Uruguay Has No Resources, But They're Rich

0:00 South America should be rich, genuinely, embarrassingly, obscenely rich.

0:05 The continent holds nearly a third of the world's renewable fresh water.

0:08 It has lithium in the Atacama, oil under Venezuela,

0:10 iron ore and soybeans across Brazil, and copper in Chile.

0:13 And stretching across almost the entire landmass,

0:16 some of the most fertile agricultural land anywhere on Earth.

0:19 If you were designing a continent from scratch and you wanted it to win,

0:22 this is roughly what you'd draw up.

0:24 And yet you've got Argentina defaulting on its sovereign debt nine times.

0:27 Venezuela, which sits on the world's

0:29 largest proven oil reserves and still managed

0:31 to leave three quarters of its people

0:32 on what they sarcastically called the Maduro diet.

0:35 And then Chile, which gets held up as the regional success story,

0:38 but has levels of inequality that would leave most

0:40 developed nations tugging on their collars and clearing their throats.

0:44 Now, there's a pattern here,

0:45 and it has been repeating for so long that most economists

0:47 have just quietly accepted [music] it as a feature of the region.

0:51 Except one country keeps proving us wrong.

0:53 Wedged between Argentina and Brazil,

0:55 it's a modest nation of just over 3.4 million people

0:58 that has somehow figured out what the rest of the continent couldn't.

1:00 [music] It has the lowest corruption levels,

1:02 the lowest poverty rate in South America,

1:04 and a GDP per capita that doubles the continental average.

1:07 Then you find out it built the first

1:09 welfare state in Latin America and became the first

1:11 country on Earth to fully legalize recreational marijuana

1:14 as an economic strategy to undercut drug cartels.

1:17 An experiment that more and more countries have since decided is worth running.

1:21 That country is Uruguay.

1:22 [music] Now, it isn't perfect.

1:24 It's expensive, slow-moving, and small enough that ambitious young

1:27 people often leave to find opportunity elsewhere.

1:30 But as a blueprint for stable, functional government in one of the most

1:33 economically turbulent regions on Earth,

1:35 it is arguably the most persuasive model on the continent.

1:38 And look, the reason this matters isn't just that it's

1:40 a nice story about a small country [music] doing well.

1:42 It's that if this model can be replicated, the implications for South America,

1:46 and frankly for a lot of the developing world well beyond it,

1:49 are pretty enormous.

1:51 So, why has South America, despite every natural advantage imaginable,

1:55 spent the better part of two centuries failing to build stable,

1:58 prosperous economies.

1:59 What did Uruguay actually do differently,

2:02 and why did it work when nothing else has?

2:04 And finally, can any of Uruguay's success rub off on its neighbors?

2:08 And what does it mean for the rest of us if it does?

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3:06 South America has tried everything.

3:08 Left-wing governments, right-wing governments,

3:10 military dictatorships, fragile democracies,

3:12 nationalization, privatization, and yet the same cycle of boom,

3:16 debt, and crisis keeps showing up regardless of who is running things.

3:19 That's because the problem was there long before any of them.

3:23 When Spanish and Portuguese colonizers landed on South America,

3:26 the plan was simple: take everything you can and ship it home.

3:29 Gold, silver, sugar, timber,

3:31 whatever could be extracted and sent back to Europe was fair game.

3:35 [music] The entire economic architecture of the continent

3:36 was designed to funnel wealth upward and outward,

3:38 not to circulate it among the people actually living there.

3:41 The clearest example of this is the encomienda system.

3:44 Under it, the Spanish Crown granted colonizers the right to extract labor

3:48 and tribute from indigenous populations in exchange

3:50 for supposedly protection and Christian education,

3:53 in practice it was forced labor with a paper justification.

3:56 Entire communities were put to work in mines and on farms

3:59 for the benefit of people who had just arrived from across an ocean.

