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June 4, 2004
A call for economic change
“When I give food to the poor they call me a saint. When I ask why the poor have no food, they call me a
communist.”
Dom Helder
Camara
Archbishop of Recife,
Brazil
1975
Part Two:
Economics
By BARBARA
FRASER and PAUL JEFFREY
La Paz, Bolivia
The scene last October
in Bolivia’s Altiplano, a plateau some 12,000 feet above sea level, was
a familiar one. Thousands of peasant farmers, angered by government
policies, were protesting in one of the few ways in which poor people in
Latin America can get attention -- by throwing up roadblocks, bringing
transportation and commerce to a halt.
As the days dragged on,
food and fuel grew scarce in La Paz. President Gonzalo Sánchez de Lozada
called out the troops to clear the way for gasoline trucks to reach the
city and extract stranded tourists from an isolated mountain town. When
the smoke cleared, at least 80 people were dead, the president had fled
to the United States and his vice president, Carlos Mesa, a journalist
with virtually no political background, was the new chief executive.
Michael Gillgannon, a
diocesan priest from Kansas City, Mo., who works in campus ministry in
La Paz, had just returned to the country. His taxi from the airport had
barely reached the city limits when the roadblocks went up.
“This had been building
up for three years,” Gillgannon said. “You just knew that there was no
stopping it. It was a tinderbox.”
Bolivia’s protests were
a microcosm of ingredients that are brewing, in various combinations,
throughout the region. National pride, indigenous rights, persistent
poverty, joblessness and, above all, the huge gap between rich and poor
have implications not only for economics, but also for politics. Surveys
show that in countries where the income gap is greatest, people are most
likely to tolerate nondemocratic governments.
In Bolivia, the spark
that lit the tinder was the government’s decision to ship gas from
southern Bolivia to Mexico and the United States, probably through a
port in Chile -- which has been a hated rival since it annexed Bolivia’s
coast in a war in the late 1800s.
“Gas was the focal point
that everyone, even groups separated by class and race, could rally
round,” Gillgannon said. “Even the business class had begun to ask,
‘What’s in it for us and what’s in it for Bolivia if the gas goes
straight from the well to the port?’ ”
But in Bolivia, as in
the rest of the region, the problems run deeper than the gas wells. The
protesters outside La Paz were mainly poor, indigenous farmers, while
the president whose resignation they forced was a 73-year-old
businessman with a declared fortune of $50 million. In places like the
Andes and Central America, that balance of economic power -- a small,
wealthy elite running a country with a largely poor, indigenous
population -- has not changed since the Spanish conquest.
And between the “lost
decade” of the 1980s and what is now being called the “lost
half-decade,” from 1997 to 2002, an entire generation in the region has
grown up with little hope of economic advancement.
After several years of
stagnation or outright recession brought on the by international
economic downturn in the late 1990s and exacerbated by the slump after
Sept. 11, 2001, Latin American economies held steady or edged slightly
into the black last year. Overall, the region’s economy grew by 1.5
percent, with the notable exception of Venezuela, which contracted by
9.5 percent. Regional growth of 4 percent is expected this year.
Those figures, however,
do not translate into a better quality of life in most of Latin America,
where a full 44 percent of the region’s population lives on less than $2
a day. According to the U.N. Economic Commission on Latin America,
unemployment rose by a mere one-tenth of one percent last year -- but
that was enough to put 700,000 more city dwellers out of work, bringing
the total urban unemployment figure in the region to 16.7 million.
The jobless rates
themselves are misleading. While unemployment stands at just over 10
percent, that doesn’t mean that nearly 90 percent of the region’s
workers are employed. The ranks of the “employed” include not only
professionals and semi-skilled laborers, but mothers and fathers who
must support their families with the pennies they earn peddling pencils
or candy on street corners.
“Three out of every four
jobs created in the 1990s were in the informal sector,” said Ricardo
Ffrench-Davis, the U.N. economic commission’s principal regional adviser
and an economics professor at the University of Chile. “That’s a
failure.”
But who failed whom?
