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Homework answers / question archive / Chapter 15 Neoliberalism This chapter examines why most Latin American states abandoned strategies of inward-­looking, state-­led industrialization during the 1980s and 1990s, and the social and political consequences of this dramatic policy shift

Chapter 15 Neoliberalism This chapter examines why most Latin American states abandoned strategies of inward-­looking, state-­led industrialization during the 1980s and 1990s, and the social and political consequences of this dramatic policy shift

Sociology

Chapter 15 Neoliberalism This chapter examines why most Latin American states abandoned strategies of inward-­looking, state-­led industrialization during the 1980s and 1990s, and the social and political consequences of this dramatic policy shift. The catalyst for this change of heart was a debilitating crisis that began in 1982 during which Latin American countries struggled to meet payments on crippling foreign debts. Changes in policy were justified by a new ‘neoliberal’ consensus that formed around ideas restating the main themes of economic liberalism, the central emphasis of which is the free market. Neoliberalism transformed the character of the Latin American state that had evolved alongside industrialization, and reconfigured the relative power of interest groups such as business organizations and trade unions. As neoliberal reforms also appeared to coincide with the end of military governments, they were often, albeit questionably, associated by policymakers in the developed world and financial institutions with democratization (see Chapter 4). Initially, neoliberalism gave the political right a new and, at times, popular banner to rally behind in the democratic era; more recently it has provided a strong focus of ideological opposition for Latin America’s revived left (see Chapter 12). It has thrown open Latin America’s economies to flows of trade and invest­­­­ ment from across the globe, deepening the region’s incorporation into the momentous process of globalization that has accelerated since the end of the Cold War. There is considerable interest in the social and political impact of globalization upon Latin America because the region’s fate has always been so closely tied to developments in the international economy. Globalization has significant implications for the nature of the state, the character of political competition, inequality, and culture. Regional integration, the growth of foreign investment and even the new opportunities offered by globalization for Latin American companies to develop multinational characteristics all have consequences for national sovereignty. However, since the early years of the twenty-­first century, neoliberalism has been challenged, with policymakers from international financial institutions (IFIs) calling for ‘second-­generation’ reforms to correct what are seen as the failures or weaknesses of the neoliberal agenda. These place greater emphasis on institution-­building, governance, and regulation and aim to open both local labour and capital markets and financial systems. In Latin America, scholars have put forward different visions of what a ‘post-­neoliberal’ political economy looks like. 474 Part V . Economic Ideas The Nature of Latin American Capitalism and the Debt Crisis The character of capitalism in Latin America has been transformed recurrently since Independence (see Chapter 1). In the post-Independence period, Latin American economies developed on the basis of agro-­exports controlled by a small number of oligarchic landowners. This model of development limited the emergence of industry and tied the fate of Latin American countries closely to the development of powerful external markets for their commodities and raw materials. In some societies, elements of the social structure that the agro-­export economy created persisted well into the twentieth century, and their legacies are still evident. However, in the most dynamic Latin American economies, following a crisis in global capitalism exposed by the Great Depression, a model of national capitalist development emerged that tried to escape this reliance on agro-­exports through import-­ substitution industrialization (ISI, see Chapter 14). The structuralist ideas that advocated ISI were not anti-­capitalist, and accepted that a form of national capitalism in which the state played a significant guiding role was the best hope for Latin American development. ISI laid the basis for inward-­ looking national development policies – sometimes assuming some of the characteristics of what has been called ‘state capitalism’ – while allowing Latin America to take advantage of capitalist expansion elsewhere in the world that provided markets for its products. As a result, Latin American capitalist development in the first half of the twentieth century tended to be distinguished from what was happening elsewhere by a much greater role for the state and public sectors; mass social mobilization; and populist or corporatist political projects (see Chapters 2, 7, 14). In general, ISI based on protectionist policies became a cornerstone of development strategies in Latin America until the 1980s. The oil crisis of the early 1970s, which hit Latin America hard, accelerated the exhaustion of ISI but also allowed governments in the region to borrow the ‘petro-­dollars’ being earned by petroleum-­exporting countries from higher oil prices and then banked in the global financial system. In this period, Latin American governments grew excessively over-­exposed to foreign debt and, by late 1982, rising international interest rates and falling oil prices had begun to make it difficult for Mexico to keep up payments on its then $96 billion foreign debt. Investors lost confidence that their investments were safe and began to pull their money out of the country. However, as often happens in developing regions in which there are several countries sharing similar economic conditions, nervous investors also began to withdraw capital from the rest of Latin America, making it more difficult for all the countries in the region to pay their debts as well and stunting their growth. The debt crisis led to a ‘lost decade’ of stagnation and painful recovery during which large amounts of capital continued to be transferred out of Latin America in the form of debt payments while little came in. From 1983 until 1991, the net transfer of resources out of the region to countries in the developed world amounted to $218.6 billion (see Figure 15.1). The debt crisis illustrated several important characteristics of the evolution of capitalism in Latin America that have shaped approaches to Chapter 15 . Neoliberalism 475 Figure 15.1 Net resource transfer, Latin America and the Caribbean, 1981–94 ê a en 30 25 20 15 10 5 2. 0 ~ --5 q:: --10 ~ --15 --20 --25 --30 --35 19811982 1983 1984 1985 1986 19871988 1989 1990 19911992 1993 1994 Year ECLACjCEPAL, 1995. 1995, Source: ECLAC/CEPAL, development such as dependency theory (see Chapter 14), in particular: the central role played by the state in shaping internal markets; a reliance on exporting commodities to fluctuating world markets; and a reliance on external sources of capital for the investment needed to promote industrialization. The commodity boom between 2003 and 2008 only served to illustrate both the difficulties governments in the region have always faced trying to wean themselves off a reliance on the export of primary goods, and the extent to which the fate of Latin America’s economies has always been closely tied to global capital markets. An illustration of the continuing degree to which Latin America remains exposed to the behaviour of capital markets can be found in an indicator of corporate dynamism in the international economy: the number and value of mergers and acquisitions (M&As) involving Latin American corporations. M&As are one of the most common means that transnational corporations use to deploy their capital in foreign markets. Whereas the boom between 2003 and 2007 saw record numbers of cross-­ border mergers and acquisitions, the growing limitations on international finance in 2008–09 resulted in the falling number and value of M&As in Latin America. Nonetheless, the 1980s debt crisis was a turning point because it called into question the viability of ISI in Latin America, which had become dependent on a continuous infusion of capital, and so strengthened the hand of neoliberals. Neoliberal positions originated in critiques of structuralism that were voiced in the wake of the military coups of the 1960s and 70s. In Chile, the military regime led by Augusto Pinochet (1973–90) relied on technocrats to develop its economic policies, and their ideas became influential throughout Latin America (see Boxes 2.1, 2.4, 2.5). Chile’s most important technocratic policymakers had trained at the University of Chicago under the 476 Part V . Economic Ideas US champion of free markets Milton Friedman (b.1912–d.2006), and so were dubbed the ‘Chicago Boys’. The Chicago school emphasized traditional comparative advantages in the export of primary products (see Chapter 14), the development of new industrial exports and the opening of Latin American economies to imports. Neoliberalism has also often been associated with the theory of monetarism refined by Friedman (see below). This argued that the main cause of inflation were states that printed money in order to finance public expenditures beyond their means. A core neoliberal orthodoxy had emerged by the early 1980s, a period also characterized by the political ascendancy of conservative governments in the US, Canada, Britain, and West Germany. Neoliberals also came to prominence in multilateral institutions such as the World Bank and the International Monetary Fund. These institutions and the administration of President Ronald Reagan (1981–89) in the US, among others, saw the debt crisis as an opportunity to promote market-­oriented policy reforms in Latin America through aid with conditions attached. These policy reforms reflected the favoured agenda of international creditors and powerful economic actors that has been called the ‘Washington Consensus’, emphasizing exchange rates that are not fixed by the state, trade liberalization, foreign investment, public spending cuts, privatization, deregulation, and property rights (BulmerThomas, 1994; see Box 15.1). A new generation of leaders in countries such as Mexico wedded to economic liberalism now identified the state as the chief obstacle to development and embraced this policy agenda (see Vellinga, 1998). Policies in the aftermath of the debt crisis initially sought short-­term stabil­ ization to curb inflation. From 1982–83, Latin America endured a deep recession and most countries in the region implemented recovery programmes promoted by multilateral bodies such as the IMF based on austerity policies that involved curbing wage rises, ending subsidies and limiting welfare benefits. Neoliberals argued that the way to fight inflation was to reduce growth in the money supply (monetarism) by cutting public spending and raising interest rates. Different types of stabilization plan were pursued, but by the late 1980s most Latin American governments were following neoliberal prescriptions in earnest. International support for the efforts of Latin American countries to escape the economic difficulties caused by the debt crisis was coordinated after 1985 by the US Treasury. In 1989, the then US Treasury Secretary Nicholas Brady negotiated a range of measures that recognized, over and above the need to ease the burden of interest payments on Latin America’s foreign debts, the need to reduce those debts. Although the Brady plan did not reduce debts by a great deal, it was a turning point because the confidence it inspired in Latin America’s future opened the door anew to net inflows of foreign investment, which played a dominant role in recovery (see Box 15.2). A second dimension of policies following the debt crisis aimed at long-­term ‘structural adjustment’, which, like structuralism before it, sought to change the structure of economies in the region, but this time by reducing the role of the state. Many Latin American policymakers laid the blame for problems of debt, high inflation, and slow growth