Redistributive Conflict and Social Policy in Latin America
Transcrição
Redistributive Conflict and Social Policy in Latin America
World Development Vol. 36, No. 3, pp. 446–460, 2008 Ó 2007 Elsevier Ltd. All rights reserved 0305-750X/$ - see front matter www.elsevier.com/locate/worlddev doi:10.1016/j.worlddev.2007.04.010 Redistributive Conflict and Social Policy in Latin America JUDITH TEICHMAN * University of Toronto, Ontario, Canada Summary. — Inequality has been a long-standing feature of Latin America. This article is an examination of the redistributive and social policy struggles in two countries of the region: Mexico and Chile. While electoral democracy has propelled redistributive issues onto the policy agenda, redistributive struggles are intense and progress in policy to address inequality is slow to emerge. Attention has been focused on cash transfer programs because of their ability to garner approval from a cross-section of public opinion, particularly from the most powerful. While such programs have an important contribution to make to poverty reduction, societal redistributive compromises are essential to an efficacious strategy to reduce poverty and inequality over the long term. Ó 2007 Elsevier Ltd. All rights reserved. Key words — Latin America, Chile, Mexico, poverty, social policy 1. INTRODUCTION Twenty years ago, market reform held out the promise for growth and prosperity for Latin America. But that promise has not been fulfilled: most countries of the region have faced recurrent economic crises, continuing unacceptable levels of poverty, and persistently high, and often increasing, levels of inequality (ECLAC, 2005, pp. 317–318; 336–337). 1 A marked deterioration in already inadequate social protection regimes occurred as unemployment shot up and social spending plummeted. In recent years, civil society pressure for involvement in the policy process has increased, as have demands for improved social protection. Public pressure to address the social deficit is seen most clearly in the election of left leaning political leaders, most of whom have strong backing from civil society organizations. 2 The focus is no longer just on questions of poverty. Increasingly, economists, including those working within multilateral lending institutions, have recognized that inequality can impede economic growth and slow poverty reduction (Cornia, Addison, & Kiiski, 2004, p. 47; De Ferranti et al., 2004) while also contributing to increased levels of criminal violence (Wade, 2004, p. 582). This issue is especially relevant to Latin America given that it has 446 had historically higher levels of inequality than elsewhere with a high concentration of wealth among the wealthiest members of society (Morley, 2001, p. 66). Mitigating the severe inequalities that have persisted over centuries represents an enormous political challenge. This article is an examination of redistributive struggles and social policy making in Chile and Mexico. 3 Both countries have undergone market reform (trade liberalization, privatization), have powerful private sectors, and have made the transition to electoral democracy. Both have high levels of inequality. But while Chile’s export-led growth has been largely responsible for substantial reductions in poverty, 4 Mexico has faced recurrent economic crises, stagnant growth and continuing high levels of poverty. 5 Today, there appears to be convergence of thinking among top-level policy makers in the two countries on the efficacy of a new type of conditional cash transfer program directed to the extremely poor. These programs were driven by particular policy contexts: the combination of a commitment to fiscal constraint, weakened possibilities for popular * Financial assistance from the Social Science and Humanities Research Council of Canada is gratefully acknowledged. Final revision accepted: April 2, 2007. REDISTRIBUTIVE CONFLICT AND SOCIAL POLICY IN LATIN AMERICA mobilization, and the failure to reach distributive compromise settlements between contending forces. Furthermore, these programs are based on a weak and grudging societal consensus, very distant from the kind of redistributive compromise necessary to reduce poverty and inequality over the long term. State mediation of a redistributive ‘‘class compromise’’ between capital and labor has been identified as being at the heart of lower levels of socio-economic inequality (Amenta, 2003). While much of the literature has focused on developed capitalist countries, discussions of Latin America have also employed the concept of ‘‘class compromise’’ and have noted the improved distributive consequences of such settlements (Buchanan, 1995; Neuhouser, 1992). A class compromise involves an agreement in which the contending sides (capital and labor) make real concessions with the objective of avoiding mutual damage and achieving social peace within the parameters of the operation of the capitalist system. The policy areas under negotiation can be varied: they may include wage and benefit arrangements, labor protection legislation, price controls, taxation, social spending, and social protection arrangements. For this discussion, I employ the notion of ‘‘redistributive societal compromise,’’ a concept intended to capture the heterogeneity of the contending sides in Latin America. Labor may not be a central actor in such a compromise because its power has declined in many countries, the informal sector is substantial, and civil society organizations have increased in importance. Moreover, resisters to a new redistributive settlement may include not just the business community, but also upper and middle-income groups, including the members of trade unions (historically the beneficiaries of social security schemes), along with technocratic allies within the state. The achievement of redistributive compromises has certainly been difficult in the Latin American context. Such settlements are obviously more easily accomplished when economies are expanding. Sharp economic downtowns have often produced zero sum conflict and sometimes unbearable hardship for lower income groups. These developments can trigger the withdrawal of labor consent from fragile compromise arrangements, a rise in labor militancy, regime collapse, and a turn to coercion. In addition, many Latin American countries lack one of the key ingredients for such compromises: a legitimized, relatively autonomous state 447 not permeated or unduly influenced by particular societal groups (Gough, 2004, p. 21). But there are historical examples of redistributive settlements in the region that have had enduring positive consequences for redistributive outcomes. The two Latin American countries with the current lowest degree of inequality, Costa Rica and Uruguay, were characterized by successful redistributive compromises in the first half of the twentieth century. 6 Widespread and deep public support (including support at the elite level) for equitable welfare arrangements prevented their dismantling once the market reform era hit. In Uruguay, near universal pension, health and educational systems, although weakened, were not dismantled under military rule and privatization was fiercely resisted (Castiglioni, 2005, pp. 42–59). With the return to democracy, institutions of trilateral negotiation were restored and the country has witnessed a decline in inequality since 1990 (ECLAC, 2005, pp. 335–336). In Costa Rica, reforms to the country’s social welfare arrangements have involved continued commitment to social protection for the entire population and increasing levels of investment in pensions, education and health care. Costa Rica is the only Latin American country to have unified its health-care system with standardized entitlements that are open to the dispossessed (MesaLago, 2000, p. 288, 298). In other countries of the region, like Chile and Mexico, inequalities became entrenched early in history and they have either gone unmitigated (Mexico) or attempts to mitigate them have failed or been overturned (Chile). Pluralist electoral democracies, elite actors willing to negotiate and compromise along with equally moderate and autonomous labor, and other popular organizations strong enough to push for negotiated settlements, have been in short supply. Military dictatorships and corporatist and clientelist political manipulations of popular groups have been among the political factors perpetuating or even increasing inequality. Highly unequal social protection schemes have gone to those well organized enough to demand them, leaving out workers in the informal and rural sectors, often the majority (Barrientos, 2004, pp. 139–140). Inadequate social welfare arrangements tend to operate in combination with regressive or only mildly progressive tax structures and state failure to collect even those tax revenues that are on the books (De Ferranti, Perry, Ferreira, & Walton, 2004, p. 255). 