Franko, Patrice. 2019. The Global Financial Crisis and
Latin America. Latin American Research Review 54(1),
pp. 286–293. DOI: https://doi.org/10.25222/larr.873
BOOK REVIEW ESSAYS
The Global Financial Crisis and Latin America
Patrice Franko
Colby College, US
patrice.franko@colby.edu
This essay reviews the following works:
Rethinking Productive Development: Sound Policies and Institutions for Economic
Transformation. Edited by Gustavo Crespi, Eduardo Fernández-Arias, and Ernesto Stein; InterAmerican Development Bank. New York: Palgrave Macmillan, 2014. Pp. xxix + 461. $54.99
paperback. ISBN: 9781137397164.
Macroeconomics and Development: Roberto Frenkel and the Economics of Latin America.
Edited by Mario Damill, Martín Rapetti, and Guillermo Rozenwurcel. New York: Columbia University
Press, 2016. Pp. xi + 389. $65.00 hardcover. ISBN: 9780231175081.
Free Trade and Faithful Globalization: Saving the Market. By Amy Reynolds. New York:
Cambridge University Press, 2015. Pp. x + 179. $28.99 paperback. ISBN: 9781107435179.
Latin America after the Financial Crisis: Economic Ramifications from Heterodox Perspectives.
Edited by Juan E. Santarcángelo, Orlando Justo, and Paul Cooney. New York: Palgrave Macmillan.
Pp. vii + 251. $149.99 hardcover. ISBN: 9781137486615.
Meaningful Resistance: Market Reforms and the Roots of Social Protest in Latin America. By
Erica S. Simmons. New York: Cambridge University Press, 2016. Pp. xi + 219. $27.99 paperback.
ISBN: 9781107562059.
Global Capitalism in Disarray: Inequality, Debt, and Austerity. By Andrés Solimano. New York:
Oxford University Press, 2017. Pp. xi + 235. $35.95 hardcover. ISBN: 9780190626273.
The Last Day of Oppression, and the First Day of the Same: The Politics and Economics of
the New Latin American Left. By Jeffery R. Webber. Chicago: Haymarket Books, 2017. Pp. 1 +
305. $26.00 paperback. ISBN: 9780745399539.
The global financial crisis disrupted more than markets; it unsettled the core of the market-state
relationship. Financial stress and global recession laid bare the weaknesses of old policymaking approaches
and exposed the vulnerabilities of economies in a globally connected system. The dominant neoliberal
model was stripped of the illusion of market purity as states around the world aggressively addressed
market failure with active monetary and fiscal policies. The crisis cut down global markets as well as how
we see the market-state relationship. For Latin America, this initiated a new narrative on what constitutes
sound economic policy.
The global crisis of 2007–2008 oddly originated in US domestic real estate markets. Subprime mortgages—
those offered to nontraditional borrowers to expand housing options for the lower middle class—were sliced
into collateralized debt obligations (CDOs) to package risk by pooling the geographical basis of the loans.
Ratings agencies such as Standard and Poor’s certified these opaque instruments, and financial markets
distributed these pooled instruments around the world. It was a simple yet erroneous concept: a housing
crisis in Alabama would not occur at the same time as one in Arizona. When hedge funds, however, began
to bet against these assets, confidence collapsed. Few understood the complicated underlying value of the
instruments, calling into question the systemic failures of financial markets to produce credible investment
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products. Lending froze, both in the US and abroad, as it was unclear how these products had tainted bank
balance sheets. Consumers retreated as the possibility of job loss loomed with recession. As large North
American and European markets contracted, exporters were hard hit. Through both trade and financial
channels, growth in Latin America, as in most of the world, ground to a halt.
For Latin America, the surprise was that the crisis did not adhere to the old trope that when the economy
of the United States caught a cold, Latin America contracted pneumonia. Instead, with the tailwind of
Chinese commodity demand, the GDPs of most countries in the Latin American region rebounded quickly.
Simultaneously, policymaking became unbounded by strict rules of neoliberal market management. By
2009, the cover of the Economist showed Brazil rising with Rio’s iconic statue Christo in takeoff. Global
capital, searching for returns in stagnant advanced economies, flooded back to emerging markets. But the
euphoria of escaping a prolonged imported recession from the toxic bonds originating in the United States
may have blinded policymakers to the opportunity to address tough structural challenges during a period
of growth.
