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Challenges and Possibilities: Learning from ALBA and the Bank of the South
by Martin Hart-Landsberg
22 May 2009

This is a time of great challenges and also great possibilities. The first decade of the 21st century may well mark an important turning point in the international struggle to supplant capitalism.

For decades the great majority of third world governments have followed neoliberal policies despite the failure of those policies to deliver their promised export-led growth. As a consequence, anti-neoliberal political movements have grown in strength throughout Latin America and sub-Saharan Africa. While an important political development, the emancipatory potential of those movements has remained limited, in large part, because of their focus on neoliberalism as the primary impediment to progress. More specifically, many participating activists and academics continue to draw a sharp distinction between neoliberalism and capitalism; while they strongly oppose the former, they remain largely unwilling to reject the latter.

Most tend to blame the development failures of their respective nations on government policies (often implemented under pressure) that liberalized, deregulated, and privatized economic activity. They believe that the East Asian experience of high-speed, export-led growth and industrial transformation demonstrates that active state intervention and direction of economic activity can produce successful capitalist development. Therefore, they have often directed their efforts at enhancing the state capacities of their respective countries in an attempt to recreate East Asian economic successes.

However, we are now at a point where it may be possible to win a strong majority of these activists and intellectuals to an anti-capitalist perspective, a critical change if we are succeed in building the movement clarity and strength necessary to advance a socialist alternative. One reason is that the exploitative and contradictory nature of the East Asian growth strategy is becoming clearer. Ever more intense intra-regional competition has begun to undermine East Asia’s past social and economic gains and generate worker resistance. Perhaps even more dramatic, the region’s export-led growth strategy has finally run up against its own limits, as an ever deepening global economic crisis triggered by imbalances in the U.S. economy has thrown East Asian economies into their own downward economic spiral.

Another reason is that at the same time capitalism’s credibility as an engine of development (in both free-market and state-directed forms) is being weakened, the governments of a number of South American countries are working to advance new regional initiatives that have the potential to promote and strengthen socialist-inspired development alternatives-the most important are the Bolivarian Alternative for the Americas (ALBA) and the Bank of the South. Although these two initiatives do not have the explicit mission of promoting socialist transformation, they are critically important because they concretize the existence of alternatives to capitalist growth strategies and, in the case of ALBA, offer support to governments that are themselves pursuing a socialist-inspired process of transformation.

In what follows I examine, in turn, the causes and consequences of the three trends highlighted above: the failure of neoliberalism, the growing crisis of the East Asian model, and South American efforts to shape as well as advance an alternative development vision. I conclude with a brief discussion of responses to the challenges generated and possibilities afforded by these trends, highlighting what I believe are six lessons for those working to build a more egalitarian, democratic, and sustainable world.

The Failure of Neoliberalism

Beginning in the late 1970s, motivated by declining corporate profitability, a number of advanced capitalist governments (led by that of the U.S.) sought to help their corporations gain greater access to third world markets. Among other things, they wanted third world governments, especially those in Latin America and sub-Saharan Africa, to halt their efforts at import-substitution industrialization (ISI), which often involved state regulation of foreign trade and investment. In response, the World Bank and IMF began to develop a consensus around an alternative development strategy, one that celebrated the virtues of market shaped economic specialization and international integration.

Their ability to impose this “free market” agenda on third world governments was greatly strengthened by the debt triggered economic crises experienced by the majority of Latin American and sub-Saharan African countries beginning in the early 1980s. By the end of the decade, over seventy third world countries were forced to accept IMF and World Bank structural adjustment programs, which required privatization, deregulation, and trade liberalization. These policies signaled the end of third world efforts to grow through ISI.

The top concern for most third world governments during this period was to avoid defaulting on their international debts (most of which were incurred from past borrowings to finance ISI efforts and greatly increased by soaring international interest rates). This required that they pursue policies designed to achieve a trade surplus. IMF and World Bank mandated market openings made this task even harder by boosting imports (often leading to the bankruptcy of many domestic firms). The result was the “lost decade,” as governments were forced to suppress domestic consumption to generate the surpluses needed to meet debt obligations. Not surprisingly, most eventually turned to export-led industrialization (ELI), which held out the promise of generating both growth and the necessary export earnings for debt repayment.

Among the most important first steps taken as part of this economic restructuring was the pursuit of investment by export-oriented transnational corporations. Transnational corporations-eager to boost their own profit margins, as noted above-were receptive to the new opportunities offered. Thus, foreign direct investment as a share of all net capital inflows into the third world rose from 9 percent in the period 1975-82 to 34 percent in the period 1990-1998, becoming the single largest source of new capital.

This change in strategy was encouraged by mainstream economists, who falsely claimed that East Asia’s growth was achieved by a similar embrace of free-market promoted international integration and specialization. And according to these economists, confirmation of the predicted benefits from these policies could be found in the resulting boom in third world export activity. The third world share of world merchandise exports grew from 19.2 percent in 1970 to 32.1 percent in 2003. More significantly, a large majority of these exports were now manufactures. As the United Nations Conference on Trade and Development (UNCTAD) notes:

Manufactures accounted for 70 percent of developing country exports at the end of the 1990s, after hovering at around 20 percent during much of the 1970s and early 1980s, while the share of agricultural commodities fell from about 20 percent to 10 percent during the same period. Earnings from mineral and oil exports fluctuated considerably due to sharp changes in prices, but their overall trend was in a downward direction.

Equally noteworthy, the sophistication of third world exports also increased. The share of third world exports to developed countries that were medium and high skill and technology intensive manufactures rose from 2.7 percent in 1980 to 19.8 percent in 2003.

Also widely touted, especially by the major international financial institutions, was the increase in “South-South” trade, which was said to be an especially important indicator of the growing maturity and self-reliance of third world economies. “Indeed, between 1970 and 2003, South-South trade rose considerably faster than both world trade and trade among developed countries. The share of South-South exports in total developing country exports roughly doubled, increasing from about 23 percent in the 1970s to over 40 percent in the period 2000-2003.”

As with overall trade, manufacturers were “the most important product category in South-South trade.” This was reflected most dramatically on the import side. South-South trade in manufactures as a percentage of total developing country imports of manufactures rose from 11.6 percent in the period 1970-1980 to 39.8 percent in the period 2000-2003. In other words, in the latter period, approximately 40 percent of all third world imports of manufactured goods came from other third world countries.

