Paste youNeoliberalism in Latin America: slowly fading away?
Jasmijn Doorgeest
S3193985
Dr. Doortmont
Theory of International Relations
Research paper final version
Date: November 2, 2017
Amount of words: 2.987
Introduction:
In the 1980s and 1990s, neoliberal forms of governance largely dominated Latin American politics and society because of the neoliberal policies that were implemented by the US-dominated World Trade Organization (WTO) and International Monetary Fund (IMF). The aim of this research paper is to show how the theoretical neoliberal thought on the European and North American continent evolved over the years and how this thought has spread to Latin America. How the thought about neoliberalism has developed in South America is also an important question. It seems that neoliberalism gets less support in South America over the last few years. A lot of Latin American politicians nowadays have a more socialist point of view.
This process is relevant for the research field of International Relations because Latin America is of upcoming importance in global economics and politics. The battle of neoliberalism versus socialism and national versus transnational in South America is therefore important for the development of this continent, the ties with the rest of the world and it can explain us where the continent comes from and in which direction it is headed.
To be able to conclude by giving an answer to the main research question: to what extent influences neoliberalism present-day Latin America?, two sub-questions will be answered first. In the first chapter, sub-question one: how has neoliberal theory developed and how came Latin America in contact with it? will be answered. By understanding the reasons why and in what way neoliberalist thinking became important in Latin America, it will also be easier to understand what the reasons are for slowly abandoning it in some countries. The second chapter is about the second sub-question: how has the influence of neoliberalism changed in Latin America over the past decades? It is important to make a kind of timeline to see the developments of neoliberalist thinking from the moment it appeared in Latin America until today to be able to answer the main research question.
The provisional hypothesis is that, although Latin America came in contact with neoliberalist thought in the 1970s with the idea that this would make its economy and prosperity grow, people and politicians were and are still disappointed by the final results. However, the, in the beginning highly experimental, era of neoliberalism did not come to an end yet, because Latin America is already too much intertwined in a globalized structure of neoliberalist international organizations and trade agreements.
Chapter 1: how has neoliberal theory developed and how came Latin America in contact with it?
In the history of neoliberalism, three different phases can be distinguished. The first phase started around 1920 in Europe and ended around 1950. Most European neoliberalist scholars wanted more than just a return to laissez-faire politics and searched for better ways to organize the free market which would lead to individual freedom and economic prosperity for all people. It was a kind of middle way between two conflicting philosophies at that time, namely classical liberalism and socialism. Most neoliberalist scholars blamed the crisis of the 1930s to the economic policies of classical liberalists, and therefore neoliberalism developed. With Milton Friedman’s essay published in 1951, a bridge between the first and second phase was built and American neoliberalist scholars became more important. This phase lasted from 1950 until the 1980s. It was not the most successful period when looking at concrete political success, but the theory itself developed and became more coherent. A lot of scholars, businessmen and policy makers were convinced of the idea of a free market and thought about how that could be established in an optimal form. The third phase started in the 1980s with important neoliberalist politicians such as Thatcher and Reagan and market liberalization had priority on their agendas. This new gulf of neoliberalism emerged after the crisis of the ‘Keynesian welfare state.’ The Keynesian welfare state contained fiscal policies to distribute money more equally and macroeconomic regulation to counter lacks in the free market. The central thought of Keynes was that government intervention could stabilize the economy. Because of the economic crisis, neoliberalism was stoked up again. The main goals now were to expand the market and reduce government intervention.
Another development was that neoliberalism broke out of the elite academic sphere and also gained influence in many (trade) international organisations, especially with regard to the former second and third world countries. Structural adjustment programs (SAPs) were implemented in those countries and in 1989 the British economist Williamson came up with the name ‘Washington Consensus’. Tax reform, trade liberalization, privatization, deregulation and property rights were the main features of these policies. The abrupt way in which these policies were introduced has been criticized by economists as Joseph Stiglitz and Paul Krugman.
A question that is important to be able to answer how Latin America came in contact with neoliberal thought, is why it has not developed there in the first place. How is it possible that neoliberalist thought and scholars were apparent in the industrial countries in the Western world, but that it has not developed on its own on the Latin American continent? Neoliberalism was a reaction to classical liberalism which was the dominant economic and political ideology and theory in industrializing countries such as Britain and the United States of America (USA) in the nineteenth century. Because of the development of industry and therefore also the working class, the market imperfections had to be identified to make sure that the working class would not start serious attempts to a revolt. The liberal model of economics and society remained the ideal, but this ideal could not be achieved by the power of the free market alone. It had to be supplemented by government interference. At the same time the industrial revolution had started in Europe and North America, the agricultural sector was much more important for the Latin American countries. For example 99% of the Argentinian export in the 1920s was of agricultural products. Other things could have also played a role, such as the fact that most countries in Latin America used to be colonies which were exploited by their colonized powers. They were not allowed to make macroeconomic policies themselves. Also the fact that Latin America is catholic – for which solidarity and taking care of the poor is very important – can play a role. A lack of universities and high educated English speaking academics and the largeness of the informal economy are also possible reasons why classical and neoliberalism were less apparent in Latin America than in the west. Unfortunately there was not much literature about this. These assumptions are therefore more based on speculations from my side.
Neoliberalism in Latin America evolved since the 1970s. It started as an ideological experiment when neoliberal policies were implemented in the heavily indebted Latin American countries via the, by the USA-dominated, WTO and IMF. It was made to the dominant political-economic system with profit maximization, self-interest and privatization of enterprises as a few of its main features. The practical element in the form of WTO-policies have had a large influence, but also the ideological and theoretical components of neoliberalism were important for Latin America. The evaluation of the theoretical influence of neoliberalism in Latin America will be more extensively discussed in the second chapter of this paper.
