OPALC publishes a paper written by Professor Ilan Bizberg (Colegio de México). Presented at the international conference of the World Society Foundation on "The global economic crisis: perceptions and impacts", University of Zurich, September 10-11, 2010, the paper is currently under review by the Swiss Journal of Sociology.
The economic crisis as a revelator of the existence of different types of capitalism in Latin America.
El Colegio de México
August 30, 2010.
To access the supplemental materials (figures, charts), follow this link.
By the end of first decade of the present century the differences between Brazil and the rest of Latin America have started to appear ever more clearly to most analysts. While Brazil grew 5% in 2008, and reduced its growth by a mere 0.2% at the height of the economic crisis; Mexico grew a mere 1% in 2008 and fell a staggering 7.5% in 2009 (Naím, M. 2009 and Le Monde, 24/05/10). Argentina did much better than Mexico as it grew 6.8% in 2008 and 0.9% in 2009. Chile is another country that was badly hit as its economy depends highly on exports; while it grew 3.7% in 2008 it receded 1.5% in 2009. While Brazil is expected to grow between 5.5% and 7.5% in 2010, Argentine is expected to grow 3.5%, Chile 4.7%, and Mexico 4.2%, which has to be weighed against the impressive decrease of its economy in the year before (FMI, 2010, 66). Brazil recovered the level of employment that it had before the crisis by the end of 2009, while Mexico is grappling to fight its highest rates of unemployment in the decade: it went from 3.24% to 5.31% from May 2008 to May 2009 (Blanke, 2009, 167). Although according to the Ministry of Labor, Mexico recovered 380,000 jobs in the first 3 months of 2010 the unemployment rate went up to 5.4% according to the INEGI. This data has to be compared to the fact that between October 2008 and October 2009 unemployment increased by 700,000 formal jobs, and that many critics consider that the jobs being created in these last three months are of much lesser quality that the ones lost in 2009 (El informador.com.mx, 24/10/2010) In fact, between June 2009 and June 2010 around 2,342,000 new jobs were created. Nevertheless, nine out of each ten of these jobs are low quality jobs, which have grown at a rate of 6.8%, while the more qualified jobs grew at a rate of 1.1%: only 158,000 specialized jobs against 1,182,000 low qualification jobs (Bouzas, A, cited by , Reforma, section Negocios, 6/09/2010). In the first three months of 2010, Brazil created 1 million new jobs and it is expected to create 2.5 millions in the year (Le Monde, op. cit.). The financial data is also telling, while Brazil received a direct investment of 45,000 millions of dollars in 2008 and around 26,000 in 2009, Mexico received 18,000 in 2008 and 10,683 in 2009 (Rueda, I., 2010). Because the amount of capital that was entering Brazil was so large and was revaluating its currency so strongly, the government decided to introduce a tax on foreign investment (Naím, op. cit.).
How can we explain such a situation, where two of the countries that were markedly the models of Latin America in the nineties: Mexico and Argentina are in such difficulties, while the country that was signaled to be the one needing most urgently the recipes of the "Washington Consensus": retreat of the State, privatization, and deregulation, is doing so well. This apparent paradox is explained by one of the heterodox economists of the US, Dani Rodrik, not as proof that the recipes were wrong but that they are too abstract, they are right at the end of a road that diverges from country to country and that depends on their particular situation (Rodrik, 2005). Nevertheless, I will try to defend the idea that we far from dealing with different paths that lead to the same end, but that we are facing the development of different types of capitalism in Latin America, in the same way as there are different types of capitalism in the developed world. In am following the literature that considers that there are different capitalisms: while some are more liberal and based on the market, others are more coordinated (Hall and Soskice, 2001), in still others the State has a crucial role (France, Korea), and in others it's the conglomerates of banks and industries that play the main role (Japan) (Amable, 2005, Boyer 2009). In Latin America there would also exist different types of capitalism and not a deficient variant of the one (or ones) that exist in the developing countries (as have said Schneider and Soskice, 2009). In Latin America we can recognize an export led capitalism based on a relatively strong intervention of the State (Chile), another one based on the internal market with State intervention (Brazil), and an export led capitalism based on international subcontracting with little intervention of the State (Mexico).
With the idea that we are facing the consolidation of different types of capitalism in Latin America, our main argument is that we have to analyze, as have done the authors that recognize different types of capitalism in the developed countries, the relation between the economic structure and the socio-political conformation. In at least these three countries we can see that the central elements of all characterizations of capitalism: the economic structures, the welfare regime and the industrial relations are complementary enough to be able to construct ideal types based upon them. We are not able to include other elements such as the educational and the qualification system nor the political system for lack of space.
To perceive these differences it is necessary to analyze the way in which they have faced the present crisis. This, because the responses to the crisis are not just defensive reactions to its consequences. Sometimes they are, in effect, mere defensive measures (Mexico), but as most crisis show, they can also be an opportunity to make adjustments to the economic and social policies in order to try to consolidate a type of capitalism (Brazil, Chile) or to diverge from a given economic trajectory (Argentina).
The main idea of this paper is that the way countries both responded to the crisis and are coming out of it partly depends: 1. on path dependency, on the economic, social and political institutions and organizations created in the past; 2. On the manner in which the country transformed its economic and social institutions during the eighties and nineties and the degree in which it followed the recipes of the Washington consensus; something that in the countries we are analyzing is closely related to the political context in which they did so, whether under an authoritarian or a democratic regime; 3. The type of welfare regime the country has developed. In fact, the measures taken to face the crisis are not only a condition of the manner in which these countries are coming out of it, but in many respects, a consequence of the previous dimensions.
