Over the last few days I was reading John Gunther’s Inside Latin America. For those who haven’t come across Gunther before he was an American journalist (and novelist) who really made his name with a series of these Inside books – the first was Inside Europe in 1936 (he’d been a correspondent in numerous European capitals) – that are a mix of history, politics, key personalities and issues in the countries he visited (there is even, late in his career, a New Zealand/Australia one). He appeared to have access to almost anyone and everyone. They are period pieces, and that is their value.
Inside Latin America was published in August 1941, drawing on five months Gunther had spent visiting almost all the Latin American and Caribbean republics. It was well into World War Two, but at a time when the United States itself was still, at best, in a support role, and when it still seemed plausible to many – notably in Latin America – that Germany might yet win the war. From the US side, one of the big concerns was German infiltration and influence throughout much of Latin America, and the perceived risk that if Germany had won the war in Europe many of the Latin American countries might adopt Nazi-sympathetic regimes, perhaps even in time posing some direct military threat to the US. Certainly the Germans took Latin America very seriously indeed, spending heavily on propaganda and influence operations (actually, as I read it the parallels to the activities of the CCP/PRC kept springing to mind). There is a lot in the book on the extent of German influence, and the countervailing steps most of the local governments were by then taking.
And there was a single reference to New Zealand, or more strictly to a New Zealander. Perhaps some of you had heard of Lowell Yerex who was born in Wellington but moved to the US and was at this time the driving force, and main owner, of Transportes Aéreos Centroamericanos, at the time the largest freight-carrying airline in the world. I hadn’t. He sounds like a fascinating character (there are apparently two books about him, one of which I now have on order, or if you google “erik benson, aviator of fortune, essays in economic and business history” you can download the PDF of a journal article that will give you much of the flavour).
But, of course, this is an economics blog. And although Gunther is no economist, he does write quite a lot about trade and production – both of which, at the time, were quite badly disrupted by the war. And he was almost boundlessly optimistic about the economic potential of Latin America. As, I suppose, many western authors had been since 1492 or thereabouts.
I pulled up the standard reference work for such comparisons, Angus Maddison’s collection of estimates of real GDP per capita, expressed in purchasing power parity terms. For 1939 – a year whose economic data was not materially affected by the war – Maddison reports estimates for 15 continential Latin American countries.
Across all 15 countries, average real GDP per capita was 33.7 per cent of that of the United States. The average of the top four countries was 58.4 per cent of the per capita GDP of the United States. Venezuela (with oil), Argentina, and Uruguay at this time all had GDP per capitas ahead of both Italy (from whence a large chunk of Argentines had come) and Spain (even looking back prior to the civil war, which only ended in early 1939). Take a combination of no serious wars in Latin America itself and abundant natural resources and I guess one could see some reason for Gunther’s optimism.
That was then. But how have things turned out since? In summary, not that well. Of course, all the Latin American countries are materially better off than they were in 1939, but for comparative purpose that doesn’t tell us much.
These days, there is per capita GDP data for a wider range of countries in Latin America (more independent countries as well). But for this post, I simply looked at the same group of countries as Maddison reported data for for 1939, using the IMF’s WEO database. Here is the same chart for 2019 (2018 for Venezuela).
There have been some changes in rankings among the Latin American countries: Chile and (the very large) Mexico and Brazil have done relatively well while, of course, Venezuela has been a self-destructed disaster. But simply glancing at the graph is enough to tell you that the Latin American countries as a group have fallen further behind to the US over those 80 years. Averaging across this group of countries, their GDP per capita was by 2019 only 22.5 per cent of that of the US, and even the average of the top-4 countries is now only 34.9 per cent of that of the US. There are now three OECD countries in Latin America – Chile, Mexico, and Colombia – and the best of them, Chile, has real GDP per capita barely 40 per cent of that of the US.
And it isn’t as if the past 80 years have been glory days for the United States. I mentioned earlier that in 1939 the top-performing Latin American economies generated GDP per capita higher than those in Italy and Spain. But from Maddison’s data there was a “top 10” group of western and northern European countries: in 1939 the average of Latin American economies had GDP per capita about 41 per cent of that of the top European grouping, and the top 4 Latin American countries averaged about 71 per cent of top European countries grouping. Respectable enough I suppose.
But over the last 80 years, with all sort of interruptions (the war notably) Europe has really done quite well relative to the United States – and, even more so, relative to Latin America.
Italy might be in a mess now, with little or no per capita GDP growth this century, but both Italy and Spain have real GDP per capita more than 50 per cent higher than the best of the Latin Americans (Chile). And in comparison with those top-10 European countries (not including either Italy or Spain), the average for the Latin American countries has fallen to only 26 per cent of European GDP in 2019 (41 per cent for the group of four best-performing Latin American countries).
One finds a similar sort of Latin American decline if one compares those economies with Canada or Australia (Canada’s GDP in 1939 was only about 10 per cent higher than that of Venezuela).
But, of course – and you probably knew this was coming – if the Latin Americans don’t want to feel so bad about their economic performance, there is always New Zealand.
Across that whole group of 15 Latin American countries, since 1939 there has been a very slight lift (they were 34.3 per cent of New Zealand, now 35.8 per cent). But the top-4 grouping (and recall that the composition of that group has changed, favouring Latin America in the comparison) they’ve actually fallen relative to us – from 59.3 per cent to 55.5 per cent).
Our performance has been quite bad enough, but at least our starting point (1939) was second-highest GDP in the world. The Latin American performance – recall all that potential – has been just dreadful.
Preparing this post prompted me to dig out an old post I wrote about Uruguay/New Zealand comparisons – both small countries with temperate climates, lots pastoral agriculture, nice beaches (and Uruguay has been one of the more politically stable Latin American countries).
In that post I included a chart showing how much faster productivity growth had been in Uruguay than in New Zealand since 1990. That improvement has continued in the last few years. On Conference Board estimates Uruguay has the highest real GDP per hour worked of any of the Latin American countries, and now, on their estimates, is about about 76 per cent of that in New Zealand.
Unfortunately for them, “better-performing than New Zealand” is about all that they can really claim. Real GDP per hour worked in Uruguay has improved only very slightly relative to the US in the last twenty years, and Chile – with the second-highest productivity levels in Latin American – is now further behind the US than they were in 1970 when Salvador Allende – an up-and-coming man to watch when Gunther wrote – took office.