These are impressive developments which, at first glance, do suggest that the neoliberal export-led experience was a successful one for the third world. However, a more direct examination of economic and social achievements leads to a very different conclusion. Mark Weisbrot, Dean Baker and David Rosnick compared growth rates and the performance of social indicators (such as health and education) during the ISI period (1960-1980) with those achieved during the neoliberal ELI period (1980-2005) and concluded that “contrary to popular belief, the past 25 years (1980-2005) have seen a sharply slower rate of economic growth and reduced progress on social indicators for the vast majority of low- and middle-income countries.”

An UNCTAD study offers one explanation for this dismal record: most countries in the third world (especially in Latin America and sub-Saharan Africa) actually continued to import more than they exported, resulting in ever growing trade deficits which forced governments to restrain growth. More specifically:

the average trade deficit of developing countries [excluding China] in the 1990s was higher than in the 1970s by almost 3 percentage points of GDP, while the average growth rate fell by nearly 2 percentage points per annum. . . . This result is particularly striking in view of the extensive policy efforts and structural reforms undertaken by most developing countries since the early 1980s in order to overcome the balance-of-payments constraint on growth.

A close reading of the trade data shows that the overwhelming majority of third world export activity took place in only one region-East Asia. According to UNCTAD, “East Asia’s share [of merchandise trade] has grown at a consistently rapid rate since the early 1960s, except for a temporary decline in the immediate aftermath of the Asian crisis in 1997-1998. . . . Indeed, over the period 1970-2003 as a whole, the NIEs [Newly Industrialized Economies: Hong Kong, Singapore, South Korea, and Taiwan] and China together have been responsible for almost the entire rise in the share of world exports of developing countries taken as a group.”

As with total trade, South-South trade is also largely an East Asian phenomenon. In 2003, intra-East Asian exports accounted for 64.4 percent of total South-South exports (compared with only 21 percent in 1970). East Asian exports to other developing countries accounted for an additional 14.2 percent of total South-South exports. Thus, East Asia was responsible for 78.6 percent of total South-South exports in 2003. The East Asian dominance of third world trade is even greater if we look just at manufacturing. Intra-East Asian exports of manufactures accounted for 72.1 percent of total South-South exports of manufactures in 2003 (compared with only 26.5 percent in 1970). East Asian exports of manufactures to other third world countries accounted for another 15.3 percent of total South-South exports. Thus, East Asia was responsible for 87.4 percent of total South-South trade in manufactures in 2003.

The resulting trade marginalization of Latin America is striking. Intra regional exports of manufactures as a percent of total South-South exports of manufactures fell from 22.5 percent in 1970 to 4.4 percent in 2003. Latin American exports of manufactures to other third world countries as a percent of total South-South exports of manufactures also declined from 2.5 percent to 1.3 percent over the same period. In 2003, Latin America produced only 5.7 percent of total South-South exports of manufactures. The African share that year was only 1.6 percent.

Even those few Latin American countries that were labeled successful exporters enjoyed few if any benefits. The Mexican case is among the most dramatic. “It is particularly notable that between 1980 and 1997 Mexico’s share in world manufactured exports rose tenfold, while its share in world manufacturing valued added fell by more than one third, and its share in world income (at current dollars) by about 13 per cent.” Moreover, despite the country’s rapid increase in exports, Mexico’s balance of trade remained in deficit over the same period.

Given this experience, it should not be surprising that neoliberal growth strategies have been discredited among majorities in many Latin American and sub-Saharan countries, and popular movements are pressing for a change in economic policy. However, many activists and academics continue to believe that development failures are best explained by the nature of state policies rather than capitalist dynamics. They do so in large part because of their belief that East Asian growth demonstrates that success under capitalism is possible if economic activity is shaped and directed by strong states rather than free markets.

Unfortunately, their understanding of the East Asian experience is seriously flawed. While they are right to stress the importance of state action, their desire to find a positive model of capitalist development has led them to ignore the historically unique conditions which allowed for the strong states of East Asia to form and which encouraged core country governments to (temporarily) support them. The reality is that the East Asian growth strategy is not simply generalizable. It also encouraged them to overlook the increasingly negative social trends suffered by East Asian workers, including growing job insecurity, unemployment, inequality, and poverty. Finally, they also disregarded the imbalances and contradictions generated by the region’s export dependent growth strategy. East Asian now confronts its own structural crisis as debt-financed demand has collapsed in core country markets.

One reason for this flawed assessment of the East Asian experience is that there has been insufficient direct communication between social movements and academics from different parts of the world (despite the efforts of various social forums). This has enabled mainstream economists and media to argue that success under capitalism awaits those who work hard and play by the rules. Relying on highly selective criteria (such as rates of growth of exports or inflows of foreign direct investment) they have falsely portrayed East Asia as a region whose experience deserves emulation.

There is reason to be hopeful that the political center of gravity of social movements is shifting leftward. One participant at the 2009 World Social Forum (WSF) in Belem, Brazil, highlights developments as follows:

In its first paragraph, the Declaration of the Social Movements Assembly stress that “anti-imperialist, anti-racist, anti-capitalist, feminist, environmentalist and socialist alternatives are necessary to surpass the current crisis.” This was the result of negotiations between two main groups: those in favor of neo-Keynesianism and those supporting a strong rupture with the bases of the different forms of the capitalism system. The outcomes of the WSF clarified the debate: now there is a more explicit inclination by the composing organizations to support a rupture with the notions of economic progress, consumerism and commoditization of everyday life that have framed recent developments in capitalism.

Perhaps this shift is due to the ways in which the economic crisis has revealed the problematic nature of capitalist accumulation dynamics. Perhaps it has been encouraged by recent South American efforts to advance a socialist-inspired development alternative, efforts which likely stimulated critical thinking about the social and environmental aims and consequences of development itself.

While the direction is positive, the change in political perspective could well prove temporary. It is possible, for example, that the crisis will encourage activists to once again embrace a more reformist agenda, viewing it as the most effective way to help working class majorities obtain relief. We must continue to take this ideological struggle within the progressive community seriously.

The Growing Crisis of the East Asian Model

Most progressives have approached the East Asian experience through a nation-state lens, an understandable starting point given their interest in state power. Typically, they highlight a series of national, export-led, economic takeoffs-first Japan; then Hong Kong, South Korea, Taiwan, and Singapore; next Thailand, Malaysia, and Indonesia; and most recently China-that are said to be best explained by a process whereby governments in countries at a lower level of development apply the best (state directed) practices used by governments that have already successfully advanced.

