Rethinking Development Can Turn “Latin America’s Vicious Circle” Into a Virtuous One

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Aug 9, 2022

The article, “Latin America’s Vicious Circle is a Warning to the West”, claims that Latin America is stuck in a development trap, citing lack of opportunities for educated youth, corrupt and unstable governments, and not enough innovation. This developmental trap is leading to the fall of democracies, and the rise of autocracies, and the problem, as the article states, is “not just that democracies devolve into dictatorships, but that Latin America drifts away from the orbit of the West”.

This is supposed to be a harsh warning of what could happen to people in the West and how urgently its leaders may need to intervene. Although this perspective is understandable, it is important to ask what exactly the article identifies as the development trap. Is it the extreme politicians? Corrupt governments? Or the lack of opportunities and innovation? Wrestling with these questions shows that there is no “trap” and that armed with the right theories and concepts Latin America can pull itself out of this vicious circle without need for intervention.

Development is complex. We may all have the common goal of eradicating poverty and creating a lasting and sustainable world, but people from different parts of the world will have different priorities which can create many points of discontent. For example, the United States government’s expenditure per capita is $29,546, while in Haiti it is only $194. And so, although the United States and Haiti might have the same goal to eradicate poverty, their priorities, methods of eradicating poverty, and capabilities and access to resources will differ greatly. 

Historically, development practitioners have approached poverty eradication with push strategies–plans that are often driven by the priorities of their originators and imposed upon economies, typically experts in a particular field of development. Although originators have good intentions, many push strategies fail to result in actual development. 

For example, the Indian government built more than ten million toilets from 2014 to 2015 to fix its sanitation issues. Unfortunately, after spending millions of dollars building the toilets, India’s leaders found that the toilets mostly went unused by the local community. Toilets only addressed the symptoms of India’s sanitation issues and today, the country still struggles with sanitation. 

Similarly in Latin America, push strategies, such as the conditional cash transfer programs cited in the Economist article referenced, are prevalent in the region.  Although push strategies are helpful when communities are in need of immediate relief, they don’t address the issue of long term sustainable economic growth. 

This is one of the reasons Latin America seems to never get out of its “vicious circle”.

Thankfully there is a better way. 

Pull strategies create long term sustainable growth by addressing struggles of everyday consumers or specific market demands in a particular region. The solutions generated by these strategies pull in the resources required to create sustainable development. Market-creating innovations give Latin America the best chance of creating this much needed pull. 

Market-creating innovations are innovations that create new markets to serve people for whom either no products existed or for whom existing products were inaccessible or unaffordable. These innovations have a significant impact on development because by targeting new markets MCIs are more than a product or service. Instead they are systems that pull in jobs, infrastructure, and regulations necessary for the new market to thrive. This system lays the foundation necessary to build a strong economy and tackles multiple sustainable development goals concurrently.

Consider Groupo Bimbo’s (Bimbo) impact in Mexico and globally. In 1945, when the company was first founded, Bimbo was trying to manufacture and distribute bread to people in Mexico City, for whom access to fresh bread was very difficult. Back then people often purchased moldy bread in opaque wrapping. So, Bimbo’s solution and first product innovation was wrapping its bread in transparent cellophane bags so people could check for freshness before buying. This innovation took off, but Bimbo needed to do more to truly serve the average Mexican customer.

At the time, Mexico didn’t have the infrastructure Bimbo needed to scale its business and so the company had to build much of it itself. 

For instance, Bimbo built and acquired flour mills, invested in Mexican wheat farmers, and even provided management education to all of its staff thus creating jobs, infrastructure, and a well of opportunities. The infrastructure Bimbo pulled in has effectively become Mexico’s infrastructure. 

Today, Bimbo is a billion dollar company and employs  more than 137,000 people worldwide with approximately 77,000 based in Mexico and another 21,000 in Latin America. In 2021 alone Bimbo paid roughly $46 million in corporate taxes

Despite these inspiring statistics, no one company or innovation can, by itself, drive a country’s economic success. But fostering a culture of market-creating innovations can ultimately create and sustain economic growth and development.

So, perhaps Latin America isn’t stuck in a development trap but lacks consistent investments in market-creating innovations. These innovations have the potential to address Latin America’s lack of opportunities. 

If Latin American leaders can take advantage of this concept, they won’t have to “rebuild their democracies from the ground up,” as the article suggests, instead they will build a stable economy and ultimately replace the so-called vicious circle with a virtuous one.