Economy: A New Consensus

In the gospel of Hugo Chavez, Latin Americans are threatened by the West once again. The latter-day conquistadors are "neoliberals" and their Washington Consensus is the free-market dogma of privatization, fiscal austerity and lower trade barriers, which has left half a hemisphere in grief and ruin. Like his hero Simon Bolivar, Chavez aims to unite the region, this time with homegrown socialism.

But don't bet on a new Caracas consensus. Although four of five Latin voters are set to cast ballots in 10 presidential elections over the next 13 months, few if any candidates truly fit a Chavez model. Latin nations remember how previous bouts of free-spending idealism left them doubled over in debt. Tighter budgets, competitive currency and trade surpluses are the new norm from Mexico City to Montevideo. Even leathered leftists like Brazil's Luiz Inacio Lula da Silva and Uruguay's Tabare Vazquez have learned to stop worrying and to embrace the markets.

The question isn't whether to backslide on reform so much as whether to go forward with more painful changes. Once, Latin America set the pace, bringing in more than half of all revenues from sales of government assets worldwide in the 1990s. Now privatization has all but halted. In every country except Chile--the perennial case apart--investment is still low, jobs are scarce and growth is lackluster. According to the World Bank report "Doing --Business in 2006," released last month, the place is among the least friendly in the world for business, lagging far behind other emerging-market regions, like Eastern Europe.

The problem is less potholed highways, spotty electricity and failing phone lines than bureaucracy: "Three quarters of the delays in trade transactions are caused by red tape," says Caralee McLeish, a coauthor of the report. It takes 152 days and a tenth of per capita income just to start a company in Brazil. (In Australia you can do it online.) Collecting a business debt in Uruguay typically takes 620 days. In Honduras, importers must present 15 documents and sign 21 different forms to move goods from the port to the factory. Brazilian companies need a staggering 2,600 hours just to file and pay corporate income, value-added and labor taxes.

That's a big disadvantage in the scramble for investment. "Globalization works best for countries that are best able to adapt quickly to changing conditions," says economist Anoop Singh, the International Monetary Fund's top Latin America expert. "Latin America has improved its flexibility, but it needs to do far more."

Some countries have begun to stir. But unions are loath to give up perks and benefits written into Latin America's rigid labor laws, even though such rules are driving jobs into the informal economy, "where there are few benefits and almost no protection," McLeish says. The good news: it's less expensive to rewrite labor rules and tax laws than to build new dams and deep-water ports.

The new Latin American Consensus is that Comandante Chavez is right to sound the alarm. But it's not Latin America that needs to be rescued from the ravages of market reforms. It's the reforms that need rescue from Latin America.