Neoliberalism in Latin America

by Lara Kelly — last modified 2008-10-29T12:38:48-04:00
Neoliberalism as an economic ideology is spreading throughout the world via international financial institutions and transnational corporate hegemony. The effects of this colonial phenomenon is especially acute in Latin America where many nations faced debt crises directly related to the international economic system. In order for many nations in Latin America to deal with this economic crisis, they were forced to cede democratic control of their economies to these international actors. Although democratic procedures exist in most countries in Latin America which are implementing the reforms, real democracy is maimed by international economic interference in policy-making. Procedural democracy legitimizes the damaging effects which ensue from the neoliberal reform process. This is evident when we examine the nature of international lending institutions, the power of international capital, the degradation of worker and peasant lives, and the lack of popular opposition.

By Lara Kelly

Neoliberalism is the deregulation and expansion of the market economy, it includes eliminating barriers to trade such as tariffs and government subsidies of national industry, and implementing national policies that favour the needs of business and investment (Brown, 1). Tax rates for businesses are decreased in order to compete with other nations for foreign investment and to prevent losing foreign investment to a competing nation. This in turn causes a loss in state revenue, which means a loss in the amount of funding available for social welfare programs (Rudra, 414). Labour regulations are weakened, financial trading is deregulated, and the prices of agricultural products are no longer controlled by the state. The state is viewed as an inefficient producer and state controlled industries and social programs are sold to private businesses. The state reduces its spending by cutting funding for social programs including health and education, laying off public employees, or reducing their wages. These reforms are intended to minimize the role of the state in the economy, promote efficiency, and maximize productive outputs (Sadasivam, 635).

Hojman argues that neoliberalism became dominant in Latin America, especially in the 1990s, because of the debt crisis, the availability of highly educated technocrats, a new middle class of entrepreneurs, the failure of import substitution industrialization (ISI), and public support. Most Latin American countries adopted the reforms in the 1980s and 1990s following the debt crisis, except for Chile which began its neoliberal project in the mid 1970s (191). I believe that the debt crisis coupled with the terms of renegotiating external debts are the primary reason for neoliberal reforms.

According to Portes, the debt crisis was caused by the increase in oil prices in the early 1970s. Because of this increase in oil prices during Latin America’s attempt to industrialize, most countries in the region were forced to borrow money to continue their development path. This allowed growth to continue (9). Latin America was borrowing money to pay for oil from the OPEC nations, who in turn put their funds into multinational banks. The banks had to pay interest on these deposits, and they encouraged Latin American countries to borrow this money. This borrowed money was in turn used by Latin American countries to purchase oil and other imports from the ‘industrialized’ countries (Dietz, 21). In other words, the banks had to provide a secure way of gaining interest payments and therefore had to find borrowers for the large sums of money they were receiving from oil-rich countries. Ugarteche writes that many of the nations borrowing the money from the international institutions were undemocratic and did not mind allowing their nation’s economies to fall deeper in debt. Latin America’s foreign debt doubled in a matter of twenty years, from 1980 to 1990 (21). A large amount of this debt increase was due to interest rate increases over the period. The risks of interest increases fell solely on the borrower nations (23). As the interest rates climbed, exports from Latin America fell in price which caused many nations to threaten to default on their loans (21).

Defaulting on foreign loans is not good for the lenders or the borrowers. Therefore most banks and nations agreed renegotiation was better than declaring bankruptcy. Before a nation was permitted to enter renegotiation talks, however, the international lending institutions, namely the World Bank (WB) and the International Monetary Fund (IMF), required the imposition of structural adjustment policies on the indebted nations. These requirements followed neoliberal ideology, and included the changes to government economic and social policies discussed above (Ugarteche, 23). These policies were forced on countries to ensure repayment to the institutions. The banks disregarded the effects these reforms would have on citizens, since caring about people’s lives would not be helpful to their goal of collecting money with interest.

