As he arrived last November in Mar del Plata, a seaside resort in Argentina, for talks on the Free Trade Area of the Americas (FTAA), President Bush seemed sunny, optimistic about the future of the FTAA, a proposed hemisphere- wide trade zone. But his optimism must have quickly vanished. Outside the summit, Bush nemesis Venezuelan President Hugo Chavez helped lead a massive protest opposing the FTAA-and opposing free trade altogether. Other protestors burned effigies of Bush and dragged the burning corpses through the streets. Chavez, who once called the FTAA “the cauldron of hell itself,” then led a march against free trade through the streets of town.

A warm-up, it turned out, for his performance a year later at the United Nations when Chavez would call Bush and the agents of globalism the devil incarnate.

By then, though, Chavez was hardly unique anymore. Earlier this year Bolivians elected former coca grower Evo Morales, a self-avowed socialist, president. One of his first acts was to send the Bolivian army into the country's gas fields to nationalize the industry while refusing to pay compensation to foreign companies. “The plunder [of Bolivia] has ended,” Morales declared triumphantly (although some months later, faced with the difficulties of having to actually manage the business, Morales tactically retreated to a much softer position).

And Chavez and Morales were only leading a trend. Over the past two years, Latin America has held twelve presidential elections, including polls in the region's most populous and prosperous countries-Brazil, Mexico, Chile, Venezuela. Most of the elections have resulted in victories for the left-wing candidate, and Chavez almost surely will sweep Venezuela's poll in December. Some American officials have reacted with alarm, worrying the rise of the left will result in a region returning to an earlier era of state-managed capitalism and anti-democratic populism. But these fears may be overstated. Though Chavez wins media headlines, below the radar the new Latin left does not always look like the old-many leaders of the new, softer left embrace freer trade and also enjoy the democratic credentials to deliver trade deals.

The hard left

Venezuela is the most obvious example of the hard left challenge to globalization. Since he was first elected in 1998 on a platform of helping Venezuela's poor, Chavez has proven the world's loudest opponent of the wave of free trade reforms in the 1990s and 2000s known as the “Washington Consensus.” Besides appearing at the head of any anti-trade march he can find, Chavez has ordered a state takeover of foreign companies, raised royalties on any foreign companies remaining and threatened to cut off all oil shipments to the U.S.

Some other Latin American leaders have followed Chavez's lead. In particular, Latin America's Atlantic Coast and interior, which has benefited less from free trade, is turning to the hard left. Morales, Argentine president Nestor Kirchner, Chavez, and Fidel Castro have created a loose alliance against freer trade. Morales agreed to swaps of subsidized fuel and other goods, while in Ecuador the government has assumed control of foreign oil company Occidental's holdings. Talks between Ecuador and the U.S. on a free trade agreement have been frozen.

Unlike the anti-globalization protests of the 1990s, which culminated in the riots at the Seattle World Trade Organization summit in 1999, today's challenge to globalization is far more organized. The earlier protestors came from a wide range of nongovernmental organizations. Today the challenge to globalization comes primarily from democratically elected leaders of major states, not just civil society.

And today's dissidents, rather than just opposing freer trade as an abstract evil, tend to have a defined alternative-something Chavez calls “21st Century Socialism.”

One of the centerpieces of “21st Century Socialism” is the call to end links to the International Monetary Fund and other global creditors, a strategy used by Argentina and Bolivia, among others. In place of IMF strictures, it posits some degree of price controls and limits on local banks' interest rates (controls ironically often only viable because of foreign sales of oil and gas). Public subsidies also figure prominently-Chavez has created “social production companies” that would extend the role of the state in managing the domestic economy. And, hovering in the background, is an admiration for China as a model of economic management that both opens up to world and still practices a kind of state-directed capitalism [see sidebar].

Many of these leaders are reacting to the desires of their constituents-populations who have not always seen the benefit of freer trade. In Latin America, “the economic failure of the last twenty-five years is both regional and unprecedented,” argues Mark Weisbrot, a Latin America specialist at the Center for Economic and Policy Research, a Washington think-tank.

Indeed, the Washington Consensus has so far failed to deliver broad economic growth in the region. While wages at the end of the 1990s were higher than at the beginning, in twelve of the fourteen largest Latin nations income inequality had grown, and urban unemployment had risen. “To find a growth performance in Latin America that is even close to the failure of the last 25 years, one has to go back more than a century,” Weisbrot notes. In Bolivia, one of the worst hit countries, more than sixty percent of the population today lives below the poverty line.

