Why has productivity growth stagnated in most Latin-American countries since the neo-liberal reforms? (Revised 26-07-2011)

Latin America’s economic performance since the beginning of neo-liberal reforms has been poor; this not only contrasts with its performance pre-1980, but also with what was happening simultaneously in Asia. I shall argue that the weakness of the region’s new paradigm is rooted as much in its intrinsic flaws as in the particular way it has been implemented. From the latter’s perspective, what characterised Latin America’s economic reforms most was that they were undertaken as a result of the perceived economic weaknesses of the region—i.e., it was an attitude of ‘throwing in the towel’ vis-à-vis their previous state-led industrialisation strategy, as most politicians and economists interpreted the 1982 debt crisis as conclusive evidence that it had led the region into a cul-de-sac. As Hirschman argued, part of the problem was that people got stuck with some bad choices for too long, leading to such frustration and disappointment with existing institutions and policies that there was a remarkable ‘rebound effect’. Consequently, the discourse of the reforms ended up resembling a compass whose 'magnetic north' was simply the reversal of as many aspects of the previous development strategy as possible. This helps to explain the peculiar set of priorities and the rigidity with which the reforms were implemented in Latin America, as well as their poor outcome, as distinct from many Asian countries—where reforms were intended mainly as a more pragmatic mechanism to help lift pressing economic and financial constraints in order to continue and strengthen their existing ambitious industrialisation strategies.