Shannon K. O’Neil, Nelson and David Rockefeller senior fellow for Latin America studies and director of the Civil Society, Markets, and Democracy Program, discusses the current state of U.S.-Latin America relations.
FASKIANOS: Good afternoon from New York and welcome to the CFR Academic Conference Call Series. I’m Irina Faskianos, vice president for the national program and outreach here at CFR. Today’s call is on the record and the audio and transcript will be available on our website, CFR.org, if you would like to share it with your colleagues or classmates.
We’re delighted to have Shannon O’Neil with us today to talk about the state of U.S.-Latin America relations and the region in general. Dr. O’Neil is Nelson and David Rockefeller senior fellow for Latin America studies and director of the Civil Society, Markets, and Democracy program here at CFR. She’s an expert on Latin America, U.S.-Mexico relations, global trade, corruption, democracy and immigration. She is a member of the board of directors of Rassini Sab de CV and serves on the advisory committee for the Inter-American Foundation. She is also the author of “Two Nations Indivisible: Mexico, the United States, and the Road Ahead,” which analyzes the political, economic, and social transformation Mexico has undergone over the last three decades, and why these changes matter for the United States. She writes the CFR blog Latin America’s Moment, where she analyzes regional policy and development channel, where she highlights debates and new approaches to addressing opportunity and exclusion in the global economy. And you can find both of those blogs on our website.
Shannon, thanks very much for being with us today. It would be great if you could just talk about the good trends that you’re seeing in Latin America and the not-so-good trends in Latin America.
O’NEIL: Sure. Well, thank you, Irina. Hello, everyone. Nice to be with you. And let me start doing exactly that. Let’s talk a little bit about Latin America. And relatively speaking, as we look around the world, this is a pretty good news story. So if you look at the region, this is a place of very few—well, no wars, and very little overall civil strife. And in fact, the longest-running conflict within the region—that was in Colombia between the Colombian government and the FARC guerilla movement—just came to a historic end, that’s being watched over by the United Nations and other bodies.
This is a region whose economies, which—many of which were in recession last year—most of them have been rebounding this year, and looks to continue that rebound into 2018. This growth is nothing spectacular, but it is in the positive realm rather than the negative realm. And it comes on the back of China remaining strong, the EU rebounding, and the U.S. economy being strong. So the ties into those countries have helped pull Latin America back into positive territory, which is a good thing. And U.S. growth in particular has been driving growth in Mexico and Central America. So despite some of the tensions we hear about in terms of rhetoric, in terms of policy between the governments, the economies are tied together and all are growing.
Another positive economic trend I would say, which is a big longer term, ever since the start of the 21st century, has been the rise of a middle class in Latin America. So today a bit over a third of the population in the region would classify as middle class by the World Bank or other people who measure these things. And that is a 14-percentage point increase from 2000. So that’s a huge increase of people who have moved into a middle class one that has disposable income and that is beginning to shape not just the economy there, but the politics as well.
And then turning to politics, this is a region where most of the government, with a few notable exceptions we can talk about—(laughs)—but most of the governments are democracies. Now, they are varyingly responsive to their citizens. They are varyingly inclusive and the like. But they are, many of them, working to respond to citizen demands, to respond to organizing civil society. And I would say today in particular—particularly compared to the government over the last couple of decades—we see a widespread presence of quite pragmatic, of market-friendly, of U.S.-friendly, Western-friendly governments in the region.
So whether it’s Argentina, or Brazil, or Chile, or Mexico, or Peru, or Colombia, or a whole host of other ones, these are governments that are pretty middle of the road and thinking pragmatically about the challenges that they face. And so interestingly, in Latin America, while populism or the threat of populism in in the rise in many other places around the world, we’re hearing about that in elections that have been coming up, right now it’s notably absent in the actual leadership of Latin America. And Latin America has historically been a home for populism, but not today. Not in today’s leadership.
And then finally let me add to what I would say the good-news story in the region has to do with diplomacy. And this region has become—or many of the nations have become increasingly engaged with the world. And Latin America, for decades, had an instinct for, if not an explicit policy for, nonintervention in other states. So the foreign ministries of these various nations often, if not always, shied away from getting involved in the politics around the world, and also in neighboring states, or in states around the world. And in part, this had to do with the United States always looming quite large within the region and the kinds of things that the United States has done historically in the region. And in part, it was just their own—their own development over time.
But this is beginning to change. And I would say we’ve seen it in the two largest economies, both in Brazil taking a larger stand in the world and involving itself in the U.N., or in regional organizations and what’s happening in countries around the world. And it’s also happening—to a lesser degree but happening—in Mexico, which was one of the countries that always had a policy of nonintervention. They too are stepping up a bit on the international stage and taking on a role more commensurate with the size of their economy within the global sphere.
And the most notable change and response within the region has been to Venezuela. And we can talk more about that if people are interested, but the way the region has come together to condemn the erosion and the final constitutional break with democracy that happened this last summer, this is really an unprecedented response. And I would say unprecedented in a good way, where the region has really stepped forward and begun to join in both condemning and trying to think of policies to pressure a government to return to some semblance of democracy. So those are the good things I think that are happening in the region, and put it in a place when you look at the challenges or the hot spots around the world, they’re not in this hemisphere, and that’s a good thing, in today’s day in age.