As in Mar del Plata, this popular anger often manifests itself in opposition to the U.S., the biggest promoter of trade and thus a symbol of the Washington Consensus. And the hard left's leaders, like Chavez, have taken advantage of this anger to turn themselves into demagogues, and damage their nations' democracies. While warning that the U.S. is planning an invasion of Venezuela-about as likely as America invading Canada-Chavez has mobilized civilian militias, militias he can then use to intimidate his political opponents and crush non-governmental organizations. Meanwhile, Chavez has overseen a rewrite of Venezuela's constitution that places more power in his own hands.

The soft left

While the Mar de Plata fireworks won all the attention, only two months later a more significant event took place in Latin America. Michelle Bachelet, a member of the Socialist Party and a survivor of torture in the 1970s by the conservative Pinochet government, won Chile's presidential election. But unlike Chavez, Bachelet did not immediately increase state control of the economy or rip up free trade deals. Instead, she interpreted popular anger at the Washington Consensus as a reason to make trade fairer and more inclusive, rather than kill trade. So, Bachelet has worked to expand the social security system, include more women in politics, and provide more state health care. At the same time, she has announced that she will maintain Chile's reputation as a staunch free trader-the country is in the process of implementing a new trade accord with China, and she strongly supports the U.S.-Chile free trade agreement signed by her Socialist predecessor.

Bachelet, argues former Mexican foreign minister Jorge Castaneda, reflects the soft left-“modern, open-minded, reformist, and internationalist.” The soft left also tends to be relatively pro-U.S. Besides Brazil, many of the new soft left leaders come from two regions-Latin America's Pacific coast, already dependent on trade with Asia and the United States, and Central America and Mexico, reliant on trade with the U.S.

Soft left leaders like Bachelet, Brazil's Luiz Ignacio Lula da Silva and Peru's Alan Garcia believe in democratic processes and maintain open, free market macroeconomic policies, while also trying to deliver more economic benefits to the poor. In Lula's case, the former trade union leader has continued a path of IMF-initiated fiscal policies while also creating the wildly popular “Zero Hunger” program, which provides cash grants to mothers to feed their families. Garcia, elected this summer over a hard left populist supports the proposed U.S.-Peru free trade agreement, but he also has vowed to improve Peru's social welfare programs. And in Uruguay, new left-leaning president Tabare Vazquez has proven pragmatic, refusing to default on Uruguay's IMF loans and considering a free trade deal with the U.S. while create his own massive anti-poverty initiative.

As Vazquez's example shows (“wide public support for his bedrock agenda,” according to Matthew Beagle, a research associate at the D.C.-based Council on Hemispheric Affairs), there's extensive support for the 'soft' model of as well.

In fact, the soft left actually could help Washington more than America's old authoritarian, conservative allies in South America. Unlike dictators such as Pinochet, leaders like Bachelet and Lula are widely popular-despite corruption scandals in his party, Lula is running twenty percent ahead of his nearest challenger for Brazil's upcoming election. With this kind of popular backing, it has been easier for Lula's government to deal with Washington on trade issues, such as by working with the U.S. at a summer summit in Rio de Janeiro to push forward the latest WTO round.

The response

Prompted by the examples of the Latin soft left, many trade advocates have come to realize they cannot just proclaim that open borders universally benefit everyone. Instead, they advocate more nuanced trade strategies like Nobel Prize laureate and former World Bank Chief Economist Joseph Stiglitz, who questions the results of pure neoliberal economics and privatization.

Stiglitz calls for an approach in which poorer nations only slowly reduce tariffs while richer countries simultaneously help developing states improve the institutions they will need to deal with the effects of globalization. The World Trade Organization had even named the recently collapsed Doha round of multilateral trade talks the “development round,” emphasizing focus on improving the lives of people in the poorest countries. The failure of the Doha round must be viewed as a blow to Latin America's soft left.

To exercise economic influence in the region, the U.S. will need to distinguish between the hard left and the soft left, and develop policies that strengthen the softies. At present, that is not happening. Instead, Secretary of State Condoleezza Rice warns that Venezuela is “one of the biggest problems we face” and suggests the U.S. needs an “inoculation strategy” against him. Secretary of Defense Donald Rumsfeld compares Chavez to Hitler.

At the same time, the U.S. government seems often to fail to understand how to strengthen Latin American friends who do support freer trade. Washington could move quickly on trade deals with friendly soft left nations, like Peru. More important, according to Council on Foreign Relations Latin America scholar Julia Sweig, is the need to cultivate many elements of society-non-governmental organizations, political activists, advocates for the poor, and religious leaders-who may come from an anti-trade background but now constitute part of the democratic fabric that has emerged throughout the continent since the 1990s. Alas, as Sweig notes, the U.S. government has developed few links to these new actors, preferring instead to deal only with top officials.

