Swallowing the Bitter Pill

Abstract

What accounts for the surprisingly widespread popular approval that painful neoliberal reforms elicited in several Latin American countries? This article compares the explanatory power of two rival hypotheses, which draw on conventional rational choice and psychological decision theory. The compensation hypothesis claims that governments can engineer support for costly reforms by compensating the losers through targeted social benefits. The rescue hypothesis questions this claim and maintains that draconian adjustment only finds support if it promises to revert a deep crisis and avert further losses. Data from Argentina, Bolivia, Brazil, Mexico, Peru, and Venezuela suggest that the rescue hypothesis accounts much better for the initial endorsement of neoliberal shock programs immediately after their enactment. When these shock programs bring about economic stabilization and recovery, targeted social benefits help consolidate support for neoliberalism, which a statistical analysis of the impact of social spending on voting in Argentina's and Peru's presidential elections of 1995 reveals.