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Bolivia
OVERVIEW

Despite enormous material wealth Bolivia remains one of the poorest countries in the world. Numerous economic alternatives have been tried but none seem to generate sufficient yield to provide adequately for all members of the country. Linking the nation's economic fate to a single or few commodities dependent on world market prices has created additional instability. Foreign interests have frequently undermined domestic priorities. Political turmoil and corruption has done little to create the underlying components of a successful economy. One wonders what it would take to create an environment that could foster genuine and pervasive economic growth and security.

AYLLU

Before the arrival of the Europeans in the sixteenth century, the area that now comprises Bolivia was economically stable (Figure 15). Two factors contributed to this equanimity. People had a communal sense of the land. They farmed jointly and shared in its bounty. The rugged and varied terrain of the area and different ecological zones (Figure 22a) led to a trading of food and other necessities. Life was hardly idyllic but basic needs were met. When the Incas conquered this region in the fifteenth century, they preserved and indeed expanded the concept of communal farming and used it throughout the empire (Figure 24). The state determined production and consumption amounts. Clearly this method was successful as the presence of non-producers (artists and religious leaders) attest. In the centuries before modernity, collective sensibilities provided for the basic needs of all.

MERCANTILISM AND COLONIALISM

With the Europeans came a high regard for individual acquisition (Figure 7). Although all wealth generated by the colony was the property of the Crown, the opportunity for personal aggrandizement fueled interest in and migration to Spain's holdings in the New World. Spain, and the other nations of Europe, competed for these resources, developing an arrangement that would make all trade go through the crown. The operating principle in this mercantile system was to generate as much wealth with as little capital expense as possible. Human labor was the least expensive component of extracting the wealth of the Americas. The Spanish forced natives to work using the Incan practice of MITA. The Crown then granted access to indigenous labor through the encomienda system, which allowed mine owners the right to the workers of entire villages provided they would be treated fairly. No safeguards were imposed and when the native population proved inadequate to this task, the Spanish supported the transatlantic trade of African slaves.

The mercantile economy of Bolivia was very limited in many regards. By focusing on raw materials only, diversity was limited to a number of products. Markets were closed because all trade was limited to Spain. As a result, little infrastructure developed. No independent shipping or commercial interests developed and therefore, once mining declined, no other industry rose to take its place. By the late 17th century, surface mining yields began to decline. Although there was still a great deal of precious metal to be mined in Bolivia, shaft mining required machines and other capital outlays. The Spanish government was unwilling to make these expenditures and Bolivia declined as a mining center in its Latin American empire (Figure 7). Although some efforts were made to reinvigorate silver mining in late 18th century, Bolivia now suffered from a reduced status vis a vis other areas of Spain's America. Subsistence agricultural persisted as it always had.

Independence in 1825 brought little gain for most Bolivians. Whatever economies of scale existed by being part of an empire were now lost as each independent country of South America (Figure 13) established protected tariffs. Banking resources of neighboring countries were not readily available to Bolivians. Lacking the expertise of the Spanish, who had only allowed those born in Spain to administer the colonies, political inexperience and corruption further limited the ability of the Bolivian people to reap the benefits of its bounty. Without the mining revenues, the new government turned more to internal taxation, increasing the burden on the agricultural sector which comprised most of economy. An unintended result of the decrease in silver production was the rise of areas away from mining centers, such as La Paz and Cococahmba (Figure 14).

MARKET ECONOMY

By the early 19th century, the economy of the Western world was dominated by market forces. The advent of manufacturing followed by wide-scale industrial production only solidified this modality. For the fledgling nation of Bolivia, limited access to capital restricted the extent to which it could participate fully in the global economy. Its role was restricted to a provider of raw materials, perpetuating its de facto status as a colony. Although it supplied its natural resources to producers, it was forced to purchase finished goods elsewhere. Bolivia's economy was bound by forces it did not control.

Limited attempts at manufacturing were undermined, first by the British and then by the United States. Any infrastructure improvements existed only to hasten the arrival of its raw materials to market. By the second half of the 19th century, a new raw material, tin, would prove to be valuable on the world market. Initial capital outlay came from three Bolivian families who had achieved wealth in the agricultural sector. Again, this product was subject to the vagaries of the world market. Tin mining used hired labor, drawn largely from the indigenous population. During this time there was limited opportunity for upward mobility but a small, educated middle class arose, largely to serve this new industry and ensure the political agenda of the mine owners. Only the government could provide the capital expenditures to support the necessary improvements in communication and transportation to service tin production.

The advent of the tin industry did affect the indigenous population. As Indians left the land to work in the mines, additional changes resulted to support the working populations in the mining centers. For the first time in Bolivia's history, the government supported an enclosure movement to create large tracts of land for commercial agriculture. This shift ended much of the collective farming that had existed for centuries for most of the indigenous population. The wealth of those at the top of the pyramid increased greatly during this period and the overall economy grew. There was no gain for the landless peasant class, now twice as large because of the changes resulting from this industrialization.

Manufacturing remained limited and Bolivia's economy was dependent on the world market price for tin. The sustained depression of the 1930s was unsettling for the entire country and the mine owners sought government help with production quotas. Government actions did stabilize the economy although Bolivian leaders were careful to distance themselves from the command economies that characterized the totalitarian regimes of Italy and Germany during this time. The idea of direct government manipulation of the forces of supply and demand would set the stage for the rest of the century.

