THE  NEOLIBERAL ECONOMY  VERSUS  THE SOCIAL ECONOMY

IN LATIN AMERICA.  AN  OVERVIEW  1

Juan Guillermo Espinosa

(March , 2001)

 

            Introduction

The main purpose of this essay is to contribute to the analysis and proposal of  the different paths and possibilities that are opening up at the beginning of the 21st Century so as to move forward to a new, more humane economy and a better society than we have today, by transforming and improving our economies, especially those of Latin America, so as to increase human development and the peoples’ quality of life.

 

For the reasons mentioned above, it is not the purpose of this writings to focus exclusively in the diagnosis of the adversities or difficulties found in our countries, but mainly in some proposals regarding the concrete possibilities available to us in today’s world and in the world of the near future. The idea is to offer some proposals that can guide our public policies and our economic, social and political behaviors, based on something more than just poorly defined wishes or objectives, so that we may go beyond a simple complaint and day-to-day disenchantment.

 

Given the type of analyses and proposal formulations included in the book, it is necessary to bear in mind - from the very beginning - that this is not a textbook as such, where political alternatives are examined in a neutral fashion. Neither is this a “professional” book, in the sense that its contents is meant exclusively for economists, engineers, political scientists or other specialists only, who are knowledgeable persons about the matters discussed in it. The text is rather a dissemination essay to contribute  to give a cultured and well-informed vision, although not technocratic or specialized, on the public and private policies, both at macro and micro levels, which could help us improve the general, cultural, political and material life-quality conditions in which we live. 

            Neither is this a thorough book, in the sense that it does not address all the areas and subjects reflecting the broad issues that are currently affecting our situation. It addresses only those issues that, based on our experience and in keeping with the lessons learned from practice in our countries, have a major impact on all the other factors and aim most directly and correctly to the problems of the people, of individuals, of human development, and not to the development of techniques or objects. An attempt has been made to use as direct and simple a language as possible, in order to reach the layman, but the layman who is genuinely interested in the main social issues and possibilities offered by our environment.

 

Therefore, the main objective of this book is to reformulate - from the starting point of the insufficient and poor performance of the neoliberal policies in Latin American countries in the past decade  - the approach and analysis framework that we use to address our development processes, and propose some broad action lines truly oriented to raise the levels of human development and improve the quality of life. Given the fact that, due to the development level reached by the majority of our economies and the evolution of technology at international level, and other resources available, it is perfectly possible today to choose more equitable, participatory and integrating paths or action lines than were imaginable or for which we had the resources in the recent past.

The starting point is the evidence, not always perceived, that today we are slowly abandoning the “economy of scarcity”” and that a significant share of our current problems are more related to the demand and do not stem from an insufficient supply.

 

The essay is organized in three broad sections. The first section presents the main features of the economy and society that we have built towards the end of the 20th Century. The second section, is an attempt to summarize “a new way of looking at things” emerging in our societies after the “lost decade” of the ’80s and the “neoliberal policies decade” of the 90s.  Starting from a brief identification of the basic traits of the “desired society”, an attempt is made to update and determine the “fundamental human needs” to be resolved by economic and social policies and the most adequate means to measure progress and wellbeing in our societies, in keeping with these needs. The third and longest section of the book covers some fundamental changes of approach to be adopted if we want to progress towards a more humane economy and a better society. This last section, in turn, is divided in two comprehensive parts. The first part deals with global trends to be evaluated and reconsidered, such as market, democracy, globalization, State and other broad, current concepts. In the second part, concrete policies are discussed and proposed for some specific areas, such as education, social protection, human labor and employment, organizations and other areas that are vital to make headway in the desired direction.  By way of conclusion, some final considerations are presented as a brief account and as a comprehensive vision of the matters dealt with in the book, with a ampler and future-oriented vision, on the possibilities that lay ahead of us.

 

The Economy and Society we have attained by the end of the 20th Century.

In the last two decades of the 20th Century and in terms of economic and development policies, a significant turn to the views of the past has occured, which account for the fact that the prevailing approaches were similar to those existing at the beginning of the 20th Century (P. Krugman, 1996). 

