Significantly, the past two decades in Latin America have also been a period of "deindustrialisation", as declining shares of investment and manufacturing valued added in GDP as well as manufacturing employment in total employment have been coterminous with stagnant or falling share of manufactures in total exports. This was the same period in which the much more interventionist policy regimes in East Asia were contributing to a significant expansion in manufacturing activity from that part of the world.

The difference is clearly apparent in Chart 4. The share of manufacturing in gross domestic product in Asia has been rising, and is currently well above 30 per cent. By contrast, Latin America experienced fairly continuous declines in this share, and by 2000 this share had fallen been below that in advanced industrial countries. The point is that the process of deindustrialisation, or reduction in manufacturing shares in GDP and employment, began in Latin America at much lower levels of per capita income than the equivalent and earlier process in the now developed countries. Chart 5 shows how the process has been rapid in the recent decade for at least the three largest countries in the region.
Chart 4 >> Chart 5 >>

In Chart 6 the employment share of manufacturing is described, with developed countries experiencing a clear decline and Asia exhibiting an increase. In Latin America, the share of manufacturing in total employment rose (although less significantly than in Asia) until 1990, and then declined to less than 15 per cent of the workforce on average.
Chart 6 >>

Nor did the neoliberal strategy operate to improve aggregate labour productivity in these economies. In most countries of Latin America, overall productivity in manufacturing actually declined or remained stagnant during the 1990s. In some enclave sectors where labour productivity increased, this was essentially due to the shedding of labour adding to unemployment, rather than greater investment and employment expansion.

Chart 7 brings out the contrast between Latin America and Asia in this respect. The four Asian countries depicted there – China, Malaysia, South Koreas and Taiwan China – all indicate very rapid and continuous increases in labour productivity in manufacturing over the period 1985-2000. However, the four Latin American economies do not show this positive tendency. Remarkably, manufacturing labour productivity declined quite substantially in Argentina, was volatile and fluctuating in Chile and Mexico, and only seems to have increased, albeit at a gentle pace, in Brazil.
Chart 7 >>

Of course, at one level this is simply a comment on the difficulties associated with measuring and capturing changes in productivity. Too often, the data which actually reflect changes in the state of demand and capacity utilisation are interpreted to denote changes in productivity (which in turn reflects technological change). The falling productivity indicators in Argentina, for example, reflect the worsening macroeconomic situation over the decade, when output was stagnant or falling because of restrictive macroeconomic and exchange rate policies.

It is also the case that a more disaggregated analysis reveals that there are wide differences across sectors even within aggregate manufacturing in these countries. From Chart 8 it emerges that the sharpest falls in labour productivity in Argentina have been in food, textiles and electrical machinery sectors, while for transport machinery the situation may have improved recently.
Chart 8 >>

In Brazil (Chart 9) transport machinery has witnessed large improvements in labour productivity (which conversely can be interpreted as greater labour shedding in that sector consequent upon newer more capital intensive technology). Productivity also appears to have improved marginally in food products and electrical machinery, and worsened in the traditional manufacturing export areas of textiles and clothing.
Chart 9 >>

In Chile (Chart 10) in most sectors labour productivity improved by 2000, although the pattern has been one of fluctuation and may be confused by the end year results. In Mexico (Chart 11) as in Brazil, labour productivity has increased mainly in the transport machinery and electrical machinery sectors, and has declined for other manufacturing sectors.
Chart 10 >> Chart 11 >>

The overall picture seems to be that the weak investment performance in the region tended to stunt productivity growth and upgradation. As a result, international competitiveness has been increasingly based on low wages (which is always an ephemeral advantage at best) rather than on increases in labour productivity.

This has created peculiar results in terms of the behaviour of unit labour costs relative to the US, which provide some basic idea of the competitiveness of particular sectors in different countries. Table 1 shows the change in unit labour costs by sector for the four major Latin American countries and four Asian countries. It is evident that for the Latin American economies, unit labour costs relative to those of the US have actually been rising in the period 1980 to 2000, in most sectors. (Of course, this also depends upon exchange rate policies and other such factors, rather than labour productivity alone.) In consequence, unit labour costs were much higher in Argentina (sometimes nearly double or more than double) compared to the US. Even in the other countries, the gap between unit labour costs between these countries and the US was been rapidly narrowed, which meant that the advantage of cheaper labour may not be available for much longer.

In this context, even the opening up to more foreign direct investment has not been entirely advantageous. A significant part of the FDI inflows into the region have been in the form of acquisition of existing assets, often in non-tradeable infrastructure or service sectors, rather than in greenfield investment in new projects. Even the greenfield FDI has in general been concentrated in sectors producing or processing natural resources, rather than areas with high potential for productivity growth. Meanwhile aggregate employment in productive sectors has suffered because of more capital intensity in resource based industries, accompanied by relative declines in traditional labour-intensive sectors such as textiles and clothing.

Essentially therefore, the neoliberal strategy has mainly been successful only in the very limited aim of inflation control. But this has been achieved at the cost of a much worse record in terms of growth, employment, poverty reduction, and higher volatility. The important point is that the strategy failed not only in terms of social and distributive consequences, but in terms of a much worse performance in investment, growth and productivity. Not only has the transformation of the productive structure through higher investment and technological change failed to materialise, but many of these variables have actually deteriorated in most of the economies of the region.