Globalization & Neoliberal Economics in Latin America: Argentina & Chile Case Study, Esquemas y mapas conceptuales de Historia

¡Descarga Globalization & Neoliberal Economics in Latin America: Argentina & Chile Case Study y más Esquemas y mapas conceptuales en PDF de Historia solo en Docsity! ESSAY: THE IMPACT OF GLOBALIZATION AND NEO-LIBERAL ECONOMIC POLICIES ON ARGENTINA AND CHILE Globalization is the interlocking of the world's economies due to exponential improvements in world transportation and communications networks. Prior to the 19th century, the movement of goods and people was difficult and expensive, and mostly reserved for low bulk, high value cargoes, such as spices and precious metals. Since the 19th century, the process of globalization has proceeded at an ever- accelerating pace. Inventions such as the steam locomotive, the screw propeller, and in the 20th century, the airplane, the communications satellite, and the Internet, have reduced the price and increased the speed of transportation by several factors of ten. From 1565 to 1815, the Manila galleon trade brought spices and silk from Asia to Acapulco, where cargoes were transshipped overland to Veracruz, loaded on another galleon (probably mixed there with other high-value cargo such as precious metals) then sent on to Seville via Havana, a trip taking no less than six months. By the 1870s, steamships and the opening of the Suez Canal reduced the sailing time from the Philippines to Europe to 40 days. Today, high-speed refrigerated vessels bring Asian fruit to European markets in less than 30 days (Maersk Line, 2013). Air travel has revolutionized the movement of people and goods to where almost any point on the globe can be reached from any other within 2 days. Information technology expressed as electronic commerce has enabled the movement of money nearly instantaneously across unlimited distances, as well as electronic documents, again increasing the speed at which global commerce can move. And finally, the Internet has enabled the exchange of ideas, intellectual property, videos, music, art – all the elements of culture – across borders with rarely any intervening state structure (with notable exceptions such as China, and certain Middle Eastern countries known to block some aspects of the Internet from reaching their people). Globalization appears to move constantly forward, but it should be remembered that short-term variations in the availability of capital, and in market prices for commodities, may mean less than optimum conditions for any particular economy at a given moment in time. Neoliberal economics rose to the forefront during the 1980s-1990s. Neoliberalism, despite its name, is a conservative system of trade and government regulation, based on free trade, minimal government intervention and privatization of state-owned industries. It was the prescription to cure the economic ills brought on by the debt crisis of the 1980s. The debt crisis arose when rich OPEC countries deposited billions of dollars in oil profits in Western banks. These banks needed to use those funds to make money to pay the interest due to the original depositors, so they flooded the market with loans. The emerging economies of Latin America looked, at the time, like a good bet for making lots of money, and the Latin American governments were eager to receive development funds. Hundreds of billions of dollars in loans moved into Latin America. Unfortunately, by the early 1980s, the world economy was moving into a recession, driven by the increased energy privatized and workforces streamlined. The social effect of neoliberal economic policy has not been positive. The distribution of wealth became increasingly unequal from 1974 to 2006, when “the income share of the poorest quintile declined from 7.1 to 3.7, [while] the share for the richest quintile rose more than 10 percentage points, from 41.8 to 53.2” (Gasparini and Cruces, 2008, p. 4). The rich got richer and the poor got poorer. Across the Andes, Chile followed a somewhat similar course to Argentina. Chile, like Argentina, is rich in natural resources, in particular copper. Both nations enjoyed vigorous foreign trade from the 19th century into the 20th. Chile, however, developed a long history of constitutional rule, and peaceful transitions of power. A relatively strong economy allowed the development of a large middle class. Power-sharing with leftist groups in the 1930s kept political peace, as no one group held an absolute majority, which required political parties to negotiate with one another. The Radical party held the presidency from 1932-1952, and they believed in economic growth through state-run industries and trade protectionism. Industry grew, but were inefficient and, with high overhead due to enlarged government payrolls, stagnated (along with the economy itself) through the 1960s (Constable and Valenzuela, 1991, p. 21-22). In 1970, Salvador Allende, a Marxist, was elected president, and state involvement in industry and the economy grew as both the Christian Democrat and the Marxist parties competed for labor union influence. Productivity plunged. In 1973, however, after a U.S.-backed military coup, the Marxist Allende was replaced by General Auguste Pinochet. Pinochet and his inner circle were enamored of the theories of a group of Chilean economists known as the Chicago Boys that had studied under free-market economist Milton Friedman at the University of Chicago. They were some of the earliest proponents of free- market neoliberal economics, and the new Chilean government implemented their theories (foreshadowing the Washington Consensus) with a vengeance, enacting reductions in tariffs, strong anti-inflation policies, and eliminating government price controls (Biblioteca Nacional deChile, 2013). The immediate result was an economic contraction, as the economy was flooded by cheap imports, a sort of reverse ISI. At the same time, copper prices sagged due to the worldwide recession brought on by the energy crisis of the mid 70s, further damaging Chile's foreign trade balance. However, buoyed by newly competitive industries spawned in Darwinian fashion from Allende's radical economic restructuring, and easy credit available from Western banks stuffed with OPEC oil money, the economy began recovering in 1977, and reached a “full- fledged boom by 1980” (Constable and Valenzuela, 1991, p. 204). Unfortunately, Chile, though it has applied the neoliberal policies of the Chicago Boys early on, was caught in the debt crisis of the 1980s just as Argentina was, and was further affected by the economic decline of its neighbors in the Southern Cone. By 1982, production dropped 21 percent, and bankruptcies skyrocketed (Constable and Valenzuela, p. 208). As depicted in Figure 2, Chile's GDP declined slightly or remained flat through much of the 1980s. To escape this recession, Pinochet's planners turned to untapped sectors for additional trade opportunities: “the unceasing ocean, the endless forests of the south, the exceedingly fertile farm lands”, for fishery, pulp and lumber, and fresh fruit and wine products to export. Growth resumed and redoubled in the late 1980s (Cypher, 2004). Since 1990, Chile's growth has paralleled the rest of the nations of the Southern Cone. Between 1998 and 2004, growth was flat as the economy was buffeted by the same factors that affected the rest of Latin America, the Asian credit crisis of 1997, Argentina's default, and the U.S. recession that began in 2001. After 2004, growth resumes. However, according to Cypher, Chile still “has the third most unequal income distribution in Latin America (behind Brazil and Guate-mala). According to official government data, the top 20% received 57.5% of the national income in 2000; the top 10% received 42.5%” (2004). Has neoliberal economic policy helped or harmed Latin America? From the evidence examined, it would appear that neoliberalism and the Washington Consensus measures helped both Argentina and Chile mitigate and recover from the effects of the 1980s debt crisis. However, the capitalist aspect of the Washington Consensus has not reduced the severe inequity in distribution of income that appears to be endemic in Latin America, and in fact increased inequity in both Argentina and Chile. Coupling globalization with open markets and free trade rules resulted in the flight of labor-intensive industries such as clothing manufacture to an area with even cheaper labor costs: Asia. As is typical, a middle way between all-out free-market capitalism, Perónist or Marxist-Leninist central planning, and Chavismo populism would probably yield the best utilitarian result. Power corrupts, though, whether the power of the rich or the power of the politician. Each desires to retain power, and that typically occurs at the expense of the lower classes. Both Argentina and Chile have a lower class that bears witness to this tenet.