How neo-liberalism shocked Latin America

Article by Kate Banks. Edited by Liam Geoghegan. Additional Research by Ellie Veryard. 

Neo-liberal ideology has had an unprecedented impact upon the modern world, and there is no place where this is more evident than in Latin America. Milton Freidman, the twentieth century’s most eminent neo-liberal economist, famously stated that ‘only a crisis, actual or perceived, produces real change’, implying that a society must be in a state of paralysis or “shock” before revolutionary economic change can be implemented. The question is, whether this change has been beneficial to Latin America. 

Before this question is answered however, we must first clarify what exactly is meant by neo-liberalism. The term essentially relates to uninhibited global market-capitalism. Proponents of the ideology believe that the world economy can become more efficient through the privatisation of public services, the liberalisation of trade and foreign investment and the reduction of inflation at all costs. 

This economic philosophy rose to prominence in the 1950s in opposition to Keynesian social democracy, and was made famous by Friedrich von Hayek and his pupils at the University of Chicago, Milton Friedman being among them. The US has subsequently adopted the neo-liberal ideas of “the Chicago boys” without question, a fact which is probably unsurprising considering “the American dream” itself is synonymous with capitalist principles. The maxim is essentially the idea that ‘all men are created equal’, and thus anyone can succeed through hard work and thrift. However it would appear that consequently ‘the pursuit of happiness’ is now taken to mean “the pursuit of wealth” by American citizens and politicians alike and that making money at all costs is considered admirable. 

Indeed, the assertion that ‘all men are created equal’ serves as a cruel irony, as, in Latin America, neo-liberalism has created some of the most striking inequality on earth, with small elites controlling a great majority of the wealth, whilst vast swathes of the population live in dire poverty. Furthermore, the Gini index, which is the most common measurement of inequality, illustrates that economic disparity has increased from 48.4 in the 1970s to 52.2 in the 1990s. This may not seem a lot, but in real terms this means that the number of Latin Americans living in poverty has increased from 136 million to 221 million, and few could argue that 80 million people sinking below the poverty line in just over twenty years is negligible. 

Nation journalist, Naomi Klein, has argued that economists such as Milton Friedman found it difficult to exercise their ideas in South America democratically and were therefore drawn to shock tactics as large scale natural and man-made disasters “soften up” nations for economic shock treatment, which Klein refers to as ‘the shock doctrine’. There is no clearer example of a manufactured shock than the Chilean coup of 1973. Salvador Allende had become the first democratically elected Marxist  President in 1970, something which the U.S.A could obviously not abide amidst the Cold War hysteria and thus the CIA backed General Pinochet in a violent military coup – support which was conditional upon Pinochet implementing a rapid programme of economic change in line with neo-liberal ideals. Four hundred CIA advisors helped Pinochet privatise the Chilean social and welfare system in the wake of the coup, as well as destroying the trade union movement. Ardent neo-liberal Margaret Thatcher even provided the regime with weaponry and blocked UN attempts to investigate human rights abuses, overlooking the thousands of “disappeared” who were purged in order to remove the influence of the Left and considered Pinochet a ‘friend’ until his death in 2006. 

Neo-liberalism is based upon the fundamental belief that by cutting public services, welfare and taxation, inflation will decrease and ultimately improve trade between developing and developed nations. However, although there is some truth in this, it cannot be forgotten that this comes at the cost of massively increased poverty, unemployment and foreign debt. The World Trade Organisation (WTO) dictates that developing countries must lower their import tariffs, but allows developed countries to heavily subsidise their farmers and producers, ensuring that the liberalisation of trade in Latin America only benefits super-rich elites and foreign businesses. For example, in Buenos Aires between 1993 and 2003, a water consortium run by Suez (as running water, like all commodities and services in Latin America, is available for private purchase) increased prices by 88%, yet failed to carry out 57% of the investment and expansion that it had promised, illustrating how little local benefit a liberalised free market provides for the average Argentine. What’s more, the only countries that were able to industrialise successfully without the aid of protective tariffs were Britain and Holland, who were only able to do so as they had no economic competition at the time, proving that developed countries and global institutions such as the WTO and the International Monetary Fund (IMF) had cynical motives for implementing neo-liberal ideology in Latin America and gave little thought to how it would affect the lives of ordinary people.

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