Chronic Crisis in Latin America
By Albert Weisbord
(From the magazine "La Parola del Popolo" February 1962)

Latin America is in a chronic crisis so deeply anchored in the very operations of modern capitalism as to make it impossible for the crisis to end without the overthrow of that system itself. No Alliance for Progress, no drastic measures taken by capitalism as a whole, will be able to change the basic situation for South and Central America.

In the world subdivision of Labor, Latin America occupies primarily the role of producer of primary materials which are mainly exported for use by the industrial countries, principally the United States and those in Western Europe. Each Latin American country depends on one or two primary products the exports of which makes the country able to continue functioning in a capitalist world. Brazil, the largest and most populous country by far (now estimated as having about 70 million persons inhabiting a country equal to about half the size of the entire South American continent) depends principally on its exports of coffee (secondarily on cocoa, cotton, sugar); Argentine on its exports of grain (Principally wheat and corn) and meat; Chile on its exports of copper and nitrates; Bolivia and Peru on tin and zinc; Venezuela now on petroleum, small Central American countries on fruit (bananas), or coffee, etc.

Not trading overly much with their neighbors, Latin American countries sell to industrial markets situated thousands of miles away. If Argentina wants to buy coffee, say, from Brazil, to get the money to buy this coffee, Argentina must first sell its grain and meat to Western Europe. If Brazil wants to buy grain from Argentina it must first sell its coffee to the United States. The freight charges to those far away markets are very large; the freighters are not controlled by Latin Americans and thus the amounts of money retained by Latin Americans are so much less.

Since each Latin American country depends on exports of only one or two primary products none of these countries has much bargaining power or flexibility. If the industrial country taking tin, for example the United States, can invent a process by which only half the tin is used to cover cans than before, then Bolivia suffers mightily for Bolivia can not force the tin market to increase when the amount of tin used per unit has become less. If Western Europe develops its own coffee and cocoa plantations in Africa which it controls and can loot at will, this can only hurt Brazil which can not change its crops from coffee and cocoa to something else. If the products of a manufacturing country, say England, are not selling, England can shift to other products that are selling better; but if the prime material is not selling then the country producing it can not shift to another prime material which does not exist within its borders.

The rapid growth of scientific efficiency has meant steadily improved processes, sudden switching from one material to another, cutting down of waste and scrap, making synthetic substitutes, vastly improved productivity of labor, etc. Under capitalism the growth of the market can not possibly equal the growth of scientific efficiency. This law can be translated into the plain economic fact that the industrial countries of the world can improve the quantity and quality of their products without corresponding increases in the raw materials and labor supplies necessary. Thus the gap between the industrial countries and the primary producing countries tends to grow ever greater. 

For example, in the thirty years from 1928 on the production total in the industrial countries of the capitalist world (North America, Western Europe, and Japan) increased 113% but in the primary producing countries (excluding petroleum) by only 46%. While world manufacturing exports increased in that same period by 103%, world primary goods exports (excluding petroleum) increased by only 14%.

Since the Latin American markets are dominated by the United States, it is interesting to see how shifts of needs and improved processes have cut down per capita consumption in the U. S. of primary goods exported by Latin America.

             TABLE 1
1955-1957, U.S. Per Capita Consumption:
(Index numbers based on 1948-50 as 100):
Lead 91*      Zinc 102*               Copper 99*
Tin 75*       Natural Rubber 80**     Textile Fibres 84**
Cotton 91*    Wool 53*                Coffee 87
Cocoa 93      Beef & Veal 129*        Mutton & Lamb 100*
Tobacco 98*   Sugar 101               Bananas 93
Wheat 64*
   *Substantial U.S. domestic production; imports prevented 
   by quotas and by tariff restrictions.
   **Replaced by US synthetic products.

Naturally, under such circumstances the United States could not greatly increase its imports from Latin America except in the stockpiling of materials vital to the country's needs in time of war. But even this has been of relatively minor value to Latin America first because of bilateral agreements between the United States and other primary producing countries, and second because the stock piling needs have now been greatly reduced and the necessary stock piling is rapidly being completed.

The slow expansion of world trade in primary commodities has been only partly due to the lags in consumption. The big impact is due to the trend toward self sufficiency. In the United States, for example, the consumption of primary commodities (excluding petroleum) advanced in the thirty years ending 1955-57 by only 17% whereas U.S. per capita consumption increased by 35%. In Western Europe in the same period of time per capita consumption also increased by 35% but imported supplies rose only by 9%.

