Economic Issues and Political Conflict: US–Latin American Relations

249 Pages·1982·3.461 MB·English

by  Jorge I. Domínguez (Eds.)

Butterworths Studies in International Political Economy will present new
work, from a multinational stable of authors, on major issues, theoretical
and practical, in the international political economy.
General Editor
Susan Strange, Professor of International Relations, London School of
Economics and Political Science, England
Consulting Editors
Ladd Hollist, Director, Program for International Political Economy
Research, University of Southern California, USA
Karl Kaiser, Director, Research Institute of the German Society for Foreign
Affairs, Bonn, and Professor of Political Science, University of Cologne,
West Germany
William Leohr, Graduate School of International Studies, University of
Denver, USA
Joseph Nye, Professor of Government, Harvard University, USA
Forthcoming titles
War, Trade and Regime Formation
Japan and Western Europe: Conflict and Cooperation
Defence, Technology and International Integration
International Political Economy - A Text
Published titles
The East European Economies in the 1970s (Nove, Höhmann and
Seidenstecher)
The Political Economy of New and Old Industrial Countries (Saunders)
France in the Troubled World Economy (Cohen and Gourevitch)
Economie Issues and
Political Conflict:
US-Latin American
Relations
Edited by
Jorge I. Dominguez
Center for International Affairs, Harvard University
Butterworth Scientific
London Boston Durban Singapore Sydney Toronto Wellington
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International Affairs, Harvard University.
First published 1982
© Butterworth & Co (Publishers) Ltd 1982
British Library Cataloguing in Publication Data
Economic issues and political conflict
(Butterworths studies in international
political economy)
1. Economic development - Political aspects
2. Latin America - Economic conditions - 1945-
I. Dominguez, Jorge I.
330.98Ό03 HC125
ISBN 0-408-10807-X
Photoset by Butterworths Litho Preparation Department
Printed in England by Redwood Burn Ltd, Trowbridge, Wiltshire
Preface
This book is the result of a somewhat unusual joint endeavor. Some of the
authors have been studying Latin American countries for some time; other
authors have been principally interested in global issues or in US foreign
policy but had not done much previous work on Latin America. We found
our scholarly interests and relations evolving in ways not unlike those we
sketch for Latin American countries and for the United States in the pages
that follow. The Latin Americanists among us believed it important to
address issues of concern within as well as outside the countries of the
region. The globalists among us found that understanding and working on
Latin American countries had become important for their own scholarly
concerns. The inclusion of Latin America in world affairs was thus
paralleled by the inclusion of the Latin Americanists and the globalists on
each other's research agenda. And so this project was born.
We have benefited from each other's suggestions and criticisms and from
discussions at the Center for International Affairs at Harvard University,
with which all of us have had varying degrees of association over the years.
We thus dedicate this book to the Center that has supported our work, in
part or in full, through the years.
This original research was supported by the Center for International
Affairs at Harvard University and it was funded by the Office of Long
Range Assessments and Research of the US Department of State. The
authors alone bear responsibility for findings, conclusions and all other
statements. We are very grateful for the support we have received. We were
especially pleased because the scholarly independence and integrity of the
work was a common objective of both the authors and the donor.
Unfettered and impartial research serves the interests of all. In particular, we
wish to thank Kenneth Roberts for his support and assistance in facilitating
our work.
Ann Stibal and Andrée Brown provided their customary superb and
cheerful assistance in getting this book actually done.
Jorge I. Dominguez
September 1981
CHAPTER 1 l
Introduction
Jorge I. Dominguez*
Relations between Latin America and the United States have changed
substantially in recent years. Many of the issues that gripped the imagination
of peoples, scholars and public officials have been settled. The Cuban missile
crisis, the Dominican intervention, the efforts of Ernesto (Che) Guevara,
the status of the Panama Canal - these and other political and military issues
dominated the agenda of US-Latin American relations for many years.
They now belong to the past. Newer 'Cold War' issues have arisen as a
result of revolutions in Nicaragua and Grenada and of civil war in El
Salvador, and of US-Cuban conflicts over them. They will demand
ingenuity and attention for some time, but they seem unlikely to dominate
so exclusively the inter-American agenda - especially the relations between
the US and the larger Latin American countries - in the future as they did in
the past. Yet politics remains at the core of the inter-American agenda, both
in the relations among countries, and in decision-making within countries.
