SUNS4513 Wednesday 22 September 1999

Development: New Routes to prevent another 'Lost Decade'

Rio de Janeiro, Sep 20 (IPS/Mario Osava) -- The so-called Washington Consensus, which oriented the reforms aimed at the liberalisation of markets, has been buried, and the economy has set out on a search for new routes towards development.

These were some of the main conclusions to emerge from two overlapping conferences - of Latin American and Brazilian economists - that ended last week in Rio de Janeiro, Brazil.

"A new cycle of illusions has come to an end," said former Brazilian finance minister Rubens Ricupero, secretary-general of the United Nations Conference on Trade and Development (UNCTAD), in a message sent to the gathering.

The countries of Latin America are worse off today than in the 1970s, in the wake of the failure of the model adopted - that of liberalisation of trade and the financial system - said Jean Kregel, an UNCTAD consultant and professor at the University of Italy in Bologna and the U.S. John Hopkins university.

The World Bank itself, which pushed that model on developing countries, has acknowledged the need to leave the Washington Consensus behind, said Theotonio dos Santos, an adviser to the government of the state of Rio de Janeiro and a professor at a local university.

"Neoliberalism represented an intellectual setback to the 18^th century and an expression of 'cynicism' by the U.S. government, whose fiscal deficit ballooned thanks to military spending during the Ronald Reagan era (1981-89), while it demanded austerity in countries on the periphery," said Dos Santos.

The present decade has witnessed a repeat of the 1980s failure of policies adopted throughout Latin America, imposed by the international lending institutions, said Antonio Barros de Castro, a professor at the Federal University of Rio de Janeiro.

However, broader criticism is needed today, in the search for new alternatives towards development, he stressed.

Not even the UN Economic Commission for Latin America and the Caribbean (ECLAC), whose ideas guided the industrialisation of the region, "addressed the redistribution of income," said the economist, who acknowledged the regional agency's influence on his education and thinking.

In Brazil, an outstanding example of the success of the import substitution model, the speedy economic growth of the 1970s enabled the poorest 10 percent of the population to increase its income by 92 percent, while the proportion of the population living in poverty shrank by 48 percent.

All of that, however, did nothing to reduce inequality in the country, because the proportion of income going to the wealthy increased to the same extent, Barros de Castro pointed out.

ECLAC saw the capitalism of the central countries as "perfect" and the capitalism found in countries on the Latin American periphery "a deviation."

But things are not rosy even in rich societies, argued Barros de Castro, who pointed out that in the United States, 1.8 million people are behind bars and 3.7 million are awaiting sentence. He added that all countries "are special cases," with their own particular traits, "not deviations."

The economist also criticised ECLAC for focusing exclusively on the economy, and paying scant attention to politics and institutions, which make the decisions on currency, labour and efforts against poverty - questions that he said must not be left in the hands of the market.

Businessman Eugenio Staub, who presides over the Institute of Studies for Industrial Development, demanded that the government implement "active policies" in support of production and exports, abandoned in Brazil on the argument that they run contrary to the liberalisation of trade.

The idea that "industrial policy is doomed" is refuted by the subsidies practised by rich countries, in industry as well as agriculture, as even the Organisation for Economic Cooperation and Development (OECD) admits, said Staub.

The economy as a discipline also came in for criticism at the meetings.

Roberto Bermejo, a professor at the University of the Basque Country, in Spain, defended the need to "ecologise" the economy, and urged economists to "come down from their ivory tower" and recognise the costs of the exploitation of natural resources as a decisive factor in the economy.

Scarcity of water, for instance, which already affects 500 million people worldwide, and could affect three billion 20 years from now, tends to cause disputes and wars, while island nations are disappearing due to the rising level of oceans caused by the warming of the earth, he pointed out.

Environmental sustainability, which requires cooperation, is incompatible with the predominant economic ideas like the free market, growing international competition and globalisation, which lead to instability, inequality and crises, Bermejo contended.

The survival of humanity requires an "ecologically-minded economy" based on fiscal policies that heavily tax - rather than subsidise as in rich countries - activities that destroy the planet, and which recommend recycling and other environmental conservation measures, said the economist.

Until "a new culture, a religion of austerity, less Calvinistic and more Buddhist" prevails in the world, humanity will have to "gain time" and delay the exhaustion of natural resources with the most sustainable and effective possible uses, said Brazilian environmental economist Eugenio Cenepa.