By
Gary Scott

Spotting trends is not only good for investing it is good for improving life style. So I paid attention when a reader recently sent me this note.

"Gary, Normally, I wouldn't respond pass judgment on the geopolitical rumblings in Latin America.  It would be helpful however for someone with your purview to give some background on the backlash throughout Latin America against the largely failing economic policies supported and some say trumped up by the U.S., World Bank and the IMF. 

"At the same time, I am aware of the great risk you run of offending some of your more conservative readers.  I can hear them now condemning those of us who might even see some rationale behind the leftward shift in many LA governments.  What heresy to think that Chavez might actually be doing some good for the millions of poor: arguably the first Latin government to begin to make headway after so many years of flawed neo-liberal economic policies. 

"I'm not sure my miscellaneous ramblings are making much sense.  I just would like to hear some frank dialogue about what’s really happening on the ground in South America.  I for one think some good things may come from less versus more U.S. cooperation. And, I think this is also an indication of reduced influence of the U.S. throughout the world.  By the way, I recommend you get a copy of Eduardo Galeano's Open Veins of Latin America."

This is a difficult question that the reader posed…and this question has been argued so much, but it’s worth answering because Latin America offers enormous opportunity, if we can feel political stability.

The problem of course is the obvious disparities between the rich and poor. This problem is exacerbated by modern communications. The most watched TV program in the world is Bay Watch. No wonder humble people everywhere are envious of U.S. life. They have no way of knowing that is not really how people in wealthy countries live.

Nor can we fit square pegs in round holes. Different cultures have different attitudes, work ethics and ideals that do not always mesh smoothly from country to country. Perhaps this is what war has always been about. 

Yet there is a flaw in the left leaning thinking as well. Capitalists are always trying to sell their goods. People in poor countries are all too willing to buy…even when they cannot pay. They borrow. Debt mounts until the payments become a burden. 

This is true in the industrial world as well as emerging nations.

I agree that the IMF plan cannot work in democracies everywhere. Voters in some poor countries (such as Venezuela) just will not accept a leader who sticks to some of the rigid IMF plan. On the other hand the establishment is trying to hold together capitalism in the global community together. This system has its voters and places demands on its politicians as well. If poor countries refuse to repay for products and services they buy or debt they owe, then the Western system fails. This won’t help the poor either. Who will then buy Venezuela’s gas? Where will the poor be then?

Previous experiments in communism have shown that this system does not work as well as capitalism. Communism requires central planning which, human nature being what it is, is a flawed concept. Most people just do not put their interests ahead of the others. This fact of life screws up the beauty of the communistic ideal. George Orwell explained all this in Animal Farm. 

The problem, as I see it, is that the poor do not want to pay, yet want the Western TVs, movies, cars, computers, cell phones, refrigerators and other capital and consumer goods. So who does pay? How do we resolve this tension between the haves and have nots?

Most likely a bit of this and a bit of that is what the world needs. There does appear to be a middle ground that does work, especially in small countries. This is the Scandinavian model where democracy, high tax and socialism are mixed with freedom and capitalism. 

Recently Finland moved ahead of the US in productivity despite having one of the highest tax rates in the world. Denmark, Sweden, Norway and Finland have very high tax rates but one of the highest standards of living in the world.

Get economic statistics at http://www.stat.fi/index_en.html

This system seems to require a great deal of time to evolve though. Democracy began in Scandinavia over 1,000 years ago. Education is vital as well....plus reasonably honest politicians which may be why this works only in small countries where the leader’s actions are easy to see by all.

Perhaps this system can be accelerated if the leader is good. I watched Singapore emerge from a rag tag, poor City-State when I first visited there in the late 60s into a modern powerful industrial place.

The Keys in both Scandinavia and Singapore seem to be education to take advantage of enough opportunity to create jobs for all.

If any new government, left or right leaning enhances education for all and creates real jobs that serve in the global economy, then it will help resolve this dilemma. If they are just robbing Peter to pay Paul and shuffling what is already there..that’s not a solution. I have not been to Venezuela so I do not know if what Chavez is doing there is good or not. However one of my friends is an attorney who specializes in foreign business, and he says he has been swamped by small business people trying to leave Venezuela to live in the U.S. This leads me to suspect that Chavez is not educating and creating jobs. 

How the dilemma will be resolved throughout Latin America is beyond me. Merri and I try to do a small part by taking people from rich nations to Ecuador where they spend money, buy products and hopefully create some new infrastructures. Perhaps if more people did this, the system would be helped a bit.

This is one reason why Merri and I like Ecuador, a small country with a long history in Democracy. There are great tensions between the rich and the poor in Ecuador, but a little bit of success can go a long way. Those who come with us to spend and create opportunity and employment can help. This is good.

Until next message, good global investing.

Gary