1. Divergent historical trajectories.
Although most of the literature on Latin America considers that all the countries of the continent followed more or less the same mode of industrialization by import substitution, had the same problems and failed for more or less the same reasons, there are in fact important differences between countries. As it was analyzed in a path-breaking article by Marques-Pereira and Bruno Theret (2005), Mexico and Brazil followed a similar path of economic development based on very different institutional conformations, until these institutional conformation started determining the economic evolution and began to function in non complementary ways in Mexico and in more complementary ways in Brazil. In effect, in the seventies, these two countries started to diverge in important ways, when Latin America faced one of its recurrent crises of balance of payments. Brazil, governed by the military, who founded their legitimacy on continuous economic growth, faced the crisis and was obliged to advance import substitution of intermediary and capital goods, in order to reduce its exterior dependence on these goods, and begin opening up their political system to solve its problems of legitimacy. Mexico had the fate of finding great oil reserves and become an exporter. The resources that began arriving as public debt in prevision of this situation, allowed the governments of the PRI, to maintain their inclusive authoritarian political regime during the 70's and delay any changes in its import substitution scheme (Marques-Pereira-Theret, 2004).
One can explain the socio-political foundations of these different trajectories in the seventies on the basis of the trajectory of : 1) the relationship between industry and the rural sector, 2) the force and persistence of the industrializing coalition, 3) the autonomy of the State.
In the first register, many studies have shown how in Argentina, land was very concentrated since the middle of the nineteenth century and migrants came to this country to rent lands, cultivate them in order to accumulate capital and go back to their original countries. Land owners were an oligarchy that made money on renting very fertile land rather than producing themselves. Neither the renters nor the owners had any incentive to modernize production or capitalize their land (Adelman, J., 1992). In addition, it meant that they had no interest in developing other areas of the economy, such as industry, because any development of other sectors of the economy would mean that their economic and political power would be endangered; as they were also the main importers of industrialized products from England (Teichman, 1982). This meant that Argentina industrialization had to be imposed on the agrarian oligarchy by an urban and popular alliance between industrialists and workers led by Juan Domingo Perón between 1948 and 1955. Industrialization was based on price controls that favored consumption of agricultural products against exports (Teichman, 1981) and the extraction of high taxes on agrarian production (Kay, 2002, 1091). Nevertheless, the agrarian interests remained very strong and vetoed industrialism every time they could; something that often meant ending the democratic game by supporting a military takeover (Rapoport, 2005). This basically meant that, in this country, industrialism was never a long term project, but was always confronted with an agrarian project. Argentina swayed from politics of industrial production and protection to an open economy and support for agro-exports.
Mexico seemed better set to support industry by the fact that the Revolution destroyed the landowner class, which had, as the Argentinean, concentrated great extensions of land. Moreover, after the revolution, the State destroyed the bases of such a class by proceeding, in the thirties, to an extensive agrarian reform. There was no active agrarian oligarchy to oppose industrializing efforts. Nevertheless, the fact that it did not help the peasants to capitalize their land resulted, contrary to Korea and Taiwan, in impoverishment of the peasant class and increased inequality.
In contrast, in Brazil there was a compromise between the agrarian and the industrial interests. The Brazilian State has traditionally played the role of compromise between different interests and provinces. The Vargas revolution was an alliance between the oligarchy of the Nordeste and that of Rio Grande do Sul, against the interests that had been in power until then: those of Rio de Janeiro and Sao Paulo (Fausto, 1995, p.183). This character of the State survived during most of the twentieth century, transforming itself in a compromise between the producers of agricultural products for exportation and the industrialists. In fact, because the needs of the population were never fully covered by imports (as it had been in richer Argentina by the agrarian oligarchy), beginning at the late nineteen century the agrarian producers had started to invest in industry (Rapoport, 2005, 292). This explains why industrialization was not a contentious subject between Brazilian interests. It also explains why there hasn't been an agrarian reform in this country, something that has resulted in extreme income inequality and the persistence of poverty.
In Argentina, the peronist-industrializing coalition was formed by the urban businessmen, workers and middle classes. Although they were quite strong because they were politically dominant as they had inaugurated modern politics, they nevertheless represented one pole of the Argentinean society. On the contrary, landowners were economically strong and had links with military, but no political representation. This situation permanently polarized Argentinean society and when legally elected governments began to go against the interest of landowners they had the veto power to recur to the military to stop the democratic game. (Portantiero, 1982).
In Mexico, the industrializing coalition was integrated on the basis of the State that emerged from the revolution and that had succeeded in building its own social foundations. It delivered land and supported trade union organizations and their struggle to get better labor conditions in exchange for political support, a highly efficient system that lasted for 70 years. The coalition also included the entrepreneurs that emerged through subsidies, direct investment and protection from the State. Nevertheless, the fact that the Mexican State born from a social Revolution that installed a durable authoritarian regime determined that the main logic of the State was the preservation of that regime rather than the modernization of the economy. The economy served to continue co-opting those sectors that were inside and integrate those that were outside and had become strategic enough to be included (Bizberg, 2004).
In Brazil, the coalition was more solid because it incorporated both urban and rural interests, as well as the State. Industrialism was conceived as the instrument for modernizing the country. In contrast to Argentina it was not a polarizing but a unifying issue. In contrast with Mexico the economic project was not subordinated to the political. In Brazil it was (and is) the goal of a more autonomous State, embedded in a social coalition that conceived modernization as a manner in which the country could be unified and have a regional and international impact.
