‘FAILED: What the “Experts” Got Wrong on the Global Economy’ – Mark Weisbrot (3/3)
CEPR economist Mark Weisbrot dispels the myths surrounding Latin America’s historic elections of left governments and their implementation of anti-poverty and social programs
SHARMINI PERIES, TRNN: Welcome back to part three of our interview with Mark Weisbrot. We’re talking about his new book, FAILED: What the Experts Got Wrong About the Global Economy. Good to have you back.
MARK WEISBROT: Thank you.
PERIES: So in this segment, let’s talk about Latin America. What you write about it in the book is really profound, in the sense of the kind of policies that really helped some of the Latin American countries alleviate poverty, have better education systems, and lift the entire health and well-being of a continent, almost. So let’s begin with talking about the kinds of policies that help do that, particularly in a place like Brazil. You know, the zero hunger program of Lula’s, and others that worked.
WEISBROT: Yes. I want to say, I think, at the outset, though, that this is something that should get more attention than it does. If you think about it, I don’t think there’s been any time in history where a whole set of progressive governments were elected and implemented progressive changes.
You know, if you look in developing countries, if you look at the progress that’s taken place, hundreds of millions of people were pulled out of poverty in China, for example. But that was not a democratic government. South Korea had an economic miracle. That was a dictatorship for most of that period. And so you don’t really have this, you don’t really have much of this in the history. So it’s something that people should pay attention to. And yet it’s been reported almost universally negatively in the international media.
So in Brazil’s case it’s a good example–they elected a left government in 2002. And for a couple years, as I mentioned, the government was tied to this IMF agreement. But then they began to change their policies, and they also had some help from the international economy at that time, but not that much for Brazil. They, you know, tripled their rate of growth per person. They doubled the minimum wage. They reduced poverty by 55 percent, extreme poverty by 65 percent. They reduced unemployment all the way to a record low by 2012 or ’13.
And they had a lot of successes. They even somewhat reduced the, the level of inequality, although it still remained one of the more unequal distributions of income in the world. And then they ran into trouble.
But I want to say, first, this is another narrative that you have to counteract when you talk about Latin America in the 21st century. Because the standard narrative you see here is that there was a commodities boom, and these populist governments were elected, populism being bad. And they did stupid things, but they gave out handouts. And they–and then the commodities boom ended and they all collapsed. And that’s really not true, okay. I think the commodities boom, it didn’t help Brazil all that much. But one thing it did do, the increase in commodities prices, prices of the exports of, you know, agricultural goods, oil, energy, during the 2000s, what that did was it helped them to have enough foreign exchange. It helped them to avoid balance of payments crises. So it was important in that sense.
But then they had to do certain things in order to have the growth and redistribution and [poverty] [crosstalk].
PERIES: Why, why is that narrative not correct? Because I mean, Venezuela did reap the benefits of the oil prices for a very long time, and it was able to put some of that money into alleviating poverty and improving the conditions of the poorest in the country. Brazil benefited even in the 2008-2009 financial crisis. A lot of money went to investments in Brazil.
So people did benefit, and they took those revenues and they implemented in good things. But why is–.
WEISBROT: Venezuela benefited a lot from the increase in oil prices. But if you look back, they had a similar increase in oil prices, you know, when OPEC quadrupled oil prices in the mid-’70s. And they didn’t get, you didn’t see any–.
WEISBROT: Yeah. You didn’t see the trickledown. And Brazil didn’t even have that much. You know, one of the measures you can look at and how they benefit from the international economy is the terms of trade. That is, how did their prices or their exports move relative to their price of their imports? And they didn’t really get much benefit from that.
I think the main changes–there were policy changes that really drove their growth and their poverty reduction much more than the price of commodities. And the same thing is true on the way down. It wasn’t the collapse of commodities prices that drove Brazil into this worse recession than they’ve had for more than 25 years, and which really led to, I think, the discontent that the right was able to capitalize on and use for this coup that they’re mounting against Dilma Rousseff, the president. I think that that wasn’t overwhelmingly due to the commodities boom. That was due to mistaken policies. That was due to the government beginning, towards the end of 2010, beginning of 2011, to tighten their, cut back on spending and public investment, tighten their budget, raise interest rates and tighten credit all at the wrong time, when the world’s economy was slowing.
