America: Neoliberalism and Globalization
Yesenia Pumarada *
following paper explores the absence of development as a goal
apart and different from growth in neoliberal policies, as well as the absence of social and historical analysis necessary
before suggesting or designing policies that should be country-specific.
It compares the
process of regionalization
as an alternative to globalization, or as a first step to become integrated in
the global economy, and explores the differences between Latin American and
South East Asian economies that merit different policy approaches to close the
technological gap between the developed
and developing countries; attract more
capital flows, and institutionalize factor accumulation.
The paper reviews a series of articles regarding
globalization and its
potential effect on Latin American
economies Both protractors and
defenders of neoliberal globalization use the countries of East Asia as a
model, either to argue that neoliberal policies are a
harbinger of good news and promising
growth, or to show that growth and development have not and will not take
place in developing countries through such poIicies.
Gundlach and Nunnekamp
are among those who defend and present
neoliberal policies in East Asia as the major source of growth,
contrasting this with the lamentable situation of Latin
American countries and their policies of intervention.
The Geneva South Centre, on the
other hand, attempts
to show how the “recipe” of
the South East Asian dragons
is no such thing; the path to quick
growth followed by these countries was not based on neoliberalism but directed
intervention, especially in capital and financial markets.
Moya Lopez adds the dimension of society
and social unrest to the realities of
austerity and liberalization pushed by the international community of
developed countries on the volatile, pauperized peoples of Latin America. And Raquibuz Zaman attempts to show
that a “baIance” of neoliberal policies and “welI-focused”
intervention can make the dfference between growth and lack thereof.
II. Globalization and Latin
contemporary definitions of development take into account the social,
cultural, and political factors hidden inside "market relations" and
economic indicators. Nonetheless, neoliberal economists insist on prioritizing
the quantifiable, purely economic elements as the spearheading forces of
development. In some cases they relegate development with its messy
qualitative variables and multi-disciplinary requirements to a
secondary position relative to growth. Texts,
articles, conferences and policies focus on economic growth as if
growth in itself were the ultimate goal, social changes and progress are
valued in the face of growth: equality is positive because it contributes to
growth; education is positive because it increases the value of human capital;
justice is positive to the degree that it ensures social order; stability is
good because it attracts foreign direct investment and capital.
And growth is directly related to full integration into the
international market, increasing flows of foreign direct investment and
capital, and successful application (not generation) of technological change,
which requires a valuable stock of human capital.
and Nunnenkamp (1998) begin their neoclassical analysis of globalization by
pointing out that "many observers draw an overly pessimistic picture of
the perspectives of [Developing Countries] DCs in the era of globalization
mainly for three reasons." They
enumerate these as: (1) institutionalized regional integration schemes do not
include privileged access for DCs; (2) there is a low level of technological
cooperation between rich and poor countries; and (3) foreign direct
investment (FDI) flows tend to be concentrated in a few "advanced
DC hosts" (p. 153). The rest
of the article is devoted to countering these statements, drawing the
conclusion that open DCs that are fully integrated into the international
markets both of capital and commodities are the most likely to
benefit from globalization, "[catching up] with industrialized
countries" (p. 171). Latin America is solely responsible for its failure
to catch up with industrialized countries: growth depends exclusively on
government policies, and Latin American policies pursued protection and
separation from international markets instead of integration.
A. Regionalization vs Globalization
The lack of privileged spaces for DCs in strong regional blocs such as the European Union and
NAFTA (where Mexico is the only DC "beneficiary") is not a
relevant negative factor. The
authors argue that regional linkages, institutional or not, "are just one
among many other factors that determine whether a country will participate
successfully in globalization." "Macroeconomic
stability, a high rate of factor accumulation, a relatively undistorted trade
regime and openness for international capital flows" are much more
important for investors than privileged access to a large market (p. 157).
Market access per se does not ensure competitiveness; besides, DC trade
flows have not suffered from the regionalization of Europe, and changes in
trading partners and content of these flows have responded to domestic changes
in competitiveness and production (p. 158).
They also add that if regionalization dominated over globalization
worldwide FDI flows would divert away from non member DCs.
The only moment when this happened was "largely because of
homemade economic disturbances in Latin America" (p. 159).
Otherwise, the share of FDI reception in DCs has doubled, while that of
the EU has decreased.
technological gap between industrialized and developing countries is a
fallacy: although factor endowments prevailing in DCs prevent a stronger role
in the generation of technological
innovations, strategic technology alliances can be sought in the application
available technologies (p. 160). Developing countries lack the capacity to be
at the forefront of technological change, but this does not mean that they
will be unable to benefit from the globalization of technological progress.
International trade in capital goods and FD1 are the ideal means of
technology transfer, if
DCs specialize according to their comparative advantages (pp.
161-163). This view is in
fact very old: developing countries should specialize in their comparative
advantages and should be satisfied with being recipients of
technology instead of
creators. Given the low
standards of technological generation in DCs, closing off from international
markets would result in technological backwardness; while openness to
international markets will slowly increase the technological capacity of DCs.