But let me talk about the big challenges that do remain for the governments there and then for other countries that are interacting with these countries. One of the biggest challenges is that while the economies are growing, again, they’re growing too slowly. So they’re growing too slowly to incorporate young people who are coming into the workforce. They’re growing too slowly to keep this middle class that has been growing itself, but also even maybe the sustainability of this middle class. And so there’s been the ups and downs because many Latin American countries depend on commodities and the like.
But one of the challenges for Latin America is structurally most of these countries—with Mexico being one of the large exceptions—have not found a way hook themselves into global supply chains, to hook themselves into the way production occurs today. They’re not part of this advanced manufacturing that’s going around the world and selling to consumers globally. And so if they can’t join that, it’s very hard, in many ways, to climb up the value-added chain, to provide the good, middle-class jobs that everybody’s looking for—Latin Americans, as well as Americans, as we—as we all know. (Laughs.) And that is a challenge for governments throughout the region going forward.
That will become an increasing challenge as the technology and the automation that we’re talking about in the United States, as that too goes to these countries. And it will. And it will more quickly than some may predict. So the education system, the workforces are not prepared there to make this transition and make it be beneficial for the economies, for the factories, for the workers, rather than detrimental in terms of jobs and the like. That is one of the biggest challenges, these structural economic challenges the region will face and the government in the future will face, that they’re not prepared for, I would say—or, many are not prepared for.
The second big challenge of the region is violence. And this is one of the most deadly regions, if not the most deadly region in the world. This is a region with roughly 10 percent of the world’s population and one-third of all homicides globally happen in the region. So we see governments across the region struggle with the rule of law, struggle with basic safety. And some of this has to do with the drug trade and narco traffic and the like, but it’s not all about—across the region and across all classes of crimes, robberies and kidnappings and extortion and all these—Latin America is an outlier, and not in a good way. And so this is a big challenge for most of the governments in the region. Even those that have made advances in democracy and the like, how do you instill a stronger rule of law?
And then the final thing I would put out there is the issue of corruption. This is an issue across the world in many different places, in many different forms, but it is particularly a very high-profile issue today and for the last several years in Latin America. And this high-profile aspect of it is—in many ways comes out of good things. It shows a freedom of a press and investigative journalists. It shows free information, where opening up of government accounts and allowing people information. They can see what’s happening with public funds and the like. It shows an increasingly independent judiciary and prosecutors who are willing to go after big fish—you know, whether they’re politicians or business leaders or the like. It shows in many ways a functioning democracy—that the third pillar of democracy, the judicial branch and those that go with it, are actually doing their job.
But it also—but this widespread, ongoing uncovering of corruption and cases and the like is also having, in some countries at least, a destabilizing aspect, particularly within politics. And you’re starting to see populations, in particular voting populations, turning away from the whole political class, being disgusted with the behavior of almost everyone. They’re painting everyone with this brush of corruption—in some cases, fairly deserved. (Laughs.) But this is a challenge, I think, for sort of the long-term stability of democracy. People turn away from it as a means of governance because of this deep-seated corruption that we’ve seen and that we have uncovered.
So given the good and then given sort of the bad or the challenges, let me just throw out that 2018 is going to be an incredibly big political year for the region. So the three of the largest countries—Colombia, Mexico, and Brazil—will all go to the polls to elect a new president. And because of term limits it will be open elections. There’s no incumbent in these three elections. So six out of 10 Latin Americans will be choosing a new president, as well as governors and senators and representatives and all sorts of other elected officials.
And the question is, will Latin America in this new electoral realm—after we get through this round of elections—will they continue on the moderate path you’ve seen—the sort of pragmatic leadership, open economies, you know, engaging with the world and the West in general? Or could we see the rise of outsiders, of populists, basically joining the rest of the world where we have seen this across Europe, across the United States, and across many other regions, the rise of these outsiders who make big promises to deal with the challenges that are—that are deep-seated in each of our societies.
Now, as I mentioned before, the region has its own history with populism. Latin America, for some, is really the home of populism, or the history of populism. And if this history is any guide, these new leaders, if they come—and we still have to see if they come—they haven’t provided solutions, particularly not sustainable solutions or improvements to the challenges as laid out. But that doesn’t mean that upset of frustrated voting populations won’t turn to them for the supposed quick-fix that they promise. And they won’t be—if that happens, and we’ll find out if that happens in these different countries—they won’t be alone, as we’ve seen that around the world.
So with that, let me open it up—turn it back to you, Irina, and open it up to questions.
FASKIANOS: Terrific. Thanks very much, Shannon, for that overview. And let’s go now to the questions.
OPERATOR: Thank you, ma’am. At this time, we’ll open the floor for questions.
(Gives queuing instructions.)
Thank you. Our first question comes from Boston College.
Q: It’s Boston College. Did they think it was Babson?
OPERATOR: You can go ahead. Your line is open.
Q: Hello. My name is Rodrigo Marco (sp). I’m a student here at Babson College.
And I was wondering, what is going to—what is the expected percentage increase of people voting in this election compared to the last in Latin America? So in Colombia and Brazil is there an expected growth in the amount of citizens that are going to vote?
O’NEIL: Sure. So turnout in elections is always crucial. And what we’ve seen, the trends in many of these countries over the last several years, is declines in actually turnout—and particularly countries that take away mandatory voting. The declines happen more quickly.
