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Impact of Socialism in South American Countries


By Harshitaa Prakash


During the industrialization period in the 1980s, known as the “lost decade” of Latin America, countries of this region had borrowed huge sums of money from commercial lenders and international institutions such as the World Bank and the International Monetary Fund (IMF). These borrowings were used to build military power and add to the already abundant wealth of the oligarchy while the poor languished. Due to this, the number of people living in poverty increased and due to an inability to pay off the loans, a debt crisis arose. This was a result of growing neoliberal ideas not only in Latin America, but throughout the world in general. Neoliberalism is an ideology characterized by free market, capitalist ideas and policies, and it led to further polarization of the society and economy in Latin America. This led to the erosion of the legitimacy of neoliberalism. It is said that “neoliberalism emboldened old movements and created new ones” as there was widespread mobilisation of the social left as discontentment with neoliberalism grew. These new political regimes posed a challenge to US unilateralism, which the people who were sceptical saw as a strategy of “neo-colonization”. These countries stepped away and formed and followed their own foreign policy which resisted capitalism and favoured socialist ideas. The thinking of those who came to power, such as Hugo Chavez in Venezuela, played a huge role in shaping the opinions of the Latin American public.


Role Played by the U.S.

The United States made various attempts to promote capitalism in the Southern Hemisphere. The Monroe Doctrine of 1823 was a United States policy which stood in opposition to European colonialism in America. This doctrine was issued when almost all Latin American colonies had gained, or were in the process of gaining, independence from their respective colonizers and sought to free these newly independent colonies from further European intervention. It was to serve as a way of allowing the United States to exclusively exert its own influence on these countries, and to do this, the free market ideology was used as a way of seeking the allegiance of Latin America. This doctrine was for the most part successful in Latin American countries but there were also those who were apprehensive of this doctrine and the intention of the U.S. in promoting these policies. The Washington Consensus also was another way in which the US popularised capitalism in Latin American countries. It refers to a set of ten economic policy ideas based on “free market” liberalism which was considered to be the “standard” by institutions such as the IMF, the World Bank, the European Union and the United States treasury. But, this is something the people of Latin America did not stand for owing to popular opinion and policies of socialism promoted by those in power, such as Hugo Chavez – the former president of Venezuela. To further U.S. led imperialism, the Free Trade Area of the Americas (FTAA 1994) was also brought into existence to ensure Latin American compliance and under the Bush government, attempts were made to revive this. However, opposition to these policies was strong and was further strengthened by Chavez’s criticism of the Bush government, and the fact that it had recently invaded Iraq. The demands put forward by the FTAA were perceived to be restrictive and detrimental to the development of Latin American countries as they were suited and formulated to favour countries like the United States who enjoyed intellectual property rights and other such protectionist barriers, while countries from the Latin American region did not. Thus, the FTAA did not prove to be very successful.


Socialism in Venezuela

The former President of Venezuela, Carlos Andrés Pérez, stood in favour of the “free market” policies sold to him by commercial banks and the IMF, and this put pressure on the working class in this developing region which could not compete with advanced countries like the United States and European countries, where capitalism was functioning in full swing. With Hugo Chavez coming into power, the left came to power across Latin America. Chavez was the President of Venezuela from 1999 to 2013, and also the leader of the Bolivarian Revolution – a leftist political process in this region. He led the charge to block the FTAA in Venezuela and held a strong influence over other Latin American countries as well. This made room for alternative non-socialist models which, it is assumed by the citizens of Venezuela, better suited the needs of developing countries like Venezuela – needs such as promotion of diversified trade, democratization and policies oriented towards national development (Carlsen, 2006). Chavez also brought about policy changes such as the use of the oil reserves of Venezuela to bring about a shift in the class landscape of the country. He planned to provide oil at subsidised rates to developing countries in the region as well as countries around the world provided that they would use it for social welfare purposes. This served to integrate the Caribbean basin and Latin American countries. Chavez headed the non-aligned movement against ‘US led imperialism’ and believed that “a socialism for the twenty first century” was the ideal to work towards. This posed a threat to the neoliberal policies promoted by the US. The US staged a coup d’état against Chavez in 2002 but failed in their attempt to eject him from power. Eventually, the US had to withdraw its attempts at imperialism in regions of Latin America.