While this national lens may have captured early regional dynamics, it leads to a flawed understanding of current dynamics. In reality, since the late 1980s, East Asian economic activity has become linked and collectively reshaped through an expansion of export-oriented transnational corporate controlled cross-border production networks.

This expansion has promoted a significant increase in the trade dependency of East Asian economies: the region’s export/GDP ratio grew from 24 percent in 1980 to 55 percent in 2005. By comparison, the world average in 2005 was only 28.5 percent. A growing share of this export activity is under the direct control of transnational corporations; for example, they account for 58 percent of China’s total exports and 88 percent of its high-technology exports. They also produce 73 percent of Malaysia’s and 86 percent of Singapore’s exports of manufactures.

UNCTAD explains why these networks boost East Asia’s trade dependency and the region’s dominance of third world export activity as follows:

International production networks promote a new pattern of trade, in which goods travel across several locations before reaching final consumers, and the total value of trade recorded in such products exceeds their value added by a considerable margin. . . . Trade of such products within production networks can cause a very substantial increase in recorded trade among developing countries, without any increase in final consumption in developed countries. This rise in recorded South-South trade is higher the larger the import content of a good assembled in a developing country and exported to another developing country. Recorded South-South trade increases particularly fast if the trade within production networks involves passing through transshipment ports, such as Hong Kong (China) and Singapore.

The function of Hong Kong (China) as a transshipment port for China’s external trade alone is responsible for a substantial share of overall South-South trade. More than 40 per cent of China’s exports to other developing countries go to Hong Kong (China) and about three quarters of the exports from Hong Kong (China) to other developing countries go to China. More specifically, exchanges between China and Hong Kong (China) represent about 20 per cent of total merchandise trade — and almost 25 per cent of manufactured trade — among developing countries.

The expansion of cross-border production networks has not only increased trade activity, it has also produced a change in the goods traded. As a consequence of transnational production decisions, a rising share of East Asia’s trade in manufactures is now in parts and components. This is illustrated by the changing trade composition of Southeast Asian nations (Indonesia, Malaysia, Philippines, Singapore, Thailand, and Vietnam): the share of parts and components in the group’s total exports of manufactures grew from 27.5 percent in 1992-3 to 40.3 percent in 2004-5. The import share of parts and components also grew substantially over the same period, from 32.6 percent to 48.5 percent. Trends are similar for Taiwan and South Korea. The export share of parts and components for Taiwan grew from 21.2 percent to 43.5 percent.

Consistent with the operating logic of the production networks that shape the region’s export activity, almost all the parts and components being traded by East Asian countries come from the same three industrial categories (with identical national rankings of importance): electronics machinery, office machines and automatic data processing, and telecommunications and sound recording. And, these parts and components are increasingly being traded from one developing East Asian country to another; the intra-regional share of parts and components trade rose from 37.8 percent in 1992-3 to 55.6 percent in 2004-5.

China, one of the last countries to be pulled into this process of regional restructuring, has become central to its functioning. In the words of the Asian Development Bank, “the increasing importance of intra-regional trade is attributed mainly to the parts and components trade, with the PRC functioning as an assembly hub for final products in Asian production networks.” China’s unique position as the final production platform in this regional production system is highlighted by the fact that it is the only country in the region that runs a regional trade deficit in parts and components.

As a consequence of this restructuring, East Asia’s overall export activity has shifted away from the U.S. and the European Union and towards East Asia, and in particular China. China, on the other hand, has shifted its export emphasis away from East Asia and towards the United States and the European Union. Between 1992-3 and 2004-5, the East Asian share of China’s final goods exports declined from 49.5 percent to 26.5 percent, while the OECD share (excluding Japan and South Korea) increased from 29.3 percent to 50.1 percent. Thus, East Asian trade activity now largely involves an intra-regional trade of parts and components culminating in China-based production with final sales largely directed to the U.S. and the European Union.

The rapid rise in the region’s dependence on sales to the U.S. market, in particular, is illustrated by the following trends: the correlation between the growth in East Asian intraregional exports and U.S. non-oil imports increased from .01 during the 1980s, to .22 during the 1990s, and .63 during the first half of the 2000s. Similarly, the correlation between the growth in East Asian exports and U.S. non-oil imports rose from .21 during the 1980s, to .34 during the 1990s, and .77 during the first half of the 2000s.

This system of regional production has been very efficient at generating exports. However, this efficiency has come at increasingly high cost. While this system appears to offer participating countries the opportunity to engage in higher value-added production, the nature of the cross-border production chains actually places limits on the development of national technological and industrial capacities. UNCTAD highlights some of the reasons for this outcome:

The spillovers from engaging in subcontracting or hosting affiliates of TNCs [transnational corporations] are reduced because the package of technology and skills required at any one site becomes narrower and because cross-border backward and forward linkages are strengthened at the expense of domestic ones. Furthermore, when only a small part of the production chain is involved, out-contractors and TNCs have a wider choice of potential sites - since these activities take on a more footloose character - which strengthens their bargaining position vis-à-vis the host country. This can engender excessive and unhealthy competition among developing countries as they begin to offer TNCs increasing fiscal and trade-related concessions in order to compensate for the shifting competitiveness from one group of developing countries to another; it can thereby aggravate the inequalities in the distribution of gains from international trade and investment between TNCs and developing countries.

Even China, the most “successful” and central participant in this regional system, has suffered from such limitations. Surveying China’s situation five years after the country’s 2001 accession to the WTO, the Chinese economist Han Deqiang recalls that he had “argued the greatest damage [of membership] would be to China’s capacity to control its industrial and technological development autonomously. I think it’s safe to say these last five years have more than proven that true. In China, any industry that wants to develop its own technology or markets has encountered increasingly great barriers.”

Other countries, like South Korea, have also been negatively affected, but in different ways. China has become South Korea’s major investment destination and trade partner. As South Korean firms shifted production to China and narrowed production activity in South Korea to support China-based export activity, their overall investment in plant and equipment in South Korea has plummeted, leaving the country with a weakened and unbalanced industrial base. For example, South Korean firms have largely stopped buying new equipment for their domestic operations. South Korean manufacturing spending on new plant and equipment in 2004 was more than 4 percent lower than in 1996. Overall facility investment which grew at an annual rate of over 10 percent before 1996 has averaged only 1.1 percent over the first half of the 2000s. Employment in manufacturing is on the decline.

