Neoliberalism in Latin America
From the 1930s until the 1980s state intervention and protection were key components of most Latin American economies. In these years many Latin American countries were used an Import-substitution industrialization based economy trying to reduce dependence on foreign imports and replacing them with domestic production. Due to the use of an Import-substitution industrialization based economy Latin American countries were forced to keep high tariffs to protect the private companies of their countries.
This combined with many Latin America countries providing numerous government subsidized programs eventually led to the 1982 debt crisis. This debt crisis created a vacuum affect in Latin America with many of the countries taking on a new neoliberal economic model, and by the early 1990s John Charles Chasteen claims that almost every Latin American country was led by a president that was pro neoliberalism. This neoliberal economic model called for the slashing of tariffs as well as the reduction of removal of all nationalist-inspired subsides.
Also following the neoliberal model, Latin American countries stopped the printing of money to slow inflation effectively undermining the functionality of their local markets. All of this was done so that a completely “free market” could be created. It was believed that this free market would not only help improve the economies of Latin American countries, but also create more personal freedoms for the people of Latin America. In the article “Neoliberalism, Neoclassicism and Economic Welfare”, John T.
Harvey claims the complete opposite, arguing although a neoliberal economic model was created to produce conditions conducive to social provisioning or democratic problem solving, the exact opposite has occurred. Harvery states in his article, “Instead of growth, stability, and the narrowing of income gaps, we have seen stagnation, volatility, and increased inequality. ” By researching neoliberalism a clear picture can be drawn.
Neoliberalism created class stratification with the upper and middle class greatly benefiting from the new policies sanctioned by neoliberalism, while the poor continued to become more impoverished and unable to provide for themselves. Many historians argue that the neoliberal economic model was most beneficial for the small wealthy upper-class of Latin America as well as many upper-class business owners from other countries. The existence of a “free market” due to neoliberalism in Latin America created many opportunities for upper-class citizens to continue to become considerably wealthier.
The upper-class benefit from neoliberalism in many ways but the two largest benefits come from the privatization of government subsidized programs and the lowering of tariffs. Not only did both of these policies line the pockets of the upper-class of Latin America but foreign investors as well. In order to balance their federal budget many Latin American governments privatized their government subsidized programs as well as cut federal jobs. First, the privatization of federal jobs allowed many upper-class citizens to take over these businesses and use them in their benefit to create capital.
Former government projects such as constructing roads and government buildings were now being completed by companies that were owned by the upper-class. Prior to neoliberalism these jobs were paid out of the federal budget and were used as a way to lower unemployment by hiring more workers than were really needed. Now that private companies were doing the work efficiency was the most important thing leading to the loss of many jobs for the poor class of Latin America.
In the article, “Neo-Liberalism in Latin America: Limits and Alternatives” Ian Roxborough argues that the immediate beneficiaries of the privatization of government subsidized programs and federal jobs, or what he calls real assets, were foreign investors and people with “flight cash”. This was because when these programs became privatized upper-class people from other countries as well as Latin America were able to come in and by penny cheap shares of these programs and soon to be private companies.
This excrementally helped the upper-class because after they bought this stock at largely discounted prices it quickly grew in value. Clearly, lower classes that did not have extra cash could not benefit from this because they were unable to purchase any of the shares of these newly privatized commodities. This created two problems, not only did real assets of Latin America get lost to upper-class foreign investors, it also created a significantly larger wealth gap between the poor and upper-class because of the large amounts of money the upper-class made from the gains of the stock that they bought at such cheap prices.
Another benefit the upper-class of Latin America and other foreign countries gained from neoliberalism was the reduction of tariffs. The reduction of Tariffs allowed foreign companies to come into Latin America and build maquiladoras. This was beneficial for the foreign investors because they could now come into Latin America where working wages were much cheaper and produce their goods at lower prices, which entail created more profit. Lower tariffs were beneficial for Latin American upper-class citizens because as the foreign companies came into Latin America they were able to invest in these companies.
The ability to invest in these companies that wouldn’t have come to Latin America with the previous tariffs was just one more way people who already had money in Latin America were able to benefit even more from a neoliberal economic model. Neoliberalism also benefitted the middle class of Latin America. Chasteen argues the middle class benefited from a neoliberal economic model because of the cheap products that were produced due to the maquiladoras in Latin America as well as cheap products that were being imported to Latin America because of the newly reduced tariffs.
