ABSTRACT
Introduction During the debate over NAFTA in the early 1990s, Mead (1992) published an insightful paper, “Bushism Found,” about that agreement, which was little noticed at the time, but has proven to be terribly prescient. He argued that the real significance of NAFTA lay in the mechanisms and commitments embedded within it that would lock in pro-corporate, neo-liberal economic reforms in Mexico. Additionally, and equally troubling to Mead, NAFTA allowed private corporate interests in the USA, Mexico, and Canada to gain new rights and protections which they could not possibly secure through ordinary domestic legislative avenues. Most prominent in this regard was the investment chapter of NAFTA (Chapter 11), which promised to protect corporations from strategies by which future governments might attempt to advance their national interest, but that would impose costs (actual or potential) on international investors. For Mead, not only did NAFTA represent an assault on the policy autonomy enjoyed by its signatories, but it even threatened to undermine democratic governance since it provided investors with the ability to sue national governments whenever they felt public policy infringed on corporate prerogatives. Mead was not alone in locating the chief significance of NAFTA in its intended effect on policy autonomy. Advocating NAFTA, Krugman (1993) argued that the economic effects of the agreement on the US economy would be negligible. In his view, NAFTA was primarily a “political” agreement, the main import of which was to ensure that future Mexican governments could not easily reverse the liberal economic reforms of the Salinas administration. Like Mead, Krugman recognized that NAFTA was not about trade so much as it was about establishing an external constraint on the present and future governments of the signatory countries. While Mead worried about what this meant for democracy, Krugman celebrated the improved investment climate these restrictions would establish. This chapter will examine ongoing intellectual and policy initiatives advanced by the economics profession and policy makers to lock in neo-liberal reform in developing countries by severely restricting the policy autonomy or policy space available to these countries. As NAFTA demonstrates, the profession has been
wildly successful in achieving this objective. This is in part because it has advanced a two-pronged approach in the pursuit of neo-liberalism. The first operates on an ideological level and involves the recent theoretical advances purporting to show that neo-liberal reform is the only viable avenue forward for developing countries. In this context, I will examine the rise of the theory of “policy credibility” during the 1980s and 1990s and its more recent incarnation in the aggressive form of the concept of “policy coherence.” The second front operates on the level of institutional reform, and involves new means by which neo-liberalism can be achieved and secured against reversal in the (likely) case of opposition from those adversely affected, including any parties and leaders who seek alternative development paths. In this context, I will examine several institutional means by which neo-liberalism is being cemented. These include the creation of independent central banks; inflation targeting regimes; currency boards that prevent elected governments from using financial flows and policy in the service of developmental and social goals; and small-group trade and investment agreements (of which NAFTA is an exemplar) that not only augment the power of international investors but also mobilize this power to punish governments that waiver from the neo-liberal path. Obviously, there are other institutional means by which neo-liberalism is being cemented in developing countries, such as credit rating agencies and standards and codes (and the surveillance thereof ). For reasons of space, we will not discuss these latter two channels.2 Note that the other chapters in this section of the volume trace channels by which policy space in developing countries is constrained – Shapiro on ideology, Abugattas and Paus on fiscal space, and Van Harten on investment treaties. In addition, useful analyses of the constraints on policy space that come from bi-and multi-lateral agreements and institutions can be found in (Anderson 2009; Gallagher 2005; Shadlen 2005; and Wade 2003). I contend that the institutional reforms discussed in this chapter draw their power not from a demonstrated record of developmental success,3 but from the intellectual developments surveyed in the second section of the chapter. The net result of these two fronts is a substantial and dangerous loss of developmental policy space, which entails not only a higher likelihood of failure (e.g., in terms of the failure to industrialize and create employment), but also a much greater risk for those in developing countries who are least able to survive it. This loss of policy space increases the challenges faced by those seeking to create new opportunities for economic policies that are consistent with the new developmentalism (per many contributions to this volume).