More problematic still, East Asia’s regional system of export production is shifting economic activity away from meeting the needs of East Asian working people. The consequences are evident in growing inequalities and employment insecurities in all the countries in the region (including China). Again, South Korea serves as a representative example: poverty rates have soared from approximately 9 percent in 1996 to 20 percent in 2006. The middle class has also declined, falling from approximately 56 percent to 44 percent of all households, over the same period. Labor market restructuring is a major cause of these trends. The percentage of workers with regular labor status fell from 58% in 1997 to 45% in 2006; irregular workers make approximately 53 percent of what regular workers earn in monthly wages.

The reality is that in order to maintain (if not improve) their country’s position in the existing cross-border value chains, governments have been forced to impose policies designed to keep wages low and productivity high. One outcome of China’s success is that transnational corporations throughout East Asia (and elsewhere) have been shifting their production to China. As a result, workers throughout East Asia (and elsewhere) have become pitted against each other in a contest to match the level of labor exploitation achieved in China. The head of the American Chamber of Commerce in South Korea left no doubt that transnational capital understands the benefits of this situation when, in a 2004 speech, he addressed the South Korean government as follows: “[South] Korea’s competition is Shanghai, Hong Kong and China. Realize what your competition is, because investors can choose where to go.” He singled out the need for more “labor flexibility” in South Korea. Even during the high growth era, living and working conditions for growing numbers of East Asian working people were fast deteriorating.

The high growth era seems to be over; there are strong indications that the East Asian model has finally run up against its own limits. The most obvious structural weakness in the model was that the region’s growth grew ever more dependent on the ability of the U.S. to run ever greater trade deficits. While most analysts thought that such a weakness was either hypothetical or of only future concern, events have proven them wrong.

The U.S. officially entered recession in December 2007. Steadily deteriorating economic conditions produced a sharp contraction of credit, rapid increase in unemployment, and steep decline in consumption. Given the integrated nature of the global economy, U.S. economic problems were quickly transmitted throughout the world, helping to push both the European Union and Japan into recession as well. The World Bank has predicted that world trade will decline by 2.1 percent in 2009. Moreover, there is no obvious engine to support a sustained recovery in any of the G-3 countries. In short, it appears that global capitalism has entered a period of profound crisis, one centered in its core economies.

Given their export dependence, East Asia’s economies were unable to avoid the consequences of the global downturn. China, which serves as the final assembly base for the region’s exports, was immediately affected. China-based firms supply 27.5 percent of all U.S. imports of clothing; 73 percent of all U.S. imports of footwear; 82.6 percent of all U.S. imports of toys, games and sports equipment; and 49.5 percent of all U.S imports of computers and computing equipment (all in value terms). As demand in the U.S. market collapses, foreign firms in China have been closing factories and firing workers.

According to estimates by the Dongguan City Association of Enterprises with Foreign Investment, “9,000 of the 45,000 factories in the cities of Guangzhou, Dongguan and Shenzhen — the heart of China’s industrial south — are expected to close before the Lunar New Year celebrated in China in late January [2009]. That could mean up to 2.7 million workers facing unemployment immediately, the association said. If the trend continues, unemployment can be expected to double every quarter.” Chinese workers have responded quickly to the downturn and associated layoffs, initiating a number of defensive labor actions, including demonstrations and strikes, to secure owed wages, severance pay, and pensions.

Chinese growth is falling rapidly, and a number of economists are predicting a hard landing for the Chinese economy. Because China’s exports are heavily import dependent, the country’s export slowdown has already produced a sharp decline in imports from other East Asian countries. Thus, economic problems are quickly moving back down the supply chain. The New York Times reports that the head of the U.N. Development Program’s Asia and Pacific Bureau has “warned . . . of the prospect of social unrest as the export-driven economies of Asia start to slow in response to the fallout from the global financial crisis.”

Many analysts are calling for East Asian governments to respond to these negative developments with policies designed to boost domestic consumption. It is difficult to know whether this call represents a rejection of export-led growth or hope that temporary spending on infrastructure and social programs will prove sufficient to stabilize East Asian economies. Regardless, any serious attempt at transforming the region’s export orientation would involve major structural changes with significant social consequences. As one economist explains:

If the adjustment in consumption and saving in the US is part of a long-term correction, there will be major implications for Asia. Entire export industries will have to be retooled to serve domestic sectors. Retooling, say, factories in Shenzhen from assembling iPods and mobile phones towards products that Chinese consumers would buy would require a long process of reconfiguring supply chains across Asia, affecting, among other things, semiconductor production in Taiwan, memory production in Korea, and hard drive production in Singapore.

Seen from this perspective, it is most likely that East Asian elites and their transnational partners will seek to “ride out the storm,” passing the costs to workers whenever and as much as possible, rather than commit to a process of restructuring that would no doubt reduce their profits and power. To the extent that they are successful, workers in other regions will likely be subjected to competitiveness pressures that will worsen their living and working conditions as well.

East Asian political movements do not yet appear to have the broader vision or political instruments needed to advance an alternative development strategy. Their challenge is to develop a shared regional understanding of the accumulation dynamics highlighted above. This would not only help working people in East Asia mount more effective resistance, it would also greatly assist the movement building efforts in South America and sub-Saharan Africa by making it easier to communicate to progressives in those regions that even “successful” capitalism is incapable of satisfying majority needs.

The South American Experience

Economic difficulties in Latin America and sub-Saharan Africa have, with the active encouragement of progressive academics and social movements, spurred popular demands for a change in economic strategy. Perhaps because national political formations have stronger roots and states have greater capacities in Latin America than in sub-Saharan Africa, concrete alternatives have emerged first in the former region. In a number of Latin American countries, working people have elected presidents who campaigned on a platform of economic independence from the U.S. and more socially responsive, domestically centered growth. There are now three countries that are led by governments that explicitly support the development of socialism (although defined and pursued differently)-Cuba, Venezuela, and Bolivia.