This was very beneficial for the middle class for two reasons. First, under neoliberalism the middle class society who had money to spend, now had more choices because the large influx of items that were now being imported into Latin America. In his article, “Magical Neoliberalism”, Alberto Fuguet argues that neoliberalism was what led to amenities like large scale movies from Hollywood and other services, like fast food chains, to come to Latin America. Secondly, neoliberalism was beneficial to the middle class because with a larger selection of goods comes competition.
With competition companies foreign and local now had to produce the best quality goods at the lowest price in order to continue to receive business from the middle class. Neoliberalism also benefited the middle class of Latin America because of the advancement in technology that occurred because of the privatization of water resource centers, electrical companies, and telecommunication companies. The privatization of these companies allowed them to modernize as well as make them more reliable.
Some argue that neoliberalism was also beneficial for the women of Latin America. In her article “Love in the Time of Neo-Liberalism: Gender, Work, and Power in a Costa Rican Marriage”, Susan E. Mannon argues neoliberalism allowed women to gain more power and independence then they previously had. Mannon claims that neoliberalism, and the reduced tariffs that come with it, led to the creation of maquiladoras where women could seek employment. Latin American women’s new ability to gain employment in maquiladoras allowed them to earn a wage creating dual-income households.
Not only did this give them more power and independence in their individual households, but the ability to buy goods also allowed them to participate in the local economy giving them more power as well. Those who stood to gain the least under a neoliberal economic model were the poor people of Latin America. This is because the privatization of state-run corporations and public service programs made them unaffordable for the poor working class, leaving many homeless and hungry. In the article, “From Democracy to Development: The Political Economy of Post-Neoliberal Reform in Latin America”, Alfred P.
Montero states claims that neoliberalism leads to deepening levels of inequality, a growing percentage of people living below the poverty line, decaying infrastructure, poor access to even low-quality primary education, rising criminality, and inefficient productivity. All of these problems can be linked to privatization of government subsidized programs and the loss of government jobs. With neoliberalism the loss of jobs and government programs made unemployment skyrocket and education too expensive for much of the poor class of Latin America to afford.
This lack of education is what many argue led to the problems that Montero claims such as a rise in criminal activity. Also, because neoliberalism privatizes companies that control commodities such as water, telecommunications, and electricity the poor class was unable to afford them, essentially leaving the poor of Latin America in the dark without water or electricity. Neoliberalism also led to the creation of Maquiladora’s which initially created what poor Latin American believed to be desirable jobs.
Quickly the poor found out that many of these jobs did not pay a wage that was enough for a person to survive. With the poor pay of maquiladoras also came very poor working conditions that were conducive to creating injury. Omar Gil a former maquiladora worker stated in an interview that his first maquiladora job paid him a dismal forty dollars a week in working conditions that were less than safe. Omar attested that maquiladora workers were injured often because of the intense pressure of Forman’s to produce as much product as possible. Also with neoliberalism came the lack of available occupations.
Due to the reduction of tariffs foreign companies were able to bring mass produced goods into Latin American countries at prices cheaper than local inhabitants were able to produce them. This created large scale unemployment and forced Latin American people into the unsafe and low paying maquiladoras. Chasteen argues that for the poor class the inability to produce goods far outweighed the benefits of being able to be a small-time consumer from the dismal wages that were earned in maquiladoras. It is clear that the neoliberal economic model is not beneficial for anyone but the wealthy elites and middle class of Latin American Countries.
A neoliberal economic model became fashionably popular in Latin America because the people who were in charge were upper-class citizens and during a down turn in 1982 neoliberalism seemed like a solution due to its approach to better balance the budget of Latin American countries. Unfortunately, either the leadership of these countries assumed wrong, or just didn’t care about the wellbeing of its impoverished people, but clearly a neoliberal economic model does nothing but create a larger wealth gap, create more social stratification, and deplete living conditions for the poor even more.
In the article, “Exploring the Impact of Neoliberal Economic Development on Poverty in Costa Rica: What Went Wrong? ”, Paul B Lubliner argues that in order for economic prosperity to complement poverty reduction the state should have more control over the economy not less. I agree and argue by privatizing all state subsidized programs as well as depleting the amount of government jobs to almost zero Latin American countries actually went backwards in their pursuit to shorten the wealth gap as well as social stratification.
Abusing your population to closer balance budget is in no way the solution to guarantee countries prosperity in the foreseeable future. Neoliberalism was clearly one sided only benefiting the rich and middle class, disfranchising each countries poor setting them back further then they were before.