Left Behind: Latin America and the False Promise of Populism
Why growth kept disappointing despite reform; good on institutions and productivity.
Summary
Sebastian Edwards, a Chilean economist at UCLA and formerly chief economist for Latin America at the World Bank, asks why the region has failed to converge on rich-country income levels despite repeated reform programmes. His answer combines a critique of populist macroeconomics with a critique of how the market reforms of the 1990s were carried out.
Edwards builds on his earlier work with Rudiger Dornbusch on the populist cycle: a government raises wages and spending, output and real wages rise for a year or two, then foreign reserves run out, inflation accelerates, and the correction leaves workers worse off than at the start. He documents this pattern across Chile under Allende, Peru under Garcia, Argentina repeatedly, and Venezuela under Chavez. He then argues that the Washington Consensus reforms failed politically because they were implemented as macroeconomic stabilisation and trade liberalisation without the institutional and social components, so growth was moderate and inequality unchanged, which reopened the door to populism.
His prescription emphasises productivity, education, institutional quality and openness, along with social protection built into the reform programme rather than added later. Critics from the left argue that he understates the distributional damage of the reform period and treats commodity cycles as background rather than as the main driver of Latin American growth. The book appeared in 2010, before the commodity boom ended and before the political cycle turned again, and the population of cases he analyses has grown since.
Key takeaways 7
- Populist macroeconomic programmes follow a repeated sequence ending with real wages below where they started.
- The Washington Consensus reforms delivered stabilisation and openness without institutional or social components, which limited their growth effect.
- Latin America's growth failure is a productivity failure, since investment rates have not been far below those of faster-growing regions.
- Reform programmes that ignore distribution create the political conditions for their own reversal.
- Edwards argues that Chile diverged from its neighbours because it sustained policy across governments rather than because of the policies themselves.
- Commodity price cycles produce growth episodes that governments and voters mistake for the results of their own policy.
- Education spending in the region has risen substantially without corresponding gains in measured learning.
Who should read it
Investors in Latin American assets who want a diagnosis of the recurring policy cycle from an economist who has studied it across four decades.
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Where it sits in the reference 2
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