What encourages people to go to the polls, right? What encourages particularly young people to go to the polls, which we’ve seen as a challenge in the United States as well as in countries. And Latin America also has that trend, where you often seen middle age and older people more likely to go to the polls than younger generations. And so what will drive them, I would say, is if you have candidates that capture imagination. If you have candidates that are able to get their platforms or their ideas or even just their personality across on social media, which is an increasing force in these countries. And particularly in Brazil, also in Mexico, the penetration of smartphones and access to the internet, of all kinds of social media are quite high. They use Facebook. They use WhatsApp. They use lots of other tools. But these are incredibly important as campaigning—in these campaigns and in getting messages across in Colombia as well.
So what turnout will be, I—it’s hard to imagine that I—for me, that you would see a huge bump up in the coverage or in the amount of people who go out. But will they remain at, you know, somewhere between 50 percent or so? Will you see a turnout number be similar? If people are frustrated with the choices, if they feel there’s no good choices there, then you’ll see lower turnout, right? If there isn’t a candidate that excites the imagination, then I think you’ll see depressed turnout because the idea is, well, they’re all the same. Who cares if I vote? But perhaps we’ll see candidates that come out and really excite the imagination. But in all of these three elections so far, I think it’s a little too soon to tell where those numbers will go.
FASKIANOS: Thank you. Next question.
OPERATOR: Next question comes from—sorry—St. Edward’s University.
Q: Hi. This is Louisano Bella (sp) from St. Edward’s University.
And my question is, how are women in Latin America currently being affected amidst all the corruption and violence and everything that’s going on right now?
O’NEIL: Sure. You know, that is—that is a good question. And I think in Latin America we have seen at times advances in the position and role of women. Latin American nations compared to others are relatively—have more laws in place or quotas in place to push Latin American women in to positions of governing, of responsibility. So many countries have particular numbers, percentages of women who have to be in the house of representatives or nominated in as candidates for the house of representatives, or for senators and the like. We have seen in the past, though now there are not—with the exception of Michelle Bachelet, who’s the president of Chile, there are no women—other women presidents. And she is about to retire after having served her second and final term as president. There were previously presidents of Brazil, presidents are Argentina were women. So there have been some powerful women leaders in the region. And that is a good sign.
But I would say the day-to-day life of an average woman in Latin America—and obviously this varies by country in many ways—is often a difficult one. So women get paid less in Latin America. The discrepancy between men and women in salaries is much higher in Latin America. The discrepancy in jobs opened, in sort of discrimination in the workforce, in women who were able to climb the corporate ladder and end up in the C-suite or, you know, at the executive level in companies is much lower in Latin American than it is in other OECD countries. And those countries aren’t doing all that great on it, nor is the United States. (Laughs.) But Latin America is falling behind even there.
And particularly when you look at the violence, it targets women as often—though in a bit of a different way—than it does men. So Latin American countries generally have some of the same phenomena we have in the United States, where it’s often young men killing other young men. But you also see in Latin America huge numbers of domestic violence and also killing of women within domestic arenas and disputes and communities. So I think this is a huge challenge, frankly, for many of the countries, is how do you improve the lot of women. And we have study after study around the world that if women have economic independence, if women are able to climb the ladder, kids do better, families do better, and overall economies do better. So there’s lots of reasons for Latin America to—and countries in Latin America to take this issue on. But I would say they—this is one that they have not yet done in a sustainable and in a widespread way.
FASKIANOS: Thank you. Next question.
OPERATOR: Thank you. Our next question comes from the University of Kansas.
Q: Hi. This is Melissa Birch from the Center of Latin American Studies at the University of Kansas.
Can you update us a little bit on the current status of negotiations for NAFTA? And then talk about what the implications might be for Mexico of some of the various possible outcomes of those negotiations?
O’NEIL: Sure. So the negotiators are all in Washington today getting ready to start on the fourth round. All accounts public and private suggest this will be the most difficult round. They’re actually going to get to the things that the two countries—or, the three countries do not agree upon. These are things like rules of origin and how much to increase them overall in different sectors, which is sort of what—how much of a content of a particular car or, you know, other thing made within North America has to come from North America. And there are lots of rumors out there that the United States not only will want to increase that number overall, but increase the amount of content specific to the United States. So it won’t just be a North America number, it’ll be a North America with a U.S. number within, which in some ways defeats the purpose of the original NAFTA.
We will see them probably argue over the type of dispute mechanisms. There are—within NAFTA there are dispute mechanisms. So if countries who are operating in other countries within the three feel something has gone wrong, they have these arbitration panels that they can appeal to. And it also stops any country from using anti-dumping or countervailing tariffs, which are sort of tools that the United States often uses against China or other countries around the world. It keeps them from using it against their NAFTA partners. The United States would like to get rid of all those mechanisms or make them voluntary. The other countries are not—they want those mechanisms to stay in place.
Another issue that’s on the table, which I don’t believe the Mexicans or the Canadians will agree to, is to basically sunset NAFTA. So, great—it lasts for another five years. But if everybody doesn’t specifically opt in it goes away, which I can’t imagine those governments agreeing to that. And then there’s some other, you know, issues within that they’re debating. But at least as how the debate looks now, and the way the United States has positioned itself—although, obviously, this is a negotiation and things change over time and the idea is to negotiate presumably—but there are a lot of sticking points and red lines for the various countries, that it’s hard to imagine them coming to an easy or a quick agreement.
So the options going forward are, one, these negotiations take more time than the U.S. government, at least, and others have been signaling up until now. So they don’t end at the end of 2017. They continue into 2018, maybe take longer than that, which would not be unusual for a free trade agreement. Most take a few years. They don’t take a few months, which is what the Trump administration has been pushing for. So we would see negotiations—everybody take a breath, and then negotiations go on in a more—in a calmer manner than they have. We’ve seen—negotiations started in August, and they’ve been sort of at a rip-roar pace here. We’re just at the beginning of October. So perhaps we’d see just the negotiations lengthen out.
