Bolivia: The Poverty of Progress

Bolivia is the poorest, the most indian, the most isolated, and perhaps the most organized nation in South America. The country has no paved roads connecting it to any of its neighbors, most Bolivians live in far-flung villages, and their livelihood rides on prices determined on the other side of the world. And yet it is a nation transformed. The crash of the world tin market in 1985 closed a chapter in Bolivia’s history; the growing demand for cocaine opened another.

In the wake of the tin crash, Bolivia adopted a free-market “shock treatment” designed by Harvard professor Jeffrey Sachs: deregulation of prices, exchange rates and trade; elimination of subsidies and price supports; and the dismantling of the state enterprises dominant since the revolution of 1952. Virtually overnight, this New Economic Policy put an end to inflation that reached as high as 25,000%, and thrust a deficit-ridden economy into the black. It was considered so successful that the “Bolivia model” was exported to Poland, and may soon be tried out in the Soviet Union.

Success is in the eye of the beholder. Six years later, Bolivia remains the poorest nation of the Americas after Haiti. Health and education budgets have been slashed; one child in four dies before the age of one. Though none of the country’s 158 state companies has been fully privatized (the market for them is as depressed as the tin market) mines and factories, both public and private, have laid off thousands or shut down entirely. Cheap food imports from neighboring countries (which still have the subsidies Bolivia eliminated), along with the influx of donated U.S. food, have made farming unprofitable. The millions of indigenous peasants, who for centuries fed the nation, are going hungry. Many have migrated to the eastern jungles to grow coca.

The scramble to survive has fostered the growth of what economists call the “informal sector”: those who sell minuscule amounts on the street, labor in tiny family-run workshops, or smuggle goods across the border to put bread on the table. Such activities are now in vogue among development specialists, who thrill to the display of entrepreneurial spirit.

The informal sector certainly reflects social change: Vast numbers of women are now self-employed, with a source of income for the first time in their lives. However, the security and benefits once offered by steady factory or mining work have disappeared, along with the price supports that allowed peasants to survive. Petty commerce--divvying up the few crumbs that trickle down to the impoverished majority--is no base for a country’s future.

Besides curbing hyperinflation, the NEP’s other great success was breaking Bolivia’s labor movement, for thirty years arguably as powerful as the government itself. General strikes, hunger strikes, massive roadblocks and demonstrations--although they continue--are no match for the invisible fist of the market. The closure of state mines destroyed the miners federation, formerly the heart of the labor movement, and ended the strategic hold workers could exert over the economy. While the street vendors union mushroomed to 800,000 affiliates, and coca farmers became increasingly militant, labor entered a structural crisis from which it has yet to emerge.

On April 4, twelve Green Berets and 90 tons of armaments landed without fanfare in the eastern city of Santa Cruz. The Berets were the first of 56 military trainers; the weapons were the first installment of $36 million in military aid. When the defense minister inadvertently revealed their arrival at a hearing before the Bolivian Congress a few weeks later, the thousands of peasant coca farmers who bear the brunt of the U.S. war on drugs launched strikes, marches and road blockades.

With only 6.4 million people, Bolivia now receives more U.S. aid than any other South American country, reflecting both the U.S. preoccupation with drugs and its desire to reward Bolivia’s enthusiastic embrace of textbook free-marketeering. Ironically, the economic model’s viability relies on the booming cocaine trade. Since exchange controls were loosened and a no-questions-asked policy enforced at the central bank, drug profits that once fled to Miami or the Bahamas remain in the country--$400 to $600 million annually, nearly equivalent to the value of all other exports combined.

The free market brought the old scheme of state-led industrialization via import substitution (for which Bolivia was also a model) to a swift and definitive end. But the market alone cannot take its place. No one wants the country’s mineral wealth. Bolivia has no comparative advantage in manufactures or traditional agricultural exports. And coca, with which the economy fended off total collapse, is under attack from the government itself.

Meanwhile, such “progress” has yet to dampen Bolivians’ remarkable penchant for organizing. New community-based movements of squatters, native peoples and others, have taken up the mantle of opposition from the trade unions. Firm as today’s infatuation with the market may appear, it is hardly the end of the story.


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