Perhaps most hopeful for those of us supporting a socialist alternative to capitalism is that these (and other) governments are involved in building new regional institutions with the potential to promote a broader process of social transformation-the most important are ALBA and the Bank of the South. This is a critical (and perhaps necessary) development since isolated national efforts to build socialism are unlikely to succeed, especially when they are aggressively opposed by more advanced capitalist countries. Regardless, any country stands to gain if it enjoys the support of regional trade, investment, and financial relationships that are not designed to promote private profitability. That said, ALBA and the Bank of the South are not explicitly socialist vehicles.

ALBA is the most far reaching of the two initiatives. It was proposed by the Venezuelan government in 2001 as an alternative to the US-promoted Free Trade Area of the Americas. It became real in 2004, when Venezuela and Cuba signed the first ALBA exchange agreement. Four other countries have since joined the initiative: Bolivia in 2006, Nicaragua in 2007, and Dominica and Honduras in 2008. Four other countries (Ecuador, Uruguay, the Dominican Republic, and St. Kitts) have observer status, with most, if not all, expected to join.

ALBA is publicly committed to a development strategy that is, in broad brush, anchored by state centered collaboration and aimed at enhancing regional and national productive and social capacities so as to strengthen the ability of participating governments to meet the needs of their working class majorities. This strategy stands in sharp contrast to the East Asian experience which, as highlighted above, has been dominated by private, profit-making transnational corporations who have deliberately and competitively linked economic activity across nations to form a regional production system aimed at exporting goods to the advanced capitalist centers.

ALBA documents highlight a broad range of economic, environmental, and social objectives. According to one analyst these include:

• To promote trade and investment between member governments, based on cooperation, and with the aim of improving people’s lives, not making profits.
• To cooperate to provide free healthcare and free education to people across the ALBA states.
• To integrate the ALBA member’s energy sectors to meet people’s needs.
• To create alternative media to counterbalance the US and regional neo-liberal media and promote an indigenous Latin American identity.
• To ensure land redistribution and food security within the member states.
• To develop state-owned corporations.
• To develop basic industries so that ALBA member states can become economically independent.
• To promote workers’ movements, student movements, and social movements.
• To ensure that projects under ALBA are environmentally friendly.

ALBA’s work is shaped by decisions made by a presidential council which are then formalized and implemented according to terms set by a ministerial council. ALBA’s emphasis on state-directed activity was underscored by Venezuela’s vice-minister of Foreign Relations (Rodolfo Sanz) who commented, at the first meeting of ALBA ministers, that the key to ALBA’s success will be the creation of “Grand-National Enterprises,” by which he meant both new regional public enterprises formed through agreements by national state enterprises as well as joint state collaborations based on partnerships between national state enterprises. ALBA also has an advisory council of social movements that is supposed to provide direction to and oversight of the work of the other two councils.

In January 2008, the ALBA countries created an ALBA Bank with a capital of $1 billion. In contrast to the IMF and World Bank, “the Bank of ALBA will not impose loan conditions and will function based on consensus of all members.” The ALBA governments agreed on “a two tier mechanism for democratic decision making in the Bank, a Ministerial Council and an Executive Direction, with a rotating presidency of the member nations.” The Bank’s “stated aim is to boost industrial and agricultural production among its members, support social projects as well as multilateral cooperation agreements among its members, particularly in the field of energy.”

Underlying ALBA’s operation is recognition of the fact that while member nations face many development challenges each also has its own unique economic, social, and cultural strengths. Thus, ALBA serves as a vehicle for helping member nations boost their national capacities by providing a framework for negotiating planned exchanges of the goods and services that reflect each nation’s respective strengths. Such exchanges allow each nation to pursue its own development objectives in a far more sustainable and equitable way then if it were forced to rely solely on its own resources or respond to global market imperatives. Although still in its infancy, ALBA has already encouraged a number of important agreements and initiatives.

For example, Venezuela and Cuba signed an agreement whereby Venezuela provides Cuba with oil in exchange for the services of Cuban doctors and teachers. The exchange has helped Cuba meet its energy needs and Venezuela staff thousands of new clinics and schools. Venezuela and Cuba have also begun several joint agricultural projects involving the production of soy beans, rice, poultry, and dairy products. “Venezuela has used these projects to provide free or subsidized food to millions of people. Venezuela has also supplied Cuba with buses to improve its public transport system, assisted Cuba with the construction of a massive aqueduct to improve its water supply, and has helped Cuba revamp its main oil refinery.” The two countries are also pursuing the creation of new jointly owned Cuban-based enterprises to produce stainless steel and nickel.

Venezuela and Cuba have negotiated new trade agreements with Bolivia. One of the most important involved the purchase of Bolivian soy beans after the U.S. signed a trade agreement with Columbia that resulted in a decline in U.S. demand for the Bolivian crop. Cuba is also providing staff and material assistance to Bolivia to help that government strengthen the country’s education and health care systems. Cuba and Venezuela are also working with the Bolivian government to help modernize and expand its natural gas industry. In return, Bolivia is providing natural gas and “mining, agriculture, agro-industrial, livestock and industrial products” as well as “knowledge on indigenous affairs and traditional medicine.” The governments of Venezuela and Bolivia are also exploring the establishment of new joint ventures for the production of steel, cement, and extraction of iron ore.

Dominica has also benefited from ALBA organized cooperation. Cuba and Venezuela are helping its government modernize the country’s international airport and expand its oil storage and refining capacities. Discussions are underway over terms of payment, which are likely to involve return flows of Dominica goods and services. ALBA medical cooperation has also enabled thousands of Dominicans to receive free eye surgery in Cuba and Dominican youth to study at the Latin American School of Medicine in Cuba.

ALBA has also sponsored a number of important cultural initiatives. For example, in 2008, member countries committed to establishing ALBA Houses and promoting exchanges of activities between them. According to Jose González, president of the ALBA House in Caracas, these houses "will serve as centers for creativity, artists, cultural promoters, social movements - to generate a movement that allows the knowledge of values that at times are not recognized because the mechanisms of the market are not interested in them."

