Effects of Trade Liberalization in Latin America Thesis

Introduction

Nowadays, it becomes increasingly clear to more and more people that the realities of contemporary living are being largely defined by the essence of the process of economic integration between the subjects of international law, which appears to be gaining an exponential momentum. The actual subtleties of this integration, closely associated with the concept of trade liberalization, result in increasing the extent of economic interdependency between countries and in establishing a variety of objective preconditions for ensuring the competitiveness of microeconomic and macroeconomic systems. On the other hand, the same process results in increasing the extent of the functional dichotomy between regional segments of the world’s economy. The validity of this suggestion can be well explored within the context of how trade liberalization in Latin America had affected the economic well-being of the region’s countries, and also within the context of how the increased extent of economic integration between Latin American countries proves the conceptual soundness of Endogenous growth theory, which regards the very notion of economic growth as essentially self-regulated process, closely affiliated with the concept of technological progress.

Ever since the late eighties, the policy-makers in most Latin American countries have been trying to revitalize the functioning of their countries’ economies by proclaiming their willingness to observe the provisions of the so-called Washington Consensus, as the foundation upon which the process of designing economic policies should be based. In its turn, Washington Consensus refers to the set of recommendations by IMF, World Bank, and Inter-American Development Bank, aimed at increasing the degree of regional economies’ global competitiveness. The main body of these provisions can be outlined as follows:

1. Trade liberalization – opening up Latin American markets on a global and regional scale by the mean of reducing or eliminating tariffs for inbounded imports.
2. Privatization – allowing state-owned commercial enterprises to be privatized and reducing the extent of governments’ involvement in regulating the functioning of regional economies.
3. Financial liberalization – establishing preconditions for the exchange rates to reflect the actual sustainability of regional economies.

In his article, Vellinga (2002) provides us with the conceptual summary of Consensus’s provisions, as applied to Latin American countries: “The economy had to be governed by the market. Trade barriers had to be eliminated, protectionist practices scrapped and conditions for foreign investment liberalized” (28). Thus, it comes as not a particular surprise that, ever since the early nineties, the process of trade liberalization in the region started to be increasingly referred to as ‘neoliberal revolution’. After all, the term ‘neoliberalism’ has an unmistakably economic connotation, with proponents of the neoliberal approach to economics pointing out the fact that the very idea that governments should be allowed to meddle in economic affairs is methodologically fallacious, as governments themselves never cease being the subjects of the economy. According to the advocates of trade liberalization, believing that government has the means to control the functioning of an economy is the same as believing that person’s arm or leg has the means of controlling such a person’s whole body.

Thorsen (2010) outlines the theoretical premise of the neoliberal paradigm, with perfect precision: “Economic liberalism is the belief that states ought to abstain from intervening in the economy, and instead leave as much as possible up to individuals participating in institutions which are supposed to be free and self-regulating markets” (189). Nevertheless, as practice shows, the utilization of the neoliberal paradigm, as a guiding principle for the revitalization of economics, does not always bring about positive results, at least in the conventional sense of this word. The validity of this suggestion appears especially self-evident within the context of a discussion as to what were the actual consequences of Consensus-driven trade liberalization in South America. After all, throughout the 21^st century’s first decade, the implementation of Washington Consensus’s provisions by the governments of Latin American countries has been criticized in exponential progression to the flow of time.

For example, in their article, Pereira and Margheritis (2007) go as far as implying that the trade liberalization in Latin America simply did not fulfill its initial objective of increasing the extent of region economies’ global competitiveness, which in its turn, had resulted in some South American countries coming back to adopt the ‘inward’ (read Socialist) model of economic development: “There are clear signs that the era of the Washington Consensus and neoliberal economics in Latin America is drawing to a close… These include the election of Hugo Chavez in Venezuela in 1998, the coup that overthrew President Jamil Mahuad in Ecuador in 2000, the Argentine debt default, and street protests of December 2001…” (25). In this study, we will aim to thoroughly explore the actual effects of trade liberalization in Latin America, inspired by Washington Consensus, and to reveal why liberalization-related economic consequences varied rather dramatically in every particular Latin American country.

Hypothesis

When it comes to discussing the qualitative effects of a particular socio-political or economic policy (in our case, the effects of trade liberalization in Latin America), it represents the matter of crucial importance to be able to define such policy’s dialectically predetermined essence. Nevertheless, within the context of indulging in the discussion, it is equally important to be able to remain on the lookout for inconsistencies in how a particular theory addresses the discussed subject matter.

When assessed from the perspective of Endogenous growth theory, the implementation of trade liberalization policies in Latin America should have produced a variety of economically and socially beneficial effects, especially in times when the world becomes increasingly globalized, in the socio-political and economic sense of this word. The reason for this is simple – Endogenous growth theory does refer to human capital as a market good. Moreover, this theory implies that it is legitimate to expect human capital to be able to substitute physical capital.¹ And, as realities of today’s living indicate, theory’s conceptualization of human capital is indeed being consistent with the process of Globalization – after all, it is namely the differentiation in human capital’s potentials, in different parts of the world, which provides additional momentum to this process. Therefore, given the conceptual objectiveness of Globalization, the implementation of trade liberalization policies should have resulted in increasing the value of human capital – hence, contributing to the revitalization of regional economies and consequently, to the improvement of living standards in those parts of the world where these policies are being governmentally endorsed.