So they didn’t have to do that. They didn’t have a–.
PERIES: And they had a proven track record of not having to do that. Why did they change to the [inaud.].
WEISBROT: That’s always a hard question, when people do the wrong thing. I think, you know, does President Obama really believe in the Trans-Pacific Partnership? We don’t know. Or is he just doing it for the corporations?
I think in Dilma’s case it’s possible she believes that this was necessary. She was–you know, the media in Brazil is, like, you know, like Fox News–.
PERIES: She was waning in popularity, unlike Lula. You’d think that had something to do with it.
WEISBROT: Yeah, and all the media was pounding on the government and saying you have to get investor confidence back, and the only way you can do it is to make these changes. Did she believe it? I don’t know. But it didn’t work. In any case, it did fail.
And it was unnecessary–you know, even Argentina ran into trouble as well, and they now have a right-wing government as a result. They didn’t run into the kind of trouble Brazil did. But the economy slowed, you know, in the last couple, last few years. And so the right was able to win an election. Now, they had more of an excuse. They had a balance of payments problem because they could not borrow on international markets because of, you know, largely because of their default, but also the decision of the judge in New York to hold all their creditors hostage in order to pay the vulture funds.
They, I think, were hit most by the external shocks. And Venezuela was hit by oil prices. But they even went into recession, the oil price fall, but they went into recession in 2014 when oil was still $100 a barrel. So there were policy mistakes there, too, and very serious ones. And you know, we can go into those if you want, as well.
PERIES: And now we have a situation in Brazil where the government, interim government of Miguel Temer, and re-introducing austerity policies, re-introducing neoliberal policies, and the economy likely to worsen for ordinary people. Is there any way of changing course there?
WEISBROT: Well, that’s a tough fight right now. There’s going to be a vote. They have a process similar to ours. The House voted to impeach the president, then the Senate has to decide to have a trial, and it’s going to be in the next few weeks they’re going to decide whether to get rid of the president, and it’s going to be decided by a few votes. They only had, you know, they need a two-thirds majority. So there’s a struggle going on there.
And I should say, also, because we’re in the United States, and to talk about Latin America and these changes without talking about the United States is like talking about the civil war in the Ukraine and not mentioning Russia. Or the United States, for that matter.
But they, there was a letter from 43 members of Congress, Democrats, members of the House of Representatives to John Kerry just about a week and a half ago saying, telling him they’re very concerned about the state of democracy in Brazil, about the impeachment, and saying that, you know, asking him not to do anything that would make him look like the U.S. was supporting this government, this interim government.
Because you know, all this stuff has come out in the impeachment, right. You have phone transcripts saying that the, from officials, three ministers had to resign. You had officials on the phone saying that the reason they’re impeaching Dilma is to prevent, to cut off the corruption investigations which, of course, they’re subject to. It’s a very ironic thing, you know, she’s not accused of any corruption. The prosecutor assigned to the case has already said what she did is not even a crime. And yet you have these people who are up to their neck, some of them with Swiss bank accounts, and 60 percent of the Congress under some kind of investigation for corruption or other crimes. And they’re impeaching her.
And so John Kerry got this letter, which is really unprecedented, from 43 members of Congress. They don’t do that very often for a big country like Brazil, you know. I can’t remember it ever happening. And now he’s going to Brazil and he’s going to meet with the foreign minister of this interim government, which is really kind of like giving the middle finger to these members of Congress. That’s kind of his answer to their letter, because, you know, he doesn’t have to do that. And he’s kind of, he’s showing–.
PERIES: Acknowledging the interim government.
WEISBROT: More than that. He’s showing support by having that meeting with the foreign minister when he goes there for the Olympics.