 

Indeed, since the end of the ‘70s with the victory of Ronald Reagan in the United States, which followed the victory of Margaret Thatcher in England, an extraordinarily powerful movement was structured that gave rise to the neoliberal approach. The latter attempted to present itself from its very origins as the only valid approach or the “only way of thinking”, in order to subdue the rest of the world, at least intellectually. This prevailing position was later facilitated by the collapse of the Soviet Union by the end of the ‘80s, the weakening of the social-democratic and Christian-democratic movements in Europe and Latin America, and specially of the Keynesian way of thinking it replaced.

 

The neoliberal economic policies consisted mainly in the: reduction of Government size; its degree of intervention in the economy through the dramatic reduction of regulations; privatization of public companies and deregulation of labor markets, in the denial of the redistribution effect of the Welfare State, and recommendation of its elimination due to the high costs involved.

 

 For the most part, these policies have been applied with more intensity in dependent countries than in the most advanced countries, without any reserve and quite clearly to the benefit of the higher-income segment of the population both in developed and developing countries. The assumption is that, having a higher saving capability, wealth would sooner or later filter or “trickle down” to the rest of society. In other words, in order to grow, it was necessary to forget, postpone or at least not be concerned with, equity.

 

Neoliberal thinking, as is more widely recognized today, is not only an economic thinking, but principally a political system. Its goals, applications and scope require a political discourse and practice, which, paradoxically enough, deny politics. In the real economic world, it sustains that the international conditioning factors and economic principles determine one single path to follow, regardless of the political orientation of the local government.  In other words, following some kind of “economic determinism”, it assumes that the ultra-liberal policies are the only feasible policies. This position has been adopted by many of our economists in Latin America educated in the Anglo-North American world and, quite frequently also, by a good number of our politicians, some of which held, not too long ago, progressive opinions not only in Latin America but also in Europe and U.S.

 

Where are We?

Under this dominating approach, the first section of the essay presents a brief study of the economy and society we have built towards the end of the 20th Century in most of our countries. First, an analysis is made of the new international scenario to be faced by our economies after the Cold War. This scenario resulted, to some extent, in a relatively low growth of the world’s product, accompanied by a faster-growing international trade and a monetary-financial expansion of an explosive nature.

 

Given the approaches and economic policies applied, this period is also characterized by an extreme economic inequality, not only among countries, but also inside a growing number of countries, not only in developing countries, but also in a increasing number of developed countries that have more intensely applied the neoliberal policies in the last decades. An special attention is given to make clear the great disparity prevailing today among countries in the international scene (see Graphic 1), and also about the enormous differences in income distribution within countries (see Graphic 2) which creates, in practice, almost entirely different worlds, cultures and economic behaviors.

 

Where are we leading to?

Based on this scenario, a summarized analysis is made of the changes occurred in "economic thinking" during the 20th Century, first between 1900 and 1930 and then in the period following the Great Depression and Second World War. In this last period, i.e. from the mid forties to the end of the seventies, the prevailing policies were oriented to full employment and development; and in the final two decades of the 20th Century, with the reestablishment of what some economists call the “era of the money doctors” which was dominant on the economic thinking between 1900 and 1930, the stabilization of the system prevailed over full employment.

 

Another characteristic of the period under analysis is the situation of employment and new and emerging forms of labor organization. A brief and separate discussion is included on the employment situation in the developed and underdeveloped worlds, more specifically in the Latin American situation.  In the case of the developed world, the trend has been towards a differentiated evolution. On one hand, higher unemployment levels started to occur in Europe, with higher social protection and higher employment quality. On the other, a different situation arises in the United States, where, as per the measurement means available in that country, open unemployment has been the lowest in a long time, although the quality of employment has deteriorated as has social protection, with significant increases in internal inequalities.

 

In Latin America, in turn, there has been a dramatic increase in informal employment, which veils the true unemployment and under-employment levels, otherwise more clearly manifested. From the information available, it is possible to conclude that “economic growth without employment” is a growing phenomenon that is in expansion, especially in the past few years.

 

Lastly, Chapter II contains the review of another characteristics of the decade of the ‘90s, namely, the expansion of the financial economy and the lesser significance allocated to the real economy. This becomes evident in the sharp and relevant increase in capital movements in the international marketplace in the past years, when compared to international trade of goods and real product of economies. The magnitudes involved are such that they easily and evidently suffice to explain the strong economic-financial instabilities suffered by the main Latin American economies as well as and others, that have resulted in significant losses in production, and which can be only slowly and hardly recovered after the economic crises.