on the interventionist state, which was portrayed outside the region as bloated and inefficient, allocating Chapter 15 . Neoliberalism 477 INSTITUTIONS Box 15.1 The Washington Consensus The diverse set of policy reforms that reflected the agenda of international financial institutions, creditors, and the treasuries of the industrialized world came to be known as the ‘Washington Consensus’ and has been the subject of extensive debate. For Latin Americans, it is a symbolically loaded term, identifying the US rightly or wrongly as a central and by implication a potentially interventionist actor in a reform process based on classical economic ideas that began following the debt crisis and gained coherence through the term ‘neoliberalism’. More recently, attacks on the Washington Consensus and neoliberalism have been key to the political appeal of leftwing candidates throughout Latin America and some scholars identified a backlash amounting to a ‘post-Washington Consensus’ (see Panizza, 2009; see also Chapter 12). Panizza attributed the term ‘Washington Consensus’ to the economist John Williamson, who in 1990 listed a set of policy prescriptions that embodied a conventional wisdom at that time among economists based in Washington DC from the main IFIs such as the IMF and World Bank, as well as the US Treasury, about the key issues facing Latin American economies following the debt crisis (see Williamson, ed, 1990). These included: fiscal discipline; changes in public spending priorities; tax reform; interest-­rate liberalization; competitive exchange rates; trade liberalization; liberalization of foreign direct investment (FDI) inflows; privatization; and deregulation. Importantly, this list encouraged other countries to adopt the relatively open policies that, it was assumed, developed nations already practised (see Boxes 14.2, 15.3). Nonetheless, as Panizza pointed out, several of these prescriptions were flexible, and there was more consensus on some than on others, with disagreements over capital controls and industrial policy, for example. Moreover, the Washington Consensus did not address how to restart growth after the stabilization policies following the debt crisis (see below), and its very identification with neoliberalism was in dispute. As Panizza pointed out, Williamson noted that there was no consensus among economists about what model of capitalist economy developing nations should follow. Nonetheless, the Washington Consensus became established as the dominant economic discourse of the period following the end of the Cold War (see Box 15.6). Its resonance was heightened in Latin America because it coincided with democratization. resources to favoured sectors such as public sector workers or the owners of overprotected local industries (see Box 14.4). Neoliberals advocated radical changes to reduce the state’s economic role through privatization and deregulation, to nurture the private sector, and to reorient the focus of economic growth back to exports. Policy reforms aimed to shift Latin America in a direction combining fast growth of exports with low rates of inflation. As a result, the region became more outward-­looking, adopting policies of export-­led growth. The ratio of exports to GDP rose rapidly in the 1990s and several Latin American countries such as Chile and Argentina made a significant effort to diversify away from traditional primary products. In such circumstances, it was clear that it would be necessary to dismantle trade barriers because companies that wanted to export needed access to inputs at prices similar to those paid by their competitors in other countries. By the beginning of the 1990s two countries, Mexico and Chile, had laid the basis for sustainable long-­term growth as a result of successful reforms 478 Part V . Economic Ideas TRENDS Box 15.2 Foreign investment The debt crisis had a dramatic impact upon levels of foreign investment in Latin America, which dried up as countries struggled to meet repayments during the 1980s. However, debt relief schemes, the Brady Plan, and neoliberal reforms created conditions in which foreign investors began to return to Latin America in droves. From the early 1990s, attracting foreign investment became a central plank of development strategy. Today foreign investment is seen by bodies such as ECLAC as essential in creating the conditions for sustained development. Inflows vary considerably, reflecting global economic conditions. In 2008, for example, ECLAC reported that foreign direct investment (FDI) inflows in Latin America and the Caribbean rose to a new record high of $128 billion, even though FDI flows worldwide shrank by 15 per cent (ECLAC DPPM, 2009; see also ECLAC, 2008b). Rising FDI to South America in particular during the commodities boom was driven by high prices for hydrocarbons and metals, again highlighting Latin America’s reliance on international markets, and large amounts of investment headed for the mining industry in Chile and Colombia (see Chapter 14). However, inflows then fell during the global financial crisis, before picking up once again. In 2014, FDI inflows to Latin America and the Caribbean fell on the previous year by 16 per cent to $158.8 billion (2.6 per cent of GDP), largely due to falling commodity prices (see ECLAC, 2015a). The pattern of investment varies dramatically between countries, sub-­regions, and different economic sectors. In 2014 Brazil continued to be the largest recipient of FDI in Latin America, receiving $62.5 billion, Mexico received $22.8 billion, a steep fall on the previous year, and Chile received $22 billion. Falling commodity prices again help to explain why the share of sectors that extract and export natural resources such as hydrocarbons and metal mining in FDI inflows fell to 17 per cent in 2014, compared to an average of 24 per cent in 2009–13. Even in economies where the natural resources sector continued to receive a large share of FDI, such as Colombia, Ecuador, and Bolivia, that share is waning. While the US has at times been the largest single country source of FDI heading for Latin America, in 2014 the Netherlands was the largest investor country in the region accounting for 20 per cent of inflows compared with 17 per cent for the US. Spain is the third largest investor in the region (10 per cent) and invests heavily in Mexico, Colombia, and Central America. Political conditions play an important role in determining the levels of FDI that countries receive, with investors shying away from instability or policies that they consider to be hostile to business. Inflows of FDI into Venezuela in 2014 fell by 88 per cent, a reflection of its continuing economic difficulties. Hostility to the presence of foreign corporations can also make investors nervous, although the impact of measures to increase taxes on their revenues or limit their stakes, for example, does not always result in the dire warnings they make about FDI abandoning countries with hostile policies coming true. In Bolivia, for example, violent protests led by the coca growers’ leader Evo Morales and his Movimiento al Socialismo (MAS, Movement Toward Socialism) before he won the presidency in late 2005 were directed against the activities of multinationals that had invested over $3 billion to exploit the country’s huge natural gas supply (see Boxes 5.6, 12.11). In May 2006, the Morales government took control of the country’s natural gas industry and told foreign firms to leave if they were not willing to renegotiate energy contracts. In 2004 and 2005, FDI flows fell dramatically then turned negative, just as the foreign investors had warned; but in 2006 FDI inflows picked up again and by 2011–14 were averaging more than $1 billion per year. Chapter 15 . Neoliberalism 479 (Bulmer-Thomas, 1994). Argentina, Bolivia, Colombia, Costa Rica, Ecuador, El Salvador, Uruguay, and Venezuela had begun to make significant adjustments, although Ecuador and Venezuela remained heavily dependent on sales of oil (see Figure 14.1). Policy reforms in a last group of countries – Cuba, the Dominican Republic, Guatemala, Haiti, Panama, Paraguay, Brazil, Honduras, Nicaragua, and Peru – were slow or limited. By the late 1990s, free-­market economics had become dominant throughout most of Latin America, albeit in different forms and to varying extents, to the point where both supporters of the reform process itself and many of its critics on the left accepted that a new market consensus had taken hold in the region. Part of the explanation for this change is that there was discernible popular support for many of the reforms, which despite belt-­tightening often brought benefits to populations tired of economic instability and high inflation, and eager to make up for the ‘lost decade’ following the debt crisis. Between 1990 and 1997, Latin America experienced consistent economic growth, falling poverty, and increased social spending (ECLAC, 1998). Nonetheless, the record of neoliberal reform was mixed and, after 1998, this consensus was comprehensively challenged (see below). Policy Tools The policy tools of neoliberal reform can be categorized under two main themes: policies that reduced the role of the state in the economy and aimed to remove constraints on market activity through privatization and deregulation, thereby attracting foreign investment; and policies that liberalized trade to reorient the economy towards diversified export-­led growth in a globalizing economy. Privatization and Deregulation The term neoliberal refers to a range of policy positions adopted or pursued in a variety of ways in Latin America but their common denominator was that they envisaged economic development based upon free-­market mechanisms and rejected any distortion of market forces by the state (see Box 15.3). Neoliberals argued that growth in developing regions had been hampered not by lack of resources but by massive government interference with market mechanisms for political reasons and to propel industrialization. Structural reform, therefore, aimed to reduce the role of the state in the economy by cutting the size of the public sector and restricting social programmes and public services. An important reform tool was privatization, which became a visible symbol of a state’s commitment to the new market model during the 1990s. Neoliberals believed that selling off state-­owned enterprises – which accounted for about 12 per cent of GDP in the mid 1980s – would enable the management of newly private firms to take decisions based on economic efficiency, rather than politics, and simultaneously would ease pressure on a state’s budget. 