Nevertheless, there are two simultaneously legitimate but theoretically opposite approaches to defining the actual value of human capital. The first approach can be generally referred to as qualitative – the value of human capital is being assessed in conjunction with such capital’s ability to substitute a variety of physical assets. And, as realities of post-industrial living indicate, it is namely the extent of people’s intellectual refinement (the rate of their IQ), which is being correlative with their ‘substitutive’ capacity, as human capital. For example; whereas, in 1945, 80% of Atlantic telephone cable’s self-cost accounted for raw materials (copper), the raw materials-related self-cost of today’s fiber-optical Atlantic cable accounts for only 10%. Yet; whereas the old cable could only sustain 138 parallel phone calls, the new cable is capable of sustaining 750.000 parallel telephone calls.² What it means is that people’s intellect does have a concrete economic value, as it is being capable of effectively replacing physical capital – in the literal sense of this word.

The second approach can be generally referred to as quantitative. Throughout the lenses of this approach, the value of human capital is being reflected by the extent of such capital’s low cost and by the extent of its ‘self-renewal’ capacity (the subtleties of a birthrate in every particular country). Due to specifics of the demographical situation in many Latin American countries, it is namely human capital’s low cost, which appears to represent its greatest value there. In its turn, this explains the phenomenon of outsourcing, when Western manufactures move their production lines to the countries of Second and Third world – because of the low cost of labor in these countries, Western manufacturing companies that operate there can significantly increase their profits – hence, ensuring its continuous competitiveness. And, it is needless to mention, of course, that outsourcing is being initially instigated by relaxation of trade tariffs in countries with low-cost labor.

Nevertheless, it is important to understand that, in countries of Latin America, trade liberalization combined with outsourcing, also results in increasing the overall rate of local populations’ buying power, which in its turn, stimulate domestic economies. The validity of this statement can be illustrated with the example of Mexico. According to Schmidt (1994): “As recently as 1985, import licenses protected more than 90 percent of Mexico’s domestic production from competing imports… (country) methodically reduced import licensing to only 19 percent of domestic production by 1990” (74). This has immediately been followed by a drastic increase of the number of foreign investments into Mexico’s economy – thus, resulting in the creation of new jobs and in improving the extent of the country’s competitiveness on global markets: “In the short run, Mexico’s low wages and proximity to the United States, combined with NAFTA’s duty-free treatment, seemed to provide a nearly insurmountable competitive advantage for Mexico over Caribbean production locations” (Pantojas-Garcia 2001, 61). What it means is that people’s popular discontent with trade liberalization in Latin America, which came to public prominence during the 21^st century’s first decade, was essentially irrational. Apparently, in many Latin American countries, people do have a hard time understanding a simple fact that, since their value as human capital is being the least reflective of their intellectual capacity, the quality of their living standards can only be gradually improved, as a consequence of trade liberalization – and yet, they had never ceased expecting the immediate improvement.

Thus, while taking into account the provisions of Endogenous growth theory, which regards human capital as a market good, the essence of the region’s demographic dynamics, and also the fact that Latin America’s neoliberal reforms were aimed to return the region’s economies to their self-regulating function, it would only be logical to hypothesize that, the implementation of trade liberalization in countries of Latin America was bound to result in the following positive and negative effects:

Positive

1. The increased extent of Latin American economies’ global competitiveness.
2. Drastic reduction of costs, associated with the maintenance of governmental bureaucracies.
3. Reduced rates of inflation.
4. The establishment of objective preconditions for Latin American economies to become increasingly technology-oriented.

Negative

1. Increased rates of unemployment.
2. Increased dependency on international markets.
3. Increased rates of poverty.

In the analytical parts of our study, we will strive to confirm the validity of this hypothesis. Nevertheless, before proceeding with the task, we will need to establish the appropriateness of an intended methodological approach for the analysis.

Methodology

Given the format of our research study and also the subtleties of the study’s subject matter, the utilization of Qualitative Inquiry (Discussion), based upon Analytical Literature Review, as the foremost element of a research methodology, appears to be the most appropriate. While deciding in favor of adopting this particular research methodology, we have been motivated by the following two considerations:

1. The quantitative aspects of trade liberalization in Latin America have been relatively well researched. Nevertheless, most studies concerned with the analysis of these factors, provide only partial insight into spatially defined effects of such liberalization. The utilization of Qualitative Inquiry, however, will not only allow us to explore the soundness of the paper’s initial hypothesis, in regards to the quantitative data, which in most cases appears to be incomplete and discriminatory chosen, but to gain a better understanding of a researched subject matter as ‘thing in itself’. By reviewing relevant academic literature, in support of the study’s hypothesis, we will be able to remain focused on exploring the effects of trade liberalization as being dialectically predetermined by the objective laws of a normally functioning free-market economy. In its turn, this will contribute to the academic appropriateness of the study’s line of analytical argumentation.

