Can Latin America Achieve Fiscally Sustainable and Egalitarian Social Citizenship?

By Fernando Filgueira*

Uncertain Future

Photo Credit: Jan Tik / Flickr / Creative Commons

Latin America is undergoing a profound transformation of its social policies and of the very concept of social citizenship, but the outcome of this process is far from certain.  Electoral democracy, urbanization, increased educational attainment, and increased exposure to new and broader consumption patterns have destroyed the political foundations for conservative modernization.  The turn of the century has witnessed advances in social outcomes and public policies that for the first time provide a true window of opportunity for achieving more productive and egalitarian societies.

  • Decreasing poverty, lower income inequality, improved and expanded employment, and access to transfers and services to popular sectors were made possible by five critical factors: booming prices for Latin American commodities fueled economic growth and employment; stable prices – a positive legacy of the Washington Consensus era – meant that wages and transfers were not undermined by inflation; increased state fiscal capacity and commitment to social policy enabled a doubling in 15 years of real social per-capita expenditure; a demographic dividend, when combined (the young and the elderly) dependency ratios are lowest as a percentage of the population; and improved education access, completion, and credentials, which facilitated enhanced opportunity and increased productivity.

Yet these five advantages will lose steam in the next couple of decades.  Growth will wither as the commodity boom ends and expansionary monetary policy is limited.  Most Latin American economies are facing increased inflationary pressures. Existing tax structures and in some cases productivity levels will not permit social expenditure to increase at the rate of the last 15 years.  The easy phase of the demographic transition (when dependency rates are going down) is or will be over in most countries towards 2025.  Some countries in the region will face the European dilemma of an aging population, but they will do so with a lower GDP per-capita, weaker fiscal capacities of states, and a significantly more unequal income distribution.  While the soft targets of expanded education – primary school and expansion of lower middle school – have been achieved, the tough ones remain: extended coverage in early childhood, completion of high school, quality improvement, and true reduction of inequality of outcome in learning.

  • Five fault lines in Latin American social regimes make these problems a major threat to the sustainability of both social and economic development. A) Women’s incorporation into the labor market remains low (50 percent) and is highly stratified.  B) The absence of a robust state-led care system for early childhood and the persistence of a patriarchal distribution of care burdens undermines a route to development that is both more efficient and egalitarian.  C) Stark contrasts between insiders and outsiders in informal and formal labor markets and access to social protection and cash transfer  systems contribute to an expansionary monetary and fiscal policy that mainly benefits insiders unwilling to be taxed for redistributional public and collective goods and insurance. D) The region’s middle class and new emergent class, moreover, are not willing to increase taxation, since they do not perceive the quality of public goods and collective social services as adequate. And E) the pattern of fertility shows some of the worst patterns in social terms, including that most biological reproduction is left to the poor: Latin American governments do not equalize opportunity early on and through the educational system – which in the most unequal region of the world with diminishing but non-convergent fertility rates – leads to a productivity failure since underinvesting in the poor is underinvesting in the frontier of productivity enhancement.

These challenges will condition the possibility of a new social citizenship and a social investment model based on robust public goods, expansion of merit goods, and universality of entitlements.  It is not enough that elites are no longer able to control the political and economic game through status enclosure and authoritarianism.  In order to craft truly universal social policies conducive to providing inclusion for all, societies must confront narrow corporatism and restricted targeting – and the political economy they sustain.  Contributory models based on formal wages and targeted social policies based on need will not disappear, but they have to take a back seat to a model of basic universalism where access to quality public and collective goods is truly universal, and entitlements in transfers and services are not dependent on need or labor formality.  There have been important advances, such as a marked increase in non-contributory systems of cash transfers in terms of pensions and child-family transfers, but the commodity boom and the rise of the emergent and middle classes that drove them are not permanent.  A coalition that is willing to forgo private spending power in order to enhance quality of life through collective services is needed.  Such a coalition is made conceivable by these political, economic, and social epochal changes, but it is by no means guaranteed.  If reforms do not make it a reality, the promise will be shattered, and the pendulum between failed populism, with state-led “Robin Hood” incorporation attempts, and a technocratic closure of democracy and state bashing, will remain the central and tragic dynamic of the region.**

