The Annals of the American Academy of Political and Social Science
Volume 606, July 2006
Edited by: Douglas S. Massey, Magaly Sanchez R. and Jere R. Behrman

AN INTRODUCTION
The recent presidential election in Mexico leaves another Latin American nation teetering on the edge of a leftward swing. Although the center-right candidate presently clings to a slim lead, the populist mobilization against markets, trade, and globalization has become a familiar story in the region. Left-leaning governments have now come to power in Argentina, Bolivia, Brazil, Chile, Peru, and Venezuela. Although countries such as Bolivia and Peru never housed strong economies, nations such as Argentina, Brazil, and Chile in the 1990s were showcases for the Washington Consensus, a package of economic policies developed by financial leaders in the District of Columbia and applied throughout Latin America by officials of the IMF and World Bank.

In their heyday during the 1990s, these economic policies—grounded in a neo-liberal ideology that emphasized free trade, capital mobility, privatization, deregulation, balanced budgets, and fiscal discipline—were expected to yield rapid economic growth that would raise living standards and move Latin America into the ranks of the developed world. For a time it seemed to work. By the turn of the century, however, economic meltdowns had become commonplace throughout the region and rising disenchantment with the Washington Consensus led to populist mobilizations in country after country, usually with a decidedly anti-American flavor. What happened?

The Washington Consensus application in Latin America offers a cautionary tale about the perils of applying top-down, one-size-fits-all economic models grounded in ideology to a complicated region with a diversity of histories, traditions, cultures, and institutional configurations. Chronicle of a Myth Foretold describes the serious defects inherent in the Washington Consensus, outlines the problems created by its blind application in Latin America, and suggests institutional reforms to generate more balanced and sustainable economic growth in the region.

As explained by Massey, Sanchez, and Behrman in their Introduction, markets are not states of nature that arise when government gets out of the way. Rather, markets are human creations and governments play an essential role in their construction, evolution, and maintenance. Markets inevitably rest on an underlying social infrastructure of institutions—social organizations, cultural conventions, social understandings, and normative practices—that differ from country to country. Because institutional contexts vary widely between countries, there is no single path to the market and no one “correct” configuration for an effective market to emerge. Capitalism has many institutional architectures and attempting to create markets through the rote application of formulaic policies is unlikely to succeed, as the experience of Latin America clearly demonstrates.

Cohen and Centeno show that political economies are always characterized by considerable inertia and that trying to transform them without an appreciation of the institutional opportunities and constraints achieves little in the way of real economic reform. Despite the spread of neo-liberal policies throughout Latin America, government spending was not reduced, social spending was not lowered, redistributive transfers were not curtailed, and after a short burst, privatization ground to a halt. Although international trade did expand markedly and inflation fell, economic growth slowed, poverty rose, and inequality increased.

González de la Rocha’s ethnographic work in urban Mexico shows how the shift to neo-liberal policies affected the lives of the working poor. Whereas poor families in the past survived by cultivating social connections to others and diversifying economic activities within the household, the shift to neo-liberalism reduced the supply of jobs and lowered real wages. Networks became less valuable because people within them had fewer resources to share, and the diversification of economic activity had its limits. Even with all available members in the labor force, households increasingly were unable to make ends meet. Households adapted by consolidating to save expenses, by sending migrants to the United States for work, and all too often simply by doing without.

The poster child for the Washington Consensus in the 1990s was Chile, and in this nation neo-liberal policies were in fact quite successful in promoting balanced economic growth, though as in other nations it came at the cost of greater inequality. Even in Chile, however, neo-liberal policies were tailored to local institutional realities. (The nation’s leading source of foreign exchange, copper mining, was never privatized, for example, but used to finance state initiatives in direct violation of neo-liberal precepts). In addition, history had bequeathed Chile an institutional infrastructure remarkably conducive to capitalist development, including an efficient and uncorrupted bureaucracy, a long-standing tradition of democratic rule, an efficient and impartial legal system that guaranteed property rights and enforced contracts, and a large, urban middle class. Under these circumstances, laissez faire policies indeed led to the expansion of markets and sustained economic growth.

Peru, however, lacked virtually all of these institutional precursors for market development, and the same laissez faire policies yielded very different outcomes when applied there. Plaza and Stromquist describe how Peru lacked the basic institutional foundations to take advantage of the shift toward market mechanisms in both the rural and urban sectors, leading to deindustrialization and “reprimarization” that was accompanied by falling wages, rising unemployment, declining production, and a shift toward subsistence.

Another consequence of structural adjustment in Peru was documented by Massey and Capoferro—an upsurge in international migration, as households sought to diversify their sources of income by sending members to work in various countries abroad, thus hedging against risks to income from falling wages and rising unemployment. In doing so, migrants drew upon social networks to get them to any possible foreign destination rather than moving more strategically to specific destinations so as to maximize earnings.