The State in the three countries differs with regards to their autonomy. The Argentinean State has always been an instrument in the hand of one sector of society against the other. The peronists instrumentalized the State towards industrialization, the agro-exporting sectors to open the economy for their exports (Rapoport, 2005). In Mexico, the State was the instrument of the political regime. The revolution and its subsequent political vacuum imposed the reconstruction of the political regime as the main task to be achieved. This led the State to adopt a political nationalist stance, basically discursive and ideological, to confront the economic dominance of its Northern neighbor and impose bans on foreign capital until the end of the eighties. The Brazilian State was more autonomous as the country was more weakly consolidated and passed through many different political regimes. It used modernization by industrialization as a way of legitimizing itself through the different regimes, especially after the military 1964 coup. Its nationalism was more economic and pragmatic; it reached a partnership between foreign, state and national capital (Marques-Pereira and Théret, 2004).
2. The Context for the transformation of the economic model and acceptance of the recipes of the international economic organizations.
Due to the limitations of this paper, we cannot delve into the details that would be necessary to understand why the countries we are analyzing in this text responded so differently to the crisis of 1982; we will by necessity schematize.
Let's start with Mexico, which in many respects was the nodal point of the crisis. In the previous section we discussed some of the elements that explain why the Mexican import substitution model was not as deep as that of Brazil. In this section we argue that in many respects the 1982 crisis resulted from this incapacity to deepen industrialization. One of the main ideas of Haggard's comparison between Latin America and East Asia (1990) is that the way external pressures oblige the countries to modify their development model is crucial. The crisis of 1982 put the industrial bases of the Latin American countries at stake. In the case of Mexico it showed the weakness of the industrial basis and the fragility of a redistributive model based on the resources of oil exports and debt.
Recurrently, countries are confronted with the decision of how to tackle an external balance of payments crisis. The crisis of 1929-1930 and then the Second World War led many countries around the world to the import substitution model. In the 50's, the countries that had entered a virtuous cycle of internal market growth and industrialization were pushed to step up and produce more complex consumer products, a second stage of industrialization. During the crisis in the seventies, Brazil, Korea and Taiwan were hardly hit because they did not have oil and the only manner to acquire foreign currency was to deepen their industrializing process and start exporting (Haggard, S., 1990). In contrast, even if the State in Mexico also invested in steel and heavy industry such as railcars and machinery, the fact that the crisis coincided with the discovery of huge reserves of oil made it possible for Mexico to opt for the easy way, by getting loans on the basis of its eventual conversion into a significant petrol exporter.
Mexico arrived to the seventies under the PRI regime, a civilian-authoritarian regime that depended on its control of the popular organizations and its revolutionary legitimacy. It was an inclusionary-authoritarian-corporatist regime in contrast to the military exclusionary regimes of the South Cone. Due to the challenge posed by the student movement in the late 60's and the labor movement in the early seventies, the main concern of the government was more political stability than the viability of the economic system (Bizberg, I, 2004). The discovery of oil reserves and the possibility of acquiring debt seemed to be a perfect solution to the dilemma of how to deepen the import substitution model while continuing to redistribute and give concessions to its protected entrepreneurs. Although the Mexican State tried to do both, it basically ended up doing the latter while expanding its petroleum platform and its debt.
This solution resulted catastrophic when in 1981, both the oil prices fell and the rates of interest went up. Mexico suspended payments on its debt and had to recur to the IMF that imposed draconian measures on the country. But, more importantly it did this on a country that, in contrast to Brazil, had a relatively weak industrial base. The financial catastrophe and the recipes of the international financial institution convinced many of the Mexican leaders that the country had to abandon import substitution and orient towards an export led growth. In the span of one sexenio, Mexico radically opened its economy and abandoned industrial policy with practically no opposition; it was imposed on society (workers, peasants and businessmen). The new export led growth model led to an exceptional expansion of the maquiladora industry and the assimilation of other exporting industries to subcontracting once the government abandoned the idea of enhancing an industrial policy to integrate local production to sectors dominated by foreign capital. A mode that has shown a very low capacity of integration of new technology and low productivity growth as it was basically (there are some exceptions) based on manufacturing segments of high concentration of labor, based on low salaries (Puyana and Romero, 2009). This situation imposed a strict salary control in order to continue being competitive. (See figure 1) The continued control of the labor unions by way of the corporatist arrangement was totally functional to this purpose (Bensusan, 2008) The only possibility of escaping this very slow upgrading would be vertical integration of the industry through the incorporation of national providers to the export industry. Nevertheless, the different governments thought this would happen naturally and never applied an industrial policy.
Brazil followed the contrary path. The economic scheme implemented by the military was accelerated growth with no wealth distribution. This mode reached its limits beginning the eighties when the financial international context reversed. At that moment Brazil had to depend on its own resources in order to confront the disequilibrium created by economic growth under an extremely unequal wealth distribution; the opposite of the fordist economic model that existed in the US and Western Europe during the thirty years following the second world war (Boyer, 2005 ). This situation eventually led to rampant hyperinflation that could not be controlled as Brazil was coming out of a dictatorship and the social forces were very active and had no intention of accepting to pay for the adjustment. Although this situation was extremely costly in social terms, especially for the sectors that were not covered by indexation, it nevertheless functioned as an obstacle against des-industrialization that is caused by liberalizations under external pressure. (Marques-Pereira and Theret, 2005) This meant that Brazil had the possibility of preserving its industrial base and transit to democracy.
