By: Felipe Argote
The Keynesian model came as a lifeline to the Great Depression of 1929. But neoliberalism, in contrast, had its entrance on the scene to organize what in fact had already been implemented by international financial and political organizations.
Very few would argue that the beginning of the implementation of the neoliberal model was in England with the coming of Margaret Thatcher called the Iron Lady and the English Conservative Party government in 1979, although since 1974 Milton Friedman had seeped through dictatorship Augusto Pinochet in Chile to influence the way the economy of this country was ruled. It was very useful to Pinochet and his followers because and the economic interests that had been left alone in the arena before the physical disappearance of the dictatorial regime critics.
Margaret Thatcher has a deeply conservative formation. During his first participation in an important position in 1971 during the Conservative government of Edward Health and acting as Secretary of State for Education and Science she eliminated the delivery of free milk to schoolchildren and pressed for a significant reduction in the education budget. In 1979 it became the first woman prime minister of England with a right-wing campaign. Its decision to implement a neoliberal model was subsequently named more political than economic. He was deeply opposed to any state social policy. That's why she eliminated taxes on big companies but raised the consumption tax taking it dramatically to 15%. The debt crisis of 1982 found her in political power and the deep crisis of the Keynesian model that had already been initiated since the late sixties but had deepened in the seventies like a glove. It is worth adding that the nickname of the Iron Lady was created by Red Star, a journal published by the ministry of defense of the Soviet Union, after a deeply anti-Soviet speech in which Thatcher complained that the Russians put their weapons before the butter while they, the British, put anything but the irons. But the term "Iron Lady" was very well received by the Thatcher, contrary to the intentions of the Russian government.
The debt crisis began in 1982 when Mexico reported that can not pay the balances due from foreign debt service. Given this, international financial institutions, especially the World Bank and International Monetary Fund begin to have a starring role in the crisis. It is feared that if Mexico is copied by a plural number of indebted countries, after they were flooded by uncontrolled lending by corrupt military dictatorships that has spent much of the carousing loans, embezzlement millionaires and disproportionate military budgets.
Margaret Thatcher joins their cause to the brand new U.S. president Ronald Reagan, a former actor in westerns movies and former governor of California. Reagan, like Thatcher, implements a policy of reducing taxes on corporations but, unlike Thatcher, Reagan developed an economic policy of higher government spending. In fact, the U.S. fiscal deficit doubled during his administration and public debt increased from 40% of GDP to 70% of GDP.
International financial institutions take the initiative for economic policy. These are limited to develop the attitude of the speculator in order to recover the huge debt of underdeveloped countries. Additionally due to the financial crisis that started in 1982 interest rates rise like fireworks.
International financial institutions (IFIs) that then cause the so-called structural adjustment plans. These plans aim to ensure that debtor countries can pay their overdue balances to it must first sell their fixed assets all companies starting with the disposal of the state.
Keep in mind that the world came from an economic model where the state had a high turnout. In Panama, for example, not only were state-owned enterprises as electricity and telephone, the state owned hotels like the Taboga, Cement Factory (Bayano), Air Panama, Chiriqui Citrus, large sugar mills, other entity. The same happened in other countries. Financial institutions "proposed" governments to sell enterprises to pay their debts. This of course will be accompanied by other measures such as reducing state payroll, tax increases and others, all with the primary objective of the debt. In exchange, financial institutions will deliver before the completion of each step of the agreement, a candy called fresh money. This is further debt, this time at high interest rates, so that governments do not fail and do not create new political crisis. These agreements called structural adjustment programs had as a format called letters of intent.
But much of the agreements with international financial institutions had the sin of illegality because no executive could commit to pass a law to transfer public enterprises to private enterprise. This is because a law would be necessary and this is unique to the legislature. Then they used the mechanism of the letters of intent. This was for the country's economy minister sent a letter corresponding to the World Bank or International Monetary Fund lists their intentions. This was enough for the IFIs, as long as there is a timetable and that this is fulfilled for every step of implementation was monitored and disbursed a sum of money into a loan. As can be seen as international banking co-administered states with successive governments. Despite this, or should say because of this, the debt of Latin American countries increased from 300 billions dollars in 1982 to 600 billions in 1997. The asset sale was not the only requirement. The opening of the market by removing restrictions on foreign investment and lower fees as well as raising other taxes was the requirements for obtaining fresh money. These measures were copied as a recipe from one country to another to the point that the Nobel Prize in Economics and World Bank Vice President Joseph Stiglitz wrote later that the World Bank only changed the name of the country in drafting the recommendations without sitting down to analyze the differences between each of them.
This process of structural adjustment began in 1982 but it was not until 1989 that these measures are systematized in the so-called Washington Consensus. This is what gives internal coherence to the new-old economic model whose roots are located in the Austrian Carl Menger shortly after the Austro-Hungarian Empire was defeated by the Prussian army at the Battle of Sadowa in 1866.