High debt, low growth
Part of the blame -- as
large-scale protests in places like Seattle and Cancún have shown --
must be placed at the door of multilateral lending agencies and the
architects of the “Washington Consensus,” that began lending liberally
to governments that had questionable credentials but either oil reserves
or friendly militaries. Later, when oil revenues dropped and countries
were unable to meet their payments, the lenders insisted that the
borrowers institute drastic free-market reforms in order to qualify for
assistance.
“The reforms have been
applied too ideologically, in the belief that the market would solve all
problems simply through liberalization,” Ffrench-Davis said. “The
reforms instituted by the Washington Consensus were neither
down-to-earth nor adapted to the reality of our countries.”
Figures bear him out.
GDP (gross domestic product) growth in the region averaged 5.3 percent a
year in the 1960s and about 5.8 percent in the 1970s, dropping to about
1.2 percent in the 1980s and just over 3 percent the following decade,
largely because countries were privatizing state-run companies.
Experts say, however,
that sustained growth of about 6 percent is needed for countries to pull
themselves out of poverty.
Throughout the 1980s,
developing countries around the world received loans from agencies such
as the World Bank and International Monetary Fund on the condition that
they open their markets and lower or eliminate tariffs. In many cases,
the loans went to notoriously corrupt governments and dictatorships --
whose legacy has been an economic ball and chain.
While some of the larger
economies, such as Brazil, Argentina and Mexico, managed to keep at
least some of their national industry alive under those conditions, many
countries saw their small businesses and much of their agriculture
steamrolled by cheaper imports.
For decades, critics
have pointed out that industrialized countries, including the United
States and the European Union, continued to protect key sectors of their
own economies while less-developed countries were forced to implement
reforms under conditions that eroded their national production and their
capacity to invest in social sectors such as health and education.
“The experience of
developed economies is that the market has developed well when the state
has played a role, helping through efficiency, a reduction of
bureaucracy and the pieces necessary for the harmonious development of
society -- quality of education, quality of macroeconomic policy,
quality of exchange-rate policy, the development of a social security
system and the social sector, including education, health and
infrastructure,” Ffrench-Davis said.
That double standard --
powerful countries retaining some government control over their
economies while insisting that others rely on the “invisible hand” of
the market -- stalled trade talks twice in rapid succession at the end
of 2003. At the World Trade Organization meeting in Cancún, Mexico, in
November, a “Group of 22” less-developed countries led by Brazil, China
and India dug in their heels on several issues, especially U.S.
agricultural subsidies. A few weeks later, talks on the Free Trade Area
of the Americas, held in Miami, stumbled on those and other issues.
The bottom line is the
lack of a level playing field, both at the negotiating table and in
economic conditions. The United States, Europe and other industrialized
countries provide their farmers with $300 billion in subsidies every
year, while farmers in less-developed countries get nothing. When their
countries open the gates to subsidized products, those farmers -- many
of whom scrape by on just a subsistence income -- can find themselves
with no margin at all. The resulting problems are not only economic, but
social and humanitarian, as well.
Elimination of U.S.
agriculture subsidies was among the issues raised by negotiators from
Ecuador, Peru and Colombia who began talks on bilateral trade agreements
with the United States for their countries during the third week of May.
A protest against the deals by thousands of people May 18 was broken up
by police and soldiers who lobbed tear gas at the demonstrators. Fifty
people were injured. Milton Mejía, secretary general of the Presbyterian
church of Colombia, said that a low-flying helicopter also pointed a
machine gun at the marchers.
Although a new Central
American Free Trade Agreement (CAFTA) was finalized in December,
Guatemalan Vice President Eduardo Stein recently said the United States
has threatened to cut his country out of the free-trade pact if
Guatemala does not eliminate safeguards meant to protect its own
agriculture sector.
Brazil is now
challenging these subsidies before the World Trade Organization, arguing
that the $1.54 billion in annual subsidies granted to U.S. cotton
growers results in overproduction that depresses prices and destroys
export markets for other producing countries.
The battle lines are not
only drawn between more-developed and less-developed nations, however.
Threats from the European Union to seek sanctions from the WTO finally
forced President George W. Bush to announce the lifting of steel
tariffs.