The case of Argentina and that of Chile (that I will introduce tentatively here) are also interesting for their differences. As Brazil, both of these countries were governed by the military, although there was a crucial difference between the policies of the former and the latter two. The military regime that took power in 1973 in Chile as well as the one that did so in Argentina in 1976 (Canelo, 2009) had as its main purpose to extricate popular pressure from politics and from the State: to "depoliticize" the State. Both countries had popular (basically labor) organizations deeply entrenched in the political system; something that explains the virulence of these regimes and, more relevant to our purpose, no economic rationale, or rather, the preponderance of a political rationale over the economic one. Both military adopted an economic program totally opposed to the one that had been followed since then. The military in both countries, with more orthodoxy and more rationality in Chile, opened the economy, reduced the weight of the State and limited mechanisms of wealth redistribution. Both of these countries responded to the balance of payments crisis that ensued with the imposition of a new economic model (For Argentina: Rapoport, M. 2005, pp 600-701, for Chile: Silva, 2007).
Brazilian military had the same purpose of "depoliticizing" the State after the intense trade union mobilizations that had characterized the Goulart presidency they had overthrown. Nevertheless, the unions were not as deeply entrenched in the Brazilian political system as were the peronistas in Argentina and the trade unions in the Socialist party of Chile. The political and repressive measures they took were less radical. In addition, in Brazil the military took power before the crisis of the 70's, a moment where there was still no alternative model to import substitution, or when it was still not so hegemonic as it became since the mid seventies. The Brazilian military followed many of the structuralist economic policies that had been in vogue in Brazil, but reduced their redistributive impact, and especially extricated these redistributive mechanisms from the unions. On the other hand, the military as much as the civilians, before and after them, had the conception of Brazil as a regional and international power that needed a strong economic basis, which meant self-sufficiency in heavy industry, machinery and arms (Sallum, B. 2010). This led the Brazilian military to the deepening of industrialization rather than to the opening of the economy and to deindustrialization.
Chile, under Pinochet had no difficulty in extending the liberal agenda on the economy. An economy based on the industrialization of commodities: agro-industry (fish, wine, dried fruits), wood pulp and copper. Nevertheless, one can characterize Chile's State as more autonomous and the relationship with the private sector a more cooperative one than was the case of Argentina and more similar to Brazil (Silva, 2007, 79). This would explain why the Chilean government, even under Pinochet introduced some modifications to the neo-liberal model: forest products started to be subsidized under Pinochet, the government financed R&D for the development of the wine industry, and the salmon industry owes much to the support of Fundación Chile, a semi-public venture fund (Rodrik, 2010). Even more important, the Pinochet government did not fully privatize copper, it preserved part of the industry under control of the State, when it realized how important it was for the government to have an autonomous source of foreign currency (Gaitán and Boschi, 2009, 11).
Although during the Argentinean military (1976-1983) regime they were divided between a more liberal and a more interventionist sector, the government finally imposed the opening of the economy and a monetarist economic focus in 1978 (Canelo, 2009). The fact that the peronist Menem government was able to negotiate a compromise with the trade unions helped it to deepen the neo-liberal reforms, basically in the direction of privatizations and the convertibility scheme. The peronist unions would allow the government to impose its neo-liberal agenda with the condition that it did not weaken them: that they preserve their hegemony on unionization and their control on the health service system: the "obras sociales" (Palomino, 2000, 126). This resulted in a situation where the country suffered an intense de-industrializing process due to the neo-liberal measures and the "convertibility" scheme (where the Argentinean peso was pegged to the dollar) and the State was dismantled through privatizations (Boschi and Gaitan, 2009). The only institutional structure that remained from the old scheme was the relative force of the peronist unions (although they divided on a disagreement over giving support to the Menem government or not) and the social policy mechanisms that were in the hands of the unions.
3. Social policies.
The welfare State is not just a way in which the individual is protected from the hazards of life (disease, unemployment, old age, among others) but it's a social mechanism to maintain the cohesion of the society (Theret, 2002, 76) On the other hand, it can be complementary to a type of capitalism. While in the liberal capitalism the fact that welfare State is residual and the trade union organization weak is complementary to the necessary flexibility of the labor market and the specialization on radical innovation. In the Statist and corporatist-continental-European capitalism the welfare state and industrial relations are extended but very dependent on the labor situation of the individual career and the situation of the specific economic sectors; this is complementary to a capitalism based upon incremental innovation and high qualification. In the social-democratic capitalism, industrial relations are both centralized but flexible, while the welfare regime is universal and generous; thus complementary to competiveness and innovations based on solving social and economic problems. (Boyer, 2005, 529-32)
Brazil, Argentina and Mexico have been considered as having corporatist, bismarkian welfare regimes. These regimes are very stratified because they are very dependent on the labor relation. On the contrary, Mexico was originally a more universalist regime, born under a more "beveridgian" concept of welfare State, where all workers were to join a National Security System that would guarantee both health services and pensions. The Brazilian regime was centralized by the military in 1967, in order to extricate the control of the trade unions. On the contrary, the Mexican welfare system acquired a more corporatist character during the 60's. The mobilization of some of the most strategic unions obliged the government to bestow different conditions to them in order to regain their control. The Chilean system was privatized during the Pinochet regime, health services were decentralized and allocated at the municipal level, workers were obliged to acquire health insurance in an individual manner, through the ISAPRES, and pensions passed from being solidary and "pay as you go" to a capitalization scheme. Finally, in Argentina, the military, Alfonsin and Menem tried to retrieve the "obras sociales" from the unions and concentrate them in the hands of the State but failed.
