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Breaking the Cycle

Authors: Dora Beszterczey, and Shannon K. O'Neil, Senior Fellow for Latin America Studies
Winter 2011
Americas Quarterly

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Latin America has the sad distinction of being one of the world's most violent regions, with crime rates double the world average. Actively struggling to provide safety to their citizens, Latin American governments are pouring millions of dollars into law enforcement, and in some places even deploying the army. Many countries are also working to strengthen law enforcement institutions through reforming court systems and professionalizing police forces. While these are all important measures, governments risk losing sight of the relationship between security, economic opportunity and growth.

In the long term, only prosperous societies will be able to address the roots of today's escalating insecurity. The deciding factor may well be the fate of micro, small and medium enterprises—the mainstays of the region's economies and the drivers of job growth and economic output. Unfortunately, these entities are also on the frontlines of the bloodshed—hit hardest by rising violence. Latin America's future, as a result, hangs in precarious balance.

Businesses on the Frontline

Just a few years ago, Ciudad Juárez was Mexico's fastest growing city, burgeoning with new maquiladoras churning out auto and computer parts, medical supplies and consumer goods bound north. Universities, restaurants and real estate blossomed in the export economy's wake. Yet in the last few years, Ciudad Juárez has become the most violent city in Mexico and, by many accounts, the world. The number of drug-related killings has climbed each year, and 2010 is set to break another bloody record. October alone recorded 352 drug-related killings, more than the annual toll in 2007.

Three years into Mexico's war against the drug cartels, narco-violence has left big business still standing and foreign direct investment still flowing, even in places like Juárez. Large corporations quickly beefed up security and changed the daily rituals for many workers. For instance, in border towns, managers, engineers and other support staff often move to the United States, returning to Mexico for work each day. Instead, the devastating effects of the violence occur at the micro- and small-enterprise level.

Over 10,000 small businesses—four out of 10 firms—have closed their doors in Ciudad Juárez alone. The city's official unemployment rate climbed from virtually zero to 20 percent in the last three years, swelling the ranks of sidewalk vendors and other informal jobs. With few economic options available, many of the unemployed also found work in the drug cartels and local gangs, accelerating the downward economic and violent spiral.

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