448 WORLD DEVELOPMENT In recent years, new conditional cash transfer programs have become a part of the panoply of public assistance instruments in an increasing number of countries to some extent mitigating the need for redistributive settlements. 7 In their preoccupation with extreme poverty (the poorest), these programs represent a departure from past thinking and practices. Their advocates argue that universal social programs are not possible in Latin America for fiscal reasons and that traditional social assistance supports such as subsidies to the poor involve waste and duplication, and often leave out the extremely poor. Most of these programs have focused primarily on the children of the poorest, making cash transfer payments to the female head of the household contingent upon sending children to school and/or taking them in for health check-ups. Their claim to efficiency in state spending makes such programs appealing, and they offer immediate amelioration to politically embarrassing extreme poverty figures. Moreover, they come with enthusiastic financial and intellectual support from multilateral lending agencies. 8 Almost as soon as such programs appeared on the scene, however, they attracted an avalanche of criticism (discussed in more detail below), much of it directed not only at the tendency of such programs to exclude some of the extremely poor, but also at their failure to address moderate poverty and the poverty faced by families without children, young people and the elderly. Critics have produced a plethora of counter proposals aimed at rectifying these various perceived deficiencies. Another response to criticism has been the expansion of these programs both in financing and in coverage of more of the poor. 9 Much of the discussion has focused on the issue of universal versus targeted social programs. While there is certainly no reason to assume these two social welfare strategies are mutually exclusive, the fiscal weakness of the Latin American state has encouraged the assumption that there are trade-offs. Hence, on the one side are those (mainly the originators of these proposals and their private sector and multilateral allies) who argue that increased expenditure on universal programs (particularly subsidies) has been wasteful, ineffective, and have not reached the poorest. On the opposite side are those who argue that such programs leave out far too many and will be ineffective if payments to the extremely poor are conditional upon the use of poor educational and health facilities. This debate has become central to the discussions of social policy in our two cases despite the somewhat different social welfare challenges that each faces. Chile’s redistributive compromise of the 1950s and 1960s, 10 the product of a militant labor movement, the mobilizational activities of the left political parties and a functioning electoral system, produced substantial social welfare improvements. Chile’s social security arrangements came to reach a considerably higher proportion of the economically active population than Mexico’s. 11 In addition, during 1970–99, social spending in Chile reached a high of 22% of GDP and never slipped below about 14%, while, during the same period, Mexican social spending never accounted for more than 9% of GDP (Raczynski, 1994, p. 65; SEDESOL, 2000, p. 5). But as Chile’s economy stagnated by the late 1960s, politics polarized as the left parties challenged private property rights and the political right’s fears of a socialist transformation spiked. The ability to find compromise solutions broke down, leading to a military coup. Under military rule (1973–89), market reforms, particularly trade liberalization and privatization, went rapidly forward. Political repression and economic decline contributed to a substantially weakened trade union movement. Income distribution became more unequal and poverty shot up (Edwards & Cox Edwards, 1987, p. 162). Privatization in health care produced a two-tier system, involving a private system for the welloff and a public system for the remaining 85% of the population. A sharp deterioration of public health services occurred as both government and upper-class financial contributions to health care dropped. In Mexico, corporatist/clientelist manipulation of the popular sectors (workers, peasants and other ‘‘popular’’ groups) allowed for relatively high and steady economic growth rates of 6% until the late 1960s, but with high inequality and substantial poverty, especially in rural areas. Market reforms were carried out under authoritarian one-party (the Institutionalized Revolutionary Party, PRI) rule during 1985–94, and here, too, poverty (1984–92) and inequality increased (1989–96). Many of those covered by social security, who lost their jobs with the economic crises and the subsequent structural reforms, lost what social protection they had and joined the ranks of the informal sector which swelled during the difficult years of the 1980s (Cortés, 2000, p. REDISTRIBUTIVE CONFLICT AND SOCIAL POLICY IN LATIN AMERICA 38, 49). As in the Chilean case, the political strength of labor declined (La Botz, 1988). When crisis hit once more in 1995, the effect was again socially devastating. The country’s economic difficulties, the diminished fiscal capabilities of the state, and increases in unemployment all contributed to the unraveling of PRI control over labor, peasants and other popular groups and set the stage for the transition to electoral democracy. The two countries faced similar redistributive challenges by the 1990s. Economic crises and neoliberal reforms, in contributing to income concentration, had strengthened the political clout of an already powerful business sector while weakening labor (Silva, 1996; Teichman, 2001; Thacker, 2000). In both cases, because weakened labor movements and popular groups in general were unable to put up an effective resistance, policy makers had a fairly free reign in economic and labor policy, and, more recently, in social policy development, particularly in the formulation of the new conditional cash transfer programs. But the persistence of high degrees of inequality and insufficient poverty reduction in Mexico, combined with the emergence of electoral democracy, has opened the door to growing contestation over this type of social policy. 12 Given Chile’s greater success in poverty reduction, one might expect the contestation over social policy to be different, but, as we shall see below, the two cases share some remarkable similarities in process and issues. As we shall see, the similarities have been shaped by common political features arising from their periods of neoliberal reform: powerful private sector interests and entrenched finance sector officials with a particular view of social welfare spending. 