And now the situation threatens to become much worse for Latin America in regard to its exports to Western Europe --- first because of the formation of the European Common Market which will bar by high tariffs much of the stuff Latin America exports, and second, because of Western European control over Africa which is stepping forward in exports of copper, tin, zinc, coffee, cocoa, and other important primary materials.

When first discovered by Europeans, Latin America was taken over by ruling groups who were not at all interested in production and trade but first in looting the country of gold, silver, and precious jewels, and then in enslaving the native populations and bringing in African slaves on big centralized plantations for their profit while they frittered away their time in Europe or in the capital cities they built for their pleasures. Whatever they accumulated in wealth they either had to send abroad to their kings and emperors or they squandered on themselves. When Portugal and Spain were reduced to third or fourth rate powers because of the failure of their ruling classes to modernize themselves, and when Latin America was then forced to break away and form independent countries run by their own ignorant, vainglorious, and immensely backward ruling groups, these former colonial countries soon found themselves entirely at the mercy of the modern bourgeois elements coming from Western Europe and the United State. Formerly self-sufficient and backward Latin American economies were forced soon to throw themselves into the production of goods for the world market. To get the capital for this they had to invite into their countries the foreign capitalists who began to take over their industries and resources and put them on a more modern basis.

But Latin American production could not be put on a modern capitalist basis without drastic changes in the elements composing the ruling classes. The development of modern mining in Chile, for example, called for mining institutes and research, it called for a certain modernization of education and of understanding of the new processes which would make the sons and intellectual part of the ruling groups discontented with the old methods and determined to move ahead. Such developments could more readily arise in countries like Argentina, Chile, and Uruguay where the population was mainly neither Indian nor Negro but of European immigrant extraction that already was well aware of modern capitalist processes, but they also arose in Brazil and in those countries where most modern industry, in the form of petroleum production and refining had become rooted as in Venezuela and Columbia.

The development of Latin America countries as great producers of primary products threw these countries into complete dependence on their exports into the world markets and placed them at the mercy of the dominant imperialist countries. World prices for raw materials may vary suddenly and violently. Under such circumstances there was very little control possible by the governments of Latin American countries of their incomes or any method by which they could anticipate from year to year what their income would be. Thus long range orderly planning and programming became extraordinarily difficult.

How violently the market prices for primary products can fluctuate can be seen by taking the following typical examples:
a) Rubber: The New York spot prices in crude rubber in cents per pound are recorded as follows: 1949-17.6c; 1950-41.3c; 1951-60.9c; 1952-38.6c; 1953-24.1c; 1955-39.5c; etc.;
b) Sugar: The world price per pound in 1952 was 8 cents, in 1959 it was 2.6 cents;
c) Tin: New York spot tin prices were in 1951-$1.80 a pound; in 1954-80c; in 1961-$1.00; etc.

Two important modern world-wide developments forced Latin Americans to make some efforts to change the bad situation in which they found themselves The first was the world wide economic depressions that came periodically, especially the one in the 1930's The second was the great world wars in which the leading capitalist powers were involved and which disrupted entirely the living conditions for Latin Americans. To the aforementioned must be added a regional development of the highest economic significance, namely the population explosion that burst forth in these countries. 

The great economic depression in the 1930's affected the Latin American and primary producing countries far more severely than it did even the industrial countries also hard hit. Prices fell much more drastically in the markets for Latin American products than they did in the markets for goods which Latin America had to import in order to live and work. Thus not only the quantity of Latin American goods sold fell sharply but the prices for these goods fell even more sharply reducing the terms of trade still further and with the increased population reduced the per capita capacity of Latin America to import to truly desperately low levels.

The great economic depression forced Latin America to try to industrialize itself to become more self sufficient, to diversify its exports and reduce its expensive imports as far as possible. This process was further developed during World War II when Latin America had such difficulty in getting needed supplies from the industrial countries then at war. In this effort such countries as Argentina, Brazil and Mexico partially succeeded and laid the basis for the present trends in the same direction now operating in these countries.

One would have thought that with the advent of World War II that the situation would have changed, what with the desperate need by the industrial countries at war for the raw materials which Latin America could produce. But this was not the case. Yes, Latin America could sell its raw materials and at high prices, but it could not get any finished goods in return or when it did so it was only at exorbitantly high prices. Thus Latin America had to keep the currency instead of getting capital goods with it and had to wait until after the war was over before it could cash in its savings for goods now at even higher prices.

The following two tables show the situation. The index in based on 1937 as 100, fair enough since 1937 was the year when production about equated what it was before the start of the 1930 depression.

