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Fourth International, May 1949


Louis T. Gordon

Latin America in Postwar World


From Fourth International, Vol.10 No.5, May 1949, pp.134-138.
Transcription & mark-up by Einde O’Callaghan for ETOL.


How different is Latin America from the technicolor paradise of Hollywood movies! The standard of living of most of the 130 million who inhabit the 8 million square miles south of the Rio Grande is abysmally low. Even a pair of shoes for daily use is very often a luxury, and eating habits of the masses are a constant challenge to the teachings of dietetics.

This is not due to the racial composition of the population, as even some Latin American writers allege, but to the ruthless exploitation by imperialism, semi-feudal landowners and, to a lesser degree, native capitalists.

Economically, Latin America as a whole is still agricultural and cattle raising. Over two-thirds of its population is engaged in these activities. This does not apply, however, to every country. The backbone of Venezuela’s economy, for instance, is oil and she is forced to import half her food supplies. Manufactures are only slightly developed in most countries and largely in the hands of foreign capital. It is not true, however, that Latin America lacks coal and iron for the development of a heavy industry. Brazil, Cuba, Chile, Peru, Mexico and Venezuela are known to possess iron ore of high quality. The basic reason that oil resources are being tapped and exploited but not iron and coal is that the world monopolies are certainly not interested in enabling these countries to develop a competitive heavy industry of their own.

The economies of the, Latin American countries rest heavily on the export of one or more raw materials or foodstuffs. In 1938, for instance, 80% and more of the total exports of Argentina, Uruguay, Cuba and Venezuela were accounted for by no more than four items (Argentina: corn, wheat, linseed and cattle products; Uruguay: wool and other pastoral products; Cuba: sugar and its products; Venezuela: oil, asphalt and derivatives). Likewise, in the same year about 70% of the exports of Bolivia, Chile and Brazil were accounted for by tin, copper and nitrates, and coffee, cotton, cacao and oil-producing seeds and nuts. With the exception of Argentina – and even here the viability of her “five year plan” depends to a very large extent on the prices of her foodstuffs in the world market – this continued to be the case in 1948.

Since the products these countries export are produced mainly for that purpose, if prices fall their economies suffer sharp setbacks. Chile provides a good example. Nitrates could be obtained only from Chile until the development of synthetic production in this field. Thereafter Chile had to rely more exclusively on copper. In 1931, however, the price of copper dropped and the whole of Chile’s economy broke down.

The unhealthy condition of Latin American economic life is not due to lack of foresight but is a consequence of its predominantly semi-colonial character. The imperialist powers view Latin America merely as a source of cheap food and raw materials and a market for their own products. Great Britain was primarily interested in Argentina for its grains and meat. The British-built Argentine railroad network was designed to facilitate the delivery of these products to the ports for shipping, and the differential freight rates were intended to benefit agrarian and pastoral interests not the manufacturers. Argentina’s economy, therefore, was given its special features by British imperialism. The richest lands of the country were devoted to cattle raising and although this accounts for the high quality of Argentine meat it was achieved by sacrificing land which could be devoted to more profitable purposes.

Up to now Latin America, as a whole, has exported raw materials and foodstuffs and imported semi-manufactured and manufactured goods. It is worthwhile noting that the consumer goods imported are mainly for a small percentage of the population living mostly in large cities, the standard of living of the great masses being too low to enable them to buy such goods.

If Latin America continues to follow the old pattern it will be unable to diversify its economic life and thereby raise the standard of living. That’s why industrialization is the order of the day. From their own scant resources, however, these countries are generally unable to finance such a development. To do so they would either have to export enough to cover their needs for consumer and capital goods and the servicing of their foreign debt or they would have to obtain loans under exceedingly favorable terms in order to purchase the needed machinery.

The first condition is impossible to meet because the demand for most Latin American products is not elastic, buyers are always few and can bend the terms of trade to their own advantage. Consequently, many Latin Americans have been placing their hopes on the generosity of the US, especially since the launching of Roosevelt’s “good neighbor” policy. Let us see whether this hope is justified or is merely wishful thinking.

The Pre-war Pattern

In 1937 Latin America accounted for 10% of the value of world exports and 7% of the value of world imports. Seven countries alone (Argentina, Brazil, Venezuela, Mexico, Cuba, Chile and Colombia) accounted in 1938 for 85% of all Latin American exports and 84% of all imports.

