In the National Interest

September 25, 2007

Neoliberalism has not always ruled the world. In Latin America the wholesale privatization of state companies, from water supplies to electricity grids, from manufacturing to telecommunications, is of recent origin. Thirty years ago Latin American governments were nationalizing, not privatizing, key economic sectors.

Taking the region as a whole, 1910 up to the 1980s was an epoch of nationalism. Governments regularly sought to legitimate their brand of politics and economics not—as they do now—by promising to serve the interests of international banks and corporations, but by pledging to defend the nation and its sovereignty. Nationalist ideologies took different forms and served diverse ends, but invariably they centered on the need for independence. In the name of nationalism, Latin American leaders of different ideological stripes opposed political and economic intervention—in words if not in deeds. They invoked patriotism—allegiance to la patria—and proclaimed that the bonds of nationhood overcame class, race and ethnic differences.

The end of the cold war brought the era of nationalism to a close—at least temporarily. Latin American leaders rejected the nationalist economic strategies that had prevailed across the region for the better part of the twentieth century. Other than Cuba’s Fidel Castro, Venezuela’s Hugo Chávez and Brazil’s Luiz Inácio Lula da Silva—the exceptions that proved the rule—politicians of the 1990s espoused globalization, which in the Latin American context is synonymous with anti-nationalism.

Nationalist economics characteristically combined state ownership of key sectors with policies to promote the development of national industries, sometimes called import-substitution-industrialization, or ISI. From its inception following the Second World War, the UN’s Economic Commission on Latin America widely recommended a policy package to promote development and industrialization that was contrary to the formula currently imposed by the International Monetary Fund throughout Latin America. ECLA advised governments to deploy taxes, tariffs and exchange rate policies to fortify local industries until they could compete effectively with large foreign firms. ECLA also recommended a limited redistribution of income and wealth, in order to develop the countries’ internal markets for consumer and producer goods. Overall, ECLA’s policy package was widely successful in stimulating growth. The economies of most Latin American countries expanded steadily in the 1960s and 1970s.

Industrial development and import substitution were part of the prevailing economic strategy in Latin America; the other part was nationalization of foreign—and sometimes domestic—firms. Governments of all political stripes, from left to right, took over companies widely believed to have damaged their country’s national interests. Mexico paved the way. Following the Mexican Revolution, in 1938 President Lázaro Cárdenas expropriated the U.S. and British companies that dominated the country’s oil industry. Proclaiming the oil reserves represented “the wealth of the nation,” the Cárdenas administration “Mexicanized” the oil industry by creating Petroleos de México (PEMEX), a state-owned company. In a radio speech to the nation, Cárdenas accused the companies of having engaged in “persistent and improper intervention in [the country’s] foreign affairs” and of “immorally refusing to give anything back [to Mexico] in exchange for the wealth they appropriated.” Notwithstanding the corporations’ violation of Mexican laws, Cárdenas’ government compensated the firms for their assets.

March 18, the day the oil industry was nationalized, used to be a national holiday in Mexico: It commemorated the country’s declaration of economic independence. Mexicans no longer celebrate their economic independence. In what has been called “the Second Conquest of Mexico,” beginning in the 1980s successive governments sold off almost all state-owned enterprises to foreign companies at bargain-basement prices, including 70 percent of the petrochemical industry.

In the 1940s and 1950s, Getúlio Vargas in Brazil and Juan Perón in Argentina nationalized leading sectors of their economies with strong support from their respective militaries. For their nationalism, as well as for their advocacy of government-sponsored trade unionism, both Vargas and Perón had fervent popular followings.

