How long does it take to resolve the outcome of a presidential election in a democratic country? A week? Two? Three? In Mexico, presidential elections held on July 2 are not over just yet. This week, Andrés Manuel López Obrador and his supporters continued their month-and-a-half long public protest and even scuffled with police.
While Obrador promises more protests even if (or when) Felipe Calderón becomes president, Mexico City residents are getting weary. Protests have effectively shut down parts of the city, aggravating business owners, small and large, as well as workers. The crisis, in fact, has surpassed the political arena and entered the economic one, as there are economic costs associated with the resulting political uncertainty.
Even supporters of Obrador are beginning to display signs of frustration – not just with the elections results but also with how the situation is being handled – and they are calling for means other than public protests to resolve the problem. In fact, the number of people taking to the streets has dwindled dramatically in the past few weeks. The real question is: will Mexicans choose to resolve disputes through credible institutions – like the respected Federal Electoral Commission – or will populist protests overwhelm the democratic system?
Obrador exemplifies the defiance of left-leaning leaders. He is turning to the ‘power of the crowd’ to get his way, rather than relying on political institutions to sort things out. Yet, although the politics of populism continue to grip the region, not all of the left-leaning leaders are the same.
The leaders of Venezuela and Bolivia are in their own class, seeming to emulate Castro in style if not always in policy. Additionally, Argentina now seems to be on the verge of following a similar path, as President Kirchner has increased centralization of power, re-nationalized several companies, and increased control over the judiciary. Fortunately, Brazil, Chile, and Uruguay are on the other side of the spectrum. In those countries, governments are better classified as social democracies because they seek to address social concerns while maintaining the course of market reform. Peru is now a question mark with the return of Alain Garcia whose first term was marked by a populist disaster that took years to fix. Peruvians are sincerely hoping that Garcia was speaking from the heart when he said he had learned from his mistakes and planned to follow sensible economic policy.
To clarify, there is nothing wrong with the growing emphasis on improving social services to help the poor. We are seeing this trend across many countries in the region, and it is important to address the disenfranchisement experienced by the underprivileged. In fact, Latin America as a region has the most unequal distribution of income in the world. In addressing this, it is the means that matter.
Venezuela is using its oil revenues to provide better health care and education to the poor. Yet, Chavistanomics, as Francis Fukuyama called it in his recent article in the Washington Post, will survive only as long as the oil prices remain high. The bigger question is: what happens if oil revenues decline? Will there be any other economic base outside of the oil industry to support government spending, provide jobs, and generate income?
We are also seeing that many of the state-owned companies in countries around the world are struggling, and failing, to increase production due to bureaucratic inefficiencies. Further, state-owned enterprises have a limited ability to attract much-needed investment due to their poor corporate governance and high risk. This means that even if oil prices remain high, there are limits to the windfalls from oil, gas, and other natural resources. In the end, you still need a real economy.
An alternative to exploiting natural resources to reduce poverty should be well known in Latin America. It has been pioneered by the Peruvian economist Hernando de Soto. What de Soto showed is that up to 30 or 40 percent of the firms and workforce in many developing countries are trapped in an underground economy by an impenetrable wall of red tape and needless regulations. De Soto’s solution is to create real market economies by giving the informals a chance to improve their situation and build their own future in the formal economy. This, of course, points to the need to overhaul the formal economy to create real opportunities for entrepreneurial risk taking. Interestingly, de Soto had been working with former Mexican President Fox to implement just these ideas. Hopefully, a victory by Calderón will continue this work and help Mexico lock in both democracy and a market system.
The battle between liberal democracy and ultra-left populism in Latin America continues. What we are seeing today is that elections alone do not define democracies. Leaders may be propelled to power by citizens’ votes, but it is what they do once they are in the office that largely defines their political as well as economic stance. Those leaders who choose to address poverty through redistribution, nationalization, and tight control over the economy may see only a short-term reduction in poverty at the expense of a crippled economy. Those who embrace bottom-up reform and build a foundation for an entrepreneurial economy will see poverty rates decline and standards of living improve for decades to come.