Last week, at an OECD lecture in Paris, I heard it said that, between 1965 and 2004, the economies of the world’s wealthiest countries (the US, Japan, Germany, the UK, France, Italy and Canada) accounted for an average of 65% of the global GDP. During that 40-year period, this figure remained almost constant, varying only by approximately three percentage points for any given year. In 2007, however – surprise! The percentage share for the G7 countries in the global GDP fell to 52%, marking a decrease of 13 points. In part, this change came from the increase in commodity prices and the subsequent exchange rate appreciation experienced in exporting nations. And part of it reflected the convergence phenomenon of the 28 emerging countries that grew beyond the 3.5% per year mark established during the preceding quarter century. Does this signify a shift in the distribution of global economic power? What role will 2009 play in this process?
The idea that emerging economies would suffer less than rich ones during the crisis, thus consolidating their relative advance, has fallen flat – the world’s most dynamic economies are undergoing an even more severe recession than the G7 nations. Over the last quarter, Singapore’s GDP has shrunk by 17%; whilst for South Korea that figure is 21%. Industrial production has fallen even further. Taiwan, for example, demonstrated a 32% reduction over the same period. The explanation is simple: Asian exports plunged after the advanced economies contracted.
Even in China, with its investment package, unemployment has increased in a startling manner. It takes time to transfer resources and labor from the exporting sector to the construction sector. But, whilst the US promises of incentives for the economy are moving slowly, China is putting into practice a fiscal incentive program equivalent to 15% of its GDP.
So, what implications will these changes in global power wring in South America over the long term? There are three possible scenarios. The first one is: more of the same. Neglected by the three current superpowers (the US, China and the EU), the forgotten continent will continue to be America’s backyard. This is a long established tradition that it seems practically immutable.
It took the US the entire 19th Century to build its hegemony in the Americas, before conquering it in the 20th Century. Thomas Jefferson, President between 1801 and 1809, viewed South America simply as the continent that should be under US control. The longest-lasting principle of American diplomacy came from President James Munroe’s doctrine, enunciated in 1823. He proclaimed that any interference by the Old World in the New would be considered “a direct threat to the US” and advised Europe to leave “America for the Americans”. At the time, the US military might was practically insignificant, which is perhaps why the world paid scant attention to the Monroe Doctrine. However, it was met with implicit approval from England, which saw it as an extension of the Pax Britannica.
The influence of the Monroe Doctrine was strengthened by Theodore Roosevelt in blocking the threat of European intervention in Venezuela and the Dominican Republic, in 1905. But, under President Calvin Coolidge, in 1928, the Clark memorandum rejected the Roosevelt Corollary and, in 1934, Franklin Roosevelt substituted military interventionism for a “good neighbor policy”. American influence was maintained throughout the rest of the 20th Century.
Now, this hegemony is being questioned. The wave of globalization that began before World War I and built up strength from the 1970s onwards, accelerated until the end of the 20th Century. In the same measure that this wave gained weight, geographic distances between countries began to lose importance. American dominance in the Western hemisphere, with its roots in proximity, could be coming to an end. South America’s natural resources are reaching all four corners of the world, in increasingly shorter times. China’s presence in the region has seen dizzying growth over the last ten years.
There are indications that Barack Obama wants to revive economic nationalism. Even if globalization comes to suffer because of this, the second scenario is a variation of the first, with the difference lying in substitution China for the US. Thus, the region’s growth would continue to be tied to the behavior of commodity prices.
The third, more optimistic scenario depends on the economic integration of South America’s countries. United, the continent would gain greater global presence. But, despite the advantages conferred by the dominance of only two (similar) languages and territorial contiguity, South America’s integration leaves a lot to be desired. The excessive volatility of exchange rates impedes a better economic coordination and sustainable agreements. Within Mercosur, trade barriers multiply. Argentina, Brazil, Paraguay and Uruguay were unable to defend a common position at the Doha round.
In mid-December, 2008, some analysts saw the possibility of Brazil leading a movement of converging Latin American interests at the Costa do Sauipe meeting that excludes the US and Canada. Brazil and Cuba united to remove Hugo Chávez from center stage. But, the meeting left it clear that ideological distances between our countries can be too much to bear. The proof of the division was evident in the absence of two Heads of State: Colombia’s Álvaro Uribe and Alan Garcia, from Peru. Garcia justified his absence by stating he does not sit down with dictators.
Despite both Fernando Henrique Cardoso’s and Lula’s efforts, the South American union continues to be fragmented. Is it possible that, among the reasons for the lack of dynamism in our countries’ economies is not only the curse of natural resources, but also an inability to create an integrated free market region?