ECONOMY-LATAM: More Even Distribution of Wealth is Key to Growth

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Nov 22 2002 (IPS) - Sustained economic growth is impossible without a more even distribution of wealth, to strengthen domestic markets, former prime minister of Spain Felipe González said at the Latin America Business Summit in Brazil.

That is a ”practical, not a theoretical, truth,” said González, who spoke with the authority of a leader who transformed Spain from an emerging country into one of the world’s ”central” countries in his 14 years of government.

He pointed to the growing inequalities in Latin America, the region with the most skewed distribution of income. The worst situation is seen in Brazil. According to the World Bank, Latin America’s giant has the world’s fourth-widest gap between rich and poor.

”None of the world’s ‘central’ countries is weak in terms of distribution of wealth,” González, who is now a Spanish Socialist Workers’ Party lawmaker, told political, business and social leaders taking part in the three-day meeting convened by the World Economic Forum, which drew 400 delegates from 30 countries to Rio de Janeiro.

It ”is not a moral question,” but a question of economic efficiency, since improved social conditions bolster the ”prime strategic variable – human capital,” which is indispensable to success, he asserted.

But asked for a few words of advice for Brazilian president- elect Luiz Inácio Lula da Silva of the leftist Workers’ Party, González said governments on the left often failed because they merely focused on improving distribution, without promoting methods for generating wealth and growth.

He warned the future president of Brazil not to neglect the economic fundamentals in his bid for bolstering social equality.

Lula, a former steelworker and trade unionist, won a landslide victory on Oct 27 and takes office on Jan 1.

In González’s view, the ”dramatic crisis” currently plaguing Latin America could pose a risk to democracy. Although the military have pulled out of power, they are returning as ”populist leaders,” he noted, in an allusion to the controversial Venezuelan President Hugo Chávez.

The former prime minister also said international lending institutions should take into account the goal of fostering development, rather than merely requiring developing economies to undertake harsh fiscal adjustments.

The political and social challenges that must be overcome before Latin America can renew its development process were discussed at the regional business meet, which ends Friday.

The theme of the gathering, which debated Argentina’s economic, political and social collapse at length, is ”Collective Action for Sustainable Growth and Social Equity”.

Brazilian activist Vivianne Senna, with the Ayrton Senna Institute, a non-governmental humanitarian organisation that helps provide education and assistance to underprivileged children, pointed out that 44 percent of the population of Latin America is living below the poverty line, with incomes of less than two dollars a day.

Although it is the world’s tenth largest economy, Brazil ranks 73rd on the Human Development Index put together by the United Nations Development Programme.

In countries with similar levels of income, as little as eight percent of the population lives in poverty, compared to 30 percent of Brazil’s 171 million people, said Senna, who called for a ”two- pronged agenda, of transformation of the productive apparatus and social equity.

”Piecemeal philanthropic initiatives” by companies with a sense of ”social responsibility” and non-governmental organisations are insufficient, she said, arguing that what is needed are ”public policies that address social problems on a large-scale.”

For his part, World Bank president James Wolfensohn urged the international financial institutions to keep social criteria in mind when making investment decisions.

Each country must be judged not only by its financial indicators, but by the cultural level and potential of its people, Wolfensohn told participants in the business summit.

Investment flows to Latin America fell from 40 billion dollars in 1997 to half that level this year, said the World Bank president, who criticised investors’ pessimistic perception of the region.

Juan Manuel Santos, a former Colombian minister of finance and the economy who heads the Good Government Foundation, a political think-tank in Colombia, said the current Latin American crisis is ”more political than economic.”

Institutions can only function properly with ”good politics,” he added.

But he pointed to the ”diabolical trap” in which indebted nations subjected to harsh structural adjustment programmes are caught up.

The reforms, which entail cuts in social spending, tight fiscal discipline, privatisation, and the opening of markets, have swollen Colombia’s public deficit, instead of reducing it, he maintained.

Santos accused rich countries of aggravating the difficulties faced by the developing world by shelling out subsidies to their farmers, which distort international trade.

He said coffee-growers in Colombia joke that if they are reincarnated, they would like to come back as cattle in Europe or banana trees in Spain’s Canary Islands because of the hefty subsidies they receive.

Farmers in the European Union receive three to four dollars a day per cow, while in Japan they receive seven dollars a day, reported former Costa Rican president José María Figueres, a managing director of the World Economic Forum, which brings together the world’s top business executives and government leaders in the Swiss resort town of Davos at the start of every year.

The World Economic Forum also holds ”country forums” and regional business summits to promote an exchange of ideas between governments and the private sector. This week’s was the first organised in Latin America.

González agreed that the Washington Consensus, the neoliberal economic doctrine of liberalisation, deregulation and privatisation that inspired the economic reforms prescribed by the United States, International Monetary Fund (IMF), and World Bank in Latin America in the 1990s, ”has become an ideology.”

The former Spanish prime minister said he was in favour of the free market, as a means of generating wealth. But, he warned, no- holds-barred deregulation, especially of the financial market, is a grave mistake that has cost countries like Mexico and Ecuador as much as 20 percent of their gross domestic product.

González advocated the need for a new global financial architecture, and was surprised at the news that Brazil’s National Bank of Economic and Social Development grants long-term loans that are greater than those provided by the World Bank.

If a national development bank outloans a global financial institution, something is wrong, said González.

The current crisis is global, he added, like ”a pandemic,” and the ”central” countries must realise that their economies are hurt by the exclusion from the market of hundreds of millions of poor people, as occurs in Latin America.

ECONOMY-LATAM: More Even Distribution of Wealth is Key to Growth

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Nov 22 2002 (IPS) - Sustained economic growth is impossible without a more even distribution of wealth, to strengthen domestic markets, former prime minister of Spain Felipe González said at the Latin America Business Summit in Brazil.
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