2. There is no universal agreement among economists as to what should be considered the initial stages of trade liberalization in Latin America. For example, the government of Chili had embarked upon the implementation of neoliberal reforms even as far back as 1973. Moreover, as we have mentioned earlier, in Latin America, the implementation of trade liberalization policies had in many cases been interrupted in its middle, due to shifts in voters’ opinion, regarding the policy. In other words, there is no linearly defined continuity in how the regional implementation of trade liberalization proceeded, which renders the application of quantitative research methodology quite unsuitable, as such state of affairs unable the utilization of mathematic functions (due to the shortage of independent variables) as the instrument of quantitative data’s qualitative assessment.

An Analytical Literature Review

It is a well-known fact that, while announcing their intention to proceed with relaxing trade tariffs in the late eighties, the leaders of Latin American countries used to justify such their intention by suggesting that eventually, the implementation of trade liberalization policies would improve citizens’ living standards. In other words, it is the considerations of ensuring citizens’ continuous well-being, which had prompted Latin American politicians to open up regional markets to the world. Nevertheless, as practice shows, the very concept of people’s ‘well-being’ is something that can be interpreted from a variety of different perspectives.

Whereas; for liberally minded individual, the quality of one’s ‘well-being’ is reflective of his or her ability to indulge in the consumerist model of existence (goods and services is the source of happiness), for Socialist-minded individual, the concept of one’s ‘well-being’ is synonymous of such person’s ability enjoy ineffective but free Medicare, for example (equality is the source of happiness). This is exactly the reason why, while assessing the effects of trade liberalization in South America, different authors often adopt a diametrically opposite view on these effects’ actual significance.

For example, Berry (1997) suggests that the foremost consequence of trade liberalization in Latin America was the ‘distribution crisis’. According to the author, due to the institutionalization of trade liberalization policies in the region, throughout the late eighties and nineties, the gap between rich and poor citizens has grown considerably wider: “Striking increases in inequality have occurred concurrently with market-oriented policy packages in seven (Latin American) countries” (7). In their study, Evelyne Huber et al. (2006) have come to essentially the same conclusion, regarding the societal effects of Latin American trade liberalization. Nevertheless, unlike Berry, authors point out the increased levels of inequality, due to neoliberal reforms, as having been objectively predetermined by the fact that, in smaller Latin American countries, the economy’s agrarian sector has traditionally been hypertrophied. In its turn, this created a situation when, after the tariff rates were lowered, many region’s agricultural enterprises have realized themselves standing on the brink of bankruptcy. In its turn, this contributed to the rise of poverty. As authors had rightly pointed out: “The coexistence of a high-productivity modern and a low-productivity traditional agrarian sector increases inequality” (959). Due to the realities of Globalization, the profitability of extensively functioning agrarian farms naturally declines.

Nevertheless, as it appears from Fridell’s (2006) article, the implementation of trade liberalization policies by Argentina and Brazil’s governments in the late eighties had resulted in something rather unexpected – revitalizing national economies’ coffee-oriented agricultural sector. According to the author, as of 2002, there were 670.000 Argentinean and Brazilian coffee farmers on FLO’s (Fair Trade Labeling Organizations International) list, as opposed to only 410.000 privately owned and commercially successful coffee-producing enterprises in 1990.³ The explanation to this seeming paradox is rather banal – trade liberalization allowed both countries’ coffee farmers to take an advantage of global demand for their product. Yet, before they were able to do it, they had to restructure the functioning of their farms, to make it much more cost-effective and technologically advanced.

As we have suggested in the Hypothesis, the implementation of trade liberalization policies in Latin America should have contributed to improving regional economies’ overall rate of competitiveness. We were able to find plenty of supporting evidence in Walton’s (2004) article. According to the author: “Concerning aggregate growth, the overall performance of the region was significantly better in the 1990s than in the ‘lost decade’ of the 1980s” (168). In support of his claim, Walton refers to statistical data that shows the effects of trade liberalization on growth and volatility of output per capita in Latin America. Even a glance at this data leaves very little doubt as to the fact that the implementation of trade liberalization policies had stimulated rather a substantial revitalization of regional economies. Whereas; through years 1981-1990, median growth in output per capita in Latin America was negative (-0.02), through 1990-1999, when trade liberalization started to take an effect, median growth had attained clearly defined positive subtleties (1.76).

Nowadays, it is being commonly assumed that the ‘inward’ model of Latin American countries’ development, associated with the ‘lost decade’, has been conceptualized by region’s economists, to allow even the representatives of lower social strata to enjoy comparatively high standards of living. This may have indeed been the case. Nevertheless, as the reading of Abu-El-Haj’s (2007) article points out, Latin America’s ‘underprivileged’ and ‘institutionally disadvantaged’ had very little to gain out of deployment of economically protectionist measures, throughout the ‘lost decade’. For example, in Brazil, it was named the representatives of the regional bourgeoisie, who benefited from the fact that through the years 1980-1990, the country’s economy functioned in essentially Socialist mode – whatever the improbable it might sound. The reason for this is simple – governmentally sponsored protectionism had artificially increased the extent of many local enterprises’ sustainability.

