Relacoes Internacionais e Desenvolvimento A. Pereira pri 5058 Lecture 5

Neoliberals raised the question of the optimal mix of state strength and scope

Low scope high strength	High scope high strength
Low scope low strength	High scope low strength

Mexican SOEs, 1930-1980

• 1930 12
• 1940 57
• 1950 158
• 1960 259
• 1970 491
• 1980 1,155
• Source: Williams (2001): 62.

The Mexican public sector, 1970-1983

• Public sector employees
• 1970 616,000
• 1976 2.1 million
• 1983 3.3 million
• Increase in public sector budget 1970-76: 116% (GDP increased 51%)
• Source: Centeno (1994): 82.

A justification for neoliberal reform

• Pedro Aspe, Finance Minister in Mexico in address to Congress in 1989:
• “The crisis has shown us that a larger State is not necessarily a more capable State; a State that owns more is not necessarily a State that is more just. The truth is, in Mexico, more State has meant less capacity to respond to the social needs of our fellow countrymen and, in the end, greater weakness of the State itself. All the time the activity of the public sector was increasing, attention to the problems of highest social priority was decreasing.”
• Source: Dominguez (1997): 132.

Problems with ISI

• Little state leverage over stagnant firms
• Dualistic labor market economies (privileged formal/state sector, deprived informal/private sector)
• SOEs often used for patronage
• High state debt – this often fuelled inflation
• “Rent-seeking”and predation

Who implemented neoliberal reforms?

• ?

Implementation

• Insulated, technocratic elites in the executive, working with IFIs (“technopols”)
• Lots of PhDs in Economics
• Tight international networks (the example of Foxley, Aspe, Cavallo – all studied together at MIT under Rudiger Dornbusch)
• Pedro Malan, Finance Minister of Brazil (1995-2003) had been at the World Bank