Unintended Consequences of Neoliberal Policies and Practices essay

Introduction

Following the great debt crisis of the 1970s, many countries in the world tried to revive their economies through trade liberalization. The majority of these states resorted to neoliberal policies with the aim of easing the existing economic burden. This was in response to failed postwar Keynesian policies. Moreover, it was a way of promoting ideological practices and institutional policies of governance, which were established to tackle the inability of state structures to deal with prevailing problems. The new policies acted as a guide to the broad and long-term restructuring processes. It is important to note that the restructuring processes coincided with a rapid and dramatic growth in Hispanic and Latino populations. In essence, it can be argued that neoliberal policies were also adopted, especially in Latin America, to tackle financial problems created by the external debt crisis the 1980s. Latin America had accumulated debt from North America to support import substitution industrialization. Essentially, the adoption of neoliberalism and the creation of NAFTA ended up having far-reaching unintended consequences for a number of countries, the most notable of which were North America and Latin America, as well as other states in the world. The paper seeks to examine the significance of the unintended consequences of neoliberalism policies and practices and to show how America developed through NAFTA by exploiting the South. 

The failure by many countries to repay their loans led federal officials and US banks to resort to the North American Free Trade Agreement (NAFTA) in an effort to transform the impending risk into an opportunity. They saw NAFTA not only as a tool for facilitating free trade and open markets, but also as a tool for expanding capital investment opportunities. In this context, the treaty under which NAFTA was established did consider the issue of labor movement. Had the issue of labor movement been included in the treaty, it would have meant harmonization of labor laws and social policies. On the contrary, the US insisted on maintaining a unilateral right to control and prevent flow of immigrant labor force through restrictive border policies. This led to a number of outcomes. North America experienced asymmetrical process of development characterized by an increased capital mobility and growth of foreign investment in the South. This coincided with exploitive efforts to obscure cross-border movement of people. This was made worse by the fact that privatization under neoliberalism and eradication of agricultural subsidies in Latin American countries under the NAFTA treaty had increased unemployment in the region; thus, people were seeking opportunities elsewhere.

 

Neoliberalism

Neoliberalism is a political theory, which postulates that human wellbeing is best achieved through increased entrepreneurial freedom within a framework that is marked with private property rights, unencumbered markets, individual liberty, and free trade. Thus, according to this perspective, the role of the state should be limited to maintaining an institutional framework that favors these practices. Moreover, the state should not interfere with the market. The theory holds that once the state has created the necessary institutional framework, its involvement in the market should be maintained at the bare minimum. It is assumed that the state does not have enough information to predict market forces. There is also an idea that state interventions are subject to biasness and distortion from powerful interests who would, in this case, be pursuing their own benefit.

In the late 1960s, global capitalism started to fall and the world economy eventually went into recession in 1973. During the same year, the Bretton Wood accord was abandoned in support of floating exchange rates. It caused a decline in capital availability and  called for an alternative, which, in this case, was neoliberalism. The adoption of neoliberalism by the United States occurred at the height of a serious economic recession and a time when import substitution policies in Latin America had failed. Neoliberalism was adopted along with creation of a free market and privatization of state-held corporations, giving private investors an access to natural resources, free trade and need for promoting foreign direct investment. The new policies favored export-led growth as opposed to import substitution. However, there was an extensive opposition from the ruling class as they feared that they would lose their political power. This issue was solved by the IMF who, due to the pressure from countries such as Great Britain and the US, persuaded other countries to cut their expenditure on social welfare programs.  

Unintended Consequences of Neoliberal Policies

Immigration

As was mentioned above, neoliberalism favored export-supported growth as compared to import substitution. The lack of import substitution, especially for countries in the Latin America, meant that many peasant farmers were with no income and needed to find economic opportunities elsewhere. However, NAFTA treaty gave the US a unilateral authority to prevent cross-border movement by applying restrictive border policies. It enhanced the number of unemployed people in these countries while the production increased in the US. While this was to be the case, the exact opposite happened. Neoliberalism encouraged and criminalized immigration. The Mexicans especially were forced to abandon agricultural activities, as their products could not compete anywhere in terms of price. Still, they had to look for ways to enter the North in an effort to earn a living and sustain themselves and their families.

Under NAFTA, migration from Mexico into the United States increased significantly. The growth in the unemployment rate, particularly in Latin American rural areas, as well as the instability in the agricultural sector were partly attributable to the neoliberalism policies adopted by NAFTA. Agricultural imports from the US and Canada started to become cheaper that locally produced goods discouraged indigenous farmers from farming together. Many people attempted entering the US illegally due to criminalization of immigration, and the increased pressure to migrate. While some people were able to cross the border, other lost their lives trying to migrate. These problems were compounded by neoliberalism policies and the formation of NAFTA. It is important to note that the Mexican environment and the urban infrastructure remain inadequate to support the growing population even nowadays.

