But Latin America’s economic problems began long before the current wave of economic and political instability. Latin America achieved faster growth – a 5.5% average annual rate – in the 30 years that preceded the lost decade of the 1980s, when state-led industrialization was the order of the day, than in the 30 years that followed it.
The economic orthodoxy that took hold three decades ago derided the state-led approach and urged Latin American countries to undertake market reforms that, so far, have failed to fulfill their promise. On the contrary, countries’ dismantling of their industrial policies – together with the repercussions of the debt crisis, the “Dutch disease” effects of the commodity-price super-cycle after 2003, and rising competition from China – led to premature de-industrialization.
Specifically, manufacturing’s share of GDP has been declining fairly consistently since the 1980s, to the point that current levels are similar to those in the 1950s. While a shift away from manufacturing is a natural upshot of economic development, it began in Latin America at much lower income levels than in the developed countries, making it far more difficult for the region to escape the “middle-income trap.” Though Chinese demand for Latin American commodity exports has boomed over the last decade, it remains insufficient to offset manufacturing losses.
Vir: Jose Antonio Ocampo, Project Syndicate