Latin America can be seen as an economic laboratory showcasing historical experiments in open-market
liberalism, commodity-driven development, protective productive policies under import substitution,
grinding effects of debt and neoliberal adjustment, and inclusive development dramatically reducing
poverty. Broadly shared approaches, initially framed by structuralist voices within CEPAL and then in part
imposed by the international community, conditioned national policies. With some outliers, countries in
the region moved through the golden age of commodity exports, import-substitution industrialization, and
Washington Consensus adjustment to the debt crisis. The rise of China—and its strong demonstration effect
of a mixed economy—along with the discrediting of a pure market based approach to avoid crisis opened
considerable policy space. Today, we can observe an eclectic adaptation of policies lacking in regional
coherence. What can this diversity of approaches tell us about growth in Latin America?
The six books considered in this essay grapple with various aspects of disrupted growth models in Latin
America. What had changed to promote a quick recovery following the global financial crisis? What were the
weaknesses of neoliberal market prescriptions at the onset of the global financial crisis, and how did civil
society respond? Has the regional growth model fundamentally changed? What market failures remain that
lead to less robust growth moving forward? These texts provide guidance if not definitive answers.
Macro Balance and Fiscal Space in Latin America
If the global financial crisis was a canary in a coal mine for international capitalism, the authors
contributing to Macroeconomics and Development: Roberto Frenkel and the Economics of Latin America
provide some oxygen on how to keep the bird alive. This Festschrift for Frenkel, with many essays by wellknown contemporaries, confronts key topics that engaged Frenkel’s ideas if not directly tackling his work.
This edited compendium contributes to developing a new conceptual lens to understand structuralist
economics. As clearly presented in this book, a structuralist reading of macroeconomic performance in
Latin America focuses on an exogenous shock that drives a wedge between domestic and global benchmark
interest rates; capital flows in to appropriate gains. Under a fixed exchange rate regime, real appreciation
ensues, the current account dives negative, and early optimism is overcome by negative expectations of an
impending collapse—which, as commonly observed, becomes a self-fulfilling prophecy of credit outflows,
grinding recession, and austerity. Even with a flexible exchange regime, the exposure of rates to relative
global demands exposes external pressures to trigger domestic crises. An exchange rate does not only
represent the value of your economic activity and monetary stocks; it also expresses the valuation relative
to another nation. A globally open country imports the policies and performance of economic partners
through the exchange rate. When this key variable—the exchange rate competitiveness channel—is not
largely under the control of domestic policymakers, building resilience in the face of global shocks is a
daunting task.
Macroeconomics and Development helps us understand how decades of macro adjustments positioned the
region to absorb some of the global shock of 2007–2008. Ricardo Ffrench-Davis’s chapter focuses on the
challenges of generating macro equilibrium in the face of external shocks when countercyclical domestic
policy options such as the use of sovereign wealth funds is weak or underused. The neoclassical challenge is
getting prices right—but for whom? When financierism guides policy, interest and exchange rates are set to
please global markets. Financierism, sometimes called financialization, places priority on capital flows over
real investment in the economy. With pressures created by commodity super cycles, attention to financial
markets requires a set of prices at odds with the needs of micro investments in inclusive and productive
growth. As José Antonio Ocampo points out in a later chapter, balance of payment dominance in short-term
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macro policy creates procyclical tendencies that mitigate against micro deepening. Prioritizing the external
variable of balance in trade and financial flows fosters neglect of internal demands for industrial investment.
Andrés Solimano cautions over the wide variety of igniting factors that occur under a range of exchange rate
regimes; institutional reforms are indicated to decrease fragility. The sharp focus on macro tradeoffs helps
us see the challenges of fostering stability in a volatile world.
Volatility requires stabilizers. José María Fanelli contributes that institutions are a mechanism for
managing conflict; a crisis can challenge the capacity of institutions to mediate claims. When the existing
rules of the game become dysfunctional, the legitimacy of the system collapses. Developing nations face the
same challenges as the more developed world in adjudicating competing claims on scarce resources, except
that the resources are even more constrained and tradeoffs more difficult. Distributional challenges at the
core of policy choice are exacerbated when the sum of the claims on national wealth exceed the stock value.
Fanelli writes about property rights, but the claims made by citizens on international standards for health
and education also exceed the capacity to deliver, especially under financial stress. Periods of instability
undermine the credibility of existing institutions.