When it turned out that the industrializing of Latin American countries by USA-supported leaders only resulted in immense public debts, high inflation rates and growing inequality, the IMF and the World Bank (WB) decided to implement structural programs with as main aims financial stability and economic growth. This had to be achieved by the liberalization of markets. Many of the goals were reached and the earnings per capita in Latin American countries were growing rapidly, mostly because of technological development and economic efficiency. Unfortunately, social inequality grew and at the same time the welfare state was being limited, which was so important for these socialist oriented countries. For the poorest citizens, this was a large problem and therefore enthusiasm for neoliberalism reduced.
It became very clear that neoliberalism is not monolithic and therefore did not have the same effects on Latin America as it had on western countries, because the overall context was very different than in the West.
Chapter 2: how has the influence of neoliberalism changed in Latin America over the past decades?:
There were different arguments for the transatlantic neoliberal politics, implemented by the west. The economic argument was the most important one and focused on the promotion of free markets. This was empowered by the political argument of the civil rights movement, because individual rights were important for neoliberalists. The third reason was the attempt to abolish communism.
The turn to neoliberalism in Latin America was quite a radical one, because in most Latin American countries, under which also Chili belonged, ‘developmentalism’ dominated the political and economic system in the 1950s and 1960s. Developmentalist scholars – such as the Argentine economist Paul Prebisch – and other intellectuals, were convinced of the idea that economic progress in the region could only be achieved by internal industrialization, protected by high tariffs and limited trade. Developmentalists also supported the nationalization of key industries. Moreover, the state controlled the policies within private enterprises by offering them subsidies when they would implement state-directed economic development projects. Consequently, an interventionist government emerged and centralized social services became important.
That is why members of the Chicago School of Economics, already in the 1950s, tried to influence academics in Latin American countries by opposing their developmentalist ideas. Among others, Milton Friedman and his colleague Arnold Harberger trained Chilean economic students, which were therefore called ‘the Chicago Boys’, in the so-called ‘Chile Project’. During the 1960s, the ideas of these Chilean academics spread across the Latin American continent. With the start of the dictatorship of general Pinochet in 1973, an era of radical economic neoliberalist reform in Chile began. Also inspired by the ‘Wirtschaftswunder’ in Germany, ordoliberalism (a form of social liberalism that has developed in Germany), gained attention in Latin America. The focus was on reducing inequality and inflation by using governmental tools. Moreover, trade with other countries became important.
Just as in the West, the influence of neoliberal theory in Latin America varied over the past decades and it probably also will in the upcoming decades. Two distinct phases are noticeable: the phase of “rollbackneoliberalism” and the phase of “rolloutneoliberalism”. The first was the deconstructive phase that was a rollback reaction on the Keynesian adjustments developed since the 1950s. This form of neoliberal thought was basically forced upon the Latin American countries by the west to make them privatize companies and take other unpopular measures to abandon socialism in a very fast pace, and had as starting point the power takeover by General Pinochet in Chili in 1973. He based his macroeconomic transformations on thoughts of Milton Friedman, which was a true neoliberalist. Although a lot more inequality was one of the consequences, it also made the Latin American countries’ economies grow rapidly.
However, in the so-called “lost decade”, the 1980s, the unemployment rates and inequality grew which finally resulted in the Mexican financial crisis of 1994. The Latin American countries tried to escape from the rigid Washington Consensus and established the “Santiago Consensus” in which more attention was given to the welfare state. This was the start of the constructive “rolloutneoliberalist” phase. New trade and financial regulations were made by international organisations and institutions. It also involved more government intervention.
However, neoliberalism has not overcome the financial crisis and instability in Latin America. Unemployment has reached new records and workers’ rights have been reduced. Large inequality is still present, corruption is worse than ever and the new governments in for example Mexico, Colombia and Chile are more left than the previous ones. Also the welfare state is expanding again. However, most countries stick to the basic neoliberalist way of thinking. Intertwined in the world wide web of economic interdependence, they also do not really have a choice.
An exception to the shift to the left is Brazil, where a new and much more radical form of neoliberalism is gaining popularity. The Brazilian economist and historian Marco Garcia uses the term ‘neoliberalism reloaded’. The role of the government is minimal, labour is made cheaper and social welfare programs, for example with regard to education and health care, are retrenching. He claims that this form of neoliberalism is so radical that it is not possible to implement in a completely democratic framework. The influence and popularity of neoliberalism is thus different between countries on the continent.
Conclusion: to what extent influences neoliberalism present-day Latin America?:
Neoliberalism arose in Europe as a reaction to classical liberalism and neoliberalist thinkers wanted to achieve a free market, individual freedom and economic prosperity. At the same time they thought that limited government intervention was essential to reach the best outcomes. Neoliberalism did not develop in Latin America in the first place and different explanations are possible. The fact that South America was not industrializing, but was still existing of agricultural economies, is, together with the fact that it was colonized, probably the main reason.
Latin America came in contact with neoliberalism in two different ways: via neoliberalist academia such as Milton Friedman and via SAPs implemented by the WTO and IMF. American academia spread their neoliberalist ideas across the South American continent, that was more convinced of developmentalism at that time. Also politicians, such as general Pinochet, based their ideas on neoliberalist thinkers. His power takeover was the starting point of the “rollbackneoliberalist” phase in which privatization was very important. After the 1994 Mexican financial crisis, a new era began, namely the “rolloutneoliberalist” phase. More attention was given to the welfare state. Because of the different economic and social context than in the west, neoliberalism was not able to overcome economic problems. Unemployment, inequality and corruption has grown over the past decades. Therefore, in most Latin American countries, the popularity of neoliberalism declined. Nevertheless is it hard to escape from it, because neoliberalism is so apparent in our globalized world where international organizations and transatlantic trade are so important.