AS THE war proceeds we can discern three major trends in the economic development of South America. The first is an increase in nationalism. Each republic desires to achieve a larger measure of self-sufficiency and thus free itself from what it feels is a "colonial status," symbolized by its dependence upon foreign markets and sources of supply. The second is regionalism. There is a tendency on the part of certain of the republics to draw together to form larger economic areas -- which, of course, represents the abandonment of certain aspects of economic nationalism. The third is the "economic mobilization" of the Hemisphere. The United States is attempting, within the framework established by the Rio Conference, to harness the resources of the Americas to the war effort of the United Nations.

The three trends, of course, interact. Thus the mobilization of resources just mentioned can accelerate or retard the development of nationalism and regionalism. Our policy-makers, both now and after the war, should therefore appreciate the significance of these two movements in recent South American history. The Good Neighbor policy of the Roosevelt Administration has been built upon a foundation of scrupulous non-intervention in the political sphere and an open purse in the economic. It has undoubtedly served a historic purpose in banishing, temporarily at least, the specter of imperialism, from the minds of all the American republics. That it will survive in its original form, however, is doubtful, for the war and its aftermath will pose problems in inter-American relations which cannot be solved merely by benevolent political intentions and a willingness to loan money. The Good Neighbor policy will have to be adapted to the economic aspirations of the peoples involved.

II

Of all the continents South America is physically the farthest removed from the main battlefields of this war. From the very beginning, however, the war has gravely affected it. The outbreak of hostilities in Europe and especially the defeat of France came as stunning blows, not only to the economy of South America but to all its traditional ideals and patterns of thought. The disasters which have struck the Latin nations of Europe have caused Latin Americans to turn their thoughts inward, to try to make a new evaluation of their position in the world. They are now talking in terms of their historic mission and the achievement of "real" independence.[i]

This pattern of change, so far as its outline is now visible, resembles the revolution in thought and in policy which has marked the rise of nationalism in many other parts of the world. It would seem to set the South American stage for the playing of that same drama in which other peoples have sacrificed peace and prosperity to excesses of political and economic nationalism. However, nationalism in South America has not yet crystallized in a fixed pattern. It expresses itself in continental as well as in particularistic terms. Its exponents envisage a great future not only for their own respective nations but also for the whole of South America. This leaves us reason for hope that the economic development of the continent can proceed on a broader basis than that supplied by ten separate "national" economies.

Nationalism in South America has had both political and economic origins. Political nationalism is the outgrowth of the gradual process of national consolidation with which the young nations have been busy since they first won independence. Scholars and educators have tried to stimulate a "national spirit," and statesmen have tried to elaborate national institutions capable of giving political expression to that spirit. But in the final analysis, this process of political unification must depend for success upon economic consolidation, the drawing together of diverse and scattered regions by the development of easy communications and the exchange of goods. The nature of this economic development does much to determine what form political nationalism finally takes.

In the latter half of the nineteenth century certain of the republics of South America established fairly stable political institutions as a basis for nationalism. Ironically, however, that same period witnessed the full development of their "colonial" raw material economy, built up largely with foreign capital and based on large-scale extensive agriculture for export and on a steady demand abroad for a few staple products like wheat and coffee. This sytem was immensely profitable to the foreign investor, to the native landowner, and to the few great ports which lived on foreign commerce, but from a very early date voices were raised in protest against it. Men like Alberto Torres in Brazil and José Ingenieros in Argentina proclaimed that the wealth of their nations was being exploited by foreigners. Economic dependence, they held, brought political vassalage in its train. The goal of these reformers was a more diversified economy, producing a greater variety of foodstuffs and more consumers' goods of all types for the masses. Above all, they urged a concerted attack upon what they called "predatory foreign capital."

This movement for economic nationalism had hardly reached beyond a few socialist circles before the First World War; but it received strong impetus from the wartime disruption of trade. It was in this period that the industries of Brazil and Argentina got their first real growth. The governments shielded them with protective tariffs, so that they could hold their gains even at the expense of the local consumer. The second period of intense economic nationalism was the 1930's, when the disastrous fall in raw material prices brought economic ruin to South America and unleashed a series of political revolutions. These revolutions, although not universally democratic in nature, were all given strong popular support, and the new régimes, from the personal dictatorship of Vargas in Brazil to the short-lived "socialist republic" in Chile, had strongly nationalistic tendencies. They all embarked upon programs of diversifying production and showed marked hostility to foreign capital and enterprise. The new nationalism poured forth in a deluge of laws, decrees and regulations intended to preserve Brazil for the Brazilians, Colombia for the Colombians -- but also, significantly, South America for the South Americans.