Although ALBA has so far failed to attract wide regional membership, it remains committed to its initial vision of a broader Latin American process of integration and transformation through the creation of “Grand-National Enterprises.” In doing so, it represents “the first attempt at regional integration that is not based primarily on trade liberalization but on a new vision of social welfare and equity.” The following is a partial list of the public corporations that ALBA countries, in particular Venezuela, hope to expand or create:

• TeleSur (a pan-Latin American television network financed by Venezuela, Cuba, Uruguay, Brazil)
• PetroSur (an association of state oil companies from Brazil, Argentina, and Venezuela for exploration, technological development, construction of refineries, and distribution)
• GasSur (an inter-state corporation for exploration and commercialization of natural gas)
• PetroCaribe (a Venezuelan program to provide subsidized oil to 14 Caribbean nations)
• The Latin American and Caribbean Energy Company (a proposed association of regional state corporations)
• The Latin American and Caribbean Airline
• The Insurance Company of the South
• The Cooperative Bank of the South
• The Latin American and Caribbean Radio Network

The deepening economic crisis has intensified ALBA efforts to attract new member states and develop new initiatives as growing numbers of countries in the region are once again facing financial difficulties and the threat of renewed dependence on the IMF, World Bank, and Inter-American Development Bank. At a November 2008 meeting hosted by Venezuela, the presidents of all the ALBA countries and Ecuador approved a decision to create an ALBA Peoples Trade Agreement “that protects our countries from the depredation of transnational capital, foments the development of our economies and constitutes a space liberated from the inoperative global financial institutions and the monopoly of the dollar as the currency for trade and reserves.” Although the precise nature of this agreement remains unclear, it apparently involves the creation of an integrated economic and monetary zone with a new currency to be called the Sucre (which would initially function as only a virtual unit of account).

ALBA represents a very important development. Its emphasis on public rather than private ownership, domestic rather than export orientation, social rather than profit motivation, and solidaristic rather than competitive relationships provides an important ideological counterweight to capitalist imperatives. It also represents one concrete example of how states can create regional institutions that are capable of strengthening nationally centered development efforts. In fact, by providing a framework for state authorities to achieve popular goals through combined actions, ALBA boosts the capacities of each nation to carry out its own domestically determined process of transformation in a manner that ensures that the gains in one country work to the benefit of others.

To this point, ALBA’s promise remains far greater than its achievements, although as highlighted above, these are not inconsequential. To some extent, this gap is understandable given that the organization has been in existence for a relatively short period of time. Another reason is that few countries have joined, and most that have bring great needs but limited resources to contribute to the collective development effort.

At the same time, there are reasons for concern about ALBA’s future. One is that ALBA remains heavily dependent on the decisions of the presidents of the participating countries. This means that activities are decided upon and implemented from the top down rather than the bottom up; the social movement advisory council appears to play a very marginal role. This structure often results in a bias towards large scale mega projects (construction of refineries, pipelines, transportation infrastructure, resource extraction enterprises), many of which raise environmental and indigenous rights concerns.

The top down operation of ALBA also means that there is often insufficient space for popular debate and discussion over how best to implement ALBA projects. This makes it harder to institute effective forms of worker participation in newly created public enterprises; ensure that educational, health, and media systems are responsive to the communities they serve; and establish planning mechanisms capable of directing social production in response to social needs. As a consequence, the transformative (socialist) potential of the overall ALBA effort is weakened.

A second concern relates to ALBA’s heavy reliance on Venezuela. There can be no doubt that ALBA’s progress to this point is largely due to the government of Venezuela’s leadership and financial generosity. But there are also dangers (perhaps unavoidable) to the organization from its dependence on one country.

One danger is that Venezuela could end up overshadowing and therefore weakening ALBA’s decision making process and organizational coherence. A case in point is PetroCaribe. Begun in February 2007, it involves a Venezuelan commitment to meet the energy needs of 14 countries, most of which are from the Caribbean, but also Honduras and Nicaragua. While Venezuela’s oil company charges Petrocaribe nations market rates, it only requires immediate payment of 40-50 percent of the cost; the remainder is payable over an average of 25 years with a 2% interest rate and 2 to 3 years grace. “Proceeds of the latter, presumably accumulated by the respective state energy companies or a designated governmental agency, are to form part of a development fund for social and infrastructure spending.” This admirable project is obviously a Venezuelan effort; its terms are decided upon by the Venezuelan government and it involves countries that are not ALBA members. Yet, it is often presented as an ALBA initiative.

Another danger is that too much weight could end up being placed on Venezuelan financial capacities. Many ALBA projects were initiated during the period of Venezuela’s oil boom, when oil sold at almost $150 a barrel. Oil prices are now below $50 a barrel and there are indications that Venezuela may not be able to fulfill all its commitments. For example, there is concern that Venezuela is falling behind in its promised deliveries of oil to several Caribbean countries that are members of Petrocaribe. “Furthermore, oil and gas infrastructure ventures are also slowing down. For example, a ten-year delay was recently announced regarding the Petrocaribe funded Nicaraguan Refinery, a joint project between Venezuela’s state oil company PDVSA and Nicaragua’s Petronic.” For its part, Venezuela has publicly affirmed its commitment and ability to meet its obligations to the countries involved. Certainly, many important oil-related projects remain on schedule, such as the construction of the refineries in Manabi, Ecuador and Cienfuegos, Cuba.

This development suggests that the world economic crisis represents a doubled edged sword for ALBA. The collapse of world markets and currency instabilities give ALBA new legitimacy and add credibility to its call for the creation of new regionally based systems of planned trade and investment. However, the resulting decline in oil prices threatens Venezuela’s ability to sustain ALBA’s existing programs.

The Bank of the South anchors the region’s second major effort to advance an alternative development process. Although the Bank’s stated agenda is more limited than that of ALBA, its potential to promote regional integration is in some ways greater because it includes most of the countries of South America. The creation of the Bank of the South owes much to a common concern for regional independence by two different groups of South American countries-those led by governments that embrace a more radical project of social transformation (most importantly Venezuela, Bolivia, and Ecuador) and those led by governments that are largely committed to a capitalist project but who believe that success requires financial independence from the U.S. as well as the IMF and World Bank (most importantly Brazil and Argentina). A third group of countries has so far rejected participation. These countries are led by governments that continue to embrace free-trade integration with the U.S. (most importantly Chile and Peru). Although Columbia is close to the U.S., it has applied for Bank membership; its application has yet to be accepted.

Supporters of the Bank hoped that it would prove able to “[centralize] the savings of [member] countries, thus turning them into productive investments and reducing the vulnerability of the region to international economic cycles. This would be then laying the foundations for a truly autonomous financial system, which would contribute to the reduction of power asymmetries between countries in the region, and would cut their dependence on international flows of capital.” Key to the Bank’s founding was the growing financial strength of South American countries. The rapid post-2002 rise in commodity prices (fueled by demand from East Asia) greatly boosted regional holdings of international reserves, which gave South American governments the confidence to cut ties with existing international financial institutions and create one of their own.