2. POLITICS AND THE FAILURE TO RESOLVE DISTRIBUTIONAL STRUGGLES The new civilian leaders who came to power in Chile in 1990 attempted and failed to broker a redistributive compromise. In Mexico, a leadership that remained closely integrated with powerful members of the private sector took no interest in a redistributive compromise, a situation that continued after the transition to electoral democracy (in 2000) despite demands from civil society and opposition parties. However, the presence of a much stronger congress has placed the redistribution issues, particularly 449 social policy issues, at the center of political contestation. In Chile, the political agreement that has maintained the coalition of left-center parties known as Concertación in power since 1990 has been a minimalist ‘‘pact,’’ one which required labor to respect the right to private property, the government to promote the neoliberal model and reduce poverty, and the private sector to respect the right of labor unions to exist (Ruiz-Tagle, 1991, pp. 155–157). The new government called for ‘‘growth with equity,’’ and aspired to achieve tax reform, increased social spending, and greater equality in social services. But, as we shall see, its achievements would fall persistently short of its goals. There is disagreement as to whether the Chilean tax system is mildly progressive or slightly regressive (De Ferranti et al., 2004, p. 253). From the beginning, the government’s efforts to increase the country’s tax base to fund social programs was stymied by the political right (the right wing parties and its private sector allies) which resisted tax increases, favoring more ‘‘efficient’’ forms of social spending. The concerns of the political right were echoed by bureaucratic allies in the Finance Ministry, who had both institutional (the responsibility to keep the fiscal balance intact) and ideological (a predisposition to state streamlining) motivations. Seeing its tax reform proposals stalled in the right-dominated congress in 1991, the government negotiated with the right wing National Renovation Party while the rank and file of its own parties was denied any consultation. As a consequence, it had to live with considerably less than its original objectives. Instead of a permanent increase in the corporate tax on profits from 10% to 20%, the government agreed to an increase in the tax on profits of 15% for a limited four-year period and to the reform of an increase in the value added tax (VAT) from 16% to 18% (Boylan, 1996, p. 9). 13 With the objective of winning over the private sector to an expanded social program geared to the reduction of inequality supported by increased revenues from tax reform, the Concertación set up a Council for the Elimination of Poverty, to which it appointed a wide cross-section of Chilean society, including representatives of the major entrepreneurial organization (the Confederation of Production and Commerce). 14 The effort failed to produce a redistributive agreement with entrepreneurial 450 WORLD DEVELOPMENT representatives taking issue with the report’s concern for inequality. Belief in the importance of fostering business confidence (and thereby avoiding capital flight) was a powerful constraint on a more vigorous pursuit of the government’s social equality objectives. Indeed, the extent to which tax policy was driven by private sector concerns is illustrated by the fact that, in 2000, the value added tax was increased from 18% to 19% mainly to boost business confidence by creating a budget surplus of 1% of GDP, not for the purposes of social spending. Furthermore, while in 2000 more low-income families were given tax exemptions, income tax was also reduced for the highest income groups from 40% to 35% (Latin American Weekly Report, 14 August, 2001, p. 377). Despite these setbacks, steady economic growth did provide a resource flow that allowed for increases in social spending that went largely to improve the country’s universal programs (health and education), especially those in poor areas (Arenas de Mesa & Benavides Salazar, 2003, p. 38). Two issues related to equality, labor and health reform, remained unresolved despite the government’s best efforts at bringing the parties together to achieve a compromise. Labor and the left argued that state regulation of the country’s highly ‘‘flexible’’ (meaning lack of labor protection) labor code was essential to the reduction of poverty and inequality because it would reduce poorly paid and precarious employment. The private sector and the political right, on the other hand, have taken the position that a flexible labor regime was essential to export competitiveness and, therefore, to employment growth. Throughout the 1990s, state managers struggled unsuccessfully to broker a deal that would satisfy both sides. With the election of President Lagos in 2000, two early attempts were made to arrive at a consensus on labor reform through tripartite discussions within a newly established Council of Social Dialogue, and both failed. Some relatively minor concessions to labor in 2000 (such as prohibition of the firing of workers due to union activities) produced business demands for the resignation of the labor minister (La Tercera, September 21, 2001; November 15, 2001). Subsequent labor reform initiatives then seesawed between efforts to placate business and initiatives to improve labor protection. Under growing public pressure, in 2000, the government began to address the issue of inequality in health services, struggling to bring about an agreement that would involve a transfer of resources from the resource-rich private funds to the cash-starved and low quality public sector. The government proposal called for the establishment of a ‘‘Solidarity Fund,’’ to support guaranteed coverage for an expanded basket of health-care services for all Chileans, to be funded by contributions from both the public and private health-care systems. However, as this proposal entailed a reduction in the inflow of funds to private health-care providers, it incurred the wrath of not just the private health-care companies, but also of the private sector more generally (La Tercera, November 15, 2001; Estrategia, April 10, 2002). Business and the political right eventually succeeded in having the Solidarity Fund removed from the legislation (La Tercera, August 30, 2004). The socialist parties continued to campaign for its reinsertion and began to question the very principle of profitmaking in the health sector (La Tercera, November 16, 2001). Acquiring the resources to improve the public health-care system remains highly contentious, with the private sector strongly opposed to tax increases for this purpose. Taking the position that increased expenditure on public health is ‘‘irresponsible’’ and ‘‘money lost,’’ the private sector and the political right have argued, instead, for more efficient and more targeted spending delivered through decentralized government and more private sector involvement (Estrategia, March 4, 2002 and April 12, 2002; La Segunda, July 27, 2001). In Mexico, once the PRI began to lose power beginning with its loss of control of congress in 1997, pressure from the opposition left in congress for the state to take on an effective redistributive role increased as did demands that the executive negotiate with congress. Tax reform and the inadequacy and marked inequalities in public health care and education have also been prominent issues. 15 But with sluggish economic growth and greater fiscal pressures Mexico has been in a much more difficult fiscal position. For an upper-income country, Mexico stands out for its low tax receipts, while much of its spending is regressive (De Ferranti et al., 2004, p. 273). With the institution of market reforms, tax changes in the early 1990s aimed at stimulating private investment provided for tax reductions. 