Chile basically privatized the welfare system since 1981 and became a model that the international organizations tried applying in the rest of the world. Under the Pinochet dictatorship labor was radically flexibilized and social policy transformed into a non solidary, individualized system and concentrated into a focalized assistance scheme. Although the democratic governments did not abandon the economic mode that had been quite successful, they nevertheless modified the social policies and managed transforming it into a liberal, albeit quite extended regime. Facing the fact that after having contributed for thirty or more years, some workers could not get a pension equivalent to the minimum salary, the Lagos government instituted this level to be paid by the State. On the other hand as the private ISAPREs were not covering many of the ailments common to Chileans, the government set up standards to cover them; in fact the private system in Chile covers only 16% of the population, the rest (70.4%) is covered by public or social security systems; 88.4% of the population is covered by some system, the highest in the continent (Mesa-Lago, C., 2009, 13). In addition, the democratic governments started to implement assistance programs that would complement the liberal economic model. Nevertheless, these modifications of the welfare regime have been the exclusive result of State action as the labor law that is still in place is the one imposed by the Pinochet government since 1979, according to which collective negotiations were decentralized at the level of the firm, something that has considerably weakened the labor union force that used to negotiate at the branch level.
The old welfare regime in Mexico was directly linked to the needs of the PRI: control the social organizations in a corporatist scheme. Since the arrival of the "technocrats" to government and the distancing of the State from these organizations, the Welfare State started evolving towards a more universal, albeit minimalist scheme. The social programs became more clientelistic and assistance oriented. During the first technocratic government (1988-1994), the resources for this program came from privatizations. After this period, the government began to dismantle the corporatist welfare system in order to finance it. It transformed the pay as you go pension system of the private sector workers into an individual capitalization system in 1995, administered by private financial companies. It did the same with the public sector workers system in 2007. On the other hand, the technocratic PRI governments and the panista governments that followed them when the PRI lost the presidency in the year 2000, continued to impose their control over unions and their negotiations through a series of mechanisms: negotiation with the traditional unions, use of the attributions of the Ministry of labor to register unions and set salaries, and the acceptance of direct control of the unions by the employers, through "protection" trade unions (Bensusan, 2008, 33 ) The only program that escapes from this tendency is the Seguro Popular, that pretends to extend health coverage (other than the catastrophic) to the whole of the population that is not insured by any of the other systems: the IMSS (private workers) or the ISSSTE (public workers) and has in fact included the poorest of the population, approximately 5 million people included in the assistance program Oportunidades, but has not been able to attract the great majority of the informal workers that would have to pay a variable amount for being included in the program. Nonetheless, for this country, Mesa Lago calculates at 45.3% of the population covered (2009, 13), while the OCDE calculates at 80%.
Argentina and Brazil stand in sharp contrast to both of these cases. In Argentina the welfare mode controlled by the unions has been relatively preserved. Although the unions have been severely weakened with regards to the 50's and 80's, they still control the obras sociales: the health service programs. Although the Menem government did succeed in adding a private pillar to the pension system, the unions were successful in resisting its intent to actually decentralize union negotiations, although a presidential decree in this direction was passed (Munck, 2004, 11). Even though the support given by unions to the Menem government resulted in the division of the peronista union and the liberalization in a reduction of the proportion of the active working class that it organizes (Palomino, 2000), in comparative terms the Argentinean labor organizations have been relatively well preserved, at around 37% of union density. After the 2001 crisis, they regained force from their position (with the piquetero organizations) as a crucial ally of the new government of Kirchner.
After the 2001 crisis, Argentina implemented policies to extend the coverage of health services though the obra social of the retired workers and reduced in about 5% the population without health services, reaching 59% (Mesa-Lago, C., 2009, 15) One of the most important social programs established in the aftermath of the crisis: Jefas y Jefes de Hogar Desocupados, designed to provide an income to unemployed workers in exchange of work in their community was in part administered by the piquetero organizations. This program reached a high just after the 2001 crisis, under the Duhalde presidency, with almost 2000,000 subsidies; at the end of the Kirchner presidency, it was greatly reduced to 700,000 plans, the same amount as at the beginning of the Duhalde presidency (Delamata, 2008, 134). It benefited 11% of the active population and it is estimated that it contributed to decrease unemployment by 2.5%. The cost to the government finances was around 0.5 to 1% of GNP(ILO, 2010, 30), which is high compared to other countries especially Mexico, where the total spending in assistance programs is 2.4% of GNP, while in Argentina it is 10.1% (See figure 2). The specificity of this program is that contrary to most assistance programs implemented in Latin America, such as México's Oportunidades, Brazil's Bolsa familia, and Chile's Chile Solidario, it was rather unorthodox because it was directed to the unemployed and not really to the poor and it serves to reinsert to a certain degree the individuals to labor; the central demand of the piquetero movement was the "right to work".
