ECONOMY-LATAM: Market Triumphant at End of Century

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Dec 23 1999 (IPS) - In the mid-1980s, Latin America gave up its dream of promoting import substitution and entered a liberalisation process that, at the end of the century, has brought a severe trade imbalance, with serious social and economic consequences.

Historians, sociologists and economists say that the region’s economic slide into a neoliberal model was preceded by number of external political factors, like the fall of the Berlin Wall, the dismantling of the Soviet Union and the beginning of the end of the Cold War.

Ernesto Lope, an Argentinean sociologist and director of social sciences at the University of Quilmes, told IPS that the onset of the economic liberalisation process in Latin America, involving privatisation and reform of the state, took place within this broader context.

After the collapse of the communist system in Europe, the dynamic Western economic model was adopted, with rapid opening of economies and the abandonment of protectionism, in turn fueled by capitalism itself, which is constantly seeking more cost-efficient and competitive production, Lopez explained.

He added that the so-called State of Well-Being, both paternal and interventionist, became obsolete along with the import substitution model and was relegated to a tiny portion of the economy, in the context of competition and permanent shrinking of the state – which previously had provided a safety net for its citizens.

“Together with the need to finance (and) restructure their debts, to reduce public spending and secure fiscal equilibrium, the countries of the region had no other alternative but to dive headfirst into profound economic restructuring,” emphasised Lopez, who wrote a book called “Globalisation and Democracy.”

He clarified that, while the globalisation of the 1990s is irreversible, not every country is forced to get involved in this process or to follow it in a rigid manner, but can opt for a more or less controlled participation.

However, Lopez admitted that the failures of former Peruvian president Alan Garcia (1985-1990) when he stayed within the guidelines of the “old model” was a signal to many Latin American governments that this paradigm should not be followed.

Lopez said that the bottom line of the neoliberal reforms in the region is positive for anyone who thinks exclusively in economic terms and relegates social impacts to the back burner.

Objectively speaking, the region’s economies have stabilised, the majority of countries are showing strong growth in gross domestic product (GDP), investments are guaranteed and foreign capital has put down roots and initiated development projects geared toward the external market.

However, in the last decade, the model of free trade and a smaller state is showing other, less “successful” symptoms.

These include the impact of accelerated technological development on the labor market, and the increased pressure on local businesses to successfully compete – not with each other, but with some of the biggest corporations in the world.

The employment rate has started to decline in Latin America, and with joblessness comes new social problems.

A job is no longer the anchor around which people structure their lives, keeping them integrated in society and helping them define themselves according to their skills and knowledge. Today, such things are unnecessary.

French sociologist Robert Castell, who visited the region this year to promote his book, “The metamorphosis of the social question,” said the neoliberal system had produced “supernumeraries.”

Castell cited the people without jobs who, in the best-case scenario – such as in industrialised countries – receive a hand- out that bears with it the message “you are a leftover.”

In the nations of Latin America, the state does not have the funds or capacity to assist those excluded from the economic system and, accordingly, there is no unemployment insurance, nor is it known how the jobless spend their free time.

Every safety net and social assistance programme that was previously a substantial part of the state’s role, even during times of high unemployment, were dismantled little by little in the belief that the market would create jobs for everyone.

But figures provided by the Economic Commission for Latin America (ECLA) reveal that the distribution of wealth continued to be unequal in the majority of countries, despite economic growth in the 1990s and reduction of inflation, particularly in Argentina and Brazil.

The most recent ECLA report notes that, of the 12 nations examined, the income distribution in seven – Argentina, Brazil, Costa Rica, Ecuador, Panama, Paraguay and Venezuela – had become increasingly skewed even though their GDPs had gone up.

“What was observed in Latin America during the 1990s confirms that the evolution of economic growth does not permit predictions about income distribution,” the study cautions those countries which have blindly adhered to the neoliberal recipe.

ECLA had similar findings with respect to the rates of poverty and indigence. The downward trend does not seem to be affected by the respective nations’ growth potential, but rather by financial infusions into the public sector, especially in social security and pensions, as is the case in Uruguay.

The total number of people living in poverty in the region continues to hover at 200 million, which equals 43 percent of the population, while the utterly destitute amount to some 90 million (15 percent).

While clean running water and sewage services are provided to much of this population, their income level keeps them in poverty – together with the “newly poor,” who have fallen from the ranks of the middle class and have little or no possibility of getting a job or pension fund.

Lopez said that certain counties with vast and entrenched poverty, like Brazil and Mexico, made the adjustment more slowly. “Mexico for historical reasons, and Brazil due to strategic questions,” he explained.

On the other hand, Argentina, which at the start of the 1990s was mired in stagnation and hyperinflation, imposed adjustment at an accelerated pace.

Few other countries diminished the presence of the state as quickly and substantively as Argentina did under the 10 years of Carlos Menem’s tenure (1989-1999).

During that period, the Menem administration attacked every state structure. Public enterprises were sold off in a very brief time, despite the resistance of the labor unions who worked at those entities.

The number of jobs in Latin America has failed to increase, even with the region’s heightened economic activity.

On the contrary, fewer jobs are being created than before, and contract conditions have become more and more precarious, with the objective of reducing salaries so as to arrive in the world market with more competitive production.

“Unemployment decreased since the start of the 1990s, but thereafter it began to go up again in most countries in the region, and is tending to increase even further among women, youth and the people with the lowest incomes,” warns the ECLA study.

Similarly, the International Labor Organisation (ILO) cautioned about this discouraging trend, which marks the end of the decade and the close of the century.

The unemployment rate is not the only worrisome factor in Latin America. Also cited is the growth of the informal sector, which in nations like Peru employs 74 percent of the working-age population.

“The average unemployment rate in the region grew from 7.2 to 8.4 percent in 1998, and the informal labor (market) accounted for 60 percent of all jobs,” said an ILO report released at the start of the year.

It also predicted that average unemployment in 1999 would be the highest of the past decade, at almost 10 percent.

Lopez affirmed that those statistics show an “incongruence” between the dynamic economy and the social consequences it brings.

“There is a very big gap in our region between the economy and the society, and in the face of this divorce, the state tends to side with the economy,” he said.

The expert concluded that this “is the famous triumph of the market over the state. The market won and colonised the state, which is creating a grave problem for the future, a social problem that will have to be urgently resolved at the start of the 21st century.”