Disarticulation: The Road to Exclusion in Latin America
Daniel Kostzer, Ministry of Labor, Employment and Social
Protection, Buenos Aires, Argentina
The emergence of crises is one of
the main characteristics of the capitalist system. These crises range from
over-accumulation to over–production. They have different impacts upon
countries, groups of individuals, eras, etc.; but they always affect the
composition of accumulation and the pattern of development in societies.
Latin America has not been an
exception. Nowadays, after a period of religious belief in market forces and
trickle down effects, the gaps (expressed in terms of social costs) are evident.
Globalization emerged as an
alternative with the oil crisis of the 70’s, but enforced its position when the
debt crisis struck most of Latin America. It found its support in the
multilateral institutions that conformed to the so-called Washington Consensus.
This document will investigate the
process of disarticulation in Latin American economies as a result of the
orthodox structural adjustments associated with globalization; and propose a
different alternative that sets full-employment and poverty alleviation at the
center of macroeconomic policy, with the state playing the role of Employer of
The crisis after the recession of
the 30’s induced a model of import substitution industrialization (ISI), which
found the theoretical support of Raul Prebisch, and later the Economic
Commission for Latin American and the Caribbean (ECLAC), among others.
This strategy, which pinpointed
the secular deterioration of terms of trade as the main limitation to economic
development, shaped the pattern of accumulation during four decades in the
region and the world.
The ISI was characterized by the
use of the tools developed by Keynesian theory, within the institutional
framework of the welfare state in the broad sense.
ISI was successful in several
aspects, but the struggle for income among different economic actors (workers
vs. industrial capitalists; exporters vs. domestic market; domestic firms vs.
foreign ones) accelerated its exhaustion.
ISI, however, had some
characteristics that were optimal for the implementation of macro policies
focusing on full employment and an improving income distribution, since both
were compatible and synergetic with the implemented schema.
As a result of the multiple
articulations and linkages in its base, ISI configured a growth path that was
self-centered and self–sustained. These articulations can be summarized in three
basic dimensions: social, sectoral, and spatial (or local).
Social articulations emerged in
the interaction between capital and labor. Wages were more than a mere cost of
production. They provided the main source of demand fueling investment, and
therefore, profits to the firms. Class struggle was postponed and limited to
episodes at the firm or sector level.
Workers’ representation and
negotiation was centralized by national unions, with a global bargaining
capacity that spread the results to all workers.
Within this institutional
framework a generalized wage increase would imply a rise in the general economic
activity that rapidly would absorb the climb of production costs, at least
maintaining the rate of profits.
Wage and salary increases did not
affect significantly the systemic competitiveness of sectors due to the way in
which they were inserted at international level. They would raise aggregate
demand (consumption and investment) and its contribution to GDP.
The State played an important role
here; not only by regulating the relations between capital and labor in order to
reduce conflict, but also as an employer of last resource with an anti-cyclical
From a sectoral perspective, the
articulation emerged from the forward and backward linkages among sectors and
sub-sectors of the economy helping to diffuse the effects of economic growth to
the rest of the economy.
The rise of one sector would start
a multiplier process, fueling not only consumption, but also intermediate demand
and investment; and linking the production of goods, connected services, and
reinforcing the social articulations stated before.
The state would intervene by
setting maximum and minimum prices, production quotas, and subsidizing crucial
sectors; but mainly, by investing in basic industries and infrastructure not
covered by the private sector.
The two levels of articulations
stated above, were reproduced at the regional level. By a type of comparative
advantage framework, each region, mainly large countries, specialized in the
production of a certain product, thereby developing similar social and sectoral
articulations as at local level. Sometimes this process was linked to natural
resources, and at other times to patterns of production induced via state
The regions also constituted
centers of demand of goods and services, generating to their interior,
multipliers at the local level.
The state regulated employment in
the region, in the same manner as at the national level, boosting or maintaining
the aggregate demand at local level.
The debate of regional planning at
that time was how to close the gap between rich and poor regions of a country,
by finding ways to induce investment in the poorer areas.
This schematic process was not
exempt of contradictions and limitations.
One of them was the on external front. The provision of
foreign exchange limited the possibilities to develop in certain areas
industries that were capital-intensive or dependant on high/medium levels of
In this sense, the deterioration
of terms of trade and the recurrent crises of raw materials prices, plus the
limitations imposed by central countries on the access to those markets,
developed. These events induced devaluations with the aim of reducing domestic
absorption via incomes and a cycle of stop and go, as very well depicted by
several prestigious scholars.
The second restriction was the
monopolistic structure of certain domestic markets. The industries in these
markets behaved in a sort of rent-seeking way and heavily lobbied governments in
order to maintain their dominant position.
This structure fed inflation via
the struggle for advantageous income distribution at certain points of time and
induced instability both at the economic and political level.
The schema was finally exhausted
as a result of internal inefficiencies and distribution struggles, the failure
of the state to be an engine of economic growth, and the influence of the
neo-classical discourse promoted by multilateral institutions (transformed in
the auditing agencies of the financial sector after the debt crisis).
The central characteristic of the
new (or perhaps not so new) regime of accumulation, in contrast with the ISI, is
the way in which the articulations are dismantled (i.e. disarticulation), by
aiming for a new set of economic relations locally and worldwide.
With the opening of the economy,
especially the linkage to international capital markets, the deregulation and
withdrawal of the state, and the resulting social polarization emerging from the
crisis; firms are forced to target international markets or segments of high
income that survived the successive orthodox structural adjustment programs.