4:02 The encomienda was eventually abolished

4:04 and those colonial empires are long gone, [music]

4:06 but the rules they wrote about who owns the land,

4:08 who has access to the court system,

4:09 and who gets to vote didn't leave with [music] them.

4:12 So, the system changed shape, but the institutions didn't.

4:15 Areas with the highest colonial land concentration still

4:17 show lower income and weaker state capacity today.

4:20 In Colombia, Chile, and even Uruguay,

4:22 three of the more stable and developed countries on the continent,

4:25 the top 1% of households still own around 40% of total wealth.

4:29 Brazil's original land was divided into enormous slices in the 1530s

4:33 and handed out to the Portuguese king's personal acquaintances.

4:36 Today, more than 500 years later,

4:38 those areas still have land concentrated in fewer hands

4:40 [music] and governments that spend less on their populations.

4:44 If the unequal institutions weren't enough,

4:45 South America also inherited an economy built almost entirely [music]

4:48 around digging things out of the ground and selling them.

4:51 Countries where raw materials make up more than

4:53 60% of everything they export have commodity dependence.

4:56 And incidentally, every country in South

4:58 America clears that threshold, every single one.

5:00 [music] That matters because commodity prices spike and collapse

5:04 and take entire national budgets with them when they do.

5:07 But the volatility itself is only half the problem.

5:10 When copper prices surge or oil revenues flood in, governments spend.

5:14 They hire, subsidize, and build.

5:16 For a while, everyone is happy,

5:18 which is all a government on a 4-year cycle really needs.

5:21 And when prices fall as they always eventually do,

5:23 the spending doesn't stop because by that point entire populations depend on it.

5:27 And because no politician has ever won

5:29 an election by taking things away from people.

5:32 So, deficits balloon, debt accumulates,

5:34 and then comes the part that nobody votes for.

5:36 The money runs out and the people at the bottom pay the price.

5:39 That sequence is what economists call the commodity cycle,

5:42 and in Latin America it has played out

5:44 so many times that it has become almost predictable.

5:48 In the 30 years between 1971 and 2000,

5:51 there were 20 coups across Latin America,

5:53 451 political assassinations, and 217 riots.

5:57 Now, it's easy to assume the instability

5:59 was caused by the debt or the inflation, and those things didn't help.

6:03 But the deeper driver was the inequality that was already there,

6:05 baked in since colonial times.

6:07 The commodity boom of the 2000s briefly

6:09 looked like it might finally break the cycle.

6:12 China's appetite for South American raw materials

6:14 drove nearly 5% annual growth for a decade.

6:17 Poverty was cut by more than half and a new middle class emerged.

6:20 Leaders from Brazil to Bolivia declared that this time was different.

6:24 It wasn't.

6:25 When commodity prices fell sharply after 2014,

6:28 growth across the region fell to almost zero

6:30 and the gains of an entire decade started going into reverse.

6:33 At that point, it was hard to argue with the economists who had

6:35 been saying all along that this is just how things work down here,

6:38 that the structural forces at play are too

6:40 deep [music] and too old to be meaningfully reversed,

6:43 that the best you can hope for is managing the cycle rather than breaking it.

6:47 And for almost every country on this continent, they're right.

6:50 But not all of them.

6:51 Guess which country clears the 60%

6:53 commodity dependence threshold by a wide margin

6:55 with more than 80% of everything it exports coming from raw agricultural goods.

6:59 It's a country that has inequality and has been through its own debt crises.

7:03 It has faced many of the same problems as everyone else,

7:05 but it started from a slightly different place.

7:08 Yes, you guessed right.

7:09 When the Spanish first arrived in Uruguay in the 1500s,

7:12 they found no gold and no silver,

7:14 but they did find fierce indigenous resistance.

7:17 So, they left.

7:19 For almost 100 years,

7:20 the territory that would become Uruguay was largely ignored,

7:23 fought over occasionally by Spain and Portugal, then by Argentina and Brazil,

7:26 but never fully claimed or controlled by any of them.