This movement has grown stronger with each passing year. The foreign-owned utilities and other enterprises have had to fight against laws limiting their profits, fixing their rates of exchange, regulating their personnel, and confiscating their property. The South American governments are in dead earnest in their attempt to "de-colonize," to nationalize in the sense of replacing foreign with native capital and management. The war has now provided them with a great opportunity for nationalizing Axis firms which have been put on the blacklist. They will never allow those enterprises merely to be taken over by United States companies. The most the latter can expect is to be able to share in mixed companies, with both North American and native capital participating. Foreign capital will have to accept the idea of the mixed company if it wishes to remain in South America at all.

Many of the measures of economic nationalism which South American governments have taken were forced upon them by the lack of exchange, or because in a world of autarchic nations they had no alternative. Yet there are other motives at work which are more political than economic. Many of the new industries, for example, are patently artificial but have been kept alive by high tariffs since they are thought of as a source of national strength and a promise of eventual "economic independence." Progress toward that goal in the last three decades has been spectacular. The value of Brazil's industrial production has increased more than tenfold and is now as great as that of her agriculture. Säo Paulo, formerly famous only as the world's coffee capital, has become the largest industrial center in Latin America. In Argentina, industries have undergone a steady but not quite so rapid expansion. Although the country is still primarily agricultural, the total number of industrial workers is now much greater than the number of persons engaged in farming and stock raising. The value of domestic manufactures, approximately equal to that of imports in 1914, is now four times as great.

Chile, Peru, Colombia and Venezuela are all undergoing a similar transformation, although their lack of sufficient resources, skills and potential markets has set rather narrow limits to what they can accomplish. They have shown that, with substantial governmental aid, they can supply their home markets with simple textiles, shoes, hats, cement, glassware, paints, soap and beer, even though some of the materials and much of the fuel for these industries must be imported. Serious consideration is even being given to the establishment of heavy industries.

It is just at this point that some have become convinced that South America can never be industrialized on a sound basis unless the national approach to the goal of a more active and better balanced economy is supplemented or perhaps even superseded by the regional approach.

III

A glance at the map of South America will make it clear that the present political frontiers have no real economic significance except in cases where they follow natural barriers which forbid much interchange of goods. Nor is the continent as a whole an economic unit. It comprises a number of roughly defined regions.

Colombia and Venezuela are Caribbean states, with practically no land communications with the rest of the continent. Their share of intra-South American trade has been barely two percent. The Amazon basin, comprising territory under the sovereignty of half a dozen countries, is another area with a unity of its own and with special economic problems. It is the great undeveloped frontier of the continent. The Andean or Pacific region (comprising Ecuador, coastal Peru, western Bolivia, and Chile) is an area with great mineral wealth; but it is deficient in food, and therefore needs contacts with other regions. It has certain uniformities in types of population and of social organization, but only miracles of railway and road construction could make it a well-knit economic unit. Finally, there is the rich Atlantic region of the River Plate basin (Argentina, southeastern Bolivia, Paraguay, Uruguay and southern Brazil) which is at the same time the breadbasket of the continent and the center of industrial production. Brazil, though partially included in both Amazon and River Plate basins, is so huge that it can be called a region by itself, one of the few where nationalism and regionalism can be made to coincide.

Economic progress within each one of these areas requires the extension of local transportation systems, the development of industries, the encouragement of immigration, and the discarding of outworn systems of land tenure. New industrial areas should be able to supply simple consumers' goods in quantity. Such are the São Paulo and Rio de Janeiro area in Brazil, the River Plate estuary, central Chile, and, on a smaller scale, the Lima-Callao district in Peru and the Medellin district in Colombia. As for heavy industry, Brazil might supply iron and steel for a large South American market; smaller developments in other areas are unlikely to supply even domestic markets.

In the past there has been little trade between the different regions despite the fact that many of their products are complementary. The owners of the mines and the plantations almost always found it more profitable to export to Europe or to North America. But there is no question that there exists a basis for exchange between the food-deficient areas and those which are burning surpluses of maize and of coffee; between those which lack petroleum and those which are flooded with it; between the tropics and the temperate zone. Argentine wheat and meat should find a market in the other regions. Nitrates and minerals from the Pacific states, even Bolivian tin, could be used in the industrial cities on the Atlantic as industry expands. Fruits and coffee from Colombia, Venezuela and Brazil could go to the Pacific and River Plate areas. The oil of Venezuela, Colombia and Peru is desperately needed in Brazil, Uruguay and Chile.

