The open drains of Latin Amer­ica

Financial Mirror (Cyprus) - - FRONT PAGE - By Ri­cardo Haus­mann

Sto­ries are most be­liev­able when they reaf­firm our prior be­liefs and as­sump­tions. If not, we tend to find them im­plau­si­ble.

A case in point is Ed­uardo Galeano’s much-ad­mired 1971 book The Open Veins of Latin Amer­ica, which has sold more than one mil­lion copies in 12 lan­guages and de­fined a gen­er­a­tion’s view of the re­gion’s tor­tured his­tory. The late Hugo Chávez gave US Pres­i­dent Barack Obama a copy when they met in 2009 in Trinidad.

The book is com­mend­able for its abil­ity to de­scribe five cen­turies of Latin Amer­i­can his­tory with great co­her­ence, some­thing that only a work of fic­tion can achieve. His­tory, un­for­tu­nately, is a bit more com­plex. A few weeks ago, Galeano, to the as­ton­ish­ment of many, dis­tanced him­self from his own book. He said he could no longer bear read­ing it, and that when he wrote it, he “lacked suf­fi­cient knowl­edge of eco­nom­ics and pol­i­tics.”

Why was the book so well re­ceived, and what ac­counts for its au­thor’s sec­ond thoughts?

Galeano’s book in­ter­prets Latin Amer­ica’s his­tory as the con­se­quence of for­eign plun­der. Over the cen­turies, bad guys change na­tion­al­ity – say, from Span­ish to Amer­i­can – but their in­ten­tions re­main the same. Cur­rent prob­lems are the re­sult of evil deeds com­mit­ted by for­eign pow­ers that came only to ex­ploit. The poor are poor be­cause they are vic­tims of the pow­er­ful.

Even the most dis­torted myths con­tain a ker­nel of truth. Through­out hu­man his­tory, those with su­pe­rior tech­nol­ogy have tended to dis­place or even an­ni­hi­late their neigh­bours. That is why the Welsh and the Pyg­mies live in re­mote places, and why English, Span­ish, and Por­tuguese are spo­ken in the Amer­i­cas. In fact, re­cent sci­en­tific ev­i­dence in­di­cates that the Ne­olithic Revo­lu­tion – the tran­si­tion from hunt­ing and gath­er­ing to agri­cul­ture – spread mostly be­cause farm­ers dis­placed hunters, not be­cause hunters learned from them.

But, while tech­no­log­i­cal su­pe­ri­or­ity and con­fronta­tion can wipe out the weak side, tech­no­log­i­cal dif­fu­sion across cul­tures can be mu­tu­ally ben­e­fi­cial. It al­lows all to do more with less, thereby gen­er­at­ing a sur­plus that can be dis­trib­uted.

As in any such re­la­tion­ship, all par­ties want to get the lion’s share of the gain, but some get the short end of the stick. Yet, with­out the re­la­tion­ship, there would be no stick. The real chal­lenge for a pa­triot is to ob­tain the largest amount of pie, not a large share of a small pie.

Alas, those in­spired by Open Veins, like Chávez (and Fidel Castro be­fore him), are bound to cre­ate very small pies. For ex­am­ple, while Chávez’s in­ten­tion was to dou­ble Venezuela’s oil pro­duc­tion to 6 mln bar­rels per day by 2012 – a fea­si­ble goal, given that the coun­try has the world’s largest oil re­serves – his pen­chant for ex­pro­pri­a­tion and for fir­ing able dis­senters caused out­put to fall by one-fifth. While Venezuela re­mains mired in eco­nomic malaise, its al­lies – China, Rus­sia, Brazil, and OPEC – have raised out­put by 14 mln bar­rels per day, laugh­ing all the way to the bank.

But to tell the story of Latin Amer­ica as one of for­eign pil­lage is to ig­nore the ben­e­fits that the re­gion has gained from for­eign ef­forts, es­pe­cially in Venezuela. So here is an al­ter­na­tive story.

Once upon a time, in an­cient Me­sopotamia, oil was known to ex­ist and it was ped­dled by some quacks for its medic­i­nal pow­ers. Around 1870, John D. Rock­e­feller spear­headed the de­vel­op­ment of the mod­ern oil in­dus­try to pro­duce kerosene for light­ing. Later, while he was in a fe­ro­cious con­fronta­tion with Thomas Edi­son, who was threat­en­ing Rock­e­feller’s busi­ness with the elec­tric bulb, un­re­lated tech­no­log­i­cal de­vel­op­ments led to the gaso­line-pow­ered in­ter­nal com­bus­tion en­gine and to the idea of putting it on wheels. This soon made oil the pre­ferred en­ergy source for trans­porta­tion, not light­ing, and even for elec­tric­ity gen­er­a­tion.

But to de­velop the oil in­dus­try, many more tech­no­log­i­cal ad­vances needed to oc­cur. First, oil had to be found. Then it had to be ex­tracted, re­fined into more use­ful prod­ucts, and trans­ported cheaply. All of that re­quired a plethora of break­throughs in ge­ol­ogy, me­tal­lurgy, ma­te­rial sci­ence, chemical en­gi­neer­ing, cars, roads, cities, rules, and other ar­eas.

It was this ex­tra­or­di­nary tech­no­log­i­cal revo­lu­tion that made oil valu­able. While this was hap­pen­ing, many of to­day’s large oil pro­duc­ers – in­clud­ing Venezuela, Saudi Ara­bia, Iran, and Nigeria – were miss­ing in ac­tion. For the most part, they did not know that they had oil or where it was. They did not know how to get it out. They did not know about seis­mic lines, drilling, pipe­lines, re­finer­ies, or tankers. More im­por­tant, they did not do much to con­struct the com­plex ecosys­tem that makes oil valu­able.

They did, how­ever, have the right to re­strict ac­cess to their un­der­ground re­sources in or­der to ex­tract rents, just as the de­spised agri­cul­tural landown­ers have done for cen­turies. They could be­come ren­tiers and live off the work and in­ge­nu­ity of oth­ers. The chutz­pah of Open Veins and Chávez is to de­scribe their sit­u­a­tion as vic­tim­hood, not good for­tune. Sim­i­lar sto­ries can be told of other in­dus­tries, even those that do not re­quire nat­u­ral re­sources but rely on global value chains in­stead. In de­vel­op­ing coun­tries, eco­nomic progress re­quires ab­sorb­ing and adapt­ing tech­nol­ogy that ex­ists in other places, which ne­ces­si­tates en­gag­ing with those that have it. By char­ac­ter­is­ing these in­ter­ac­tions as pure ex­ploita­tion, rather than as value-cre­at­ing op­por­tu­ni­ties, the Open Veins men­tal­ity has been a real drain on the pos­si­bil­i­ties of so many in Latin Amer­ica and else­where.

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