Perhaps we’d see the government call a freeze. Let’s just everybody cool off and take a little break, and then maybe we’ll come back to this. Or perhaps we’d see governments, and particularly the United States government, pull out of NAFTA. Now, whether that is actually possible for the U.S. president to pull out of NAFTA is a question—a legal question that remains out there. The U.S. president does have the authority, particularly with trade promotion authority, to go and negotiate agreements. And they do have some proclamation authority for tariffs, to put tariffs in place. But NAFTA, in the United States at least, is actually not a treaty. It was—it is legislation. And it actually as a revenue bill that was passed. And so revenue legislation is, by our Constitution, the sole property—or sole guidance of the Congress. So there’s a question about whether the executive breach could abrogate a legislative law. But that will, perhaps, get thrown to the Supreme Court if we get to that point.
But let’s say, you know, life with NAFTA Is helpful for Mexico, though I don’t think it is the end-all or be-all. I would say if we look back at the last 23-plus years, what NAFTA has done most for Mexico is really set the rules of the game and lock Mexico into a much more open and connected economic model than it had had in the past. And particularly, it was an investment treaty. So it really set the rules so that foreign direct investment, as well as domestic investment of Mexicans who want to grow in their own economy, they feel that they have rules to appeal to that provide a sort of a basic rule of law in terms of contracts and the like. And that has really been the strength, I think, of NAFTA for Mexico, and then encouraging the movement of factories or the building up of factories, and the development of a North American supply chain or production platform for all kinds of advanced manufacturing, with Mexico being a part that’s closely linked to the United States, as well as Canada.
If NAFTA went away, however it might go away, there would be challenges there, right? There would be—the question is, do Mexico’s other free trade agreements that it signed with the European Union or that continue with Canada, because if the United States would pull out of NAFTA, Mexico and Canada would continue to have their agreements between the two of them, unless one of them chose purposefully and willfully to pull themselves out of all three of them—or, just to pull themselves out of that remaining agreement. Mexico may have those investor protections in those other agreements. And they could pass legislation that would—that would solidify those and try to replace NAFTA, in a way, if it came down to that.
And you know, NAFTA covers a decent portion of Mexico’s trade, but not even half of Mexico’s trade actually goes through the NAFTA rules, that goes through the rules of origin to prove that the parts in the cars or whatever product is crossing the border actually came from one of the three countries. Because either there are not tariffs on those issues, under the general global tariff rules under the WTO most favored nation status, or that tariffs are so low that the cost of actually doing the paperwork are more than paying a 1 or 2 percent tariff. So there’s—over half of Mexico’s trade actually doesn’t even go through NAFTA. And so presumably without NAFTA that trade would continue, it’s just the other 45-plus percent that may or may not change, and that would be bit more costly.
If there was no NAFTA, then Mexico goes back to most favored nation status. And what that means is within the WTO there—each country has tariffs for the rest of the world, for most favored nations, but which covers many nations around the world. And so Mexico would go back to other companies—or, I’m sorry—other nations that don’t have a free trade agreement with the United States, but have these sort of set tariffs. And for Mexico, for most of products, the United States tariffs in general are quite low. And so, yes, things—cars would cost 2 ½ percent more, or other things would cost a little bit more. But there aren’t that many categories where we’d see a huge jump in costs. And in fact, it would be more U.S. products that go into Mexico, when you go back to Mexico’s tariffs without a free trade agreement, that would be hit significantly. And particularly agricultural products—pork and corn and soy and things would see—would see tariffs rising to the double digits in some of those instances.
So I do—I think it is—it’s better for Mexico if NAFTA stays. If we see NAFTA end or a threatening of NAFTA ending I think there’s some short-term costs, definitely. The peso is already falling because of worries about NAFTA, which has effects within the internal economy that are not particular positive. The one positive effect there is their exports are cheaper if the peso falls, which would increase exports to the United States and perhaps offset the tariffs that would come back without a NAFTA, at least at the beginning. But I think Mexico would be OK. And I do think, at least this government. We’d have to see what the next government will want to do because we’ll have a new president in Mexico come December 1st, 2018. But this government would begin to take steps, I think both legislatively and as well through other free trade agreements, to try to solidify some of those investor benefits to cover other—to cover companies that might have come in under NAFTA rules, to see if they could come in in other ways.
FASKIANOS: Thank you. Next question.
OPERATOR: So our next question comes from—(inaudible)—College.
Q: Hi. My name is Su King (sp).
My question is, what role do you foresee U.S. neoliberalism taking in Latin America as it moves forward to becoming part of the global economy and trade?
O’NEIL: Sure. Well, you know, what’s interesting I would say right now is when you look at the leadership around Latin America, and you look at the leadership in the United States, probably the biggest trade proponents or protectors of the old system of sort of a global—a global system led by trade come from Latin America, not from the United States anymore, right? (Laughs.) So it’s less about the United States kind of going down and wanting to impose free trade agreements, but it’s actually Latin American nations wanting to engage in free trade agreements. So right now you have the Mexican government trying to modernize, well, not just NAFTA, but trying to modernize their agreement with the European Union.
