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Challenges to the Global Economy in
Uncertain Times:
The Lessons from Latin America
Alicia Puyana
FLACSO
Presented at the IDEAs Tenth Anniversary Conference
The global economy in a time of uncertainty: Capitalist
trajectories and progressive alternatives
Two readings of Latin American
economic past and present
1. Latin American can teach Europe and the
United States how to solve the debt crisis and
how to introduce austerity programmes.
The region is resilient to external shocks, thanks
to austerity programmes and fiscal discipline.
The future is bright (Lagarde)
2. Latin America presents progressive
challenges to neoliberal doctrines
1. On how to introduce austerity programmes
Latin American countries were the pioneers in
liberalizing the economy under military dictatorships
and PRI perfect dictatorship (Vargas Llosa)
The more severe the dictatorship the more coherent
the reforms. Chile, Pinochet, Argentina, Videla,
Bolivia, García Mesa; Mexico: Patchy reformer
Others were late, tepid reformers (Colombia, C.
Rica). Others failed: Venezuela under the social
democrat Carlos Andrés Perez, the “Caracazo”….
1. On the nature of reforms
Austerity is a political shift transforming the relations
between the:
Society-state; capital-labour; social groups.
Redistributes income and wealth and discriminates
labour: political economy of liberalization; revaluation
privatization.
Such a drastic changes need special political climate:
Deep economic and political crisis: War of attrition
(Alesina)
Is the European crisis deep enough to allow reforms
without political repression?
The effects neoliberal model
GDP growth insufficient to generate employment to absorb the
growth of labour force.
Unfavourable Structural change: tradable sectors fall
Decreasing share of wages in national income;
Growth of income elasticity of imports; decreasing income
elasticity of employment: jobless growth.
Expansion of informal employment
Drastic fall in labour intensity of GDP:
Weakening of the relation between the growth of exports and
GDP; growth of GDP and poverty reduction;
Increasing Social debt up to 1995.
Latin American Countries
Annual Average Rates of Growth in percents
1900-2010 1900-45 1945-82 1982-2010 2008-2010
Argentina 1.4 1.18 1.32 1.47 1.05
Brazil 2.2 1.71 3.35 1.27 2.62
Chile 2.0 1.55 1.36 3.55 0.75
Colombia 1.9 1.55 2.18 1.89 1.23
Mexico 1.7 1.11 2.98 0.58 -2.06
Peru 2.0 2.48 2.15 0.97 3.19
Uruguay 1.7 1.58 1.36 2.24 4.30
Venezuela 2.7 4.61 2.21 0.20 -3.27
8L. América 1.7 1.72 1.92 1.52 0.98
EUA 2.0 2.63 1.17 1.88 -0.85
The conferece Board, 2011. Projections to 2014 show feeble and
Unstable growth. Mexico suffered the most from the crisis and will
Have mediocre growth
Chile: Agriculture: Productivity per worker and
participation in total employment and total GDP.
1960-2008
7000
28
6000
23
5000
18
4000
13
3000
2000 8
1000 3
1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Productivity (left) GDP Employ
Productivity increases due more to the reduction of employment than to increases of
value added per worker. Chile has comparative advange in agriculture, forestry and
fishing
The trajectory of the concentration of Income
GINI
Argentina Brazil Chile Colombia Mexico
1945 35 54 40 51 52
1960 37 53 45 59 52
1970 39 57 50 52 49
1980 41 56 52 52 52
1990 44 60 54 54 52
2000 50 59 57 57 54
2009 58 58 52 58 52
Source: Own Elaboration based on ECLAC, SEDLAC, National Statistics.
