Neoliberalism, an economic ideology that emerged in the 1980s, favors market liberalization, free trade, and limited government intervention and has come to dominate the global political-economic system even today. However, this hyper-capitalism has been criticized for favoring the wealthy exclusively and exacerbating inequality for the rest. One of the most quintessential case studies in examining the failures of neoliberal policies is the case of Latin America.
Due to the Latin American debt crisis in 1982, the World Bank and International Monetary Fund (IMF) imposed a series of Structural Adjusted Programs (SAPs) to liberalize and deregulate the market. One of the motivating factors behind privatizing the market was to ease the debt burden by providing revenue and satisfying investors, but the deregulation also attracted Multi-National Corporations (MNCs) and foreign aid by facilitating strong property rights and promoting little market interference from the government. However, the outcomes of SAPs were far from successful and resulted in severe economic failures in Latin America.
In fact, neoliberalism resulted in significant suppressed economic growth and poverty exacerbation. Between 1960 and 1980, Latin American per capita GDP growth grew 75%. However, between 1980 and 2000–after the SAPs were initiated, this figure fell to a per capita output growth of 6%! Between 1980 and 1990, GDP grew at a dismal rate of 1.1% per annum. The tremendous lack of growth coupled with a large decline in formal employment led to what many scholars refer to as the ‘lost decade’ for Latin America.
Babb (2005) outlines four pressures that SAPs and neo-liberalization placed on the labor market which accounts for the lack of growth: de-agricultrualization, privatization of public enterprises, restrictive monetary policy, and the influx of cheap imports.
- The de-agricultrualization, or the movement of rural populations away from their familial farmland, resulted from harrowing competition between small-scale Latin American farmers who received fewer subsidies and higher interest rates compared to their severely subsidized and capitalized foreign agri-companies. In Mexico, 1.3 million agricultural jobs were lost between 1993 and 2002.
- The privatization of public enterprises led to impactful worker layoffs, which expanded the informal sector and led to a decrease in public tax revenue. The privatization of essential government services also led to a lack of public social safety nets, like healthcare or insurance.
- The conditionality that Latin American countries restrict their monetary policy in order to attract foreign aid, foreign company contracts, and loans from financial institutions, such as the IMF. However, reducing their inflation to levels attractive to the investors requires high-interest rates, which decreases investment domestically and results in unemployment. The U.S. Department of Commerce statistics for 1950-61 indicates that while $3 million U.S. capital was invested in Latin American countries, the return outflow was $7 million—indicating that the main beneficiaries of this exchange were foreign investors in developed countries (i.e. U.S./us).
- The influx of cheap imports that are a consequence of trade liberalization outcompete domestic products forcing firms to downsize their labor force or even declare bankruptcy.
With that said, while neoliberalism was a failure in the majority of Latin America, Chile was an exception and experienced a healthy GDP growth rate of 6.5% per year during the 1990s. The IMF attributes the success in Chile to its complete liberalization of the market and complete relinquishing of the economy by the Chilean government. However, Taylor (2002) argues that Chilean success in the 1990s was a result of vast inequality and polarization of wealth. This exemplifies how traditional economic conceptualizations of poverty (i.e. GDP) fail to consider the well-being and capabilities of the majority of people.
The way neoliberalism has been manifested—through imposing high conditionality on the global South—it is essentially a neo-colonial policy that perpetuates dependence and uneven global power relations. Bush (2007) articulates this point: “The poor are poor precisely because of their incorporation into the reality of the contemporary capitalist economies” (pp. 3).
We still embrace neoliberalism and its free market rhetoric nearly 40 years after its global adoption despite its clear economic failures and injustices in the global South. While we acknowledge the failures of the past, we need to look towards how we want to shape our economic system into the future to promote equitable opportunities for development and growth.