Alarm Bell for Third-World Democracies

THE recent abortive coup in Venezuela highlights a critical challenge for world economic policy, if the recent resurgence of democracy in the world is to be durable. Not only in Latin America, but in Eastern Europe and the former Soviet Union, nascent democracies have had to endure the excruciating strains of conventional austerity policies, usually under the direction of the International Monetary Fund (IMF). The misery caused by those policies is a major contributor to political instability. But this i s defended as necessary to the long-run economic health of the countries involved.

There are kernels of truth in this claim. Populism, a policy of redistribution of resources in favor of the poor majority without adequate regard for the conditions for expanding production, has failed repeatedly in Latin America, bringing hyperinflation and stagnation. Stalinist central planning sought to direct the national economy from the center. But its collapse in the former communist states has been even more complete than the failure of populism in Latin America. What is left is a world in which mainstream capitalist economic policy seems the only game in town.

But this triumphal economics has its own myths that have pernicious effects. The most pervasive is the myth of "the long run" - the idea that a market unfettered by political interference will, "in the long run," work to the benefit of all. It is assumed that those who suffer from competition will catch up in the long run. But there is no way to confirm or deny this since the long run never seems to come.

A second myth is that economics is a "science." Few economists believe this. But there is still a priestly aura about consultations with economists. In today's complicated and rapidly changing world economy, economics is not a science with known, immutable laws; it is an arena for debate about choices.

A related myth is that the best economic policy is one not contaminated by politics. If economics were a science with immutable laws, it would be best to let those who understand those laws carry them out - minus ignorant politicians and citizens. This is the basic assumption of the IMF in the third world - that its economists know best what is good for a country and that any political interference with the economic prescription is harmful.

In reality IMF prescriptions, like other economic policies, are inherently political. They represent choices about the distribution of resources. To minimize barriers to trade and government intervention is just as political as the idea of central planning.

The free-trade, free-market, pro-privatization policies of the IMF are politically dominant in today's world. Third-world governments have no realistic choice but to adopt such policies, because not only the IMF, but the World Bank and the governments of the major economic powers demand them as signs of creditworthiness. Yet the short-term result is an impoverishment of third-world populations.

It is difficult for a democratic regime to sustain a massive deterioration in its standard of living. If people really have power over their government, as they should in a democracy, they won't sit back and take it. The warning signals were evident in Venezuela for two years, since the newly inaugurated Perez government adopted the IMF policy. Riots and repression are daily occurrences. The attempted coup itself was popular in the poor barrios because it seemed to offer a way out of an untenable situati on.

Yes, in the present international environment, President Carlos Andres Perez adopted the only response that has international support - a free-trade, free-market policy coupled with political repression of the majority. The only conceivable political justification for a democratic government acting that way would be that it is really acting in the interests of the majority. But again, that is a myth. There is no assurance that they will be better off in the long run.

Populism and revolution are alternatives to this economic crisis. But they are unviable without international economic support. If the Venezuelan plotters had come to power, they would have come to grief. They planned a nationalist, populist program, rejecting the IMF model and channeling resources to the poor, in order to cement a political base. In the context of the current international power structure, such a strategy would be doomed to isolation and failure. Similarly, a true social revolution that

sought to eliminate capitalism entirely would be strangled. No one would support it. Witness the fate of the moderate Nicaraguan revolution.

Third-world democracies cannot escape this dilemma on their own. They can only be released by a change in the conventional, global economic wisdom - mainly the economic policymakers and elites in New York, Washington, Zurich, Frankfurt, and Tokyo. There must be a recognition that if the economic risks of populism and social revolution are to be avoided, the world's economic leaders must make a political choice to promote the redistribution of resources in favor of the poor.

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