7:29 When Europeans finally did settle in significant numbers,

7:32 they came mostly as cattle ranchers and immigrants from Spain and Italy,

7:35 [music] not as colonial administrators building extraction

7:37 machinery on top of an existing population.

7:40 By 1860, more than a third of Uruguay's population was foreign-born.

7:44 The encomienda system never took root here the way it did in Peru,

7:46 Bolivia, or Brazil, and the colonial institutions of extraction were shallower.

7:50 Now, none of this made Uruguay rich or stable.

7:53 Through the 1800s, it lurched through civil wars, coups,

7:56 and the kind of elite political

7:57 infighting that was standard across the continent.

7:59 But, the foundations were different.

8:01 So, when a man named José Batlle y Ordóñez became president and decided to build

8:05 something on them that nobody else

8:06 in the region had ever tried, it actually stuck.

8:09 Between 1903 and 1915, across two terms in office,

8:12 Batlle y Ordóñez built Latin America's first welfare state.

8:16 The 8-hour working day came in 1915,

8:18 decades before most of Europe had gotten around to it.

8:20 Education became free and mandatory.

8:22 Old-age pensions, unemployment insurance,

8:24 and public health care arrived within a few years.

8:27 And the logic behind all of it was that a population that is educated, healthy,

8:30 and not desperately poor is one that can

8:32 actually participate in and [music] contribute to an economy.

8:35 Uruguay decided to invest in that population

8:37 before asking it for anything in return.

8:39 Batlle y Ordóñez even took on the Catholic Church,

8:42 separating it from the state and banning crucifixes from hospitals in 1906,

8:46 just to make the point.

8:48 Now, it's worth being honest.

8:49 These reforms were slow, imperfect, and sometimes contradictory.

8:53 Some of the labor protections actually pushed wages down in the short term,

8:56 and the decades that followed were messy.

8:59 There was economic stagnation in the 1950s and '60s,

9:01 a military dictatorship from 1973 to 1985,

9:04 and a devastating crisis in 2002 that came

9:07 close to wiping out everything that had been built.

9:09 Uruguay had spent years positioning itself

9:11 as the stable banking haven of South America,

9:14 the place where Argentines kept their savings

9:15 when they didn't trust their own banks.

9:17 When Argentina froze its deposits in December 2001,

9:20 those same Argentines rushed to pull their money out of Uruguay instead.

9:24 Within 7 months, deposits had fallen by half,

9:26 and the peso had lost more than half its value.

9:29 On July 30th, 2002, the Central Bank declared a bank holiday for 4 days.

9:33 In a country that had fed the world with its beef and cereals,

9:36 1 in 10 Uruguayans was now relying on state aid, tweet.

9:39 But Uruguay didn't collapse into the political chaos that would

9:41 have been almost guaranteed anywhere else on the continent.

9:44 Instead, it restructured its debt, floated its currency,

9:46 rebuilt its banking system, and by 2003 was growing again.

9:50 By December 2006, Uruguay had cleared its remaining IMF debt,

9:54 4 years ahead of schedule.

9:55 4 years after being on the edge of collapse, the country owed the fund nothing.

9:59 Now, today Uruguay ranks 17th globally on the Corruption Perceptions Index,

10:03 the least corrupt country in the Americas.

10:05 It's one of only two full democracies in Latin America,

10:07 together with Costa Rica.

10:09 Between 2016 and 2022, Peru had seven different presidents.

10:13 Uruguay had two,

10:15 [music] and the transition between them was peaceful and orderly,

10:17 which in this part of the world is itself remarkable.

10:20 But the president who did more than anyone to put

10:22 Uruguay on the global map was someone who had, before taking office,

10:25 spent 14 years in a military prison,

10:27 much of it in solitary confinement so extreme

10:29 that he survived by befriending the rats in his cell.