This, however, had simultaneously resulted in Brazil’s economy losing its competitive edge, on a global level: “The local (Brazilian) bourgeoisie, favored by protectionism, had expanded its domain without securing the technological sustainability capable of conserving its advantage relative to international competitors” (95). Therefore, the author refers to the effects of trade liberalization policies, deployed during ‘Cardoso era’ (1995-2003), as being essentially positive, as they provided incentives for the country’s economy to become increasingly technology-friendly and globally competitive: “As import-substitution mechanisms were abandoned by the state, the local bourgeoisie was forced to adopt a new logic based on increases in productivity, competitiveness, and strategic positioning in the internal market” (110). And, as rationally minded economists are being well aware, people’s well-being derives out of properly functioning economy and not vice versa. In other words, the argument put forward in Abu-El-Haj’s article does endorse the view on trade liberalization in South America as such that has been instigated by the objective laws of the economy.

The same can be said about Biglaiser and DeRouen’s (2004) article. In it, authors argue that the implementation of trade liberalization policies in Latin America has been brought about by an exponential increase in inflation rates, throughout the ‘lost decade’: “Inflation is by far the most important factor that affects the expansion of market-oriented policies. High inflation tells us what presidents, regardless of their prior ideological commitments, will decide to do” (562). Also, Biglaiser and DeRouen provide us with the insight into why many people in Latin America had adopted a strongly negative attitude towards trade liberalization: “Market-oriented reforms that attempt to eliminate market distortions and promote greater efficiency generate high short-term costs and provide rewards mainly in the long term” (565). The authors’ line of argumentation, in this respect, is being consistent with the provisions of the Endogenous growth model, which establishes a correlative relationship between people’s value, as ‘human capital’, and the extent of their intellectual advancement. Given the fact that, in Latin American countries, the overall rate of citizens’ IQ ranges from 80 to 90 (not overly bright)⁴, it comes as not a particular surprise that, at the outset of trade liberalization in the region, most people in South America expected it to immediately yield positive effects. This, however, did not happen – hence, ensuing popular discontent with the policy.

In his article, Feinberg (2002) points out the fact that trade liberalization in Latin America had resulted in establishing objective preconditions for the consequent improvement of citizen’s quality of living, as it was able to revitalize regional economies most immediately: “Latin American economies expanded during the late 1980s and through most of the 1990s. Latin America’s weight in U.S. exports rose during the 1990s, from 17 percent in 1992 to nearly 21 percent in 1998… U.S. direct investment in Latin America increased from $71 billion in 1990 to $172 billion in 1997, or 20 percent of U.S. overseas holdings” (132). According to the author, the criticism of adoption of trade liberalization in South America, on the part of local and international advocates of a ‘welfare state’, is being largely unsubstantiated, due to these people’s lack of understanding of how the most fundamental laws of economy work.

For example, as it appears from the article, it was namely due to socialist-minded politicians’ considerations of protecting the competitiveness of domestic manufacturers, that during the ‘lost decade’, trade tariffs for inbounded textile imports in Argentina were particularly high. Yet, the implementation of protectionist policies through the eighties, in this particular country, had resulted in something opposite – many domestic manufacturers of textile products had simply gone out of business, due to bankruptcy. The reason for this was simple – the raising of trade tariffs had substantially increased the self-cost of imported cotton – thus, making the continuous functioning of many Argentinean manufacturers of textile products economically pointless. Therefore, in the light of this study’s initial hypothesis, the foremost idea, contained in Feinberg’s article, makes legitimate sense – the implementation of trade liberation policies in Latin American countries, in full accordance with Washington Consensus, was indeed highly beneficial for these countries’ economies. As it was rightly pointed by the author, the fact that this implementation had resulted in producing ‘inequality’, cannot possibly be referred to as the indication of trade liberalization’s ineffectiveness. On the contrary – ‘inequality’ (in energetic potentials) is what drives the economy forward. And, properly functioning economy is the actual source of citizens’ existential well-being.

Nevertheless, despite the self-evidential objectiveness of an earlier expressed idea, there still appear to be several ‘progressive’ economists and sociologists who seriously believe that the implementation of trade liberalization policies in Latin America should have somehow resulted in ‘fair distribution of wealth’ among the citizens. And, since it did not, then the whole concept should be referred to as ‘wicked’. Hoffman and Centeno’s (2003) article, represents a perfect example of how the effects of trade liberalization in South America can be deliberately distorted, once they are being accessed through perceptional lenses of Socialist mentality.