                       Table 2
     Latin America: Population and Exports       1937 Equals 100 in Index

Year   Population    Quantity   Index of Export    Export
       (Millions)    Total      Per capita         Price Index
1929   104.3         108.7      124.1             113.2 peak of prosperity
1932   109.3          82.0       53.4              53.4 depth of depression
1937                 100        100               100
1940   126.5          85.7       80.6              85.5 beginning of war
1946   142.6         111.6       93.2             171.3 end of war
1949   150.7         111.5       88.1             216.9 "normal" post-war

Notice that in the twenty years from 1929 to 1949 the population had jumped about 50% or about 50 million, while the total exports remained at the end at about the same level as the beginning. This means that the per capita exports fell greatly, about 50%, from an index number of 124.1 to 88.1

                  Table 3
Latin America: Terms of Trade and Capacity to Import --- 1937 equals 100
           Price Index                        Index      Capacity to Import
Year    Export    Import    Terms of Trade    Total      Per Capita
1929    113.2     117.0     90.7              105.1      120.0
1932     53.4      76.0     70.3               57.6       62.7
1938    100       100      100                100        100
1940     85.5     109.0     78.4               67.2       63.2
1946    171.3     163.0    108.1              117.3       99.9
1949    216.9     195.5    110.9              122.5       96.8

Notice how all during the depression and right up to the very start of World War II the prices for imports to Latin America were relatively higher than the prices of the goods exported by Latin America. "Terms of Trade" means how much goods the exports of a country can buy in terms of imports. In 1940, for example, according to Table 3, $100 worth of export bought only 78.40 of imports. In later years when the terms of trade became more favorable to Latin America, during and after the War, the total volume of Latin American exports was only about the same as in 1929 (see Table 2 above) so that even with the higher prices the total income was not enough to cover the growth of the population with the result that the masses of people never could reach the level even of 1929.

Immediately following the war, with the terrible destruction of Europe, Latin America had to shift her import buying as well as her export sales mainly to the United States. But the United States did not take this money spent by Latin America on U. S. goods and in return buy Latin American goods. Instead, the U. S. made a large number of bilateral deals which put Latin American dollars to other uses. Thus as Latin American imports to the United States fell the total income received was not great enough to cover the much greater population increase.

It has already been noted that during the depression years the per capita income of Latin American masses had been very low. Latin America needed a far greater income not only to raise the standards of the people but to obtain necessary capital improvements. But with the end of the war when terms of trade where indeed favorable to Latin America, because of the drop relatively in Latin American exports due to cutting down of U.S. imports from Latin America the situation got no better, but actually worse. With a great increase in population not matched by an increase in exports equally as great, Latin America had an ever greater and hungrier labor force eager to work but with no capital or markets to put it to work. It is during this time, to make matters worse, that Brazil had to destroy huge stocks of surplus coffee and Argentina had to use several grain harvests as furnace fuel.

Immediately after World War II dependence of Latin America upon the United States grew steadily worse. Before the war, in 1939 the United states had taken 57% of Latin American export to the industrial countries of North America and Western Europe, after the war this percentage rose to 69%. In 1959 of the total Latin American export of $8.3 billion, the U. S. A. received $3.8 billion and Western Europe $2.5 billion (the Soviet bloc taking only $153 million).  

In an effort to make itself less dependent on the United States, Latin America had to try desperately for increased capital imports. It spent its war savings, it went heavily into debt, it devalued its currencies, it did all it could to attract U. S. capital. In this it had some success but it also succeeded in becoming more throttled by U. S. interests. During this very period when it was starved for funds, in the eight years from 1945 to 1952 inclusive Latin America had to pay out in profit and interest to foreign, mostly U. S., capitalists the enormous sum of almost $6 billion!

In 1958 U. S. investments in Latin America totaled $8.7 billion, about as much as U. S. investment in Canada and more than U. S. investments in all the rest of the world put together. These investments were spread as follows: (a)mining, $1.3 billion (b)petroleum, 3.0 billion (c)manufacturing, 1.7 billion (d)public utilities, 1.2 billion (e)Trade, .6 billion (f)Other (agriculture, etc), .9 billion

The distribution of these investments among the principal Latin American countries were:
Venezuela $2.86 billion (of which $2.3 billion in petroleum)
Brazil 1.35 billion (of which $700 million in manufacturing etc)
Cuba .86 billion (of which $260 million in agriculture etc)
Mexico .78 billion (of which $200 million in mining and $360 million in manufacturing)
Chile .74 billion (of which $480 million in mining)
Argentina .52 billion (of which $260 million in manufacturing)
Peru .43 billion (of which $280 million in mining)
Central America .74 billion (of which $550 million in agriculture, etc)
In return, the United States received in 1959 from these investments a net total of $700 million.

