Lecture 21 Structuralism Vs Neoliberalism

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International Political Economy #21
Structuralism vs. Neoliberalism
William Kindred Wineco
Indiana University Bloomington
November 14, 2013
W. K. Wineco | IPE #21: Structuralism vs. Neoliberalism 1/15
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Framing Structuralism vs. Neoliberalism
Neoliberalism advocates specializing in your comparative advantage; this
is most ecient, from global perspective.
But if your comparative advantage is low-skill manufacturing or
agriculture, this means youre locking yourself into less-desirable jobs.
A paradox: how to develop when the most ecient kind of production
you can do keeps you from developing in the sectors you want?
In a politics-free world (e.g. economics), these problems will x
themselves over long time horizons.
But in the real world, politics often intervenes because short-term
considerations matter as well.
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The Debate Through History
Three clear historical periods:
1 1870s-1920s: Liberal market-based interdependence, with
colonialization and xed exchange rates (via gold standard).
2 1930s-1980s: Structuralist state-regulated insulation,
decolonialization.
3 1980s-present (?): Neoliberal market-based interdependence,
oating exchange rates.
What is driving these transitions?
Will we see another shift as a result of the global nancial crisis?
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The First Age of Globalization, 1870s-1920s
A characteristic of European imperialism: need colonies to extract
resources and create new markets to absorb production.
The trading system is characterized by imperial preference: colonies
could only trade with the metropole.
The Gap economies:
Were open (to the metropole at least) and market-based.
Specialized in production and export of primary commodities
(agriculture, minerals, etc.).
Acquired manufactured goods from metropole.
Political foundations:
Globally: British hegemony.
Locally: Colonial powers in Africa and Asia, land- and
capital-owners in Americas.
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1870s-1920s, con.
This system was fundamentally exploitative, in that colonial
development was not encouraged by metropole. Only extraction.
Any good things?
Some human capital development.
Some technology transfers.
Some useful governance structures, esp in British colonies.
In general, however, probably impossible to develop while being
colonized.
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Destruction of the Old Order, 1914-1930
European powers weakened by WWI; political foundations of colonialism
crack.
Collapse of global economy (Great Depression):
Made it dicult for Gap to export commodities (global
demand slows), while taris rise.
No funds to import manufactures; no supply of credit to
borrow.
Shock in the Core gets exported to the Gap.
Consequence: Emergence of local manufacturing sectors, particularly in
the Americas.
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The Rise of Structuralism, 1930s-1980s
Gap decides to insulate itself from Core:
Sheltered, state-regulated economies.
State tries to spur domestic manufacturing rather than
commodity exportation; uses protectionist means.
Tries to transform structure of the global capitalist system to
be suit their interests.
Locally: scarce factors (urban workers and capital owners),
often at expense of agriculture.
Globally: Group of 77 + UNCTAD.
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Intellectual Support for Structuralism
Dependency theory: structure of capitalist trading system makes Gap
dependent on core; can never develop under condition of dependence.
Neo-colonialism
The GATT and other trade rules are biased against
development in the Gap.
Multinational corporations based in the Core extract surplus
from the Gap and redistribute it to the Core.
Conclusion: development requires:
1 Insulation from global trade system;
2 Transformation of the local economy;
3 Transformation of global trade system via new bargaining
power.
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Structuralist Theory of Dependence
Specialization in comparative advantage + trade hurts the Gap, because:
Trade Gaps primary goods for Cores manufactures.
Core technology increases faster than Gap technology.
I.e., Gap terms of trade decline over time: importing
manufactures becomes relatively more costly.
If terms of trade decline, catch-up growth is impossible.
If catch-up growth is impossible, development will be slow.
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Eorts to Transform the System
UNCTAD (1964):
Encourage governments to examine trade in broader context.
Promote policies important to G77, e.g. commodity price
stabilization and preferential market access.
New International Economic Order (1974-1980s):
Commodity price management + more technology transfers.
Debt relief + more foreign aid.
More LDC inuence in IMF and World Bank.
Legal right to expropriate MNC assets.
More generally: Create intl state-like authority to restrict markets and
redistribute income and resources from Core to Gap.
The OPEC oil embargo.
NIEO tries to manipulate commodity power to extract major
concessions from Core.
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The Eort Fails
Tough to change the hegemons order while the hegemon is still there.
Oil shocks help OPEC but hurt other LDCs, who are forced to
borrow from OPEC (via U.S. banks): petrodollar recycling.
Debt accumulates faster than capacity to repay. Series of
L.A. debt crises beginning with Mexico in 1982.
Deeply indebted Gap governments turn to Core for help:
Core uses its nancial power to demand massive economic
reforms in Gap countries.
These reforms dismantle state-regulated economies and
institute more market-based system.
Neoliberalism: structural reform a.k.a. Washington
Consensus.
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The Rise of Neoliberalism
Focused on integration into, not insulation from, global economy.
Open, market-based economies.
Produce comparative advantage; import other goods.
Use the proceeds to invest in market-friendly ways.
Locally: Governments must get support from abundant
factors of production. This is, increasingly, urban labor.
Globally: International coalition of developing countries form
Group of 20 to lobby within the WTO.
Neoliberalism given intellectual support by rise of Asian NICs, which
demonstrated that development is possible through integration into
global trading system.
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The Washington Consensus
1 Fiscal discipline, i.e. low (or no) decits.
2 Public spending should be on infrastructure and education, not subsidies.
3 Tax reform, esp. lower taxes on business and investment.
4 Let markets determine interest rates.
5 Maintain a competitive exchange rate.
6 Liberalize trade, particularly imports.
7 Liberalize foreign direct investment.
8 Privatize state-owned enterprises.
9 Deregulate most industries.
10 Legal protections for property rights (i.e. no expropriation).
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The Washington Consensus, con.
These principles were advanced by U.S. Treasury Dept., IMF, and World
Bank beginning in the mid-1980s.
Finance from U.S., IMF, and World Bank was made conditional on
adopting these reforms.
Therefore, often very unpopular with recipient countries. Rent-seekers
lost their rents, populace lost price controls and other welfare supports.
Many saw this as a new form of imperialism, and because of
conditionality a challenge to sovereignty of developing countries.
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Summary
Developing countries have evolved from interdependent to insulated to
interdependent, and from markets to states to markets.
Each shift has resulted from a massive economic shock.
Each shift is political and contentious: institutions and political
coalitions form in response to each change.

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