 Latin America: how its neo-liberal reforms led to a rentier trilogy of high market inequality, mediocre investment rates and collapsing productivity growth. How to fix a system with so little entropy?José Gabriel Palma Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge Abstract: Krugman identified the enigma of Latin America's underperformance as one of the greatest analytical challenges of economic theory today. Indeed, when compared with the other regions and main countries, since implementing its neo-liberal economic reforms Latin America has become a region of extremes: while its employment creation in services since 1980 ranks top in the world, its productivity growth ranks bottom; in turn, while the share of market income (i.e., before taxes and transfers) of LA's richest 1% and 10% also ranks among the top in the world, its investment as a percentage of GDP ranks bottom in the world. One narrative that helps understand this contrasting scenario is that of the classical economist David Ricardo (perhaps the greatest of the classical economists), who was the first to analyse why 'rentier-led' economies would be held back precisely by the debilitating effect of a likely 'trilogy' of high market inequality, low investment rates and meagre productivity growth. To keep exporting "more of the same" unprocessed commodities or products from "shallow" manufacturing assembly-operations is no longer a valid growthoption for Latin America ―just a recipe to continue being stuck in the middle-income trap. But domestic rigidities and markets imperfections and failures (home and abroad) are blocking the necessary "upgrade" of these exhausted productive strategies. But the conventional hegemonic wisdom still expects these countries to leap from mid-table to higher income-per capita through policies based on the same institutional setting, elite-preferences, and ideology that got them stuck in mid-table —this is not a realistic solution. Furthermore, the escape route for LA from its "neo-liberal trap", and nearly half a century of productivity stagnation, requires more than just a Keynesian/Structuralist macro, together with an ('incentive' based) industrial policy; these may well be necessary conditions for sustainable growth, but they are certainly not sufficient ones. What it needs as well is to get rentiers on board: unless one can enforce 'productive' behaviour from them, sustainable growth is not an option. The key challenge in rentier-led economies, then, comes from what I like to call a 'post-Ricardian' perspective: how to 'discipline' rentiers to be able to redirect their income towards socially desirable investment strategies. Keywords: Latin America, "easy" rents, rentier elites; "extractivism", productivity growth, inequality, "reverse" flying geese, middle-income trap, neo-liberalism, emerging Asia, David Ricardo (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:2572 Access Statistics for this paper More papers in Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge |
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