50+ Economists Warn Against Neoliberalism's Return in Ecuador

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50+ Economists Warn Against Neoliberalism's Return in Ecuador

Ahead of upcoming elections, a call for austerity and economic policies structured for the elites to be left in the nation's past

Ecuador's President Rafael Correa speaks to thousands of supporters from the presidential palace in Quito's main square, June 15, 2015. (Photo: EFE)

Over the past ten years, Ecuador has achieved major economic and social advances. We are concerned that many of these important gains in poverty reduction, wage growth, reduced inequality, and greater social inclusion could be eroded by a return to of the policies of austerity and neoliberalism that prevailed in Ecuador from the 1980s to the early 2000s. A return to such policies threatens to put Ecuador back on a path that leads not only to a more unequal society, but to more political instability as well. It is important to recall that from 1996 to 2006, Ecuador went through eight presidents.

Unfortunately, there is much confusion and misinformation about Ecuador’s achievements in recent years. It has all but become conventional wisdom that the economic and social progress in Ecuador, such as it is recognized, resulted simply from a commodities boom and a spike in oil revenues. This explanation ignores the innovative and important reforms that the Ecuadorian government has enacted that have played an instrumental role and allowed the country to emerge, relatively unscathed, from the 2009 Global Recession and the more recent collapse in oil prices. These reforms included bringing the central bank into the government’s economic team, a tax on capital exiting the country, a large increase in public investment, re-regulation of the financial sector, and countercyclical fiscal policy.

Neoliberal economic policies have been tried in Ecuador, and have failed to deliver. Compared to 1.5 percent annual per capita GDP growth from 2006 to 2016, per capita GDP growth averaged just 0.6 percent from 1980 to 2006. From 1980 to 2000, a period during which Ecuador had a number of loan agreements with the International Monetary Fund, Ecuador experienced a considerable economic failure, as GDP per capita fell by 1.5 percent over those two decades. This failure almost certainly resulted at least in part from the neoliberal policies of cutting spending, privatization, inflation-targeting, deregulation, and others that also made the Ecuadorian economy increasingly vulnerable to external shocks. In the 1960–1980 period, by contrast, per capita GDP growth was 110 percent.

Similarly, poverty increased by one-third between 1995 and 2001, when it reached 45 percent. Poverty did decline overall from 1995 to 2006, but by just 2.7 percent; by contrast, poverty fell by over 32 percent from 2006 to 2014. According to Ecuadorian government statistics, the Gini coefficient for net household income (a common measurement of inequality) decreased by over 10 percent between 2006 and 2014, after having increased by more than 7 percent from 1995 to 2006. The indicators from the pre-Correa years, as bad as they are, are bolstered by the fact that emigration of people from Ecuador under prior governments artificially held down Ecuador’s inequality, poverty, and unemployment rates.

For most of Ecuador’s modern history, its petroleum wealth has largely benefited a relative few. For example, a 2002 law supported by the IMF and World Bank required that Ecuador’s Stabilization Fund, an entity created with, and which received, revenues from oil exports, spend 70 percent of its revenues on debt payments, but just 10 percent on social spending.

Important reforms over the past decade have distributed oil revenues more equitably. Oil agreements that previously gave away Ecuador’s oil wealth to foreign companies were renegotiated, leading to increased revenues for the people of Ecuador (without these renegotiations, the rise in oil prices would not have generated substantially greater revenues to the government). These government revenues have been channeled into responsible state spending with impressive results: middle and secondary school enrollment shot up dramatically as higher education spending increased from 0.7 to 2.1 percent of GDP. As government spending on health services doubled, as a percentage of GDP, from 2006 to 2016, some 40 percent more patients were treated at public hospitals in 2014 than had been in 2006. The Ecuadorian government enacted a stimulus of about 5 percent of GDP that allowed it to weather the 2009 Global Recession with lost output of only about 1.3 percent.

The “Washington consensus” era in Ecuador did not benefit most Ecuadorians, and a majority of Ecuadorians let their feelings be known, through mass protests that helped to oust several presidents; and finally in the 2006 elections that ushered in an era of real change ― a historic break with the economic policies that had, in part, put the interests of Ecuador’s elite, of Washington, and of powerful international capital, ahead of the majority of Ecuadorians.

Our goal is not to tell Ecuadorians whom to vote for, or to interfere in Ecuador’s political processes. With the proliferation of misinformation and misunderstanding about Ecuador’s economy, however, we felt it necessary to correct the record.

Ecuador deserves leaders who will implement policies that benefit all Ecuadorians ― whoever they may be. It would be tragic for Ecuador’s next government to return to a less prosperous, less inclusive past.

Signed,

James K. Galbraith, Lloyd M. Bentsen Jr. Chair in Government/Business Relations and Professor of Government at the LBJ School of Public Affairs, University of Texas at Austin

Ha-Joon Chang, Department of Economics, University of Cambridge, United Kingdom

Stephanie Kelton, Professor of Economics at University of Missouri-Kansas City, Former Chief Economist on the U.S. Senate Budget Committee

William K. Black, Associate Professor of Economics and Law, University of Missouri-Kansas City

Pavlina R. Tcherneva, Associate Professor and Chair of the Department of Economics and the Economics and Finance Program at the Levy Economics Institute, Bard College

Gerald Epstein, Professor of Economics and Co-Director of the Political Economy Research Institute (PERI) at the University of Massachusetts, Amherst.

