By Ding Gang    Source: Global Times    Published: 2019-11-21

Contrary to popular belief, it is not doctrines that are dominating Latin American politics, but globalization. If we still use neoliberalism or any other concept invented by Western scholars to explain what Latin America is passing through, our understanding of the continent may not be right. We can only understand the problems of Latin American countries by observing them in an already globalized world, especially comparing them with Asian countries.

The fact is simple to understand: Globalization has increased the flow of goods and formed a complete industrial chain. A country will gradually retreat to the bottom of the global industrial chain if the length of its railways begins to decrease, factories start to close, consumer goods start to depend on import, manufacturing jobs are reduced and no one in the country is willing or able to become blue-collar workers. The country will become more vulnerable as it has to export raw materials to sustain its economy. Thus, it will be the first to become a victim of global recession.

According to United Nations Conference on Trade and Development, China, Japan, South Korea, India, plus some Southeast Asian economies account for over 50 percent of total global manufacturing output.

However, of all Latin American countries, only Mexico and Brazil have relatively stronger manufacturing industries. But they respectively account for only 2 percent and 1 percent of global manufacturing output.

According to the World Bank, Argentina's manufacturing (value added) as a percentage of GDP fell from more than 40 percent in 1965 to less than 13 percent in 2018. Another turbulent country, Chile, fell from nearly 30 percent in the mid-1970s to 11 percent in 2018. The entire Latin American manufacturing industry is still shrinking.

When we lived in a period in which countries and regions were relatively independent, Brazil, Argentina and Chile were leading producers in the region, and could hence win more export orders.

But as globalization accelerates, the competitiveness of Europe and the US continues to increase on the high-end, and the rise of East Asian countries on the middle and low ends also has a strong impact. With expanding globalization, as global industries are forged into a complete industrial chain, Brazil, Argentina and Chile will be replaced.

Globalization to date is more about alternatives. With capital, cheaper alternatives can always be found. The fierce inter-state competition results in winners replacing losers, who find it hard to get back to their position from where they have been derailed. So far, there have been no successful cases of deindustrialization followed by reindustrialization. US President Donald Trump is trying to achieve it, with grim prospects.

Reliance on exporting industrial and consumer goods and equipment has led to a profound change in the economic structure of Latin American countries.

Mass labor forces have entered low-end businesses, and the possibility to transform into high-end manufacturing has declined. Latin American left-wing forces were prosperous when Asian manufacturing industry represented by China boomed.

The Left is known to offer more benefits to low-income people. Of course, this is not a question of what kind of doctrines, or whether left-wing or right-wing, should govern. Increasing social investment has been a common policy in Latin American countries since 2010. However, due to globalization, Latin American countries can access better and cheaper industrial and consumer products compared to those produced at home, which leads these nations to depend more on exporting energy and primary products in exchange of economic growth, and maintaining their European-style welfare system.

Amid the backdrop of a global economic downturn, especially Asian economic slowdown, they would be hit hard. A generous welfare system cannot sustain without the support of manufacturing. Rising unemployment could lead to social unrest - which is ravaging many Latin American countries that are now in the throes of.

It is difficult for an economy without factories to be sustainable. For developing countries, deindustrialization is also a source of instability. This has been a problem of unbalanced development brought about by globalization.

Ding Gang is a senior editor with People's Daily, and currently a senior fellow with the Chongyang Institute for Financial Studies at Renmin University of China.