You have the countries of Brazil, Argentina, Uruguay and Paraguay trying to reach—who are part of Mercosur, which is a regional trade agreement—trying to reach a new agreement that they’ve been working on for many years, but trying to finally finish an agreement with the EU so that they would have a Mercosur-EU agreement. There are a group of countries including Chile, Peru, Colombia, and Mexico that are called the Pacific Alliance, as well as a couple Central American countries. They too are trying to open their borders to each other to increase the movement of goods and services and people between their three nations to revive their economy.
And then many Latin American nations from—you look at Canada, Mexico, Peru, and Chile, and Colombia wants to get involved in this—they are working with Japan and others to keep the TPP, the Trans-Pacific Partnership, which the Trump administration pulled out of, they are trying to keep it alive and actually get it to go forward so it’d be 11 countries not 12 countries, since the United States has pulled out, but keep that going. And then someday down the road, if the United States ever wanted to join back in, this would be an actual free trade agreement that would be active and working together.
So this is a region that has, in my view, with a couple exceptions, has really taken to heart that going global and engaging with the rest of the world is the way to increase their own prosperity, to find a way to sell to the rest of the world, to gain products from the rest of the world, that that is the way and the path forward to a better economic outcome for their own people. And we will see if this attitude prevails through 2018 when you have new presidents come in, but that is actually the overriding view right now, is governments going out and trying to engage the world, even as the United States has pulled away from this view and is moving back into a much more protectionist stance and even, at times, almost a mercantilist stance.
So I think what we’ve seen is really a shifting in the leadership on these particular issues. And in part, the reason the reason that Latin American leaders are going this is that Latin American populations—if you look at polling data—they actually like globalization. These are countries that like free trade agreements in general. They see the benefits of cheaper goods, of better goods. They see benefits of competition. They see some of their companies and the companies they work for and their jobs supported by exports to other countries or ties to other countries. So there is a general support in the region for these moves. These aren’t kind of—these aren’t governments going rogue and forcing particular economic policies on resistant populations. In fact, it’s the reverse, that there are—the people actually want this opening and what they see as the benefits that that provides.
FASKIANOS: Thank you. Next question.
OPERATOR: Next question comes from the University of Central Florida.
Q: Hello. This is Maggie Morgan (sp) from the University of Central Florida.
I was hoping that you could speak on indigenous rights and the challenges that those groups face in Latin America.
O’NEIL: Yeah. So we see in many countries stated—explicitly stated indigenous rights in legislation, in constitutions and the like. But there is often a real gap between what’s written on paper and what happens in reality, right? The difference between de jure and de facto implementation of those laws. And that is—you know, it is a challenge in many of these places, right? It’s a challenge in Mexico, it’s a challenge in Chile, it’s a challenge in Peru, and in other places as well. And that—in part, that comes from the overall challenges I began with of rule of law, where there are a lot of rules on the books that never get implemented. And there is a little bit of a right makes right in particular places.
And it also is a bit of a limited capacity governments have to enforce the rule of law, which we see across a number of elements. The most measurable being the homicide rate, right? No one is allowed to kill someone else in any of these places, but unfortunately we have the highest homicide rates in the world in many of these countries. So but that carries over into other things, like indigenous law.
Another reason why I do think we have probably less enforcement of indigenous rights and laws is, you know, interestingly just historically in Latin America, politics has organized itself much more along class lines than along race of ethnic lines. There are a couple of exceptions there, but it is interesting that in countries with majority indigenous groups or histories of, you know, indigenous populations, there are very few if any political parties that are actually organized along that—those particular issues, i.e., the issues of indigenous people. Instead they’re organized along class issues or other particular issues, right? And I think if you don’t have a motivating organization like a political party that feeds that into the systems and institutions, it’s hard to defend those rights.
That said, I think we are starting to see in some countries the rise of civil society organizations dedicated particularly to those issues. And there have been some successes by those civil society organizations in pushing the issues onto the table. And I would say where I think that’s been most successful so far has been in the passing and the implantation of what are called consulta previa laws. So these are laws that are like sort of—you have to—previous consulting. But what it basically means is for particular extractive industries—mining or energy, oil and the like—is that if you get a concession for the government you have to go and consult with the communities around that area, which are often indigenous communities, in the way you set up and do your mining so you don’t go in and destroy the environment or the communities around it or the water or other things around.
So there are—and the groups, which are often indigenous groups that live in the areas where this extractive industry is going to go in or is operating, do have recourse. And we have seen in some countries that they actually really do have recourse, and that courts and others have sided with indigenous communities over big, well-known multinationals that are doing mining operations. So I would say if you look for kind of a glass half full area, or one area where indigenous movements or indigenous groups have made some progress—and it’s not always in every case—but it is in this protecting of their environments and their communities, particularly vis-à-vis extractive industries. That there are these consulta previa legislation that have been effective in letting them keep their communities together and protecting the sustainability of those communities.
FASKIANOS: Thank you. Next question.
OPERATOR: Thank you.
(Gives queuing instructions.)
Our next question comes from the U.S. Air Force Academy.
Q: Hi. With what you said about earlier about populism being on the decline in Latin America, but yet free trade ideas being on the rise and being accepted, do you think that this free trade orientation is the institutionalization of anti-populist ideas? Or is the populist movement simply a tide that will ebb and flow and free trade is just a current blip and reaction to the economic situation?