This tension between macroeconomic stress and micro allocation goes far in understanding current
contradictions in the region. The wake of decades of macro instability and the more recent global financial
tsunami have roiled the credibility of institutions to deliver consistent social advancement. Fanelli observes
politicians rushing in to demonstrate gains within short political cycles, and succumbing to the efficacy
of capturing rents through corrupt mechanisms rather than the slow and frustrating investments in
institutional deepening that may lead to systemic equilibrium. While countries in the region rebounded
from the financial shock, the crisis derailed longer term investments in microfoundations and institutional
capacity.
Macroeconomics and Development is an important departure point for those working in macro and
development through the lens of Frenkel’s contributions. I would have loved a final essay in this compilation
edited by its editors and Frenkel’s close colleagues (Guillermo Rozenwurcel, Mario Damill) and a former
student (Martín Rapetti) to pull thoughts together. What are the concrete policy guideposts to promoted
stability alongside institutions for productive and inclusive growth? This is, of course, the elusive egg
of the golden goose. But as economies in the region appear to waver almost drunkenly between statedriven strategies that have predictably been co-opted by weak political institutions and global financial
markets exacting austerity tribute, a few lessons learned may have helped us on our way to consider a new
structuralism in the region.
Similarly, Latin America after the Financial Crisis is stronger on diagnosis than innovative policy
prescription. Juan E. Santarcángelo and heterodox colleagues provide a richly textured view of how Latin
America experienced the global financial crisis. Opening with commonly understood causes of the crisis in
globalized capital markets, the book contests the neoclassical view that unsound monetary policy, regulatory
failures, fraudulent practices, and external shocks were at the core of the seismic crisis. In probing the
crisis in 2007–2008, a post-Keynesian view might point to market failures and weak institutions to manage
macro shocks. Ninja mortgages—no income, no job, no assets—originating in the United States morphed to
threaten the global system. Regulatory failures coupled with weak macro attempts to increase employment
failed to equilibrate the international system.
Beyond these surface explanations, the authors push us to consider deeper systemic explanations
as economies unwind in the longer term. Hyman Minsky, as the authors characterize, puts the financial
economy at the center of crisis. In a period of growth, euphoric expectations heat up alongside the economy
until they outrun reality. In the ramp-up, borrowing accelerates to fuel anticipated growth. Large cash flows
create abundant lending opportunities that are channeled into short-term profits. As the shadow of real
performance darkens expectations, overly leveraged economies collapse. Latin America received cheap
global capital to infuse its markets, but did not leverage this for productive growth. Instead, the illusion of
growth in the financial sector obscured weak foundations. Weighed by debt that did not track productive
growth, the economic is unable to absorb the financial shocks. As Santarcángelo reminds us, the Marxian
view deepens our cyclical perspective, pointing us to the role of class conflict and falling rates of profit
over business cycles. Crises are generated from within the system, not as external shocks, as a predictable
response to the inability of firms driven by fictitious capital unconnected to real production. A shock may
spark a crisis, but only as a result of a system of generalized market failures.
In this sense, the global financial crisis was a lens to see the exhaustion of neoliberal capitalism that is no
longer able to return high profit rates alongside stable accumulation practices. The signature aspect of early
twenty-first-century global capitalism, financialism, increases this cyclical instability. As Fred Moseley’s work
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demonstrates, rather than sending countervailing signals for automatic adjustment, the changes in economies
embracing financialism accelerate crisis. Financialism can be thought of as market capitalism on steroids.
The goal of maximizing profits for shareholders creates systemic pressure toward short-term movements;
the vehicle for quick profits preferences financial market transactions over longer-term investments in the
productive economy. As the rewards of financialism attract high-stakes players, others, including those in the
developing world, lose. Global capitalism cannot perpetually sustain high financial rewards divorced from
productive performance; the global financial crisis was a painful reminder of systemic instability.
Country chapters in Latin America after the Financial Crisis nicely outline elements of the region’s macro
and financial performance during the crisis. For Argentina, Santarcángelo and Guido Perrone show how the
outbreak of crisis helped reinforce the structural relevance of traditional sectors in Argentina. The financial
compression hits Argentina while it was still adjusting to changes from its currency board regime to a system
of managed exchange rates. Its exit from shocks was to follow the call of China to deliver agricultural exports,
a reversion to the earlier export-led model. Brazil also experienced a process of re-primarization in this
period. The increase in primary exports, largely also to China, accompanies a brutal cut in manufacturing.