10:31 Pepe Mujica was released in 1985 when democracy was restored,

10:35 and rather than disappearing into bitterness, he went into politics.

10:38 By 2009, this former Tupamaros guerrilla was elected president of Uruguay,

10:43 [music] and what followed was one of the more

10:44 surprising presidencies in modern political history.

10:47 But before we get to that, there are

10:49 some stories that don't fit into a full video.

10:51 So, we launched a weekly newsletter to cover them properly.

10:54 It's interesting and genuinely important stuff,

10:57 like what a $12 combo meal reveals about inflation,

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11:07 or scan this QR code on screen now.

11:10 If you're the kind of person who

11:11 watches a video about Uruguay's economy and thinks,

11:13 "I want more of this," it was made for you.

11:16 Now, back to Uruguay.

11:17 Mujica's 5 years in office were, by the numbers, a remarkable success.

11:21 Poverty fell from 18% to under 10%,

11:24 and the minimum wage more than doubled, out-pacing inflation.

11:27 He also made an argument about what a government is actually for.

11:30 He refused to live in the presidential palace,

11:32 continuing instead to tend to his small flower farm outside Montevideo.

11:36 He drove himself to work in a 1987 Volkswagen

11:38 Beetle and donated 90% of his presidential salary to charity.

11:42 [music] When the international press called him the world's poorest president,

11:44 he argued they had it backwards.

11:46 He wasn't poor, he said, he was free.

11:48 The truly poor were people trapped by the compulsion to consume and accumulate.

11:52 And if you think that's a bold thing to say in an interview,

11:54 he went to the Rio Earth Summit in 2012 and said

11:57 essentially the same thing to a room full of world leaders,

12:00 politely but directly.

12:02 His presidency also legalized abortion,

12:04 same-sex marriage, and recreational marijuana.

12:06 Each reform was controversial, but in Mujica's framing,

12:10 it was just a government looking at what was actually

12:12 happening in the real world and designing policy around that.

12:15 The marijuana law makes the point best.

12:17 Uruguay's cannabis black market was worth tens of millions of dollars a year,

12:20 all of it going to drug cartels.

12:22 Mujica's argument was that if the state controls the market,

12:25 the cartels [music] don't.

12:26 So, in December 2013, Uruguay became the first country on Earth

12:30 to fully legalize recreational marijuana at a national level.

12:33 The opposition complained and international bodies pushed back, but it worked.

12:37 Now, Uruguay today is not a utopia.

12:39 Crime has risen, particularly in Montevideo,

12:41 and the fiscal deficit that grew during

12:43 Mujica's presidency forced his successor to raise taxes.

12:46 The cost of living is high, sometimes higher than parts of Western Europe,

12:49 and the job market is small enough

12:51 that ambitious young people still seek opportunities elsewhere,

12:54 which is the contradiction at the heart of the whole story.

12:57 A country that built a life worth staying

12:58 for and still can't quite keep people from [music] leaving.

13:01 And yet, despite all its problems,

13:03 Uruguay has found a way out of the boom, debt, and crisis cycle,

13:06 something that most of its neighbors have spent two centuries failing to do,

13:10 which raises an obvious question.

13:12 If a small country with no oil, no mineral wealth,

13:14 and a history of civil wars and military

13:16 dictatorships managed to build the most stable,

13:18 least corrupt democracy in the Americas, why hasn't anyone else copied it?

13:22 The easy answer, the one you hear a lot in Brazil and Argentina,

13:26 is that Uruguay is just too small.

13:28 Three and a half million people and more than

13:30 half of them living in the capital's metro area.

13:33 So, it's easy to govern, easy to build consensus,

13:35 and easy to maintain institutions when everyone more or less knows each other.

13:39 Now, that argument is not entirely wrong.

13:41 Small size does help, but it is also a very convenient excuse for doing nothing.

13:46 El Salvador has 6.4 million people, Paraguay 7 million,

13:50 and neither of them has managed to build anything resembling what Uruguay has.

