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.

Brazil on the Global Stage: Power, Ideas, and the International Order

By Matthew Taylor and Oliver Stuenkel*

Now available via Palgrave Macmillan.

Now available via Palgrave Macmillan.

Brazil has risen to become the seventh largest economy and fourth largest democracy in the world – yet its rise challenges the conventional wisdom that capitalist democracies will necessarily converge to become faithful adherents of a U.S.-led global liberal order.  Indeed, Brazil demonstrates that middle powers, even those of a deeply democratic bent, may offer important challenges to prevailing conceptions of the world order, differing in their views of what democracy means on the global stage and how international relations should be conducted among sovereign nations.  For Brazil, successful diplomacy involves an increased voice for the developing world, greater accountability in multilateral institutions, and a desire to reduce emphasis on coercive instruments.

  • Because the role of middle powers such as Brazil is often less easily understood in the realist terms that dominate U.S. foreign policy circles, its foreign policy stances are often portrayed by frustrated Washington officials as quixotic and naïve, or ridiculed as puerile and petulant third-worldist jabs at a stereotypical Tío Sam, intended only to win popular approval from a nationalistic and anti-American electorate. In fact, Brazilian foreign policy positions usually have deeper and more enduring origins, embedded within a deeply held set of beliefs that together shape Brazil’s rational strategic perspective on the structure of power in the world today.
  • Brazil’s new role on the world stage has much to do with the country’s success in addressing its own domestic challenges under a succession of democratically elected presidents. Over the past three decades, Brazil has left behind its history of economic disarray, established a robust democracy, and begun to address its record-setting inequality.  It has found paths past the hyperinflation and financial crises of the 1980s and 1990s, undertaken substantial institutional reforms to overhaul the gargantuan and inefficient public sector, and implemented highly regarded social policies.  Even its recent stumbles can be seen in the positive light of democratic progress: the demonstrations that took hold in many Brazilian cities in 2013 and 2014 can largely be attributed to a growing middle class impatient with the pace of change and increasingly conscious of its political rights, a direct consequence of the important successes of the past generation.  Although the country continues to face a number of domestic challenges, the gains of the past generation appear to have fostered an enduring intent to play a role on the world stage.

These conclusions and others are presented in a book entitled Brazil on the Global Stage: Power, Ideas, and the Liberal International Order (Palgrave Macmillan, 2015), co-edited by Professors Matthew Taylor and Oliver Stuenkel.  The book is based on a conference sponsored jointly by American University’s Center for Latin American & Latino Studies and School of International Service, and includes contributions by eight faculty members from AU and Fundação Getulio Vargas (FGV), as well as experts from the Washington community.  It offers a general evaluation of Brazil’s stance toward global order, while also addressing its postures on specific aspects of governance, including trade, foreign and environmental policy, humanitarian intervention, nuclear proliferation, and South-South relations, among other topics.

May 21, 2015

*Professors Matthew Taylor and Oliver Stuenkel teach at American University’s School of International Service and the Fundação Getulio Vargas in Brazil, respectively.

Brazil: Implications of Dilma’s Victory

By Eric Hershberg and Matthew Taylor

Sala de Imprensa / Flickr /  CC BY-NC 2.0

Sala de Imprensa / Flickr / CC BY-NC 2.0

President Dilma Rousseff’s reelection – by a tight 3.28 percent of the vote – sets the stage for a period of challenges and political uncertainty.  The Social Democratic Party (PSDB) candidate, former governor Aécio Neves, was truly a formidable contender, and Dilma and the Worker Party (PT) showed new weaknesses.  The battle was marked by a strong desire for change – even Dilma’s campaign slogan was “Governo Novo, Ideias Novas” (New Government, New Ideas) – and the big question now is what sort of change will come from the PT’s fourth consecutive turn in office.

  • Dilma lost overwhelmingly in the Worker Party’s (PT) old stomping grounds of the southeast (by 2-1 margins), but picked up support in Neves’s state of Minas Gerais and thoroughly dominated the northeast (by 3-1 margins in many places), including Pernambuco, which had gone to Marina Silva in the first round.
  • The lower middle class, known widely as Classe C, ultimately appears to have thrown its lot to Dilma – apparently driven by the PT’s relentless message that only it could be trusted to protect their interests and social programs like the Bolsa Família.
  • The PT emerges from the battle bloody and bruised. The Rousseff campaign’s systematic deconstruction of Marina Silva in the first round buys the resentment of a solid fifth of the electorate.  Former president Luiz Inácio Lula da Silva was an uneven participant in the campaign, inexplicably absent at critical moments and losing his cool at others.
  • The PT won 19 of 27 governorships, and Dilma’s alliance did well in the Chamber of Deputies and Senate, but the opposition is likely to be far more assertive, as the combined issues of the economy, public services and corruption proved during the campaign to be useful wedges to drive between the middle class and the PT. A newly combative and forceful Aécio will be the clear leader of the opposition.