 

 

 

What can be done? - A New Way of Looking Things.

Starting from the previous scenario, the following section provides an analysis of "the need to change our approaches", since current policies are leading us in a direction that is different from the desired direction.  In this sense, a brief analysis is made of “the society that we want”, beyond the current social insufficiencies and problems, to set the basic direction of our development efforts and establish our policies. Based on this fundamental identification, an examination and evaluation is made which is not always included in other studies; namely, the exercise to more adequately identify the pertaining “progress and well-being indicators” that enable us to do the evaluation in keeping with our objectives.  If we make progress, how much progress have we made and are we making progress in the desired direction. 

 

Then, the current indicators measuring growth rather than development are analyzed as per the new objectives established, as well as the new United Nations “Human Development Index” which can better serve the purpose of studying progress and wellbeing, beyond the currently prevailing indicators of growth of goods, money indicators, and company profitability. Given the fact that an attempt is being made to update the objectives of development, understood as “referring to the people and not to the objects”, an analysis is provided to enable a more modern understanding of the “basic human needs” that must be satisfied today. Additionally, a structure and basic methodology are proposed to develop a “Human Development and Participation Index”. This index enables us to “measure” and be better guided in the direction of the fundamental human needs, not only from a material point of view, but also from the point of view of affection, including participation and a sense of belonging, and cultural and spiritual issues, that have proven to be more important and determining as far as the progress of society and of the people is concerned, than  what our economists and politicians will admit.

 

 

What can be done? - A Better Understanding of the Scenario and Global Trends

In the following section (Chapter IV of the book) and in reference to the basic objectives established in the previous chapter, the idea is to establish a better understanding of the current scenario and global trends, and offer some fundamental changes in focus that need to be dealt with in order to focus our efforts towards a more humane and better society.

 

The first part of this section is a reminder of the fact that the two fundamental institutions that have prevailed after the Cold War, are “market” and “democracy”.  In terms of the market, new perspectives are given that enable a more modern understanding of this instrument, namely, the “market”, and ways to establish subsidies and regulations to build on their virtues and mitigate its defects, based on the multiple lessons learned in the past decades. In terms of democracy, the starting point is the recognition of the fact that due to the strong prevalence of ultra-liberal ideas during the last decade, perfecting democracy has been postponed in our countries. Hence, some concrete ideas and recommendations are given to empower people with more voice and vote, thus responding to the growing desire for participation found today almost everywhere, contrary to the alleged apathy and indifference that neo-liberal focuses see as predominant in our society.

 

In the second section of Chapter IV, broader background information is provided regarding the current world’s economic diversity.  Unlike what has been claimed by “the unique approach” proposed by the neoliberal thinking that prevails in our society, there is no single capitalism, i.e., there is not a single form of capitalism in the different regions of the world. Rather, there are different variations of the same that interpret and apply the fundamental paradigms of the neoliberal thought in different ways. And, in terms of the different components of the current economic functioning, these other capitalism approaches often turn out to be much more interesting, efficient and adequate to the humane development they strive to serve (M. Albert, 1992).

Along this line of a better understanding of the policies observed in other places which substantially differ from the neo-liberal policies practiced in our environment, the following section analyzes the renewed social protection practices prevailing in different developed economies. The premise is that, in order to reduce inequalities, it is necessary to increase social protection and not diminish it and that, unlike the neo-liberal thinking, inequality does not contribute to development, but hinders it and makes it more difficult (see Graphics 3 and 4).  In this sense, numerous studies show that there is no inherent conflict between equity and economic efficiency.  Evidence shows exactly the opposite, namely, that equity seems to be quite an important condition for economic efficiency.

 

In reality, the evidence provided in this Chapter together with countless other studies not included to avoid distracting the reader, has been so consistent and convincing, that has forced the World Bank to admit that the thesis that “social inequalities lead to economic growth” is not sustainable. In reality, evidence points precisely in the opposite direction, in other words, the greater the inequalities, the lower the economic growth” (World Bank, 1991).

