Neo-liberalism
Raul Prebisch, born in Argentina, the first leader of ECLA and its main theoretician (Vernengo, 2013), had been an early critic of the excesses of protectionism in import-substitution industrialization.
In addition, Latin American economists had been ardently divided over the treatment of inflation. However, a radical paradigm shift came only after a series of military coups, in Chile and Uruguay in 1973 and in Argentina in 1976. A new group of economists in high office then proclaimed that decades of policy mistakes, failed statist and populist experimentation ought to give way to “good economics” and scientific rationality (Edwards, 1995).When the Chicago school of economics was first brought to Chile in the mid-1950s it was regarded with skepticism or disdain for its strict allegiance to economic orthodoxy (Valdes, 1995). Yet shortly after the coup d’etat in 1973, Chicago-trained economists were firmly in control of comprehensive policy reforms. Sergio de Castro, Pablo Baraona, Sergio de la Cuadra, among others, occupied key ministerial posts in the post-Allende government. Arnold Harberger, a member of the initial Chicago mission and a long-time mentor of economists from the region, later praised the “catalytic role” that his Chicago alumni played in the transformation of economic education in the region, and in the economic liberalization of Latin America more generally (Harberger, 1997). Harberger had in the early 1960s published a study of inflation in Chile, following on from Milton Friedman’s earlier work on the quantity theory of money, which was taken by Friedman to confirm the link between changes in the quantity of money in circulation and prices (Friedman, 1969, 276).
Free market ideas were then re-exported from the Friedman-certified economic success of Pinochet’s Chile, receiving added traction from Margaret Thatcher’s privatization efforts in the UK after 1979 and Reagan’s policies in the United States.
The famous monetarist economist, who visited the country and met with the General in 1975, remained enthusiastic even when a massive crisis confirmed flaws in the model: “Chile is an economic miracle,” Friedman wrote for a mass audience (Friedman, 1982). The Washington Consensus subsequently spread the privatization agenda from Latin America to Eastern Europe and other world regions (Montecinos, 2012).Assertions of universalism and epistemic objectivism notwithstanding, political repression had made it possible for neo-liberalism to find its cradle in the Southern Cone of Latin America. The politicization of economic expertise was undiminished and the Chicago legacy, backed by well-funded conservative think tanks and the most dynamic segments of the entrepreneurial class, solidified after Latin American dictatorships collapsed. It was surprising, for instance, that in Argentina under Menem, a Peronist, the privatization policy recommended by the Washington Consensus was followed closely (Stokes, 2001). Peron’s nationalization of British- owned railroads in the 1940s had been at the core of his nationalist program. In Argentina as well as most countries, privatized state firms remain in private hands, some in the control of the same reformers who decried the arbitrariness and self-interest of state bureaucrats. The administrative support for economic planning created in the 1960s is now defunct. Among other institutional reforms, central bank independence was firmly established across the region during the 1990s.
Currently, the virtues of unregulated markets so dogmatically extolled at the height of neoliberalism seem less attractive. The need for state action, however, is seen as part of a commitment to fiscal discipline and efficiency, even by many of those convinced that poverty and inequality should decline and that the region should guard itself against the unsustainable commodity boom fueled by China’s growth. Historically, economic populism, defined as broad redistributive policies implemented at the expense of budget deficits and inflation, has been tried under a variety of political regimes, especially in Argentina, Chile, and Peru, and more often than in other world regions.
Leftist populism has come back recently, most clearly in Bolivia, Ecuador, and Venezuela, whose leaders see themselves as “twenty-first-century socialists,” but the general climate for this type of economic thinking is inauspicious. The policies adopted by left-wing governments since the late 1990s ranged from moderate, market-friendly reforms in Chile and Uruguay to more radical rejections of neo-liberalism in the Bolivarian Alliance. In all cases, however, the left faces identity dilemmas and globalization constraints and is no longer defined by the kind of revolutionary pursuits attempted in the 1960s and 1970s (Weyland, 2010; Panizza, 2005).Mainstream economics education in its increasing homogeneity and credentialism is accepted in the region’s centers of academic excellence. With some national variations, central banks and other top government institutions now employ economists with prestigious foreign degrees and the political influence of mainstream economists has steadily increased. Yet standardized professional norms (economics curricula, publications, conferences, and policy measures) remain a subject of dispute and are often tailored to regional and country-specific historical and political circumstances. This is not really surprising in a region with such a long history of searching for economic ideas fit to its own contours.