480 Part V . Economic Ideas THEORIES AND DEBATES Box 15.3 State versus market At the heart of development debates in Latin America has been the role of the state (see Box 2.1). Structuralists assigned a key role to the state to spearhead industrialization (see Chapter 14). As a result, state responsibilities and expenditures grew significantly. However, by the late 1970s many policymakers outside Latin America and within multilateral institutions were arguing that the states in the region were bloated and inefficient, acting mainly in favour of certain privileged groups (see Chapter 7). Governments had appeased politically powerful unions with legislation that raised costs above internationally competitive levels and protected local businessmen from foreign competition, reducing their incentive to produce cheaply and efficiently. By the 1980s, many Latin American policymakers themselves were beginning to blame the state for high inflation, indebtedness, and slow growth. Neoliberal ideas demanded a radical restructuring of the state and opening of economies to market forces. Economists from the Chicago School argued that state-­directed activity had a poor performance record and a free market was essential for development. Neoliberal positions were grounded in assumptions about the self-­interest of economic actors and assigned the state a minimal role (Franko, 2007). They advocated the privatization of state enterprises, repealing minimum wage laws, eliminating tariffs, cutting welfare spending, and giving businesses incentives to invest, such as lower taxes. Many economists agree that much can be learned from neoliberalism when it comes to ensuring productive efficiency in technical terms. However, the economic structures of many developing countries are built upon ineffective institutions, inequality, and political weaknesses that often make policymaking based purely on either market or state formulas difficult. ‘Neostructuralist’ critics of neoliberalism (see Chapter 14) say the history of Latin America provides ample evidence that economic development cannot occur without state intervention. Moreover, state activity in Latin America today still remains limited in comparison with that of other parts of the world after declining since the 1980s. Central government expenditure as a proportion of national wealth also varies considerably throughout the region, from 27 per cent in Brazil to 13 per cent in Guatemala and Haiti in 2014; of that, social spending to tackle poverty and inequality ranged from 36 per cent of GDP in Cuba to just 7 per cent in the Dominican Republic (ECLAC, 2015b). Recent economic debates in Latin America have returned to the question of state regulation and in some cases state ownership through nationalization, seeking more middle ground between structuralist and neoliberal positions (see Chapter 14). Nationalization since 2000 has largely been confined to Venezuela, Bolivia, and Argentina, often to correct a failing sector or address issues in the capital markets. In 2008, for example, the Argentine government took the country’s flag-­carrier airline, Aerolíneas Argentinas, which had originally been privatized in 1990, back into state control after several years of problems. Later in 2008, Argentina also nationalized the private pension system comprising about $30 billion in private pension funds. It justified this as an attempt to protect retirement investments from the international financial crisis. In Mexico, ambitious privatizations within the energy sector in 2013–14 (see below) were characterized by the government as essential to tackle falling production and widespread corruption. Nonetheless, nationalization can be politically popular. Latinobarómetro data in 2013 showed that levels of satisfaction among people using nationalized services in Venezuela and Bolivia were higher in both countries than for privatized utilities in other countries. The economic role of the state continues to be debated vigorously in Latin America. Bárcena and Prado (eds, 2016) have noted that the developed countries that now dominate the global economy once used active state intervention to pursue growth and development, and as a result consolidated their technological supremacy. Chapter 15 . Neoliberalism 481 A first wave of privatization in Latin America in the 1980s generated resistance because state officials did not want to lose the political power that the control of these sectors conferred; managers and workers were threatened by job losses; nationalists argued that foreign capitalists would simply buy up key sectors; and the military grew nervous about who would control strategic industries. In some cases, measures were adopted to soften the blow of privatization through delays in job reduction and generous severance packages. The scale of privatization in Latin America gathered pace significantly between 1990–99 (see Table 15.1). Overall, ambitious privatization programmes were undertaken in Chile, Argentina, Mexico, and Brazil. In Chile, between 1974 and 1992 more than 500 firms were privatized, and state ownership in the economy accounted for 16 per cent of GDP by 1989. In Mexico and Argentina, privatization was also extensive and one of the largest privatizations to take place in emerging markets was that of the huge Argentine state oil conglomerate Yacimientos Petroliferos Fiscales (YPF) in 1993. Following legal changes, Brazil was a latecomer to privatization in 1990, with the state continuing to hold 100 per cent stakes in public utilities, 67 per cent of steel, and 67 per cent of chemicals and petrochemicals. Privatization since then – initially in steel, petrochemicals, and fertilizers, and thereafter in energy and transportation – was substantial, raising about $3 billion in 1996 and $5.5 billion in 1997. In 1997, Companhia Vale do Rio Doce (CVRD) – Latin America’s biggest producer of gold, Brazil’s largest exporter and the biggest foreign exchange earner in the country – was put up for sale with a price tag of $9.8 billion. Telebrás, the national telecommunications network, was auctioned off in 12 restructured pieces for $19.1 billion, with Spain’s Telefónica picking up the most valuable sector. The impact of privatization has been the theme of significant debate, although most liberal economists have argued that it has, overall, been positive (see Smith, 2002; Chong and López-de-Silanes, eds, 2005). In general, it has led to improvements in the quality of services and has played an important role in bringing down inflation. By 1995, countries that had experienced hyperinflation such as Argentina, Nicaragua, and Bolivia had brought inflation down to single figures. Privatization has, in general, improved the competitiveness of some large Latin American companies. It was particularly good news for local businessmen, who bought into privatizing sectors: for Table 15.1 Privatization in Latin America 1990–99* Country 1990 1991 1992 1993 1994 1995 1996 1997 1998 Total 44 1,633 2,401 2,621 2,104 992 Argentina 7,532 2,841 5,741 4,670 894 1,208 Mexico 3,160 11,289 6,924 2,131 766 167 1,526 4,496 999 291 31,749 3 212 127 2,840 1,276 1,751 1,268 480 286 8,243 168 5 391 170 – 2,075 2,876 518 – 6,203 Brazil Peru Colombia –** – * Top five countries, millions of US dollars ** – Not available/not reported Source: World Bank, 2001. 5,770 18,737 32,427 1999 642 4,366 4,400 71,129 510 16,157 44,561 482 Part V . Economic Ideas example, Mexico’s stock of billionaires rose from 2 to 24 during the presidency of Carlos Salinas (1988–94). In 2003 the IDB argued that a body of evidence on privatization pointed to improved performance, firm restructuring, fiscal benefits, increased output, and quality improvements in sectors where this had taken place (Chong and López-­de-Silanes, 2003). Latinobarómetro data has revealed significant variation in levels of approval for privatization and satisfaction with privatized services both across different countries and over time. Whereas in 1998, when approval of privatizations was measured for the first time, this reached 46 per cent in Latin America, by 2013 this had dropped to 30 per cent (Latinobarómetro, 2013). The citizens of Ecuador were the most satisfied in 2013 (59 per cent) with the citizens of Honduras the least satisfied (14 per cent). Deregulation involved a range of measures to remove constraints to market activity that included amending minimum wage laws, creating incentives for investment in the form of lower taxes, and increasing the protection of private property. In particular, deregulation policies sought to remove barriers to the movement of capital and the entry of foreign investment. Neoliberals argue that openness to foreign capital is beneficial because it increases investment that cannot be financed with local savings and so increases local production, with a potentially positive impact on welfare (Cardoso and Helwege, 1992). Foreign capital was a significant source of privatization revenues, accounting for 39.7 per cent in Latin America between 1990 and 1995 and jumping to 76.7 per cent in 1995 (Franko, 1999). In countries such as Bolivia, Peru, and Uruguay, more than 80 per cent of privatization revenues flowed from abroad. After 2008, the international climate shifted back in favour of regulation, especially of financial markets, although this raised concerns in Latin America that tighter oversight would suppress the buoyancy of credit markets and push up interest rates. Foreign investment remains a significant plank of economic policymaking and remains a crucial element of growth (see Box 15.2; see also Nelson, 2009). In Mexico, areas with the largest concentration of multinationals, such as the northern frontier region, are the most advanced sectors of the economy. An important recent trend in Latin America has been intra-­regional investment (see Box 15.4). Foreign investment is seen as particularly important for escaping what has become known as the ‘middle-­income trap’, a condition in which a country that has developed to a certain level finds itself unable to move towards a more knowledge- and skills-­based economic model and is thereby trapped in a prolonged period of sluggish growth. According to the World Bank (2016e) ‘middle-­income’ economies for the 2017 fiscal year are defined as those with a GNI (gross national income) per capita of between $1,026 and $4,035 (lower middle income) or between $4,036 and $12,475 (upper middle income) by comparison with low-­income economies ($1,025 or less in 2015) and high-­income economies ($12,476 or more). The middle-­ income trap is closely related to the level of technical and knowledge-­based skills in an economy. In the case of Latin America, skills have hitherto played a limited role in the growth model, preventing these developing economies to move towards a more knowledge- and skills-­based model. This is because in order to escape the low-­income phase, countries have relied upon an almost endless supply of labour and imported foreign technology, neglecting their Chapter 15 . Neoliberalism 483 Box 15.4 TRENDS The trans-Latins flex their muscles A phenomenon of increasing interest to economists has been the growth of Latin American outward foreign direct investment (OFDI) – finance that is invested by Latin American corporations outside their countries, whether this is within the region itself or beyond. OFDI is a measure of the region’s ability to generate and deploy the capital that has long been something of a missing link in Latin American development (see above), and hence offers the potential to reduce its dependence on FDI (see Chapter 14). Flows of OFDI from the countries of Latin America and the Caribbean have shown a consistent increase as economic growth has strengthened the fortunes of so-­called ‘trans-Latins’, or Latin American multinational corporations. The development of this new generation of large corporations – mostly in Brazil, Chile, Argentina, and Mexico – has been driven by economic reforms (see ECLAC DPPM, 2009; ECLAC IS, 2009). Outward FDI flows from Latin America and the Caribbean, which inevitably vary according to global economic conditions and can be volatile, averaged $46.8 billion per year between 2010 and 2012 and were $29 billion in 2014 (ECLAC, 2015a). They were concentrated in a small number of countries and trans-Latins, making them very sensitive to individual acquisitions or large projects. Most of the largest trans-Latins have come from just four countries: Brazil, Chile, Colombia, and Mexico, which together accounted for 90 per cent of OFDI outflows from the region between 2005 and 2015. The largest trans-Latins have tended to be in natural resource-­based sectors such as oil and gas, although retailing, food, and telecoms are becoming more popular. In 2014 the two largest corporate acquisitions by Latin American companies were in the telecoms sector – Oi (Brazil) merged with Portugal Telecom (valued at $8 billion) and América Móvil (Mexico) increased its stake in Telekom Austria for $6 billion. own skills development. Moreover, further economic development is increasingly linked to a gradually rising quality and complexity of skills, especially those related to science and productive creativity. According to OECD/ECLAC/CAF (2015b), Latin America and the Caribbean is particularly badly affected by the middle-­income trap, with only Chile and Uruguay being able to make the transition to the high-­income level. While the region has made significant progress in increasing its supply of skills, especially the percentage of the population with secondary or tertiary education, the gap in educational quality with the advanced economies persists. Innovation is now seen as crucial to the future growth of developing economies, but just two Latin American economies are within the top 50 countries in a global league table that measures innovation policies and performance across the economy, Chile and Costa Rica (GII, 2016). Trade Reform As part of their mission to reverse a bias under the ISI model against production for export, the neoliberals put trade reform at the top of their policy agenda in the belief that liberalizing imports ultimately benefits everyone. 