Neoliberalism in Latin America

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Neoliberalism 

  • Across the world, the free market is being embraced as the only viable means of economic growth and development

  • The fall of the soviet union and the breakup of the eastern block is proof to many that any economic alternative to the market is unworkable

  • Free market has declared the triumph of the market and have pushed for an increased liberalization of economies everywhere (including LA) as a solution for virtually all economic problems.

  • Neoliberalism: A policy model that encompasses both politics and economics and seeks to transfer the control of economic factors from the public sector to the private sector.

  • The ascendancy of economic neoliberalism in Latin America did not materialize overnight.

  • Neoliberal economic adjustment began early in the 1970s with Chile, and continued ten years later in Bolivia, Mexico and Costa Rica.

  • Other nations soon climbed on the neoliberal adjustment bandwagon among them Colombia, Brazil, Peru, Argentina, and Venezuela

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Karl Polanyi 

  • To allow the market mechanism to be the sole director of the fate of human beigs and their natural environment, indeed, even of the amount and use of purchasing power, would result in the demolition of society - Karl Polanyi, 1944

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Neoliberal theory can be summarized by four main ideas: 

  • Humans are individuals, motivated solely by self interest and all human interaction, economic, political, or social, can be explained only in terms of this self interest 

  • Self interest does not, as one may think, lead to chaos, but rather to harmony, because interaction driven by self interest is part of the natural order 

  • This natural order finds its greatest expression in the market. 

  • Because  the market is naturally occurring, market outcomes are the best that are to be hoped for; therefore, interference with the markets natural workings, by government or any other actor, is undesirable. 

  • Neoliberal policies are designed to free the market from “unnatural” distortions. The solution of all economic problems is to be understood in terms of adapting to the “natural” order of the market. This entails: 

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Neoliberal policies are designed to free the market from…

  • “unnatural” distortions. The solution of all economic problems is to be understood in terms of adapting to the “natural” order of the market. This entails: 

    • Privatization of state-owned enterprises 

    • A balancing of government budgets 

    • An elimination of social programs 

    • An end to market distortions caused by trade unions and labor arbitration 

    • The removal of all government intervention which would interfere with the self interested free exchange of goods. 

  • The neoliberal policies mentioned above are all part of the economic package now being put into place at the urging of the world bank, the IMF, and the industrialized nations fo the north 

  • These policies, when implemented, are supposed to solve the region's debt, unemployment, and growth problems 

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Polanyi's critique of the market 

  • he critiques the market, takes issue with the classical economic assumptions about humans and self interest. 

  • He refutes the notion that aggregated self-interested actions will result in natural order and harmony and takes the position that market forces operating free of societal or governmental intervention will result in the destruction of social relations and the environment.

  • Prior to the creation of the market as ac economic system, all economic decisions were subordinated to societal decisions; however, with the creation of the market, all societal decisions have become subordinated to the economic decision making process 

  • “[the market system results in]  the running of society as an adjunct to the market... social relations are [now] embedded in the economic system.”

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Prior to the advent of market economies, all societies practices a mix of three economic patterns

  • redistribution 

  • Reciprocity 

  • House-holding 

  • In each of these systems economic decision-making was subordinated to social relations, meaning that economic behavior by individuals in the system was determined by societal norms of behavior. 

  • People conformed to group norms for group benefit, From this point of view, rather than bing motivated primarily by self-interest, humans are social beings whose, “economic motives spring from the context of social life… [not from] the motive of gain” 

  • If polanyis interpretation of human nature is accurate, then an economic system base on the notion of self interest should produce societal dislocation

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Fictitious commodities and the self regulating market 

  • The subordination of social relations to economic relations through the market has transformed the norms of human interaction and has unnaturally created three fictitious commodities: nature, labor, and money 

  • In a self regulating market system, the production and distribution of goods and services is determined by prices. Which are, in turn, determined by supply and demand. 

  • Under this system, all inputs into production must be priced for gain-seeking behavior (the self interest of the neoliberals) to flourish 

  • Without prices, quantitative measure of gain become impossible 

  • Without pricing all inputs into production, costs cannot be measured, and therefore profits cannot be measured. 

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The need to price everything creates a situation…

  • under which things not produced for sale, land and labor are treated as if they were created for sale. Polamyi states it this way: 

  • Labor is only another name for human activity which goes with life itself, which in turn is not produced for sale but for entirely different reasons, nor can that activity be detached from the rest of life, be stored or mobilized; land is another name for nature, which is not produced by man.