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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.

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Presentation on theme: "Challenges to the Global Economy in Uncertain Times: The Lessons from Latin America Alicia Puyana FLACSO Presented at the IDEAs Tenth Anniversary Conference."— Presentation transcript:

1 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

2 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

3 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….

4 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?

5 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.

6 Latin American Countries The conferece Board, 2011. Projections to 2014 show feeble and Unstable growth. Mexico suffered the most from the crisis and will Have mediocre growth

7 Chile: Agriculture: Productivity per worker and participation in total employment and total GDP. 1960-2008 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

8 The trajectory of the concentration of Income GINI 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)

9 Poverty incidence in Mexico: a stubborn problem 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.

10 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.

11 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).

12 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.

13 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.

14 Deficit in taxation as % of GDP 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%

15 Trajectory of real wages Argentina Brazil

16 Index of real wages. 2000=100 Chile Mexico

17 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.

18 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


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