30.2% of Latin America’s exports in 1938 went to the US, 16.8% to the United Kingdom, 10.5% to Germany, 4.1% to France, 1.6% to Italy, 1.3% to Japan, and 35.5% to the rest of the world including Latin American countries. On the other hand, in the same year, 33.9% of all Latin American imports came from the US, 11.7% from the United Kingdom; 16.2% from Germany; and about 3% each from France, Italy and Japan.

Before the war, Europe was a very important element in the Latin American pattern of trade both as a supplier of manufactured goods and as a market for a substantial part of its exports. But even before 1939 this pattern began to be disrupted. Since the last depression, European countries have imposed severe restrictions on the import of goods in an effort to attain as much self-sufficiency as possible. The crisis had a second consequence: the prices of agricultural products and raw materials dropped much more than the manufactured goods Latin America used to import in exchange. As a result, the Latin American countries were forced to take such steps as exchange controls in order to protect their economies.

The war, however, virtually severed economic ties between Europe and Latin America. This affected some countries more than others. It must be remembered in this’ connection that Latin America is by no means an economic unit. The economies of some of the twenty countries are complementary to the US. The United States sells them automobiles, trucks, mining and electrical machines, agricultural equipment, cotton, cloth and wheat flour, and they sell the US industrial raw materials and tropical foodstuffs which the US lacks entirely or in part.

Some of these countries, however, produce agricultural and pastoral commodities which are in direct competition with American products. Argentina, Paraguay and Uruguay, unable to maintain a two-way trade with the US, have in the past traded mainly with Europe. Brazil used to split its trade between Europe and the US.

Before the war, about 50% of the total import and export trade of the Caribbean countries was carried on with the US. Brazil obtained about 25% of her total imports from the US and exported about 35% of all her total exports to the US. Latin America only absorbed about 17% of the total exports of the US, or half a billion dollars, but the Latin American market remained of primary importance for some of the most important American industries. The West Coast South American countries (Bolivia, Chile, Ecuador and Peru) carried on about 25% of their total trade with the US. And the East Coast South American countries (Argentina, Paraguay and Uruguay) carried on about 10% of their total trade with the US. Although the East Coast South American countries play a relatively secondary role in trade with the US, before the war Argentina was the largest buyer of American products in all Latin America.

In the pre-World War II, the US bought more in Latin America as a whole than she sold there. That was inevitable. Latin America has to export more than it imports in order to service its foreign debt and make the payments for the earnings of foreign investments in Latin American enterprises. Latin America would have been unable to balance its payments with the US merely by the sale of goods to this country. A very important source of dollars was provided by American travelers, another source was the shipments of gold and silver to the US. This situation was already pregnant with danger. The war brought new disturbing factors.

The Years of the War

The outbreak of the war in Europe seriously disrupted Latin America’s trade with the rest of the world. Certain commodities and countries were harder hit than others. Prices of Cuban sugar, for instance, based upon a generally stable demand, fell because of the loss of the European market.

At the beginning, the decline in exports to Europe as a whole was partially offset by increased exports to Great Britain and the US, although Great Britain was unable to supply the Latin American countries with most of the manufactured goods they needed. For a brief period in 1940 the US established a favorable balance of trade with Latin America but the situation changed after it entered the war. Continuing to increase its imports of strategic materials, the US was now also unable to ship enough manufactured goods in return.

As a result of this double process Latin America found itself at the end of the war in the possession of large balances of dollars and blocked sterling. Industrialization received an impetus because of the inability of Europe and the US to furnish manufactured goods. The disruption of international trade also led to an intensification of trade among the Latin American countries themselves. Thus strengthened, the native bourgeoisie sought to create the conditions which would favor their survival in competition with more developed industrial countries.

The Postwar Situation

An accumulation of foreign currency, which could not be used to buy manufactured products and capital goods, led to a runaway inflation in Latin America. This process, described in a Mexican journal (Trimestre de Barometros Economicos, June 1948), may be considered typical of what happened in most of Latin America:

“The most outstanding phenomena during the war were the disproportionate rise in the prices of some articles, first and foremost of consumer goods; the great foreign demand for almost all our production, and the insufficient increase of the latter, agricultural as well as industrial and mining.”

When the war ended and with it the unusual demand for a great deal of the Latin American products, the opposite happened:

“A deflation ... threatens the stability not only of the currency in most of the Latin American countries, but in many of them the very foundations of their economic structures.” (El Banco Interamericano by Eduardo Villasenor, in El Trimestre Economico, Mexico, July-September 1948.)

