Latin America in the World Economy Peterson Geography - UNO Outline Colonial Mercantile System Independence, Neocolonialism, Export Economics Economic retrenchment in the 20 th century Regional integration 1960 1980 Economic shock and realignment 1980 2000 Regional integration 1990 and beyond Global markets and global lives Colonial Economy Privatization of land Forced labor or labor tribute Extraction of resources gold and silver Sent back to Spain and Portugal Haciendas and plantations Production of export crop (coffee, sugar, bananas) Imperative of European settlers was to make large sums of money Why else live in the new World unless you are rich? Spanish Imperialism Imperialism: a policy of extending the rule or authority of an empire or nation over foreign countries, or of acquiring and holding colonies and dependencies. Also acquisition of personal wealth. Spanish conquistador: We came here to serve God and the king, and also to get rich. Spain and Portugal, like other European countries, believed that the purpose of having foreign empires was to enrich the parent country. This belief was based on the principles of mercantilism. Mercantilism-1 Definition: A political and economic policy, evolving with the modern national state. Seeks to secure a nation's political and economic supremacy in its rivalry with other states. Purpose is to accumulate wealth in the form of precious metals by exporting the largest possible quantity of its products importing as little as possible, thus establishing a favorable balance of trade. Mercantilism-2 A countrys economic strength depends on increasing the supply of gold by exporting more goods than are imported. Under mercantilism, foreign lands had two roles: 1.supply the parent country with raw materials (lumber, cotton, sugar, and precious metals) 2.serve as a market to sell parent countrys manufactured goods (furniture, clothing, and tools) Established terms of trade that favored the mother country at the expense of the colony Mercantilism-3 Inherent belief that the world only contained a fixed amount of wealth to increase a countrys wealth, one country had to take some wealth from another In order to maintain a favorable balance of trade, the goods exported must be of greater value than those imported. Import raw materials / export finished goods The development of colonies and trading posts played an important role in mercantilism they were both sources of raw materials and markets for finished goods. Control of Trade Trade strictly controlled and only allowed with Spain Limited number of ports that engaged in trade In Spain, everything went through Cadiz In the New World, Vera Cruz, Cartagena, Portobelo (present-day Panama), and Havanna Trade with Buenos Aires went through Lima, Peru very onerous Pirates and Privateers Slow, unarmed merchant ships carrying gold and silver were an easy target Privateers: a private warship authorized by a country's government to attack foreign shipping part of naval warfare from the 16th to the 19th century proceeds distributed among the privateer's owners, officers and crew Spanish implemented convoy system as early as mid-1500s, continued until 1700s One round-trip to Spain and back each year Independence In the vacuum, Great Britain assumed the role as the new Imperialist power Had learned from colonial failures, including that in North America, to rule indirectly Limit military involvement Supply loans to foreign governments Invest in key export activities Construction of transportation and communications infrastructure British Indirect Rule Neocolonialism Behind-the-scenes political control Threat of military force rather than its actual use British military rarely used in Latin America a cost-effective means of imposing British hegemony In many Latin American nations, US assumes British position by the 1920s 1800s Latin America still pursuing export of specific commodities sugar, coffee, tin, nitrates Formation of Banana Republics - term now used to describe any small nation that is controlled by outside interests Reliance on coffee by many nations: 85% of exports for Guatemala; 79% El Salvador; 65% Nicaragua; 62% Brazil; 52% Venezuela Economies controlled by boom-bust economic cycles Boom and bust Rubber Trade Natural rubber extracted from sap of tree native to Brazil Amazon region experiences a tremendous economic boom Tree is smuggled to Britain, successfully cultivated British establish vast rubber plantations in Southeast Asia Supply increases and price drops. Brazilian rubber barons go bust. Boom and bust Cocoa (central America and Brazil) Mining depletion of resources Guano (Peru) bird dung high in nitrates Nitrate mining (Chile) bust through development of synthetic chemical fertilizer Railroad Development Railroads designed to get goods to ports. Peru 1800s Export Boom in review Commodity Export Strategy was mostly a failure in developing overall economy Elites benefitted, as did some regions Most economies showed negligible economic growth Living standards actually declined during the century Strategy did little to encourage local manufacturing and industry Retrenchment in the 1900s Wars and depression influenced markets Demand for non-essential items (coffee, cocoa) declined Wars increased demand for tin, copper, lead, grains, meat benefitting some nations Demand declined in all areas during the depression of the 1930s Wars and depression cut-off supply of industrial goods Move toward Industry, finally : Period of inward orientation National economic protectionism Import substitution industrialization Substituting locally manufactured goods for imported products Use of high tariffs to keep out foreign goods By 1950s, manufacture of consumer goods blossomed radios, televisions, refrigerators Cars Brazil, Mexico, Argentina Smaller countries tried, with government subsidies, to manufacture cars - Ecuadors Andino Government-sponsored industrialization Individuals did not have capital or were unwilling to invest for fear of nationalization Governments created state-owned industries, state-owned industrial complexes Brazils Redondo steel Brazil succeeds, other countries fail EMBRAER aircraft, military weapons, steels exports Import substitution strategy worked in the larger countries Declining value of exports 1946: Region accounted for 25% of world exports 1975: only 8% Continued inward development Failed attempts at regional economic integration Continued borrowing Economic shock brought on by borrowing, bad investments, reliance on a few export commodities for foreign-exchange earnings, financial mismanagement Inflation Over 1000% a year in Argentina, Bolivia, Peru Default on international loans, renegotiation Lending organization (IMF) impose broad economic reform policies Privatizing state companies Chiles success under Pinochet Concentrating on export market Increasing agricultural output, especially in export fruit market 1990s Chile growing at 7 percent a year, still around 5 percent Result of neoliberal policies Increasing income for some, declining income for most -- greater social inequality Argentinas Failures Pursued neoliberal policies through 1990s 20% unemployment throughout the decade 2002 economic collapse, unemployment up to 50% Decline in value of currency Regional Summary Incomes increase for top 20% of population No policies to increase wealth for bottom 80% Progressive income taxation as a method of income re-distribution 45% of Latin Americans live in poverty 65% of rural population Exception: Chile Poverty reduced from 40% to 20% since 1980s MERCOSUR 1991: Argentina, Brazil, Paraguay, and Uruguay Associate members: Chile, Bolivia Common system of tariffs, customs union 2003: Free trade agreement with Andean community Pushing accord with European Union NAFTA 1992 Phased implementation for Canada, US, Mexico Tremendous increase in trade Manufacturing job losses in US and Canada; increase in Mexico 1.3 million vehicles produced in Mexico; 1 million go to US and Canada Maquiladoras Established prior to NAFTA Eliminated duties on imports if used in manufacture of products for export Tremendous growth through 2000 Increased wages in the border region After 2000, duty free area extended into Mesa Central Maquiladoras began to decline NAFTA and FTAA NAFTA as first step Free Trade Area of the Americas Much broader free trade area Combat MERCOSUR 2004: US and Chile free trade pact 2005: Central American Free Trade Agreement CAFTA with Guatemala, Nicaragua, El Salvador, Costa Rica Global Lives Immigrants as transnational With telecommunications and Internet Live between two worlds Homeland and the new world Changing both communities Remittances Sending money back home 60% of Latin American immigrants send money back home; mostly new immigrants Most send money monthly 20% of Mexicans receive remittances 2004: Immigrants sending $30 billion home Total foreign aid from developed to developing world is only $52 billion