Brazil is the only country that has been surely advancing towards a qualitative transformation of its welfare regime in the last decade. The Brazilian welfare system came out from the military regime as universalist, albeit minimalist and clientelistic. In addition, Brazil resisted the reduction of spending in health and/or education that most countries in Latin America underwent in the 90's (Lautier, B., 2007, 53). In the nineties and 2000 it did not go from a "pay as you go" pension system to a private capitalization scheme or even a mixed one. In fact, since the new Constitution was decreed in 1988, with a very active participation of civic society and with an explicit program to extend the scope and universalize social policies, the subsequent governments were forced to implement different social policies. This was especially true in the case of health, where the SUS (Sistema Unificado de Salud) was created. The Brazilian health system is public (combined with a private one, which covers 24% of the population, which is very high for the continent) while all the other countries of Latin America have a social security health system combined with the public one (Mesa-Lago, C., 2009, 12). This system, based on the British National Health Service resulted in a rapid extension of the offer of free health services. In 2003, 79% of the population uses the health services regularly. The SUS financed 57% of the total health acts, 26% were at least partially financed by private plans and 15% by the patient himself. Concerning hospitalization, the SUS financed 68% of the acts and the private plans 24%. (Lautier, 2007, 56-7). The most important assistance program, Bolsa Familia, was expanded both in terms of resources and coverage, and at present reaches almost 50 million people. (Dowbor, L., 2009, 194) With regards to pensions, these have expanded to the rural workers: since 1991 12.8 million people get a minimum salary (without ever having contributed). Another social assistance program, called the BPC (Beneficio de Prestação Continuada), covers about 2.7 million old or incapacitated individuals with over 65 years which live in a home that has a revenue lower than one fourth of a minimum salary, (Lautier, 2007, 60-2) In addition, Brazil is the first important country in the world which since 2004 instituted a basic revenue of citizenship, called Renda Básica de Cidadania that was supposed to cover all Brazilians by 2008 and substitute all other assistance programs and minimum pensions, but has not yet been implemented (Lautier, 2007, 54). Finally, the trade union movement in Brazil is quite well organized and mobilized since it played a central role in the transition to democracy. The party that has governed Brazil for the last eight years, the PT, has trade union bases and has implemented a number of negotiating institutions (such as the Economic and Social Council) designed to discuss different social and economic measures. The level of trade union density is quite high in comparison with that of the rest of Latin America, with 17.3% in 2001, while Mexico in 2002 had 10.3% when taken with regards to total employment and 27% and 16.5% of paid employment respectively (ILO, 2005, 157) Union rates in Chile and in Argentina have been calculated to be around 15.3%, and 37% respectively.
All this discussion can be summarized in Figure 2, where we compare State expenditure in social programs. We can see how Brazil and Argentina are on a much higher level that Chile and Mexico. In addition, while in Brazil it has been continuously growing since the 90's, Mexico started out at an extremely low level and although it has almost doubled, it continues being less than half that of Brazil. Argentina and Chile have had strong ups and downs in these two decades and have barely moved in this respect. (Figure 2 about here).
Where the social policies of these countries part even more radically is in their minimum salary policies. It's in these policies that Argentina and Brazil differentiate more clearly from Chile and Mexico. In Brazil, during the last four years there has been a signaled will to raise minimum salaries in order to close the gap between the better and the worst paid workers; which signals a determination to expand the internal market and increase equality. In fact, in February 2009 the minimum salary was almost twice that of 2000 in constant terms; a salary that is crucial as it not only increases wages of the workers but also of the unemployed and pensions. In the same period, there has been an important evolution of the expansion of occupation and formalization of employment (ILO, 2009a) In Argentina, we can see how salaries have significant increases at some moments. Finally, we can see that both in Chile and Mexico minimum salaries have been held under control, with the important difference that in Chile they are constantly above inflation, while in Mexico, in many years there has been a loss of purchasing power, which means that rationality is obviously not the internal market. (See figure 3). The results on income distribution show the effects of these policies: while all countries are moving very slowly to more equity, Brazil, Argentina and Chile seem to be moving a bit more decidedly than Mexico. (See figure 4).
4. Responses to the 2007-2009 global economic crisis.
Crises are moments that allow countries to make important shifts in their policies or failed opportunities. In this last section of the article we will analyze the way in which they reinforce, consolidate or modify the main characteristics of the economic and welfare State trajectories. We will try to argue how the anti-crisis measures give an indicator of the consolidation of an internal market growth orientation in the case of Brazil, the continued intent to modify the trajectory of Argentina in this same direction, the consolidation of an external led growth in the case of Chile and a failed opportunity to modify the subcontracting mode in the case of Mexico.