C. FDI Flows to Elite DCs
Although FDI flows today favor some host countries
over others, the fact is that patterns of FDI flows change over time.
In 1980 Latin America commanded 73.1 % of the worldwide share of
FDJ flows; in 1995, this proportion had dropped to 20.2%.
With the opening of
China, the proportion of
FD1 to East Asia increased from 15,7% in 1980 to 60.9% in 1995.
Since 1994, FDI to Latin America has been recovering and may continue
to do so "in the aftermath of major economic crises, once consistent
domestic policy reforms comprising macroeconomic stabilization and
structural adjustment are implemented" (pp. 164165).
Openness and Factor Accumulation
Gundlach and Nunnenkamp attempt to prove their theory
that openness ultimately benefits developing countries using a series of
neoclassical growth models. They
mathematically conclude that openness strongly conditions developing
countries' growth performances (i.e., convergence rate to steady state).
In an open economy, physical capital is assumed to be internationally
mobile, whereas in a dosed economy, it is immobile (human capital is assumed
to be immobile in both). Given
the structures of Latin American economies (as all other developing
countries), the share of physical capital in factor income is much larger than
in OECD countries. Taking labor force growth and depreciation into account as
well, the authors demonstrate that openness leads to better economic
performance (convergence rates for open DCs are predicted to be 4.5% whereas
dosed DCs could expect 1.8%, taking twice as many years to reach halfway their
This model leaves no room for non economic
variables (as do most economic models), especially changes in the
international market and domestic as well as international policies. It does
not take into account political or social variables that may affect both labor
force growth and the degree of mobility of both human and physical capital.
III. Latin America vs.
South and East Asia
The main arguments presented by the authors rely on a
major distinction: Southern and Eastern Asian economies have grown while Latin
American economies have either shrunk or grown very little.
This contrast apparently cannot be attributed to differences in
resource endowments, but to policies pursued independently and autonomously by
the states in each of these countries.
The only important differences between the two groups of countries have
been the policies of integration, openness, and free trade pursued by Asian
economies. Another neoclassical
theorist following the same line of thought adds that an additional difference
was the Asian investment in education and emphasis on achieving a modicum of
equality through agrarian and other types of social reform (Zaman, 1998).
But grouping the extremely diverse Asian economies as well as the
diverse Latin American economies in terms of state policy presents a problem.
The South Centre (1996) points out that during a long period of time,
Latin American economies were much more open to the international market than
Asian economies: import substitution industrialization was heavily pursued by
various Asian countries, and tariffs as well as controls over foreign capital
flows were strict. Gundlach and
Nunnenkamp fail to see the historic evolution of economic policy of South and
East Asia, although they attribute Latin America's failure to its own historic
Even more relevant, not one single Latin American
country experienced much growth during the 1980's, regardless of policy
differences, while Asian economies either grew a lot or held on to their
growth patterns. And policies varied across countries across regions: the
major regional variation is that banks did not resume lending to Latin
American countries until the 1990's, regardless of domestic policies; while
they continued lending to Asian countries.
Once lending was resumed, liberalized financial regimes imposed by
multilateral agencies led to volatile capital flows dominated by portfolio
capital (South Centre, 1996). Policies
regulating capital flows and foreign investment in Asia, on the other hand,
were largely under the control of local governments and not imposed by
multilateral agencies except in a few cases.
One of the major weaknesses of the article presented
by Gundlach and Nunnenkamp is the abundance of statements with implicit
assumptions that remain unexplained, unquestioned, and unqualified; i.e.:
"it mainly depends on domestic economic policies whether DCs can
successfully grasp the chances for catching up involved in globalization"
(Gundlach and Nunnenkamp, 1998, 154). Implicit
in this statement is the assumption that all DCs have the power to set
domestic economic policies, which given the structure of multilateral lending
agencies seems unlikely. But this
statement also assumes all states are autonomous and sovereign, whereas 'in
view of its historical evolution and its relationship with various social
groups (for example, landed interests and often labour) the Latin American
state has much less "autonomy" than its counterpart in East
Asia" (South Centre, 1996, 48). The
permeating presence of US economic and political power is of crucial
importance in Latin American policy‑making, especially in smaller or
more vulnerable countries.
Finally, there are implicit contradictions in
statements that isolate domestic economic policy and domestic economic
performance from international policies and performance while arguing in favor
of globalization: how Independent are less powerful countries to set their
Although the authors agree that once a country Is integrated into
international trade and capital markets, policymakers will have less control
over domestic policy, they still attribute regional failures (or successes) to
country specific policies.
An alternate view presented by the South Centre and
other critics of neoclassical economics suggests that Latin America’s
failure had a lot to do with exogenous factors.
The world economic slowdown combined with policy changes of major
industrial countries at the end of the 1970s and early 1980s caused Latin
American countries to experience four kinds of shocks: "a demand shock to
developing country exports; a consequent fall in commodity prices and a terms
of trade shock; an interest rate shock; and a capital supply shock" (p.