The consequences of neoliberalist policies are far reaching for any nation, but particularly hurtful for the majority of Latin American residents. Income inequality has increased in most nations that have implemented the reforms (Bray, 68). Job losses and subsequent higher unemployment rates resulted due to the sale of state run enterprises and the scaling back of the public service (Kurtz, 269). Because of the removal of subsidies on necessary items such as fuel, food, and social services their prices have increased (Crisp & Kelly, 542). When Fujimori, the former president of Peru came to power in 1990, he immediately undertook neoliberal reforms. Immediately following there was an increase in the price of gasoline by 3000%, telephone and water prices increased by 1300%, and electricity prices increased by 5300% (Hays-Mitchell, 72).

Another aspect of neoliberal restructuring policies is the encouragement and creation of export processing zones (EPZs). Export processing zones are parcels of territory where special laws exist regarding production. These zones are meant to attract foreign investments. The incentives offered to corporations include the ability to import without tax, minimal corporate income tax, freedom from labour unions, lessened regulations on the environment and labour, and state subsidized infrastructure (Teeple, 89). Transnational corporations have the ability to invest in whichever country they please, and EPZs offer an extreme advantage in that the production costs to corporations are minimal in these zones. Wages are low, infrastructure costs are born by the state, and employee protections are nil (Teeple 90-91).

Hojman argues that in Mexico EPZs helped to create a new middle class of transnational executives, public servants, politicians, professionals, tradespeople and media personnel (202). He does not specify if these people are those who have improved their standard of living due to employment opportunities within EPZs. I assume he is referring to people attracted to the export-processing zones in order to profit from the increased production activities. It is unclear why he makes this argument, because chances are, these upper-class people have always been upper-class, and the fact that they have moved to an EPZ does not mean anything for the regular worker in these zones. Contrary to Hojman, Sadasivam has shown that EPZs profit from women’s cheap labour, and offer jobs which are repetitive in nature and dead-end. These women are targeted for these jobs because of their ‘vulnerability, docility and dispensability’ and the jobs do not include any security or safety requirements from the employer. She uses the example of EPZs in the Dominican Republic where the women must endure “strict discipline, sexual harassment, low pay, occupational health hazards, excessive and forced overtime, and arbitrary suspension and dismissal for protesting or organizing” (642-643).

The rationale of neoliberalism causes states to be judged solely on their ability to secure economic growth. This ensures the legitimacy of the government (Brown, 4). Therefore, the government gives up control to the market, and if economic growth ensues, the state itself is legitimized. Neoliberal ideology does not consider the well being of people and linking legitimacy to economic growth indicators alone greatly reduces the perceived responsibility of the government (and the political process itself), to care for and protect its citizens. Brown claims that the adoption of neoliberal policies does not mean that the state has control over the market, but rather the state cedes this control to the market which directs the actions of government and society (4).

Nations compete with one another for large corporate investments. They offer incentives such as lower taxes and free infrastructure. This money is taken from the budget of the country and placed into the hands of corporate investors instead of going to programs which would improve social welfare. This indicates a degree of control over budgetary process which is taken from the hands of a democratic populous and placed into the hands of transnational corporations (Weyland, 144). The people in Latin America view large corporations as equally powerful as their own governments which they elected. When the elected officials create policy which is not beneficial to the majority of the people, democracy is lessened (Weyland, 145). Or non-existent. A guise which legitimates dominant international power structures. Democracy cannot live up to its definition when people have lost control of the distribution of their resources to international financial institutions and large corporations. In effect, the democratic state hands power to undemocratic actors. The IMF, which controls the public policy of many Latin American countries is a good example. Cypher notes that international lending institutions such as the IMF are made of representatives from various states. They are not all equal however, as nations who contribute more funding to the banks receive more votes, and in the case of the US, the option to veto (71). Through an undemocratic voting process in international financial institutions such as the IMF, the US can ensure its corporate interests are heeded in countries where US companies are extracting profits.