A February 2007 Venezuelan-Argentinean initiative launched the process to create the Bank of the South; a formal proposal followed one month later. Bolivia soon committed to the effort, followed in relatively quick succession by Ecuador, Paraguay, Brazil, and finally Uruguay. The Bank was formally established on December 9, 2007 in Argentina, and includes all of the above listed countries as members.

Unfortunately, the bank is not yet operational. This is largely because, as noted above, the effort to create it grew out of an alliance between countries that did not share a similar political project. Intense debates and disagreements over a number of critical issues began shortly after the start of negotiations. Among the most important: would the Bank serve as both a monetary stabilization fund and development bank or just the latter? Would decisions be made on the basis of one country-one vote, or would voting power be based on the size of a country’s contribution (which would be determined by relative economic size)? Would the Bank rely solely on member nation contributions or would it be free to raise money in international capital markets and from contributions from established international financial institutions that would participate as non-voting observers-with the latter two options dictating market-based lending rates and repayment terms?

Consensus was eventually reached on the most pressing issue, which allowed for the formal establishment of the Bank: it would function solely as a development bank. At the time of the founding, the presidents of the seven member countries agreed that they would settle all remaining issues within 60 days. While some issues have been resolved, many others remain in contention, which is why the bank is not yet operational.

The main agreements are as follows:

• The headquarters of the Bank of the South will be in Caracas, Venezuela.
• Major decisions are to be made according to the principle of one country, one vote. However, even this is in doubt as Brazil and Argentina continue to push for a dual track voting process whereby this principle will apply only at the annual meeting of the Bank’s Board of Directors. They want decisions involving the daily operation of the bank to be made according to rules which give countries voting rights commensurate with their capital contributions.
• Subscribed capital will be $7 billion, although it could be expanded to $10 billion if the remaining South American countries join. Required capital contributions are: $2 billion for Brazil, Argentina, and Venezuela; $400 million for Ecuador and Uruguay; $100 million for Paraguay and Bolivia.

Still undecided are questions about the Bank’s organizational structure (by department or areas of activity such as health or transport); the selection process for specialists (by country or expertise); the criteria to be used in selecting projects (countries, activities, need); interest rates and payment terms; the existence or absence of conditionality requirements; participation (limited to member nations or expanded to include non-voting observers such as international financial institutions); sources of funding (limited to subscribed capital or expanded to allow for international borrowing and/or contributions from observers).

The answers to these (and other) questions will go a long way towards shaping the Bank’s mission. They will largely determine whether its loans will be used to “finance large infrastructure projects which have huge socio-economic impacts and meet the expansion needs of the main economic groups” or “favor the funding of solidarity projects aimed at the reduction of asymmetries in the living conditions of and among the different South American countries.” Social movement groups have been actively organizing to push the Bank in the latter direction. They want strong criteria developed to ensure that the Bank adopts an investment priority that supports:

projects oriented towards food and energy sovereignty; the research and development of appropriate technologies for an endogenous and sustainable development of the region, including free software; the programmed and complementary production of generic medicines; the recovery of ancestral wisdom, systematized and accepted as an agroecologic science; the promotion of environmental justice; the improvement of public services; support for victims of forced displacements; promotion of communications and intraregional culture; the creation of a South University and an equivalence system for diplomas issued throughout the region; and infrastructure that is based on different logics of spatial organization as implemented by local solidarity and self-managed development communities. The bank should not reproduce the finance model of existing international financial institutions with the construction of mega-projects that damage the environment and biodiversity.

To this point, the main axis of contention over the future of the Bank of the South revolves around Brazil on one side and Venezuela and Ecuador on the other. Brazil remains an unenthusiastic supporter of the Bank; as the main economic power in South America it is reluctant to accept limits on its ability to exploit that strength. Brazil already has its own National Bank for Economic and Social Development (BNDES), which in 2005 gave out $30 billion in loans in support of the international activities of Brazilian companies. “BNDES already finances many projects throughout Latin America and beyond, on condition that the receiving countries buy Brazilian products. This allows Brazilian companies to export their goods or carry out large-scale infrastructure works.”

Despite its opposition, Brazil apparently joined the Bank of the South because it felt it would be more dangerous to be on the outside; being inside it had the ability to shape the workings of the institution. Brazil is strongly in favor of voting rights weighted by contributions and the use of market criteria in raising and loaning funds. Its vision of regionalization appears strongly influenced by the experience of the European Union; it wants to use the Bank to encourage a regionalization process that will eliminate barriers to the free movement of capital, labor, and goods so as to help large national firms (most of whom it expects to be Brazilian) become highly competitive multinational corporations.

Despite Brazil’s resistance to an alternative political project, the governments of Venezuela and Ecuador have been reluctant to push negotiations to the breaking point, fearing that doing so might lead Brazil to withdraw its membership. As the region’s most important economy, they view its participation as critical to the Bank’s ability to achieve its goals. This situation has resulted in a continuing series of failed negotiations, leaving the bank’s future in limbo. The Brazilian government may well be satisfied with this outcome.

Governments are not the only participants in this struggle over the Bank’s future. Latin American social movements were among the earliest supporters of the initiative and are actively engaged in efforts to force a conclusion to the talks on terms favorable to their more radical vision (as highlighted above). In addition to national organizing, dozens of organizations from throughout Latin America have signed two different letters addressed to the presidents of the Bank’s seven member countries. Regional meetings have also been held to discuss strategy. For example, more than forty representatives from South American civil society organizations met during the December 2007 South American People’s Summit “to exchange information and analysis” and “to discuss and propose strategies and actions for the purpose of deepening the mobilization and participation of movements in the central decisions still to be taken . . . with regard to the Bank’s structure and functions.”

This interest and involvement in the struggle over the future of the Bank stands in sharp contrast to South American civil society’s lack of engagement with ALBA. As two Brazilian researchers comment, “Consciousness of ALBA is not yet particularly high within the region’s social movements and political leadership. There are very few serious analytical documents on the topic and even fewer that present concrete proposals from civil society groups for the process.” This is puzzling and disappointing. One possible explanation is that the Bank includes more countries, in particular Brazil and Argentina, both of which have very active and regionally linked social movements. Another is that many social movement activists are distrustful of states—even ones led by anti-capitalists. In contrast to ALBA, which is a state dominated institution, the Bank appears be viewed as a (potentially) more “independent” institution and thus more responsive to popular participation.