13:54 Others say Uruguay is homogeneous,

13:56 that its European immigration history made it culturally

13:59 cohesive in a way that its neighbors aren't,

14:01 and that cohesion is what makes the institutions work.

14:04 This argument drifts into ethnic

14:06 determinism and oversimplifies Uruguay's ethnic diversity,

14:09 but [music] it gets repeated enough that it's worth addressing.

14:12 Afro-Uruguayans make up around 10% of the population

14:14 and have faced persistent discrimination and economic exclusion.

14:17 Uruguay is not a monoculture.

14:21 [music] It never was.

14:21 So, what actually explains why the model hasn't traveled?

14:24 Well, let's be honest.

14:25 Some of what Uruguay built can't be copied.

14:27 The shallower colonial institutions established

14:29 as Uruguay's starting advantage aren't replicable.

14:32 You can't go back and unbuild the encomienda system in Peru

14:34 or undo 500 years of concentrated land ownership in Brazil.

14:38 The path dependence of those institutions is real and it matters.

14:42 But, the thing is, most of what Uruguay actually did

14:45 doesn't require a specific population size or a specific colonial history.

14:49 The proof that left and right governments can transfer

14:51 power without dismantling each other's work can be copied.

14:54 So can investing in people before demanding returns from them.

14:57 But, these efforts require political will and time,

15:00 which admittedly are two things that are

15:02 in very short supply in most of the region.

15:05 And yet, when Uruguay figured out how to generate nearly 99% of its

15:08 electricity from renewable sources and halve its energy costs in under a decade,

15:12 its neighbors noticed and said they wanted to follow suit.

15:15 Uruguay has no oil, no coal, no natural gas to speak of.

15:18 For most of its history, that was a serious liability.

15:20 In dry years when the hydroelectric dams ran low,

15:23 the country had to import fossil fuels

15:25 and the cost overruns could hit a billion dollars,

15:27 roughly 2% of GDP for a country this size.

15:30 But, everything changed when a particle physicist named

15:32 Ramón Méndez Galán wrote a plan to fix it.

15:35 Uruguay had a lot of flat, windy,

15:36 largely uninhabited agricultural land and no domestic fossil fuels.

15:40 So, his plan was to cover the grasslands with wind turbines,

15:43 build the grid around renewable sources,

15:45 and stop sending money overseas for oil.

15:47 The president read the plan and called him up.

15:49 [music] Méndez Galán became national director of energy, and in under a decade,

15:53 Uruguay went from regular blackouts and imported oil

15:55 to generating nearly 99% of its electricity from renewable sources.

15:59 Part of what made that possible was

16:01 that Uruguay's electricity grid was already state-owned.

16:04 There were no private companies to lobby

16:05 against the plan and no shareholders to protect.

16:08 The state decided what the public good required and built it.

16:11 Uruguay runs its power, its water, and its internet the same way,

16:14 as public utilities rather than profit centers.

16:16 It's not the cheapest approach,

16:18 but when the government decided to transform the grid, nothing stood in the way.

16:22 [music] Méndez Galán himself argues this model can work anywhere,

16:25 that the only thing standing between most countries

16:27 and energy independence is the willingness to change the rules.

16:30 And energy is just one example.

16:32 There are other lessons Uruguay figured out that have

16:34 nothing to do with being small or lucky,

16:36 and that the rest of the continent could try tomorrow if it wanted to.

16:39 For starters, Uruguay demonstrates that a welfare state

16:41 and a stable democracy are not separate projects.

16:44 Around 90% of Uruguayans over 65 have a pension, there is public health care,

16:48 unemployment insurance, and cash transfers for families who need them.

16:52 It's not cheap and it's not perfect,

16:54 but when people's basic needs are covered, politics tends to calm down.

16:57 Secondly, Uruguay shows institutions only work

17:00 if people feel they belong to them.

17:02 Uruguayan politicians get stopped at ice cream shops.