Still, the breakdown of
the WTO talks in Cancún was only a partial victory for less-developed
countries.
“What people said about
Cancún was that the underdeveloped countries -- or, more accurately,
impoverished countries -- won, because the rich countries weren’t able
to impose their will,” said Alberto Acosta of Ecuador, one of a number
of Latin American economists who have been seeking alternative solutions
to problems ranging from debt to trade. “That was positive, but the
rules of the game didn’t change, and the rich countries can get what
they want in other ways.”
Indeed, less than a
month after the Cancún meeting, Ecuador, Peru, Colombia and the
Dominican Republic had all pulled out of the “Group of 22,” and the
United States had opened bilateral trade talks or made overtures to a
number of countries that had taken the harder line in the WTO.
In doing so, the United
States is hedging its bets on the Free Trade Area of the Americas, the
grand scheme that was to create a tariff-free trade zone of 800 million
people stretching from Alaska to Patagonia by 2006. A watered-down
version came out of the Miami meeting, where agriculture subsidies and
intellectual property issues were among the stumbling blocks. Under the
new version, countries would be able to decide when and how they join
in.
“It’s likely that a full
FTAA won’t emerge,” Acosta said. But that is not necessarily cause for
celebration.
“From multilateralism,
in which poor countries, united, have a certain possibility of making
their voices heard, we’re moving toward a series of bilateral
agreements, which is very dangerous. But I wouldn’t call it just
bilateralism -- it’s Bush-lateralism,” Acosta said.
The United States signed
a bilateral trade agreement with Chile in 2003 and is negotiating with
Peru and other countries. The North American Free Trade Agreement
(NAFTA) has been in effect for a decade, and even the World Bank admits
that any benefits have been uneven. In Mexico, the wealthiest 20 percent
of the population receives 58 percent of national income, while the
poorest 40 percent receive only 11 percent. The greatest disparity is in
the southern states, including Chiapas -- where NAFTA’s start date of
Jan. 1, 1994, was marked, not coincidentally, by the Zapatista uprising.
The Central American
Free Trade Agreement will lift tariffs on 80 percent of U.S. exports --
which now total more than $9 billion a year -- when it goes into effect.
CAFTA, in turn,
dovetails with Plan Puebla-Panama, a development scheme being pushed by
Mexican President Vicente Fox. That grand plan would form an area of
about 60 million people that would combine petroleum, timber and water
reserves with low-wage labor, the biodiversity of the Mesoamerican
Biological Corridor and cross-isthmus routes offering alternatives to
the congested Panama Canal. The scheme has drawn fire from
environmentalists, indigenous groups and activists.
Critics say that neither
CAFTA nor Plan Puebla-Panama will reduce the region’s enormous income
disparities -- in Guatemala and Honduras, the wealthiest one-fifth of
the population receives 60 percent of the income, while the poorest
two-fifths receive only about 10 percent.
Persistent
unemployment
One factor that
contributes to the persistent income gap, not only in Central America
but throughout the region, is employment -- or the lack of it. Most of
the jobs created in Latin America in the past decade were in the
informal sector, which includes small family-run workshops, street
vendors and others whose cash flow is off virtually everyone’s books.
Entire families -- including children -- labor long days earning only
enough for subsistence. They have no insurance, no health plans, no
retirement savings, no cushion against disasters or emergencies.
When formal-sector jobs
are created, they are often unskilled and poorly paid. In Central
America and Mexico, millions of people, mostly women, work in maquilas,
assembly plants making everything from designer-label clothing to
televisions, mainly for sale in the United States. Reports about
conditions sparked an anti-sweatshop movement in countries such as the
United States, Canada and Europe that pressured manufacturers to monitor
workplace conditions in producer countries.
A Guatemalan nonprofit
group, the Commission for the Verification of Codes of Conduct
(COVERCO), works with international companies doing business in
Guatemala to monitor and improve working conditions and labor practices
in apparel factories and banana and coffee fields.
“For many years,
consumers made their decisions based on price and quality. But beginning
in the 1990s many consumers began to add environmental concerns and
labor rights in the production process to this list. And many brands
responded by creating corporate codes of conduct,” said Dennis Smith, a
Presbyterian church (USA) missionary who works with COVERCO.