O’NEIL: So populism has ebbed and flowed throughout sort of Latin America’s history. And you know, one of the reasons some of these leaders are pragmatic—I think they—there’s other reasons as well. But one of the reasons they’re pragmatic is that the previous, often more populist type of leaders that were there, have spent all the money. So you can’t do that anymore because you don’t have any money to spend, right? It’s very hard to be an expansive populist if the treasury is dry. And so that—and so many of these leaders—it’s one that the population voted them in because the previous leaders made such a muck of it and left the treasury dry plus left the economy with inflation and in decline or with various problems.
So that’s one part, is the chose people they thought would be much more middle of the road and a good manager and perhaps able to get things back on course and get the economy growing again, right? And that’s what those people promised in the campaign. They said, hey, look, I’m going to be pragmatic. I’m going to gradually move away from these unsustainable policies that you’ve all been experiencing and take us back to something that actually is sustainable.
Now, can they do that in a way that doesn’t hurt people too much, because some of that involves cutting back on spending. And can they do it fast enough that people who voted them in really—you know, don’t blame them for the hardship, but sort of blame the last government that spent all the money in unsustainable ways. So part of the reason I think we’re seeing this pragmatic shift is we had about of populism that sort of hit at the end of the ’90s, early 2000s, and it sort of ran its course, particularly on the economic side.
But I think the other side is that there is—and it’s interesting, even from the 1990s on, there are these public opinion polls that show in general that Latin Americans are pretty open to the world, that they do see this as a path forward, right? They do—they appreciate that. They see trade as a way to create jobs. They see, you know, expanding education and quality education as the way that their kids are going to do better in life and be able to have a better—you know, be more prosperous than they were. I mean, they have a lot of these perceptions when you look at public opinion polls across those places.
And, you know, that doesn’t necessarily play right into populist promises. And also, you know, populism is—populist leaders often come in with the—you know, these people are terrible. The elites are terrible—however they define those elites. We’re going to throw them all out and I’m going to fix things for you. So Latin America with pretty significant poverty rates, that would appeal to many people—and understandable, justifiably so. And no defense for Latin American elites. I think in many of these places they are quite hierarchical. They bend the rules to their own favor. We see in many countries a lot of monopolies and oligopolies that are not good for the average citizen and the like.
But as these economies have opened up in the last 20, 25 years, as they’ve engaged more in the global field, I think you’re starting to see, at least in some places, increasing competition, medium and small-sized companies begin to grow a little bit. Some of the old-style hierarchy is starting to break down. And I think populations and voters are smartly seeing that, and seeing that benefits of trade and openness and competitiveness sometimes—often is pro-poor, because it brings in goods that are cheaper. It’s not controlled just by the elite who used to make—you know, have one factory that made shabby shoes, right? Now you can get cheaper shoes that are much better quality because they come in from somewhere else. So, yes, that factory might close, but that factory held a monopoly over all of the production and distribution in the country that made everybody better—or, everybody worse off.
And so I think Latin American citizens are pretty discerning in the pros and cons of that opening. And then that’s something that politicians are playing into. And one really interesting thing in these polls, I have to say, is Latin Americans like trade generally. They don’t like privatization. And why don’t they like privatization? Well, they don’t like privatization, often in the 1990s particularly, because governments often gave it to their friends, right? They created monopolies and oligopolies that just in the last 10 years or so have been broken down and opened up. So I think actually citizens are pretty discerning here, where they say, look, trade is helpful to us, but not selling off these things to people’s cronies. And that is what they see. And you see in polls average citizens view this.
So will we see a populist wave in Latin America again? It’s hard to say, right? We are seeing this around the world. And I would say, the reason we’re seeing it around the world is there’s a lot of disruptions happening, right? We’re seeing automation and technology. We’re seeing new products coming in and old products disappearing. We’re seeing a whole change, some of which is because of trade. A lot of it isn’t. A lot of it’s getting blamed on trade but it’s due to other factors. So that’s affecting societies all over the world. And Latin America’s not immune to that.
It’s also a region where you have other factors. You have huge violence issues. And people—that is what hits people every day. You can promise all these things from trade. You can promise jobs. But if you feel like you can’t keep yourself and your family safe, you’re desperate to look for change. So I do think there are things—and the final, I would say, is the corruption. We know much more about corruption. I’m not sure Latin America is more corrupt today than it was over the last 50 years, but we know a lot more about it.
And we know who did and what they did and how they did it because we—because we much more access to information and we have freer press everywhere. Well, with a few exceptions, particularly Venezuela. But a freer press that is broadcasting what’s going on. So people know more about it and they’re totally disgusted with it. So if there’s a populist that comes in, I think they will pick up on these issues—on security, on the corruption of the elites. So less the free trade model. You know, that—I don’t think that is the Latin American schism that a populist would pick up on, like they have in the United States, say, or perhaps in Europe. I think the schisms would be on insecurity as well as corruption. And that—those are the issues that perhaps an outsider populist would ride in to office.
FASKIANOS: Thank you. Next question.
OPERATOR: Thank you. Our next question comes from Fordham University.
Q: Hello. Can you hear me?
OPERATOR: Go ahead.
FASKIANOS: Yes, go ahead.
Q: Hi, how you doing? My name’s Donovan (sp).
You mentioned earlier about the rise of the middle class. I think you mentioned it grew at 14 percent since 2000. I was wondering if you could speak a little bit on where that’s mostly been concentrated, and I guess what are some of the causes of that and where you see that going in the future.
