Student Scholarship

Document Type

Research Paper

Abstract

The Point Four Program, introduced by President Truman in 1949, stimulated a modern emphasis on directing United States private capital toward under-developed areas to foster economic growth and combat the spread of Communism. Latin America, defined as under-developed due to low per capita income and various social challenges, serves as a primary focus for this study on the feasibility of such private direct investment. Economic progress in these nations requires both technical assistance and significant capital investment to improve productivity and raise living standards. However, the flow of private capital is fundamentally dictated by the anticipation of profits, which must be high enough to offset the unique risks associated with investing abroad. 

An analysis of Latin American resources reveals significant limitations that hinder industrialization. The region lacks diverse power resources, particularly coking coal, and while petroleum and hydroelectric potential exist, they are often geographically inaccessible. Agricultural productivity is hampered by low soil fertility, primitive farming methods, and a labor force burdened by widespread illiteracy and poor health. Furthermore, the lack of a technically trained middle class and adequate transportation infrastructure creates additional barriers to efficient commercial operations. 

Political factors present the most significant obstacles to investment. Frequent political instability, including a history of revolutions and dictatorships, undermines investor confidence. Investors also face risks such as the inconvertibility of earnings due to exchange controls, the potential for property expropriation, and discriminatory legislation that mandates the employment of nationals. Ultimately, while the need for development capital in Latin America is vast, the combination of moderate historical returns and high political risk suggests that private investors will remain hesitant unless these systemic risks are mitigated through government guarantees or bilateral treaties.

Research Highlights

  • The Problem: The study evaluates the economic and political barriers preventing the direct investment of United States private capital into Latin American underdeveloped areas under the framework of the Point Four Program. 

  • The Method: The researcher uses a comparative economic analysis of natural resource diversity, labor force productivity, and political stability across twenty Latin American Republics using data from the U.S. Department of State, Department of Commerce, and United Nations. 

  • Quantitative Finding: Latin American per capita income is generally less than $100; less than 5% of total land is suitable for agricultural production; the 1943 aggregate rate of return on direct investment peaked at 12%; the region produces 64% of world sugar exports and 17% of world wool; the population growth rate is more than double the world average. 

  • Qualitative Finding: Investment is obstructed by the lack of coking coal for heavy industry; high illiteracy and disease rates among the labor force; systemic political instability evidenced by 69 government overthrows since 1900; restrictive "nationalization" and "Mexicanization" laws requiring 51% domestic ownership; risks of inconvertibility of earnings and property expropriation. 

Publication Date

5-1951

Creative Commons License

Creative Commons Attribution-NonCommercial 4.0 International License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License

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