COVERCO followed earlier
efforts by church and rights groups in Central America to organize to
help maquila workers. Those efforts, which were often paternalistic,
were generally ineffective when pitted against the power of factory
owners.
Instead of taking a
militantly pro-worker stance, COVERCO provides objective verification of
labor codes. This helps level the playing field, making it easier for
workers to organize. Although change is not coming as quickly as many
people would like, the COVERCO staff hopes that by helping workers to
bring about change themselves, the improvements will be long-lasting.
Part of COVERCO’s
success is due to cross-border solidarity. The organization’s monitoring
is only effective if churches, students and other groups in the north --
including labor federations that have become interested in foreign
workers over the past decade -- put pressure on companies when needed.
University groups have been among the most vocal. Churches have also
participated in advocacy campaigns or more direct action.
According to Smith, the
image of maquilas as Dickensian sweatshops is misleading. Most are
clean, modern and brightly lit, with only the women’s furtive glances --
to see if a supervisor is watching or listening -- giving a hint of the
problems lurking below the surface. Rights issues range from how often
workers get bathroom breaks to whether they can organize a union.
The issue of pay is
critical in countries where jobs are scarce.
“Most of the workers are
young women and many are single mothers,” Smith said. “What alternatives
are available to them? Working in export agriculture, with its exposure
to chemicals, the elements and abuse, or working in domestic service 14
hours a day, six days a week, with guaranteed violation of labor law and
the probability of sexual harassment or abuse? For these women, working
in the maquila gives them their first-ever access to personal disposable
income and allows them to support their kids.”
The maquila boom may be
going bust, however. The number of plants in Mexico declined by about 12
percent in 2002 and 13 percent last year. Many are moving to China,
where production costs, especially wages, are even lower.
Raw materials bring
few benefits
Because of its distance
from the United States, South America has fewer maquilas. The economic
motor, however, remains export products, often raw materials --
petroleum, bananas and shrimp in Ecuador; metals and minerals in Peru;
fruit and copper in Chile.
The sectors, however, do
little to develop a skilled work force and fail to create many new jobs.
Agriculture requires an unskilled labor force. Mining and petroleum
operations create some construction jobs early on, but once the projects
are under way, they have small crews of technical personnel, usually
from outside the area of the wells or mines. The few local people who
are hired are generally unskilled and poorly paid.
Nor are extractive
industries, such as mining and petroleum production, necessarily a boon
to the local or national economies of the host country. A study
commissioned last year by the international aid agency Oxfam found a
positive correlation among three variables -- dependence on extractive
industry, poverty rates and civil strife.
“These are generally
enclave activities that have little connection with the rest of the
national economy,” Ffrench-Davis of the U.N. Economic Commission on
Latin America said. “That’s why, in many countries, exports of natural
resources or maquila products increase but the rest of the economy
doesn’t show strong growth. What’s needed are exports that are more
closely tied to the national economy and that have added value.”
As long as their
economies are sluggish, the region’s countries remain dependent on
foreign loans. Nearly half a decade after the Jubilee campaign for debt
forgiveness, most Latin American nations still carry high debt burdens.
At the end of 2003, the gross external debt for Latin America and the
Caribbean stood at $744 billion, up 2.4 percent from the previous year.
While debt liability dropped slightly in Colombia, Mexico and Venezuela,
it rose by 13 percent in the Dominican Republic, 10 percent in Costa
Rica and Bolivia, and 9 percent in Guatemala.
In Brazil, Peru and
Bolivia, the external debt is equal to about half the country’s gross
domestic product. The ratio is even higher in Ecuador, Uruguay and
Argentina. Regionwide, the external debt figure is twice the amount of
export revenues. Ecuador earmarks about half its annual budget for debt
servicing, compared to 11 percent for health care and 18 percent for
education.
Even in crisis, however,
there have been some sparks of hope.
The debt issue was
remarkable for galvanizing activists during the 2000 Jubilee Year.