O’NEIL: Sure. Yeah, so it’s grown to just over a third, or about 35 percent of the population in Latin America. It is—I mean, the big concentration, the big growth are places like Brazil, which saw during the 2000s, you know, 40, 50 million people join the middle class. We’ve seen big growth in Mexico, partly because of their size. The absolute numbers are just larger. We’ve seen it in places like Peru, definitely, some in Colombia as well. Chile has a pretty sizable middle class, and has for a while. Places—you know, in contrast, places like Venezuela have really decimated. The economic decline in that country over the last several years has really decimated what had been a fairly robust middle class in that nation. So it’s spread through many different nations. But I would say the bigger economies, Brazil and Mexico and Colombia and perhaps Peru, have seen—have seen the largest growth there.
Part of it is just economic growth in general. We’ve seen sort of a rising tide lifts all boats type of thing. Part of it—it differs by countries. Part of it is—particularly in Mexico, for instance—it is actually the ties through NAFTA. And what’s interesting in Mexico is if you look at their overall growth rates, they’re not that impressive. It’s over the last 20-plus years it’s been about 2, 2 ½ percent on an annual basis. That’s not particularly impressive, especially when you have a growing population. But if you disaggregate those numbers and you look at it at the state level, what you find is many states—particularly states located in the north or in the central north of the country—they have been growing at 6, 7, 8, even 10, 12 percent. So Asian tiger growth rates. These are—these are states that are booming with growth. And states in the south of the country have been declining by 2, 3, 4, 5 percent. (Laughs.)
So overall, the numbers look ho-hum, oh, it’s only growing at 2 percent a year. That’s not a big deal. But underneath that, you see states that are linked to the United States, that are linked to NAFTA, that are linked to the world growing incredibly fast. And the states that have been forgotten, that aren’t linked into that either stagnating or even declining. So that’s a long way of saying what’s leading this? Well, part of this is opening up to the world. You’re seeing huge growth rates. You’re seeing foreign direct investment. You’re seeing ties in the United States. And that has—really creates growth and productivity and the like.
Places like Brazil, another couple factors that mattered there in the growth was the opening up of financing. And this is both for individuals, so you—consumption, credit cards and the like. But actually, more importantly, for overall economic growth, financing provided for small and medium enterprise. So it’s not just the big companies that could get financing to expand their operations, but if you formalized your smaller company, if you went and started paying taxes and filled out all the paperwork, you could get a bank loan for working capital and the like, you could hire more people, then you could produce more products, and then you get this virtuous circle. Brazil’s recession over the last couple years has put a dent in some of that, but that aspect is still there in a lot of ways. And you see that also in Peru and other places.
And then—and then finally one of the biggest drivers, particularly in South America—this is not for Mexico or Central America but for South America—has been China’s rise. So as China rises, it has absorbed huge amounts of raw materials. And Latin America has a lot of raw materials. So whether it’s oil or gas, whether it’s iron ore or soy or beef or all kinds of other food products, or lithium, or copper or all kind of other minerals, Latin America really has a plethora of these. And so China has become, for many countries, often the first—if not the first, then the second-largest trading partner, because it’s buying these things. And that money then filters down into the larger economy and into more jobs and the like. And that has boosted the middle class.
So some of those factors are long-term changes that make it sustainable. And other ones are questionable, whether those engines will continue. You know, how much can financing really grow to fuel future growth. How will China, you know, remain this engine absorbing raw materials or not. And you know, those sorts of dynamism are a real question.
FASKIANOS: Thank you. Next question.
OPERATOR: Next question comes from University of Southern Mississippi.
Q: Hi. Thank you for talking with us today. I was wondering if you could talk a little bit more about Cuba. First, who the next Cuban leader might be. And second, if we should worry about a second Cuban missile crisis if Cuba were to accept Russian missiles again, if they were to send them.
O’NEIL: Sure. So Cuba—you know, it’s interesting in Cuba. They—we saw Cuba work quite hard with the Obama administration to open up and to normalize relations with the United States. And that, you know, resulted, for many reasons. One was Venezuela’s decline and the loss of a—or the assumption that they would lose this patron that had really replaced the Soviet Union when the Soviet Union, you know, left Cuba basically on its own in the early 1990s. By the early 2000s, Venezuela had stepped in and was providing Cuba with very subsidized if not free oil, providing them with other resources to sort of keep their economy going, their closed economy going.
So they turned and looked at the United States. And they also looked to the United States for economic reasons. And Cuba started looking—or, many Cuban leaders, including Raoul Castro, who’s part of the reform side of things—looked forward at the Cuban economy and saw decline. They saw decline in their economic productivity, in their ability to keep growing in, you know, their mainstay industries, like sugar cane and the like. And they also saw this huge demographic cliff that Cuba is entering, because there’s so many fewer young people, either because people have fewer kids or when people come of age many who are entrepreneurial and risks takers leave and go to the United States or go to other places around the world. And you have a growing, burgeoning elderly population to support.
So there are a lot of reasons why Cuba turned to open to the United States. So we saw that opening. And now that all is in question with the Trump administration, and the—who has said that they will pull back on many of those things. So it’s unclear which things they actually will pull back on in their first round of changes. We’re somewhat limited in the kinds of things that they undid from the previous administration. But where Cuba goes on the United States or where Cuba goes in general, there are a lot of exogeneous factors—what the United States decides to do, what happens in Venezuela. But it goes back to your question of internal leadership and who will be the next leader.