484 Part V . Economic Ideas Local factories can import the best available machinery and other inputs to improve their productivity, competition from abroad forces domestic producers to improve their products, and consumers can shop around for products at the best prices. From the late 1980s, trade reforms across Latin America dismantled protectionist measures despite the general lack of a reciprocal opening from the US or European governments. By the end of the 1980s, Latin American exports finally started to respond by growing in value, and an emphasis was placed in some cases upon reforms that would enable diversification away from exporting a single commodity. However, according to the IMF (2015) the level of export diversification in Latin America and the Caribbean remains today significantly lower than in advanced economies and the newly industrialized Asian countries, and the trend towards diversification has been halted and even partly reversed since 2000. Moreover, the IMF says Latin American exports are far less complex than those of advanced economies in terms of how ‘knowledge-­intensive’ they are (a reflection of how sophisticated the productive base is) and that complexity has been stagnant or trending down since 1970. The main reason for stalling diversification since 2000 was the commodities boom in the first decade of the new millennium, which once again focused the attention of Latin American governments on the benefits of exporting valuable raw materials in a context of rising prices (see OECD/ECLAC/CAF, 2015a). However, the slowdown in Chinese demand for commodities since 2013 together with a fall in prices has since affected Latin American commodity exporters, revealing the continuing structural weaknesses of commodity-­based growth, and reiterating once more calls for economic diversification. These calls echo the argument of structuralists, who continue to point to the high level of productive diversification in the economic ‘centre’ alongside continuing specialization on primary products in the ‘periphery’ (see Chapter 14). Neoliberal policymakers tried to institutionalize trade reforms through multilateral and regional free-­trade agreements that coordinate the mutual reduction of tariff and other barriers to imports between countries. The General Agreement on Tariffs and Trade (GATT), an international body created in 1947 to promote the reduction of tariffs in goods and services, gained a new lease of life in the 1980s with the accession of Latin American states such as Mexico in 1986 and Bolivia, Costa Rica, El Salvador, Guatemala, Paraguay, and Venezuela in the early 1990s. Free-­trade agreements have become an important vehicle of regional integration in Latin America, although efforts to integrate markets are not new and many hark back to the ISI era (see Chapters 9, 14). A proliferation of sub-­regional and bilateral free trade and economic co-­operation agreements within Latin America has created a complex ‘variable geometry’ of intra-­regional trade preferences (see Table 15.2). The latest round of integration began in 1991 with the formation of the Mercado Común del Sur/Mercado Comum do Sul (Mercosur/Mercosul, Common Market of the South; see Box 9.9). In 1994, after several years of complex negotiations, Mexico joined with the US and Canada in the North American Free Trade Agreement (NAFTA). NAFTA was an important model at the heart of US aspirations to create a Free Trade Area of the Americas (FTAA) encompassing the entire western hemisphere (see Boxes 15.5, 16.4), although aspects of this agreement were initially likely to be substituted by the Chapter 15 . Neoliberalism 485 Table 15.2 Main free-­trade and economic integration initiatives in and with Latin America and the Caribbean* Sub-­regional agreements Year created Current member economies Mercado Común Centroamericano (MCCA, Central American Common Market, CACM) 1960 El Salvador, Guatemala, Honduras, Nicaragua, Costa Rica Comunidad Andina de Naciones (CAN, Andean Community of Nations, ANCOM). 1969 (as Bolivia, Colombia, Ecuador, Peru Andean Pact) Caribbean Community (Caricom) 1973 Caribbean states, including Haiti Sistema Económico Latinoamericano y del Caribe (SELA, Latin American and the Caribbean Economic System) 1975 28 countries including Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, Dominican Republic, Ecuador, El Salvador, Guatemala, Haiti, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay, and Venezuela Asociación Latinoamericana de Integración 1980 (ALADI, Latin American Integration Association, LAIA), replacing Latin American Free Trade Association (LAFTA, 1960) Argentina, Bolivia, Brazil, Chile, Colombia, Cuba, Ecuador, Mexico, Panama, Paraguay, Peru, Uruguay, and Venezuela Pacific Economic Co-Operation Council (PECC) 1980 Chile, Colombia, Ecuador, Mexico, and Peru are among 23 members Mercado Común del Sur/Mercado Comum do Sul (Mercosur/Mercosul, Common Market of the South) 1991 Argentina, Brazil, Paraguay, Uruguay, and Venezuela (associate members: Bolivia, Chile, Colombia, Ecuador, and Peru) Asia-Pacific Economic Co-­operation (APEC) 1993–98 Mexico, Chile, and Peru joined this forum created in 1989, which now has 21 member economies North American Free Trade Agreement (NAFTA, 1994 Tratado de Libre Comercio de América del Norte, TLCAN) Mexico, US, Canada Asociación de Estados del Caribe (AEC, Association of Caribbean States, ACS) Caribbean states, including Colombia, Costa Rica, Cuba, Dominican Republic, El Salvador, Guatemala, Haiti, Honduras, Mexico, Nicaragua, Panama, and Venezuela 1994 Alianza Bolivariana para los Pueblos de 2004 Nuestra América (ALBA, the Bolivarian Alliance for the Peoples of Our America) Venezuela, Cuba, Bolivia, Nicaragua, Ecuador, Antigua, Barbuda, Dominica, Grenada, Saint Kitts, Nevis, Saint Lucia, St Vincent, and the Grenadines Trans-Pacific Strategic Economic Partnership Agreement (TPSEP) 2006 Chile, Brunei, Singapore, and New Zealand Unión de Naciones Suramericanas (Unasur, Union of South American Nations ie Mercosur plus CAN) 2008 Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Paraguay, Peru, Uruguay, Venezuela, Guyana, Suriname Tratado de Libre Comercio entre Estados 2009 Unidos, Centroamérica y República Dominicana (TLC, Dominican Republic-Central America Free Trade Agreement, DR-CAFTA) US, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, Dominican Republic Pacific Alliance 2011 Peru, Chile, Colombia, and Mexico European Free Trade Association (EFTA)Central America Free Trade Agreement 2013– EFTA, Costa Rica, Panama, Guatemala, Honduras (negotiating) Trans-Pacific Partnership (TPP) 2016– Chile, Mexico, and Peru are members of this 12-country alliance that also includes the US (which Donald Trump pledged to withdraw) * Not including bilateral arrangements both within Latin America and between LAC countries and others, which are now numerous 486 Part V . Economic Ideas Trans-Pacific Partnership (TPP; see Table 15.2; Chapter 11). However, the US president-­elect Donald Trump signalled that he would withdraw from the TPP. More recently, the establishment in 2008 of the Unión de Naciones Suramericanas (Unasur, Union of South American Nations) represents an effort to bring together Mercosur and the Comunidad Andina de Naciones (CAN, Andean Community of Nations), thereby extending the potential for a customs union encompassing almost the whole of South America. Globalization Policies removing barriers to foreign investment and liberalizing trade favoured by neoliberals built on notions of global interdependence. Since the mid-1990s, the idea of ‘globalization’ has been at the heart of debates about the impact of free trade upon Latin American development. Neoliberals embraced the concept of globalization because it limits the ability of a national state to resist the dominant norms of the international economy by seeking to control trade and investment, and so represents an alternative to the statism epitomized by ISI. INSTITUTIONS Box 15.5 Free trade or forlorn hope? Negotiations to create a Free Trade Area of the Americas (FTAA) that had been actively pursued by US policymakers since the early 1990s stalled in late 2003 and a deadline of January 2005 to finalize an agreement was missed. The aim of the FTAA was to lower tariffs and open up borders between 34 western hemisphere countries – excluding Cuba – with a combined population of 800 million people and $13,000 billion in economic output, creating the world’s largest free-­trade zone. Supporters of the FTAA described it as more than just a way to boost trade and that it could have served to promote good governance, strengthen institutions, and encourage greater regional co-­operation. Negotiators did not give up hope of eventually striking a deal on what the FTAA’s critics dubbed ‘NAFTA on steroids’. At the Summit of the Americas meeting of 34 heads of state in November 2005, 29 countries said they wanted to resume talks but five – Brazil, Argentina, Venezuela, Uruguay, and Paraguay – decided to wait for results of a scheduled meeting of the World Trade Organization (WTO). However, little progress was made thereafter, and hopes among supporters of the FTAA that the idea could be revived foundered. The White House responded to the FTAA delays by pursuing smaller trade agreements in the region with sub-­ regions such as Central American and the Caribbean, and with individual countries such as Colombia, Peru, and Ecuador. In 2004, the US reached an accord with six countries in the Dominican Republic-Central America Free Trade Agreement (DR-CAFTA), which came into force in 2009. The election of leftwing governments in several Latin American countries (see Table 12.1) and resistance to the FTAA in the US by heavily protected farmers contributed to scepticism in Brazil and Argentina about Washington’s willingness to reach a deal. Delays to the FTAA also encouraged South American countries to consolidate trading links with their neighbours through existing agreements such as Mercosur (see Box 9.9; Table 15.2). Cuba’s Chapter 15 . Neoliberalism 487 desire to join Mercosur also complicated discussions about the FTAA (see Box 10.8) and Venezuela created its own integration initiative, the Alianza Bolivariana para los Pueblos de Nuestra América (ALBA, Bolivarian Alliance for the Americas) as a socialist alternative to the FTAA (see Box 9.1). As a result of the commodities boom between 2003 and 2008, South America’s big exporters also turned to growing markets such as China (see Chapter 11; Boxes 11.7, 14.7). Critics of the FTAA, and in particular social movements in Latin America opposed to it as a pillar of the neoliberal agenda, pronounced it dead (see Nelson, 2015). Nelson (2015) argued that the collapse of the FTAA negotiations was rooted in a ‘crisis of authority’ prompted by growing opposition to US leadership and its neoliberal agenda. The election of the Republican Donald Trump as US president on an openly protectionist platform signals the formal end of the FTAA, but also has wider repercussions for existing trade agreements. Trump’s pledge to renegotiate NAFTA will be interpreted as an unwillingness by the US to live by commitments it has reached with other countries, and is likely to provoke reciprocal measures. In the case of Latin America, however, repercussions could be characterized by a tension between the willingness of some countries to negotiate unilaterally with the US and that of others to seek security in established integration initiatives such as Mercosur. Moreover, existing opposition to NAFTA has remained consistent on the Mexican left, and has coalesced into broader hostility to other aspects of neoliberal policymaking that are associated with the free trade agenda, most recently privatization within the energy sector (see below). Opponents of NAFTA on both sides of the border point to its negative impact upon peasant farmers, falling wages and rising prices for stables such as tortillas (see Public Citizen, 2014). Debate over the FTAA also exacerbated divisions between some Latin American governments. In recent years, political opposition to free trade and investment agreements has also grown within the US itself, and both the main candidates in the country’s 2016 presidential