Privatization As A Developing Concept
At the onset of perestroika, the Soviet Union was set to enter a new era of economic growth and opportunity. As we all know, that never happened. In Latin America, privatization has led to growth, but not in any way that has positively impacted the majority of its citizens. Knee-jerkers typically move to blame capitalism as a means of distributing wealth within a society. The private, entrepreneurial economy has led to the society we have in America today. Any contrary argument finds little basis. The issue is not as simple as: “Is capitalism (or neoliberalism) good?” or “Is capitalism (or neoliberalism) bad?”
I think there are more nuances that need to be investigated before making these assertions. In the former Soviet Union and in Latin America, I find two common themes which discouraged the dispersion of wealth in the process of privatization. The problem is monopoly. The industries that were being privatized were huge and had achieved economies of scale. When that is the case, the local population cannot compete with them. Also, as foreign investors begin to own large stocks in these firms, the money leaves the country once profits are made. For this post, I will focus more on the former problem than the latter.
Competition is CRUCIAL to healthy capitalism. While competition can lead to several vices that need to be checked, you need competition for healthy capitalism. People, erringly, tend to take one side or the other on the issue of competition being good or bad. Really, its both. A government restraining the vices of competition, while not eliminating it and even fostering it, is the ideal. When no competition is present, there is not accountability to the people. Now, I’m not trying to make these businessmen into saints by saying they are accountable to the people. They are accountable for selfish reasons. In privatization efforts, I see two steps that need to be present for a healthy transition. 1) The government should not simply sell a whole industry. Rather, it should break the industry into parts and sell the parts individually and if possible, even break a single part of the industry into two companies. This will allow for a greater dispersion of wealth and more competition. 2) A fair amount of isolationism needs to be put in place. A time-specified protective tariff should be established. This will allow the new local industry to build up. For those of you against the tariff, I argue that our country would have never made it without one. We were absolutely afraid of becoming dependent on Great Britain the way Latin America is dependent on us. Also, the government needs to keep out foreign ownership. When local citizens own the companies, it empowers them, makes them more accountable to the people, encourages more meaningful infrastructure buildup, injects more consumption spending into other local firms, and creates a larger tax base for things like education, less bribe-prone law enforcement, healthcare, and infrastructure.
Are these solutions problem-free? Mmmmnope. But, I do feel that they would make a difference.
“The issue is not as simple as: ‘Is capitalism (or neoliberalism) good?’ or ‘Is capitalism (or neoliberalism) bad?’”
No, it’s not as simple as that, but it is crucial in determining the best type of economy for a given country.
Is neo-liberalism bad for Latin America? Absolutely, especially when tailored to favor big multi-national corporations located outside the country its investing capital. You see, what happens then is a series of unnatural monopolies that gain full market power by vertically integrating into a country, importing cheap labor, employing little of the local work force — and those it does employs it pays the bare market minimum because price regulation has been cut — and extracting all the country’s capital, leaving the country economically raped, as was the case for Latin American in the 1960, 70s, and 80s.
What should happen? The only foreseeable solution for Latin America is to merge into one large trading bloc; primitive trading bloc movements were popular prior to the neo-liberal reform era. The countries must then protect domestic production by strategic tariffs and government subsidies, thus allowing the companies to achieve economies of scale. Once they have done that, and the countries, as a whole, sustain stable economic growth they can open up to the “free market” at a competitive rate. This is essentially what the four “Asian Tigers” did post-WW II.
What doesn’t need to happen anymore is IMF structural adjustments. No more privatization at capricious and unhealthy rates. The countries of Latin America are going to have to unite to build some sort of trading surplus and international economic buying power. However, this isn’t likely. The countries of Latin America are constantly stricken by political turmoil and radical populist, like Hugo Chavez. Without any political stability, healthy economic development is unlikely to occur.
S.C. Denney
26 Mar 08 at 1:09 am
I’m pretty sure you didn’t read my post. I’m essentially going back in time before the IMF, the World Bank, and co came in and suggesting what could have happened better.
Two of the things you mention that I specifically addressed were breaking up monopolies and keeping foreign investment out.
Read my post again, and then comment.
Chris McNeal
26 Mar 08 at 8:06 am
Paragraph 1: A response to why neo-liberalism is bad. You said it isn’t as simple as that. I said its vital to examine, thereby saying that it is pretty simple answer. You see, here I am disagreeing you you.
Paragraph 2: Trading bloc with aspects that were similar to what you suggested. Sorry I didn’t quote you. You see, here I am agreeing with you.
Paragraph 3: Oh, yeah, further agreement! However, I make a qualification as to why none of this is politically possible.