Besides these capital investments the United States through its government gave direct grants to Latin American countries that totaled in 1959 more than half a billion dollars distributed as follows:
To Bolivia: --- $134 million
To Mexico: --- 111 million
To Guatemala: --- 84 million
To Brazil: --- 54 million
To Peru: --- 46 million
To Chile: --- 42 million
To Haiti: --- 38 million
Total to these 7 countries --- $511 million

As has been emphasized, Latin American trade is principally with industrial countries (U.S.A. and Western Europe). What happens to the economics of these countries, particularly to U.S. economy, is of vital importance to all of Latin America. 

Now since the end of World War II the United States has seen four different recessions: the first in 1948/1949 before the Korean War; the second in 1953/54 after Korea; the third in 1957/58; the fourth in 1960/61. The following features of these recessions should be noted:

1. The intervals between the recessions have been ever shorter. From the downturn in 1948 to the downturn in 1953 the period was 45 months; from the downturn in 1953 to that in 1957 it was 35 months; from the downturn in 1957 to that in 1960 the period was 25 months.

2. Each of the recessions was not too prolonged, however. The Korean War ended the 1949 recession; the 1953 recession was over in 13 months, the other two in about 8 months each.

3. In each case when the economy did recover from the recession levels, however, the recovery levels were not very high, not high enough to make up for the losses incurred during the recession, so that the combined result was a net loss.

4. During the recovery following the termination of each recession, the number of unemployed constantly reached a higher level than during the preceding period of recovery. U.S. unemployment in the peak quarter year of production following the termination of each recession was as follows:
a) In the second quarter of 1953 the unemployed was 2.3% of the civilian labor force and the average duration of unemployment was 8.3 weeks;
b) in the third quarter of 1957 the unemployed was 3.9% of civilian labor force and the average duration of unemployment was 9.8 weeks;
c) in the second quarter of 1960 the unemployed was 5.4% of the civilian labor force and the average duration of unemployment was 12.5 weeks.

Table 4 shows the unemployed as per cent of the civilian labor force in the United States and in Canada from 1958 through 1960

                TABLE 4
              United States  Canada
1958               6.8%       7.1%
1959               5.5%       6.0%
1960 (first half)  5.2%       6.6%
1960 (second half) 6.0%       7.6%

The fact of the matter is that the United States, ever since 1957, can be said to be in a state of stagnant economy. The total rate of growth has been only 2% a year for the past five years (as in the United Kingdom), not much above the growth in population. The United States, in the main, has met these recessions by cut-backs in inventories, and when imports were not dropped, by a drain in gold.

Of course these recessions and more recently the slump and stagnation in U.S. economy and in other parts of the capitalist world have had an adverse effect on Latin American export prices. The following table 5, for example, shows how the recession of 1957/58 affected Latin American exports.

Table 5 below shows that in the four years covered, the total exports in dollars remained the same, the increased production just about making up for the fall in prices. In the eight years 1950 to 1958 the per capita production rose only 14% or less than 2% a year! In such weakened circumstances Latin America had to face the first post-war, world-wide recession of 1957-1958. 

It is during this very period starting with the recession of 1957/58 that new blows were given Latin America. The European Common Market, while placing no duties on agricultural goods from its dependent Asian and African countries, intended to place big duties against those from Latin America. The United States did impose quotas on lead, tin, and zinc against Latin America. The slump in the United States also went hand in hand with stagnation in Western Europe and here too Latin American imports declined by an over-all average of 3% in volume, even including petroleum imports, and 14% in values or $413 million.

How prices fell can be seen from the table 6 in next page.

Faced with stagnation the United Kingdom took sharp action to reduce its stock piles. Between 1955 and 1957 it sold 100,000 tons of copper, 30,000 tons of lead (with 20,000 tons more of copper and 27,000 tons of zinc sold after 1957) as well as from 80,000 to 100,000 bales of wool. All this, of course, was a serious blow to Latin American markets.

The biggest blows of all, however, were to come from the United States. By 1957 the United States had built up enormous agricultural stockpiles. In cotton the stockpiles had jumped from 3.7 million bales in January 1950 to 6.5 million bales by the beginning of 1957; in wheat during the same period the increase was from 155 million bushels to 820 million bushels and the cost values of agricultural inventory including crop loans outstanding had risen from $2.4 billion to $7.4 billion. 

In addition to these government agricultural stocks, constantly growing, the U.S. in order to help farmers sell their stuff abroad, in competition with such countries as Argentina, provided price supports for 20 major crops. In 1956 the crops supported directly had a cash value of $6.8 billion; crops supported by import regulations had a total of $7.5 billion while the total value of farm crops supported in one way or another by the U.S. government amounted to the grand total of $31 billion. Of course all this only created greater surpluses for the U.S. to dispose of.