For Argentina, the 2007-2008 crisis was a continuation of another much more serious one, that of 2001-2002, which led the country to change cap radically. In fact, beginning 2003, with the arrival to the presidency of Nestor Kirchner, social and labor policies changed radically with respect to the Menem and Alfonsín years. From 2003 on, the Argentinean government promoted a different social model through different means : legal, stimulating its alliance with the peronist unions, and setting minimum salaries). Contrary to what was current during the Menem years, during the last 7 years the government promoted industrial relations centered on collective negotiation at the branch level rather than at the enterprise (Palomino and Trajtemberg, 2006, 49). In addition, the promotion of union action and the increase of labor inspection by the Ministry of Labor led to a substantial increase of registered labor, something contrasts greatly with the previous tendency of informalization, flexibilization, and subcontracting (Palomino and Trajtemberg, 2006, 51). The enlargement of registered labor increased the coverage of collective bargaining from 1.6 million workers in 2003 to 3.5 million in 2006, raised salaries, reduced the gap between lower and higher earning salaries and boosted the resources of the pension funds (this was both a result of higher salaries and a larger extension of coverage) (Palomino and Trajtemberg, 2006, 52-5)
Facing the more recent crisis, there was a sustained will to reinforce the internal market as its neighbor and ally in the Mercosur Brazil has done; with less success as we will see below. The Fernandez-Kirchner is the Latin America government that has invested the most to try to counteract the social effects of the crisis; in the first trimester of 2009 in increased its public investment by 5.7% in relation to GNP : it pledged to invest 30,690 million dollars in housing, hospital and infrastructure. It also announced a 15.5% salary increase for government employees. It maintained a crucial measure imposed during the previous crisis: that of increasing the unemployment benefits as a way to incentivize employers to retain their personnel through the crisis, something that greatly contrasts with the flexibilization tendency of the nineties (Palomino and Trajtemberg, 2006, 56). But the most significant measure was surely the renationalization, in 2008, of the pension funds that had been partially privatized during the Menem presidency. The government unified the system under a State controlled solidary regime, eliminating the segment of capitalization administered by the AFJP (Administradoras de Fondos de Jubilaciones) (CEPAL, 2010, 8-9). According to some analysts, since the year 2001, and again with measures such as the renationalization of the pension funds in the midst of the more recent crisis, there occurred a turning point where the ancient socio-economic mode based on the external market, labor flexibilization and welfare system privatization was abandoned, in favor of a development mode that pretends to equilibrate the external and the internal market and that articulates economic and social policies in order to develop the latter (Novick, Lengyel, Sarabia, 2009, 272)
In contrast with Argentina, where trade unions have been very active, although in Brazil unions have also been an important actor since the seventies and eighties and during the Lula presidency they are constantly consulted in trilateral mechanisms such as the Social-Economic Council, the State that held the main role in the face of the crisis, in absolute synchrony with its prior development. And because the transformation of the welfare regime has been constant since the year 2000, to fight the most recent economic crisis it has basically tried to incentivize the internal market. The Brazilian government decided to anticipate a 12% increase in minimum salaries from April to February 2009 (CEPAL, 2010, 13). ) In addition, through the Program for the Acceleration of Growth (PAC) it planned to invest in infrastructure more than 62,140 million dollars by 2010 and another 219,600 million by 2011 (CEPAL, 2010, 14). It also announced important tax reductions: taxes on consumer's financial operations were reduced from 3% to 1.5%, a tax on industrialized products, mainly on cars, was eliminated, as well as on those individuals that earn up to 875 dollars per month. (CEPAL, 2010, 12). In reality, the Brazilian government just continued doing more of what it had been doing up to then: strong State investment and the building up of the internal market.
Together with the Argentinean government, it has probably been the Chilean that innovated most in Latin America. In the year 2008 it implemented a Welfare Reform that included the compulsory affiliation to an independent workers health system by 2016 (something which Mexico has not done with the Seguro Popular, which is voluntary) and the universalization of the non contributive pension to all the poor and low income strata. It also flexibilized the access of the old to the contributive pensions (Mesa-Lago, 2009, 15-6). Altough this reform is attuned to what the social-democratic governments that have ruled this country since the year 2000 (Lagos and Bachelet) have been doing, it was an important deepening of the tendency. It also implemented actions similar to those of the more advanced liberal economies, that are based upon state investments and tax reduction: a fiscal countercyclical policy in the 2009 budget that implied a 2.2% increase in relation to GNP in the first trimester of 2009, which included a real increase of 5.7% in total expenditure, an even higher one of 7.8% in social expenditure, and an 8.8% in infrastructure. In addition the government extended the unemployment insurance (El Fondo de Cesantía Solidario) to all unemployed workers, including those that did not have a permanent contract. It also implemented an exceptional measure even for the more advanced economies (to the exception of Germany and Danemark): fiscal exemptions to companies that maintain and qualify their workers (CEPAL, 2010, 17). But it's surely the reform of 2008 that has allowed certain analysts to consider that although Chile has surely not abandoned its economic model oriented towards the external market and its liberal character, where economic rationality primes over the social one, it has certainly modified some (not all) of the most radical elements of the welfare reforms of the dictatorship (Riesco, 2009). That is the reason why an analyst of the social policies of Uruguay, Brazil and Chile has been able (maybe exaggerating somewhat) to consider that in all three the State and civic society have articulated in order to halt the cycle of privatization and have thus given new weight to the social public sector and has modified the social ideology, in the sense that it now considers the individual as a citizen with rights and not only as an individual with needs (Serna, M. 2008, 85).
If there was one government that lost the opportunity of the crisis in order to modify in any sense its previous trajectory it was surely the Mexican. It reacted timidly and in some cases in a contradictory manner. In October 2008, the government announced a program to support growth and employment to the height of 6, 390 millions of dollars for infrastructure and 11,680 million dollars to finance private investment. Nevertheless, at the same time it proclaimed a reduction of 6,000 million dollars in public expenditures owing to the decline of public finances due to the decrease of economic activity and lower oil prices (the latter constitute around 40% of the government's resources). (CEPAL, 2010, 34) In addition, most of the infrastructure projects have had enormous implementation difficulties; some non official sources have affirmed that up to 28% of the resources have not been invested (http://www.milenio.com/node/372874)
With regards to the labor policy actions: as in Mexico there is no unemployment insurance, in 2008 the government decided to implement a program for the preservation of employment in the sectors oriented mostly to exports (automobile, auto-parts, electronic, electric and capital goods) that had suffered a reduction of 11.6% in their production by May 2009. The government would compensate the salaries of the workers affected by production stops in exchange of a compromise by the enterprises not to fire them (ILO 2009c). It also extended the existing program of temporary employment (that hires workers for communitarian projects in education and health) directed to rural and urban areas were unemployment is very high (ILO, 2009d). Although these two programs were supposed to cover 500,000 workers, they were assigned a mere 140 million dollars for the first and 165 million dollars for the second. An indicator that this program was not working as it should have been is that six months later, in March 2009, and then again in May, the government announced that the rules to access it would be eased. In addition, the minimum salaries were raised by a mere 4.6% and the government allowed workers to use part of the individual pension funds, in guise of unemployment insurance (CEPAL, 2010, 35-7). It seemed to be clear that the Mexican government was not trying to modify its economic mode, oriented toward the external market and disconnected from the internal one. These measures appeared to be a mere time span to wait for the recovery of the US.