16 With the 1995 economic crisis, the value added tax, at 10%, was increased to 15%, with exemptions for only basic food and medicine. Once the PRI lost REDISTRIBUTIVE CONFLICT AND SOCIAL POLICY IN LATIN AMERICA control of congress in 1997, this increase in the VAT became an increasingly contentious issue with the opposition left party (Democratic Revolutionary Party, PRD), which repeatedly demanded the reduction of the VAT and its removal from a variety of essential goods not already exempted (Latin American Weekly Report, July 22, 1997, p. 340). Counter pressure from the business community ensured that the VAT would remain at 15% (Latin American Weekly Report, October 7, 1997, p. 478). Meanwhile, Mexico’s sharp inequalities in health care have been more substantial than Chile’s. An estimated 50% of the population lacks access to its two social security institutions and must depend on the poorly funded services offered by the Ministry of Health (SSA). 17 But on top of that, an estimated one third of the population need health services and cannot access them, due to geography and other barriers (Frenk, González-Block, & Lozano, 2000, p. 343). Facilities for the insured are of much higher quality than those available to the uninsured with expenditure per capita on health within the social security system 3.9 times that spent in SSA. Expenditure regionally is also very unequal (Frenk et al., 2000, p. 35). At the same time, both of the country’s social security institutions have faced severe financial crises. Privatization of social security has been only partial and remains fiercely contested. Privatization of IMSS (Mexican Institute for Social Security) pension funds (for private sector workers) was accomplished under the PRI in 1997, marking a transformation from a system based on solidarity between generations and, to some extent, between income groups, to one of individual accounts. On the one hand, many supporters of a strengthened public system want one in which there is risk pooling and redistribution between middle and lower income contributors. 18 On the other hand, strong opposition to beefing up the public system is coming from the private sector and the Fox administration which favored privatized arrangements along the lines of the Chilean model. Both of these positions are opposed by entrenched union interests which see any change as meaning an erosion of their privileged social security arrangements supported by generous (though unsustainable) state contributions. In 2004, a new government program to address the needs of those left out of the social security system was instituted with the Seguro Popular program. To some extent this new pro- 451 gram was a response to the dilemma faced by the poor by-passed by the formal social security institutions, on the one hand, and the new conditional cash transfer program (discussed below), on the other. It ran headlong into the resource scarcity obstacle, characteristic of a country without steady economic growth and a redistributive compromise. The new program immediately meant an increase to the health budget to cover the state subsidy needed to support the participation of the poorest families, and, because the program was predicted to trigger increased use of health facilities, it created pressures for a substantial increase in resources for new health infrastructure (Reforma, December 7, 2003 and March 6, 2004). It also immediately generated opposition from within the state, from those bureaucrats who feared diminished resource allocation to their programs. 19 Mexico’s pressing financial exigencies and their redistributive implications should be considered within the context of the government’s response to the 1995 financial crisis. The 1995 bank rescue operation, known as FOBAPROA (the Bank Fund for the Protection of Savings) involved the state bail out of the private banking sector in a highly discretionary fashion in which the executive negotiated special deals with those bankers who had made the largest campaign contributions to the PRI (López Obrador, 1999, pp. 32–34, 60). There is a consensus that the liabilities incurred by the state in this massive transfer of wealth to the private banking sector, estimated at 19.1% of GDP, will weigh very heavily on government finances for many years to come, impeding the country’s ability to increase social spending (Garrido, 2003, p. 114; Nadal, 2003, p. 80). The bank rescue liabilities in combination with sluggish economic growth meant that the fiscal pressures continued into the Fox administration (2000–06) and tax issues continued to be highly conflictive redistributive issues. Furthermore, President Fox’s relationship with powerful business interests has been even closer than that of his PRI predecessors 20: upon his election, he immediately incorporated nine of them directly into top positions, including cabinet level ones, within his government (Teichman, 2002, p. 505). Early in his election campaign, Fox had proposed a tax on wealth or property taxes to raise funds for social programs, but this proposal met with stiff resistance from the private sector, producing a subsequent proposal to expand the 15% VAT to cover basic 452 WORLD DEVELOPMENT food and medicine. This new proposal was supported by the private sector, but defeated in congress, although the executive continued to push the initiative even after its defeat. A highly activist congress produced a tax reform bill that increased the VAT on luxury goods, including telecommunication services, soft drinks and cigarettes; the auto industry and the telecommunication sector then challenged the new taxes in the courts (Latin American Weekly Report, 2 January, 2002, p. 3). As we will see below, the initiatives for the new conditional cash transfer programs arose and have expanded within the context of ongoing financial exigencies. 3. ATTEMPTS TO MITIGATE DISTRIBUTIONAL CONFLICT: CONDITIONAL CASH TRANSFER PROGRAMS In Mexico and Chile, the business community and the political right fiercely resisted tax increases while, in the case of Mexico, entrenched union interests resisted more redistributive social security arrangements. Meanwhile, fiscal pressures on powerful technocrats in finance ministries triggered concerns about eliminating inefficiencies and waste in social spending; while discussions with multilateral lending institutions reinforced concerns for ‘‘leakages’’ and ‘‘inappropriate’’ subsidies. In both cases, conditional cash transfer programs have become the social policy of choice—almost the only one, in fact, despite the fierce debates each generated, able to garner only a modicum of across-the-board support. The idea of conditional transfers to poor families was not new to either Chile or Mexico. From 1990, Chile has had the Subsidio Único Familiar (SUF) program with some 900,000 beneficiaries (Arenas de Mesa & Benavides Salazar, 2003, p. 64, 79), a program which provides conditional cash transfer to a variety of groups, including the mothers of children under 18, conditional upon attendance of children in school. An earlier Mexican program (1989), known as ‘‘Niños en Solidaridad,’’ provided cash and food supplements to families in poor communities, also conditional upon school attendance. But both of these programs were aimed at the moderate and the extremely poor. Indeed, the bureaucratic initiators of the new conditional cash transfer programs did not view such older programs as sufficiently tar- geted (that is efficient) because they did not focus just on the extremely poor. 21 In Chile, a new cash transfer program, Chile Solidario, was announced by incoming President Ricardo Lagos in the year 2000 and put into place in 2003. As a program aiming to confront extreme poverty it is focused on the country’s poorest 225,000 families. At a cost of approximately $450 (US) per family in 2005, the program accounted for 6.2% of social expenditures (Ministerio de Hacienda, 2005, p. 472; Ministerio de Hacienda, 2006, p. 93), with a cost equivalent to 0.1% of Chile’s GDP (2004) (ECLAC, 2006, p. 155). The program had its origins in the concerns of two sets of technocrats: the administrative unit within the Finance Ministry concerned with expenditures (the Office of Budget Management) and a group of officials in the Planning Ministry. 