17:04 Almost everyone is part of a party, a union,

17:06 or a neighborhood club that has some connection to the state.

17:09 So, it's very hard to steal from people who can see you.

17:12 Uruguay's third lesson, which might be the hardest to export,

17:14 is that political civility can be an economic policy.

17:17 Every time a government burns down what the previous one built,

17:20 decades [music] of institutional investment go with it.

17:23 Uruguay has transferred power between left and right

17:25 governments for 40 years without that happening once.

17:28 Even Mujica and Sanguinetti, who were enemies in an earlier life,

17:31 wrote a book together in their 80s to make that point to a younger generation.

17:34 And the last lesson is something Uruguayans call doing things a la Uruguay,

17:39 which means slowly and deliberately.

17:41 They do referendums and debates and more debates until everyone

17:44 is tired of talking about it and the reform finally passes.

17:47 It's frustrating.

17:48 Investors complain about it constantly,

17:50 but once a change gets through that process, it sticks.

17:53 Governments don't come in and spend their first

17:55 year undoing everything [music] the previous government did.

17:58 Now, let's imagine South America actually learns from this.

18:01 The continent has 5.5% of the world's [music] population.

18:05 It has the farmland, the water, the minerals,

18:07 and the geography to be one of the great

18:08 economic engines of the 21st [music] century.

18:10 Instead, it has grown at an average of about 1% a year for the last decade,

18:14 the lowest growth rate of any region on earth.

18:17 The global economy has benefited enormously every time

18:19 a large developing region has stabilized and grown.

18:22 When East Asia developed,

18:23 hundreds of millions of people lifted out of poverty becoming consumers,

18:26 producers, and investors.

18:27 [music] New industries and supply chains emerged creating new

18:30 demand for everything from cars to medicine to education.

18:33 The world got richer because East Asia got richer.

18:36 South America has been waiting to do the same thing for two centuries.

18:39 It has everything East Asia had and more.

18:41 What it hasn't had is the institutional stability to get there.

18:44 [music] If that changes, even partially and slowly,

18:47 a genuine middle class will emerge.

18:49 Not the fragile kind that appeared in the 2000s and then evaporated, a real one.

18:54 People who have something to protect will start building, investing,

18:57 and spending and domestic markets that barely exist today will start to grow.

19:01 Countries that spent two centuries digging things out

19:02 of the ground will start making things instead.

19:05 For the rest of the world, that means new trading partners,

19:07 consumers, and new investment destinations

19:09 that aren't one crisis away from collapse.

19:12 And on top of all of that, the continent is sitting

19:14 on something the rest of the world is going to need very badly.

19:17 The global energy transition requires lithium and more than half

19:20 of the world's known lithium reserves are in South America,

19:23 mostly in the Atacama Desert across Chile, Argentina, and Bolivia.

19:26 It also requires copper for electrical infrastructure,

19:28 and Chile alone accounts for more than a quarter of global supply.

19:31 A growing global population also needs food,

19:33 and the continent has some of the most

19:35 fertile agricultural land anywhere on Earth, with water to match.

19:38 If the commodity cycle keeps running,

19:40 those resources get extracted, create instability,

19:42 and the world ends up with less of what it needs than it should.

19:45 Uruguay has 3 and 1/2 million people.

19:48 The lessons it has spent a century

19:49 learning are available to the other 430 million.

19:52 Whether they take them is, at this point, a choice.

19:55 Now, Brazil is probably the most dramatic version of this story.

19:58 The ninth largest economy on Earth sitting

19:59 on extraordinary natural wealth with a middle

20:01 class that spent a decade growing and then watched it all go into reverse.

20:05 It has been on the verge of becoming a genuine global power for about 50 years,

20:09 and it's still on the verge.

20:11 We've made an entire video unpacking it.

20:13 [music] You should be able to click to it on your screen now.

20:15 Thanks for watching, mate.

20:17 Bye.