After many years as a Spanish colony, Bolivia became independent in 1825 but immediately ran into difficulties due to insufficient agricultural output, scarce investment capital, and heavy national debt (Lobina 2000). The economy improved somewhat in the 1830s after tariffs had been implemented to protect Boliviaâ€™s infant textile industry. However, it remained very poor for most of the nineteenth century.
The turn of the twentieth century saw a brief period of expansion following temporary rises in the global price of tin, one of Boliviaâ€™s few natural resources. When this market collapsed in the 1920s, Bolivia again started running up large debts, mainly owed to the USA. There was a growing sense during the 1940s that reform was needed, in part because of the widening gulf between Boliviaâ€™s rich and poor. Local conservative and socialist parties had very different ideas about how to solve these problems, however, and the country fell victim to decades of political unrest and economic mismanagement. During this time, the USA provided much needed aid but also increased its control over the economy. This sparked great resentment, with new Bolivian regimes sporadically deciding to renationalize American assets. It also led to an intellectual revolution across Latin America, encapsulated in the â€˜dependency theoriesâ€™ formulated by the Argentine theorist, Raul Prebisch.
When Bolivia turned to the World Bank in the 1990s for loans to fund a water system near its third largest city, Cochabamba, it was told to structure the project as a private initiative run by a consortium comprised mainly of US and Italian firms (Klaus 2005). Boliviaâ€™s financially strapped government agreed but the ensuing privatization (and abandonment of public subsidies) caused a sharp rise in water rates that the citizens of Cochabamba, a poor city, could not afford. Tensions ran high because the high rates were not only meant to reimburse the projectâ€™s construction costs but also pay for foreign shareholdersâ€™ dividends. Violent riots erupted and the Cochabamba water system was ultimately renationalized and a socialist president elected in 2006. The incident led to widespread criticism of global free markets and became one element in South Americaâ€™s â€˜pink revolutionsâ€™, with most countries voting in left-wing governments throughout the first decade of the twenty-first century to help protect national interests in the face of rampant globalization.