That such trade can develop rapidly is evident from what happens in periods when war blocks the normal trade channels. In this war, as in the last, South America's trade with the United States has boomed, especially in exports. In 1941 these broke all previous records and enabled the South American governments for the first time in years to build up large dollar balances and thus rid themselves of the nightmare of insufficient foreign exchange. Instead they have acquired the problems arising out of an insufficiency of shipping and an inability to use their dollars to buy the goods they want, a situation which throws them back upon their own resources and productive capacity and on the possibilities of trading with each other. There is, of course, no substitute for the steel, machinery, motors and hundreds of other products which the South American countries do not themselves produce, but that is all the more reason for them to squeeze all possible advantages out of their trade with each other.

During the First World War the total value of intra-South American trade rose from $169,000,000 in 1913 to $411,000,000 in 1918. This was a noteworthy gain, relatively greater than that of South America's total trade, which increased considerably in the war and immediate postwar years. The exports of the ten republics to each other in 1913 were approximately 8 percent of their total exports; this figure had risen to over 10 percent in the period from 1918 to 1920. Their imports from each other, which represented some 7 percent of total imports in 1913, also passed 10 percent in 1920. Not all these gains were held. As trade slipped back into its own channels, the export percentage went back to the 7 percent level, and still stood there in 1938. The import percentage remained, until the outbreak of the present war, in the neighborhood of 9 or 10 percent.

Such statistics as are available for intra-South American trade since 1939 indicate that the experience of 25 years ago is being repeated. This was already apparent in 1940, when nearly 8 percent of the exports of the ten republics and 15 percent of their imports represented transactions within the continent. The overall statistical picture for 1941 is not yet available, but there is no doubt that the great increase in trade with the United States was matched by a proportionate advance within South America. Thus intra-continental trade accounted for 25 percent of Argentina's imports and 13 percent of her exports. For Brazil the figures were 14.5 percent and 15.5 percent. Peru sent to Argentina and Chile alone 17 percent of her exports and took from them 12.2 percent of her imports. In addition, new avenues of trade opened up where none had existed before, such as the export of Brazilian textiles to Colombia and Venezuela. Almost everywhere the 1941 figures mark a significant advance over 1940. Those at hand for the first half of 1942 show even further gains.

These statistics are to some extent deceptive, since the figures on tonnage show that the actual quantity of goods exchanged has not varied much from the yearly average before the war. What has occurred is a general rise in prices brought on by heavy United States purchases of South American raw materials and by the scarcity of manufactured goods. The same amounts of wheat going from Argentina to Brazil, or of oil from Peru to Chile, bulk larger than before in the trade statistics, being based on value.

The experience of the past and much of the evidence of the present seem to indicate that this boom in intra-South American trade is illusory. But the picture has other aspects which suggest that the trade gains made during this war will not be lost, and that any postwar planning for South America should be careful to take into consideration these intra-continental trade ties as well as those which bind the individual republics to the United States and to Europe. One obvious change since 1918 is in the degree of industrialization which has been attained; Brazil and Argentina are now in a position to export some of their manufactures to each other and to neighboring states. Air transportation has greatly facilitated contacts. Then there is the quite definite consciousness of spiritual and cultural unity born of the necessity of facing together the dislocations and dangers of a world at war. Some of the new trade ties are likely to be permanent not only because they are profitable, but also because political leaders will want to retain them.

IV

Most articulate groups and individuals in South America regard the increase of trade within the continent as desirable. It is definitely part of the pattern of the newly emerging economy. Of course it has limits, but certainly it could be multiplied many times. Whether it develops not as a wartime boom but on a permanent basis depends on whether or not certain problems which have kept South America in a state of relative economic backwardness can be solved.