 

In terms of the background information and the multiple lessons gathered, the next section offers a review of the role played by the Nation-State in globalization, its desirable role and size in the current and future world, and its role in growth and economic policies designed to mitigate the effects of economic cycles. The latter are understood as the growth and recession and unemployment periods, that have become ever more frequent in the past years and which, additionally, may result in worse damage to production and employment in all of our countries’ medium and low-income population.

 

 The process of studying and updating economic policies for growth and wellbeing in the Nation-State can no longer be analyzed in an isolated manner. The more recent international economic-political structure must be taken into consideration, including its irregular but sustained trend to form regional blocks. These regional blocks are slowly starting to articulate their economic, social, tax and labor policies and are making them converge towards the creation of more homogeneous and cooperative economic spaces, striving to protect themselves from the growing international financial instabilities, and to maximize common interests, trade, and wellbeing in those regions (see Graphic 5). Keeping in mind this new international structure, special consideration is given in this section to the international financial crisis and destabilization risk our economies are facing today, as a result of the strong expansion and great freedom of the capital movement at international scale. As is pointed out in the text, capitals exchanged today no longer have an equivalent in the physical value of the exchanges and the derivative financial product system develops without minimum advisable controls. For this reason and within the framework of a responsible, rational, more humane and civilized policy, the economic authorities in our countries must now act concertedly to achieve a new international “financial architecture”, and take preventive steps against the out of proportion entry of foreign capital, seeking to stabilize external flows (R. French- Davis, 1999).

 

What can be done? - Some Specific Tasks to be Achieved in the New Scenario

Finally, in the last section devoted to proposals (Chapter V of the book), some specific tasks are discussed which correspond to areas or sectors that have a high priority in a more humane economy and which should be undertaken in a special manner under today’s scenario. For example, different policies are analyzed and recommended to substantially raise the levels of education and special training, given the strong and close link, known for a long time now, between education and equity (see Graphic 6).  Additionally, keeping in mind the evolution of technologies and the new ways to organize production in companies and in all kinds of organizations, the contents and levels of education must be urgently modified, given the requisites imposed today by the so-called “knowledge society”.  Also, the relationship between education and democracy, participation and social peace is examined, which is today an unavoidable factor and an essential development policy to move towards a more humane economy and a better society .

 

Human labor and employment are specific areas analyzed in this section. Several policies and steps are recommended to correct the adverse situation affecting these areas in our countries today. A brief discussion is offered on the significant change suffered by the concept of labor in our societies. Several of the different traditional labor systems tend to diminish and disappear, income sources therefore are systematically diminished, and new labor systems in non-traditional areas are not being sought or created. These new income sources should start being remunerated in order to urgently create income sources to mitigate the increasing levels of unemployment and under-employment present in almost every country. Given the severity and significance of this problem to reduce inequalities which, additionally, accounts for the main cause for uncertainty among the people in our economies at this point in time, several different and concrete policies and steps are recommended to reduce unemployment and reconsider the current concept of labor in our environment.

 

In closing, among the "specific and crucial tasks considered" in this Section, the significant evolution of all kinds of economic and non-economic organizations is analyzed, especially in more developed countries and as a result of the technological changes of the past two decades. This causes the consideration and thinking of new administration and management policies and techniques for our environment essential in order to modernize the still commonly used Fordist policies, now with much higher levels of internal information in the companies, with less hierarchical levels and much more advanced degrees of participation in decision-making and teamwork on the part of all members of a company.

 

 

Final Considerations

In a final and brief section of this essay (Chapter VI of the book), some  considerations are offered on the work done, from the starting point of a reconsideration of the economy evolution in the past decades, to help put the current situation and the most likely trends for future development in perspective. The purpose of this final comprehensive review is only to restate the feasibility, viability and desirability of the approaches and policies proposed in the text, which aim at a more humane economy and a better society. In this essay, only the most basic dimensions and policies have been considered aiming in the direction of the objective sought. The fact that work and thinking is being done in this direction in many more places than the majority of us could imagine is also highlighted. This allows us to foresee that these could become the prevailing future trends, which is quite positive because these new tendencies have already proved that they are technically viable and ethically more desirable than the current  neoliberal system.

 


1              This article is a brief summary and an overview of the book by Juan Guillermo Espinosa: Economía Neoliberal versus Economía Social en America Latina.  Dolmen Ediciones, Santiago, Chile; Marzo, 2001.