Dilma faces formidable challenges.  The economy was moribund for almost all of her first term, and fairly urgent work is needed to cope with a deteriorating current account, the weak fiscal results, resurgent inflation, and declining personal credit, especially among the politically influential Classe C.  Management of public services – theoretically manager Dilma’s strong suit – needs attention, and she actually has little hope of driving meaningful change singlehandedly.  The corruption story, moreover, is an immediate threat.  If the testimony of foreign exchange dealer Alberto Yousseff, who was given whistleblower protection in exchange for testifying to the police, is to be believed, this is an enormous scandal that may shake the administration to its core.  In light of this political scenario, it is perhaps not surprising that Dilma’s victory speech focused on building consensus, suggesting she would push political reform via plebiscite, promising anti-corruption reforms, and suggesting, after largely downplaying the issue on the campaign trail, that inflation and fiscal balance will be key priorities during her second term.  Whether she can actually accomplish these goals on her own timetable is a big question.

October 27, 2014

Middle Class Abandons Public Education

By Osvaldo Larrañaga*

Photo credit: NoticiasUFM / Foter / Creative Commons Attribution-NonCommercial 2.0 Generic (CC BY-NC 2.0)

Photo credit: NoticiasUFM / Foter / Creative Commons Attribution-NonCommercial 2.0 Generic (CC BY-NC 2.0)

Seven of the most developed countries of Latin America – Argentina, Brazil, Chile, Colombia, Costa Rica, Peru and Uruguay – are experiencing an exodus of the middle class from public schools to private schools.  In Clases Medias y Educación en América Latina, my colleague María Eugenia Rodríguez and I present evidence that in these countries private schools offer primary and secondary middle-class students better opportunities to learn, better resources, and in almost every country a more disciplined learning environment.  However, the shift may worsen the region’s already deep inequality because private education is likely to multiply inequality.  Private schools show signs of high levels of social segregation, with implications for countries’ social cohesion and development.  On average, 87 percent of the students in these schools belong to the same social class (be it middle- or upper-class), as compared to 42 percent in the public schools.  According to our research, the challenge for governments is to strike the balance between allowing families to give children the best education they can and ensuring social cohesion and equity.

Some countries outside Latin America have achieved this virtuous balance. In the Netherlands, Belgium and Ireland, governments finance private schools so that families’ financial resources are not a factor in school selection.  In those countries, 60-70 percent of students from different social classes attend private schools, with excellent academic results.  Dutch and Belgian students place at the top in the Program for International Student Assessment (PISA) test, while Irish students score at the average of the OECD nations.  Another model – in Finland, Canada and New Zealand – produced the highest PISA scores outside Asia.  In those countries, 93-97 percent of students attend public schools, proving that public management of education is not incompatible with excellence.

Another key development needing attention in the region is that the number of students in higher education has tripled in the past 15 years as the middle and emerging classes see education as the most effective means for social mobility.  Increased demand for tertiary education has been covered primarily by private rather than public institutions, yet governments have done little to ensure the quality of the education students receive or to assist them in financing it.  Failure to address these issues invites a scenario that could result in frustration and social tensions.  Our research indicates that the problem – and its solution – has three principal aspects: the need to create information systems that enable the evaluation of graduates; the need to introduce mechanisms for financial aid for students attending private institutions; and the need for an accreditation process that ensures that financial aid goes to students attending quality institutions of higher education.  With such reforms, Latin America stands a much better chance of advancing social equity even while relying increasingly on the private provision of education.

*Dr. Larrañaga coordinates the poverty and inequality reduction area at UNDP in Chile.