According to Kurtz, business interests are at the forefront of state policy under neoliberalism. Because the decisions and actions of business affect the growth prospects of nations, governments must consider their interests when making policy decisions, which leaves other groups with a weaker voice (268). Corporate interest groups are the only internal groups with access to state decision-making where neoliberalism prevails. External groups such as multinational lending institutions and transnational corporations also enjoy access to state policy formation (Grugel, 4). Grugel uses the example of large agribusinesses which now produce almost 25% of agricultural outputs in Central America (4).

In order for transnational capital to manipulate internal state conditions for its own benefit, it needs exclusive access to the decision-making process of governments. Oneal says that historically, democratic regimes in Latin America have received less investment from the US than authoritarian regimes, and those investments in countries with an authoritarian government have been more profitable (582). Now that most Latin American countries are formal democracies, one could argue that these democracies are not in fact real but are in place solely to legitimize the authoritarianism of the international capitalist system. This new form of concealed authoritarianism successfully prevents democratic opposition by transferring real decision-making out of the hands of elected governments and covertly controls their actions.

Neoliberal reforms have happened and are happening at the same time countries in Latin America are adopting democracy. Neoliberal reforms are directly linked with increased inequality, poverty, and lack of access to social support via programs sponsored by the state. In the period of ISI, interest groups would have most likely formed to counter the choices of the state if policies resulted in such outcomes (Kurtz, 264). Under ISI, the state could regulate and somewhat control the marketplace. In this way, citizens could hold the state responsible for their quality of life. This also meant that the state had an incentive to provide for its citizens (Kurtz, 269). Statism can promote oppositional expression (Kurtz, 270). When the state controls distributional outcomes, people and interest groups can articulate their dissatisfactions to a unified responsible body, unlike mobile capital. Munck points out that privatizing and deregulating the market left the state with less control over the lives of its people (92). Therefore, the state has been removed from the focus of protest groups because it is no longer a controlling factor in their lives.

When there are more neoliberal economic reforms implemented within a state it appears that there are less accounts of political mobilization. Political activities against a government tend to happen more frequently under authoritarian regimes where it is more difficult to enact protest activities, rather than happening more frequently in a democratic setting where it is easier to demonstrate opposition. Under authoritarianism the people have an obvious target to express their dissatisfaction, whereas under a more liberalized economic regime, individuals have conflicting interests and complaints against various targets (Kurtz, 294). It is not democracy which prevents opposition, but liberalization. Many Latin American states were democratic and statist and their citizenry were more mobilized and politically active.

Although neoliberalism has weakened democracy in Latin America, it also seems to have secured it in most countries, at least in terms of procedure. One of the reasons why democracy could have survived the reform process is because the reforms were enacted during a time of crisis, and the population was willing to take drastic measures in hopes of higher economic stability (Weyland, 136). A secure system of democratic formal procedure does not mean democracy in fact exists, whether or not the reforms happened during a crises situation.

Liberal democracy is undermined by neoliberalism in that social policy must prove profitable, competition must not be hindered, and individuals must be seen as rational actors. The independence from the market of many institutions within liberal democracy such as ‘law, elections, the police, and the public sphere,’ is necessary for the preservation of a healthy tension between democracy and capitalism. Expanding the market into these previously independent realms greatly impedes democracy from performing its primary role of checks and balances (Brown, 6). Neoliberal adjustment policies which a state must undertake to renegotiate loans does not only mean that a state must reconfigure its marketplace, control wages and lower funding to social services. The state effectively loses control over its own policy making decisions to the multilateral lending institutions (Cypher, 70). Reforms transfer policy decisions out of the hands of the government and into the hands of the international economic system, therefore the social sphere of economic policy within a country becomes apolitical, and political decisions that are made do not have a direct impact on the citizenry (Kurtz, 273). Neoliberal reforms remove issues from the sphere of political action and therefore cause the decline in interest groups (Kurtz, 279). When citizens make electoral choices, they really do not have the opportunity to effect real change, since economic and social policymaking has been relegated from their government and into the hands of international capital and lending institutions. This can be seen in Latin America where social and political organizations have declined as have the amount of people showing up to vote (Weyland, 144). The individualization effect of neoliberalism promotes competition and prevents group cohesion. There is no focus point for protesting if the real power structures exist outside of the nation state.

