Neoliberalism in Latin America: Good, Bad, or Incomplete?

This Research Note looks at the recent Latin American record in economic and social development from the perspective of the effects of "neoliberalism." There are at least two ways in which neoliberalism is commonly used: a narrow usage, that refers to a shift in a subset of policies to a greater reliance on markets; and, a broader usage, that implies a wholesale change in the relationship between the state and society, with a more vigorous embrace of the market being part of a generalized withdrawal of state provisioning and action. The first clearly occurred in most of the region in the 1980s and 1990s. We will argue that shifts to a greater dependence on markets were usually beneficial, probably disappointing relative to the expectations of advocates, and certainly incomplete as a development strategy. The effects on growth, stability, and inequality depend crucially on other factors, including the distributions of assets, structural policies (for example, on social development and infrastructure) and political and social institutions.

The broader view of neoliberalism is harder to assess. The Latin American state has had a varied and checkered history in relations with its citizens. Its reach has always been highly unequal in effect, especially with respect to social provisioning. Its impact has at times been repressive of basic citizenship rights. While less of this type of state action is desirable, a broad neoliberal view, in the sense of the radical retreat to a minimal state, is generally bad for development. However, in many ways, such a prism is not a very useful way of looking at the recent experience: while there have been significant shifts from an import-substitution (and in some countries, corporatist) model, this has not involved a wholesale retreat of the state. As an alternative, we suggest that, as a matter of analytical approach and development practice, it is of fundamental importance to link market and government policies to the institutional context in which they occur, considering both political and socio- cultural dimensions.

The remainder of the paper is in two parts. The first looks at the economic and social effects of market-oriented policies with respect to the three questions posed by Kurt Weyland in his introduction: on growth, economic volatility, and social conditions. (Effects on politics are left to others more qualified than this author.) The second part develops the theme that in both interpreting and shaping policy choices it is necessary to have an expanded view of the development process that takes into account the explicit interactions among economic processes, assets, institutional contexts, and inequality. This is in the spirit of shifts in thinking on economic development that occurred amongst some thinkers in the late 1990s and early 2000s (see, for example, Stiglitz 1999; Hoff and Stiglitz 2001; Basu 2003; Acemoglu et al. 2002; Rodrik 2003a, 2003b). These shifts constitute a major change, at least with respect to a simple or radical view of neoliberalism, or "market fundamentalism" in Stiglitz's terminology. To the extent that such a radical view was advocated (and actual experiences varied across countries), it needed major revisions. Other recent accounts discuss in more detail the history and updating of the "Washington Consensus" set of policies (Birdsall et al. 2001; Kuczynski and Williamson 2003).

How does this assessment compare with that of the companion paper by Evelyne Huber and Fred Solt? (See Huber and Solt in this volume.) There is support for the conclusion of Huber and Solt, when they say, "What we are arguing against is precisely the pressure to implement a standard set of neoliberal reforms regardless of context" (162). There is also considerable agreement on the centrality of a set of specific policies that they associate with social democratic models—for example in social provisioning and broad-based safety nets—as necessary complements to market-oriented policies. The differences lie in two areas. First, our interpretation of the evidence on the effects of at least a subset...