While this process of deindustrialization began before the crisis, Paul Cooney and Gilberto Marquez suggest
that global financial pressures likely reinforced the structural shift. Although the change in the global rules
of macro engagement allowed for countercyclical measures of expanding bank credit driven largely through
the Brazilian state bank BNDEs, this was not enough to prompt dynamic growth. In the Chile chapter,
Claudio Lara Cortés explains how the expansion of credit growth in the post-crisis period of 2009–2010 led
to a subsequent drag on the economy. For commodity exporters, the outcome of Chinese-driven growth
as tailwinds to the financial crisis reinforced the traditional dependent position of countries in the global
system, albeit with a new dominant partner in the core. For Abelardo Mariña Flores and Sergio Cámara
Izquierdo, the Mexican case of neoliberal opening subjugated the economy to the demands of foreign
multinationals and not the requisites to improving productive capacities in the national economy. Financial
concerns trumped real investment.
One policy direction offered by the authors is to break with global blocks and promote autonomy. Ironically,
the recommendation of severing strong trade ties appears to be followed by the northern neighbor, the
United States, and the region’s response is largely to reaffirm other global trade arrangements. Dependency
has shifted from a north-south to a Sino-Latin form. An unknown at this time is the degree to which China
will prove to be a stabilizing or disruptive global force for Latin America. In addition to its uneven demands
for primary exports from Latin America, it is hard to trace its financial presence in the region with less
transparent practices. This is not insignificant as the Chinese now lend more than the World Bank, and
largely to extractivist projects in the region. Old asymmetrical center-periphery relations may just have a
new center. Latin American structural weaknesses made apparent by the global financial crisis remain under
construction. The global financial crisis was, as Lara Cortés points out, a crisis of capitalist globalization. The
face of mid-twenty-first-century global economic relations is as yet unfinished.
Andrés Solimano also probes the crisis of global capitalism in Global Capitalism in Disarray: Inequality,
Debt, and Austerity. His globally comparative treatment—Chile is the only country in the book within Latin
America—resonates with the diagnosis of the Santarcángelo work. Capitalism’s disarray emerges in part from
the current inability for markets to right themselves fully. Cycles of rapid credit expansion leave markets
dangerously indebted; in a down cycle the costs of painful deleveraging come at the price of expanding a
socially inclusive policy matrix. Marx’s fictitious capital—a prescient description of financialization—creates
extreme cases of financial fragility. Procapitalist policies reinforce unequal power of elites to maintain
privilege and undermine social cohesion. Chile is well known as one of the world’s most unequal societies.
Twelve families listed as Chile’s billionaire dynasties by Forbes collectively account for combined wealth of
15 percent of Chilean GDP. Uneven distribution not surprisingly replicates unbalanced growth.
Solimano, like most authors in this diverse set of books, doesn’t provide us with much in terms of concrete
policy recommendations. Chile’s tilt again to the right in the 2017 election returning Sebastián Piñera to the
presidency may point to the constraints that a more socially inclined government such as also second-time
president Michelle Bachelet faces upending structures of elite power and the concentration of wealth. The
heterodox analysis suggests that a high concentration of wealth creates a stagnant bias of under consumption
by the masses thwarts real, as opposed to financial, growth. Disruption of this dependent capitalist growth
model would imply upending elite control; but midwifing this revolution in economic distribution of wealth
and power appears outside the functionality of the political system. The neoliberal experiment in Chile is a
long-running example of the tension between the need to promote broadly shared prosperity as a source of
stable growth, and political distributions of power that cater to the needs of the über-wealthy.
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Why Do We Continue to See More of the Same in Latin American Policy?
Why have we not seen more sustainable and inclusive policy packages from the tumultuous economic
laboratories we call Latin America? Jeffery Webber’s The Last Day of Oppression, and the First Day of the
Same: The Politics and Economics of the New Latin American Left provides a deep dive into the alternative
experience of left-wing governments and social movements in the region. Spoiler alert: despite a rich range
of political and economic experiments, the left-leaning “pink tide” governments of the last two decades did
not restructure foundational elements in Latin American economies. Although these populist programs
successfully redirected wealth to reduce poverty in historically unprecedented ways, this transfer did not
fundamentally alter the elite class structure of Latin American societies. Instead, they compensated the
least well-off in society with rents from the commodity supercycle.
