Latin America could have been a contender


samericaIt's a hard life, I know, but this week I'm in Buenos Aires at a meeting of the Mont Pelerin Society, the association of liberal and free-market scholars, businesspeople, thinktankers, politicians, journalists and others, originally founded by the great FA Hayek in 1947. The focus is on liberty and economic growth in Latin America – neither of which is in very good shape.

The Chilean historian Claudio Veliz suggested some of the reasons for this. The region had 300 years of colonial centralism, he argued, and still carries much of that centralist baggage. With its Spanish roots, it inherited the top-down, authoritarian, civil law system of continental Europe rather than the bottom-up, liberal, common law traditions of Britain. "The widest stretch of water in the world is the English Channel," said Veliz, commenting on this deep and crucial intellectual difference.

Capitalism, as Marx put it, rose from the rubble of feudalism. So the United States benefited from that common law tradition, an individualist, permissive approach driven by and created for the benefit of a rising bourgeoisie of individuals who wanted to trade and prosper without being held back by self-appointed authorities. But by the time Latin America was colonised, the prescriptive legal tradition of continental Europe had taken root among the colonizers. The most it could hope for was the Napoleonic idea of enlightened despotism.

This thesis suggests that countries with such a past could never prosper. But I am not convinced. After all, Latin American countries have been hugely rich in the past. At the beginning of the twentieth century, Argentina was one of the richest countries of the world, not far behind the United States. Venezuela grew rapidly before the Second World War, and continued growing after it to become around 85% as rich as the US in the 1950s. Only then did the rot set in. History and institutions may indeed weight down a country. But such experience shows that, if the conditions are right, ordinary people, entrepreneurs and traders, can turn around almost anywhere. All it needs, as Adam Smith put it, is 'peace, easy taxes, and a tolerable administration of justice'.