Source: Carnegie

Originally published in Financial Times, August 11, 2002.

Latin America's economic crisis has intellectual implications which extend far beyond that continent. It sounds the death-knell of "transitionology", the belief that by following a simple set of universal rules, countries all over the world can in a short space of time make the transition to democracy and the free market. This mantra is now intellectually dead, though it will doubtless live on in the mouths of politicians, pundits and diplomats. What we are left with is history, with its many winding paths and lack of final destinations.

There was always something odd about the degree of belief invested in such an ideological and teleological framework of analysis. In its main outlines, transitionology has resembled the modernisation theory of the 1950s and 1960s. Indeed, they were developed in similar circumstances. Modernisation theory was meant to help the newly independent former colonies of European powers to develop in a western direction and reject Communism. Transitionology was meant to do the same for the former Soviet empire.

But by the time the Soviet Union crumbled, the former European colonies had decades of experience to show that there is nothing inevitable about such progress, and no universal rules that can bring it about. Of the former European colonies, many have experienced some development, but only a tiny handful have joined the developed world. A considerable number in Africa have experienced not progress but catastrophic decline, with steep falls in living standards and services, and in some cases the complete collapse of the state.

Similarly, the former Communist dependencies in central Europe and around the Baltic have achieved great progress (though this by no means applies to their entire populations). Other states such as Russia are experiencing uncertain recoveries from very steep declines, while some, in the Caucasus and central Asia, have experienced what amounts to radical demodernisation. None have sunk to African levels, but some are a great deal further from the developed world than they were in the 1980s. Even Russia and Ukraine stand no chance of real integration into the west in the foreseeable future.

Latin America is a particularly striking example of the triumph of hope over experience. Several states have achieved very real progress, and are of course vastly richer than they were a century ago. But very few indeed have achieved western standards of living and levels of democracy. Argentina was probably closer to such a breakthrough a century ago than it is today. Millions of Mexicans continue to risk their lives by illegal immigration to the US.

How many times in the course of that century have we heard of one Latin American country or another instituting a bold economic reform programme and experiencing an economic miracle? And how many times have we seen that economy collapse into crisis again as a result of an external economic shock, mass domestic unrest, or both? How many times have we seen countries move from dictatorial rule to democracy and back again? How many times has democracy proved only a facade for an incompetent and greedy oligarchy? For that matter, how many of these democracies have made a real difference when it comes to the brutish treatment of the poor by the police, the courts and the bureaucracy?

Despite all the works on this subject, a general theory of capitalist development, valid across widely different cultures, remains a distant dream. There is also no clear-cut or universal relationship between democracy and development, or for that matter between dictatorship and development. Arguments derived from central Europe forget that these societies were already close to the west before being conquered by Communism, and that after 1989 both democratic and free market reform derived a unique extra political charge from the nationalist desire to escape from the hated Russians and to join the west.

In this context, the possibility of European Union and Nato membership has provided an incentive which also cannot be replicated elsewhere: a clear badge of having arrived in the west, and one which could be gained only by genuine and successful reform. The EU accession process has also led to comparatively large amounts of western aid to central Europe and, more importantly, aid that has been strictly controlled. We are however unlikely to be able to encourage reform in Pakistan or Peru by telling them that this will lead to escape from the Russian empire and to membership of the EU.

Objectively, the centres of successful capitalism remain today what they were 100 years ago: western Europe, its overseas white colonies and its immediate European periphery; and Japan. Since 1945, to this group have been added two former Japanese colonies already developed under Japanese rule - South Korea and Taiwan - and a handful of international entrepots such as Singapore.

Some of the south-east Asian states and parts of China may be heading in the same direction, but they are very far indeed from arriving at stable market prosperity, let alone stable democracy. And thanks to the cold war, at key moments parts of east Asia benefited from a uniquely favourable attitude on the part of the US: not just in terms of massive flows of aid and military spending, but more importantly the openness of America's markets to their exports.

This is not to suggest that the free-market reforms of the past decade were mistaken, and that a swing back to leftwing populism would produce better results in Latin America or elsewhere. Of course, some of these reforms were monstrously inequitable in their effects and should be modified; but the real lesson is bleaker and more tragic.

Latin America over the past century suggests rather the old comparison of human polities to a sick man on a bed, continually changing his position in an effort to find relief from his pain, and always finding only a temporary respite. Nor should this be a matter for smug self-congratulation on the part of the developed world. No economic or political system is eternal and 100 years from now, this unhappy picture may be true of the west as well.