The first obstacle to be overcome is in the field of transportation. Commercial air transport, in which most of the governments are placing high hopes, has conquered the lofty Andes and the impenetrable jungles. Ambitious road-building programs are opening up the hinterland. But these can hardly be a substitute for the expansion of the railroad and shipping services necessary to a vastly increased traffic in heavy and bulky goods. There must be far better railroad connections between São Paulo, Porto Alegre, and the chief centers of Uruguay and Argentina. There must be more adequate railroads from Argentina to Bolivia and to Chile. The diagonal route, from Lima to Buenos Aires, crosses territory rich in minerals, in animal products, and in grains. If properly expanded and put to use, it could bring new living standards to millions of people now close to the margin of subsistence. Brazil, too, needs a network of railways to knit the country together, and should make fuller use of the magnificent river routes provided by the Amazon and its tributaries. The digging of the proposed canals to connect the Amazon system with the Orinoco system to the north and the Plata system to the south might inaugurate a new era of thriving internal commerce.

Other obstacles to trade in the past have been the monoculture system and the competitive nature of many staple products. These are being overcome by the various programs of diversification. In diversifying agriculture, finding new industrial uses for many products, fostering national industries, undertaking all sorts of development schemes, they are not merely strengthening their national economies; the South American states are also laying the foundations for a fruitful interchange of new products among themselves. But policies of this sort come up against formidable barriers, including the lack of native capital, the insufficiency or immobility of labor, and the fact that the purchasing power of the masses is now so low.

In general, the South American governments have found themselves in an impasse, since the capital and the immigrant labor which they obviously need have been kept out by their own nationalistic restrictions on foreign capital and their short-sighted immigration policies. Besides, to give the masses a stake in the new diversified and semi-industrial economy involves transforming the whole traditional social system. Governments which are an outgrowth of that system can hardly be expected to tear it down. There is, however, a general drift in the direction of social reform. Whether its course will be revolutionary, following the example of Mexico, or peaceful, following that of Uruguay, is not safe to predict; but this is a matter which the present governing groups must face. Without social reform, particularly land reform, their plans for attaining a prosperous and balanced economy can hardly materialize.

There is one obstacle to trade which the present governments have clearly recognized and have begun to attack -- the wall of tariffs and trade restrictions erected on every political frontier. It is a hopeful sign that they have been willing to admit the limitations of economic nationalism and to take steps to tear down these walls. In the last two years they have developed a network of new commercial treaties which point the way to freer trade, possibly to one or more customs unions, on a regional or even on a continental scale. It is in these treaties that the regional pattern emerges most clearly.

The River Plate Conference of 1941, attended by representatives of Argentina, Brazil, Uruguay, Paraguay and Bolivia, was the first meeting of its kind ever held in South America. It was the first step in the movement, in which Argentina has taken the initiative, to build up a regional trade bloc. One purpose was to reach a general agreement on preferential treatment for the two land-locked states, Paraguay and Bolivia, the "poor relations" of the continent, who were exhausted by their war with each other; the other purpose was to organize a new economic bloc, the members of which would gradually approach a system of free trade among themselves. The conference endorsed projects for a regional system of roads and pipelines, recommended uniform legislation on transportation, and set up a permanent office in Buenos Aires to direct regional economic relations. Argentina's proposal for an immediate customs union met with opposition from the other delegations, who voiced the fear that their countries might become "dominions" of Argentina if it were adopted.

After the Montevideo Conference, Argentina set out to negotiate commercial treaties with nearly every other nation in South America. If carried out, they will help to banish economic nationalism from the trade relations of the continent and will vastly increase the exchange of goods. Treaties with Bolivia provide for the construction of railways, roads and pipelines, which will link that country's oil-producing region with the economy of Argentina. Recent agreements with Chile arrange for the exchange of Chilean copper and nitrates for Argentine meat, grain and scrap iron. Most far-reaching in its implications is the Argentine-Brazilian treaty of November 1941, in which the signatories promise not to compete with each other's "new" industries, and gradually to lower tariffs on other goods. Brazil in the future will import more Argentine wheat and more of the products of Argentina's factories. Argentina will import more Brazilian coffee and more Brazilian textiles. Under wartime conditions, Brazil's cotton goods have already captured the Argentine market, and great efforts will be made to hold that position. If the two largest and most important countries of the continent actually carry out the purpose as stated in this treaty's preamble, namely "to establish a régime of free trade which permits the realization of a customs union between the Argentine Republic and the United States of Brazil, open to the adherence of neighboring countries," then South America will have come a long way toward the new and "emancipated" economic status for which many of its leaders yearn.

