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FIGHTING THE WAR OF IDEAS IN LATIN AMERICA Editors: John C. Goodman National Center for Policy Analysis Ramona Marotz-Baden Foundation for Research on Economics and the Environment National Center for Policy Analysis 12655 N. Central Expressway, Suite 720 Dallas, Texas 75243 214-386-NCPA Copyright © 1990 by The National Center for Policy Analysis, 12655 N. Central Expressway, #720, Dallas, Texas 75243; (214) 386-NCPA. Nothing herein should be construed as necessarily reflecting the views of the National Center for Policy Analysis or as an attempt to aid or hinder passage of any legislation before Congress or any state legislature. ISBN 0-943802-43-1 ii ACKNOWLEDGEMENTS The National Center for Policy Analysis would like to acknowledge a special debt to the organizers of the Mont Pelerin Society and the Atlas Foundation - two organizations that have served as a conduit (bridging language differences and cultural barriers) for the exchange of ideas among advocates of liberty in countries all over the world. In recent years, the Liberty Fund also has assisted by performing a similar role. We pay special tribute to the late Sir Antony Fisher, founder of the Atlas Foundation. His tireless efforts are directly responsible for many of the institutes and activities described in this book. It was Sir Antony's vision that think tanks and research institutes can increase their impact and effectiveness through the periodic exchange of ideas with their counterparts in other countries. He did much to help realize that vision. During the time this book was in preparation, our work was made immeasureably easier because of the continuing work of the Atlas Foundation, under the leadership of its new president, John Blundell. Special thanks are also due to Alejandro Chafuen, Director of Advisory Programs of the Atlas Foundation. Chafuen spent many hours pouring over chapter manuscripts and answering the many questions that naturally arise when people of different cultures contribute to a common project. We gratefully acknowledge financial and other assistance in the preparation of this book from the Foundation for Research on Economics and the Environment. We also are grateful for financial assistance provided by the Lynde and Harry Bradley Foundation, the John E. Owens Foundation, the Earhart Foundation, Mrs. Ellen Garwood, and the Atlas Foundation. The contents of this book represent the views of the authors alone. iii TABLE OF CONTENTS OVERVIEW 1. Introduction Winning the War of Ideas in Latin America 1 John C. Goodman and Ramona Marotz-Baden CASE STUDIES 2. The War ofIdeas in Peru Editor's Introduction 17 The Role of the Informal Economy in Peru 20 Hernando de Soto 3. The War of Ideas in Venezuela Editor's Introduction 45 Marketing Ideas in Venezuela 47 Jesus E. Rodriguez-Armas 4. The War of Ideas in Mexico Editor's Introduction 63 Economics, Politics and Culture in Mexico 69 Luis Pazos Carolina Bolivar 5. The War ofIdeas in Chile Editor's Introduction 95 Democracy and Dictatorship in Chile 99 Arturo T. Fontaine 6. The War of Ideas in Argentina Editor's Introduction 115 Rediscovering Freedom in Argentina 121 Alberto Benegas Lynch, Jr. iv 7. The War of Ideas in Guatemala Editor's Introduction 129 The Role of Higher Education in Guatemala 138 Manuel Ayau ECONOMICS, POLITICS AND CULTURE 8. Literature Editor's Introduction 147 Literature and Freedom in Latin America 149 Stephen Schwartz 9. Religion Editor's Introduction 159 The Church and Latin America's Struggle for Economic Freedom 162 Alejandro A. Chafuen Appendix: The Economic Message of Pope John Paul II to Latin Americans 189 10. Politics and Economics Editor's Introduction 199 Statism versus Individualism and Economic Progress in Latin America 200 Gerald W. Scully 11. Taxes and Debt Editor's Introduction 227 The Case for Radical Tax Reform in Latin America 229 Alan Reynolds POSTSCRIPT 12. About the Authors 249 v INTRODUCTION 1 WINNING THE WAR OF IDEAS IN LATIN AMERICA John C. Goodman Ramona Marotz-Baden INTRODUCTION As this book goes to press, Latin American politics are undergoing dramatic and radical change. This change has been largely unnoticed by the North American news media - perhaps because it is overshadowed by the collapse of communism in Eastern Europe. But a radical shift toward freedom and free enterprise (one which parallels the change in Eastern Europe) is occurring through­ out Latin America. It is a change that appeared all but impossible only a few years ago. Consider the following: In Brazil, a pro-free enterprise candidate for the presi­ dency recently defeated a traditional socialist candidate by drawing considerable support among low-income voters. In Peru, the leading candidate for the presidency is a former socialist who now strongly endorses free mar­ kets. In Guatemala, an advocate of laissez-faire capitalism is a credible candidate for the presidency. Even in countries where forces