It, coupled with the high concentration of export-oriented industry, implies that immigration is a long-term problem that requires a long-term solution. For example, it is estimated that between the 1970s and the early 1990s, 44 percent of all immigrants in the US came from Latin America. This problem can be traced back to NAFTA and the neoliberalism practices, which otherwise inhibited growth in the import sectors of these countries. According to Massey and Pren, the US migration policy has never been grounded on the patterns and trends of immigration. Since 1970s, the policy has been rather based on political ideologies and existing economic circumstances. This is evident from how the media depict immigrants or how legislators and politicians treat them. Lack of access to any legal entry avenue led to an increase in the number of illegal immigrants. It is also important to note that the growth in the manufacturing sector in the United States encouraged immigration to some extent as factories sought to recruit cheap labor. For example, the growth of the pork industry in the US, which led to the collapse of pork industries in Latin America, attracted huge labor force from these countries as their experienced workers could be hired at a low wage rate.

Multiculturalism

The flow of immigrants, both legal and illegal ones, made the US become a multicultural society. The new population was characterized by Natives, Mexicans, Africans, Latinos, Hispanics and Asians, among other cultural groups. Despite the fact that many of these cultural groups tended to settle as factions, there was a significant interaction with the native culture. In essence, the Natives considered these other cultures as the ones endangering the native culture. However, eventually, neoliberalism helped in reshaping people’s subjectivities, including their sense of agency, their sense of self, as well as their solidarities and identities. Social bonds began to slowly erode. Resilience at work meant that workers had to interact with one another to a certain extent. This slowly helped to remove cultural differences in order for them to work together in harmony. It is worth noting that some jobs were reserved for some races such as in the “…‘latinization’ of rural America.’’, or by the concentration of Latino workers in the meat packing industries.

Fueled by social movements, multiculturalism began to challenge neoliberal ideologies, accusing it of promoting inequality and division within the American society. It is important to note that the emphasis on enduring importance of ethnicity in defining political interests and identities is at the center of multiculturalism. However, it does not imply that some cultural groups have not suffered from discrimination in the past. In essence, such laws as Immigration Reform and Control Act 1986 (IRCA) had previously been used to deport immigrants. In addition, sometimes, labeling words would be used when referring to immigrants. Neoliberalism at some points would severe the link progressive advocacy groups and the state, inhibiting political access and slashing fund for such advocacy groups. Neoliberals would also delegitimize multiculturalism by differentiating special interests which in this case was represented by lobby groups and the ordinary hard working citizens.    

Protectionism

The initial neoliberalism policies and practices supported export-driven growth as opposed to import substitution. The rules, as enacted in the US and in NAFTA, forced Latin American countries to abandon their protectionism policies and open their economies for free trade. While the US greatly benefited from this move, countries from Latin America, including Mexico, suffered from cheap imports relative to local products. On the contrary, the United States used tactics, such as restrictive immigration rules, to indirectly protect its domestic industry. Whilst this may not have been an explicit agenda, it helped in shutting down industries and production in other areas outside the country, giving them a break from would-be competitors. Nevertheless, the countries, which were negatively affected, were those from Latin America. The agricultural sector, which received underpriced competitive goods from exporting countries, such as Canada and the United States, was the most affected by the removal of protectionism. It also means that the manufacturing sectors in these countries had to rely on direct foreign investment.

Political Ideology

From the beginning, there were concerns among the ruling class regarding the ways making them able to maintain power, should there be a social uprising. In essence, the criticism that NAFTA faced before being launched indicated that there was discontent among some players. The ruling class feared that this discontent would mean losing their power to other social classes. The urban social movements of the time and labor movements were more inclined to a social alternative instead of the formation of NAFTA. In addition, socialists and communists were gaining ground in Europe and there was a reason to fear that their political ideologies would spill over unless quick action was taken. Traditionally, the ruling class was accorded a big portion of the national pie. Hence, losing their power would mean sharing equally with the middle class.

To tackle the problem faced by the ruling class, a number of actions were taken. First, a campaign was mounted to prove that what was good for business was certainly good for the country. A business round table was then established to bring the white working class together and persuade them to vote against their own material interests, religious or nationalist grounds. All this was done in order to deflect them from the ideology of the republicans. The second step was related to restoration of fiscal discipline. To achieve this, the financial institutions in charge of credit control declined to roll over New York’s debt. Thus, the latter was almost forced to declare bankruptcy. Bankers decided to tighten their control of the city by forcing it to layoff public workers, reduce expenditure of social welfare, and freeze wages. Municipal unions were also supposed to invest in city bonds; this move was calculated in order to make the unions create a reasonable demand. The third step was to wage an ideological way with the media and education institutions. It was designed to persuade the public to accept the propositions of neoliberalism. By the mid-1980s, the government had been able to convince the public on the need to shrink itself by decentralizing its functions.