Argentina made pacts also with Peru and with Colombia, both of which can take large quantities of Argentine wheat in exchange for petroleum. Brazil, not to be outdone in this frenzy of treaty making, signed pacts with most of her neighbors. The Brazilian treaties with Paraguay and Bolivia are of special interest, for they envisage the extension of modern transportation lines from Brazil's Atlantic coast right into the heart of those interior countries. Brazil has also contrived to send its textiles in quantity to Colombia and Venezuela, an entirely new market, and to import much-needed oil from Peru by way of the Amazon. But the bulk of Brazil's South American trade always has been, and probably will be, with Argentina.

There have been other treaties, between Brazil and Chile, Peru and Chile, Peru and Colombia, Chile and Venezuela. But the real interest centers in the trade programs of Brazil and Argentina, the position of each on the continent, and their relations with each other. Forty percent of all intra-South American commerce is Argentina's, and her leadership in this whole movement for a regional economic bloc has been apparent from the first. The other nations, for the most part, have accepted this leadership. All were adversely affected by the war; all saw the general benefits which might be derived from intensified trade. For the moment, political considerations were not much in evidence. After all, "neutrality" and "solidarity" were Argentina's watchwords, and up until the end of 1941 all wanted to be neutral and "solidary," not least Brazil.

Close economic coöperation between Argentina and Brazil seemed to promise increased prosperity and security for the whole River Plate region, through the development of complementary industries in its two largest countries and the apparent willingness of those countries to collaborate rather than compete in the economic development of the small states which serve as buffers between them. The River Plate bloc seemed about to become a reality. However, the success of this attempt by South Americans to solve their own problems by their own means became more dubious as the war came closer to the American continent. If all the South American states had been of one mind on the war, events would have solidified the economic bloc. Uruguay, however, which had not shared in the expansion of intra-South American trade, came out openly on the side of the democracies in the war, and prepared to do its part in the defense of the Western Hemisphere. A noticeable coolness in Argentine-Uruguayan relations developed. Argentine leaders were not happy over the idea of United States ships and planes "defending" Argentina's own River Plate from Uruguayan bases. The negotiations for a commercial treaty between the two neighbors broke down. Uruguay, a small country in a key position, was definitely looking abroad, to England and to the United States, rather than to any regional bloc.

Less than a month after the conclusion of the Argentine-Brazilian treaty, the entry of the United States and several other American republics into the World War put political and economic relationships in the Hemisphere on an entirely new basis. With the United States and Argentina taking opposite positions on the crucial political issue of breaking relations with the Axis Powers, Argentina's sponsorship of an economic bloc, which at the River Plate Conference had been accepted as wholly consistent with inter-American obligations, now began to appear as a move against the United States. This was a definite check to the economic rapprochement between Brazil and Argentina, for President Vargas, after a long period of calculated neutrality, had shifted to an equally calculated enthusiastic support of the cause of the United States. Enrique Ruiz Guiñazú, Argentine Foreign Minister, made a last desperate attempt to create a "neutral" economic bloc when his colleagues from Peru, Bolivia and Chile were passing through Buenos Aires on their way to the Rio Conference. But by that time every other American republic except that of Chile had made up its mind to break with the Axis, and to seek its economic salvation by participation in the "mobilization of the resources of the Hemisphere" under the general direction of the United States.

Today there is no economic bloc in South America except the partnership in isolation of the two American republics which chose not to go the way of the others. This does not mean that regionalism is dead. The unity of the River Plate area is a geographical fact, which will outlast the political combinations of the present war. Leaders of countries in that region know that their national interests will be best served by a coördinated development on a regional basis. In the other areas the same considerations hold true. Regionalism is still the logical next step in the evolution of South American economy.

V

These trends represent the interests and aspirations of the peoples of South America. The war, as we have seen, has speeded them up in certain ways, and everywhere it has deepened the conviction that the semi-colonial economy must go. But the war also, at least in the past year, has made further industrialization practically impossible and has even forced many existing industries to close down. The nations of South America have discovered how dependent they still are upon the steel and machinery, the fuel and the shipping services of foreign nations. They are sharing our war boom, but they are sharing our shortages too. The United States, the only nation which can possibly supply these needs, finds itself in a strong bargaining position in its quest for South America's raw materials and South America's good will. That was the real basis of the "solidarity" and "harmony" of the Rio Conference. The United States secured agreement to a thorough-going "economic mobilization" of the Hemisphere. Latin America secured our promise that everything possible would be done to "maintain the internal economies" of the American republics.