Why do I have to break this down?
“I’m essentially going back in time before the IMF, the World Bank, and co came in and suggesting what could have happened better.”
Sorry Chris, I must separate reality from the purely hypothetical. The IMF and World Bank did come in, and that’s the way I started my response to your post that I read, whether you think I read it or not.
S.C. Denney
26 Mar 08 at 8:25 am
I don’t think it is fair to dismiss the condemnation of capitalistic exploitation in the developing world as “knee-jerk.” Capitalistic and neoliberal reforms have wreaked havoc on so many developing nations, it will be a miracle if they ever recover.
I guess I am still unsure as to what your advocacy here is. It sounds like a lot of catch phrases like “accountability” and “empowerment,” but what do these things mean in real life?
David M. Manes
26 Mar 08 at 8:56 am
“I guess I am still unsure as to what your advocacy here is. It sounds like a lot of catch phrases like “accountability” and “empowerment,” but what do these things mean in real life?”
I had an idea:
“The only foreseeable solution for Latin America is to merge into one large trading bloc, primitive trading bloc movements were popular prior to the neo-liberal reform era. The countries must then protect domestic production by strategic tariffs and government subsidies, thus allowing the companies to achieve economies of scale. Once they have done that, and the countries, as a whole, sustain stable economic growth they can open up to the “free market” at a competitive rate. This is essentially what the four “Asian Tigers” did post-WW II.”
But aparently I didn’t read the post.
S.C. Denney
26 Mar 08 at 9:49 am
“I guess I am still unsure as to what your advocacy here is. It sounds like a lot of catch phrases like “accountability” and “empowerment,” but what do these things mean in real life?”
I had an idea:
But aparently I didn’t read the post.
S.C. Denney
26 Mar 08 at 9:50 am
The whole point of the post was to talk about how how privatization failed because of monopoly and how the privatization process could have been more successful had the government broken up the industries into smaller parts. The fact that so much of the economies of Latin America were controlled by so few left little reason for the elite to care about their impact on their respective countries.
Let me define what I mean by accountability and empowerment.
Accountability in this post is: The responsibility that people or businesses have towards the welfare of the communities they reside in and affect.
I use it to say that companies in a monopolistic or oligopolistic position have no incentive to do things that help their communities or make sure that their activities are not damaging to their communities.
Empowerment refers to citizens’ ability to direct their own lives. If all the resources of a country are own by a small number of people, then you, as a non capital owner, have no choice but to do what those with capital allow you to do. You cannot improve your standing within society. You cannot be an entrepreneur. Your economic standing is completely and totally determined by those in power. Thus, we people have the ability to own and work for their own businesses, ones that they have the ability to shape the overall direction of, they are empowered. It fosters ingenuity, transparency, community solidarity, and individual responsibility.
Chris McNeal
26 Mar 08 at 1:58 pm
And btw I could have said what I said earlier a little better. I probably did not come off clearly what I was trying to say in this post and that’s why I felt your comments weren’t in line with what I was talking about. I certainly was not wanting to insult your intelligence.
Chris McNeal
26 Mar 08 at 2:34 pm
Had the governments been able privatized the massive public utility companies to local entrepreneurs and businessmen and protected their countries from foreign direct invents and MNC buy-outs, then, perhaps, the countries of Latin America could have experienced economic growth, instead of economic malaise. However, I don’t think it was economically possible to hand over such a large sum of capital to local people. The turn to neo-liberal policies was in response to decades of Import Substitution Industrialization (ISI). The privitization of Latin American busineses was doomed to foreign companies.
Here’s why:
ISI theory states that developing countries need to create forward linkages domestically, and can only succeed by creating the industries that used the primary products already being produced by these countries. The tariffs were designed to allow domestic infant industries to prosper. A country should attempt to substitute products which it imports (mostly finished goods) with locally produced substitutes. Once economic sustainability is reached, the country must begin to industrialize, in order to maintain a steady growth.
The countries in Latin America were unable to make leeway into the industrial and manufacturing transition. Old neo-colonial governments were replaced by more or less democratic governments. Banks and utilities and certain foreign-owned companies were nationalized or transferred ownership to local businesspeople. The countries economies became stagnate. This is where they should have integrated to form a formidable Latin America Trading Bloc. But what happened instead was massive privatization, beyond what any local businessman could handle, to huge MNCs, a destruction of trade barriers, and a severe cut in social security. All of this was suppose to foster enormous economic growth. Obviously, it didn’t.
