Many Latin American countries, which have disclaimed the authoritarianism and opted for democratic changes in the period of the late 1970s-1990s, faced the weakness of new political institutions, a number of unresolved social-economic issues, and a huge gap between wealth and poverty. Millions of indigenous people lived in poverty and demanded social equity. A potential conflict became imminent because of the denial of Latin American electors to trust the right parties and vote for the leftist parties in many countries of the region. Latin America has become a place in the world where the alternative to neoliberalism was manifested the most. A distinctive feature of the “left turn” was the establishment of the radical left-populist regimes with different levels of anti-imperialist direction and attraction to “socialism of XXI century” in a range of countries in the continent (Venezuela, Bolivia, Equator, and Nicaragua). The profound changes in the economy in the late 1970s, 1980s, and 1990s were caused mainly by external impacts. The expected financial growth was supposed to reduce poverty and thereby lead to concentrating a public sector on the social policy. Despite that, the government tried to stabilize the economy, thus improve the general state of the region. Nevertheless, the changes brought positive influence only on the economy and politics, but people’s conditions of social life remained not as good as expected.
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The main reforms implemented in Latin America between the late 1970s and 1990s
The reforms started when John Williamson shaped the so-called Washington Consensus – the list of recommendations, which has become “the clearest enunciation of the basic premises behind neoliberal reform” (Burdick et al. 217). The Pinochet – a “radical conservative experiment” (Burdick et al. 217) in the 1960s had resulted in “an endemic, poverty-multiplying economic malaise” (Corrales 44), an unprecedented level of inflation, and the high rates of unemployment. In the period between 1975 and 1981, the Latin American countries often misused funds and the region was highly indebted, which had led to the crisis in 1981-1982. During the 1980s, they have tried to return the national debts, which caused inefficient transfers, and that, in turn, led to the negative growth rate in the income per capita. After this, between the 1990s and 2000s the region had met larger foreign direct investment, which was used to get existing assets, thus made it possible to recover and change the economy. A few years after 1998, net capital inflows still remained negative, so Latin America fell into a stagnation period. An important step in implementing the reforms was the reduction of tariffs. Due to the so-called Lerner symmetry, tariff reduction correlates with the export growth, since the taxing imports and exports have the same influence on the international trade, which means that reducing tariffs contributes to the exports. Neoliberalism had actually saved the region from the economic instability and kept the new Latin America in democracy. However, the new economic model had different outcomes in various countries. For instance, the experiment in Uruguay and Argentina “were of short duration and ended in the debt crisis of the early 1980s with poor results” (Reinhardt and Wilson 3).
Turning to Williamson, his Washington Consensus included 10 recommended policy instruments that introduced a basic ideal of macroeconomic policies, free-market capitalism, and outward-oriented economy, mainly – stabilization and liberalization. Stabilization was a necessary step towards economic growth, and it stressed the importance of implementing the reforms. Liberalization, on the contrary, had to change the way of economic development. Both of these policies equally form the basis of the “World Bank’s call for a market-friendly approach to economic development” (Reinhardt and Wilson 3). The documents served as a base for the reforms and for the implementation of some items that were modified. The first part of the reforms occurred by the late 1980s, which mainly included stabilization: the region restored from liquidity in the international banking system, recovered export prices, and established a secondary market for the region’s debt. These enabled to reduce widespread activities and introduce liberalization in such specific markets as the financial system, the foreign trade, and the labor market. The reforms started first in Chile, Bolivia, Mexico, and Costa Rica in the mid-1980s; and then extended to Argentina, Venezuela, and Peru at the beginning of the 1990s; and eventually, in fact, the most important reforms were in Brazil. This country has started to improve its economy in 1990, and soon after 1994, it developed a strong program of privatization. However, almost all countries of the region were fulfilling economic reforms by the mid-1990s, even though their intensity and scope varied. The term “neoconservative,” which was popular at the time of Pinochet’s governance, was “replaced by a variety of terms, including ‘structural adjustment programs,’ the ‘neoliberal’ model, and finally, the ‘new economic model’” (Reinhardt and Wilson 3). It must be mentioned that the content and logic of the new economic model were the same as the original neoconservative forebear.