The United States has been fighting an economic war against the Axis in South America for more than a year. Its purpose has been to eliminate all Axis economic influence there and to secure a stranglehold on the continent's vital raw materials.[ii] A nation fighting for its life cannot afford to let vague considerations of good-neighborliness interfere with a program of this sort. The Board of Economic Warfare is concerned with making the best use of our own and of Latin America's resources in prosecuting the war. This means ruthless enforcement of the campaign against blacklisted firms (which include some of the oldest and largest companies in South America); it means insisting on greater production of rubber and strategic minerals, even if managers and technicians have to be sent from the United States to do the job; it means the allocation of the limited shipping space in accordance with our war needs, which must take precedence over Latin America's civilian needs. South Americans want to sell their raw materials and are getting good prices for them. Nevertheless, this concentration of effort on a few strategic materials does imply the abandonment of programs of diversification, and it foreshadows inevitable dislocations after the war boom is over. The shortage of essential machinery and other equipment has already paralyzed certain industries. The United States, inevitably, is generally held to blame for this unhappy situation.

The Board of Economic Warfare, acting in conjunction with the Department of State and the Coördinator of Inter-American Affairs, has accepted responsibility for cushioning the shocks of these changes by providing "relief." But merely cushioning the shocks does not seem to be enough. Are there not possibilities of cutting the economic mobilization to fit the pattern of nationalism and regionalism described above, and of stretching relief to include a long-range program of economic construction? This depends upon the extent to which the operation would aid South America to overcome the obstacles to economic expansion.

Since one of the greatest of those obstacles is inadequate transportation facilities, much depends on how the dwindling supply of shipping is allocated, and on where the new railways, roads and canals are built. In this connection, the plan to build a fleet of wooden sailing ships for inter-Latin American commerce shows imagination and a comprehension of what the shipping shortage has meant to Latin America. As concerns land transportation, if attention is given only to the lines that lead from the mines to the ports, South Americans will have little for which to thank us. Much more fruitful, from their point of view, is the proposed regional development of the Amazon basin, which will not only provide the Hemisphere with a great future rubber supply but will also open up a vast new area for colonization and for the production of many materials which can be consumed in South America itself. This one project raises many of the problems common to other regions of the continent: that of diversification; that of supplying a food-deficient area with the food it will need until its own soil can be made productive; that of moving masses of labor, particularly for the rubber industry, and providing against their being stranded after the war boom ends; and that of pumping purchasing power into the hands of the rural proletariat.

The Government of the United States has indicated its willingness to supply, so far as the demands of its own war production permit, the capital, the heavy machinery, the managerial and technical skills necessary to the carrying out of vast projects of this type. The crucial question is how and in what quantity they will be supplied. Political considerations, for example, are bound to play some part in this. Essential goods will go to those states which have broken with the Axis rather than to the "fence-sitters." Uruguay will get the equipment needed for her Rio Negro power project; while Argentina, planning enterprises which may be of greater long-term value to the River Plate region as a whole, likely will get none. Projects which benefit our own war effort and bring South America no return except larger dollar balances in New York will win us few friends in the long run. Much more promising are those like the large-scale development of the Itabira iron mines and the Victoria railway, which fits in closely with the expansion of Brazil's new heavy industry development at Volta Redonda.

It is absolutely essential that the United States encourage the growth of industries in South America and run with the tide of nationalism in so far as it means industrialization. Mr. Warren Pierson, President of the Export-Import Bank, has stated that the Bank's policy is "to help Latin Americans to build those industries which Europe never wanted them to have." Many of the loans which the Bank has made have been for the undertaking of new "national" industries. A recently announced plan of the Board of Economic Warfare to send to Latin America quantities of the displaced machinery of consumers' goods industries now converted to war production is encouraging. The Good Neighbor policy, if it is to survive the war at all, must be implemented by bold and imaginative steps such as this.

The vast capital which South America requires must come in large part from outside sources, and the manner in which it will be supplied squarely raises the issue of nationalism in some of its other and more acute aspects. The fear of "subservience" to foreign capital is now so deep-rooted that there seems hardly a possibility that private capital will be willing to meet the conditions which South American governments will set. The current practice of loans to Latin American governments by the Export-Import Bank is for the moment acceptable to both lender and borrowers, but in itself it offers no ultimate solution. Though apparently made on a business basis, these really have been "political" loans, intended to keep Latin America favorably disposed towards the United States and its policies. For that very reason, they are likely to become suspect. After all, the use of economic means to influence and control the policies of weaker nations is still within the definition of imperialism, whether a powerful corporation or a powerful government exercises the control. In both cases the reaction of the weaker nation is the same -- a political movement against "predatory imperialism." What is needed is a policy which will go along with South American nationalism in its desire for local control of enterprise and for diversification and industrialization, but will discourage its tendency towards particularism and the creation of artificial industries.

