Liberal capitalism as remedy for Latin America?


The recent clear victory of Javier Milei in the presidential election in Argentina has put the focus back on the so-called anarcho-capitalism.

It is the extreme form of the liberal economic model, with minimal government interference and bureaucracy, low taxes and a strong emphasis on individual entrepreneurship. The flip side of that is that it leads to inequality and also undermines the state’s sovereignty.

However, anarcho-capitalists argue that the state has long exceeded its proper functions, crippled the economy and thereby promoted poverty. The argument goes that strong economic growth following the capitalist model may lead to inequality, but ultimately benefits everyone (“A high tide lifts all the boats“).

Argentina has reached the end of the road with its long-standing state socialist model, impoverishing all but a corrupt clique of politicians and civil servants. As could be expected, there is a lot of resistance to Milei’s area of ​​reform – especially from the trade unions that defend vested interests of the civil servants. Recently, the courts also declared Milei’s proposed more liberal labor legislation unconstitutional.

Whether Milei can finally win the battle like Margret Thatcher in Britain in the 1980s and thereby lend new credibility to the liberal economic model is not yet clear. The history of Argentina unfortunately points in the opposite direction, namely that the reforms cannot be implemented due to too much resistance and everything falls back to the status quo.

One country in Latin America that has consistently implemented liberal economic reforms is Chile. This country benefits from it to this day, even if it is once again ruled by a socialist government. However, the far-reaching economic reforms were only possible under the circumstances of a dictator who did not have to bother with trade unions, the parliament or the courts.

Also on the other side of Latin America, in the small Central American state of Honduras, a liberal-capitalist project is pitting itself against the state and parts of the population. Honduras is one of the poorest states in Latin America with limited economic opportunities. That is why this country was ripe for the establishment of a so-called ZEDE (Zona d’Empleo y Desarollo Economico), a special zone for job creation and economic development. The idea behind it, propagated by well-known, mainly American economists, is the establishment of a kind of private city for wealthy international persons, which is managed according to Western standards and legislation and enjoys autonomy.

The advantage for the host country is that this island of economic excellence has a stabilizing effect on the environment and also creates jobs and opportunities for the indigenous population. Honduras’ liberal government at the time saw this as a solution and passed legislation that made the establishment of these zones possible. In 2020, the first ZEDE was set up by Western developers and is currently still under construction in the form of a private settlement called Prospera, on an island off the coast of Honduras.

In 2022, however, a change of government took place in Honduras. The new socialist president, Ms. Xiomara Castro, declared the ZEDE invalid and branded Prospera as an attack on Honduras’ sovereignty and territorial integrity. Allegedly, the local population does not benefit from the job creation either, but is driven from their land.

The project’s progress is now in the balance and it will be a significant setback for the movement of free private cities if their pilot project, which required years of preparation, now fails. Prospera is suing Honduras for damages and is supported by the US, which points out that Honduras is bound by a free trade agreement to respect investors’ rights.