“But this long run is a misleading guide to current affairs. In the long run we are all dead”
(John Maynard Keynes, A Tract on Monetary Reform, Chapter 3)
Why is the philosophy of liberalism not accepted in the Latin American countries, or indeed in general? Much Marxist analysis of this question suggests that libertarian ideas have nothing to offer to people under poverty conditions, and that paternalist systems are the only solution to generate relief for this sector of the population. Therefore, these writers suggest, the ideas of a welfare state naturally tend to be the most popular ones.
However there is an alternative explanation for the rejection of liberalism – defined here as a political paradigm that prioritises free markets, low taxes, small government and peaceful international relations – which utilises the psychological concepts of immediate and delayed gratification. It has been said that men instinctively tend to satisfy their immediate needs, in this way shifting emphasis away from delay of gratification. The latter requires the capacity to control one’s will and thus sacrifice to satisfy the needs of the long-term rather than the short term (Goldman, 2000).
Economics has developed a theory of time preference and opportunity cost (Menger, 1871), but economics fails to explain why these time preferences can be lower or higher in the short or long run. On the other hand, the theory of immediate and delayed gratification can easily provide an explanation for why an individual who has been exposed to a long period of consecutive crises delaying his basic needs, would like to immediately satisfy them. It is not expected that this individual could restrain his will in order to satisfy long term needs.
It is in those moments when man is overwhelmed by impulse that man becomes vulnerable to the implantation of ideas. Thus, when men face a situation that seemingly requires a quick solution, human will becomes weak and tends to succumb to a great deal of harmful, but immediately visible, ideas. On the contrary, men tend to reject in such situations any idea that postpones gratification, even though, in the long run, the final outcome would be better.
LIBERALISM AND LATIN AMERICA
Recent history of central and South American countries is based on successive crises. It is understandable, then, that most people in these countries opt for immediate solutions. Liberalism does not offer quick exits to deep crises; as many practitioners of Austrian economics have pointed out with reference to the Global Financial Crisis of 2007/2008, there is a period of painful adjustment when malinvestments must be liquidated, and when unprofitable firms must go bust. Similarly, the results of turning toward an open economy would take too long to materialize; since the necessary changes are structural in nature.
The second reason, related to the timing of change, is the magnitude of the changes that will need to be undertaken. In order to move toward a market economy, government spending should be controlled and reduced, subsidies and protection should be removed once and for all. These changes would allow markets to take back control of the economy and thus reorganize in order to turn each Latin American nation towards more efficiency. But of course, this transition would leave many people momentarily unemployed until markets are restructured and labour demand arises in the new and natural industries where each country has its own comparative advantage. Now we face a clear problem: there is not a single politician that would want to carry out such reforms knowing that the fruits would hardly be seen in their presidential term and in
those years their popularity would traverse very low levels.
History also shows us that Latin American people have generally chosen the faster solutions to economic issues. Thus in 1990 Peru was about to turn its economy to a market one, but the Vargas Llosa austerity plan frightened most poor people and Peru continued with Fujimoris authoritarian and paternalist government (Gouge, 2007). Another example is Argentina, which could have solved most of its economic problems by cutting the government deficit caused by excessive spending, but instead chose to devalue its currency in order to continue its spending (Lazzari, 2003). The most remarkable example is Venezuela; in 1998 Irene Zaes could have been elected president and turned the country toward liberalism, but Venezuelans were not ready to face these changes and chose Chavez instead. Summarizing, libertarian ideas in Latin American could never defeat paternalism when faced with crisis conditions.
Paternalistic systems manipulate the immediate needs of the population to achieve high levels of loyalty among the people. Politicians know they have to find immediate solutions to win elections, since short-term measures may have their peak of ‘success’ during the same term of its implementation; the long-term negative consequences can be dealt with later. Such is the case of Carlos Menem in Argentina during the 1990’s, when his short term decision to fix the nominal exchange rate later contributed to a financial crisis in 2001. Paternalist decisions fail in the long-run and finally another candidate comes offering immediate gratification to people, wins the election and thus the cycle continues again.
So liberalism faces a great challenge in this region of world, as in other regions of the world, and it is an unfair challenge because paternalist policies do not respect individual rights as liberalism does. Paternalism permits satisfaction of urgent needs through redistribution of property, but liberalism does not. Liberalism in contrast, offers a gradual and sustained wealth creation, going through a period of restructuring that will require adjustment and sacrifices. In other words, it offers long term or deferred gratification which, for the moment, people are not willing to accept.
A question for future research in this area would address whether the problem lies in the minds of a people that seek to satisfy their immediate gratification, or whether liberty ideas should find a way to provide solutions to immediate needs in order to achieve high levels of acceptance in this region of the world.
Goldman, D (2000). Inteligencia Emocional, Vergara, Mexico.
Gouge, T (2003). Exodus from Capitalism:The End of Inflation and Debt.
Jones, B (2007). Hugo! The Hugo Chávez Story from Mud Hut to Perpetual Revolution. Hanover, New Hampshire
Lazzari, G (2003).Apuntes sobre la caída de la economía Argentina. ESEADE, Buenos Aires.
Menger, C (2012).Principios de economía Unión Editorial, Madrid.