The lessened value of authors’ argumentation, as to what accounted for economic liberalization’s effects, can be explored in their argumentation-supporting remarks: “Latin Americans now live worse than they need to” (365), “The percentage of housing without flush toilets (due to trade liberalization) ranges from less than 2% to nearly 17%” (368), “Studies indicate that the boom of the early 1990s reduced the levels of poverty in some (but not all) countries, but also produced greater inequality” (368), etc. Some of the authors’ suggestions even raise doubts as to their cognitive adequacy, especially when they embark upon discussing the significance of some socio-political and economic phenomenons, the essence of which they simply cannot comprehend: “The integration of trade (trade liberalization) should theoretically have led to a reduction in the gap between skilled and unskilled wages (as it did in East Asia), but it failed to do so in Latin America” (372). Yet, as we have mentioned earlier, within the conceptual context of the Endogenous growth model, the ‘failure’ of Latin American trade liberalization to reduce the gap between skilled and unskilled wages, makes perfectly good sense: the overall market value of the region’s human capital is significantly lower than the market value of human capital in East Asia – pure and simple.

Therefore, there is no need to hypothesize on why trade liberalization in East Asia and South America had produced different results, in the light of vaguely defined notions of identity or ‘historical awareness’, as Palma (2010) does: “Perhaps the key difference between LA (Latin America) and Asia is that in the latter most actors… have a strong national identity and historical awareness, and are firmly grounded in the real world” (3). Just as we have implied earlier, the functioning of a free-market economy is the subject of objectively existing economic laws, regardless of whether some authors think of them as being ‘immoral’ or not. People, who represent a qualitatively defined value as ‘human capital’, will be more likely to benefit from trade liberalization, as compared to those whose ‘human capital’ value has clearly defined quantitative subtleties.

The manner, in which Robinson (1999) discusses the effects of trade liberalization in Latin America, is being ideologically attuned to that of Hoffman and Centeno’s: “Nonmarket spheres of human activity – public spheres managed by spheres linked to community and states and private family – are being broken up, commodified, and transferred to capital” (44). It goes without saying, of course, that there is a strongly defined negative connotation to this statement. According to the author, the implementation of trade liberalization policies in the region had increased the extent of wealth’s unequal distribution even further. Even though Robinson does admit that opening up Latin American markets attracted foreign investments, he nevertheless remains skeptical as to these investments’ ability to benefit regional economies, due to their speculative (short-term) nature: “Latin America experienced renewed growth and a net capital inflow of $80 billion between 1991 and 1994.

But the vast majority of the inflow of capital is not a consequence of direct foreign investment that could have helped expand the region’s productive base as much as from new loans” (47). Nevertheless, as the article’s context implies, it probably never occurred to the author that, the reason why trade liberalization in South America attracted mostly short-term investments, is that the governmental endorsement of state-protectionism, during previous decades, had drastically boosted up the inflation rates. Nevertheless, as Latin American economies began to recover from the illness of Socialism, due to trade liberalization, foreign investors started to become increasingly focused on reaching long-term objectives. This, however, does not seem to be of any concern to the author, as throughout the article’s entirety, he never ceases to expose the ‘evils’ of trade liberalization, within the context of how it impoverished the representatives of working-class: “Between 1980 and 1992, some 60 million new people joined the ranks of the poor…” (48), and how the measures, aimed at revitalizing the economy, are being generally ‘immoral’: “The neoliberal model (associated with trade liberalization) generates social conditions and political tensions – inequality, polarization, impoverishment, marginality” (60). We will dare to disagree – it is not the proper functioning market-economy, which produces marginality, but the lessened value of the human capital, affected by such an economy’s functioning.

In their article, where they discuss the significance of neoliberal reforms in Brazil, Kume, and Piani (2005) has adopted a rational approach to underlining the actual effects of the implementation of trade liberalization in this Latin American country. According to the authors, ever since the country had adopted Mercosur common external tariff (0%-2%) in 1994, within a matter of two years, Brazil’s annual GDP growth rate has reached 21.8%. In its turn, this prompted Kume and Piani to conclude that: “Brazilian government succeeded inadequately handling the protectionist pressures exerted through requests for trade defense in an environment of macroeconomic difficulties” (33). Even though that, years 1990-2000, the Brazilian government proceeded with the implementation of anti-dumping measures in a particularly careful manner, the adoption of these measures did help to revitalize the Brazilian economy rather spectacularly.

Nevertheless, it is namely the example of Argentina’s rapid recovery from an economic crisis of 1989-1990 (when the annual inflation rate was amounting to 96.5%), as the result of President Domingo Cavallo’s decision to proceed with the implementation of neoliberal economic reforms, which appears to be the most illustrative of trade liberalization’s sheer beneficence. According to Nogués and Baracat (2005), in 1991, the government introduced a new convertibility regime by tying the Argentinean peso to the U.S. dollar in a 1:1 ratio. This had immediately brought monetary value back to peso, which in its turn, had put an end to Argentinean hyperinflation and provided a powerful stimulus to the growth of the country’s economy – as the result of this measure, citizens had received an objective reason to be interested in earning pesos.