Dual Division of Labor

Unlike the Natives, immigrant workers had mainly low-wage jobs, but had little or no option. Arguably, most of them detested the living conditions back at their home countries, which included poor housing, lack of amenities, gang violence, and poor schools. This implied that they had to accept any job opportunity. It should also be noted that less-skilled job opportunities could only be found in industries, which were located in rural areas. It is also important to comprehend that certain jobs were reserved for specific cultural groups. During the 1970s, many organizations were facing challenges, which required drastic measures in order to survive in business. Products from low-wage countries meant that imports were cheaper as compared with local products. To counter such challenges, firms resorted to reduce wage rates and benefits, eliminate or renegotiate union contracts, and reduce the number of employees. Some organizations, which were well endowed in terms of resources, opted to adapt technology and reduce labor cost, while others decided to move their operations overseas where factors of production were less costly.

The labor market was split into primary and secondary labor sectors. The primary sector offered a stable, well-defined and well-paying jobs, while the secondary sector offered the opposite. According to the dual theory of labor market, the job characteristic in the secondary sector is dependent on migration of labor from less developed to more developed economies. The theory also suggests that firms should employ immigrant guest workers whose economic and social orientation remains at the level of their native countries as opposed to the hosting country. Considering this fact, migrants are more likely to be given jobs in the lower labor niche, which may be unattractive to a native worker. For example, a native employee may have the knowledge on how to work in a meat packing company, but he will opt for another job due to his dislike. 

Inequality

Since the ruling class never wanted to relinquish some of its power to other classes, neoliberalism practices and policies do not have the capacity to remove social inequity. This situation has been typical of North America up to now. The introduction of NAFTA disrupted agricultural activities in various countries. The sugar industry in Mexico was among those badly affected ones by this crisis as sugar mills were closing between 1988 and 2002. This was coupled by the structural adjustments that had to be later instituted, worsening and increasing the inequality gap. On the one hand, the lack of employment and division of labor meant that the level of poverty was high. On the other hand, the ruling class still wanted to retain its authority and control their lives. Coupled with the ‘narrative threat’, this period was characterized by heightened income inequality and class separation. Immigrant workers were given low paying jobs not to mention that they were treated to racial inequality years after the end of legal discrimination. In essence, old-style multiculturalism paved  way for issues related to structural inequalities in a society that is characterized by multiple races. Further, the fact that neoliberalism destroyed social solidarities linked with the welfare state resulted into an irreversible status of existential insecurity. Capital accumulation was reorganized in a framework of economic crisis with privatization being aimed at establishing new loci of accumulation that is specifically targeted at restoring the power of the ruling class.   

Conclusion

The ongoing discussion sought to explicate the significance of unintended consequences of neoliberalism practices and policies in relation to the American history. The new policies acted as a guide to the broad and long-term restructuring processes. The restructuring processes coincided with a rapid and dramatic growth in Hispanic and Latino populations. In essence, it can be argued that neoliberal policies were also adopted, especially in Latin America, to tackle the financial problems created by the 1980s external debt crisis. Apparently, there was a number of unintended consequences, including immigration, collapse of protectionism in Latin America, inequality, dual division of labor, multiculturalism, and a change in political ideology. During the formation of NAFTA, America had insisted on the use of restrictive measures to discourage cross-border movement. However, the development of the US economy was dependent on labor movement to supply its manufacturing sector with labor. The collapse of protectionism in Latin America gave the United States an investment opportunity while eliminating competition for its local firms. Multiculturalism helped in improving work relations and in creating harmony and unity. In this context, the emphasis on enduring importance of ethnicity in defining political interests and identities was at the center of multiculturalism. However, it does not imply that some cultural groups have not suffered from discrimination in the past. Neoliberals would also delegitimize multiculturalism by differentiating special interests which in this case was represented by lobby groups and the ordinary hard working citizens.    Further, the fact that neoliberalism destroyed social solidarities linked with the welfare state resulted into an irreversible status of existential insecurity. The application of neoliberalism led to dual division of labor. This suggests that firms should employ immigrant guest workers, whose economic and social orientation remains at the level of their native countries, as opposed to that of the hosting country. Furthermore, migrants are more likely to be given jobs in the lower labor niche, which may be unattractive to a native worker. The formation of NAFTA, in particular, was a tactical step by the United States to assert its power as the most developed country in the region at the expense of the welfare of Latin American states.   

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Unintended Consequences of Neoliberal Policies and Practices essay

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