It is interesting to note that during the war, the prices at which the Latin American countries sold were rigidly fixed but when they were finally able to trade in the American market they discovered that inflation in America had increased prices tremendously. The new president of the Inter-American Economic and Social Council, a Brazilian economist, remarked to the United Press that in 1928, the price of an automobile, for instance, was the equivalent of 20 sacks of coffee while now it is 52 sacks. He complained that while suffering from inflationary prices in the US, Latin American countries could not increase the prices of their own products because this would result in a falling demand.

Right after the war, Latin America viewed its future with hope and confidence. It thought that the war had helped them to start on the road to a more diversified and industrialized economic life and that large balances would enable them to modernize their manufactures, increase efficiency and develop natural resources. But these hopes clashed against an impassable barrier. Neither the US nor Great Britain were able to sell the capital goods required. Great Britain’s Board of Trade suggested that Latin American countries should buy “a fair proportion of goods which are plentiful and even some proportion of those non-essential and even luxury goods.”

On the other hand, American and European industry very soon dislodged their weaker Latin American competitors from most of the foreign markets they had gained during the war. Moreover American goods could be sold in Latin America even cheaper than the products of local industry. As there were no restrictions on the import of consumer goods, the dollar and gold reserves of many of the Latin American countries were almost depleted without any gain for their economies. They were thus forced to take drastic steps to maintain their dwindling dollar reserves. We are not speaking of Cuba, Venezuela, Uruguay, the Central American republics, the Dominican Republic and Haiti, where dollars are still available, but of the most developed of the Latin American countries – Argentina, Colombia, Mexico, Chile, Ecuador, Peru, Bolivia, and lately even Brazil.

It is apparent that Latin America cannot sell to the US enough to maintain its present level of imports. According to the figures just released by the Commerce Department, in the first six months of 1948 America’s imports from Latin America were valued at $1,227 million, exports at $1,699 million. The respective figures for 1947 were $1,085 million and $1,956 million.

Meanwhile Western Europe is trying to restore some kind of viable economic life by a tremendous increase of production as well as of exports.. But where will these exports go? Of course, the first thing they have in mind is the recapture of their pre-war markets, especially in Latin America. Great Britain has already taken advantage of the dollar shortage in order to regain its former position in these markets.

On the other hand, the US, which captured many of the European markets during the war, will try all the harder to keep them and get new outlets for its production, especially now that the internal market is being rapidly saturated. Exporters are planning to “solve” the problem of payments by asking Congress to supply dollars in exchange for the foreign currencies they would get for their exports. Barter agreements are being studied to get around the currency barrier. At any rate, as a N.Y. Times expert writes, “American exporters will now have to fight more aggressively for volume than at any time since the end of the war.”

In addition, Western Europe is trying to diminish its imports of goods and raw materials from Latin America in an effort to reduce the gap between exports and imports.

“Reports on foreign agriculture issued today by the office of Foreign Agriculture Relations revealed that the food deficit countries of Western Europe not only are having much better crops but also are exerting every effort towards self-sufficiency.” (N.Y. Times, Jan. 19, 1949)

One of the aims of Britain’s four year “recovery program” is to increase production in its African colonies. “Increases are projected in the production of ground nuts, sugar, rubber, tin, copper, cobalt, bauxite and lead.” If these plans are realized, the immediate result would be a decline in the prices of the Latin American products. Already, synthetic nitrates and buna rubber compete with the natural South American products, the oil resources of the Middle East are being developed and this too will tend to hamper the position of Latin American oil producing countries.

In brief, Latin American countries are faced with the perspective of a return to the pre-war trade patterns, which would mean the end of their dreams of outgrowing their backward status, unless they are able to industrialize. They know that they can’t expect any help from Great Britain which is fighting tooth and nail to bring back the “good old” pre-war days. So they turn to the US which had promised to help them develop their natural resources and to raise the standards of living of their peoples. They must soon come to realize, however, that if they are to industrialize their economies and mechanize their agriculture, it will not be with the help of American imperialism but in grim struggle against it.