Brazil Protests: Amorphous Causes, Unpredictable Consequences

By Matthew M. Taylor

Protestors in Brazil / Photo credit: Izaias Buson / Foter.com / CC BY-NC

Protestors in Brazil / Photo credit: Izaias Buson / Foter.com / CC BY-NC

Hundreds of thousands of Brazilians hit the streets of a dozen state capitals this past week.  The initial trigger was a proposed hike in São Paulo bus fares, already among the world’s most expensive, but news media soon reported that the protests reflected anger with the rising cost of living, crime, corruption, impunity, and the high costs of hosting the World Cup. Lackluster public services haven’t helped, and widely televised police violence last week provided another rallying cry.  Polling by Datafolha shows that the protest is a middle class phenomenon, with 77 percent of the marchers in São Paulo claiming a university degree.  This growing demographic group is turning against President Dilma Roussef’s Worker’s Party (PT) but it is also weary of the opposition PSDB, especially in São Paulo state.

So far, the protests have been difficult for political parties to harness for their own ends.  Partisans who showed up at the marches on Monday waving party flags were reportedly forced to pull them down by indignant protestors.  Dilma’s popularity has been falling – she was recently booed at the opening match of the Confederations Cup – but the marchers don’t seem collectively exercised about her policies or those of any single party or politician.  Aecio Neves, Marina Silva and Eduardo Paes, her potential opponents in elections scheduled for late 2014, have yet to capitalize on her vulnerabilities, as the protestors seem to be casting “a pox on all their houses.”  An outside candidacy is a rising possibility, but Brazilians have been wary of supposed political saviors after the rapid rise and fall of Fernando Collor in 1990‑92.  Anger is directed at the political class as a whole because it is incapable of responding to public disgust with Brazil’s unsatisfactory public services.

It is quite possible that the protests may peter out on their own, especially if the renewed violence seen in São Paulo on Tuesday night alienates supporters.  If the protests continue and remain peaceful, they may result in increased social solidarity and a shared sense of patriotism in the face of an unsatisfactory political system.  Something similar happened during other mass protests in the past, especially the Diretas Já marches of 1985.  A renewed consensus in favor of a more robust and effective democracy would be salutary, but the concrete results arising from the protestors’ demands are difficult to predict.  One thing to be sure of: withdrawing the proposed bus fare increase proposal is too little, too late.

Mexico-Brazil: Competing Economic Models?

The divergent economic performances of Mexico and Brazil over the past few years have again thrust upon analysts the difficult task of estimating which factors – public policies, market trends, geographic location, financial market managers’ perceptions, or something else – are responsible for the different results.  Brazil was everyone’s favorite two years ago, but Mexico is now being hailed as the hot performer – and praise is being heaped on Mexico City for making things happen.

Former Chilean Finance Minister Andrés Velasco, writing for Project Syndicate (click here for text), explores why the Brazilian economy today is “stagnating” while Mexico, written off as a “lost cause” just two years ago, is “expanding at a steady clip.”   Among Velasco’s key points:

  • Financial markets’ behavior says more about investor perceptions than about the countries in question.  Analysts focus on short-term figures rather than on structural trends.
  • Mexico’s economy is much more open than Brazil’s because of NAFTA and other agreements with Europe and Asia, while Brazil’s is limited by the “strictures of Mercosur.”  (Velasco was a strong advocate of free-trade policies while serving on President Bachelet’s cabinet.)  Mexico’s “export basket” has expanded dramatically – to include car parts, electronics, telecommunications equipment – while Brazil’s exports are increasingly commodity-based.
  • After both implemented anti-crisis fiscal packages in 2009, Velasco praises Mexico for having reduced its stimulus sooner – enabling it to keep interest rates much lower, controlling inflation better, and thereby contributing to a more robust private-sector role.

At the same time, Velasco urges wariness “about jumping to definitive conclusions” and notes that Mexican exports have been slowing in recent months, while domestic consumption is picking up as a source of demand.  He also cautions that Brazil’s potential to sell its products around the world “should not be underestimated.”

However thoughtful, analyses like Velasco’s may neglect the impact of another long-term factor:  the steady rise in wages in Brazil and their stagnation in Mexico.  At a seminar in Washington hosted by CLALS last week, Mexican economist Luis Felipe López Calva (click here for news article) noted that the strength of the middle class continues to be a vulnerability in Latin America, and he said that the ability of the middle class to be a “lever of growth” argued for policies that emphasized economic mobility.  A thriving middle class and increased domestic consumption can be a more reliable engine for growth (and for the consolidation of democratic institutions necessary for growth) than short-term market trends.  The increasing wellbeing of the bottom two thirds of the income distribution pyramid in Brazil argues for tempering optimism that Mexico alone has found the holy grail of economic policies. 

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