Unfortunately, the deepening global crisis is threatening the promise of the Bank of the South. As the downturn deepens, the trade balances of member countries are moving into deficit. Recognizing that governments in the region are growing worried about financing these deficits, the major international financial institutions are establishing new lending facilities specifically targeted at Latin America. While Bank of the South member countries have so far refused dealings with the IMF and World Bank, Argentina and Ecuador have begun negotiations with the Inter-American Development Bank.

If the Bank of the South had been operational before the start of the crisis, it is possible that it could have played an important role in this period, providing support for a radical break with past neoliberal policies. But that is not the case. “At the Mercosur Summit [in January 2009], [Ecuadorian President] Correa spoke of the failure of the Bank of the South to help buffer the negative effects of the global economic crisis as a major issue, noting that, if it were more consolidated, its funds would have ’coordinated savings’ and generated resources to compensate for the loss of foreign investments in the region. [Venezuelan President] Chavez has also reportedly commented that Banco del Sur will remain ’on ice’ for the moment.”

Final Thoughts

The fight to supplant capitalism will not end soon. But there is reason to believe, as argued above, that we are living in a time not only of great challenges but also of great possibilities. How should we respond? I offer the following six lessons drawn from my examination of the failure of neoliberalism, growing crisis of the East Asian model, and South American experience.

First, we must redouble our efforts to shift the political weight within progressive communities from anti-neoliberal to anti-capitalist. One way is to guard against uncritically promoting the anti-neoliberal critiques of liberal mainstream economists as if they were our own. Another is to deepen our own theoretical understandings of capitalism to better establish that neoliberalism is not simply a set of policy tools that governments are free to use or discard, but rather represents the historically specific form that capitalism takes in certain regions and at certain times. We also need to deepen and strengthen our analysis of the East Asian experience and find appropriate ways to share it with allies working inside as well as outside the region so as to discredit the false believe in the potential of (state) capitalism to serve majority needs.

Second, we should maintain a cautiously supportive stance towards regionalization. While South American social movements have good reason to support initiatives designed to promote it, struggles within the Bank of the South highlight the fact that regionalization has a contested meaning. We need to pay careful attention to what its proponents declare to be its aims and critically examine whatever processes are proposed to achieve it. This also has special meaning for East Asia, where many social movements are now trying to establish the kind of cross border regional solidarity that exists in South America.

Third, we must take state power seriously. Despite the beliefs of many social movement activists that structural transformation will best be achieved through grassroots, cross-border efforts, the most promising gains continue to be made by states, whose actions are largely a response to distinctive national political processes (most of which remain disconnected from world and regional social forum discussions and initiatives). ALBA is a case in point. It remains the most promising effort to promote an alternative development process, and its structure and policies are largely shaped by the policies of three nations (Cuba, Venezuela, and Bolivia), each of which is led by a government which proclaims its commitment to the building of a socialist-oriented political-economy.

The Bank of the South represents a very different project. It enjoys strong social movement support because those movements believe that it can eventually become strong enough to influence states to adopt policies that strengthen an alternative development strategy for the region. The Bank remains non-functional precisely because there are important and powerful states that oppose this project and it appears doubtful that these states can or will be forced to change their political orientation because of regional grassroots pressure. In short, national struggles and state power remain critical to achieving change.

Fourth, it appears that the most appropriate regional structures (at least for the present period) are those that have the fewest binding constraints on member countries. Again ALBA and the Bank of the South provide an important contrast. ALBA does not exist as an “independent” institution with its own vision of, or mandate to, advance socialism (however defined). In fact, it includes member nations led by governments that are not pursuing this goal. These governments participate because they believe that their respective populations (or perhaps their political legitimacy) will benefit from the terms and forms of the negotiated collaboration.

ALBA is not hobbled by the same constraints as the Bank of the South because its structures are designed to afford participating states maximum flexibility, thereby supporting those desiring a faster and deeper social transformation without forcing that transformation on less radically inclined ones. If socialist alternatives to capitalism are to develop and prosper it will be because of the outcome of the ongoing political struggles in those nations already committed to this goal, with the shared processes promoted by ALBA providing invaluable material assistance and inspiration.

Fifth, state power alone is unlikely to produce the transformation in social relations required for a meaningful advance towards socialism. South American social movements are right to be wary of a state directed process of change. Because the ALBA project is state driven, there is reason for concern that the transformations encouraged in most member nations will be more bureaucratically than popularly oriented. ALBA collaboration can help strengthen state control and direction of the economies of participating member nations, but there is no guarantee that the resulting state planning and production will be structured to ensure meaningful worker and community involvement in relevant decision making.

Building strong, democratic, and collaborative worker-community organizations and structures of planning is no simple matter. But, there is a wealth of experience to be found in the cross-national discussions and collaborations that are nurtured at world and regional social forums and the organizing work that they generate and support. We need to find a way to strengthen these efforts and integrate the lessons learned into the processes of national change that are underway in the countries most committed to building socialism. This is a large challenge, but one that we must surmount if we are to make meaningful progress in building alternatives to capitalism.

Finally, we must develop a more nuanced understanding of the consequences of capitalist crises. It is easy to believe that a structural capitalist crisis such as the one we are currently experiencing will strengthen our efforts to replace capitalism. Yet, things are far more complex. In the years before the crisis, when commodity prices were rising as a result of strong global rates of growth (especially in East Asia), governments in South America felt strong enough to launch new initiatives like ALBA and the Bank of the South. Now, although the crisis is indeed delegitimizing capitalism as an engine of “progress,” the weakening global economy is, as discussed above, greatly complicating, if not weakening, efforts to advance ALBA as well as the Bank of the South.

We cannot simply rely on capitalism’s contradictions to do the work of building support for a socialist alternative. No country will be immune from the consequences of the crisis. That makes it ever more important that we commit to deepen our educational work-work that makes clear that socialism represents more than a promise to produce more goods and services than capitalism; it represents the possibility of a new way to live and work that brings with it a deeper satisfaction, in large part because of its ability to shape more mutually rewarding and sustainable human connections.


Paper prepared for the May 29, 2009 conference on “An International Comparison of Ideas and Strategies of Alterglobalization Movements,” Seoul, South Korea.