traditionally hostile to free enterprise have assumed control of the government, political leaders are turning to private property and free markets as a solution to economic problems. After the Peronists regained power in Argentina, the new president almost immediately announced a program of massive privatization. • Even though a center-left coalition won the recent elec­ tion in Chile, the new president has announced his desire to retain the dramatic free market reforms of the Pinochet dictatorship. Although the presidency of Mexico remains in the hands of the pro-statist PRI, the new president seems commit­ ted to a program of privatization and liberalization and the largest opposition party is openly committed to free enterprise. This is not a book about politics or economics. It is a book about ideas and how ideas cause change. It presents a novel perspective on what is happening in Latin America and what the United States can do about it. All too often U.S. attitudes toward Latin America range from the view that "the situation is hopeless" to the view that we can "buy the allegiance of Latin American countries with foreign aid dollars." When foreign aid fails, we invariably tum to sending weapons. At no point has serious consideration been given to engagement in a war of ideas. Throughout most of the twentieth century, the left (mainly communist) has been actively involved in ideological warfare in Latin America. The U.S. has not. Although we have been able to "buy" the temporary allegiance of certain politicians, at no point have we made a concerted effort to convince Latin Americans of the virtues of freedom and free enterprise. Like other people around the world, most Latin Americans 2 INTRODUCTION want an improvement in their well-being. They want a higher standard of living, better health, better economic opportunities, and longer lives. The communists promise that this will be accomplished through collectivized agrarian reform, redistribution of wealth, and state control of production. Yet the history of communism in Russia and China and recent events in Eastern Europe have taught us that communism falls short of attaining these goals. The U.S. has been the showcase of history. Yet we fail to export the fundamental ideas of economic freedom and political freedom - the foundation of the America's success. Not only have we not engaged the opponents of freedom and free enterprise on the intellectual battlefield, U.S. foreign policy all too often has undermined the very values most Americans believe in. Our foreign aid dollars frequently have been used to set up state­ owned corporations, which often are in direct competition with private companies. U.S. foreign aid and grants from private founda­ tions in the U.S. have been used to encourage centralized planning and collectivization of Latin American economies. In short, money from the U.S. is being used to undermine capitalism and freedom, to solidify the power of politicians who are actively hostile to free enterprise, and to support widespread corrup­ tion among public officials. Among advocates of freedom in Latin America there is a growing consensus: U.S. money does more harm than good. Mistakenly, Americans have been led to believe that Latin America faces only two choices: corrupt dictatorships or commu­ nism. Either we support the former with money or we fight the latter with weapons. U.S. citizens desperately need to understand that there is a different and better way. Although most people in the United States are unaware of it, a war of ideas is raging in Latin America. It is a battle between those who believe in various forms of collectivism and those who believe in freedom and free enterprise. LATIN AMERICA'S CLASSICAL LIBERAL HERITAGE During the nineteenth and early twentieth centuries, many Latin American countries were heavily influenced by classical liberal 3 ideas that came mainly from the United States and Europe. For example, one of the leaders of Argentina's early efforts to gain independence from Spain was Mariano Moreno, an ardent advocate of free speech and free trade and a strong opponent of the economic policies of mercantilism. Moreno was familiar with the writings of Rousseau, Adam Smith and Thomas Jefferson. On the proper role of government, he wrote "Reason and the famous Adam Smith ... who is undeniably the apostle of political economy, show that govern­ ments in laws directed to the general good, should limit themselves to the removal of obstacles." As in the case of the United States, classical liberal ideas not only formed the rationale for wars of independence, these ideas also were the basis for the foundation of a new political order. For example, Simon Bolivar, the "George Washington of Latin America," was an intellectual who was heavily influ­ enced by classical liberal thought from France and who wrote a model constitution incorporating these ideas.

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