The powerful cult of personality surrounding Hugo Chavez won him the presidential referendum after the 2002 coup, but this mass support inevitably hindered development of other autonomous and popular movements capable of making independent decisions when the need arises (Gindin, 2006). The boundary between community and government-formed community organisations was blurred. Chavistas also made use of their influence to bend political structures as they pleased. Having this much power is a possibly detrimental and dangerous thing for the country as the government could very easily be turned authoritarian in such a situation. But gradually, the need to defend Chavez receded and made way for Chavismo – a left-wing political ideology based on the ideas of Hugo Chavez. Chavismo was more focused on community needs rather than electoral processes and was aware of the structural transformation going on in the country.


Socialism and its Decline in Chile

Chile, on the other hand, showed signs of resistance to neoliberalism in 1970 when Salvador Allende was elected to power, but his victory was short lived. Allende was the one who led the left here proclaiming “a democratic transition to socialism”. He was succeeded by General Augusto Pinochet in 1973 as the President of Chile after carrying out a coup d’état against him with support the from the US government and successfully overthrew the democratically elected Marxist government and ended civilian rule in the country. General Pinochet is the founder of the neoliberal offensive in Chile and implemented “free market” oriented neoliberal policies here. The country did very well, at least on the face of it, in the initial years under his rule. It was labelled the best performing economy in Latin America in the 1990s, and was characterised by high life expectancy and the best social services in the region. However, upon looking deeper, it can be seen that economic disparity went up by huge proportions, unemployment was on the rise and when compared to countries outside the Latin American region, Chile was not doing so well. Ideas of free market policies, anti-communism and hostility towards state welfare functions stirred an ideological and political offensive in the country. Pinochet’s regime in Chile ended in 1990 after it lost a referendum in 1998, and was succeeded by a center-left coalition. Chile is a capitalist country today and is one of South America’s most politically and socially stable nations.


The Situation Today

US-dominated institutions tried endlessly to reinforce the view that there is no alternative to free-market policies in Latin American countries, but the apparent success of socialist policies here came in the way of capitalism. Resistance to the free-market neoliberal order is strong in the southern hemisphere where developing countries are in the process of formulating a social and economic system more suited to their needs. The United States had already learned from history that socialism is not a feasible model for an economy in the long term. Washington fears that the “demonstration effect”, that is the influence the Venezuelan example of Hugo Chavez’s socialism and alternatives to neoliberalism, is putting imperialism by the US into jeopardy (Ellner, 2006). Socialism may yield huge benefits in the short term because of government spending, but in the long term, this is not sustainable. The reason why the government is able to spend so much is because of the huge amounts of loans taken to do so. With socialism comes a slow down of productivity and efficiency owing to the decrease in competitive spirit. So, the economy does not further develop leading to an inability of the government to pay its debts off, and hence, socialism proves to be detrimental in the long term. Venezuela was once one of the wealthiest Latin American countries but is currently facing an economic crisis due to hyperinflation and severe debt. This is the result of the socialist policies followed under Hugo Chavez. Also, Chile is doing much better under the capitalist model of government and enjoys the status of having a high income economy and high living standards of its people. Today, it is seen that the socialist countries are willing to look at the capitalist model as an option because throughout history, communist models have inevitably failed. Even in India, formerly a socialist country, a shift is seen towards capitalist policies such as the New Economic Policy of 1991 which promotes liberalisation, globalisation and privatisation of the economy and ever since then, huge positive changes have been seen in the economic atmosphere in the country. The US is not acting purely in self interest to promote capitalism in Latin America, it is trying to use its power and influential position to aid the eventual shift from socialism to capitalism.



  1. Prasad, Vijay, and Teo Ballvé. “Dispatches from Latin America: Experiments Against Neoliberalism”. Cambridge, MA: South End Press 2006.
  2. Sachs, Jeffrey D. “International Policy Coordination: The Case of the Developing Country Debt Crisis.” International Economic Cooperation, edited by Martin Feldstein, 233-78. Chicago: University of Chicago Press, 1988.
  3. “The Monroe Doctrine (1823)”Basic Readings in U.S. Democracy. United States Department of State. Archived from the original on January 8, 2012.
  4. Williamson, John (2009), “A Short History of the Washington Consensus,” Law and Business Review of the Americas 15, no. 1: 7-26
  5. Bodenheimer, Susan. “Dependancy and Imperialism: The Roots of Latin American Underdevelopment”. Politics and Society (1971).


Harshitaa Prakash is a first year law student at Jindal Global Law School.


Featured Image Source: Quora


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