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
Argentina
Brazil
Chile
Colombia
Mexico
Peru
Uruguay
Venezuela
8L. América
EUA
Annual Average Rates of Growth in percents
1900-2010 1900-45 1945-82 1982-2010 2008-2010
1.4
2.2
2.0
1.9
1.7
2.0
1.7
2.7
1.7
2.0
1.18
1.71
1.55
1.55
1.11
2.48
1.58
4.61
1.72
2.63
1.32
3.35
1.36
2.18
2.98
2.15
1.36
2.21
1.92
1.17
1.47
1.27
3.55
1.89
0.58
0.97
2.24
0.20
1.52
1.88
1.05
2.62
0.75
1.23
-2.06
3.19
4.30
-3.27
0.98
-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
6000
5000
4000
3000
2000
28
23
18
13
8
1000
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
3
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
1945
1960
1970
1980
1990
2000
2009
Argentina Brazil
35 54
37
39
41
44
50
58
53
57
56
60
59
58
Chile Colombia Mexico
40
45
50
52
54
57
52
51
59
52
52
54
57
58
52
52
49
52
52
54
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
Thousands persons problem
In % of total population
Año
Food* Capabilities** Capital***
1992
2000
2004
2005
2006
18,579
23,722
17,915
18,954
14,743
2008 20,215
2010 21,204
Δ 06 - 2010
6,461
25,772
31,216
25,435
25,670
22,073
27,768
30,030
7,957
46,139
52,701
48,625
48,896
45,502
52,294
57,708
12,206
Food* Capabilities** Capital***
21.4
24.1
18.2
17.4
13.8
18.4
18.8
5.0
29.7
31.8
24.7
24.7
20.7
25.1
26.7
6.0
53.1
53.6
47.0
47.2
42.7
47.7
51.3
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.

• 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
Argentina
Bolivia
Brasil
Chile
Colombia
México
Paraguay
-5.2
-8.0
Venezuela, R.B. de -6.4
Median -4.0
-12.3
-3.6
-0.7
-3.6
-8.6
-1.2
-1.5
-1.3
-2.4
1.6
-2.4
-0.6
6.0
-1.0
-4.4
-1.5
-3.7
-4.0
-2.7
-3.6
-2.6
-3.5
-2.9
Goods services
-3.4
1.5
-0.8
2.9
-1.7
1.0
-1.5
-3.4
-0.6
Internati trade
-1.1
-2.7
-1.9
-0.4
-1.7
-1.9
-1.0
-0.9
-1.2
Property
-0.3
1.1
-0.5
-0.5
-0.3
-0.5
-0.1
-0.1
-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
190
170
150
130
110
90
70
50
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
Real Min wage
19
96
19
98
20
00
20
02
Real M. Salary
20
04
Brazil
20
06
20
08
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
Real Min wage
19
96
19
98
20
00
20
02
Real M. Salary
20
04
20
06
20
08

Index of real wages. 2000=100
Chile
130
110
90
70
50
30
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
Real Min wage
19
96
Mexico
19
98
20
00
20
02
Real M. Salary
20
04
20
06
20
08
350
300
250
200
150
100
50
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
Real Min wage
96
19
98
20
00
20
02
20
Real M. Salary
04
20
06
20
08

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