Mercosur: From Adam Smith to Aladdin

With Jose Miguel Insulza as Secretary General, the OAS  became paralyzed, the author points out. (Photo: OAS)

The late President Hugo Chavez (left) performed the role of the genie in the Aladdin story. Here with Brazilian President Dilma Rousseff during a 2011 meeting. (Photo: Brazil President's Office)

There is a huge gap between Mercosur and NAFTA in trade creation and labor valorization.


When Adam Smith resorted to the invisible hand as metaphor for the automatic interest aggregation brought about by a free economy he definitely was not thinking of Mercosur.

The much-heralded trade association bolstered by Brazil and Argentina twenty 23 ago under the promise of establishing the third-most powerful integrated market in the world has only served the purpose of polarizing the continent while consecrating crony capitalism through enhanced protection and trade intervention.

Indeed, from its 1991 year of its inception through 2010 Mercosur trade grew from $11 billion to $88 billion, with trade between Argentina and Brazil representing 45 percent of this growth. In contrast, trade of goods and services between the U.S., Canada and Mexico has increased from $337 billion in 1993, before NAFTA went into effect, to $1.2 trillion in 2011. But not only there is a huge gap between Mercosur and NAFTA concerning trade creation but also in the field of labor valorization. According to a Washington Post article, published last November, a study done by three Federal Reserve economists showed that NAFTA increased wages in the U.S. by 0.17 percent, in Canada by 0.96 percent and in Mexico by 1.3 percent. Accordingly, workers in these three countries moved upwards in the income scale. The same is not true for Mercosur.  

But where the difference between these organizations is more startling is in the field of political activism. While NAFTA leadership has concentrated in furthering trade growth, Mercosur has developed an astoundingly efficient diplomatic rapid response squad that has intervened with mixed results in the political crisis of Honduras and Paraguay. Political concertation can be traced back to the ascent of ALBA, the alternative regional organization created by late President Hugo Chavez of Venezuela to circumvent the OAS and the UN in matters pertaining to regional interest aggregation and conflict resolution.

In this transformation President Chavez performed the role of the genie in the Aladdin story. He came out of the bottle of history to turn into reality three wishes to the South American leadership. The first wish was to do away with regional mechanisms for interest aggregation and conflict resolution so as to liberate South America from the negative influence of  Washington Consensus supporters. This worked exceedingly well once the group managed to crown Jose Miguel Insulza as Secretary General of the OAS by defeating Luis Derbez, the Mexican Foreign Minister. With Insulza the group would meet two goals. First to paralyze the OAS so that Mercosur and its satellite organizations would have the field clear to execute political actions without any US participation.

The second goal met was  to effectively divide the region into two groups: pro-market-cum-democracy and pro-statism-cum-authoritarianism. But under the Insulza paradigm the second group of countries were evolving democracies with social consciousness.

Then there was the wish to create a development finance fund alternative to the Inter-American Development Bank and the Andean Development Corporation (CAF).  This was BNDES created by Brazil and Venezuela. The institution concentrated resources and efforts in giving fast track access to credit to projects and enterprises that were friendly to the ruling regimes.

Finally there was the wish to bring together all trading partners into a single market led by Brazil just as Germany reigns at the EEC. And this wish was about to come true when stubborn reality made the bubble pop. Brazil lacks the necessary infrastructure to truly take off and become economically airborne.

This, together with the death of President Chavez and the turn for the worse that took the commodities market, has all but kept stopped Aladdin’s magic, which after all was only meant in the original story to last one thousand and one nights!!

Beatrice Rangel is CEO of AMLA Consulting Group, a business development advisory firm in Miami. She wrote this column for Latinvex. 


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