Cavallo’s next step was abandoning the policy of trade protectionism, which had ruined the country’s economy, during the ‘lost decade’: “Argentina negotiated with the United States and in 1991 signed a bilateral agreement by which Argentina would dismantle its export subsidies” (6). The figure of Argentinean trade flows, provided by Instituto Nacional de Estadisticas y Censos, allows readers to gain a visual insight into the sheer economic effectiveness of trade liberalization measures, undertaken by Cavallo’s government. Whereas; in 1992, Argentinean exports/imports amounted to only $12.000/$12.000 millions, by the year 1998, they amounted to $25.000/$30.000 millions, accordingly. Nevertheless, what Cavallo had failed to do, is liberalizing the country’s essentially Socialist labor laws, to eliminate the budget deficit. This eventually led to an acute misbalancing of the country’s budget, resulting in the economic crisis of 2001. Thus, Nogués and Baracat imply that Argentina’s economic crisis of 2001 has not been triggered by the implementation of Cavallo’s neoliberal reforms, as today’s neo-Marxian economists would like us to believe, but by the fact that these reforms were not radical enough.

Up to this point, we have been mainly focusing on the analysis of how relevant literature tackles the issue of trade liberalization’s effects in South America’s most economically powerful countries. Nevertheless, the soundness of Finger and Nogués’s opinion, in regards to these effects’ overall effect on the South American economy, can also be explored even on the scale of such countries as Costa-Rica, Uruguay, and Ecuador. The reading of Vos’s (2000) article comes in particularly handy, in this respect. According to the author, since the late eighties, one of the foremost aspects of the implementation of trade liberalization policies by the Ecuadorian government was its procedural inconsistency: “(In Ecuador) Responses to external shocks, IMF pressure and ever-returning populist tendencies determined switches between sub-periods of fiscal and monetary restraint and macroeconomic expansion” (9).

Nevertheless, through the years 1987-1999, Ecuadorian promoters of economic neoliberalism did succeed in convincing the government to pass the following free-trade legislations: elimination of gasoline and wheat price subsidies, a significant reduction of trade tariffs down to 0%-25%, and flexibilization of labor laws. As the result, within the matter of one year, the rate of the country’s GDP real growth was substantially increased. Another effect of trade liberalization on Ecuador’s economy author identifies the increased rates of unemployment. Yet, he does not discuss it as something necessarily negative. In full accordance with the provisions of the Endogenous growth model, Vos refers to increased unemployment and to what it is been triggered by from a dialectical rather than moralistic perspective: “The demand for wage labor has become more skill-intensive, giving rise to larger wage inequalities and income differentials between wages and self-employed incomes” (1). The author concludes his article by stating that the overall effects of trade liberalization on the Ecuadorian economy were largely positive.

The value of Ocampo’s (2004) article, within the context of conducting an analytical literature review, appears particularly high, because in it author provides readers with information about the effects of trade liberalization on Latin America’s economy, as a whole. According to the author, throughout 1990-1997, the weighted average of the region’s GDP growth accounted for 3.6% – a substantial improvement, as compared to what was the case with Latin America’s GDP growth during a ‘lost decade’ (1.1%). In its turn, this created preconditions for the qualitative improvement of the region’s macroeconomic functioning: “In particular, the new development strategy (trade liberalization) has been effective in generating export dynamism, attracting foreign direct investment and increasing productivity in leading firms and sectors” (68).

The fact that the implementation of neoliberal reforms in Latin America did not produce the whole spectrum of anticipated effects, which became particularly obvious through 1998-2002, when some Latin American countries, such as Bolivia and Venezuela, had returned to the Socialist model of development, Ocampo subtly attributes to the lessened value of region’s human resources as market good: “Productivity growth has been poor, particularly when measured as output per worker, largely as a result of a growing underutilization of the available labor force” (69). Thus, as the reading of this particular article indicates, the fact that, during the time of neoliberal reforms, the region’s rate of unemployment became substantially higher, had nothing to do with deliberately designed ‘unequal distribution of wealth’, but simply with the fact that, due to realities of Globalization, the value on unskilled labor in Latin America continues to decline exponentially: “The considerable increase in the wage gap between skilled and unskilled workers – and, particularly, between college-educated workers and others – has been another widespread phenomenon” (80). Therefore, even though Latin America’s trade liberalization has indeed been closely associated with ‘growing rates of poverty’ among citizens, it cannot be thought of as such poverty’s actual cause.

Discussion

The qualitative data, obtained during conducting the analytical review of literature, appears to confirm the validity of the paper’s initial hypothesis. In its turn, this indirectly substantiates the full conceptual legitimacy of the neoliberal view on the free-market economy as a self-regulating mechanism, which functions by objectively existing laws of economics. As Geva (2001) had put it: “Business is expected to do whatever is necessary to succeed and is not expected to be concerned with abstract morality. Business is a one-dimensional, purely profit-seeking enterprise. Profit is not just prioritized; it is elevated to the exclusion of all other interests” (585). The reason why Latin America state-sponsored economic protectionism, associated with the ‘lost decade’ (1980-1990) had proven itself utterly ineffective, is simple – protectionism is Socialism.