This decline in political organizations has also meant that politicians are less accountable. These organizations help people make decisions by promoting awareness of issues and forcing political accountability. They also help to advise politicians what the will of the people actually is (Kurtz, 267). Since the privatization of pensions in Chile, which happened in the early 1980s, strike activity has dramatically decreased. This indicates a lower level of political organizing. Before the pension plan was privatized, it often provoked political participation. With privatization of the program, individuals make their own decisions between various private funds (Kurtz, 276).

Under more democratic regimes in Bolivia, Ecuador, Mexico, and Peru protesting against the state became easier and more acceptable, however, under the new regime of neoliberalism in each of these nations, political protests were reduced to less than 20% of what they were under previous authoritarian regimes (Kurtz, 289). Another example is unions. In Latin America there are many people who are without work and the focus for unions has been changed to obtaining and keeping employment rather than fighting for social benefits (Rudra, 420). Workers are forced to preoccupy themselves with secure employment rather than improving the conditions of employment.

The political activism of the peasantry is also negatively impacted by neoliberal reforms. Kurtz argues that the reform of previously communal lands into individual land titles creates division within the community and breaks down the stability of their historical, social, and cultural way of life. Disputes often erupt because some villagers may decide to sell their land which causes fragmentation, land usage also causes conflicts between villagers. This in turn hampers the political actions of the peasantry, as they would traditionally act collectively but now must concern themselves primarily with their own perceived self-interest (273).

In Mexico, lands which were held collectively in a legal sense since the 1930s, went under neoliberal land reform in 1992 after a change in the constitution. The land had to be divided among individuals, and this caused conflicts between the residents. All the control over dividing up the land and monitoring disputes was held by the political elites. This made the peasants more vulnerable and discouraged them from collectively organizing or speaking out against market reforms. The only state within Mexico where peasants openly resisted market reforms was in Chiapas, where land liberalization was least widespread (Kurtz, 278).

Like Mexico, in Chile there existed many land cooperatives where land was legally held collectively since the early 1970s when it was legally protected by a democratically elected government. From 1975 to 1979 land counter-reform was implemented by the military dictatorship while it was extensively liberalizing the state and the market. The government privatized most of the land co-ops and half the residents were left landless and some even homeless. The land was sold to private families and agribusiness. Because of these reforms, many peasants were prevented from acting collectively to protect their communal lands and ways of life (Kurtz, 277). The cost of this type of liberalization and individualization is incalculable. One cannot put a figure on the permanent loss of unique cultural livelihoods or on the loss of the independence of traditional cultures from market or consumer culture.

Trainer illustrates this point by noting that in Haiti where many people do not have enough to eat, land is “efficiently” used in a productive manner to grow flowers for export (9). While many people may not have access to land in order to adequately sustain themselves, large export businesses reap profits and contribute to the country’s overall GDP, while simultaneously impoverishing its citizenry. Inherent property rights are to blame for this ironic situation, I think he could have taken his point further by examining the issue of property rights, especially how they are promoted and protected for corporations in a liberal market-oriented state, and how this kind of injustice is not viewed as unethical giving their inherent value within neoliberal ideology.

Liberal democracy is being hijacked by neoliberalism in Latin America. This new neoliberal order is a form of authoritarianism to which it is increasingly difficult to mount opposition. The interference of international lending institutions in a sovereign nation’s budgetary policy-making nullifies an essential process inherent in healthy liberal democracies. Innocent workers, peasants, women, men, and children all pay for the actions of international lending institutions who often loaned money to undemocratic regimes. The re-configuration of Latin American society in order to repay already rich nations is a global injustice. Human rights to sustenance, culture, political process, labour standards, and self-determination must come before the property rights of greedy corporations.

Works Cited
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