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Neo-Liberal Economic Policy

Critical Essays

Edited by Philip Arestis and Malcolm Sawyer

Over the past two decades there has been a prevailing shift in economic policy in many countries. This reflects the continuing rise of neo-liberalism – the doctrine that economic policy should ‘leave it to the market’ and that governments should retreat from market intervention. This book provides a balanced and comprehensive appraisal of these important policy developments. The authors examine the most notable trends in neo-liberal economic policy such as the withdrawal from the use of fiscal measures and the reliance on monetary policy. They discuss the neo-liberal view that the causes of unemployment lie in the operation of the labour market, in particular its inflexibility. They also assess the increasing inclination towards the liberalisation and deregulation of markets, most notably financial markets.
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Chapter 6: The costs of neomonetarism: the Brazilian economy in the 1990s

Alfredo Saad-Filho and Lecio Morais


Alfredo Saad-Filho and Lecio Morais* INTRODUCTION At the turn of the millennium, the Brazilian economy was the largest in Latin America, and one of the ten largest in the world. It was also one of the fastest growing economies in the second half of the twentieth century. Between 1949 and 1980, annual GDP growth in Brazil averaged 7.3 per cent (3.8 per cent per capita). This impressive performance deteriorated sharply after 1980, while inflation rates accelerated almost relentlessly, from under 20 per cent in 1972 to around 5000 per cent (annual rate) in mid-1994. After several failed stabilization attempts, the ‘Real Plan’ successfully reduced annual inflation rates to less than 10 per cent. However, the elimination of high inflation did not lead to the resumption of rapid growth. In fact, in the 1990s the Brazilian economy had the worst economic performance on record. Whereas in 1981–89 (the so-called ‘lost decade’) Brazilian annual average GDP growth was 2.0 per cent, in the 1990s these rates were only 1.7 per cent (per capita growth rates were approximately zero in both decades, due to the rapid decline in the population growth rate). In spite of the poor performance of most aggregate indicators, in the 1990s the Brazilian economy experienced more substantial changes than in any decade in the post-war period. The most important change was the abandonment of import-substituting industrialization (ISI). ISI, and the corresponding industrial structure, were replaced by another system of accumulation based on the microeconomic integration...

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