Falling Behind

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Development gaps have appeared in Latin America as early as the 1820s. The gap was closed and reappeared in the 1980s when Latin America began to experience a financial crisis and countries reached a point where their foreign debt exceeded their earning power and they were not able to repay it. After the financial crisis the gap expanded and has continued for the last few years. At a Cato Institute event, Francis Fukuyama, Professor of International Political Economy, School of Advanced International Studies at Johns Hopkins University, discussed the dramatically widened gap between Latin America and the United States, theories for the divergence and explained how institutions and economic policies are the keys to understanding growth outcome. The Cato Institute’s mission is to increase the understanding of public policies based on the principles of limited government, free markets, individual liberty and peace.

Fukuyama said that “factors of the gap are policies, institutions and social inequality, which is the underlying cause of the growth in the gap.” Reforming economic and political stability will help Latin America overcome the development gap and improve social inequality.

In order to recover the development gap Fukuyama said “we need to go back to smart social policy.” He continued, “we need a well designed social policy and a better design of political institutions.” We need smart social policy in order to overcome inequality because inequality and poverty go hand in hand, and if the policies don’t change then the situation will remain the same and the gap will persist.

Fukuyama said the designs of the institutions are important because they need to work properly in order to see change occur. He listed the Mexican Constitution and the United States Constitution as examples. The Mexican Constitution displayed changes in Mexican political philosophy that would help frame the political and social backdrop for the rest of the century. The United States of America Constitution defines the three branches of government and their power; it is the supreme law of the United States. Fukuyama said “we should believe in liberal democracy because it gives you the tools to fix problems.” He said, “Mexico and Brazil are most successful leaders and they live by a democratic system.”

In order to build a bridge between Latin America and the United States Fukuyama suggested that “the government needs economic growth for social development.” He says, “you can’t just rely on growth; you need well designed policies and a social agenda because free trade is not enough.” Free trade agreements have been beneficial to Latin America but their success depends on the quality of implementation.

Norman Loayza, Lead Economist, Research Department, World Bank, gave reasons for the gap and suggested ways to close the gap. Loayza said that “a combination of policy mistakes and institution failures explain why there is a development gap.” He offers hope and says “you can do things to change the situation and close the gap.” He said “the development gap is due to the fact that Latin America has long periods of economic and political freedom and have not advanced in their systems.” The economic and political systems have to change before they can close the gap. Loayza said that “we will see another gap if history is not corrected.” He continued, “economic freedom is supported by political freedom.”

Another way to bridge the gap is promoting the rule of law. Rule of law is the idea that no one is above the law. Part of the solution to closing the gap is people’s need for law.

Alanna Hultz is an intern at the American Journalism Center, a training program run by Accuracy in Media and Accuracy in Academia.