This is no longer just the politics of the Cold War or of counter-insurgency
but also the politics of economic relations. This shift results from a series of
changes in the international system and in the countries of the western
hemisphere.
1.1 The evolution of US-Latin American economic
relations
The relative weight of the United States in the international economic
system has changed, permanently altering US-Latin American relations.
The consequences of allied victory - with Latin American participation - in
World War II had had the paradoxical effect of reducing the scope of
international action of the major Latin American countries. Europe and
Japan lay in ruins, and were unable to provide alternatives to US primacy.
The Cold War led to a bipolar international system where Latin America's
interests were found readily on the US side. Political and military relations
were tightened. The Inter-American Treaty of Reciprocal Assistance and the
Charter of the Organization of American States formalized the evolving ties
* Center for International Affairs, Harvard University.
2 Introduction
between Latin America and the United States. While the aim of these
agreements was to present a unified western hemisphere in the confrontation
with the Soviet Union, an unintended consequence was to reduce Latin
American options beyond the hemisphere.
From a Latin American perspective, the US established a loose hegemony
over the region. This hegemony had two basic rules: client states would be
loyal to the US in foreign affairs - Latin American voting in the United
Nations until the late 1950s is spectacular evidence of this loyalty; secondly,
the flow of goods and capital between the US and Latin America would be
relatively open and unimpeded. Within these two rules, there was consider-
able freedom of action. The United States did not dominate the internal
affairs of most of these countries, unless they threatened to break the rules.
The goal of US policy was to ensure that loyalty to anti-communism and to
capitalism prevailed in the region.
The United States went on to build a new international economic order,
with the consent of the Europeans, the opposition of the Soviets, and the
resignation of the Latin Americans. The Latin American countries, at best
reluctant partners in this new system, proceeded to violate many of the new
rules while paying formal obedience to them. Contrary to the North
Atlantic trend toward tariff reductions to facilitate trade, Latin American
governments raised import tariffs to protect infant industries, sacrificing
international trade for the sake of protected economic growth at home.
Contrary to rules of monetary stability, Latin American governments
financed a part of their economic growth by printing paper money. They ran
huge government deficits, induced very high rates of inflation, and engaged
in periodic and massive currency devaluations. Some Latin American
countries opposed US policies toward the oceans, seeking to expand their
jurisdiction up to 200 miles to exploit ocean resources for their own
development. Latin American governments never fully subscribed to US
preferences on private foreign investments. They insisted on their right to
regulate foreign-owned firms as if they were national, not multinational,
firms and, at times, to expropriate them.
In fact, the violations tended to be minor. In the field of investment, the
violations were often merely rhetorical because most governments wanted to
increase such investment. Concerning the oceans, violations were necessari-
ly minor because Latin American countries lacked the naval power to
prevail. The General Agreement on Tariffs and Trade (GATT) had provi-
sions that avoided confrontation over some Latin American violations of
free trade rules. The International Monetary Fund, under US leadership,
often imposed austerity measures on Latin American governments that had
the effect of inducing the violation of other rules. In the political and
military fields, violations of US primacy were either crushed (Guatemala in
1954) or truly exceptional (Cuba after 1959).
The US-supported anti-communist policy succeeded too well. In 1965,
The evolution of US-Latin American economic relations 3
US armed forces landed in the Dominican Republic to prevent a second
Cuban revolution there even though none was occurring as such. The
Dominican intervention is best understood as deriving from a broader US
policy under President Lyndon Johnson to make the world everywhere safe
for itself, from the Caribbean to Southeast Asia, even if it required the force
of arms. Elsewhere in Latin America, the fear of communism, successfully
transmitted by the US to Latin American elites, became the overriding
ideological reason for opposing social change at home. The desire to combat
communism contributed to the spread of a national security state mentality
in many Latin American countries. There is, it should be added, no direct
cause and effect between the US government's policies and the emergence of
authoritarian regimes in Latin America in the 1960s; but the US did add to
the development of an intellectual and international policy milieu that
facilitated the rise of leviathans to power in Brazil, Argentina, Uruguay and
Chile. Despite high human costs, one result was the emergence of much
stronger states in Latin America, more competent to implement policies at
home and abroad. They were ready to become not just objects of but also
subjects in international politics.