election campaign attacked NAFTA, arguing that such deals have cost jobs. More recently, scholars have asked searching questions about the resilience of Latin American regional integration initiatives in the ‘post-­neoliberal’ era (see below). The politicization of economic integration through mechanisms such as ALBA, for example, and the return of the state to a prominent development role pose significant questions for forms of integration based on market criteria (see Carranza, 2014). A key aspect of globalization is the predominance of liberal economic principles throughout the world, although it remains a contested idea that has been explained in different ways (see Box 15.6). Above all, globalization can be characterized as the increasingly transnational nature of capitalist development that reflects the emergence of a new international order since the end of the Cold War. This blurs distinctions between economic activities within and outside countries and, by making national borders less significant, challenges a view of the world in terms of rich versus poor countries. By heightening competition, globalization can engender economic success or failure for groups in both rich and poor nations (Payne and Nassar, 2003). Supporters of globalization say it will intensify economic growth in ways that ultimately benefit everyone, and argue that global competition and free trade benefit most of the population by increasing job opportunities, weakening monopolies, and reducing consumer prices as transnational capital flows into countries seeking lower costs and bringing with it jobs and 488 Part V . Economic Ideas technology. Others argue that the advancing global economy may have the power to improve and enrich lives through its capacity to distribute as well as create wealth, but may need mechanisms to ensure that this takes place according to human rights standards (see, for example, Kinley, 2009). In particular, globalization has created poles of growth in the world economy THEORIES AND DEBATES Box 15.6 Perspectives on globalization in Latin America Latin America offers a valuable focus for the analysis of globalization, a term that has been understood in different ways (see Held and McGrew, 2000; Harris, 2002; Ritzer, 2009; Whitman, 2009; Wunderlich, 2009). Scholars of politics in the region have often adopted the ‘transformationalist’ position arguing that globalization is giving rise to complex transformations in economics, politics, and culture that have an uneven and even contradictory impact on nations, regions, and sectors. In 2002, ECLAC developed its own perspective on globalization and recommended ways Latin America could meet its challenges. The organization argued that globalization was a set of external economic, social, and cultural processes that exerted progressively greater influences over regions and countries (ECLAC, 2002a). As an economic phenomenon, globalization brought opportunities for development, but also posed risks deriving from two key aspects of the globalization process: ? The prevailing form of market globalization marked by the mobility of capital, goods, and services alongside restrictions on the mobility of labour. A good example of this was NAFTA (see above). To ECLAC, this aspect of globalization reflected fundamental power asymmetries in the global order. ? The absence of a suitable form of global governance. ECLAC drew attention to a pressing example of where effective global institutions were required: the financial markets, a position that was greatly strengthened by the 2008–09 global financial crisis. However, since 2009 overall success in reforming global financial governance has been limited (see New Rules in websites below). ECLAC put forward a positive agenda for Latin America and the Caribbean in the global era based on key principles: shared objectives; global institutions that respect diversity; the complementarity of global, regional, and national institutions; and equitable participation in accordance with suitable rules of governance. Its agenda gives the new international order three main objectives: the provision of global public goods, the correction of international asymmetries, and the pursuit of a rights-­based social agenda. Robinson (2003, 2008) developed an influential model of globalization based upon his analysis of its impact on Central America, arguing that it is shaping a new ‘transnational’ economy and society that has disrupted past patterns of revolutionary upheaval and civil war in the region. His approach bore some similarity to that of dependency theory by highlighting internal changes in the balance of power between different factions in society and the emergence of new transnational factions and new class groups as a result of economic restructuring. Gwynne and Kay (2016) also relate globalization back to original ideas within structuralism and dependency theory, which conceptualized the international system as being constituted by asymmetric centre-­periphery relations (see also Bourguignon, 2015). Chapter 15 . Neoliberalism 489 In recent years and given the impact of the crisis in 2008–09, globalization has often been assessed from the perspective of capital markets, ‘financial globalization’, and there has been a willingness to question more critically its impact upon inequality (see Bourguignon, 2015; Milanovic, 2016). Bárcena and Prado (eds, 2016) argue that neostructuralism represents the adaptation of structuralism in Latin America to the new reality of openness and globalization (see Chapter 14). More broadly, the rise of populism in the developed democracies and growing pressures for protectionism have been interpreted as a political reaction against globalization (see Rodrik, 2012). This arguably came to a head with the election of the Republican Donald Trump as US president in 2016, which has been interpreted as a response by core constituencies of primarily blue-­collar voters in the developed world who may have lost out to globalization. based on regional integration, with multinational corporations identifying regions in which to base their labour-­intensive operations and develop markets for their products. Mexico and Brazil have been the two most important poles of attraction for foreign direct investment in Latin America. Annual ‘globalization indexes’ based on trade and investment indicators are now produced that incorporate the economies of the region. The KOF Index of Globalization measures the three main dimensions of globalization: economic, social, and political, according to a number of criteria and in 2016 only one Latin American country, Chile, was in the global top 50 (ETH, 2016). Globalization is having a significant impact upon Latin America’s development. On the one hand, it has deepened the region’s traditional role as a source of raw materials and primary products by creating important new markets and export opportunities in countries such as China (see Boxes 11.7, 14.7). The scale of the commodity boom and its impact on Latin American growth between 2003 and 2008 attest to this. On the other hand, technological development and the availability of global investment have made new types of economic activity that do not depend on traditional types of production possible in Latin America. In the late 1990s, for example, high-­technology and information technology companies such as Intel, Acer, and Microsoft began to locate in Costa Rica and it became known as Latin America’s ‘high-­ tech capital’ (Robinson, 2003). A potentially important area of growth in the most developed Latin American economies – and a good example of the economic activities that become possible through globalization – is the offshore business services industry, which makes use of information technology to provide key components of a company’s operations from abroad at a lower labour cost. Typical offshore business services include contact centres, business processes, information technology services, and knowledge-­ intensive, analytical services. This kind of offshoring is seen as important to the efforts of developing economies to attract ‘high-­quality FDI’ – that which encourages local economic, technological, and social development by allowing workers to develop new skills and paying them higher rates than they would find domestically – as opposed to just large quantities of FDI that may not necessarily help countries improve their skills base. Although Latin America’s participation in the offshore services industry remains small, 490 Part V . Economic Ideas in recent years large corporations have shown an increasing interest in the region and ECLAC believes there is significant potential for growth. In 2016 the AT Kearney Global Services Location Index placed three Latin American countries (Brazil, Mexico, and Chile) in the top 10 of those seen as most attractive globally for future offshore business services investments (see Table 15.3). Critics of the impact of globalization on Mexico, anchored through institutions such as NAFTA, have argued that it has had a damaging impact upon social development in many sectors. Cypher and Delgado Wise (2010) believed the country has not benefited from an unconditional reliance on foreign corporations to promote export-­led growth. They argued that the maquiladora sector and auto industries in Mexico are examples where increasingly international capital has pushed down wages and conditions in a ‘race to the bottom’, creating an economy marked by stagnation, falling wages, informal part-­time employment, and migration (see Boxes 15.5, 16.4; Chapter 10). Chollett (2013) pointed to the distortions neoliberal globalization created in the country’s sugar market with the resulting social and economic exclusion of sugarcane growers and mill workers in states such as Michoacán. The critique of the impact of neoliberal globalization on the agricultural sector in particular has been extended across Latin America. Otero (ed, 2008) argued that the liberalization instigated in Latin American countries under pressure from the US, IMF, and World Bank by which agricultural markets were opened, land reform policies were curtailed and priority was given to exportation rather than local food needs forced many peasant farmers to specialize in one genetically modified crop (see Box 16.3) or to become low-­wage workers within a system of capitalized farms. The impact of neoliberal policies in the countryside can be complex and contradictory, resulting in both resistance but also accommodation among rural communities in countries such as Nicaragua (see Horton, 2013). Neoliberal reforms in Table 15.3 A T Kearney Global Services Location Index, 2005–16 2005 2016 1 India India 2 China China 3 Malaysia Malaysia 4 Philippines Brazil 5 Singapore Indonesia 6 Thailand Thailand 7 Czech Republic Philippines 8 Chile Mexico 9 Canada Chile 10 Brazil Poland Others in the top 25 Mexico (17), Costa Rica (21), Argentina (23) Costa Rica (19), Colombia (20) Source: A T Kearney, 2005, 2016, with permission. A T Kearney Global Services Location Index, 2005™, p 2; and A T Kearney Global Services Location Index, 2016™, p 4, online: www.atkearney.com/strategic-­it/global-­ services-location-­index/full-­report. Chicago: A T Kearney, Inc. Chapter 15 . Neoliberalism 491 the countryside have often put indigenous people in the front line of conflict with the state (see Rice, 2012). Richards (2013) showed how neoliberal policies marginalized Mapuche indigenous communities in Chile and consolidated traditional racial ideas and hierarchies. Globalization also has important implications for politics in Latin America. It has the potential for weakening the state’s traditional role in economic management by shifting its focus towards meeting the requirements of international competitiveness and away from meeting the welfare needs of citizens or reducing inequality. To compete effectively, governments may be forced to adopt policies that could, in fact, promote greater inequality by reducing spending on healthcare, social services, subsidies for the poor, and keeping wages low to attract investment (Payne and Nassar, 2003). Simultaneously, globalization may diminish the ability of traditional political actors to represent and channel social interests while encouraging the emergence of new civil society actors such as the Zapatistas in Mexico (see Boxes 12.6, 13.5; Chapter 8). Globalization also challenges the autonomy of states in the international arena in complex ways, increasing their room for manoeuvre in some respects while decreasing it in others. It may, for example, strengthen the opportunities for regional integration and multilateral approaches to decision-­making, and weaken the influence of traditional actors such as the US (see Cooper and Heine, eds, 2009; see also Chapters 9, 10). However, at the same time, important dimensions of globalization that limit Latin American states’ room for manoeuvre are the heightened risk of the withdrawal of capital and the detailed oversight of economic policy by international agencies and financial institutions such as the OECD and IMF. Modern states spend much time and energy trying to ensure a ‘favourable investment climate’ by developing economic policies that offer stability to large investors and do not conflict with international norms. If they fail to do so, investment can dry up and international agencies can impose conditions on financial aid if they face a crisis. Argentina’s crisis of 2001–03 demonstrated how the disapproval of international financial institutions and difficulties with international firms and investors can influence a government’s response to crisis, and the country has had a fraught relationship with the IMF since (see Box 15.7). Criticisms of Neoliberalism In recent years, the neoliberal orthodoxy has been the subject of a broad reassessment (see, for example, Kingstone, 2010). There have been direct challenges to neoliberal tenets – reflected in efforts to re-­establish state control over certain sectors of the economy and broad social policy agendas – and a number of scholars have talked of a ‘post-­neoliberal’ era in Latin America (see, for example, Grugel and Riggirozzi, eds, 2009; Silva, Eduardo, 2009; Wylde, 2012; Goodale and Postero, eds, 2013; Wolff, 2016). In Brazil left-­of-centre governments came to power with social agendas and in others, such as Bolivia, the leftwing challenge to neoliberal policies was initially militant (see Chapter 12). In Argentina, economic crisis prompted critical reflections about 492 Part V . Economic Ideas CASE STUDY Box 15.7 Argentina’s love–hate relationship with the IMF Argentina’s crisis in 2001 demonstrates some of the paradoxes of neoliberal reform in Latin America. The country stopped servicing about $82 billion of debt in the biggest sovereign default in history, exposing the fragility of the economy and generating a serious political, economic, and social crisis (see Box 5.4). Yet the IMF and multilateral institutions subscribing to the so-­called Washington Consensus (see Box 15.1) had heralded Argentina as a model neoliberal economy and this praise was, in fact, a factor in the crisis. A report by the IMF’s Independent Evaluation Office in July 2004 suggested that the organization had been too indulgent towards Argentina in the years leading up to its financial crisis by holding it up as a model (Thomson, 2004). Following Argentina’s debt crisis, several years of fraught negotiations ensued between Argentina and its creditors about how it could meet its obligations. A hardening of attitudes by the IMF, the US government, and the powerful Group of Seven (G7) industrialized countries in early 2004 forced Buenos Aires to begin accepting IMF demands. In March 2005, the Argentine government announced that the majority of its private creditors had accepted the terms of a debt-­reduction package. However, that was not the end of the affair. Although it restructured its debts in 2005 and 2010, so-­called ‘holdout’ bondholders who refused to accept reduced repayment terms tied the government down in the US courts, successfully winning lawsuits that would severely constrain the country’s room for manoeuvre and spark a bitter ward of words with President Cristina Fernández (2007–15; see Box 14.6). After the first restructuring, relations with the IMF declined and in 2006 President Néstor Kirchner (2003–07) barred the fund from conducting its annual ‘Article IV’ review of Argentina’s economy, a regular feature of IMF relations with member states. Relations worsened thereafter, hitting a low point in 2013 when the IMF issued a rare censure of Argentina over the statistical data it was providing on inflation and GDP. It was only after the conservative Mauricio Macri (2015–) won the presidency that relations with the IMF improved. In April 2016 Argentina returned to the international debt markets with a $16.5 billion bond issue, the proceeds of which were used by Macri to repay the holdout funds that had refused to accept the original debt repayment terms, who Fernández had described as ‘vultures’. In 2016 an IMF delegation visited the country for its first Article IV review of the economy in a decade. A fund spokesman said the government had made important progress with an ‘ambitious and much-­needed’ transition towards a better economic policy. the neoliberal model and the hype surrounding it, in part because the initial gains of neoliberal reform were lost in the disastrous collapse of 2001 (see Boxes 5.4, 14.6). In Venezuela, Ecuador, and Bolivia there was a revival of populistic pressures subordinating economic decision-­making to political criteria and re-­establishing a strong role for the state in shaping social policies. Some scholars argued that the Washington Consensus had been replaced by a ‘post-Washington Consensus’ that combined adjustments that acknowledge the failures and weaknesses of neoliberal policy with elements of continuity (see Panizza, 2009). As a result of the financial crisis of 2008–09, the Eurozone sovereign debt crisis after 2009, and other forms of market turbulence, there has been considerable debate in multilateral circles about the achievements and fate of the neoliberal policy agenda, with the IMF even going so far as to ask whether this was ‘oversold’ (see Ostry, Loungani, and Furceri, 2016). Chapter 15 . Neoliberalism 493 The take-­up of neoliberal policies in Latin America occurred according to different phases in diverse countries, making an overall assessment of their impact on the region complex, but they have been criticized on several fronts related to the politics of reform; problematic privatizations; limited growth and investment; trade impacts; unimpressive employment rates; and continuing poverty and inequality: The Politics of Reform Neoliberalism often worked against the needs of democratic consolidation by strengthening authoritarian tendencies and limiting popular representation and participation through depoliticization (see Chapter 4; see also Hellinger, 1999; Silva, Patricio, 2004). Economic adjustment sometimes reinforced a tendency towards the concentration of power in the executive and exacerbated tensions between the executive and other branches, weakening legislative and judicial institutions (see Chapters 5, 6). A number of autocratic presidents such as Alberto Fujimori (1990–2000) in Peru pushed through painful reforms outside the parameters of traditional politics and concentrated their authority, especially in cases where very high inflation required complex stabilization packages. Stabilization and adjustment was easier when there was a strong, centralized presidency able to overrule congress and control the trade union movement and other sources of potential opposition. Watt and Zepeda (2012) noted that the ‘drug war’ in Mexico that came to a head under President Felipe Calderón (2006–12) (see Box 4.3), for example, coincided with the application of neoliberal economic policies in the country. They argued that the militarization of public security strategy represented a binational strategy between Mexico and the US to shore up unpopular neoliberal policies and what they described as Calderón’s weak authoritarian government. Other scholars have also explored the security dimensions of neoliberalism more explicitly. O’Neill and Thomas (eds, 2011) examined how under neoliberal policies in Guatemala the state had abrogated its responsibilities for law enforcement, with dramatic implications for citizen security. Neoliberal reforms had diverse effects upon party systems in Latin America, with some patterns of market reform stabilizing these but others leaving party systems vulnerable to social protest and electoral instability (see Roberts, 2014). Loans by international financial institutions such as the IMF that were conditional on reforms may also have had an impact on democracy. A government may act to reduce civil liberties, for example, in an effort to stifle unrest that results from structural adjustment policies pursued on the basis of a loan that demands as a condition the achievement of certain fiscal targets. In a study of loans to Latin American countries between 1998 to 2003, for example, Brown (2009) found that while the presence of an IMF loan in itself does not affect democracy, loans that require a high number of reforms can have a negative effect on democratic practices. New civilian governments avoided actions that might cause division because of the need to stabilize their economies, to make the transition from authoritarian government, and to forge new civil–military relationships. In 494 Part V . Economic Ideas these circumstances, centrism, pragmatism, and moderation replaced political debate and the concept of democracy was defined primarily in a procedural way and pared of any social implications and was arguably less inclusive (see Chapter 3; Wylde, 2012). In Mexico, Bolivia, Argentina, and Peru, highly educated technocrats were put in control of economic policy on the assumption that the public interest was better served by policymaking inoculated against an ill-­informed public (see Box 2.1). One outcome of this was that, sometimes, prominent technocrats were able to pursue political careers on the back of their achievements, such as Fernando Henrique Cardoso in Brazil (1995–2002). Another outcome was a trend to technify problems and to target social policies, often diluting the political content of issues such as inequality (see Tulchin and Garland, eds, 2000). Neoliberal economic reforms also weakened or changed the behaviour of social actors such as trade unions and further excluded popular sectors such as the poor and marginalized from the formulation of policies. Reforms required the demobilization of important sectors of society such as unions (see Chapter 7), whose resistance was at times met with repression, as in the Bolivian government’s heavy-­handed response to a miners’ strike in 1985. Unions were also weakened by new laws aimed at enhancing labour market ‘flexibility’, making it easier for employers to hire and fire workers, and by the growth of the informal sector, often changing their strategies as a result (see above). In Argentina, for example, some unions began to participate in the process of privatizing state enterprises and the pension and retirement systems. Organized labour throughout Latin America saw its bargaining power reduced, and in some countries rates of unionization declined. The change in the role of the state transformed what parties on the left and centre-­left could offer voters in terms of economic policy, and they responded by moving to the centre with issue-­based promises (see Chapter 12). The Left’s shift to the centre also served to deactivate politics itself, in some cases providing space for populists to fill. As parties such as MAS in Venezuela abandoned the aim of revolution and began to stress consensual change in the struggle against inequality, alternatives that appeared more radical, such as Chávez, were able to capture the popular mood. However, Gates (2010) argued that the support of key elements of the business community, despite Chávez’s hostility to neoliberalism, was an important factor in his eventual victory in elections, suggesting that business sometimes made a calculation about their longer-­ term interest in whether to openly defend neoliberal policies. In the absence of potent alternative models, the actors most affected by neoliberal policies in Latin America – workers, women, and indigenous populations – sought other ways to advance their demands, and much opposition to adjustment took place in civil society (see Chapters 8, 13). In some cases, neoliberal reforms provoked serious