Neoliberalism in Latin America and the United States
The divergent experiences of Latin America and the United States with neoliberal economic policies offer a compelling case study in the impacts of differing democratic frameworks on society. Neoliberalism is an economic philosophy and a political system devoted to enforcing economic competition, protecting the power of businesses, and celebrating the “free market” — that is, the capitalist market — as the wisest and best judge of people, institutions, and ideas. In theory, it proposes to get rid of policymakers and planners and allow the market to find solutions. In Latin America, neoliberal reforms often resulted in heightened economic volatility and exacerbated social inequalities, sparking widespread social unrest and questioning the sustainability of these policies. Conversely, in the United States, while neoliberalism initially spurred significant economic growth and innovation, it also led to increased income disparity and weakened social safety nets, challenging the long-term viability of such an economic model. When exploring how the nuanced experiences of Latin America and the United States with neoliberal economic policies differ, we can draw lessons on its effects on economic growth, inequality, and social welfare. With this information, it can be determined who is wisest in making decisions–the market or the people.
Neoliberalism in the United States took form as capitalism on its most extreme end with deregulation, personal freedoms, open borders, cosmopolitanism, and globalization being emphasized. While there are numerous components leading to the rise of neoliberalism, the economic state of the US perfectly primed for decentralization to succeed. With the era of the New Deal and the golden age of progressive policies coming to an end, labor decenteredness became preferable. Additionally, the prevailing Keynesian economic model failed to address rampant stagnation (rampant inflation and lower growth) due to oil prices in the 1970s. Thus, alternative economic theories were sought after.
The presidency of Ronald Regan marked a significant turning point in the adoption of neoliberal policies. His administration implemented a series of measures designed to reduce the role of the government and promote free market principles: massive tax cuts, particularly for high-income earners and corporations, under the Economic Recovery Tax Act of 1981; deregulation across various industries, including finance, telecommunications, and energy; appointment of pro-market officials to key regulatory agencies, such as the Securities and Exchange Commission (SEC) and the Federal Communications Commission (FCC). The preceding presidents maintained the neoliberal status quo continuing financial deregulation creating a new normal for America’s economic landscape. All of that came to an abrupt end with the financial crisis of 2008. The excessive risk-taking and lalck of oversight in the financial sector necessitated government intervention. There was increased scrutiny of deregulation, financialization, and the resulting income inequality.
The trajectory of neoliberalism in the United States, culminating in the failure highlighted by the 2008 financial crisis, underscores a critical lesson: markets do not inherently self-regulate; instead, they require management to ensure equity and efficiency. Neoliberal principles including privatization, commodification, financialization, and reduced taxation, have fundamentally reshaped the economy and society. While driving certain economic efficiencies, they have also exacerbated inequalities. By promoting deregulation and free market, policies have also allowed significant wealth accumulation among the wealthy. As found by Garret Ainsworth, “innovation and deregulation in financial markets gave the wealthy an easy means of consolidating and multiplying their wealth (Harvey, 2005); deregulations have weakened the power of labor…; privatization and commodification have… transformed public institutions and services into profit-driven efforts controlled by the rich and powerful; and finally, reduction in taxation… reducing the money the government spends on social safety nets… (Krugman, 2007).” The tangible effects are evident in various sectors, namely healthcare. Privatization has brought about certain benefits such as increased freedom in choosing healthcare providers, shorter wait times, and better facilities. However, it has also left 15% of Americans without healthcare. This shift towards a business model in healthcare services, as opposed to a nonprofit one, has reduced the state’s role in direct welfare provision. This creates a tension between the quality of services and their accessibility, often prioritizing profit over patient care.
Simultaneously, Latin America faced its own set of economic crises including high inflation, fiscal deficits, and external debt burdens. The Chicago Boys were a group of economists, primarily trained at the University of Chicago, who played a significant role in shaping economic policies in Chile during the 1970s and 1980s. Their influence stemmed from their advocacy of free-market principles and neoliberal economic policies. The Chicago Boys' ideas were heavily influenced by the teachings of economists such as Milton Friedman and Friedrich Hayek. In Chile, the Chicago Boys came to prominence during the military dictatorship of General Augusto Pinochet, who seized power in a coup in 1973. Under his regime, they were instrumental in implementing economic reforms including privatization of state-owned enterprises, deregulation, and liberalization of trade. These policies led to substantial economic growth and stability with the GDP leaping from $14 billion in 1977 to $247 billion in 2017 earning the term "Chilean Miracle." The paradox of neoliberal reforms in Latin America, particularly under the Washington Consensus, was that their implementation often required a strong, interventionist state. This strong state was necessary to enforce liberalization policies, privatize state-owned industries, and maintain order during periods of significant economic transformation. Governments were urged to support the private sector by reducing their own economic roles and fostering an environment conducive to private enterprise.
However, the Chicago Boys' reforms were also highly controversial due to their social consequences. While the policies spurred economic growth, they also exacerbated income inequality and led to significant social unrest. Chile is among the most unequal nations with 28.1 percent of the total income is concentrated among 1 percent of the population. Notably, public spending on education decreased from 3.8 percent of GDP in 1974 to 2.5 percent in 1990, and health spending fell to 2 percent of GDP. These reductions in public investments have far reaching consequences undermining the quality of the broader population, increasing poverty, and cyclical inequalities.
The main difference between neoliberalism in Latin America and the United States is that in Latin America, neoliberalism often occurred under fragile democracies and without a strong economic foundation. These political contexts often lacked the necessary institutional checks and balances to mitigate the adverse social impacts of such reforms. As a result, neoliberal policies in Latin America led to widespread social unrest and significant resistance from various sectors of society, including labor unions, indigenous groups, and other marginalized populations. Strengthening democratic institutions, greater political participation through civic empowerment, media freedom, combating corruption are sine channels through which to mitigate effects. Furthermore social assistance programs must exist. This will target poverty reduction and programs to decrease inequality.
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Angell, Marcia. "Privatizing health care is not the answer: lessons from the United States." National Library of Medicine, October 21, 2008. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2565716/.
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