In this post, I will present the economic growth from 1951 to 2019 of selected economies of South America, East Asia, Australia, and New Zealand. Mexico will be included given its importance as a Latin American economy.
I will differentiate two periods, one ranges between 1951 and 1979, and the other ranges between 1980 and 2019.
Remember that before 1980 the prevailing paradigm was the import substitution, and from that date onwards, a set of pro-market reforms took place worldwide to encourage trade and privatizations of public assets (Megginson & Netter, 2000). All these reforms are included in what is known as neoliberalism (Harvey, 2005). That is why I will call the interval 1951-1979 import substitution period, and the interval 1980-2019 neoliberal period.
I will consider the following three variables; on one hand, the growth rates of employment, and productivity. On the other hand, the growth rate of GDP. Take into account that the latter equals the employment growth rate plus the growth rate of labor productivity (GDP/worker).
Neoliberalism in the selected economies
The neoliberal reforms varied in time and intensity among countries. By and large, in South America neoliberal policies were widely carried out since the military cope in Chile in 1973, however, in some countries, such as Colombia, neoliberalism appears after 1980 with some withdrawal of the State from the economy, and got traction from 1990 through an opening-up policy known as “apertura económica”.
In Australia, from 1983, governments of the left and of the right implemented neoliberal reforms (The Economist, 2011).
But in China, the market reforms took place at the end of 1978 and were not carried out traditionally, given that after the reforms the State still plays an active role in the economy, as it is explained in the post The Chinese model and the manufacturing of its development. A noteworthy distinguishable feature lies in the successful use China made of neoliberal policies around the world, drawing upon the external sector (Harvey, 2005).
In short, the mix of neoliberal policies varies from country to country and came about on different dates. However, we may consider that from 1980 it was in the government agendas of the selected countries and was being implemented onwards. Therefore, the split of time analyzed into two periods, 1951-1979 and 1980-2019, is justified to analyze the performance of GDP during import substitution and neoliberal periods.
General traits after the neoliberal takeover
In accord with the data disposable in the Penn World Table (Feenstra, Inklaar, and Timmer, 2015), before the implementation of neoliberal policies, the economies delivered higher growth rates on average.
Between 1951 and 1979, the East Asian countries grew over 8%, except for China, and on the other hand, many Latin American countries grew over 4%. However, after neoliberalism, the economies slowed down, the East Asian countries could not grow over 8% and significantly fewer Latin American countries could grow over 4%.
By and large, labor productivity also dropped. To illustrate the decline, during the import substitution period, while Brazil was the Latin American country with the highest productivity growth with 3.9%, in the neoliberal period, Argentina held the highest productivity growth of all South America with 3.7% and some South American economies delivered productivity growth close and below zero.
Another remarkable feature is that in the time of import substitution, on average, the labor engagement grew faster than during the neoliberal period.
To sum up, throughout the import substitution period, the economies used to grow relatively faster along with faster productivity growth and engagement of workers. In other words, investments boosted employment and productivity growth, thus, the countries underwent a rapid economic expansion.
Tables 1. Average Growth rates (1951-1979)
Tables 2. Average Growth rates (1980-2019)
Some countries performed better than others
The East Asian countries have expanded at a pace of over 6%, they have been rapid-growth economies in the course of the time analyzed, with the exception of Japan which skyrocketed on average only in the import substitution period (8.2%), and China that boosted its economy in the neoliberal period (6.5%).
After the liberal reforms, these Asian countries slow down, although they continue to be rapid-growth economies compared to the rest, based on productivity instead of labor engagement. That is to say, it was an intensive economic growth because employment growth rates were positive, but did not increase as fast as productivity.
On the contrary, in the import substitution period, on average, only Mexico and Brazil expanded their economies by over 6%, followed by Ecuador with 5.9% among the South American countries. Most of these economies delivered an economic growth of over 4% and their productivity used to grow faster than the growth of employment.
A big change came about in the neoliberal period. Mexico and Brazil slowed dramatically their pace and were the most affected. No South American country grew over 6% on average. For most of them, the employment growth rate fell, but productivity growth fell deeper, therefore, the economy expanded based on employment instead of productivity.
Table 3. Gains in neoliberalism in comparison with Import-substitution strategy
China was the main winner of the opening-up policy. Its economy took advantage of trade and expanded faster along with increasing productivity. Argentina and Bolivia also improved their economic and productivity growth rates in the neoliberal period; these two economies traditionally increased their pace with labor productivity growing faster than the growth of labor engagement.
In respect to Australia and New Zealand, while the former reduced its average economic growth, employment and productivity, the latter delivered a little improvement in economic growth and productivity. Australia grew based on employment in both periods.
A caveat should be made on the Venezuelan and Bolivian cases. In these countries, what we have called the neoliberal period covers the time of the Bolivarian Revolution in Venezuela and the time when Evo Morales ruled the Bolivian government. Both periods were characterized by a nationalistic agenda carried out against neoliberal recipes.
In some countries such as Argentina and Ecuador, in the neoliberal period, the government has been alternated between leftist and rightist, keeping back neoliberal measures in certain moments.
The above justify why it is not proper to point out neoliberalism as a cause of each downturn in the economic performance of each country. What we have here is a global trend in a neoliberal global context and each case should be studied particularly.
Feenstra, Robert C., Robert Inklaar and Marcel P. Timmer (2015), «The Next Generation of the Penn World Table» American Economic Review, 105(10), 3150-3182
Harvey, David. (2005). A Brief History of Neoliberalism. Oxford University Press. P.247
The Economist. The Next Golden State. A 16-page special report on Australia. May 28th, 2011.