Economic Perspectives

Perils of ‘populism’

Print edition : April 28, 2017

Guillermo Lasso, Conservative candidate and bussinessman, at a rally in Quito on April 3. Photo: Dolores Ochoa/AP

Lenin Moreno (in wheel chair), Ecuador's presidential candidate of the Left who has been declared elected, alongside President Rafael Correa during the national election day in Quito on April 2. Photo: MARIANA BAZO/REUTERS

LENIN MORENO, the presidential candidate of the Left in Ecuador supported by outgoing President Rafael Correa, has been declared elected in the recently concluded election. Moreno, who moves in a wheelchair because of an injury suffered from gunshots in a robbery attempt, is widely expected to continue with the radical policies and social sector expenditures of his predecessor. Interestingly, his opponent, Guillermo Lasso, is a businessman accused of tax evasion, who fought the election on a pro-business platform, complete with tax cuts and austerity. Yet, the election was a closely fought contest, and the result may be seen as inadequate to put on hold the swing against the Left across Latin America.

The rise to power of the Left in Latin America, after years of neoliberalism starting in the 1970s, was epitomised by the election to the presidency of Hugo Chavez in Venezuela in 1998, Ricardo Lagos in Chile in 2000, Luiz Inacio Lula da Silva in Brazil in 2002, Nestor Kirchner in Argentina in 2003, and Evo Morales in Bolivia in 2005. But more recently with Mauricio Macri replacing Cristina Fernandez in Argentina (2015), Michel Temer displacing Dilma Rousseff in a virtual internal coup in 2016 in Brazil, and Chavez’s successor Nicolas Maduro under attack in a Venezuela engulfed in a deep economic crisis, the Left is seen as having lost its prestige and power, and the continent as retreating to neoliberalism once again.

The result in small Ecuador, therefore, appears to be an exception. But it is not a single such instance. The victory of Michelle Bachelet in Chile in 2013, Tabare Vazquez in Uruguay in 2015 and of Daniel Ortega in Nicaragua (for the fourth time) in 2016, suggests that the Left still has life in Latin America. What no more holds is a situation where two-thirds of Latin Americans lived in countries with a left-of-centre government, as was the case towards the end of the first decade of this century. The wave of Left victories that created that situation was clearly a result of a popular revolt against the inequality and corruption that had been engendered by neoliberalism and against the elite that is held responsible for it.

The “pink tide” in Latin America was seen as significant not merely because of the political shift it effected in a continent long subordinated to imperialist neighbour, the United States, but because in many of these economies governments pursued policies that were seen as reversing the neoliberalism that had come to dominate Latin America since the 1970s.

Redistributive measures that provided social insurance and assistance to those outside the formal sector, such as non-contributory social insurance programmes—social pensions (universal or targeted), disability pensions, non-contributory health insurance, and unemployment assistance and conditional cash transfers—were adopted across the continent. In Ecuador, as a result of such measures during successive governments headed by Rafael Correa, spending on health, education, and social and employment programmes increased hugely and poverty fell by over 32 per cent from 2006 to 2014.

While this may help explain Moreno’s success, it leaves unexplained why the margin of victory was as low as it was (leading to the vote being challenged by the losing candidate) as well as why in many other countries the Left has either lost elections or is in danger of exiting government.

In fact, in many countries in Latin America Left governments are now falling victim to the so-called “populist politics” that brought them to power, involving a challenge of the “elite” by the people. Explanations of this turn most often to the argument that the success of the Left in power was related to the fact that the period of its recent rise in the continent coincided with the commodities and oil price boom that directly or indirectly (through increased tax collections from higher commodity incomes) enhanced the revenues of the government. These additional revenues are seen to have helped “populist profligacy” in the form of transfers to the poor that brought the Left to power, with little attention to developmental expenditures in areas such as infrastructure that would have helped stimulate private investment.

With the commodity boom having come to an end, Left governments, it is argued, could not sustain their transfer regimes, or do so without giving rise to other problems, leading to disenchantment among the people and loss of popular support.

Oil boom benefits

It is indeed true that the end of the commodities boom and the fall in oil prices affected a number of Latin American countries adversely. The collapse in oil prices in particular affected countries across the continent, such as Venezuela, Ecuador and Brazil. This also did erode their ability to sustainably finance large increases in social expenditures warranted by the exclusion of a large part of their populations from systems providing a range of social benefits. The point to note, however, is that if supportive progressive policies had not been adopted, the benefits of the oil and commodities price boom would have bypassed the poor and lower middle classes in these countries. Capturing control of surpluses generated by the commodities boom either through nationalisation of natural resources or through taxation of windfall gains allowed governments to garner the resulting surpluses. In addition, a departure from neoliberal priorities was crucial to diverting these resources to social expenditures. These could only happen under government with ideological inclinations typical of Latin America’s traditional elites.

Moreover, the argument that less “populist” governments would have spent this money in ways that would have supported long-term growth, such as on infrastructure, is specious. In all likelihood neoliberal governments would have allowed the boom to benefit the private sector and transferred the tax gains from the boom to profit earners in the name of incentivising private investment, as indeed they had done in the past. Further, in the absence of broad-based income generation, growth could have been constrained by inadequate domestic demand so that the multiplier effects of infrastructural spending may not have been sustained.

The real criticism of many Left governments in Latin America is possibly that they did not do enough during their tenure to correct the asset inequality underlying income inequality and that worked as a structural constraint on growth and development. This meant that at the level of rhetoric there was a similarity between Left and conservative governments. The focus on social spending of the Left delivered on a promise made even by neoliberal regimes, which is to put a human face on an inequalising development path. Neoliberal governments are neither serious about this propaganda nor capable of delivering on such promises because of their fiscal conservatism.

Left-of-centre governments did deliver on that promise without doing enough to ensure long-term access to resources to finance such expenditures and to address the basic inequalising nature of the growth path itself. In some cases this focus on transfers and social expenditures was driven by the objective of not uniting the vested interests that benefited from prevailing asset inequality in order to remain in power once elected even in the fragile democracies of a continent that has seen countries ruled by military or authoritarian governments until recently. This possibly was a major weakness of the Left governments that made it difficult for them to satisfy the aspirations they had themselves created, once the commodity price boom ended and growth slowed.

Interestingly, however, in many cases the backlash against the Left came not because it withdrew the social policy measures it had adopted, but on the grounds that it was bankrupting the exchequer through its spending or by indulging in corrupt practices. In the case of Dilma Rousseff, the charge for impeachment was as trivial as that of indulging in an accounting manipulation, which her predecessors had resorted to as well. But these slogans seem enough to unleash a wave of populist revolt against governments that rose to power because of their populist appeal.

Backlash

The failure of anti-imperialist or even radical leaders to retain the support of mass movements that brought them to power is not new in Latin America (or elsewhere in the world). In the 1940s and 1950s, strongmen such as Lazaro Cardenas in Mexico, Juan Peron in Argentina and Getulio Vargas in Brazil came to power promising equitable development through a strategy based on agrarian reform, import-substituting industrialisation and public ownership. The failure of that gave way to right wing regimes under the likes of Carlos Menem in Argentina, Fernando Collor in Brazil, and Alberto Fujimori in Peru, who targeted the failure of previous governments. Clearly, much of Latin America, as illustrated by the victories of Pedro Kuczynski in Peru, Mauricio Macri in Argentina and Michel Temer in Brazil, is witnessing one more such backlash. Even Bachelet in Chile has had to tone down her radical programme because of allegations of corruption against members of her family.

But the Left can take heart from the fact that Ecuador may be signalling that the battle is still on.

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