As the dreams of political and military hegemony turned into the
nightmare of authoritarian rule along with violations of human rights, the
structure of the international economic order broke down, too. The power
of the United States has declined considerably since 1945 compared to the
power of others in the international system. The US share of world trade
and investment fell as Europe and Japan recovered. The international
monetary system was transformed in the 1970s as the US devalued the dollar
relative to other major currencies and became unable alone to shape the rules
and behavior of the international monetary system. The international energy
system perhaps witnessed the most dramatic changes in the 1970s as power
passed from the industrial consumers to the oil producers. International
practices concerning the oceans have changed markedly, with the new
200-mile economic jurisdiction zone reflecting rather more closely the
historic preferences of the Latin Americans. The United States no longer had
the unilateral ability to determine the nature of the international regimes,
that is, to set the norms, rules and behaviors in key areas in the international
economic system.
Latin American countries have not been passive actors. They, too, have
changed. In addition to the stronger states most of them now have, several
of the larger countries are no longer easily classified merely as economically
underdeveloped, even though they still face formidable problems if their
development potential is to be fulfilled. They now have large, dynamic
modern sectors in their societies, economies and polities, pressing their
governments for further changes and, in turn, impinging on international
relations. Mexico, Brazil and Argentina have grown as industrial exporters.
Both the governments and the modern business sectors now seek to flex
4 Introduction
their muscles in world arenas, no longer limited to an inter-American
setting. Moreover, all of the major Latin American countries have benefited
from increases in trade with, and in direct investments from, European
countries and Japan. Latin American countries deal with international
financial centers throughout the world, and they seek technology wherever
it is cost-effective. Venezuela and Mexico, in particular, have received
windfalls from the increases in the world price of the energy they export. In
short, the trends that broke down the US-built international economic order
have also transformed the international economic relations, and the internal
economies, of most Latin American countries.
Changes occurred as well at the level of in ter-American relations. Many of
the long-standing issues between the United States and the larger Latin
American countries, especially those of a military or territorial nature, have
now been settled. Political questions pertaining to communism or guerrillas
that might have come to the Organization of American States have also
faded in importance in the larger Latin American countries, although they
still matter in four northern Central American countries.
A telling example of the change was the Latin American response to the
Reagan administration's early policies in 1981 toward the civil war in El
Salvador. Most of the South American countries quietly declined to be
enlisted in an 'anti-Soviet crusade' over El Salvador (in part, perhaps,
because the military governments of Argentina and Brazil have had excellent
trade relations with the USSR). The Venezuelan government, which sup-
ported the government of El Salvador's Junta President José Napoleon
Duarte as did the US, disassociated itself from the US government's Cold
War language and broader policy implications. Mexico opposed US policy
in El Salvador more actively, providing some political support to the more
moderate elements of the Salvadorean opposition. In contrast to the Reagan
administration, both Venezuela and Mexico continued to assist the Nicara-
guan revolutionary government. And, most important of all, all the major
Latin American governments retained their own foreign policy agenda: US
policies toward El Salvador were no substitute for other US policies toward
Latin America. The major Latin American countries continued to focus on
the consequences for them of changes in US economic policy and of
international economic relations.
Inter-American relations are characterized by the paradox of successful
relations. Because so many disputes have been successfully settled, scholars
or public officials may minimize or neglect the policies and mechanisms that
made such settlements possible. On the other hand, long-standing economic
issues have now made their way to the top of the inter-American agenda, as
a result of changes in internal circumstances that have repercussions for
international affairs. For example, the industrialization processes in several
of the larger Latin American countries have led governments and private
businessmen to be more concerned about technology transfers. Govern-
The evolution of US-Latin American economic relations 5
merits and industries seek to promote the export of manufactured products,
which leads at times to disputes with importing countries. The evolution of
private and state-owned national industrial firms, as well as multinational
firms operating in the same countries, shapes the pattern of relations among
business enterprises and governments. The changes within the western
hemisphere have cleaned the inter-American slate of the debris of the Cold
War (except in Central America) at about the same time that Latin American
governments in the larger countries are ready and interested to press new
economic disputes.
