Lecture 21 Structuralism vs Neoliberalism

DraftInternational Political Economy #21

Structuralism vs. Neoliberalism

William Kindred Winecoff

Indiana University Bloomington

November 14, 2013

W. K. Winecoff | IPE #21: Structuralism vs. Neoliberalism 1/15

DraftFraming Structuralism vs. Neoliberalism

Neoliberalism advocates specializing in your comparative advantage; thisis most efficient, from global perspective.

But if your comparative advantage is low-skill manufacturing oragriculture, this means you’re locking yourself into less-desirable jobs.

A paradox: how to develop when the most efficient kind of productionyou can do keeps you from developing in the sectors you want?

In a politics-free world (e.g. economics), these problems will fixthemselves over long time horizons.

But in the real world, politics often intervenes because short-termconsiderations matter as well.


DraftThe Debate Through History

Three clear historical periods:

1 1870s-1920s: Liberal market-based interdependence, withcolonialization and fixed exchange rates (via gold standard).

2 1930s-1980s: Structuralist state-regulated insulation,decolonialization.

3 1980s-present (?): Neoliberal market-based interdependence,floating exchange rates.

What is driving these transitions?

Will we see another shift as a result of the global financial crisis?


DraftThe First Age of Globalization, 1870s-1920s

A characteristic of European imperialism: need colonies to extractresources and create new markets to absorb production.

The trading system is characterized by imperial preference: coloniescould only trade with the metropole.

The “Gap” economies:

Were open (to the metropole at least) and market-based.Specialized in production and export of primary commodities(agriculture, minerals, etc.).Acquired manufactured goods from metropole.

Political foundations:

Globally: British hegemony.Locally: Colonial powers in Africa and Asia, land- andcapital-owners in Americas.


Draft1870s-1920s, con.

This system was fundamentally exploitative, in that colonialdevelopment was not encouraged by metropole. Only extraction.

Any good things?

Some human capital development.Some technology transfers.Some useful governance structures, esp in British colonies.

In general, however, probably impossible to develop while beingcolonized.


DraftDestruction of the Old Order, 1914-1930

European powers weakened by WWI; political foundations of colonialismcrack.

Collapse of global economy (Great Depression):

Made it difficult for Gap to export commodities (globaldemand slows), while tariffs rise.No funds to import manufactures; no supply of credit toborrow.Shock in the Core gets exported to the Gap.

Consequence: Emergence of local manufacturing sectors, particularly inthe Americas.


DraftThe Rise of Structuralism, 1930s-1980s

Gap decides to insulate itself from Core:

Sheltered, state-regulated economies.State tries to spur domestic manufacturing rather thancommodity exportation; uses protectionist means.Tries to transform structure of the global capitalist system tobe suit their interests.


Locally: scarce factors (urban workers and capital owners),often at expense of agriculture.Globally: Group of 77 + UNCTAD.


DraftIntellectual Support for Structuralism

Dependency theory: structure of capitalist trading system makes Gapdependent on core; can never develop under condition of dependence.

“Neo-colonialism”

The GATT and other trade rules are biased againstdevelopment in the Gap.Multinational corporations based in the Core extract surplusfrom the Gap and redistribute it to the Core.

Conclusion: development requires:

1 Insulation from global trade system;2 Transformation of the local economy;3 Transformation of global trade system via new bargaining

power.


DraftStructuralist Theory of Dependence

Specialization in comparative advantage + trade hurts the Gap, because:

Trade Gap’s primary goods for Core’s manufactures.Core technology increases faster than Gap technology.I.e., Gap “terms of trade” decline over time: importingmanufactures becomes relatively more costly.

If terms of trade decline, catch-up growth is impossible.

If catch-up growth is impossible, development will be slow.


DraftEfforts to Transform the System

UNCTAD (1964):

Encourage governments to examine trade in broader context.Promote policies important to G77, e.g. commodity pricestabilization and preferential market access.

New International Economic Order (1974-1980s):

Commodity price management + more technology transfers.Debt relief + more foreign aid.More LDC influence in IMF and World Bank.Legal right to expropriate MNC assets.

More generally: Create int’l state-like authority to restrict markets andredistribute income and resources from Core to Gap.

The OPEC oil embargo.NIEO tries to manipulate commodity power to extract majorconcessions from Core.


DraftThe Effort Fails

Tough to change the hegemon’s order while the hegemon is still there.

Oil shocks help OPEC but hurt other LDCs, who are forced toborrow from OPEC (via U.S. banks): “petrodollar recycling”.Debt accumulates faster than capacity to repay. Series ofL.A. debt crises beginning with Mexico in 1982.Deeply indebted Gap governments turn to Core for help:

Core uses its financial power to demand massive economicreforms in Gap countries.These reforms dismantle state-regulated economies andinstitute more market-based system.Neoliberalism: structural reform a.k.a. “WashingtonConsensus”.


DraftThe Rise of Neoliberalism

Focused on integration into, not insulation from, global economy.

Open, market-based economies.Produce comparative advantage; import other goods.Use the proceeds to invest in market-friendly ways.


Locally: Governments must get support from abundantfactors of production. This is, increasingly, urban labor.Globally: International coalition of developing countries formGroup of 20 to lobby within the WTO.

Neoliberalism given intellectual support by rise of Asian NICs, whichdemonstrated that development is possible through integration intoglobal trading system.


DraftThe Washington Consensus

1 Fiscal discipline, i.e. low (or no) deficits.

2 Public spending should be on infrastructure and education, not subsidies.

3 Tax reform, esp. lower taxes on business and investment.

4 Let markets determine interest rates.

5 Maintain a competitive exchange rate.

6 Liberalize trade, particularly imports.

7 Liberalize foreign direct investment.

8 Privatize state-owned enterprises.

9 Deregulate most industries.

10 Legal protections for property rights (i.e. no expropriation).


DraftThe Washington Consensus, con.

These principles were advanced by U.S. Treasury Dept., IMF, and WorldBank beginning in the mid-1980s.

Finance from U.S., IMF, and World Bank was made “conditional” onadopting these reforms.

Therefore, often very unpopular with recipient countries. Rent-seekerslost their rents, populace lost price controls and other welfare supports.

Many saw this as a new form of imperialism, and – because ofconditionality – a challenge to sovereignty of developing countries.


DraftSummary

Developing countries have evolved from interdependent to insulated tointerdependent, and from markets to states to markets.

Each shift has resulted from a massive economic shock.

Each shift is political and contentious: institutions and politicalcoalitions form in response to each change.


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Lecture 21 Structuralism vs Neoliberalism