In the late 1980s and throughout the 1990s many Latin American countries adopted neoliberal economic policies. Many countries faced negative economic and social results due to the policy shift and reverted to more domestic oriented markets. With that said, in recent years many Latin American countries, such as Brazil, have pushed back into neoliberalist policies. This comes as especially odd considering many global economic powers such as the US, UK, and China are shifting to domestic focused and protectionist policies. To see why Latin American countries may choose to come back to neoliberalist policies now, we have to see why neoliberalist policies failed in the past.
Neoliberalist economics was popularized in the 1980s through world leaders such as Margaret Thatcher in the UK and Ronald Reagan in the US. The core principle of neoliberalist policies is a transfer of economic control from public to private sectors through deregulation and an opening of economic markets. These principles became a global standard through the influence of world powers and international organizations such as the World Bank and International Monetary Fund.
Latin American countries began adopting neoliberalist policies through the guide of the Washington Consensus. The Washington Consensus was a set of ten guidelines promoted to developing nations to aid in macroeconomic stabilization through a connection with an open global market. This policy was promoted to Latin American nations by the World Bank and IMF as well. The effects of the guidelines were negative as “GDP stalled, social policies shrank, income concentration and poverty rose, unemployment and labour precariousness surged, violence skyrocketed. In some of these countries, not even inflation was tamed.” (Lopes). Ultimately the countries who adopted neoliberalism, such as Brazil, Argentina, Mexico, Venezuela, and others, had to shift to a national minded protectionist ideal.
This poses the question of why neoliberalism had some success in countries such as the US and UK and failure in countries such as Brazil and Argentina. While there are many factors related, there is a core issue that stems from the economic foundation many Latin American countries had prior to neoliberalism. Due to the history of colonialism and imperialism in Latin America, many grown industries were solely related in the harvesting of natural resources, which Latin America had in abundance. The infrastructure set in previous colonies had a focus of extraction and transportation outside of Latin America which allowed some growth in those specific industries but stagnation in other industries. After independence, Latin American countries had to begin development on other areas of society and to earn some income many Latin American leaders pointed to tariffs. The tariffs hindered growth to Latin America’s economy and to correct these mistakes, it was natural for leaders to look towards neoliberalist policies that banished tariffs and opened markets to a wider world.
The neoliberalist policies would open up countries to cheaper imports and more buyers for their exports. This would prove profitable to exporting larger quantities of the natural resources that had a mature industry around it. The issue for Latin America was that with cheaper imports and transportation costs there was little room for infant industries to grow as they suddenly were competing with developed industries from across the world. Latin American companies that had lower scales of production were put in stagnation and further economic stagnation and there was little room for growth in the economy as a whole. Furthermore, the neoliberal principle of deregulation assured that wages would remain relatively low which was necessary to compete with goods around the world. While wages remained low, there came more profits for business owners who were able to export goods which promoted disparity among the population which in turn would lead to “labour precariousness”. The economic disparity had an especially lasting impact when it came to inflation as the cost of goods grew while wages stayed low. The neoliberalist policies favoured the business owners and upper-class which further influenced which may have in turn persuaded policies to remain.
The impact of neoliberalism ultimately pushed Latin America to more protectionist mentalities to preserve domestic industries. The ideals have persisted until recently with countries such as Brazil re-visiting neoliberalist ideas. Brazil had a relatively prosperous decade from the 2000s with a promotion of conservative economic policy that influenced other Latin American and Caribbean countries to follow suit. The mix of policies had enough effect for many journalists deem it the “Brasilia Consensus”. Brazil saw an economic recession followed by political instability with president Rousseff being impeached from the country which indicated possible shift in policies.
Brazil’s current president, Michel Temer, took office in August of 2016 and has since heavily promoted neoliberalist ideas. One goal from Temer’s neoliberalist reforms is to “attract foreign investment and turn Brazil into a more globalized economy” (Adghirni). To accomplish this goal, Temer’s administration has targeted labour laws, which “employers argue deters hiring” (Leahy), such as restrictions to minimum wage which “Under Temer, for the first time in 15 years, Brazil didn’t have a real increase in the minimum wage for workers” (cg-RSF). Furthermore, there have been major reforms to pension laws such as the increase in the retirement age from 54 to 64 leaving more workers in the labour force as citizens have to work longer before being eligible for social welfare. These two policies exemplify the pro-business push to lower costs as wages will be relatively lower and the supply of labour will increase. Temer has sought to further lower government spending through freezing government spending to sectors such as education and health. Brazil has also been accepted for full membership into the Organization for Economic Co-Operation and Development, in which most of the 35 members states are considered high earning, developed countries. The push outwards to neoliberalist policy at a time when many large economies are pulling inwards may come to Brazil’s advantage if they can fill a void that is left by fewer exports from previously large partners such as China. With that said, this may also be detrimental to Brazil if demand for imports and the flow of foreign direct investments shrink from the same protectionist policies.
With these changes in mind, it is difficult whether to determine if Brazil will see the same outcome as thirty years ago with its initial foray with neoliberalism. The global climate is taking a slight shift to protectionist policies and with it comes part of the risk and benefit of free international trade. Brazil’s industry has improved from the 1980s and 1990s and is considered a BRIC country, along with China, India, and Russia, which acts in between a developing and developed country. These shifts may allow Brazil to find success in neoliberalism now especially if Brazil acts as one of the only adopters of neoliberal policies. But, there is legitimate worry that Brazil will only repeat the same results from before and undo the progress made with the Brasilia Consensus.