is one of the odd things about economics, that the more the data -
and the actual reality - show a particular tendency, the more most
economists persist in believing the opposite. How else can one explain
the axiomatic belief among mainstream (and even not-so mainstream)
economists today, that neo-liberal marketist policies which give a
lot of freedom and power to large capital, generally encourage higher
economic growth and employment even if they do not necessarily deliver
in terms of reducing poverty and inequality ?
The actual experience across
the globe, in both developed and developing countries, is that the
1990s decade of globalisation, which experienced the most untrammelled
power of large capital for a century, is that this was a period of
lower economic growth and higher levels of unemployment. Yet, every
time such evidence comes to light for a particular country or region,
its economy is promptly declared to be an outlier, an exception which
is suffering because of its own inadequate policies or rigid domestic
And whenever a whole region
is affected, attention is shifted to other regions which are supposedly
doing better. This was very evident in the late 1990s, when concern
over the impact of indiscriminate trade and financial liberalisation
in east Asia, leading to economic crisis there, was diverted by extolling
the virtues of Latin America, supposedly in the midst of a remarkable
and impressive recovery after its own slightly earlier crisis.
Indeed, in recent times
the international financial press as well as the representatives of
public and private international economic institutions have been lauding
Latin America, and especially certain countries such as Mexico, Chile
and now Brazil, as clear examples of the success of neoliberal economic
policies. The revival of growth in the region in the previous year
after another crisis scare in Brazil, has been seen as further proof
of the argument that free market and investor-friendly (especially
foreign investor-friendly) policies deliver higher output and employment
As it happens, the Latin
American region has effectively been turned into almost a laboratory
test case for various neoliberal marketist policy experiments of the
IMF "Washington consensus" variety. Most of the economies
in the region have been under direct IMF control for fairly extended
periods in the last two decades, their important economic and financial
policy makers are strongly influenced by mainstream US economic thinking,
and their continued dependence on external capital in any case means
that room for independent manoeuvre is severely limited.
This being the case, it
is worth examining how exactly these economies have fared over the
past decade, when the spread and intensity of application of these
policies was at its greatest. A new report from the UN Economic Commission
for Latin America and the Caribbean (ECLAC) provides some disturbing
insights into the actual effects of such economic policies.
Thus, the report brings
out the fact that inequality has worsened, that social insecurity
has increased, and that basic conditions of material existence have
deteriorated for a significant section of the population across the
region. This, by now, is hardly unexpected. It is now common knowledge
that such policies benefit typically a minority of the population;
even the proponents of such policies argue that the rest of the population
is really benefited only through "trickle-down" effects.
But what is much more significant
is the evidence that economic growth rates also are much lower than
they were in the bad old days of import substituting industrialisation
in the region. As pointed out by Jose Antonio Ocampo, the Secretary
general of ECLAC and a former Finance Minister of Colombia, in the
whole region economic growth in the period after neoliberal reforms
has stabilised at rather low levels of 3.5 to 4 per cent annually.
This is well below the average of 5.5 per cent per annum for the three
decades prior to the debt crisis, when the now much-maligned import-substituting
industrial policies were in place.
Not only that, but such
low rates of growth, especially given the composition of output that
they have implied, are clearly insufficient to
reduce poverty, unemployment or the income gap with respect to industrialised
countries at a reasonable pace. ECLAC estimates that annual growth
rates of more than 5 per cent per annum would be necessary for minimally
adequate employment generation. But even the latest recovery, which
is already running out of steam, has only delivered growth rates of
less than 4 per cent and in some countries less than 3 per cent.
Furthermore, even such
growth is occurring in the context of greater external vulnerability
and financial fragility. Even three and a half years after the Asian
crisis, international credit markets remain unstable, with high interest
rates and low average maturities for developing country borrowers.
In 2000, for the second year in succession , capital inflows were
not enough to offset interest payments and profit remittances, leading
to negative flows for Latin America as a whole.
This is surprising, given
that in 2000, several major countries in the region became once more
the "good boys" of international capital, due to rising
exports, lower government deficits and improved output performance.
But a closer look shows that much of the expansion was due mainly
to growth in exports, driven by the US import boom. Domestic consumption
has not recovered at the speed expected and investment levels are
still below those of 1998, while open unemployment remains at a level
described by the report as "almost a historic high".
This relates to another
problem identified by ECLAC, which is that throughout this period
the generation of employment has remained weak and biased towards
skilled labour, generating high unemployment and rising income gaps.
Unemployment in the region continues to stagnate at very high average
levels of 9 per cent of the labour force, compared to 6 per cent a