unrest, such as that which shook Bolivia in 2003 (see Box 5.6). New armed groups have also emerged, such as the Ejército Zapatista de Liberación Nacional (EZLN, Zapatista National Liberation Army) in Mexico that drew attention to the social exclusion of indigenous farmers unable to compete in newly liberalized markets (see Boxes 7.6, 12.6, 13.5). Policies inspired by neoliberal ideas continue to provoke conflicts between indigenous groups and states that wish to open their lands to greater economic use. In Peru in 2009, for example, bloody clashes between Chapter 15 . Neoliberalism 495 indigenous communities and security forces in Amazonian areas claimed many lives (see Chapter 8). Problematic Privatizations The momentum that had driven the privatization process across much of Latin America was beginning to fade by about 2003 as academics, politicians, and the media voiced concerns about its record, gains, and impact upon welfare and the poor. Initial optimism among supporters of privatization gave way to a belief that it had often failed, and this belief became central to related denunciations of the Washington Consensus (see Box 15.1). In 2005 the World Bank defended the record of privatizations in Latin America, arguing that a broad range of evidence from different countries pointed to increased productivity and profitability, accelerating restructuring and output growth, mounting tax revenues, and improving product quality following privatization (see Chong and López-­de-Silanes, eds, 2005). It argued that where privatizations had failed, this was often linked to continued state involvement and regulation of the new companies. Assets owned by the state continue to be privatized in Latin America occasionally, albeit in a more limited way following the dramatic scale of privatization in the 1990s (see below, and Table 15.1). In Mexico, for example, President Enrique Peña Nieto (2012–) undertook an ambitious privatization process within the country’s politically sensitive energy sector through constitutional reforms that granted private companies rights to oil and gas exploration and exploitation. Similarly, his administration privatized the country’s energy regulator and permitted private companies to sell energy and add capacity to the electricity grid. The Mexican government was reluctant to describe these processes as privatization, but they had long been demanded by neoliberals in the US. Nonetheless, this reform could have implications for Mexican sovereignty, as the main beneficiaries will be large foreign corporations, particularly those from the US. The way privatization was carried out under neoliberal reforms was often criticized for a common failure to establish a strong regulatory structure to govern the activities of newly private utilities. Simply privatizing corporations does not in itself resolve the inefficiencies associated with much state ownership: privatization has to be accompanied by the establishment of regulations that prevent the emergence of monopolies and so protect consumers. Critics of privatization say Latin American governments missed the chance to introduce strong regulatory frameworks and that this inhibited and delayed genuine competition. In some cases, governments desperate for funds merely transformed public monopolies into unregulated private monopolies. Following a serious economic crisis in Argentina in 2001 that put aspects of the neoliberal reform process in that country under the spotlight, for example, the economy minister, Roberto Lavagna (2002–05), criticized the privatization process that his country had been encouraged to undertake by a range of international financial institutions for allowing monopolistic market structures to remain and for being conducted within an inadequate regulatory framework (see Box 15.7; and Panizza, 2009). In 2012, President Cristina 496 Part V . Economic Ideas Fernández (2007–15) expropriated the assets owned by the Spanish oil major Repsol in YPF, reversing a privatization that had been deeply unpopular on the Left (see Shever, 2012). Only where competition emerged did prices fall. In Chile, long-­distance telephone rates fell 50 per cent as new competitors entered the market, while monopolized local rates rose by 35 per cent (Franko, 1999). In some cases, privatization also led to the need to bail out incompetent businesses. A costly government bailout for Mexico’s privatized banking system effectively sealed the fate of the ruling PRI in subsequent elections. Privatization has also had consequences for democratic consolidation in Latin America (see Chapters 3, 4). While privatization was often hailed by supporters for its potential to create a healthy middle class that would play a significant role in reinforcing democratic stability, in countries such as Mexico most sales of industries were highly beneficial to the country’s largest capitalists and helped them consolidate their position in markets they already operated in, often allowing business groups to reinforce their monopoly positions (see MacLeod, 2004). Moreover, privatization may have damaging local effects if a plant or mill is closed as a result of it in an area where there are no alternative sources of employment, generating social unrest. Chollett (2013) examined the impact of neoliberal policies of privatization within the sugar industry in Mexico and the social movement resistance this generated. Privatization also reduced the contact citizens had with the state by handing functions once undertaken by corporations or agencies operated by the government to private providers. Citizens lost inputs they may have once enjoyed in the process by which decisions are made about the provision of important services, and the logic of the market was put before the public interest. In this sense, privatization may have increased a fatalistic sense among citizens that important decisions were made by technocrats and the business community and were completely out of their hands. Privatization processes were also often accompanied by a good deal of rhetoric about the state’s inability to provide the service being privatized because of inherent inefficiencies and corruption. This did little to enhance public faith in state institutions and government more generally, and may have contributed to declining enthusiasm for politics. In some countries, such as Uruguay, there was consistent resistance to sell-­offs: in October 2004, for example, plans to privatize the country’s water industry were rejected in a referendum when 64.5 per cent of voters said water should remain under state control. The vote gave the state exclusive control over water and sanitation and made access to them fundamental human rights. Privatization has also had implications for party systems in Latin America. In Mexico, privatization helped to erode the centralized, single-­party system under the PRI because it curtailed valuable sources of patronage in state corporations for the politicians who had controlled them (see Box 7.1). However, the awarding of public contracts to private providers creates new opportunities for corruption in government and sources of party finance as party membership withers, sometimes turning parties into vehicles that put their business sponsors first. As a result, privatization has greatly empowered the private sector at the expense of groups formerly represented within the Chapter 15 . Neoliberalism 497 corporatist state, such as organized labour. MacLeod (2004) has suggested that, in the case of Mexico, the privatization of state-­led industries was not merely an act of state withdrawal but a process guided from the outset by private interests. This position is important because it suggests that privatization in Latin America was shaped by collaboration between technocratic policymakers and private sector groups. It challenges the notion promoted by advocates of neoliberal reform that technocrats were autonomous from special interests (see also Schamis, 2002). Finally, while neoliberals often argued that privatization represented a healthy downsizing of the state in the interests of market reform, Schamis (2002) has suggested that privatiza­­­ tion can in fact lead to a strengthening, rather than a weakening, of state capa­ ­­­city. This is because in order to ensure that markets functioned correctly, states often sought to expand their institutional capacity in some areas by reorganizing the civil service, creating a new infrastructure to support budgeting decisions, and developing new regulatory administrations. Limited Growth and Investment Neoliberal policies in Latin America did not produce the investment or growth rates required to have an impact on underdevelopment in the region, with consequences for democratic consolidation (see Chapters 3, 4). In most countries of Latin America, average annual growth rates during the period of neoliberal consensus after the early 1990s were below the 6 per cent ECLAC believes is necessary to tackle the problems of poverty and unemployment (see Table 15.4). Moreover, overall growth rates across the region were unpredictable, and varied considerably between 1994 and 2004, a key period of neoliberal reform, limiting the potential for attracting the large inflows of investment necessary to raise production. In overall terms, there was an almost negligible increase in GDP per capita between 1980, at the very beginning of the neoliberal economic reform process, and 2003 (UNDP, 2004a). After a period of stagnation in the late 1990s, growth in per capita GDP in Latin America only began to recover ground when the effects of the commodity boom took hold after 2004–05 (see Table 4.4). According to Stallings and Peres (2000), of nine Latin American countries studied, only Bolivia, Chile, and Costa Rica were successful in terms of raising the investment rates necessary to improve productivity. Changes in investment and productivity were insufficient to achieve the rapid rates of economic growth required for sustained development (Gwynne, 2004). Although Chile has tended to buck the general trend, with a strong record of investment and growth since 1985, it still fell behind comparable performance levels achieved in south-­east Asian economies. An electoral resurgence by the Chilean right in the 2009–10 presidential elections reflected, in part, the desire of voters for policies that generate greater economic growth. The healthy economic performance throughout the global financial crisis of 2008–09 by countries such as Bolivia, whose leftwing president Evo Morales (2005–) has been a critic of neoliberalism, also concentrated attention on the capacity for countries to grow through alternatives to neoliberalism (see Chapter 14). 