22 Budget officials were primarily concerned with finding ways to keep expenditure under control, an increasing problem due to the 1997 Asian financial crisis and the economic downturn in 1998 (a growth rate of only 0.2%). They were also concerned about poverty figures released in 2000 by the Economic Commission for Latin America showing that the reduction in extreme poverty had stagnated. The Budget Management officials, therefore, began to consider ways to reduce what was seen as ‘‘waste’’ and duplication, and ‘‘administrative chaos’’ in social expenditure, with particular concern directed at the ‘‘leakage’’ of benefits to people who were not the poorest. In their view, many existing social programs could be eliminated. They initially argued for a simple cash transfer as the most ‘‘efficient’’ method to reduce extreme poverty and sought out support from the private sector for such a program. While some members of the political right initially opposed Chile Solidario, (due to its highly centralized form of administration), they were, for the most part, brought on side by the efficiency argument. Meanwhile, officials within the Planning Ministry feared that extreme poverty might creep up without concerted attention to the problem. 23 Discussions involved top-level officials in the Ministry, the head of the Solidarity and Investment Fund, FOSIS (an agency within the Planning Ministry that provides funds for local projects), and officials from the Secretary General of the Presidency. These officials opposed a strict cash transfer program and wanted to ensure that the new program would avoid creating welfare dependency. REDISTRIBUTIVE CONFLICT AND SOCIAL POLICY IN LATIN AMERICA These differing concerns were brought together in a consultative seminar of carefully selected academic experts in poverty arranged by the Secretary General of the Presidency, most probably at the instigation of those finance officials already engaged in discussions of these issues. 24 Debate focused on whether money should be simply handed over to the extremely poor (the position of those experts from the right wing think tanks and key people within the Finance Ministry) or whether financial support should be supplemented by other forms of support. This latter position was the one taken by key Planning officials and poverty experts from left-center NGOs. Although the final program is a blend of the two approaches (it provides a small sum of money to the female heads of households contingent upon fulfilling a variety of conditions), the sheer number of the conditions (53, in fact) reflects the substantial policy impact that Planning Ministry officials were able to have. The objective was to ingrain behaviors that would ensure that families graduate from the program and join the ranks of the non-poor. Conditions included not only school attendance and health checkups for all family members but also involved promises to take a positive attitude toward education, resolve family conflicts using ‘‘appropriate’’ methods and distribute household tasks fairly. The program assigns a social worker to each family who is to provide both social–psychological support and guide the family’s integration into existing government programs. Described as the ‘‘perfection of targeting,’’ the highly technocratic nature of the program is reflected in the way in which participant families are selected: through the administration of a survey which purports to measure with exactitude the extent of poverty in individual families. Importantly, most of the major issues of concern to NGOs and to the most critical academics were not raised during the consultative seminar. 25 These included concerns over the way in which such a program might cause divisiveness among community members, the absence of the opportunity for participation on the part of those chosen as targets for the program, the failure to invite civil society organizations to monitor and evaluate the program, the failure to distinguish between rural and urban poverty (and the failure to use distinct criteria to assess poverty in each), the use of highly technocratic measurements of poverty likely to omit many of the deserving poor, and the absence of community development projects. In- 453 deed, some observers expressed regret at what they view to be the increasingly targeted nature of Chilean social policy since 1990, characterized as virtually abandoning any interest in developing community spirit and solidarity. NGOs were excluded from both design and evaluation of the new program. 26 The evolution of Mexico’s conditional cash transfer program, although differing in program details and certainly in scope, shares some strikingly similar characteristics in its origin and general acceptance. Progresa was introduced in 1997 and expanded under its new name, Oportunidades, during the administration of President Fox. Originally targeted to 400,000 families when it was established, by 2005 the program had been extended to five million families. It involves the handing over of small sums of money to the female heads of households in exchange for children’s regular attendance at schools and health clinics. In 2001, expenditure on the program equaled 0.32% of GDP (ECLAC, 2006, p. 155). In 2004, the program accounted for 2.0% of all social expenditure, and cost about $450 (US) per family (Presidencia de la República, 2006, pp. 85–86, 278). The program arose in the context of the 1995 economic crisis and the strong fiscal pressures generated by that crisis. Its technocratic market-orientated originators, like their Chilean counterparts, had a strong preoccupation about the inefficiencies of general subsidies. 27 Since Mexico was not an electoral democracy at the time the program originated, the policy development process was even more insulated than in the Chilean case. The program originated with two groups of technocrats: one was a team led by Santiago Levy, 28 an economist and Subsecretary of Expenditure in the Ministry of Finance at the time. The other was a group led by a close friend of President Zedillo, José Gómez de León, a demographer and the head of CONAPO (National Population Council), during the years of the development of the program. 29 The question of whether poor communities would be involved in the selection of program beneficiaries was the key issue that caused friction between Levy (who wanted strictly enforced technocratic criteria) and senior Social Development (SEDESOL) Ministry officials who wanted community participation. The program was finally imposed by the President over the strenuous objections of the head of the Social Development Ministry arousing the ire of officials in 454 WORLD DEVELOPMENT other ministries and of rank and file members of the political parties in congress (including members of the then ruling PRI). Fiscal difficulties drove the development of the program. For both Levy and Gómez de León, subsidies on basic foodstuffs were inefficient and wasteful of public expenditures because they did not benefit the poorest. They argued that most of the beneficiaries of these subsidies were in urban areas, particularly Mexico City, while large numbers of desperately poor concentrated in south central Mexico did not benefit (Levy & Rodrı́guez, 2004, p. 26). The 1995 economic crisis and the extreme fiscal pressures it imposed gave Levy the leverage he needed to exact policy change. Indeed, from 1994, Levy had begun to reduce generalized food subsidies in milk and tortillas. It was the savings from the reduction and final elimination of the tortilla subsidy that provided the funding for the new targeted program in 1998 (Levy & Rodrı́guez, 2004, p. 87). There was major redistribution from the cities (particularly from Mexico City) toward the rural areas, particularly the south. By 2000, the south was receiving one-half of all food subsidies (through Progresa) and the proportion received by Mexico City had dropped from 70% in 1995 to 7% (Scott, 2003, p. 27). It is likely that this change in social programming from basic food subsidies to Progresa marked a redistribution toward the rural extremely poor from the urban moderately poor who saw basic food subsidies withdrawn and who also lacked access to formal social security arrangements and to the new Progresa program. Like Chile Solidario, Progresa was highly technocratic in nature. The development of an index of marginality under the direction of Gómez de León made possible the selection of the poorest communities. Then, as in the Chilean case, detailed surveys allowed for the selection of beneficiary families within these communities in accordance with whether their income fell below the value of a basic food basket. Progresa, although subject to considerable criticism, like Chile Solidario eventually gained widespread, albeit sometimes grudging, support. As in the Chilean case, the program fit nicely into business’ support for big spending cuts, greater efficiency in government spending and support for the neediest (Reforma, February 14, 1997; October 2, 2003). At the same time, the private sector was closely integrated into the operation of social policy under President Fox. The Minister of Social Development until January 2006, Josefina Vázquez Mota, comes from a prominent Mexican business family and made a number of private sector appointments to the ministry. 30 An administrative unit within the Social Development Ministry, ‘‘Enlace Empresarial’’ (Business Link), has as its primary objective that of making the private sector aware of the situation of extreme poverty in the country and involving it in the social programs set up to address this problem, including communities served by Progresa/Oportunidades. The most well known program in which there is private sector participation is ‘‘Piso Firme,’’ a program that involves the private sector in the construction of cement floors, at below market prices, in communities of extreme poverty. However, between the time of its initiation in 1997 and the election of President Vicente Fox in the year 2000, Progresa received an onslaught of criticism from congress, from the left and civil society organizations, and from Fox’s own social policy transition team, which had engaged in an in-depth consultation of thousands of civil society organizations on social policy, including Progresa. Most of the criticisms echoed those made of Chile Solidario: the program’s exclusion of many deserving poor, the absence of community participation, the potential divisive impact on poor communities, and the need for parallel support for productive projects. 31 Despite such harsh criticisms and the association of the program with the previous PRI administration, President Fox decided to maintain the program and even expand it. The positive evaluation given the program by the Washington-based International Food Policy Research Institute appears to have been instrumental in persuading President Fox to keep the program. These assessments, which are generally positive, point to important increases in school attendance and health among children enrolled in the program and to short-term reductions in poverty. 32 However, the impact of the program on poverty reduction is a topic of some considerable debate, and proof that the program breaks the cycle of intergeneration poverty awaits much longer-term assessments. 33 As in the Chilean case, civil society participation in the program has been resisted, particularly by officials in the Finance Ministry. While pressures on public expenditure created by community mobilization are no doubt also relevant considerations in explaining this resistance, an additional ingredient, in the Mexican case, is the strongly held viewpoint that any opening to REDISTRIBUTIVE CONFLICT AND SOCIAL POLICY IN LATIN AMERICA community involvement in distributive programs will disintegrate into clientelist forms of political control by public authorities. 34 While by the year 2004 Progresa/Oportunidades had many critics, it was difficult to find anyone actually advocating the elimination of the program; the overwhelming consensus was that although by itself it was not going to be sufficient to eliminate even extreme poverty, the program was making an important contribution. 35 Many congress people, government officials, and NGO leaders on both ends of the political spectrum, expressed the viewpoint that it would be politically impossible to eliminate the program, no matter what one thought of it. At the same time, it is clear that many Mexican civil society organizations supported social policy that went well beyond the limited targeted concept embodied in Progresa. In recent years, many civil society groups had been pressing for an expanded concept of human rights that would include social rights (the right to food, housing and health care, and labor rights). Opposition party and civil society restiveness at their exclusion from the formulation and evaluation of Progresa and fears about reductions in social policy expenditures in the future were instrumental in civil society and oppositional congressional pressure for a new Social Development Law (2004), which, among other things, inhibits future reductions in social spending and requires civil society participation in social policy evaluation. Sustained social welfare spending, however, requires an expanded source of state revenue. 4. CONCLUSIONS Both Chile and Mexico are characterized by sharp distributional struggles and failures to reach compromise solutions. Additional indepth studies of other Latin American countries can tell us more about the nature of such struggles beyond these two cases, but anecdotal evidence suggests that similar struggles are operative elsewhere, even in those rare cases of historically relatively low socio-economic inequality. 36 Latin American countries are faced with the challenges of maintaining fiscal equilibrium, developing social programs to address poverty and inequality, and finding the resources for these programs. In general, countries of the region are characterized by relatively low and regressive social spending combined with regressive or only mildly pro- 455 gressive taxation. Unequal access to services such as health care and labor protection are additional redistributive issues. The room for policy improvement is substantial while the political obstacles are, admittedly, daunting. In the Mexican case, the integration of the private sector with the Fox administration produced almost no interest in a redistributive compromise. As the Chilean case illustrates, the road to a redistributive compromise is an extremely difficult one even when the political elite strives for its achievement. Conditional cash transfer programs have arisen within this very difficult context and have their origins among technocrats and others much more concerned with the narrow, albeit very important goal, of maintaining fiscal equilibrium. Facing criticism, conditional cash transfer programs have undoubtedly expanded in ways not envisioned by many of their technocratic originators. Available evidence from the Mexican case does suggest that they have a positive impact on human capital development and on immediate-term poverty reduction. In both cases, these programs have engendered sharp criticisms and pressure from civil society to both expand existing programs and to institute different types of social programs. This unintended mobilizational impact of conditional cash transfer programs is a positive development and has the potential to generate greater government commitment