Why are neoliberal economic policies not the right solution to helping 3rd world countries develop?

Question

People have been promoting free trade and trade liberalisation for decades. Yet when countries in South America, such as Argentina, openly embraced globalisation and trade liberalisation, they were no better than before.

Answer 1

It seems to me that you are jumping to several conclusions, none of which seem justified:

1. You imply that globalization and trade liberalization constitute the neoliberal policies, and that

2. The neoliberal policies don't work.

All the evidence says otherwise:

http://en.wikipedia.org/wiki/Neoliberali...

There have been many critiques of neoliberal policies, but almost everyone agrees they work. Just about all the criticisms are about the costs, including social dislocations, etc.

As for what the policies entail, among the critical elements are:

* elimination of subsidies

* tax reform

* abolition of regulations that impede market entry or restrict competition

* rule of law, particularly with respect to property rights.

Most of underdeveloped countries, including your South American examples, do not adopt all of these elements.

The governments argue that doing so would cause a great deal of pain to the populace. The economists respond that you can't expect partial measures to work, and when they don't, you can't blame the prescription.

In practice, most underdeveloped countries have a small and powerful elite. Major change is not in their interest - even if they do not lose, the mere fact that others gain makes them relatively less well off. So, of course, they use their clout to hinder changes, particularly those they see as particularly dangerous.

In many underdeveloped countries, corruption is the norm. Even the World Bank has recognized that this is a fundamental obstacle to effective economic development:

http://web.worldbank.org/WBSITE/EXTERNAL...

Back in the 1960s, John Kenneth Galbraith was one of a series of  noted economists who argued that the primary factor in economic development was the culture of the people. He was looking at Europe both in history and in the aftermath of World War II but also at the Japanese "miracle".

Since then, we've seen it over and over again, in both successes and failures, as well as in the situations half way in between.

(The history of China in this regard is particularly interesting. Until 1978, under Mao, China was a command economy. Since then, starting under Deng, China has gradually liberalized sector after sector. Each phase has seen significant improvements in economic development over the previous. One of the first liberalizations was allowing farmers to have their own land, rather than requiring them to work on a commune. Another was raising the price at which the government would buy farm produce closer to the world price, giving farmers incentive to grow more.)

So ignoring the factors other than trade liberalization, particularly the social factors, is a critical lapse.

All this isn't to say that the neoliberal policies are always the best; that it is clear how to apply them in particular situations (Deng wanted to go gradually so as to avoid upsetting the powerful too much; in many places, that ended up delaying the hard changes indefinitely.), etc.

It is to say that if they aren't the right policies, it isn't because they don't work, but that you may not be willing or able to pay the price.