Despite the relatively poor growth record of the era of corporate globalisation, there are many who continue to believe that corporate globalisation and greater liberalisation of economic policies do deliver higher investment and more economic growth, even if there are other less benign effects - such as greater inequality or inadequate "social sector" expenditure – which then need to be separately addressed.

But in fact there is little evidence to indicate that the elements of the neoliberal economic policy model actually work to deliver faster economic growth. A good example of this – in fact, almost a laboratory test case – is the region of Latin America, in which the majority of national governments have been implementing this particular economic model with some force, since the early 1980s.

The latest annual report from UNCTAD, the Trade and Development Report 2003, contains a detailed discussion of the Latin American experience with marketist reforms, and the effects on investment, growth, productivity and employment. The results are quite damning for the neoliberal paradigm, and call for a major rethinking of the entire strategy of development which has been so comprehensively adopted on that continent.

In the 1960s and early 1970s, East Asia and Latin America grew at approximately the same rate, and the five largest countries in Latin America had per capita incomes that were above those of the first tier NICS (Newly Industrialising Countries – South Korea, Taiwan, Singapore and Hong Kong). Subsequently the pattern has been very different.

In the 1970s the large Latin American economies grew rapidly on the basis of high accumulation rates financed by external borrowing, a process which culminated in the debt crisis of 1982. Thereafter, there has not only been slower growth but much greater volatility of economic activity in the region.

From the point of view of policy orientation, the debt crisis of the early 1980s brought in a prolonged phase of very extensive market-based reforms, which were urged on and supported by, and usually even enforced by, the international financial institutions. Across the region, there were sweeping changes in trade and industrial policy aimed at removing protection to domestic producers and reducing what were seen as price distortions.

There were reductions in rates of public investment, and continuous and comprehensive privatisation of major state assets, in the major economies of the region. There were cuts in explicit and implicit subsidies to domestic producers and consumers, which also reduced the access of poorer groups to public goods and services. There were attempts to reduce the power of organised labour, through a combination of legislation and the pressure of greater unemployment, in order to make labour markets more "flexible".

These changes in economic strategy actually went further, and were more comprehensive, than in any other region of the developing world. In most of the economies, the change from the earlier import-substituting industrialisation strategy became most pronounced in the aftermath of the debt crisis of the early 1980s, although there were some beginnings in the 1970s.

In Chile, the shift to the neoliberal policy paradigm started much earlier, with the Pinochet dictatorship of the early 1970s, and the subsequent decades in Chile actually witnessed a slight modification of that very extreme form of marketist approach, with greater role for government intervention. Chile is an outlier in the Latin American case in some important ways, but certainly shares some of the more significant structural characteristics with other large economies of the region.

The explicit aim of the neoliberal policy package was, in the first instance, to stabilise the economies by controlling inflation and reducing macroeconomic imbalances. But the more significant medium term purpose was to remove the constraints to growth, increase productive capacity and external trade performance, and therefore reduce both the periodic balance of payments crises and boom-bust cycles of growth. However, the experience suggests that none of these aims has been even partially achieved in most countries of the region.

Chart 1 provides evidence of growth rates in the 1990s in the major regions of the developing world. Latina American growth is seen to be definitely less rapid than that of Asia, although superior to that in Africa. However, bear in mind that these average rates of growth in Latin America came after the "lost decade" of the 1980s, which experienced very sharp falls in per capita incomes and in wage incomes in particular. In other words, the growth was from a relatively low base of economic stagnation or decline in the earlier period.
Chart 1 >>

Chart 2 indicates the situation in the more recent period for the four largest economies, Argentina, Brazil, Chile and Mexico. It is clear that even in the latest period, growth has been generally low and highly volatile, even in the so-called "success stories" such as Chile.
Chart 2 >>

At one level the lower rates of growth in the Latin American region are not surprising, because the region also experienced a fairly substantial drop in investment rates (as share of GDP), among the highest in the developing world. Chart 3 indicates that the comparison with Asia can be instructive in this regard: not only have investment rates in Asia been high, but they have been increasing continuously over the long period from the 1970s to now.
Chart 3 >>

In Latin America, by contrast, there is clear evidence of a trend decline in investment rates, from an average of 25 per cent in the 1970s to only around 20 per cent or less in the recent past. The decline has been most marked in Argentina, but even countries like Mexico which are supposed to have benefited from the effects of closer trade integration with the US through NAFTA, have shown low investment rates. Only Chile (where, as we have already argued, the transition to the neoliberal economic regime occurred already in the early 1970s) have investment rates increased over this period, after initially falling.

This trend of declining investment rates was of course contrary to the neoliberal expectation, that the removal of domestic prices distortions and the freeing of market forces would improve the investment climate and generate rapid increases in private investment. What happened in reality was that there was a continuous decline in public investment, which in turn meant that there were less virtuous linkage effects to encourage more private investment, and so total investment rates declined.

In most countries in the region, aggregate investment rates in the 1990s and after have fallen below the threshold level of 20 per cent of GDP. The Trade and Development Report 2003 also argues that there has also been a broad tendency for a shift in the composition of investment towards less productive activities such as residential house construction, and away from investment in machinery and equipment, in many countries of the region.