic pessimists argued [End Page 70] that “democracy in the political realm works against economic reforms.” 2 They predicted that populist demagogues would bar or wreck market-oriented policies, or else that such reforms as might make headway under democratic conditions would prove politically destabilizing, as rent-seeking firms and labor union bosses worked to get the reformers voted out of office. 3 The least pessimistic of these observers allowed that democracies might enact reforms and survive, but only if strong presidents or prime ministers could force their peoples to be free. 4

The record does not bear out these arguments. Latin American authoritarians proved no better than democratic populists at making sound economic policy. 5 Indeed, the authoritarian governments that had taken over in country after country by the late 1970s were principally responsible for the catastrophic regionwide economic collapse of 1982–83.

Consider the allegedly sterling economic performance of General Augusto Pinochet’s dictatorship in Chile (1973–90). His government deserves credit for inaugurating several valuable structural economic reforms, yet its overall record hardly bespeaks economic wizardry. According to the UN Economic Commission for Latin America and the Caribbean (UNECLAC), in 1982, at the birth of the international debt crisis, Pinochet’s Chile experienced the worst one-year per-capita GDP decline (a 14.5 percent drop) of any country in the Western Hemisphere. Behind the debacle lay the arrogance and blundering of Pinochet’s economic advisors. Moreover, according to the Inter-American Development Bank, from 1981 to 1990 Chile’s per-capita GDP (as measured in 1988 dollars) grew at an average annual rate of just 1 percent—a miracle, yes, but only in public relations. 6

Even if they were mistaken about the larger picture, the democratic pessimists did offer an important insight. The truth was that freely elected governments in Latin America had not put together a good record of sound, sustained macroeconomic policies and performance. Whether one looks at Brazil in the early 1960s under President Jo~ao Goulart, or Chile in the early 1970s under President Salvador Allende, or Argentina in the mid-1970s under President Isabel Perón, or any number of other cases, one sees a depressing parade of constitutional regimes hewing to stunningly irresponsible economic policies that brought poverty and hardship to millions and contributed to the breakdown of democracy.

And yet even in these countries, democratic governments had once done much better. Examples would include Brazil in the late 1950s under President Juscelino Kubitschek, Argentina in the mid-1960s under President Arturo Illia, and Chile in the middle and late 1960s under President Eduardo Frei. 7 A key question, therefore, was whether democrats could learn from their mistakes and change their economic [End Page 71] preferences and policies. Another was whether democrats could win...