July 18, 2016

*Fernando Filgueira is a Senior Resarcher at the Centro de Información y Estudios del Uruguay (CIESU) and Collaborating Researcher the Economic Commission for Latin America and the Caribbean.  He is a member of the International Panel for Social Progress led by Amartya Sen.

**Read the full version of this essay, which is based on research done for the Economic Commission for Latin America and the Caribbean (ECLAC) and for EUROsociAL on social policy, labor dynamics, and demographic change.

The “Informal City” and Latin America’s Urban Future

By Robert Albro

Embed from Getty Images

Latin American cities are powerful engines for growth, but sustaining that progress will require moving workers from the informal into the formal sector.  Latin America is the most urbanized continent in the world, and its cities are now the region’s main economic engine.  Its ten largest cities account for about half of the region’s economic output, and their share of economic activity is projected to increase by 2025.  They are also increasingly aspiring to insertion in the global economy. And mayors often assume a CEO-like autonomy in attracting international capital, business, and talent to their cities, while pursuing policies designed to enhance their municipal standing as critical global nodes, hubs or platforms of innovation, manufacturing and services.  Strategies include international city-to-city cooperation, corporate and multinational partnerships to fund infrastructure, global policy forums for mayors to share best practices regarding sustainability or climate change, and new urban planning intended to increase connectedness to global information flows.  Citi and the Wall Street Journal in 2013 judged Medellín, Colombia, the “most innovative city” in the world.  San José, Costa Rica, has become a telemarketing outsourcing center, in large part because of its well-prepared workforce.  And cities like Monterrey, Mexico, and Curitiba, Brazil, are emerging tech hubs.

Over the last several decades, however, rapid urban growth in Latin America has also greatly expanded the urban informal sector.  With sub-Saharan Africa, Latin America has the largest informal sector in the world.  Of all workers in greater Bogotá, for example, 59 percent operate in the informal economy.  Low levels of technology, finance and job skills conspire to limit productivity and to distance Latin America from the frontiers of the global economy.  Along with low earnings and the lack of social benefits or income security, a large informal labor sector generates inadequate tax revenue for municipalities and chronic underinvestment and neglect of urban infrastructure.  Pervasive informality also contributes to social exclusion.  More than 80 percent of the top 50 most violent cities in the world are in Latin America, and this violence is concentrated along rapidly expanding urban margins.  In the absence of resources from municipal authorities, marginal urban dwellers turn to illicit actors and activities for unregulated or pirated services and protection.  Potentially competitive enterprises are hesitant to establish a presence in cities where property ownership is contested or where government voids leave land, money, governance and other resources, vulnerable to criminal capture.

Latin America’s cities aspire to effective insertion into the global economy while also struggling with very local and hard-to-change challenges of informality and unregulated urban growth.  Labor flexibilization and privatization, hallmarks of 1990s-era neoliberal policies, at once promote the growth of the informal economy and complicate urban planning intended to facilitate the development of assets necessary for global competitiveness.  Urban planners mistakenly continue to treat participants in the informal economy as a transient reserve army of labor composed of rural in-migrants not yet absorbed into the industrial sector.  Yet if cities want to develop their niche in the global economy, policy makers will also have to attend to the connections between urban informality and social exclusion. Large-scale and violent protests, such as last year’s flash mob protests in shopping malls by working-class Brazilian youth, are demanding their “right to the city.” The economic future and competitiveness of Latin America’s cities significantly depends upon their capacity to address the second-class citizenship of their informal workforce. Overcoming social exclusion is a first step to competing effectively in a global economy characterized by increasingly stiff competition among cities.