Getting Latin America to move towards the soft left is vital. Though the IMF makes a convenient target, many good-faith observers warn that developing countries (without the benefit of petro-dollars like Venezuela) are likely to hurt themselves in the long run by cutting links to the Fund, which charges relatively low interest rates. To shed the Fund, Argentina, for example, borrowed heavily from Venezuela, which charges higher rates. Though price controls and nationalization may be a short-term alternative to market growth, much of Latin America tried similar tactics in the 1970s and 1980s when growth in many nations was negligible.

According to one analysis of Chavez's policies by leading research firm VenEconomy, even Chavez's programs, backed by his enormous oil wealth, have not substantially cut into Venezuelan poverty. And, by going against globalization, developing countries like Bolivia will shut off any foreign capital. Yet these countries desperately need foreign investment to upgrade their aging oil and gas infrastructure.

Worse, if the Doha round is irrevocably dead, the alternatives to trade liberalization are unlikely to help the poor. According to one analysis by the International Food Policy Research Institute, overall developing countries would gain twice as much from a successful Doha round than wealthier nations. “Developing countries, especially the poorest, have the most at risk if the Doha Round is not wrapped up,” concludes leading trade economist Kimberly Ann Elliott.

But in its demise, the forces of Hugo Chavez may be in the ascent.

Sidebar:
The China Model

Since it first embraced reforms in 1979, China has boasted growth rates of over eight percent annually, and soon will become the world's second largest economy. It has done so not by following the free-market Washington Consensus but by developing its own set of policies. Indeed, even as China opens to foreign investment and joins the World Trade Organization, the Chinese state has not completely retreated from its economic model. According to China scholar Minxin Pei of the Carnegie Endowment for International Peace, Chinese state-linked companies still account for nearly forty percent of Gross Domestic Product, control over fifty percent of industrial assets, and dominate over sixty percent of the financial sector.

As the Washington Consensus has lost its allure, many nations in Latin America and around the world are looking instead to China's model for development. Scholar Joshua Cooper Ramo has called this the “Beijing Consensus.” In the Beijing Consensus, Ramo says, growth should come from the state directing development, avoiding the kind of chaos that comes from rapid economic opening, and thus allowing a nation to build its economic strength. China's model also does not include political reforms to go along with economic reforms.

Even in relatively wealthy Asian nations, the Chinese model appeals. “Indonesians might not know much about China but they know that China has been successful in making their economy grow [and] they see China as a model,” says I Wibowo, a specialist on Chinese studies in Indonesia, where the country embraced the Washington Consensus and then was hit hard by the 1990s Asian financial crisis.

Chinese officials do not shy away from advertising the benefits of its socioeconomic model to emerging countries. “China…has created a miracle by feeding nearly 22 percent of the world's population on less than 10 percent of the world's arable land. The living standards of its 1.3 billion people are constantly improving. The Chinese government has lifted 220 million people out of poverty,” noted one recent government proclamation aimed at foreign audiences.

But in the long run, the Beijing Consensus may not transfer well to other countries. China has been able to fund its model partly by attracting some of the highest rates of foreign investment of any nation, which countries like Bolivia cannot hope to replicate.

The Washington Consensus

The economic development scenario prescribed for emerging markets beginning in the 1990s-coordinated by the World Bank, the International Monetary Fund and the U.S. Treasury Department-has become known as 'the Washington Consensus.' “It argued that the keys to success in developing countries were three things: macro-stability, liberalization (lowering tariff barriers and market deregulation) and privatization,” says one of its prime actors, Joseph Stiglitz, Chief Economist of the World Bank at the time.

Now a critic of those policies, Stiglitz observed recently that, “there is an emerging consensus that the Washington Consensus was not only faulty in its narrow economic strategies, but also excessively narrow in its objectives. It focused mainly on increasing GDP, not on broader concepts of increasing living standards.” In tacit acknowledgement, the IMF now devotes some concern to the implications of its actions on democratic institution building in the emerging country as well as the impact on poverty and sustainable development.

Largely formulated out of experience with Latin America, it is on that continent where the Washington Consensus has been most vocally challenged. Fundamental to this challenge is opposition to the untrammeled inflow and outflow of foreign investment that marks liberalized trade. The reason: too much social disruption when that capital comes in and goes out. Instead, policy makers advocate measures intended to keep capital flows more stable (even at the expense of aggregate growth) and distribute wealth more equitably. -Neil Shister.