Rejection of Neoliberalism: Rationality or Ideology?

Politics and Economy

The Washington Consensus may be a damaged brand, but it is still too early to call for the funeral of neoliberalism. 

Major economic reforms are a thing of the past. Regardless of political orientation, in the 1990s all the Latin American presidents who left a mark on the economic leadership of their countries undertook "neoliberal" measures. Presidents as right-wing as Fujimori in Peru or as left-wing as Fernando Henrique Cardoso in Brazil lifted import barriers, privatized large state enterprises and liberalized the financial sector. Although there may still be room to continue privatizing and liberalizing, neoliberal reforms have stalled and the economic orientation of governments has shifted in the opposite direction, especially in Argentina, Bolivia, Ecuador and Venezuela.  

The enthusiasm for reforms ended essentially due to lack of political support for neoliberalism. The party of a typical reformist government of the 1990s lost 15% of its voters following pro-market reforms, according to research I conducted in the IDB with Mauricio Olivera a few years ago. The most aggressive reformers suffered even greater electoral disasters, especially if they lied to voters about what their true reform intentions were.1 What did pay off with substantial electoral benefits was putting an end to episodes of galloping inflation.  

Is voters' rejection of neoliberalism justified? And, if it is, should we then expect the anti-reform movement to continue? 

Our conclusion in the study was that, although the reforms were beneficial for economic growth and the well-being of the bulk of the population, they were rejected mainly for ideological reasons. Most people find it difficult to say whether privatizations are good or bad for efficiency, employment or income distribution. Although most people benefit they may not be aware of these benefits, especially if not much time has passed since the measures were taken. In contrast, those who suffer not only feel it, but find political spokesmen who express their feelings publicly, which reinforces the anti-privatization ideology.  

Accordingly, between 1998 and 2003 the initial support for privatizations collapsed. In 1998, about half of the electorate in Bolivia, Ecuador and Venezuela believed that privatizations were beneficial. Five years later, only 19%, 21% and 32% of voters, respectively, held the same opinion. All over Latin America, support for privatization fell from 46% to 22% in that same period (these were years of very poor economic growth for reasons that had nothing to do with privatization). 

Although this shows that ideology is very important, it also means that it is not immutable. The passage of time and new experiences can alter people's beliefs about the effects of reforms; and this can go in either direction.

Since 2003, support for privatization has increased in all countries, and in 2010 reached 36% of those nations surveyed by Latinobarómetro--the highest level since 1998. (It is possible that favorable macroeconomic conditions have been a contributing factor, but during the recession of 2009, support for privatization hardly fell.) 

The ideological pendulum never stops swinging, and often goes in the opposite direction to policies. In fact, some of the countries where support for privatization has increased most have been those that have jumped on the nationalization train. For instance, privatizations in Bolivia now have 45% support, 53% in Ecuador and 43% in Venezuela. 

Although it has been said -with good reason- that the Washington Consensus is a damaged brand, it is too early to call for the funeral of neoliberalism. On the contrary, support for the market economy seems to be rebounding, especially in countries with leftist governments. In Brazil, Ecuador, Nicaragua and Venezuela over 60% of the people feel that the market economy is the only system which will allow their country to develop. When people in Ecuador and Venezuela are asked if private enterprise is essential for their country's development, the most resounding "yes" is heard (81% and 80%, respectively).  

Maybe there is a lot of ideological biases in these responses; just like when the Washington Consensus was rejected. 

Disclaimer: The author is associated with the IDB but his views are strictly personal. 

1 The Electoral Consequences of the Washington Consensus," Economia, Journal of the Latin American and Caribbean Association, Vol. 5, No. 2, Spring 2005, pp. 1-45.


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