There is much to admire in the accomplishments of compensatory states. Poverty in Latin America was
roughly halved and an incipient middle class was incubated. Venezuela, Bolivia, Ecuador, and Brazil were able
to capture the surplus from the commodity boom and, through social innovations such as conditional cash
transfer programs accompanied by state investments in broadening health systems, achieved significant
social gains. As Webber notes, social compensation expanded the consumption capabilities of the popular
classes while providing an internal momentum for economic expansion. The benefits flowing to the bottom
were a function of extractivism, with, perhaps, no more fundamental changes than appear in growth periods
of market trickle-down economics. Although the state intermediated the transfer, fundamental rights and
privileges were not rearranged. Elites retained control.
Social gains were limited by the global markets tied to rentier capitalism. The end of the commodity
supercycle triggered sever cutbacks in the financial capacity to provide for a universal standard of living
without infringing on the ability of the elite to maintain their own privileged ecosphere. The moderate left’s
conflict avoidance when it comes to international capital constrained it from deeper redistribution of assets
as opposed to sharing the financial flows in extractive capitalism. For the most part, a redistributional left in
Latin America was not a radical left.
Webber offers Venezuela as a counterpoint to the radical left “lite” characterization. Neoliberal austerity
was roundly rejected by Chavez from 1999 to 2013 and replaced by Bolivarian socialism. Chavez’s missions
attempted to change how Venezuelans excluded from the provision of health and education services
received social goods. While indeed Venezuelans have been through a profound shared struggle, this has not
fully transformed class boundaries. Webber invokes Skocpol’s criteria for social revolutions as experiences
that combine two coincidences: societal structural change evidencing class upheaval alongside political
and social transformation. Yet the current economic crisis in Venezuela leaves it as less than a shining
example for citizens in a social democracy to choose a valued life. Those suffering from the deprivation of
food, medicine, and other amenities of modern life in Venezuela today may not appreciate the upending of
market institutions that had delivered sustenance and meager comforts. Although it may be too soon to tell,
the images from Venezuela of starving children alongside the wealthy continuing to access fine food and
goods does not portend a happy revolutionary ending.
In part, the difficulty of articulating and implementing a new left economic model appears to lie in the
contradiction between the needs of global capitalism and those of domestic development. Growth requires
financing. This can come in payments exchanged for goods and services—quite frequently extractive—or
from capital markets and multinational investment. One can introduce policy measures to minimize this
dependency on global finance, but in periods of austerity, it is a binding constraint. Since the writing of
The Last Day of Oppression, the tired old models that preferenced markets before social compensation have
returned. Voters in Argentina, Peru, Mexico, and now likely Chile are jettisoning the left-liberal governments
that failed in an essential transformation of their lives for a reprise of market-first governments. This presents
not as an ideological turn to market fundamentalism but rather as an expression of dissatisfaction with
delegitimized compensatory states poorly positioned in the global system to deliver. This expression of
dissatisfaction is fueled by the theology of prosperity of Evangelical Protestantism that validates the values
of individual over communal goals. The global financial crisis created operational space for state capitalism.
It did not, however, separate economies from the exigencies of global financial markets. Ten years after the
international crisis, countries must continue to don the golden financial straitjacket—a set of short-term
financial metrics as assurances to capital markets. Ironically, the austerity of left-leaning governments forced
by the financial system has created political space for the right to thrive in the region. As Webber’s sad title
indicates, it is more of the same.
Webber brings theoretical depth to his exploration of alternatives to capitalist development in the region.
Using life histories and detailed characterizations of the historical moment, he urges a creative reinterpretation
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of Marxian thought as a guide to change in Latin America. His conclusion, however, remains cloudy and dark
as Latin American countries are navigating a period where communal norms are trampled in the face of
financial constraints. The rise of the left with the pink tide did not alter Latin America’s insertion into the
global economy as largely extractive exporters, nor did it reframe domestic class relations. The extractive
model of accumulation, for Webber, did not allow for the retooling of capitalist states by progressive but
not revolutionary governments. Explosive social movements propelled left-leaning governments to power;
popular protests today make claims on the abuse of that power by corrupt politicians receiving kickbacks.
Corruption is a toxic tax, and those masses paying the price are justifiably angry. Marxist analysts, along with
more mainstream economists, missed the power of rejection of well-meaning but infected compensatory
states. The delegitimized left may do well to study the historical examples of social resistance offered by
Webber to reinvent a new paradigm. Iconic figures may provide guides to reconstructing the trust critical to
effective institutional deepening.