Churches throughout the hemisphere boned up on the topic and circulated
petitions. In Peru, the bishops’ Social Action Commission spearheaded a
drive to gather signatures on a petition for debt forgiveness,
collecting 7 million, one of the highest in the world for signature
collection.
In Bolivia, protests
turned to proposals as the Catholic church held local conferences on
economics and citizen’s rights. Citizen watchdog groups now monitor the
use of funds freed up by debt swaps with creditors.
After Argentina’s
economic meltdown in late 2001 -- amid protests that brought down
President Fernando de la Rúa and led to a revolving-door parade of five
presidents in 13 days -- the Catholic bishops and other church leaders
issued statements calling for less emphasis on debt payments and more on
safety nets for the poor and elderly. They also took the country’s
political leaders to task for poor economic management and high levels
of corruption.
The Brazilian Conference
of Bishops was among organizers of a referendum in 2000 in which 6
million people turned out to vote on external debt, and another in 2002,
when 10 million voted no to the FTAA. Bishops on the Ecuador-Colombia
border have been equally outspoken, not just on the hemispheric free
trade area, but also on U.S. involvement in Colombia and Bush’s Andean
Regional Initiative to fight drug trafficking, calling them part of a
“system of evil.”
While many of the
region’s governments still earn popular distrust because of scandals
involving malfeasance and nepotism, a new style of leadership is
emerging in Brazil, where lathe-operator-turned-president Luiz Inácio
Lula da Silva has stood up to the United States in the World Trade
Organization and on the Free Trade Area of the Americas.
Lula has also served as
an inspiration to other leaders in the region, calling for a
solidification of trade relationships in South America -- especially
within and between the Southern Common Market (MERCOSUR), which consists
of Argentina, Brazil, Uruguay and Paraguay, with Bolivia and Chile as
associates, and the Andean Community of Nations, which includes
Venezuela, Colombia, Bolivia, Ecuador and Peru -- as a way of developing
the critical mass necessary to bargain on more equal terms with the
United States.
Seeking solutions
closer to home
Ecuadorian economist
Acosta also sees that as one of the best hopes for the region. “All
that’s lacking is the political will to do it,” he said.
According to
Ffrench-Davis, political will can also make a difference on the home
front. Costa Rica and Uruguay have the region’s smallest income gaps --
and, perhaps not coincidentally, are among the Latin American countries
with the highest educational levels -- largely because their governments
played a stronger role in shaping policy.
“Their policies haven’t
been as ideological,” Ffrench-Davis said. “They took a more pragmatic,
longer-term approach to the reforms of the Washington Consensus. They
placed emphasis on both the public and private spheres. They both have
very strict social policies, and they’ve paid attention to education.”
After the economic
crises of the 1980s, Chile instituted policies designed to put the
brakes on speculative capital and increase savings. As a result, it
suffered little during the Russian and Asian crises of the late 1990s.
“The neoliberal model
says that there’s a single formula for change, but Chile and Costa Rica
have demonstrated that there are alternatives when policy is well
thought out and adapted to the local situation and when there’s a
relatively well organized political system,” Ffrench-Davis said.
While those lessons have
not yet crystallized into solid, widespread proposals for change, they
may offer a glimmer of light at the end of a long tunnel.
“There still aren’t
clear elements for new policy, but there are many indications pointing
in a new direction,” Ecuadorian economist Acosta said. “We need to
rethink the role of the state and turn it into a state that plays a
positive role in economic, social and environmental development. We also
need to rethink the market, turning it into a market that combats
monopolies and the excessive power of transnational companies. The
market needs a stronger presence of organized workers, consumers,
farmers and ordinary citizens.”
Indeed, alternatives to
textbook free-market policies have been arising from the grass roots.
Ranging from microcredit to barter systems to marketing aimed at
ensuring producers a fair price, these options have been dubbed the
“economy of solidarity.”
“Capitalist logic seeks
to maximize profits,” said Peruvian economist Humberto Ortiz of the
Catholic church’s Social Action Commission. “When the capitalist doesn’t
achieve the expected rate of return, the company goes bankrupt.”
Low-income Latin
Americans, on the other hand, set up tiny businesses, sometimes
employing just the nuclear family, as a strategy for survival.