And, except Nazi Germany (due to a variety of economically unrelated reasons), there is no even a single instance in history that the functioning of a Socialist economy would have proven beneficial/effective, in the long-run. One does not have to hold a Ph.D. in economics to understand why – the term Socialism is synonymous with the notion of ‘distribution’; whereas, the term Capitalism is synonymous with the notion of ‘production’. For products and services to be distributed, they would have to be produced, in the first place. What it means is that, in the conceptual sense of this word, Capitalism is primary and Socialism is secondary. Allegorically speaking, Socialism is nothing but a blood-sucking parasite on the body of Capitalism. This is exactly the reason why Socialist principles of running an economy cannot possibly represent a conceptual foundation, upon which the economy’s functioning should be based. There is only one path towards ensuring citizens’ economic well-being – the continuous expansion of production. And, given the realities of globalization, trade liberalization is the only path towards ensuring production’s commercial sustainability.

Throughout the ‘lost decade’, most Latin American economies experienced an acute budget deficit, worsened by hyperinflation, which was not only negatively affecting the quality of citizens’ living but also resulting in the continuous decline of the region’s geopolitical influence. Therefore, it was only a matter of time, before responsible politicians in Latin American countries would realize that, unless the functioning of regional economies was adjusted to correspond to the notion of sanity, these countries would soon be facing the utterly realistic prospect of an economic collapse. This was the actual reason why, throughout the nineties, most Latin American countries had set themselves on the path of trade liberalization.

Nevertheless, as we had mentioned earlier, the results of Latin American trade liberalization can be the least referred to as thoroughly satisfactory, especially within the context of how they affected the region’s unemployment rates. Can it be regarded as proof of trade liberalization’s counter-productiveness? Most definitely not. On the contrary – the fact that the initial stages of neoliberal reforms’ implementation did cause millions of citizens to lose their jobs, should be seen as the foremost indication of these reforms’ effectiveness. The reason for this is simple – the growth of unemployment rates in the region, triggered by neoliberal reforms, had resulted in increasing the value of Latin America’s ‘human capital’, even though at the expense of forcing formerly employed citizens to apply extra effort into trying to improve the extent of their professional competence.

Given the fact that, throughout the second half of the twentieth century, governmental officials in most Latin American countries pursued implementing the policy of economic protectionism, it resulted in the value of the region’s human capital dropping. What made the situation even shoddier is the fact that, throughout this period, the governmental endorsement of economic protectionism had prompted the worsening of the region’s demographic realities, as existentially deficient individuals were nevertheless provided the opportunity to ‘make babies’, despite their lessened ability to utilize their intellect as a substitution for physical goods. Therefore, it is conceptually fallacious to think of the increased rates of regional poverty and unemployment as the immediate consequence of trade liberalization – the implementation of neoliberal reforms in Latin America had simply exposed the continent’s festering ulcers of Socialism. And, as physicians are being well aware of, if for example, it proves impossible to save a patient’s leg, due to the spread of gangrene, this leg simply ends up being cut off – it is so much better for the patient to have one leg missing but to remain alive, then to be dead, while having all of its extremities intact.

As it appears from Astorga’s (2010) article, had the introduction of trade liberalization measures in Latin America been spatially consistent (without Socialist relapses), today’s standards citizens’ of living would have been twice as high: “Our evidence indicates that, had the investment ratio in the LA (Latin America) been consistently 5.5% higher over the century… the higher investment ratio would have resulted in a more than two-fold increase in real income for the average Latin American by 2000” (239). And, it is specifically the implementation of economic policies that stimulate free trade, which results in attracting foreign investments more than anything else does.

Therefore, even though in the study’s Hypothesis, we have implied that some of the effects of Latin American trade liberalization (such as the rise of the unemployment rate) may be classified as ‘negative’, in the light of newly obtained qualitative data, such as our initial suggestion does not come out thoroughly legitimate, in the semiotic sense of this word. These effects can only be formally referred to as ‘negative’, but since they are being associated with the process of an economy gaining vitality, it makes so much sense to be referring to them as essentially positive.

Conclusions

The context of the earlier provided line of argumentation, in regards to the effects of trade liberalization In Latin America, allows us to formulate the paper’s foremost conclusions as follows:

1. 1. The implementation of neoliberal reforms in the region, throughout the the course of the nineties has been dialectically predetermined, as it significantly increased the extent of local economies’ competitiveness on a global scale. Therefore, the beneficence of these reforms should be thought of as a ‘thing in itself’, quite unrelated to the essence of public sentiment, regarding these reforms. The reason why Latin American trade liberalization had resulted in the revitalization of the continent’s economy is that it provided a powerful stimulus for the economy’s profit-driven sectors to thrive. Therefore, it is quite impossible to refer to Socialist relapses, which at the beginning of the 21^st century, had occurred in such Latin American countries as Brazil, Argentina, Bolivia, and Venezuela, as the consequence of neoliberal reforms’ failure, as Quandt (2010) implies: “The popular revolts against the neo-liberal disaster of the 1980s and 1990s have induced the Center-Left forces there to champion a more interventionist state devoted to social-democratic programs such as poverty reduction” (1). The ‘lost decade’ (1980-1990) had not taught anything the ‘champions of poverty reduction’, which is why they continue to persist in their irrational belief that Capitalism can be ‘improved’ by being transformed into Socialism while referring to such their belief as ‘neo-structuralism’.