Understanding Resistance
The search for authentic alternatives to the crises of capitalism can take us to the community level. Erica
Simmons offers accounts of the ways in which communities in Bolivia and Mexico organized to address
the most divisive elements of market insertion into socially constructed meaning. The adoption of market
pricing for water in Cochabamba, Bolivia, and corn in Mexico City put community relationships—the core
of stability—at risk. In the water case, Simmons carefully and compellingly shows how latent grievances
can be infused with shared meaning to mobilize communities. How water is distributed is a fundamentally
political task. Communally guided solutions prioritize different outcomes instead of price and profit. When
water pricing resulted in the budget pressure of 11 percent of the monthly minimum wage in a community
where 55 percent are scraping by under the poverty line, the costs of marketization were oppressively
burdensome. Simmons shows the way that framing water as a communal resource and not a commodity
allowed for common cause in mobilizing to reassert community control over this resource. The deep
cultural meanings associated with water allowed participants to bond for effective mobilization. As global
resources become increasingly scarce, this case provides a positive vehicle for socially inclusive change:
community-based relations. As Simmons notes, “We must better understand how people understand and
order their worlds, and how ideas are produced through practices. … this book is about the ways the
politics of the everyday intersect with and shape the politics of the extraordinary” (201). Taking advantage
of the lessons of resistance will, not surprisingly, be grounded in local expressions of how communities
can re-create space to manage the challenges of neoliberal approaches to development. Reaching down to
deep symbolic meanings created by communities may help shape a more equitable future.
While this dialectic between locally imbued meanings and resistance to change is alluring, I question its
force in the face of the challenges of globalization. In Free Trade and Faithful Globalization, Amy Reynolds
also looks toward deep communities—in her case faith communities—that challenge the values underpinning
capitalists systems. Advancing the notion that markets are cultural constructions, Reynolds probes into how
religious organizations can once again counter market values to provide for more humanized development
outcomes. This well-done comparative case study rich in theoretical grounding examines what it means to
prioritize community in a free market system. Reynolds follows the discourse of three Christian groups with
different religious traditions as they encounter trade politics, focusing largely on Central American free trade
(CAFTA). In addition to serving as a template for careful case-based research, the study unveils how marketdirected policy can be framed by social and religious engagement. Rather than acceding to the dominance of
global financial forces, communities can lever local responses. As community organizations may be eclipsed
by elite and powerful transnational networks, community-based values can help define how the costs and
benefits of globalization are shared in a society. As global capitalism leaves behind forgotten places, religious
communities can create the discourse to transcend individual wants and address social needs. In the search
for a more equitable paradigm as an alternative to policies dominated by market norms, engaging religious
and communitarian discourse may encourage creative policy options. The difficulty, of course, is that the
discourse of religion is steamrolled by economic exigencies. The discourse rapidly reproduced by most social
media squeezes discussions of values to focus on the financial and political returns of the day.
A Hybrid Alternative?
The global financial crisis revealed the structural weaknesses of Latin American economic development.
This large, disruptive global shock, initially facilitated by the presence of foreign banks, was reinforced by
a trade and export demand shock. The rounds of expansionary macro policy in the advanced world—so
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called quantitative easing—gave rise to extraordinary strengthening of exchange rates that, combined with
Chinese demand for natural resources, created headwinds for industrial growth in the region. The pains
of deindustrialization and the pressures of globalized financial markets are common themes across these
volumes. Latin American economies, while rebounding from the global financial crisis with a surprisingly
rapid V-shaped recovery, have not addressed the diagnoses of the early dependency theorists that pointed
to elite control and asymmetric, dependent insertion in the global economy. Although the global financial
crisis punctured the ideological purity of neoliberal prescriptions, as nations across the globe intervened
in economies, a workable alternative response for sustainable, inclusive growth did not emerge.