“It’s a different kind
of economy, not oriented toward profit, but oriented toward well-being,”
Ortiz said. “This economy, which also seeks efficiency in costs and
income, even when the income is precarious, is a ‘grassroots’ economy.”
Only about 10 percent of
the region’s micro enterprises accumulate capital, Ortiz said, but they
survive in defiance of conventional capitalist theory. The phenomenon
has drawn the attention of a network of socially oriented economists,
including Ortiz in Peru, Acosta in Ecuador, José Coraggio in Argentina
and Luis Razeto in Chile.
While most economists
refer to workers who have created their own jobs as the “informal
sector,” socially oriented economists prefer to call it a grass-roots
economy, saying it should not be defined by what it isn’t, but supported
for what it is -- a survival strategy for tens of millions of families.
These economists call
for governments, the private sector and civil society to join together
to support these workers through a redistribution of government spending
or the use of debt-swap funds. Ortiz said transnational companies should
also purchase raw materials and intermediate goods from local small
businesses and micro enterprises. Such policies, however, could be
undercut by free trade agreements that discourage or eliminate
purchasing policies.
Another solidarity
effort links small producers in Latin America and the Caribbean with
importers who market their products at prices that ensure a fair payment
to the producer. The “fair trade” movement had its roots in efforts by
missionaries and church groups to ensure that artisans working in Latin
American countries received a fair price for their handcrafts, which are
generally sold to tourists for a pittance. The movement expanded to
other products, such as coffee and chocolate, and began to take
different forms as solidarity groups in North America and Europe began
to lobby supermarkets to carry fair-traded items.
Critics of the
fair-trade movement claim it is too limited to have a real impact and
that it focuses too much on the price the producer receives, leaving
aside questions about labor practices and working conditions. The
international Fair Trade Labeling Organization in Bonn, Germany,
however, includes labor and environmental standards among its criteria
for certification.
Church groups are major
players in the fair-trade movement. London-based Christian Aid has waged
several campaigns focusing on products, including asparagus and bananas,
that can be traced all the way back to the farm or packing plant in the
source country. The campaigns aim to educate consumers and encourage
importers to pressure the companies with which they do business to treat
workers fairly. In some cases, representatives of supermarket chains
have traveled to the source country to visit farms and processing plants
and talk to workers about labor conditions.
Rodney North, who handles
public relations for Equal Exchange, a worker-owned cooperative that is
one of the oldest U.S. fair-trade marketing companies, said the entire
fair-trade model is a challenge to the status quo.
“Despite our rather
unorthodox business model, we’ve been growing at about 32 percent per
year for 18 years,” he said. “We want people to understand that business
can be done differently. We take great pleasure in being emulated. We
want people to see that while it’s not a way to get rich, it can be a
way to run a business -- and a satisfying one.”
Another grass-roots
response to neoliberalism is the “economy of solidarity” movement, whose
flagship was the barter movement that sprang up in Argentina in response
to the economic crunch. It began in lower-income zones, where neighbors
would offer to swap homemade goods and services, but quickly spread to
the middle class and even extended to neighboring Uruguay.
The barter groups used
chits so they could swap indirectly, but fell victim to their own
success. Some of the groups grew too big and counterfeit chits began to
circulate -- mirroring a problem that is not infrequent in the regular
monetary system.
Still, the barter groups
made their point, and many continue to operate in Argentina and other
parts of the region.
Initiatives like these,
cross-border solidarity and the protests that have become part of every
meeting of multilateral trade groups or lenders are a sign of increasing
awareness and dissatisfaction with the economic status quo.
“The people of Latin
America are saying, ‘Enough. We don’t want business as usual. We want
change,’ ” Acosta said. “But the people who govern Latin America haven’t
tuned in to that yet.”
Barbara
Fraser worked in Peru for 14 years as a Maryknoll lay missioner. She now
lives in Peru as a freelance writer. Paul Jeffrey is a United Methodist
missionary journalist who has lived in Central America for two decades.
He lives outside Tegucigalpa, Honduras.
National
Catholic Reporter, June 4, 2004 |