In their analysis of subjective well-being among Peruvians, Graham and Pettinato uncover the roots of the populist mobilization that has been sweeping through Latin America since the turn of the century. Their careful analysis of survey data shows that happiness and discontent are connected more powerfully to relative economic status than to people’s absolute well-being. Even when incomes rise and material conditions improve, therefore, discontent can grow and fester if inequality is also rising, because people subjectively perceive themselves to be worse off than before. In Peru and elsewhere, these “frustrated achievers” become a ready audience for populist appeals.

These findings are echoed by Janice Perlman’s fieldwork in poor favelas of Rio de Janeiro. Although the children of slum dwellers she originally interviewed 35 years ago enjoy more education and better housing than their parents, in many ways they are more marginalized than before. In the wake of structural adjustment, education no longer guarantees a decent job, and the concomitant rise of crime, drugs, and violence in poor neighborhoods has caused an exodus of mainstream actors and institutions. The concentration of poverty and violence within favelas has further stigmatized residents and led to harsher exclusionary practices, leaving inhabitants more isolated than before.

Magaly Sanchez underscores the critical role played by crime and violence in the neo-liberal political economy. The imposition of economic hardship on the masses from above, she argues, was a form of state violence that produced a counter-reaction of violence from below. In Venezuela, a shrinking formal economy was accompanied by growth in drug dealing and kidnapping, which came to form a key part of an expanding informal economy. The spread of gang warfare, contract killings, and protection rackets led to a spiral of violence evidenced in rising rates of homicide, robbery, kidnapping, and carjacking. Rising crime and perceptions of public danger have given rise to security services as a growth industry for the affluent and emigration as an option for the poor.

Given this decidedly mixed record of achievement what is to be done? Paolo Paiva’s analysis of policies enacted by Brazil’s new socialist president suggest that whatever one thinks about it, the Washington Consensus has created a new reality in Latin America. A return to the status quo ante is neither realistic nor desirable. In Brazil as elsewhere, political leaders had to work within the existing political context to devise institutional solutions to address the social needs of the masses while maintaining the incentives necessary to keep markets healthy and growing. To accomplish this, the new Brazilian president created corporatist organizations to consult with civil society and give people a greater voice in managing the political economy, but change was slow and the jury remains out on what his reforms will ultimately accomplish.

Pedro Jacobi’s study of Sao Paulo shows how non-governmental organizations can play a key role in bridging the gap between the state and civil society, fostering stronger connections between local actors and building social capital to improve conditions within neighborhoods. He shows how such public-private partnerships have been successful in improving health, housing, sanitation, and water quality in Sao Paolo’s neighborhoods while fostering social inclusion, digital literacy, and new sources of income through the exploitation and marketing of urban culture.

Carlos Blanco argues that the dynamic market society envisioned by neoliberals will not be created by dismantling the state, but by reforming it. The state plays a vital role in not only creating and maintaining markets but also in promoting civil society to ensure that markets are sustainable politically as well as materially. Specific reforms necessary in Latin America include building a stable party system, decentralizing government, creating a civil service based on merit rather than clientelism, making the judiciary fair and transparent, creating new institutions to promote citizen participation, and modernizing the armed forces.

The specific actions required of government to create and maintain sustainable markets will differ from country to country, depending on local historical conditions and institutional legacies. Behrman and Skoufias argue that whatever programs are adopted, however, should be considered social and economic experiments whose efficacy must not be taken for granted, but valuated and confirmed through scientific research. They review the experience of PROGRESA/ OPORTUNIDADES, a large anti-poverty program in Mexico that had a quasi-experimental evaluation built into its design and implementation from the beginning. The data generated through this evaluation enabled officials to curtail programs that were not working, expand those that showed promise, and to quantify cost-benefit ratios. In addition, the existence of objective, believable data on the program’s performance permitted it to survive a transition of presidential administrations, something heretofore rare in Mexico. They offer the evaluation methodology of PROGRESA as a model for officials in other nations seeking to ameliorate poverty to promote more sustainable market societies.

In the end, the experience of the Washington Consensus in Latin America reveals that sustainable economic growth and lower rates of poverty will not be achieved using simple formulas applied in universal fashion to all countries. Markets are social constructions and rest on an institutional infrastructure that must be created from the social, cultural, and organizational materials at hand. The specific set of policies to promote a well-functioning market society will therefore differ from nation to nation, and the paths to economic growth will be multiple. Whatever path to the market is chosen should not be regarded as preordained, to be taken on faith, but subject to critical evaluation so as to enable modification and innovation in the course of development.

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