Tin mining dominated Bolivia’s economy throughout most of the twentieth century. Unusually for Latin America, the major mining companies were owned by Bolivians—dubbed the tin barons—not foreigners. In the midst of the Revolution of 1952, the Bolivian government expropriated the tin barons, who together had produced almost 80 percent of the country’s exports. Because Bolivia’s miners were organized, militant and active in the revolution, their trade union successfully pressured the government to nationalize large-scale mining and create a state company, Corporación Minera de Bolivia (COMIBOL) to mine, process and export tin. COMIBOL was all but disbanded in the 1990s. The few mines that remained profitable were sold off to private companies. The rest were abandoned or turned over to workers’ cooperatives. Giving workers control of clapped out mines was a cynical—even criminal—move. Without machinery or financial support, in fact with little more than picks and shovels, thousands of families struggle to eke out a living from exhausted mines dotted across the Bolivian highlands and altiplano.

Some twenty years after the Bolivian Revolution, a populist military government in Peru nationalized the Cerro Corporation, a large U.S. mining company that had dominated the country’s underground copper-lead-zinc mining since the turn of the twentieth century. Citing Cerro’s tax evasion, soaring profit remittances in violation of national law and collusion with corrupt officials, the Peruvian government expropriated the company in 1974 and created CENTROMIN, a state-owned firm. The government of President Juan Velasco Alvarado (1968-1975) offered compensation at a rate determined by a team of international specialists. At first Cerro rejected the offer, preferring to take its case to the U.S. Export-Import Bank, in effect the U.S. Government’s insurance company of last resort, created to protect the profits of companies operating abroad.

Proclaiming that his government was neither capitalist nor communist, President Velasco nationalized six large U.S. companies and an equal number of smaller Peruvian-owned firms across the petroleum, banking, mining, sugar and fishmeal sectors. In the cases of the Cerro Corporation and the International Petroleum Company, owned by Standard Oil of New Jersey, the Peruvian government deployed anti-imperialist arguments to campaign against the companies. Echoing nationalist discourses that reverberated across the region, Velasco declared that the country-as-a-whole had been impoverished by foreign firms. In these and other high-profile cases, the U.S. government imposed retaliatory measures as a warning to other Latin American governments that might be considering confiscation of properties owned by U.S. corporations. However, some nationalizations were carried out less publicly in Peru and elsewhere. In keeping with the quiet approach, governments and companies generally negotiated the terms of compensation and reached settlements acceptable to both parties. Even the celebrated case of the Cerro Corporation was resolved more or less amicably in the end. U.S. and Peruvian negotiators worked out a compensation package that covered a number of U.S. firms whose assets had been nationalized by the Velasco government.

Nationalization of foreign firms was not necessarily a mark of left-wing leanings. In Chile, the centrist and U.S.-friendly Christian Democratic government of President Eduardo Frei (1965-1971) campaigned to “Chileanize,” or partially nationalize, two giant U.S. mining companies, Anaconda and Kennecott. The companies had monopolized the country’s copper industry since the early twentieth century and the Chilean government’s case against them was substantially the same as against the Cerro Corporation in neighboring Peru. The succeeding government of President Salvador Allende ratified nationalization of the mining companies with unanimous cross-party congressional approval in 1971. In part because President Richard Nixon and his secretary of state, Henry Kissinger, were working to overthrow Allende—a democratically-elected President—Anaconda and Kennecott refused to accept the settlement offered by the Chilean government. Instead, the companies joined the propaganda war orchestrated from Washington to justify a coup against Allende.

Nationalization sometimes had perverse outcomes. Following the takeover of large mining operations, the governments of Bolivia, Peru and Chile found themselves owners of exhausted mines. A combination of depleted ores, out-dated technology and antique machinery meant that older mines no longer were profitable. In some cases, the mines’ bleak prospects were aggravated by U.S. imperialism. As part of the coordinated strategy to bring about “regime” change in Chile, the U.S. government dumped its huge stockpile of copper in 1971. Immediately, world copper prices plunged and instead of producing profits, Chile’s newly nationalized mines registered record losses.