Other changes followed as a consequence. Several leading Latin American
states, such as Mexico or Venezuela, have become keenly interested in the
politics of North-South international relations bargaining. Trade, technolo-
gy, debt, or nationality of firm ownership are global issues, not just
in ter-American ones. The waning of certain issues of exclusive interest to the
Americas has made it possible for several Latin American countries to pay
sustained and serious attention to worldwide politics and economics. The
new internal political and economic changes in these countries have pushed
their governments in the same direction. Thus the stakes of Latin America's
foreign economic relations and of its internal politics lead these governments
on to global engagement.
Because Latin American governments, alone or in concert, lack the
resources to alter international regimes over these key areas, they have not
relied on global bargaining alone to achieve the ends of their foreign
economic policies. Instead, they learned from their own experiences in the
post-World War II era that actions of national governments within their
own boundaries could often be portrayed as no more than minor violations
of an international regime so that retaliation from major powers might be
constrained or avoided. These actions, however, were often enough to
achieve many important goals of economic policy. Moreover, the interna-
tional circumstances of the 1970s and early 1980s had changed. What had
once been violations of otherwise strong international regimes, now would
be sovereign state actions in issue areas where the international regime had
broken down or had been greatly weakened. The norms, rules and behaviors
were no longer so clear, or clearly adhered to by the industrial countries, in
trade, technology transfer, or foreign investment regulation, for example.
The national actions of Latin American governments therefore contributed
to the erosion of already weakening international regimes. In turn, Latin
American governments succeeded in many cases, notwithstanding their
objectively more limited power compared to the major industrial countries,
precisely because the international regime was already weakened.
The targets of many of the new government policies were national and
multinational business firms active in Latin American industrial affairs. The
emergence of these firms is yet another major change in the international and
internal environment of the major Latin American countries. There have
6 Introduction
been business firms of both types, of course, in the histories of Latin
American countries. What was new was the simultaneous impact of Latin
American industrialization, on the one hand, and the spread and growth of
both national and multinational firms in the industrial sectors. Government
policies thus sought to increase the bargaining power of national firms, or of
the local subsidiaries of multinational firms located in a country, with parent
firms or with firms located in other countries, and to affect technology
transfer transactions, the firm's likelihood of imports of raw materials or
intermediate goods, the propensity to export semi-manufactured and manu-
factured products, the local content of production, the nationality of the
equity of the firm, and a host of other issues affecting business behavior and
the international relations of governments and firms. Strong Latin American
states were effective in shaping economic behavior to suit their ends thanks
in part to the changes in the international system.
Latin American governments also broke with the liberal ideology that had
often portrayed contemporary economic relations only as technical non-
political questions. They deliberately recognized their political content and
acted accordingly. Industrial trade has enlivened protectionist demands;
Latin American governments have assisted the exports of firms located in
their countries. Technology is often owned by foreign-based private enter-
prises and transferred to Latin American private firms, but Latin American
governments have sought to change the relationship between foreign
suppliers and national recipients to promote their vision of economic
development. Multinational enterprises, operating across national bound-
aries, multiply contacts with political consequences. National businessmen
who may have welcomed multinational firms discovered eventually that
these may also generate industrial competition; so governments have
discriminated in favor of national firms to help them compete. Governments
sought to regulate all of these economic activities within their borders,
including those that were internationally generated. The net effect has been
the politicization of what appeared to be technical and non-political.
Modern economic relations are inherently dynamic. They tend to grow
out of and to resist confinement within national borders, and are likely to
become internationalized. Military force or subversion are less able to
handle disputes in these issue areas. Thus the exercise of leverage, the
settlement of disputes, and the management of conflict in modern economic
relations require subtle planning and foresight.
1.2 Latin America as an issue in US policy
All of these changes have affected how the United States government thinks
about Latin American issues. For example, the problem of accommodating
industrial exports from less developed countries cannot be understood
primarily in geographic terms. US policy must take into account not only