42). It was Latin America's
openness to international trade and its reliance on foreign capital flows and
foreign direct Investment what made it more vulnerable to such shocks.
argues that indeed, domestic policy is the major factor determining whether
globalization o will benefit a country or not.
But his approach does not lead him to conclude, as Gundlach and
Nunnenkamp do, that integration into international trade and capital are the
only relevant policies to harness the benefits of globalization.
He concludes that it was not Latin America's closed state what led it
to stagnate during the while Asian economies grew and prospered, but that
"Latin Americans paid scant attention to Its 'impoverished majority"
(p. 251). Asian countries pursued
active policies to increase equality and education, "beginning with
primary education, followed by emphasis on vocational training and skills, and
then graduate level science and technology oriented
education" (p. 250). But
then he goes on to attribute the success of countries such as Chile to trade
liberalization "under General Pinochet". Chile has one of
the widest income gaps in Latin America, if not the widest.
Gundlach and Nunnenkamp agree that investment in human capital is
perhaps more important than physical capital accumulation as a driving force
to economic growth (p. 167); but subsume this argument under the overarching
free trade imperative.
Gundlach and Nunnenkamp conclude that openness to
globalization and integration into the international market have caused the
successful growth of South and East Asian economies: full and rapid
integration is then advocated as the only intelligent policy background for
all DCs. Yet, China has had
impressive double digit growth for years but the government
"maintains a wide range of controls on imports, capital movements, and
FIDI" (South Centre, 1996, 38). And
Taiwan's government share of the industrial and banking sectors was bigger in
relative terms than Mexico's, Argentina's, or Brazil's during the 1970's (p.
47). Zaman praises Asian economies for pursuing import
substitution "at appropriate times" and rebukes Brazil for
protecting its domestic industries (pp. 250-251).
The fact that the economically successful Asian
countries paid attention to social factors such as education and equality (to
a small degree) before engaging export led economic policies and trade
liberalization is overlooked by neoclassical authors arguing against
social spending. Taxes and other
redistribution mechanisms are seen as destabilizing the macroeconomic
environment; investments on development projects increase the public deficit;
price distortion and inflationary growth are close to blasphemy; and the
content of FDls is ignored as long as there is any. All these policies point to economic growth as the goal of
the states, as if growth were a self sustaining mechanism that once set
in motion will not stop (given that control over domestic economic policy
diminishes with integration). But
what about development?
Human development and economic growth are intimately
related, but if the chosen goal is growth, policies will be different.
If education is defined as a means of increasing the value of human
capital, then teaching art, literature, dance, theater, ancient Chinese
philosophy, etc., should be sacrificed to applied or technical learning:
computer expertise, technical writing, problem solving capacities,
scientific research (maybe). If
transportation is defined as a means of reducing costs for distribution of
goods, then environmental degradation will be a necessary evil to deal with
the later. If stability is
regarded as the most important condition to attract foreign direct investment
and capital, then social change will be put off and repression of local
elements demanding change will follow. Development
should be the guiding principle, and growth the most important means to attain
it: policies must combine both these strategic objectives.
Otherwise, growth might impair the occurrence of development, and if
that were the case, even growth will be short lived (as evidenced in
Latin America's lost decade).
Embracing the paradigm of neoliberal globalization
only because it is the paradigm in style is not a basis for sound policy: if
it is true that economic performance in the globalized economy depends mostly
on domestic policy, it would be wise to revise all empirical and conceptual
arguments instead of going with the flow. Domestic policy, over all, should be
set to improve domestic conditions, not to please foreign (or local)
E. and P. Nunnekamp (1998) “Some Consequences of Globalization for Developing
Trade, and Foreign Direct Investment. John
H. Dunning, ed., Oxford: Elsevier Science Ltd.,
López, M. (1999) “El mundo polifacético de la protesta popular actual en América
Latina”, Lucha popular, democracia,
popular en América Latina
en los años
de ajuste, Margarita López
ed., Caracas: Nueva Sociedad,
Centre (1996) Liberalization and globalization: drawing conclusions for
development. Geneva: South Centre.
Zaman, R. (1998) “Impact of Trade and Investment Policies on Economic Transformation in East Asia, the Middle East, and Latin America”, Globalization, Trade and Foreign Direct Investment, John H. Dunning, ed., Oxford: Elsevier Science, 237-254.
culture, political relations, racial or ethnic diversity, and intemational
structures of power are not considered relevant by economists because they
are not economic variables.
The refusal of banks to
lend to other Latin American country after Mexico's debt service debt crisis
is contrasted to the ability of Asian countries "as heavily indebted as
Mexico or Brazil, [with] relevant macroeconomic indicators (current account
deficit, budget deficit, inflation) [... ] worse than those two Latin
American countries" such as South Korea to continue borrowing (South
Centre, 1996, 44).
 This question is especially relevant to Latin America, especially given Cuba's embargo and the Cold War itself.
 Latin America's lion
share of FDls in 1980 should point to the openness of Latin American economies in terms of
* Instructora del Departamento de Ciencias Sociales en la Universidad de Puerto Rico: Recinto Universitario de Mayagüez