Brazil had an atypical and highly contradictory form of nationalist economics. In 1964, after a right-wing military regime overthrew a progressive civilian government, successive generals ruled the country until 1985. The Brazilian generals combined an ambiguous and inconsistent form of nationalist economics with ferociously anti-democratic politics. The generals pursued aspects of the nationalist economic strategy they inherited, with steel, energy and raw material production remaining in the state sector. At the same time, the government began selling off some of the most profitable economic ventures to foreign firms, including parts of the pharmaceutical, chemical, automobile, electronics, plastics and mining industries. But by 1968, even voices within the armed forces opposed the fire sale of Brazil’s most profitable properties. They called for a return to the nationalist model of economic development pursued on and off by previous Brazilian governments.

Brazil experienced rapid economic expansion from the 1960s to 1980s: the longest period of robust growth of any Latin American country. The “Brazilian Economic Miracle” was not accomplished by indiscriminately applying neoliberal policies. Part of the reason the economy grew was that Brazil’s capitalists and right-wing generals rebuffed policies that clashed with what they viewed as “the national interest.” After other Latin American governments had—more or less willingly—abandoned state-led growth strategies, Brazil’s military governments maintained a selection of state-run industries, encouraged import substitution and intervened in the interests of nationalized sectors.

The contradictions of nationalist economics were no where more visible than in Brazil. Arguably, the most ambitious state-led project ever pursued in Latin America was in the Amazonia region of Brazil. Over the past 40 years, the development of Amazonia has been carried out directly and indirectly by the state. First, the Brazilian government largely financed the Panamazonian Highway, which opened up the region for business. Second, in Amazonia the state massively subsidized the largest land privatization in history. Third, through tax exemptions and financial regulations, the state subsidized the expansion of vast private cattle ranches that prospered by selling cheap beef to McDonald’s world-wide. In Amazonia, the rape of the rainforest has been accomplished through a combination of state-led development and private enterprise.

Brazil’s military government suspended democratic rights, closed down civilian institutions, and ruthlessly tortured and killed opponents. Additionally, the “Brazilian Miracle” was accomplished in part by repressing trade unions, violating workers’ rights, and driving down wages. Brazil’s infamously unequal distribution of income and wealth became even more skewed over the course of the growth years.

The golden age of neoliberal economics may be on the wane in Latin America. In Brazil, the buoyant electoral victory of Lula in November 2002 demonstrated that broad sectors of the middle class and parts of the capitalist class joined the working classes in rejecting the neoliberal model of the last decade. In Argentina, the government’s longstanding subservience to the IMF and international financiers resulted in a crisis of catastrophic proportions in 2001. Most Argentines believe adherence to neoliberal economics caused the crisis, and blame politicians for the country’s social and economic devastation. In the absence of a political movement that represents a viable alternative to the status quo, Argentines broadly support the nihilist demand, “que se vayan todos” (“throw them all out”). In Venezuela, Hugo Chávez is a populist-nationalist whose politics are classically contradictory. Whatever his merits and demerits, Chávez has come to stand for anti-neoliberalism. Therefore, the show-down in Venezuela between pro and anti- government forces has an importance far beyond the country’s borders. For what Chávez symbolizes—more than for what he does—the overthrow of Chávez’s government would represent a defeat for anti-neoliberal forces in Latin America. Consequently, Lula dispatched petroleum to Venezuela to counter the opposition’s attempt to bring down the government by blocking fuel deliveries.

In hindsight it is clear that the nationalist epoch was a generally progressive era in Latin America. Rather than calling for a return to nationalism, the challenge is to learn from the successes and failures of nationalist politics and economics. Economic growth and some redistribution of income generally prevailed when Latin American governments pursued nationalist strategies. Yet nationalism frequently was inconsistent with the class, race and gender politics of social justice.

Elizabeth Dore teaches Latin American history and in the postgraduate program, Transnational Studies in Language, Culture and Society at the University of Southampton, UK.

Tags: nationalism, privatization, neoliberalism, development, ISI

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