5. Concluding remarks
Economic crises have been moments when countries have profited to radically transform their modes of development, consolidate the one they have been following or lost an opportunity. The 1929 crisis gave birth to the New Deal in the US and after the Second World War the fordist economic model in Europe and the US. This same crisis and/or the Second World War gave rise to the import substitution model in many of the countries of Latin America.
In the first part of this paper we discussed the way in which facing the crisis of the seventies, the countries we are analyzing diverged in important ways. Mexico and Brazil, both tried to implement a third phase of import substitution, but while Brazil was successful, Mexico was less so, basically for political and external financial conditions. Argentina and Chile abandoned the import substitution model in the seventies in order to embrace an export led growth that was successful in Chile, where the economy had the ability to specialize on certain types of products, but led Argentina to de-industrialization and ended up with a disarticulated economy (Boyer, 2010).
The way in which different countries have responded to the crisis of the beginning of the new millennium and the more recent global one cannot be analyzed according to a norm, but rather to their economic structure and institutional and organizational endowments. In the first place, the responses to the crisis have to be analyzed with regards to the prior economic development and the characteristics of the Welfare State. While Brazil had the capacity to resist the economic and political pressures to open its economy in the 80's and 90's because it had advanced further in import substitution and had the most solid institutional structures, the other three countries were less successful. We have discussed the manner in which Brazil has been able to build a social and wage regime articulated with its economic policies oriented towards the strengthening of the internal market. This explains why this country has been able to apply the most coherent countercyclical economic actions and why it is being considered as an emerging economy. The way in which salaries relate to productivity serves to prove this relationship between social and economic policies. In the case of Brazil we have continuous growth of productivity and salaries following closely the same path; something that characterized the fordist period in the developed countries between the end of the world war and the beginning of the seventies; where increases in salaries that were above productivity served as a stimulus for still more productivity gains (See figure 5). Brazil is a State led capitalism oriented towards the internal market.
The devaluation of 2001-2002 generated a change in the relative prices of the Argentinean manufacturing, which together with the bigger demand of the agricultural products that the country exports, have sensibly eased the external foreign currency restrictions the country has traditionally faced. On the other hand, from the crisis of 2001-2002 on, the Kirchner and Fernandez governments have effectively reoriented the social policies both in response to an increased social pressure (the piqueteros and the peronist labor unions) and to their own ideological convictions. This has translated in important augmentations of salaries and a social and labor policy congruent with growth led by the internal and market (Palomino and Trajtemberg, 2006, 50). According to some analysts this has meant a significant transformation of the pattern of development. Nevertheless, if we look at figure 6 we can notice that productivity growth is detached from salaries. This means that the real increases do not follow a coherent economic internal market growth, that contrary to Brazil, capital has gained proportionally much more from this growth. In fact, some other studies consider that Argentina has not been able to modify its investment and productive structure substantially: during the Kirchner years, productive structure has hardly changed, it has consolidated on commodities and natural resource based production (Fernandez Bugna and Porta, 2008, 223). Argentina is still a resource based export economy that is struggling to orient itself towards the internal market; it is in between two different capitalist modes.
Mexico seemed as capable as Brazil to begin substituting intermediary and capital goods in the seventies, nevertheless the successive governments (Echeverría -1970-1976- and López Portillo -1976-1982-) chose to sacrifice growth for distribution. A less autonomous State with regards to the political system in that it was closely linked to the post-revolutionary political regime, and a more political rather than technocratic State elite than in Brazil chose to sacrifice economic growth for the survival of the political regime. Having lost this first opportunity to complement internal market growth with exports, the crisis of the eighties forced the country to embark towards an external market oriented growth which was consolidated with the signing of NAFTA and the conversion of the country into an international subcontracting economy. The data on Mexico shows a mode based on subcontracting that has led to both weak growth of productivity, a purely assistance oriented social policy and a strict control of salaries achieved though the control exerted on unions and other social organizations by the political regime. This economic model depends on conditions that are contradictory to those fortifying the internal market. Something that is clearly seen from Figure 7 that shows an almost constant slower evolution of real salaries with respect to productivity; a mode of development based on low salaries, which is in return condemned to low productivity growth. It can be characterized as an export oriented growth cum international subcontracting with an assistance welfare regime.
Chile has followed an export driven mode of development since the military took over beginning the seventies. It has nevertheless diverted in important ways from the liberal market economies in that beginning the eighties, after the liberal-monetarist model collapsed, the economy evolved towards a type of capitalism strongly sustained by the State. This evolution was complemented by a fundamentally liberal-residual social model in both its labor and its welfare policies, epitomized by a total privatization of the pension system and the intention to privatize health services that became a model for the rest of the developing world. Although the democratic governments have neither modified the economic mode nor the labor policies, they have modified the welfare regime in important ways. The last two Chilean governments have accepted a partial failure of the capitalization pension model and set up minimum pensions for those workers who have not achieved to save enough to assure them at least the minimum income or for those that have not contributed. They have accepted the failure of health privatization and have incorporated an increasing number of Chileans to the public and social security system, which now covers around 70% of the population, one of the highest in Latin America. In this manner, a successful State led export oriented model has been able to finance both a residual pension system and an almost universal public health system. In this country we can see a continuous growth of real salaries and productivity (Figure 8).
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