Concentration of income as in Latin America is destructive: eliminates social mobility,
inhibits emulation, constricts growth and poverty reduction and restricts democratic
action. Bridsdall, N. (2005) "… the most pernicious price of inequality is the
intensification income concentration and the calcification of the political system
Ramcharan, R. (2010)
Poverty incidence in Mexico: a stubborn
problem
Thousands persons In % of total population
Año
Food* Capabilities** Capital*** Food* Capabilities** Capital***
1992 18,579 25,772 46,139 21.4 29.7 53.1
2000 23,722 31,216 52,701 24.1 31.8 53.6
2004 17,915 25,435 48,625 18.2 24.7 47.0
2005 18,954 25,670 48,896 17.4 24.7 47.2
2006 14,743 22,073 45,502 13.8 20.7 42.7
2008 20,215 27,768 52,294 18.4 25.1 47.7
2010 21,204 30,030 57,708 18.8 26.7 51.3
Δ 06 - 2010 6,461 7,957 12,206 5.0 6.0 8.6
The analysis of the trajectory of income concentration and poverty
requries a long term perspective. Even before 2009, the reduction of
poverty in absolute numbers and in percentages was reversed. Between
2006 and 2010 a total of 6.4 million inhabitants fell into food poverty.
Reading No. 2 Alternatives
Democratic governments had to introduce
reforms to alleviate some effects of the model:
enlarged coverage of social security, direct
employment programmes and programmes to
improve employability,
conditioned focalized cash transferences,
universal rights, popular health insurance.
A new social pact on the way?
To introduce alternative models it is required a
social pact, new forms of social relations, new
rules for capital accumulation.
Distribution can be achieved by:
new fiscal policy: taxation and expenditure.
Labour regulations equilibrating the power of
caital (concentrated) and labour (disperse).
Is there a new social pact?
What does fiscal policy tell?
Little impact of transfers (assistance plus insurance) on
income inequality. Negative in Peru; Brasil 0.5%;
Argentina 3% in average in Latin America 1%.
The impact of Taxation on GINI income concentration is
low: 0.012 in Chile which has the most progressive tax
structure
Improvements in Brazil does not alter the GINI
significantly
In Ecuador, Bolivia, Mexico and Colombia, transfers are
finance mainly out of oil and gas rents (national
property) and does not imply taxation.
New fiscal pact
• Increase fiscal revenue and reduce
dependence on natural resources
• Ensure progressiveness in taxation and
expenditure
• Strengthen capacity to instrument
counter cyclical policy.
Deficit in taxation as % of GDP
Country Total Corporate Personal Goods Internati Property
services trade
Argentina -12.3 -1.2 -4.4 -3.4 -1.1 -0.3
Bolivia -3.6 -1.5 -1.5 1.5 -2.7 1.1
Brasil -0.7 -1.3 -3.7 -0.8 -1.9 -0.5
Chile -3.6 -2.4 -4.0 2.9 -0.4 -0.5
Colombia -8.6 1.6 -2.7 -1.7 -1.7 -0.3
México -5.2 -2.4 -3.6 1.0 -1.9 -0.5
Paraguay -8.0 -0.6 -2.6 -1.5 -1.0 -0.1
Venezuela, R.B. de -6.4 6.0 -3.5 -3.4 -0.9 -0.1
Median -4.0 -1.0 -2.9 -0.6 -1.2 -0.3
Low taxation constraints the reduction of poverty and income
concentration. So far taxation has not been improved. Honduras
Nicaragua and Uruguay collect taxes above the expected level: Brazil is
below that level by 0.7%
Trajectory of real wages
Argentina
250
200
150
100
50
0
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
Real Min wage Real M. Salary
Brazil
190
170
150
130
110
90
70
50
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
Real Min wage Real M. Salary
Index of real wages. 2000=100
Chile
130
110
90
70
50
30
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
Real Min wage Real M. Salary
Mexico
350
300
250
200
150
100
50
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
Real Min wage Real M. Salary
CONCLUSIONS
Latin America in the 70s and early 80s
shows that austerity needs non
democratic regimes.
Democracies had to instrument reforms
to reduced negative social effects of
the neo liberal model.
Improvements have taken place in the
region reducing poverty and less in
income concentration and to
recuperate the loses since 1982.
CONCLUSIONS
Social debt is large, income
concentration too high, taxation too
low and public expenditure unable to
significantely reduce poverty and
inequality
Political developments will determine how
much social solidarity the region is
capable to accept
¡GRACIAS POR SU
PACIENCIA!