This task requires, above all, that both North and South Americans take a wider than national view of their economic problems. It requires an acceptance of regional economies as parts of larger American and world systems of trade and economic development. Public men and the press in South America have broached the question of regional and continental customs unions. President Vargas has gone on record as favoring an inter-American or South American Zollverein. There has been talk of an American trade currency on a gold or dollar basis. As we have seen, the South American republics have themselves taken the initiative in these matters. The River Plate Conference was first suggested by Argentina. A conference of Amazon countries has been suggested by Brazil. The Argentine-Brazilian treaty of 1941, whether or not it is actually carried out, has at least put on paper the pledge of an eventual economic union of those two countries.

Unfortunately, the machinery of coöperation evolved out of the inter-American conferences has not been correspondingly broad in its application. The Inter-American Bank has remained a dead letter, and trade is still hampered by the existence of a score of national currencies. The Inter-American Development Commission, which was intended to be a central planning agency, has accomplished little. Its basic defect, from the long-range point of view, is the same as that of the agreements made since the Rio Conference for the economic mobilization -- they provide for a series of unrelated national development programs. The whole Latin American program of the State Department and of the Board of Economic Warfare has taken the form of development programs for each individual Latin American republic, ignoring the regional approach which would make for more rationally organized production and for easier solutions of the human problems bound to result from mass movements of laborers into new industries. Admittedly the pressing demand for war materials has not allowed much time for anything except negotiating with each individual state for the purchase of all the strategic materials it can produce. But South Americans want something more than that. To them, the "economic mobilization" is not just a means of preparing for and waging war, but the prelude to an era of great economic expansion.

VI

Several high officials, notably Vice-President Wallace and Under-Secretary Welles, have shown an understanding of these aspirations. Mr. Welles, in his Memorial Day address, assured Latin America that the victory of the United Nations will spell the end of imperialism. But the policies followed now, during the war, will do much to set limits to what can be done later. We cannot "reconstruct" South America after the war unless our present measures of mobilization help carry that continent toward the goal already fixed by its own economic evolution. It is not enough to proclaim the end of imperialism. Machinery for coöperative economic development must be made strong enough to withstand any revival of imperialist feeling in the United States. It might take the form of international development corporations, sponsored not by the United States alone but by the United Nations and their associates. Such corporations could operate across South America's political frontiers and foster a general economic expansion without necessitating any demand that the nations give up their sovereignty. The effect of an expansion of that sort might well be to erase the remaining trade barriers, to tighten up the whole South American economy, and to give economic sinews to the continent's present vague spiritual unity.

The United States Government has no fixed postwar "plan" for South America. The Board of Economic Warfare has some rather general plans to raise living standards, and its leading planners look forward to a vastly increased trade between the United States and a South America made prosperous and healthy by our capital, our technicians, and our sanitation engineers. The Treasury has its own plan for increased trade through the operation of an international stabilization fund. The Department of Commerce, if we may take a recent address by Under-Secretary Taylor as representing its views, favors development projects in which foreign and native capital will share on a basis of equality. The Department of State has not as yet come forward with any general or specific plan, perhaps because of the conviction that South American "reconstruction" must necessarily be a part of a world program of reconstruction, the outline of which is not yet clear.

It is encouraging that almost all our planning for South America shows a willingness to encourage and to assist the movement for "decolonization." Regionalism is also worth encouraging. From the point of view of power politics, it may seem safer to deal with many weak states than with a few larger units, especially if we foresee the creation of a strong economic bloc led by Argentina. But this war is not being fought to preserve power politics. In economic terms, the consolidation of South America through industrialization and the development of regional unity will make for a stronger Western Hemisphere, and for not less but more trade between North and South America. To foster it intelligently may be the only way to keep good-neighborliness alive not only in a world at war, but when the war is over.

[i] See Fernando de los Rios, "South American Perplexities," FOREIGN AFFAIRS, July 1942.

[ii] See Percy W. Bidwell, "Our Economic Warfare," FOREIGN AFFAIRS, April 1942.

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