You know, we will find out next year. You know, the people who have been mentioned are, you know, folks in their 50s, so younger. Raoul Castro is now, I think, in his 80s. So we’re having this next generation down, people who could be there for a long time. They’ve grown up with the revolution. They’re very, you know, suited or situated within this—probably I would say, a harder-line group in sort of maintaining the political power—political power over economic growth. If you have to make that choice, they will go with the political control versus economic growth.
And, you know, I think Cuba looks to the Russian example, where, you know, the Russian leaders thought they could have both glasnost and perestroika. And you realized—and then they found out that it didn’t work that way. You can’t just have economic opening without the political opening. Or, at least, theirs, it ended up being both together. And what the Cuban leadership I think is trying to do is can we have some economic opening, we’ll do it very slowly, but maintain this political control? And I think that is still a totally open question about whether that is possible.
I will say, though, that one—while Raoul Castro steps down at president, he will remain the head of the party. So until his—until he passes away, he will be an integral figure, and he will be a Castro, right? The remaining Castro who’s been involved. And, you know, the impression of those who watch Cuba very closely is he is on the more open, reform side, rather than the hardliner side. So I would imagine he would continue to press for moderation and pragmatism and somewhat openness to the world versus, you know, some within the central committee and central leadership who would like to go back—even with economic costs for their own people—would like to go back to a much more closed system.
FASKIANOS: Thank you. Next question.
OPERATOR: Next question comes from the University of Pennsylvania.
Q: Hi. My name is Asana (sp) from the University of Pennsylvania.
You partially answered my question that was about Cuba, but if you can tell us a little bit more about U.S. and Cuba relations, now that we’re seeing these sonic attacks. Thank you.
O’NEIL: Sure. And I just realized the last question I forgot to talk about missiles and Russia, so I’ll add that in. So these—you know, everyone I have talked to in Washington and elsewhere, no one seems to know what is going on in these attacks. And it’s interesting—and the Cubans don’t seem to know what is going on with these sonic attacks, which have either temporarily or perhaps permanently effected members of the U.S. embassy and the team there, their hearing and the like. And it also seems that they’ve hit a couple Canadian diplomats as well who were down there. But it’s quite unclear where they are coming from or what it was.
And the question then is, for the United States government as well as others, is there’s some lies being told here. So one potential lie would be that the Cubans actually do know what’s going on and they’re lying to us and saying that they don’t. Now, to contradict that is they have allowed U.S. intelligence people, an investigation, like, to come down and to look at it. And so if they really did know what was going on, unless they really thought they could hide it well, it’s hard to imagine they would let those people go down and look for it. So that suggests that they don’t know what’s going on.
But if they don’t know what’s going on, then this whole kind of myth that the Cuban government is sort of all powerful on the island and they know everything that’s happening there, and they have this total, complete control over their population, then that is actually just a myth, right, because here’s something happening that has repeatedly happened that they have no clue about what it is and who’s doing it and why they’re doing it and how they might stop it.
So for many within the government—and not all because, as I mentioned in the last answer, there’s sort of reformers and hardliners so there’s a divide here—for many, this is leading to the worse possible outcome, right? That it forces the United States to withdraw its people and encourages the United States to retaliate by kicking out Cuban diplomats. So all of the sort of painstaking work to bring rapprochement, to kind of form some basic trust and begin working together is being destroyed by this sort of enigma that, you know, these attacks that they don’t seem to know.
So is it some rogue element within, you know, the hardliners of the Cubans? Is it the Russians? Is it—who knows if some other—it’s hard to say. But it does sort of beg the question of are the Cubans really as in control of their island as they have seemed to suggest for some years.
And let me just go back to Russia and missiles. You know, after what happened in the 1960s and the Cuban missile crisis and the like, I don’t imagine Russia would ever again—nor would Cuba accept—putting missiles in there. I think that is something from the Cold War and a very different—and that’s not the way Putin and his regime operate. Like, that’s not the way that they are working to gain ground.
Now, would we see some sort of cyber or other kind of attack? It’s no longer hard missiles and that kind of stuff that—you know, that’s going to be the battle ground or the kind of weapons I think between these two countries, between the United States and Russia, or others, frankly. I think more you may see things on cybersecurity or elections. I mean, all the kinds of things we’re seeing in the news. That, I think, is really the digital war that is the war of the future, right? You don’t take down U.S. infrastructure necessarily with a missile. You take them down with a computer.
Now, would you need to put them in Cuba for that? Not really, right? You can do that from Ukraine. You can do that from Moscow. You can do that from other places, presumably. So I think that that idea of the worry of sort of proximity of Cuba on a kind of hard equipment kind of war, I think that’s kind of passed. But I do think this cyber and digital challenge for the United States, whether it’s Russia or whether it’s other elements around the world, and whether it comes from places like Latin America or somewhere else in the digital sphere—I think that is a key challenge that we all need to be thinking much more about.
FASKIANOS: Shannon, thank you very much for this terrific hour. We appreciate your perspective and analysis and insights. And to all of you, for your questions. They were really great. And I apologize that we couldn’t get to the remaining few who were on the call, but we have come to the end of our time. So I hope that you will tune into follow Shannon on her blog. I said it at the outset of this call.
And join us for the next one, which will be on Wednesday, October 25th at 12:00 p.m. Steven Cook, the Eni Enrico Mattei senior fellow for Middle East and Africa studies at CFR, will lead a conversation on the Arab Spring. In the meantime, I encourage you to follow CFR Campus on Twitter at @CFR_Campus for information on new CFR resources and upcoming events. Again, thank you, Shannon O’Neil, and to all of you for joining us today.