Successes and Failures of Neoliberalism

As Kurt Weyland points out in his introduction, we have a rich scholarly literature on the causes and processes of neoliberal reforms in Latin America and elsewhere.* In contrast, much of the debate about the effects of neoliberal reforms in Latin America has been carried out at a political and ideological level. The image of an overblown and inefficient state that stifles market forces and private initiative has been contrasted with the model of a lean and efficient state that relies on the market to set free productive energies and thus stimulates growth and solves social problems (e.g., Larroulet 1993). With this research note, we aim to make a contribution to the emerging empirically based scholarly literature that investigates the effects of neoliberal policy reforms (e.g., Stallings and Peres 2000).

It may be useful to start by clarifying how we are approaching the assessment of the successes or failures of neoliberal reforms. Any such assessment is in some sense relative and depends heavily on one's counterfactual. If the counterfactual is no reforms at all, i.e., a continuation of the ISI model as it was pursued from the 1950s to the 1970s, including what Michael Walton calls the "old-style populist redistributive agenda" (see Walton in this volume, 178), then the assessment of successes looks more favorable. The old model was clearly not sustainable and was kept afloat by easy borrowing during the 1970s, and thus had to be changed. It also had serious regressive components in social policy that needed to be changed. If, however, the counterfactual is a different sort of change from neoliberal change, let us call it for convenience's sake a social democratic model, then the failures of neoliberalism seem to weigh more heavily than the successes.

We are using the term "social democratic" in the sense of its venerable history in Northern Europe, to denote a policy orientation guided by the values of solidarity and equity, and by the recognition that sustainable growth strategies are a precondition for improvements in human welfare. In Northern Europe's small and open economies, this has always meant that a country has to be competitive in export markets, and the democratic state has a crucial role in cooperation with organized labor and employers in promoting competitiveness and pursuing social solidarity and equity. Thus, the social democratic model is by no means tied to protected economies but remains relevant in a globalizing world. Our usage, then, is consistent with the one that was introduced into the debate about economic reform in developing countries by Bresser et al. (1993) to denote an orientation that emphasizes the importance of social safety nets as part of economic reforms, and the importance of democratic mechanisms in shaping reforms in economic and social policy.

What are the criteria, then, or indicators by which to assess progress or lack thereof towards a development model that combines growth, equity, and democracy (the latter not just in the form of periodic elections but in the form of protection of civil and political rights and the rule of law and governmental accountability)? To what extent can we link progress or lack thereof to neoliberal reforms and to the nature of the reform process? Can we identify alternative reforms that would have brought more progress towards these goals?

We can look at five indicators to assess progress towards such a development model: growth,economic stability/ predictability/ absence of volatility,poverty,inequality, and quality of democracy.

Reforms and Performance on Growth and Equity

Since all Latin American and Caribbean countries embarked on some kind of neoliberal reform course in the 1980s and/or 1990s, we can begin by looking at the overall trajectory of our indicators in Latin America, assuming that overall performance was shaped by the thrust of the reforms. Growth performance has been mixed; after the lost decade of the 1980s, we saw good average growth...