What might be done in the dark impasse described by Webber? The Inter-American Development
Bank (IDB) offers an alternative blueprint to a pure market or centrally state based recipe. In Rethinking
Productive Development: Sound Policies and Institutions for Economic Transformation, the prescriptions of
editors Gustavo Crespi, Eduardo Fernández-Arias, and Ernesto Stein find affirmation from neostructuralists
in their clear focus on institution building. They are hardly revolutionary, and also begin with a very cleareyed view of when markets fail, and what instruments might compensate to promote effective productive
development policies (PDPs). The book addresses the region’s widening productivity gap relative to the
United States from roughly a quarter in the early 1960s to now nearly half. As distinct from old importsubstitution policies, the IDB offers a new direction for PDPs as outward-oriented measures for states to
coordinate responses to market failures that restrain autonomous growth. The PDP approach cautions
against the state-capitalist model of picking winners, which led to corrupt rent-seeking behavior. Instead,
interventions might focus on the production of public goods or provision of generalized subsidies or tax
breaks to encourage economic dynamism. Policies to encourage a revival of productivity ought to engage
economy-wide measures enhancing competitiveness in the global value chain, not industrial policy.
Based on a rich set of commissioned case studies grounded in a generous reading of the academic literature,
the editors do a beautiful job of presenting the work in a single, reader-friendly voice. The book contests
market fundamentalism in that it clearly specifies the causes of market failures grounded in asymmetric
information, uncertainty, coordination failures, weak institutional capacity and the inability to capture the
social returns (or limit the external costs) with public goods. Its focus on preparing people to produce—
an exhortation for education across the life cycle—is well placed. Echoing Michael Porter’s work, the book
advocates for cluster development programs (CDPs) and value chain programs to address information
problems and knowledge spillovers, as well as to lower the transaction costs to stronger collective action.
Industrial countries could also rip a page from this piece in making the case for infrastructure as a public
good that is critical for both equitable internal development as well as sustainable insertion into the
global economy. Focusing on the ingredients for productive transformations may propel Latin American
economies to address the age-old bottlenecks of import-substitution industrialization with a new, dynamic
global lens. The accumulated lessons of failed past policies with unintended exclusionary outcomes come
to bear in the recommendation for wide stakeholder consultation that builds the trust required for a
productive public-private dialogue. It recognizes that entrepreneurial energies emanate from varied local
contexts; experiments, feedback loops, and adaptation will enhance positive results. The authors encourage
transparent mechanisms for accountability to offset the corrosion of corruption that drains productive
capacities.
Rethinking Productive Development is not a radical treatise, but well adapted, it could transform the
institutions guiding and inhibiting growth in Latin America. Like the adaptations introduced by leftleaning governments, it is unlikely to fundamentally alter the unequal allocation of assets in the region
that perpetuate elite power. But the last section on the hard task of building public sector capacities, with
its thoughtful suggestions for institutional change, may provide an environment to encourage productive
capacities for more resilient economies. One may wonder whether there is time, before the next global
crisis hits, to induce the behavioral changes that encourage long-term investment in an entrepreneurial
ecosystem for Latin America. Crises reveal structural weaknesses; the global financial crisis was one of the
most damaging to capitalism as a system. Although investing in the productive potential of economies in
the region will not radically remake the Latin American economic landscape, it may create the space for new,
more resilient forms of productive organization to emerge. Excessive reliance on financial flows makes for
brittle structures; the development of more inclusive productive foundations can promote resiliency and tap
into the growth potential of the Latin American region.
Until institutions grow to become more nimble and just arbiters of domestic needs under the pressures
of global financial demands, a new alternative model is unlikely to emerge. Building institutions is rarely
the work prompted by ideological or political positions. Instead, it is incremental, sometimes barely visible
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change that knits together disparate social demands. If an outcome of the global financial crisis was a more
pragmatic approach to market intervention, a takeaway from the past decade of heterodox experiments is
the need to deepen mechanisms of accountability to moderate elite capture. Only after undertaking this
difficult domestic work can the region experience autonomous, productive, and sustainable growth.
Author Information
Patrice Franko is Grossman Professor of Economics and Global Studies at Colby College in Waterville,
Maine.
How to cite this article: Franko, Patrice. 2019. The Global Financial Crisis and Latin America. Latin American
Research Review 54(1), pp. 286–293. DOI: https://doi.org/10.25222/larr.873
Submitted: 23 October 2017
Accepted: 11 January 2018
Published: 10 April 2019
Copyright: © 2019 The Author(s). This is an open-access article distributed under the terms of the Creative
Commons Attribution 4.0 International License (CC-BY 4.0), which permits unrestricted use, distribution, and
reproduction in any medium, provided the original author and source are credited. See http://creativecommons.org/
licenses/by/4.0/.
Latin American Research Review is a peer-reviewed open access
journal published by the Latin American Studies Association.
OPEN ACCESS