498 Part V . Economic Ideas Table 15.4 Annual growth in Latin American countries, 1994–2016 Country Argentina GDP annual growth rates (%) 1994 2000 2009 5.8 −0.8 0.1 2016* −1.0 Bolivia 4.8 2.3 3.4 3.8 Brazil 6.2 4.0 −0.2 −3.8 Chile 5.0 4.2 −1.0 1.5 Colombia 5.9 2.5 1.7 2.5 Costa Rica 4.6 1.8 −1.0 4.2 Cuba 0.6 6.3 1.4 2.0 Dominican Rep. 4.7 7.3 0.9 5.4 Ecuador 3.7 0.9 0.6 −4.5 El Salvador 6.0 2.1 −3.1 2.5 Guatemala 4.1 3.4 0.5 4.0 Haiti Honduras −17.6 2.0 3.1 2.3 −1.9 5.6 −2.4 3.5 Mexico 4.5 6.8 −4.7 2.4 Nicaragua 4.0 6.5 −2.8 4.5 Panama 3.1 2.6 4.0 6.1 Paraguay 3.0 −0.6 −4.0 2.9 Peru Uruguay Venezuela 12.7 2.5 1.0 3.7 7.0 −1.9 4.2 1.4 −3.0 3.8 −3.2 −8.0 * Projected Source: ECLAC/CEPAL, 2003, 2004a, 2004b, 2005b, 2005c, 2015d; IMF, 2016b; Franc, 2016. Trade Impacts Trade reform has brought greater benefits to the larger, industrialized, middle-­ income countries of Latin America such as Brazil, Mexico, Argentina, and Chile, than to smaller, less industrialized, and poorer countries such as Ecuador, Bolivia, Paraguay, Peru, El Salvador, Honduras, and Guatemala. The record on rates of export growth in the neoliberal period is mixed, and has been eclipsed by high growth rates during the commodities boom, often under leftwing governments. The direct impact of export-­led growth was limited for much of the 1990s and the value of Latin America’s exports did not keep pace with an expansion in world trade and failed to keep pace with an explosion in imports. However, neoliberal reform did leave Latin American and Caribbean countries better placed as exporters to take advantage of the commodity boom that began in 2003, fuelled by Chinese demand for primary products (see Tables 9.1, 9.2, 11.1, 11.2, 11.3). This had a discernible impact on growth rates in the region: in 2004, Latin American and Caribbean economies grew overall by 6.1 per cent, in 2005 by 4.9 per cent, and in 2006 and 2007 by 5.7 and 5.8 per cent (ECLAC, 2004a, 2004b, 2006b, 2009b). This growth was closely tied to an expansion of world trade and demand in the US and China for oil, metals, and minerals. Nonetheless, rates of growth have Chapter 15 . Neoliberalism 499 been erratic and have declined as the commodity boom has ended, indicating how exposed the region remains to trends in the demand for exports (ECLAC, 2009b). Growing demand helped Latin America’s terms of trade, which improved significantly after 2004 in overall regional terms, although this began to fall back as a result of the 2008–09 downturn. While there was initially growth in the share of manufacturing exports as a proportion of GDP in Latin America, some diversification and the growth in demand did little to change the continuing reliance on the export of commodities (see Chapter 14). In recent years ECLAC has once again emphasized the need for Latin American economies to diversify in order to halt a ‘reprimarization’ of exports (see ECLAC, 2015c). Nonetheless, export growth strengthened the argument for the liberalization of trade at a regional level in Latin America, and left-­ofcentre governments have played a formative role in recent initiatives on integration and preferential tariffs (see Table 15.2; Chapter 9). Trade reform can bring problems as well as benefits to countries. In the short term, it can have a harmful impact on sectors that were previously protected, such as the manufacturers of consumer goods (see Box 14.7). Critics of trade liberalization have at times pointed to a flood of imports into the region, bankrupting potentially competitive local producers and unleashing a consumer boom with harmful consequences for Latin America’s trade balance. They also point to the high social cost of export diversification, exacerbating inequality and causing environmental problems. Trade reform can increase a reliance on the export of primary products and, as commodity prices can be volatile, this can also derail macroeconomic planning. Small businesses complain about the ability of powerful foreign corporations to restrict competition in Latin America’s open markets. In Mexico in November 2005, for example, a small shopkeeper won a landmark ruling against the Mexican subsidiary of CocaCola when competition authorities decided that the US drinks firm had tried to prevent her from selling the cheaper Peruvian rival Big Cola. Popular perceptions that free trade and capital mobility work to the disadvantage of local producers and can exacerbate existing inequalities have put Latin America at the forefront of opposition to globalization (see Box 15.8). Low Employment Growth Neoliberal policies did not create a sufficient number of jobs to bring down unemployment or have a considerable impact on reducing poverty and inequality. Between 1994 and 2004 unemployment rates increased in most of the countries of the Latin American and Caribbean region, and these only began falling to below 1998 levels between 2004 and 2008 (ILO, 2009). In countries that experienced a rapid growth in exports in the 1990s, such as Chile, Mexico, Peru, and Bolivia, employment levels grew. But others, including the larger economies of Brazil and Argentina, experienced slow or static rates of growth in employment. Official urban unemployment levels, related in part to labour market reforms that reduced the ability of trade unions to resist job losses, nearly doubled across Latin America between 1990 and 2002 (UNDP, 2004a). In Argentina they tripled, and in Paraguay and Uruguay they doubled or nearly doubled. Weaver et al (eds, 2012) explored 500 Part V . Economic Ideas Box 15.8 SOCIETY Latin America and the anti-­globalization movement Latin America has been at the forefront of the international ‘anti-­globalization’ movement led by social and popular organizations opposing free-­trade policies. One of the stated aims of the Zapatisa rebellion in the southern Mexican state of Chiapas in 1994, for example, was to oppose NAFTA on the grounds that this would harm indigenous communities (see Boxes 7.6, 12.6, 13.5, 15.5, 16.4). During the 1990s, a global solidarity network developed in support of the Zapatista cause among civil society actors across the world (see Chapter 8). Two conferences, the ‘encounters for humanity and against neoliberalism’, attracted delegates to Chiapas in 1996 and began a process in which these Zapatista solidarity networks began overlapping with other groups. The networks that emerged were important precursors of the anti-­ globalization movements (see Edelman, 1999; Welch, 2001). Olesen (2004) has argued that, for many anti-­globalization activists, the Zapatistas were an important inspiration and some groups, like Peoples’ Global Action formed in Geneva in 1998, were a direct outcome of the conferences in Chiapas to debate neoliberalism (see also Khasnabish, 2010). The anti-­ globalization movement – sometimes referred to as the global justice movement – came to prominence in 1999 in the Seattle anti-­capitalism protests. In 2001, the World Social Forum was also established in Latin America, in the Brazilian city of Porto Alegre, to discuss ways of opposing the model of globalization formulated in Davos, Switzerland, where large multinational corporations, national governments, the IMF, the World Bank, and the WTO meet at the annual World Economic Forum (see Correa Leite, 2005). The World Social Forum developed into an important mouthpiece for civil society groups and now meets annually (see Smith et al, 2014). It brings together thousands of representatives of NGOs, trade unions, and other civil society organizations from across the world to discuss the impact of globalization and neoliberalism on developing countries and to strengthen opposition alliances to this (see Box 15.6; Chapter 8). The World Social Forum is a concrete example of the degree to which some forms of political activity are becoming increasingly globalized (see Chapter 3; see also Della Porta, ed, 2009). However, it has also been criticized by some grassroots groups for becoming increasingly institutionalized and for focusing its activities around organized and funded NGOs at the expense of popular social movements (see Hosseini, 2010). in detail the limited gains of neoliberal reform in Mexico in terms of overall economic growth and how the response to slow growth by multilateral bodies such as the OECD and World Bank, when confronted by evidence that poverty was growing, was merely to assert that more, not less, reform was necessary. The UNDP (2004b) has pointed out that the quality of employment in general in Latin America has diminished since the 1990s. According to the International Labour Organization (ILO), nearly 60 per cent of new jobs created during the 1990s in Latin America were in the unregulated or ‘informal’ sector in which workers lack the most basic employment rights (Gwynne, 2004; see Chapter 4; Box 7.7). The informal sector is that part of the economy in which workers are not covered by insurance, welfare benefits, or regulations, and is a consequence of inadequate job growth. It can include a large range of different activities – from street vending on makeshift stalls to small restaurants and workshops, often referred to collectively as microenterprises. There is a relationship between urban poverty and informal employment, Chapter 15 . Neoliberalism 501 which tends to be associated with unskilled labour. In most countries of Latin America, the size of the informal sector grew in the 1990s, and in lower-­ income countries such as Bolivia, Paraguay, Peru, and Ecuador the informal sector may now be larger than the formal sector. The informal sector, and weak demand for labour in the formal sector, continue to be features of the Latin American labour market (see ECLAC, 2015f). This may have been worsened by the slowdown associated with the end of the commodity boom. Seasonal agricultural labour through temporary foreign worker programmes has sometimes been portrayed as an example of how neoliberal reform can have few downsides by benefiting growers, host and recipient countries, and migrant workers all at once. However, an examination by Binford (2013) of Canada’s seasonal labour programme, considered internationally to exemplify best practice, highlighted considerable exploitation and abuse that generates doubts about even well-­managed programmes. Continuing Poverty and Inequality The nature of production under neoliberalism was not sufficiently labourintensive to have had a meaningful impact on levels of poverty and inequality in Latin America (Gwynne, 2004; see also World Bank, 2004, 2005). During the period of most intensive neoliberal reform, the 1990s until 2003, the absolute number of people in poverty and indigence according to international criteria grew in the region (see Table 15.5). ECLAC (2004c) argued that Latin America and the Caribbean failed to gain much ground between 1997 and 2003 in its effort to combat poverty (see Table 4.5). Neostructural policies under left-­ofcentre governments have had a far greater impact in terms of poverty reduction in Latin America and the Caribbean, and in the period 2002–13 the region achieved a notable reduction in poverty and, for the first time in its recent history, inequality (see Bárcena and Prado, eds, 2016). Between 2002 and 2008, for example, the percentage living in poverty fell by 11 points, and indigence fell by 7 points (ECLAC, 2009c). According to ECLAC (2015d) poverty and indigence declined significantly in Latin America and the Caribbean between 2010 and 2014 in most countries mainly because of rising household incomes in a context of declining unemployment, higher earnings, increases in the minimum wage, formal working, and women’s participation in the labour force, and expanded public social spending and anti-­poverty policies (see Chapter 14). Using a number of methodologies to examine changes in inequality in recent years, ECLAC (2015e) identified a substantial trend towards the reduction in inequality across the region between 2010 and 2014. Nonetheless, progress on poverty and inequality reduction is sensitive to overall levels of growth and, in the absence of a stable long-­term growth, it is reasonable to assume that this progress in tackling poverty and inequality will slow down in the region. Neoliberalism and Conservative Economic Approaches Today The ascendance of left-­of-centre governments in Latin America since the late 1990s challenged the dominance of neoliberal ideas and the Washington 502 Part V . Economic Ideas Table 15.5 Poverty rates at international poverty lines, Latin America, 1981–2012* Number of poor at 2011 PPP $1.90 a day, millions (share %) Region 1981 1990 1999 2005 2012 Latin America and Caribbean 87.7 (23.9) 78.2 (17.8) 71.1 (13.9) 56.4 (9.9) 33.7 (5.6) 8.8 (1.9) 36.8 (7.8) 25.7 (5.5) 10.1 (2.1) – – Europe and Central Asia Number of poor at 2011 PPP $3.10 a day (share %) Latin America and Caribbean 139.6 (38.0) Europe and Central Asia 135.6 (30.8) 134.3 (26.2) 115.9 (20.3) 72.2 (12.0) 36.5 (7.9) 92.1 (19.6) 54.7 (11.6) 30 (6.2) * And selected comparator; selected years only Note: International poverty line in local currency is the international poverty lines in 2011 prices, converted to local currency using the PPP conversion factors estimated by the International Comparison Programme. Latin America and Caribbean and Europe and Central Asia developing only; most recent available figures; share is poverty headcount ratio. Poverty headcount ratio at $3.10 a day is the percentage of the population living on less than $3.10 a day at 2011 international prices. Poverty headcount ratio at $1.90 a day is the percentage of the population living on less than $1.90 a day at 2011 international prices. Number of people, in millions, living on less than $1.90 a day at 2011 PPP is calculated by multiplying the poverty rate and the population. Number of people, in millions, living on less than $3.10 a day at 2011 PPP is calculated by multiplying the poverty rate and the popu...

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