SOCIALISM

By 1950, Bolivia was a deeply poor country. Unable to feed itself, 92% of its cultivated land was owned by 6% of the population. This reality of absentee ownership indicated little concern for the poor and highlighted the desperate need for change. Commercial agriculture did not benefit either rural or urban workers and most Bolivians remained poor. The Bolivian government realized that it had to take important steps. World War Two showed the dangers of unfettered capitalism but also indicated the power of the state to improve the lives of people. The seeming success of the Soviet and Chinese systems suggested that government control over production and consumption was a viable alternative. Populist leaders, particularly in South America, provided a voice for those long without a say in government. Some Bolivian leaders were now determined to use the government to set up social welfare programs, and provide state funds and financial incentives for economic growth and basic improvement in living conditions.

These new approaches affected life in large and small ways. Workers, particularly those in mines, organized and began to demand improvements. The government nationalized the tin mines. But confiscation failed without foreign expertise. Bolivian leaders knew that they needed outside assistance and received financial support from the United States to develop its oil industry. The US agreed to provide this assistance to Bolivia after assurances were made that American owners would control this important industry.

During the Cold War era, Bolivia promised to remain America's loyal ally in international affairs. In domestic matters, the Bolivian government tried to improve conditions for its people and implemented social welfare programs. The United States provided direct aid and loans. The Bolivian government, using both domestic revenues and foreign aid, provided education and health care for its people. It also funded public works such as dams and roads, yet a great deal of corruption ensued and these projects did not yield the desired benefits. When a series of military dictators began to rule in 1964, patterns of corruption, abuse and poverty continued.

NEOLIBERALISM

By 1985, Bolivia was more than bankrupt. Soaring inflation has rendered its people destitute. Government command of the economy had failed. Before Western nations would help, they required two guarantees. The first requirement was a civilian, democratic government in which there would be responsibility and accountability. The second mandate was the elimination of a command economy and a return to market forces that would guarantee that the dictates of supply and demand would work their powers of fairness and justices. Free markets were considered the natural economic partner to political democracy.

Industrialized nations did not come to the aid of Bolivia and other Latin American countries out of altruism. Most of these countries were heavily in debt and seemed unlikely to ever be able to repay their loans. Tough measures of financial austerity were instituted throughout South America. These mandates included opening markets to foreign firms and privatizing state enterprises, including utilities. The operating principle was that basic commodities would be fairly distributed once the forces of market efficiency and discipline were imposed. Price and wage controls were removed. The government cut spending and closed state owned mines. Although unemployment rose at first, high inflation ended and a new wave of foreign investment ensued. Nevertheless, two decades later, the people of Bolivia have little to show for their sacrifices. Unemployment remains high and poverty rates are higher than they were a quarter century ago. Privatizing such basic commodities as water resulted in popular protest and wide spread discontent.

The problem is that there is no such thing as a pure market. Governments interfere in large and small ways, and people do not behave in the rational way of economic models. In Bolivia's case, a third factor contributed to the failure of these market impositions. No steps were taken that would have directly confronted the economic security of its primary benefactor - the United States. So when Bolivia was forced to remove it tariffs to create truly open markets, the United States and Europe continued to provide subsidies to its farmers and maintain tariffs on textiles and agricultural products from outside their own countries. Bolivia could not compete in the protected domestic markets of America and Europe.

Bolivia did as it was required. It privatized railroads, phones, airlines and mines and sold these holdings to private and largely foreign investors. The promised gains did not materialize and simply reflected another stage of Bolivian wealth going into foreign hands. But fifty years of social programs and education have created a population that will no longer accept this as the status quo. Popular protest abounds as Bolivians make their discontent heard. Indigenous leaders, such as new president Evo Morales, have directed this unrest and promised change.

NEOSOCIALISM

What lies ahead for Bolivia? Morales is aware of his country's past and despite some fiery rhetoric, proceeds with caution. He nationalized the natural gas industry but did not opt for full scale confiscation, understanding the failure of that approach a half century earlier. He gave the foreign companies doing business in Bolivia 180 days to come up with a revenue sharing plan. Now his country benefits from its own wealth yet Morales acknowledges the necessity of foreign expertise to reap the bounty their land provides. He speaks against American imperialism and supports Venezuelan demagogue Hugo Chavez quite publicly but continues to welcome $100 million in US aid every year. Morales explains that he "does not reject foreign investment but welcomes investment in Bolivia." Phrases such as this are sufficiently vague and subject to interpretation. He will not alienate the middle class that helped him get elected but also remains the champion of the small farmer and urban worker.

Perhaps his combination of socialism and capitalism will work. So far he has done well for his people. In 2006, the Bolivian economy grew four percent and had a six percent budget surplus. He has written off foreign debt and funded social welfare programs. The government has even been able to provide a stipend to families who keep their children in school rather than send them to work. It is too soon to tell but for the moment, Bolivia seems to be poised for change.

FURTHER RESEARCH AND DISCUSSION
  1. What factors contribute to a nation's wealth? Is Bolivia a wealthy country?
  2. Is everyone in a country entitled access to its wealth?
  3. Current President Morales claims that he supports "investment in Bolivia." What does this phrase mean? How is it meant as a change from previous foreign interest in his country?
  4. Does a changed global economic and political environment help Bolivia?
  5. Does Morales represent a genuine change in Bolivian government?
RESOURCES FOR THIS ARTICLE
  • Bower, Daniel. The World in the Twentieth Century. Saddle River, N. J.: Prentice-Hall, Inc, 1999.
  • Finnegan, William. "Leasing the Rain." The New Yorker. April 8, 2002.
  • ______. "U.S. Aid Can't Win Bolivia's Love as New Suitors Emerge." The New York Times. May 14, 2006.
  • Klein, Herbert S. A Concise History of Bolivia. Cambridge: Cambridge University Press, 2006.
  • Kohl, Benjamin. Impasse In Bolivia. London: Zed Books, 2006.
  • Surowiecki, James. "Morales' Mistake." The New Yorker. January 23, 2006.
Norman B. Leventhal Map Center (http://maps.bpl.org)