United States and Latin America

Contrary to the idealistic portrait of American history displayed to the pupils in the schools, the US has interfered in the most ruthless fashion in the internal affairs of Latin American countries. Marines were always ready to collect the bills of the American banks whenever necessary. That is why Franklin Roosevelt’s “good neighbor policy,” launched in 1933, was received in many Latin American circles with relief and satisfaction. In reality, however, there was no fundamental change in American policy. Formally, America ceased to intervene openly in the internal affairs of the Latin American countries, but in actuality she never ceased to decisively influence their policies. Pan-Americanism boiled down to fine words for the nations south of the Rio Grande and political, military and economic advantages for their “big brother,” the US.

“It is difficult to determine,” says one of the reports of the Foreign Policy Association, “just how effective the Good Neighbor policy has been in practice. It was almost immediately overshadowed by the looming prospect of war and the critical need, from the standpoint of the US, to enlist the support of the other American republics in the event this country were drawn into the conflict ... As war came closer we redoubled our efforts to strengthen ‘inter-American solidarity.’ The problem of defense – political, economic, propagandists – came increasingly to absorb the attention of the Americas.”

In every Pan-American conference the Latin American countries tried to get some economic compensation in return for their political and military commitments. But the US always managed to put off economic help indefinitely. Continuing this one-way deal, with large benefits coming in and few going out, American imperialism has now chained Latin America to its military machine through the Rio “defense” pact.

A breaking point came at the recent Bogota conference. Bed up with double-talk, many Latin American delegates demanded outright help from the North American colossus. Torres Bodet, the former Mexican Secretary of State, took the lead with an impassioned plea. Admitting the terrible plight of the European peoples, he pointed out that the position of many Latin American peoples was equally bad if not worse. Emphasizing the frightful incidence of malnutrition, he insisted that elimination of chronic poverty in Latin America was as urgent as European recovery. But the plea fell on deaf ears. Marshall stopped the chatter: Latin America would continue to suffer and starve – European “recovery” came first, and that was final. The gabfest would be resumed later at another conference in Buenos Aires.

Mexico proposed the establishment of an Inter-American bank. The US instead offered merely to authorize the export and import bank to earmark 500 million dollars for loans to Latin America, as against the five, six and even twelve billions experts estimate to be required for the development of these countries. But even this paltry sum, the Mexican delegation pointed out, is to be dispensed by a banking agency of American imperialism. This export-import bank had frequently been instructed to make loans to Latin American countries – for the sole purpose of favoring American exporters when there was a slack in demand. To the American delegation this was not at all unnatural. The solution of all Latin American problems, they asserted, was not credits for the establishment of new industries but – didn’t you guess it? – the creation of favorable conditions for the investment of foreign capital, meaning of course American capital.

Socialism or Semi-Colonial Status

Would American capitalists benefit by the industrialization of Latin America? Officials in these countries contend that under such conditions “trade is mutually more profitable than intercourse between developed and backward countries. American economic help would raise the standard of living of the Latin American nations thus creating larger markets for the American products.”

This is only true in the long run. The immediate result of an expansion of their own manufactures in Latin America would be a contraction of the market for American products. And the US is not in a position to carry out policies which would endanger in the immediate future her market prospects.

Besides, America is trying to reestablish at least a resemblance of equilibrium in the world market, i.e. the pre-war equilibrium. And Latin America is designed to play a very important role in this connection. Of course, it is not the role that Latin America dreamed about. To facilitate the functioning of the Marshall Plan, Latin American countries are expected to sell their products for very low prices. (Up to now Marshall Plan purchases in Latin America have been almost negligible.) This is very frankly acknowledged in official documents relating to the Marshall Plan. In effect, Latin America is being asked by Wall Street to quietly accept its pre-war semi-colonial status.

“The restoration of Europe’s economy,” says the monthly Letter of The National City Bank of New York, September 1948, “is even more important for Latin American republics than for us in view of their dependence upon relatively few export commodities. Normally over 10 per cent of their total production is sold in Europe. Before the war the triangular pattern of trade between Latin America, US and Europe made it possible for some republics to use convertible exchange earned in Europe for purchases here, while other republics passed the dollars earned here, to Europe. Certainly the reestablishment of these multilateral trade relationships would place our trade with Latin America on a broader, more stable basis. Progress in this direction requires greater production in Europe, and adaptation of European products to changing Latin American requirements. On the part of the Latin American republics, moderation is called for in raising tariff barriers to the flow of European products in order to protect some of their budding industries.

The real industrialization of Latin America, that is, the development of a heavy industry which would free it from dependence and exploitation by imperialist powers, is impossible under capitalism. The Latin American masses will continue to live in poverty and destitution until they start on the road to socialism.

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