A review and critique of the workshop papers by Terence Moll will appear in due course. This essay examines these issues in light of the history of selected Latin American countries over the past 30 years. Latin American monetarists, while adhering to many of the individualistic flexible economic views of the Chicago school, tended to focus on government spending and the structure in the 1960s.
At this stage, reformist politicians changed direction and introduced anti-labor legislation, lower real wages and the IMF, undoing much of the redistributive emphasis of the early days. In a situation of general disequilibrium, inflation and erratic relative prices, real wages fell, mass discontent grew and the right took action, leading to a military coup, monetarist stabilization and the reversal of the original redistribution of wealth and income. reaches. Third, the hope is often expressed that production and investment will increase through nationalization and expropriation of the economy.
Real wages (especially in the public sector) may need to be limited to allow a surplus for investment and to ensure investment in non-socialized sectors of the economy. Fifth, structural programs greatly underestimated the importance of the external sector and the balance of payments, the argument usually being that trade harmed and undermined the local economy and that self-reliance was preferable. Second, there are good economic reasons why land is extremely redistributable - land reforms tend to increase agricultural production in the medium term (eg Dorner, 1972: ll0f, Nguyen & Salvidar, 1979) and can lead to employment considerable. absorption, especially of the rural poor.
As a rule, reforms were effective mainly in small, relatively successful 'modern' sectors of the economy (Ascher) and often did not last longer than the lifetime of the governments that introduced them.
LATIN AMERICAN MONETARISM
- REDUCTION OF IMMEDIATE DISEQUILIBRIA
- REINFORCEMENT OF A SYSTEM OF PRODUCTION AND DISTRIBU-
- WELFARE EFFECTS OF MONETARIST POLICIES
- CONSOLIDATING THE SOCIO-POLITICAL BASE OF THE ECONOMIC SYSTEM
- CONCLUSION
Similarly, the stabilization of the Southern Cone in the 1970s: in four to five years, inflation fell from 300 to 500 percent to about 30 to 40 percent in Uruguay and Chile, and it was still hovering at 150 percent in Argentina (Foxley after the big falls. It also appears that price expectations acquired their own autonomy and that price controls may have been desirable to control price-setting behavior and align them with restrictive monetary and fiscal policies (Ramos, 1980, esp. 487). stabilizations were usually high at least one to two years before inflation dropped significantly and the economy recovered.
Opening the capital account of the BoP to the outside world and relying on 'global monetarism' to reduce inflation to world levels and automatically correct BoP deficits has proved fatal in the Southern Cone (Diaz-Alej andro, 1985), leading to high real interest rates, capital inflows , exchange rate appreciation, persistent inflation, export crisis and large current account deficits (Bruno and led to complete economic collapse in Chile (GNI fell 14.1% in 1982 alone) (Garcia & Wells. monetarist records in terms of long-term growth, capital accumulation and investment is less than spectacular.On the other hand, in some situations of complete chaos and economic disequilibrium, monetarist policies led to renewed growth simply by creating a more stable economic climate (eg .
In the Southern Cone, financial liberalization and monetary control programs have run their course for a decade, and the long-term record is particularly dismal. Low overall growth rates have prevailed and tend to be based on services and high levels of imports financed by capital inflows. that is substituting present for future consumption), domestic private sectors have been reluctant to invest (uncertainty, lack of political credibility and very high free interest rates, which seem to have done little for savings), while productive foreign investment have not materialized (see Bruno, 1985; Diaz-Alejandro, 1985). The most impressive case of monetarist growth is that of post-1964 Brazil, but Foxley argues that it was exceptional.
However, this is difficult to evaluate, since most monetarist phases began with economies in disorder and economic reorganization, a changed distribution of income and lower real wages may have been necessary to get the economy functioning again in a capitalist manner (Fishlow , 1981:232). . The most extreme stabilization was that in Chile after the fall of Allende in The most important reforms undertaken in the underdeveloped world in recent history" (A. Harberger, cited in Foxley, 1984:397). Even business and the middle. classes tired ultimately for oppressive orthodoxy, leading to pressure throughout society for meaningful political change.
The Latin American monetarist record is dismal, especially where monetarist policies have been applied longest and most vigorously. If cuts of the monetarist type are necessary to redress large imbalances, one must suppose that a more gradual approach could lower social and output costs and hopefully retain sufficient political support to be thoroughly implemented (Sheahan, 1982: 25f). Ultimately, however, the decline in real wages—which Sheahan argues could have been avoided—led to labor resistance and the collapse of the program.
LESSONS FOR SOUTH AFRICA
Policymakers in South Africa can learn a lot from Latin American economic policymaking from three perspectives. First, based on the Latin American experience, the trend in government circles toward economic liberation and free markets in South Africa can be expected to fail as an economic strategy. Freer foreign exchange markets in less developed countries often result in large-scale destabilizing capital flows and crippling uncertainty, inflation and inflationary expectations decline despite money supply and interest rate manipulation, and investment and growth suffer.
On the distributional side, the position of the poor appears to be worsening, while larger companies and the financial sector are flourishing (see my second post on this workshop). The best approach to a strong redistributive regime might then be to bring strategic areas of the economy under state influence (though perhaps not ownership), aim for absolute poverty reduction via "reformist" measures, improve priority areas in education, housing and health, implement selective land reforms and work towards improved employee representation in companies. At the political level, such a program would be difficult to introduce because the real incomes of the majority of the population are likely to fall during the transition period to a new non-apartheid economic order in South Africa due to political and military conflict and the emergence of large economic imbalances (e.g. in the export sector).
This would likely lead to conflicting pressures for higher wages, high government spending and easy credit, all of which would have to be matched with the supply-side capacity of the economy. Finally, absolute poverty is widespread in South Africa and those most affected are people outside the formal urban labor market - farm workers, rural women and children, the unemployed, a large part of the 'informal sector'. A special effort will have to be made to achieve them, otherwise the redistribution will most likely take place completely within the upper limits of the income distribution, to the already better off urban workers.
A political compromise should be reached between them, as these demands are not all compatible, especially in the short term. The above discussion is based on four 'structuralist' experiences in Latin America since World War II (Moll, 1986). The politics of redistribution in Latin America. amplifier; London, England: Harvard University Press.
1961 Two Views on Inflation in Latin America, in Hirschman, Albert O. 1967 Reflections on Latin American Development. 1983 Income Distribution and the Quality of Life in Latin America: Patterns, Trends, and Policy Implications, in Latin American Research Review, Vol. Latin American Class Structures: Their Composition and Change Over the Past Decades, in Latin American Research Review, 20.3, pp 7'-39.
White Paper on a strategy for job creation in the Republic of South Africa. Market-Oriented Economic Policy and Political Repression in Latin America, in Economic Development and Cultural Change, 28.2 pp. 267-291, January.