2. 2. The reason why the effects of the implementation of trade liberalization policies in Latin America have proven not quite as a beneficiary as they could have been, is that, within the context of global economies growing increasingly interdepended (Globalization), and also within the context of Endogenous theory’s provisions, the value of region’s human resources is being assessed through essentially quantitative rather than qualitative lenses. This is why; the inflow of foreign investments, induced by liberalization, had predominantly short-term objectives. This is also the reason why, in most cases, the implementation of trade liberalization did not result in stimulating the growth of technology-intensive sectors of the region’s economy. Nevertheless, it does not mean that this will not happen in the future – after all, the value of the region’s human capital still appears significantly higher than the value of human capital in Africa, for example. All the advocates of neoliberalism had to do is continuing to implement reforms, meant to stimulate free trade, while relieving national economies of a burden of ‘human resources’ that do not represent physically substitutive value. Unfortunately, as recent socio-political and economic developments in the region indicate, Latin American progressive politicians simply lacked the strength of determination to bring the implementation of neoliberal reforms to its logical end by introducing new labor laws.

Recommendations

As we had implied earlier, even though the concept of trade liberalization cannot be referred to as particularly new, the realities of Globalization provide us with qualitatively new insight into the significance of the implementation of neoliberal reforms in Latin America. From today’s perspective, the main objective of these reforms appears to have been concerned with increasing the value of human capital in the region, even though that only a few Latin American politicians, known for their neoliberal attitudes, seem to be fully aware of what it means. The conceptual context of this suggestion helps us to come up with the list of recommendations, which can be outlined as follows:

1. 1. While formulating a theoretical framework for further implementation of neoliberal reforms in the region, policy-makers must pay particular attention to such reforms’ ability to increase the competitiveness of the economy’s technology-intensive sectors. In its turn, this will create objective preconditions for the region’s human capital to realize its full economic potential.

2. 2. Given the fact that the theoretical premise of a so-called ‘neo-structuralism’ appears to extrapolate its promoters’ Socialist agenda, it represents the matter of crucial matter for the advocates of trade liberalization in Latin America to never yield to the temptation of ‘ensuring fairness’ while implementing neoliberal reforms. It is important to understand that one of the reasons why these reforms were initiated, in the first place, is to eliminate artificially maintained ‘fairness’ in the field of labor relations, as it was undermining the effectiveness of economies’ functioning from within. For the levels of poverty to decrease, the governments of Latin American countries will have to increasingly invest in education, instead of investing in a variety of utterly ineffective but resource-burning social programs.

3. 3. The Globalization-inspired trade liberalization in Latin America should not only be seen as the instrument of allowing local economies to ‘catch up’ with the economies of Western countries, but also as the tool of taking competitive advantage of current dynamics on the world’s market. The validity of this statement can be explored in regards to how the functioning of the Brazilian trade-liberated economy was able to benefit from exponentially rising global demand for ethanol.⁵

4. 4. Despite the sheer necessity of neoliberal reforms, as the foremost mechanism of stimulating regional production and trade, practice shows that their introduction and implementation has been traditionally triggering social unrest. This is fully explainable – most citizens simply have a hard time while trying to understand the simple fact that their economic well-being derives from the economy’s overall well-being and not vice versa. Therefore, to ensure the effectiveness of these reforms, while reducing the probability for Socialist relapses to take place, as the consequence of people’s popular discontent, policy-makers must strive to implement them as speedily as possible. After all – it is so much more humane to cut off a dog’s tail with one stroke, as opposed to cutting it off on ‘one piece at the time’ principle while having the whole procedure stretched for years. Just as physicians often have to deal with patients’ lack of enthusiasm to undergo a medicinal treatment, the advocates of trade liberalization often have to deal with people’s economic egocentricity. This, however, should not discourage them, as neoliberal reforms are being fully consistent with the objectives laws of economics, and therefore, the consequences of these reforms cannot be counter-productive, by definition.

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Footnotes

1. Chin Chi-Ting & Lai Ching-Chong, “Physical Capital Taxation and Labor Income Taxation in an Endogenous Growth Model with New Generations.” Journal of Population Economics 22.1 (2009), 12.
2. Christopher Hoag, “The Atlantic Telegraph Cable and Capital Market Information Flows.” The Journal of Economic History 66.2 (2006), 348.
3. Huber Evelyne et al. “Politics and Inequality in Latin America and the Caribbean.” American Sociological Review 71.6 (2006), 11.
4. Richard Lynn & Tatu Vanhanen. IQ and the Wealth of Nations. (Westport: Greenwood Publishing Group, 2002), 63.
5. Tullo Vigevani, Marcelo Fernandes de Oliveira & Timothy Thompson “Brazilian Foreign Policy in the Cardoso Era: The Search for Autonomy through Integration.” Latin American Perspectives 34.5 (2007), 75.