to social programs and to social spending. However, in the absence of a redistributive societal compromise involving both increased taxation and social spending, progress on the social policy front (particularly increased financial commitment) raises the specter of a descent into populism unless increased financial resources are forthcoming. Conditional cash transfer programs can only be a small part of a larger economic and social development strategy. It is important to recognize both their political context and the need for a political solution over the long term. Even when expanded, such programs are likely to leave out large segments of the poor. Moreover, without a commensurate increase in fiscal capacity, that expansion will inevitably begin to impinge upon other existing programs or will impede the emergence of new, perhaps more effective, ones. Importantly, the efficacy of conditional cash transfers themselves is enormously reduced if there are no resources to expand and improve health and educational services. All of this points to the importance of a redistributive societal compromise. It 456 WORLD DEVELOPMENT might be argued that such programs represent such a small portion of social spending that one cannot expect their impact to be large. The danger, however, is that these programs are beginning to acquire a political saliency well beyond their actual efficacy to such an extent that other essential economic and social policy measures, including redistributive ones, may well be placed on the back burner by politicians. 37 As illustrated by a former Mexican Minister of Social Development’s claim that social programs, particularly Oportunidades, were responsible for the recent reduction in poverty in the country, leaderships may be tempted to place too much faith in such social programs (Reforma, June 20, 2003). Conditional cash transfer programs assume that improvements of human capital among the extremely poor will equip them to join the ranks of the non-poor. This will only be true if economic growth provides expanded employment opportunities and improved wage levels over the long term. Conditional cash transfer programs are likely to be most efficacious if part of a multifaceted economic and social strategy that involves an industrial strategy to promote productive investment, infrastructural development, human development programs addressing a much broader spectrum of the poor, labor rights, and solidly financed, equitable universal programs in health and education. At the moment, one of the main virtues of conditional cash transfer programs is that they are able to garner a very grudging societal consensus—a common remark made by people across the political spectrum was: ‘‘who can oppose a program to reduce extreme poverty?’’ These are social programs capable of securing support from the business community and the political right because of their streamlined nature, technocratic efficiency and disavowal of both social mobilization and ‘‘populism.’’ They are also able to obtain, albeit begrudgingly, support from the political center-left and from NGOs because they do address needs of the most desperately poor and provide measures for the long term development of human (if not social) capital. Within the state, these programs are the darlings of those finance officials responsible for keeping expenditures in line. Indeed, in both of the cases discussed here, finance officials were key promoters, if not originators, of the cash transfer aspect of the programs. But they may paper over deep underlying redistributive conflicts which, over the long term, have the potential to be politically disruptive with possible negative economic implications. The exclusionary way in which cash transfer programs were developed in the two cases is probably one of their most disturbing aspects. This feature suggests a profound distrust of a genuinely open public consultative process. While electoral democracy has ensured that redistribution issues are now on the agenda, it does not appear to be capable of producing sufficiently redistributive policy outcomes. What is required, therefore, are leaderships committed to building a deeply committed societal equity coalition—necessary to act as a counterweight to recalcitrant vested interests which cannot be won over and to ensure continued political commitment to policy reform. 38 Building such a coalition will not be easy; it will most certainly require a more flexible attitude to public consultation. It is very likely that the efforts will fall considerably short of the mark, but it is possible that efforts in the direction of redistributive settlements may bring important improvements. Making the effort is surely a step toward overcoming the historical legacy of inequality. Without at least the attempt at a new societal compromise distributional struggles will fester and less than optimal policy solutions will continue to be the norm. NOTES 1. Indeed, some observers have linked market-liberalizing measures to all of these unhappy developments, particularly inequality (Thorpe, 1998, p. 221, 287; Morley, 2001, p. 152). 2. Such as Presidents Luiz Inácio Lula da Silva of Brazil, Nestor Kirchner of Argentina, Tabaré Vázquez of Uruguay and the former mayor of Mexico City, Andrés Manuel López Obrador. 3. Some of the data presented here was obtained through a series of open-ended interviews carried out in Chile in 2003 and in Mexico in 2004. In Mexico, there were a total of 46 interviews: 13 of senior officials (defined as the ministerial level and three tiers beneath that level), 10 of middle level government officials, 11 of congressmen, seven of leaders of non-government organizations (NGOs), and five of other government officials. For Chile, there were 28 interviews in total: nine of REDISTRIBUTIVE CONFLICT AND SOCIAL POLICY IN LATIN AMERICA 457 senior government officials, five of middle level officials, seven of NGO leaders, and seven of other government officials. Since a pledge of confidentiality was a condition of all interviews, interviewees will be identified by descriptive terms only. Information attributed to interviewees is that which has been corroborated by at least two interview sources. These sources are identified as precisely as possible without revealing identities. 11. By 1980, social security protection in Mexico covered only an estimated 40% of the economically active population (Ward, 1986, p. 112) while in Chile, it reached 70% by 1970 (Borzutzky, 2002, p. 69). Mexico’s highly capital-intensive economic model failed to generate employment, leaving a substantial proportion of the economically active population in the informal sector without social security. 4. The country’s decline in poverty was largely due to the impact of this export-led growth (Meller, 2000). 12. An important difference is the fact that the Concertación is a center-left coalition with, as we shall see, considerably greater distance from the private sector than in the Mexican case. Nevertheless, Concertación has also distanced itself from labor and resisted the involvement of civil society in public policy. 5. During 1990–2003, poverty declined in Chile from 38.6% of the population to 18.7% and extreme poverty from 13.7% to 4.7% while its gini-coefficient (the standard measurement for income inequality) remained unchanged at 0.55. In Mexico, during 1989–2004, poverty declined from 47.4% of the population to 37.7% and extreme poverty from 18.7 to 11.7, while its gini-coefficient declined slightly from 0.51 to 0.53. (ECLAC, 2005, p. 317, 318, 336). 