Mark Weisbrot, Co-Director, Center for Economic and Policy Research

Jeff Faux, Founder, Economic Policy Institute

John Willoughby, Professor of Economics, American University

Dean Baker, Co-Director, Center for Economic and Policy Research

Gabriele Koehler, Development Economist, Munich

William Barclay, Founding Member of Chicago Political Economy Group and retired Sr. Vice President, Chicago Stock Exchange

Amitava Krishna Dutt, Professor of Economics and Political Science, University of Notre Dame and Distinguished Professor, FLACSO, Ecuador

Ben Zipperer, Economist, Economic Policy Institute

Jim Campen, Professor of Economics, Emeritus, University of Massachusetts, Boston

Mustafa Özer, Professor, FEAS, Department of Economics, Anadolu University, Eskişehir, Turkey

Eileen Appelbaum, Senior Economist, Center for Economic and Policy Research

Alicia Puyana Mutis, Professor of Economics, Facultad Latinoamericana de Ciencias Sociales, Mexico

Jayati Ghosh, Professor of Economics, Jawaharlal Nehru University, New Delhi, India and Executive Secretary, International Development Economics Associates, India

Jorge Buzaglo, Associate Professor of Economics, Sweden

Ann Markusen, Professor Emerita and Director, Project on Regional and Industrial Economics, University of Minnesota

Matias Vernengo, Professor of Economics, Bucknell University and Co-editor of the Review of Keynesian Economics

Stephanie Seguino, Professor of Economics, University of Vermont

Kathleen McAfee, Professor, International Relations, San Francisco State University

Mark A. Price, Labor Economist, Keystone Research Center

Chris Tilly, Professor of Urban Planning, University of California Los Angeles

Gustavo Indart, Associate Professor, Department of Economics, University of Toronto, Canada

Julie Matthaei, Professor of Economics, Wellesley College

Peter Bohmer, Faculty in Economics and Political Economy, The Evergreen State College

Genaro Grasso, Economist at University of Buenos Aires and University of San Martín, Argentina and Researcher at Institute of High Social Studies, IDAES and Cultural Center of Cooperation, CCC

Mark Paul, Postdoctoral Associate, Samuel DuBois Cook Center on Social Equity at Duke University

Renee Prendergast, Reader in Economics, Management School, Queen's University Belfast, Belfast, Northern Ireland

Nicola Melloni, Visiting Fellow, Munk School of Global Affairs, University of Toronto, Canada

Arthur MacEwan, Professor Emeritus of Economics, University of Massachusetts Boston

Demian Panigo, Co-Director, Center of Workers Innovation (CONICET), Argentina and President of the Latin American Economic Thought Association (APEL)

Korkut Boratav, Turkish Social Science Association, Turkey

Peter Dorman, Professor of Political Economy, The Evergreen State College

Carlos Oya, Reader in Political Economy of Development at the School of Oriental and African Studies (SOAS), London

Joseph Ricciardi, Associate Professor of Economics, Babson College, Wellesley, MA

Venkatesh Athreya, Adjunct Professor, Asian College of Journalism, Chennai and Adjunct Professor, Rajiv Gandhi National Institute for Youth Development, Chennai

Eduardo Strachman, Associate Professor, Department of Economics - São Paulo State University (UNESP) - Brazil

Saskia Sassen, Professor, Columbia University

Irene van Staveren, Professor of Pluralist Development Economics, International Institute of Social Studies of Erasmus University Rotterdam, Netherlands

Erhan Yildirim, Professor of Economics at Cukurova University, Turkey

Romina Kupelian, Researcher, Centro de Economía y Finanzas para el Desarrollo Argentino (CEFID-AR); Advisor at the Central Bank of Argentina (BCRA)

Guillermo Hang, Independent Researcher and Economist at UNLP, Argentina

Reza Mazhari, Assistant Professor of Economics, The Gonbad Kavoos University, Iran

Ron Baiman, Assistant Professor, Graduate Business Administration, Benedictine University, Lisle, IL

Fadhel Kaboub, Associate Professor of Economics at Denison University, and President of the Binzagr Institute for Sustainable Prosperity

Scott A. Weir, Economics Instructor at Wake Technical Community College, Raleigh, NC (retired)

Farida C. Khan, Professor of Economics, University of Wisconsin-Parkside

Al Campbell, Emeritus Professor of Economics, University of Utah, Steering Committee of the Union for Radial Political Economics (URPE)

Michael Meeropol, Professor Emeritus of Economics Western New England University

Antonio Savoia, Lecturer in Development Economics, Global Development Institute, The University of Manchester, UK

Michael Ash, Professor of Economics and Public Policy, University of Massachusetts Amherst

Ha-Joon Chang

Ha-Joon Chang is a South Korean institutional economist specialising in development economics, currently a reader in the Political Economy of Development at the University of Cambridge.

James K. Galbraith

Economist James K. Galbraith is currently a professor at the Lyndon B. Johnson School of Public Affairs and at the Department of Government, University of Texas at Austin. He is the author of The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too.

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