                    TABLE 5
                     Latin America
Money in $billions. Index figures have (1953 as base for export prices
and 1950 as base for per capita production)
                                             1955  1956  1957  1958
Exports to rest of world (except petroleum) $5.35 $5.95 $5.80 $5.40
Export Prices                                  97    95    95    87
Per capita production                                     114   114

                           TABLE 6
                 Export Prices Latin America
                                 1956     1957      1958
Coffee (cents per lb.)           74.0     63.9      52.3
Cotton                           58.9     59.8      41.8
Wheat (Pd Sterling per long ton) 28.7     26.5      24.8
Copper (Pd Sterling per long ton) 329      219       197
Tin                               788      755       735
Zinc                               98       82        66
Wool (cents per lb.)               87       89        69

First the United States offered supplies to foreign governments in return for strategic material stockpiling --- at the expense of Latin America. Then, the United States made grants of surpluses to distressed countries --- thus seriously affected world prices and Latin American markets. Third, the U.S. sold surplus goods to foreign countries in return for local currencies which it loaned back to those countries. These "promoted" U.S. exports gradually increased from $500 million in 1952/53 to $2 billion in 1956/57, or to 43% of total U.S. agricultural exports. Apart from wheat and cotton (affecting most Argentina, Brazil and Mexico) many other agricultural commodities were sold by the U.S. under government programs, some below cost (rice, barley, maize, dairy products) and others at cost (tobacco, fats, oils, and in some cases meat, fruit and vegetables). All this had an adverse effect on market prices.

More affected by such adverse U.S. policies than perhaps any other country in Latin America was Argentina. Not only does the U.S. prevent Argentine exports (wheat and meat) from entering its borders, not only does it make special dumping export deals on the world market damaging to Argentina export prices, but the U.S. has actually prevented other Latin American countries from making barter agreements with Argentina. For example, Brazil imports wheat (about $100 million to $125 million a year) and would have made a bilateral deal with Argentina and Uruguay to meet the situation when in 1956 the U.S.A. stepped in to give wheat to Brazil taking payment not in dollars but in cruzeiros and lending 85% of it back to Brazil for development projects.

Faced with relative export stagnation and decline in volume of exports, with adverse terms of trade, with an even larger and hungrier labor force, and with tremendous unfulfilled capital needs and growing debts, Latin America has been forced into a galloping inflation as can be seen from the following table.

          TABLE 7
1958: Cost of Living Index
(1953 equals 200)
Argentina            275
Brazil               265
Chile                843
Columbia             155
Mexico               155
Paraguay             226
Uruguay              193

These tremendous raises in only a five year span!

To raise money the cliques ruling the Latin American governments have laid the tax burden heavily upon the shoulders of the masses. Whatever direct taxes are employed are generally very regressive in character, that is the taxes on the wealthy are relatively much less than upon the poor. But the principal method used is the indirect (sales) tax form where the taxation falls directly upon the poorest in the heaviest manner. The relation of indirect to direct taxes can be seen by the following table which gives the indirect tax as a percent of the direct tax in 1965.

          TABLE 8
Argentina         109%
Brazil            296%
Chile             199%
Columbia          132%
Costa Rica        259%
Ecuador          *380%
El Salvador      *380%
Guatemala        *265%
Honduras         *320%
Mexico            113%
Nicaragua        *667%
Peru              195%
Venezuela         373%

*Marks one of the basic causes for recent revolutionary turmoil.

How little the people can stand the weight of these taxes can be seen from the following table giving their average per capita income estimates as of 1960:

        TABLE 9
Guatemala        $100-$199
Honduras           100-199
Mexico             200-299
Panama             200-299
Peru               100-199
Columbia           100-199
Venezuela          600-699
Paraguay           100-199
Cuba               300-399
Chile            over $400
Argentina          500-599
Brazil             100-199
Trinidad           400-499
Tobago             400-499
Bahama Isles       500-599
Nicaragua          100-199
Ecuador            100-199
Haiti           under $100
Netherland Antille 100-199
Cost Rica       about $300

Here, then, is the basic situation affecting Latin America. The outlook is dark, even though ever since the 1930's there has been no world economic depression. What will happen when a real depression comes?

One way out would seem to be to follow the Cuban example, but this would mean revolution and perhaps war. Another way out might be very greatly increased trade with the Soviet bloc but this would entail strenuous opposition from the United States. Certainly the Kennedy Alliance for Progress is no way out as we recently analyzed in our article "Latin America Mobilization Against Cuba" appearing in the last issue of La Parola del Popolo.

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