Turning to the left parties, they received the benefit from the crisis in two ways. First, incumbent parties became weaker due to the economic conditions, and after 1998 they have lost the presidency. Many of those parties were Right, so when they have lost their power, the Left could obtain that power. Second, public support for the economic status quo enshrined in the Washington Consensus was lowered: “Support for neoliberal policies like privatizations started to wane in the late 1990s” (Levitsky 10). In essence, the Left could renew their activities in the region owing to the two factors. The first is inequality, since “despite economic stabilization and the resumption of growth in the 1990s, Latin America remained plagued by severe poverty, inequality, and social exclusion” (Levitsky 7). A second factor was “the institutionalization of electoral competition” (Levitsky 7). These two conditions have made it possible for the Left to overcome its internal crisis caused by the Cold War and restore the political o?ensive in the late 1990s.
Social outcomes of the reforms
Positive outcomes of the implementation of the reforms in the social life of the people in the region consisted in intentioned improvement in the delivery of public services. As a matter of fact, healthcare, housing, and other social indicators were significantly enhanced in the 1990s, even in the countries that faced a period of stagnation.
Colombia: poverty as measured by unsatisfied basic needs, selected years percent of all households, 1973-2005
Source: Departamento Nacional de Estadistica de Colombia.
Although the reforms of the market had a positive influence and resulted in stabilization and economic liberalization, they also had negative outcomes. As Latin American countries had to handle stagnation at the same period when social reforms had to be introduced, the manufacturers had to devise a way to combine those two processes. Obviously, the situation when the country cannot receive any external help and the numbers need to be changed has positive perspectives, since the quantity comes under the quality. The manufacturers decided to spend less money on the workspace environment, which would give them the ability to hire more workers. From the operational point of view, that, in fact, will not bring positive results for the company in a long-term perspective. Additionally, payroll was very low and many prices increased, which only led to the growth of unemployment percentage: “wages and employment benefits for some workers in some privatized firms declined, while prices of some privatized services increased” (Corrales 50). As soon as workers do not have enough workspace and payments, it is clear that the unemployment rate would increase further.
The above-mentioned issues concerned both agricultural and industrial employment. Table 2 shows how the employment rate of the mid-1980s was lower than both the rate of 1970s and 1990s. As a result of the crisis in the early 1980s, firms started to diminish investments and employment rates with the purpose of reducing the costs. Owing to implementing the reforms, multiple firms started to act differently at that period: they focused more on cost reductions on inventories, reduction by reorganizing production process, and reduction in product diversity. It is clear that with such strategy in business they could still propose workplaces, but the new accent negatively influenced the final product of manufacturing and lowered the conditions at those workplaces.
The economically active population (EAP) sectoral average annual growth rates, 1970-1997
Sources: Calculated from EAP data in ECLAC (1998) for 1970, 1980, 1990; and from data provided by Jurgen Weller, ECLAC, for the early 1990s and 1997.
Sectoral employment shares, Latin America 1970-97
As may be seen from Table 3, the growth of employment was mainly concentrated in the service sector. At the same time, the growth of industries through the years was positive only for the services and agriculture, while industries only gradually declined with a flow of time. Numerous problems with employment have undoubtedly led to many social issues. For instance, a person who cannot get a job especially wanted one, becomes to feel unnecessary, inefficient and deceived as the government did not fulfill the expectations entrusted to it. On the society scale, this leads to degradation and the later this period of unemployment ends, the bigger degradation society will encounter.
It is evident that the countries of Latin America have faced difficulties during the 1980s and 1990s. The change of contrary directed leading parties several times during that period, new strategies in politics and broken management of industries have triggered a huge economic crisis that caused the biggest level of inflation in some countries. Moreover, it is obvious that the new economic model made a significant impact on producers’ decisions in the region, which, in turn, directly influenced the employment rate. Economic and social lives are always correlated and each of them influences another one, but it is certain that the economy has a crucial role for both of these factors. It is important to remember that the outcomes of reforms can be checked for their efficiency after some period after their implementation. Probably, the very first problem in the current issue was the fact of increasing social unrest. Many politicians succeed in the elections just because they represented critical economic and social policies. However, the new politicians and parties proved to be incapable of implementing the necessary changes in social and economic life.