If the problems that these economies face could be boiled down to a nutshell, it would be that they have a chronic shortage of capital. That, in turn, leads to a chronic oversupply of labor, which explains why wages in Latin America are generally much lower than those in developed countries. Why the shortage of capital? Because it is not respected. Capital does not flow to economies were corruption negates the rule of law; where governments seize capital via devaluation and inflation; where debts are repudiated; where industry is nationalized; where capital is taxed at punitive rates; where prices are controlled; where private property rights are not paramount.
Mary Anastasia O'Grady, perhaps the best journalist covering the region, has a nice article today summarizing these same points in regards to Treasury Secretary Geithner's recent proposal to increase aid to the region via the InterAmerican Development Bank.
Latin America remains poor and backward not despite multilateral "assistance" but, in a large part, because of it.
Does it follow that poverty persists because the amounts have been just too measly to do the job? A 2006 paper titled "Foreign Aid, Income Inequality and Poverty," from the research department of the IDB itself, looked at the period 1971-2002 and found "some weak evidence that foreign aid is conducive to the improvement of the distribution of income [sic]. This finding is consistent with recent empirical research on aid ineffectiveness in achieving economic growth or promoting democratic institutions."
Economist Peter Lord Bauer called the claim that poverty is a trap that cannot be escaped without external aid an "obvious conflict with simple reality." "All developed countries began as underdeveloped," Bauer wrote. "If the notion of the vicious circle were valid, mankind would still be in the Stone Age at best."
In a recent book titled "Lessons From the Poor" researcher Alvaro Vargas Llosa echoes these insights. "The decisive element" in bringing a society out of poverty is "the development of the entrepreneurial reserves that exist in its men and women," Mr. Vargas Llosa writes. "The institutions that grant more freedom to their citizens and more security to their citizens' possessions are those that best facilitate the accumulation of wealth."