So, is it as simple as saying neo-liberalism is bad for Latin America? Yes, it is awful. Where does one go from there? Well, that’s what I tried to answer with my trading bloc solution.
S.C. Denney
26 Mar 08 at 2:51 pm
Well, let’s forget our childish quibbles then. ;)
S.C. Denney
26 Mar 08 at 2:52 pm
And I’m saying that had the industries been more diffused and had the business been forced to compete with each other I absolutely believe they could have grown to compete with American businesses. The reason ISI didn’t work was that the local industry was monopolized. They had no incentive to grow.
Chris McNeal
26 Mar 08 at 3:54 pm
I think to say “absolutely” is a bit brash.
A key factor being left out is the fact that since business was stagnate there was no economic growth. Inflation and unemployment rose. The governments of South America required multi-million dollar loans to stimulate the economy: enter IMF/SAPs.
The IMF wasn’t going to hand out massive loans without strings attached: enter Milton Friedman,the “Chicago Boys,” and neo-liberal policies. The result of the adjustment programs were the “lost decade,” General Pinochet, the Argentine Junta, mass executions, and overall neo-liberal disaster (see review of the Shock Doctrine).
S.C. Denney
26 Mar 08 at 5:42 pm
I find it interesting that no one challenged your use of the word neoliberalism as capitalism.
They are not the same thing.
The IMF, World Bank, and mixed bureaucratic economies are not capitalism.
Countries like China, South America, ect, are only using capitalism and the word “privatize” because it works. It is a tool. It is most efficient. The state is not efficient. That’s why state “privatization” is bad in the long run.
And think about what the problem is in SAmerica and The S.Union. The people will tell you its corruption! Official state corruption! Isn’t that just typical. The money goes to the powerful and not to the people. Well Duh!
Just think of George Bush and his idea for Social Security Privatization. Anyone with some justice scales and a checkbook knows that was a deliberate misuse of the word. It sounds good, but it was a lie through and through.
I mean really, it’s like calling Clinton a liberal. Or Bush a conservative.
Language is powerful and when it is misused we end with these type of very conflicting uses.
We can bash neoliberalism all day. But don’t confuse it with capitalism.
Jesse
2 Apr 08 at 1:50 pm
I guess I am being a bit presumptive.
Maybe a complete definition of neoliberalism would best to start with.
My interpretation that I ranted on about above is neoliberalism as it is sold to the people.
But after reading your post again. I am seeing your point more as what an ideal neoliberalism would, in part, consist of. In that sense you were using the term capitalism just fine.
My underlying point still remains of course. That a definitive concept needs to have the correct application as a tool and language.
(Hence the reason for my attempt to correct myself)
Jesse
2 Apr 08 at 2:06 pm
My friend, neo-liberalism is capitalism at its purest.
Neo-liberalism “is a political movement that espouses economic liberalism.”
Economic Liberalism is the core concept found in the doctrine of Adam Smith and the foundation of free-market, laissez faire economics.
It’s been most recently used in Naomi Klein’s book The Shock Doctrine: The Rise of Disaster Capitalism.
You are rare indeed to call neo-liberalism not capitalism, in whatever form.
The massive inequality in South America is due in part (or many say in whole) to the radical neo-liberal, anti-protectionist measure taken in the 70s and 80s.
It isn’t a “perfect” representation… no, not by far (but what in Political Science is a perfect representation?).
S.C. Denney
2 Apr 08 at 2:10 pm
if you see neoliberalism as pure laissez-faire, then that is fine with me.
do you think there is a difference between neoliberalism and classical liberalism?
i prefer to think that neoliberalism practices capitalism. but neoliberalism itself is much more complex and has its distinguishing characteristics.
i may practice being capitalist, but im am not a neoliberal.
i am more antiestablishment libertarian
it really depends on how you practice a phliosphy.
for example:
“The government should not simply sell a whole industry. Rather, it should break the industry into parts and sell the parts individually and if possible, even break a single part of the industry into two companies. This will allow for a greater dispersion of wealth and more competition.”
what government? organized how? how did the government come to own the industry? in what way are they going to decide what is best?
i think that neoliberalism is too often associated with the state. (Rockwell: “the free market is not a public policy option: it is the elimination of public policy itself.”)
but of course, it is a step, allegedly, in the right direction.
and i am keeping an eye on it.
Jesse
2 Apr 08 at 6:22 pm
“i prefer to think that neoliberalism practices capitalism. but neoliberalism itself is much more complex and has its distinguishing characteristics.”
Da.
“i may practice being capitalist, but im am not a neoliberal.”
Ditto.
S.C. Denney
2 Apr 08 at 6:37 pm