PERIES: All right. Interesting times. But we also want to talk a little bit about the other countries, here. There had, you know, been a very successful effort on the part of a lot of the left governments–we talked about Ecuador in the last segment, but also Bolivia and a number of other countries. Now, that situation is changing. And how–what–I guess the question really is what can other countries learn from the policies that were implemented in Latin America that may benefit them?
One example comes to mind: In places like Argentina, where they did opt for defaulting, and then of course now you stated that they’re feeling the consequences of that default even today, but for a very long time that economy grew and did well, and it was a real player in the, in the world economy. What was it that they did right?
WEISBROT: Well, in Argentina they did a lot of things right. First of all, they changed the policies that were keeping them in the Great Recession. So the government, you know, had expansionary fiscal policy. It had a very good exchange rate policy, where they targeted what they call a stable and competitive exchange rate. So they didn’t let their currency become overvalued, so that helped their manufacturing sector recover. They had a lot of social programs. One of the biggest conditional cash, the biggest conditional cash transfer program in the hemisphere, to poor families.
So they did a whole set of policies that not only facilitated their recovery, but kept the economy growing at a very rapid rate. They taxed the exporters of the commodities, so they got something out of the commodities boom. And they managed until the last few years to make it all work, even with the default on the debt.
That was extremely important, too. They had to default on that debt, and they had to take a hard line with the creditors, and make them take a two-thirds haircut, which is one of the biggest ever, in order to not run into the problem like Greece has, where–or Jamaica has, or Puerto Rico is going to have–where you just have this debt that cripples your economy for years.
So they did all of those things right. And then, of course–you know, every economy runs into imbalances. Look at our $8 trillion housing bubble in the United States. That was an imbalance. And when it broke we got the great–when it burst we got the great recession. So how you handle those imbalances is very important, because when they get too far out of control, especially when you run into balance of payments crises, then you have serious trouble. I would say that’s the main–in addition to all the positive lessons, all the expansionary policies they had during the recession that kept a lot of, all these countries either growing or having minimal recessions compared to other countries in the world during the great recession.
Those were real positive things, the anti-poverty programs and the public investment you saw. But I think dealing with the imbalances is a lesson that I think can also be learned. You don’t want to get the kind of balance of payments crises like you saw in Venezuela, and even the much milder one that you had in Argentina.
PERIES: Now, how much did the regional alliances here play in terms of lifting the overall economies of the region? For example, when Argentina was in crisis, Venezuela did buy some of its debt. This was under the leadership of President Chavez, who said, we’ll buy some of your debt. And from what I observed, there was quite a bit of that, trade alliances, and helping each other out, that really contributed to the upliftment of the entire region. And could that not happen in Europe with the left governments that are coming into being?
WEISBROT: Yeah, you could see some solidarity in Europe. I think, you know, the main thing there is they’re trying to push–and a lot of mainstream economists, even, have said Germany really has a responsibility to support a big fiscal stimulus for the whole region, because they’re the ones running the huge trade surplus.
In Latin America you had a lot of cooperation. You had a lot of foreign aid, especially to the smaller countries, to the Caribbean countries, from Venezuela. At one point they were giving more foreign aid than the United States was, an economy a small fraction of the size.
And you had things that you don’t see that easily. For example, when Evo Morales was elected in Bolivia and the IMF came in there and tried to give them another agreement and they said no at that point, they also knew at that moment that they could borrow from Venezuela, and they did. They ended up not having to after they, not having to borrow very much, because they soon nationalized their hydrocarbons, and their revenue went from $500 million to–or $700 million to over $5 billion. But the point is, they knew that the cooperation and solidarity was there. So I think that helped them, as well.
And so, yeah. I think it was important. They didn’t succeed in establishing some of the institutions that they wanted, you know, like the Bank of the South, but there still was substantial economic cooperation.
PERIES: All right, Mark. Really wonderful to have you here, and I hope that all of you out there get a copy of this book, FAILED: What the Experts Got Wrong About the Global Economy. And Mark, all the best, and hope to have you back as a more regular guest on the Real News.
WEISBROT: Thank you very much, Sharmini.
PERIES: And thank you for joining us on the Real News Network.
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