6. Costa Rica’s greater degree of equality and its more developed welfare state is associated with the emergence of an early agricultural democracy based on a small and medium producer class, and the visionary leadership of José Figueres during 1953–58. Uruguay’s social achievements are attributed to the leadership of José Batlle y Ordóñez (1903–07 and 1911–15) and income redistribution negotiated in trilateral institutions in which an autonomous and moderate trade union movement participated. In both of these cases, the redistributive compromises were facilitated by economic growth. Other countries with redistributive compromises that were also successful at mitigating inequality for a time were Chile and Venezuela. The defeat of these compromises was followed by marked increases in inequality. 7. In addition to Mexico and Chile, such programs exist in Brazil, Colombia, Honduras, Jamaica, Nicaragua, and Ecuador. 8. Financial support for these programs is either provided by the World Bank or the Inter-American Development Bank (IADB). 9. Mexico’s program has expanded from the rural to the urban sector and from coverage of primary school children to those in the upper levels. Brazil’s ‘‘Bolsa Familia,’’ which consolidated numerous existing cash transfer programs, is now the largest program in terms of both coverage and financing (Rawlings, 2005, p. 135). 10. Inequality in Chile was considerably lower than in Mexico: in 1968, Mexico’s gini-coefficient stood at 0.59; in 1971, Chile’s was 0.47 (Thorpe, 1998, p. 352). 13. VAT is normally considered regressive unless there are exemptions for products used by the poorest. 14. Unless otherwise indicated, the information in this paragraph is taken from two interviews with participants on the Council, one with a former minister of the government and the other with a leader of a poverty NGO. 15. Reform of the labor code has been much less of an issue in Mexico largely because there is considerable de facto ‘‘flexibilization’’ (and hence it is not an issue for business), while a weakened trade union movement has not been able to make labor protection an important public issue. 16. In 1991 corporate income taxes were reduced, and in 1993 both personal income tax and corporate tax were reduced (Mexico and NAFTA Report, January 17, 1991, p. 7; October 28, 1993, p. 4). 17. Mexico’s government ministries are known as ‘‘secretaries’’ (‘‘secretarios’’) while Chile’s are ‘‘ministries’’ (‘‘ministerios’’). The term ‘‘ministry’’ and ‘‘minister’’ will be used in the discussions of both cases. 18. This is the position taken by several left and center politicians in congress. PRD members, however, keep their views relatively low profile given the anticipated reaction of labor (Interviews, four members of congress, three from the PRD, one from the PRI). 19. The immediate concern of the Mexican government officials in charge of that country’s conditional cash transfer program was whether the new program would impinge on resources allocated to their program. Clearly, in a situation of finite economic resources the success of new programs depends on the reallocation of resources. Material in this section is drawn from interviews with four senior level government officials, three from the Social Development Ministry and one from the Health Ministry. 458 WORLD DEVELOPMENT 20. Conglomerate executives were generous contributors to the PRI, gained policy access through new organizational mechanisms (especially in trade negotiations), and served as close advisors to both President Salinas and President Zedillo (Thacker, 2000, p. 126; López Obrador, 1999, p. 60). 29. In 1994, President Zedillo asked Gómez de León to begin work on a program of direct transfers to the poor. 21. Nevertheless, as we will see below, these bureaucrats did not get exactly what they wanted. Other pressures weighed in on the development of conditional cash transfer programs. In the Chilean case, SUF became one of the programs linked to Chile’s conditional cash transfer program insofar as the new program sought to incorporate more members of the extremely poor into SUF. 31. The data in this paragraph was obtained from the interviews of five members of congress and four NGO leaders. Two of the congress people were members of the right wing Popular Action (PAN) Party, two were members of the left Democratic Revolutionary Party (PRD) and one was a member of the PRI. 22. The information in this and the following paragraph is drawn from interviews with two senior level finance officials close to the policy development process. 23. The information in this paragraph comes from two senior level officials and one middle level official of the Planning Ministry. 24. The material in this paragraph is drawn from five interviews: three of senior level officials in the Finance Ministry, the Office of the Presidency and the Planning Ministry, two of the members of two different think tanks, one regarded as right wing, the other, left-ofcenter. The meeting involved 12 people from outside the government and 10 from within the government and was presided over by President Lagos himself. 25. The information in this paragraph is drawn from interviews with five NGO leaders. 26. This policy exclusion is corroborated by the fact that senior Planning officials expressed the viewpoint that NGOs had no right to involvement in policy design as they had not been elected and could not be held accountable. Subsequently, the World Bank, which provides funding for the program, succeeded in persuading the Chilean government to allow civil society evaluation of the program. 27. The information in this paragraph comes from interviews with three senior level Finance Ministry officials and two senior Social Development Ministry officials. 28. Levy published a book with the World Bank in 1992 entitled Poverty in Mexico, which contained one of the main elements of Progresa: the linking of transfer payments to visits to health clinics. 30. Such as the appointment of Antonio Sánchez Dı́as de Rivera, an ex president of the entrepreneurial organization, Copermex (Reforma, January 8, 2001). 32. An 11-volume evaluation of the program was published in 2000 by IFPRI. For a summary of those reports, see Emmanuel Skoufias, (2000). 33. Some poverty experts challenged the government’s poverty reduction figures while others attributed only a part of the decline in poverty to various social programs (among them Mexico’s conditional cash transfer program, Oportunidades)—perhaps 25%—while identifying improvements in real salaries, remittances from the United States and other factors, as accounting for most of this reduction. The debate was covered extensively in the Mexican daily Reforma. See, especially, June 20, 2003, September 10, 2003 and September 25, 2003. 34. The information in this paragraph was obtained from interviews with three senior level finance ministry officials. 35. Unless otherwise indicated, the material in this and the following paragraph draws from interviews of seven NGO leaders and eight congressmen: two from the PRD, two from Convergencia, two from the PRI and two from the PAN. 36. On Uruguay’s struggle to find increased resources for social programs see Canel (2004). 37. Bolsa Familiar, for example, is believed to have produced a shift in President Lula’s support from industrial laborers and, to a certain extent, the urban middle class, to the beneficiaries of the new program (Zibechi, 2006). 38. The precise nature of such a coalition would vary from country to country but would obviously have to include some upper-income groups, including members of the private sector, trade unions in those cases (the majority) where redistribution within existing social security arrangements is called for, and civil society organizations. While left-center parties need to attempt REDISTRIBUTIVE CONFLICT AND SOCIAL POLICY IN LATIN AMERICA to shape such a coalition during electoral campaigns, settlements stemming from government-mediated negotiations involving major social groups (negotiations at the state level) and political parties (negotiations at the legislative level) would be needed to ensure that redis- 459 tributive initiatives stay the course. 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