The first consequence is social
disarticulation. Wages are no longer a factor that dynamizes demand, but a mere
cost of production to firms, that should be maintained as low as possible. The
new goal of the economy is to maintain profits and the external competitiveness
of domestic firms. Although productivity per employed worker increased
significantly, and was sometimes accompanied by wage increases, the skyrocketing
of unemployment shows very little social efficiency.
The process of deregulation of
markets, via privatization and removal of subsidies, plus the reduction of
import barriers and tariffs, enlarges and turns inelastic other components of
production costs. Wages become the only adjusting variable in the productive
structure of the firm, breaking the temporary social alliance of the other
stages. The interest of workers and capitalists collide. To firms, the
purchasing power of workers in other countries becomes more important than that
of local ones. As soon as a downturn in the economy appears, more pressures for
flexible labor markets arise.
This result goes hand-in-hand with
the seeking of competitiveness, integrating an increasing amount of foreign
inputs into the productive process and inducing disarticulation at the sector
level. These changes imply the closing of industries and sectors that lost
“micro efficiency” as the economic censuses of the Latin-American region show.
It becomes more convenient to import from other countries, even though this has
dramatic implications at the country level.
As such, the regions lose
importance. Whole populations are marginalized within the economy as a result of
the closing of factories around which the town developed. First, the linked
activities disappear, followed by the services provided to the local population.
This process can be sustained
since, at the beginning, the deterioration strikes “individuals”: individual
firms, individual households, and individual regions; thus, enlarging the idea
of the role of externalities in the change: frictional unemployment (losers due
to a lag in the adaptation to the new scenario) or artificially developed
regions. But after a while, the deterioration in income distribution, the
reduction of domestic markets, and the lack of counter-cyclical policies show
that the problem is more structural than a withdrawal of foreign flows at a
The pattern of development changed
from relatively homogeneous growth to a mushroom-like pattern, with reasonable
growth on average, but only in clusters, while the rest are excluded.
Summarizing, the explosive
cocktail of indiscriminate processes in the opening of the economy (e.g.
deregulation of domestic markets and desertion of the state as indicative or
imperative planner) tear apart the multiple articulations that characterized the
ISI strategy pursued by the region for almost 50 years. The ultimate result
consolidates a process of polarization and heterogeneity in the society, with
fewer rich, each time richer and more linked to foreign markets, and more and
more people left outside.
Social heterogeneity, within a
process of increasing poverty, reduces efficiency of social policies, and
induces, with the support of multilateral institutions, the implementation of
targeted strategies, that do not achieve their goals.
As an agenda
Although not clearly mentioned in
these pages, globalization cannot be understood as a natural disaster. It is the
oeuvre of humans, imposed upon the whole world, striking deeply the most
vulnerable. When nobody regulates the markets, the powerful are the ones that
impose the plan. In addition, some of its unbeneficial effects for third world
countries are impossible to withdraw, unless serious steps are taken in that
First and foremost, there should
be a restitution of the linkages inside countries between different groups of
the population struck by the effects of globalization. This restitution should
occur through the implementation of social policies aimed at restoring some of
the articulations stated before. The best social policy is that of full
employment, re-establishing the role of the state as employer of last resource.
Although unemployment is not the
main cause of poverty, a high proportion of the poor, have no job at all, or
have to find their living in low quality, low paid, episodic jobs. This
situation must reversed, not only by supply side policies such as training and
education, but also by the means of active labor market policies that reduce the
vulnerability generated by the deregulation and flexibilization of labor
markets, as imposed by the IMF and World Bank.
Full employment as the
center of macro policies
With financial liberalization most
orthodox macroeconomists take financial flows as the main variable to be taken
into account when evaluating the results of certain policies. In contrast, the
suggestion here is to have full employment as the goal of every country’s
economic policy, and not merely as an externality of “sound economic policies,”
of which the orthodox theory advocates.
With such an objective function,
the rest of the variables should be adjusted to achieve full employment.
Monetary policies, trade, subsidies, fiscal policies, taxing regimes, would have
to adjust in each country in order to reach full employment, thereby reducing
the negative effects of globalization. Each country will try to preserve the
working posts by adjusting its policies domestically and internationally to
obtain full employment.
This strategy also implies the
provision of an income to every household in the country, as well as the support
to maintain children and youngsters attending school, thereby disrupting the
inter-generational reproduction of poverty, with its perverse effects on the
human capital of the country.
The goal of poverty alleviation
will add other quantitative indicators to the economic performance and allow the
rapid correction of the direction assumed.
Within such a framework,
employment generation, economic sustainability and the social impact of the
policies will direct the definition of long-term strategies.
The state as the employer of
Within this framework of analysis,
the state playing the role of employer of last resort (ELR) is a must.
Most of the unemployment in the
periphery can be targeted with such programs that present the characteristics of
the so-called Keynesian unemployment, mainly explained by the shortage of
aggregate demand; rather than the more Marxian unemployment that results from a
capital accumulation shortage and is present in countries that faced a long
duration of stagnation, recession or capital stock destruction.
The strategy of this type of
program is to induce aggregate demand by giving a job to any unemployed person
that is willing to work in a certain social service or activity at a politically
determined wage or salary.
By this method, unemployment, and
at the same time poverty and indigence, will be reduced, boosting aggregate
demand in order to restore the three levels of articulations and tending to
stabilize the economy.
As the private sector's demand for
workers increases, the buffer stock determined by the pool of workers in the ELR
program will be reduced, thus operating as a counter-cyclical strategy.
The ELR and its advantages
An ELR program has a number of
advantages at the political, social and local level, beyond the ones at macro
level and in line with the process stated in the paragraph above.
Political advantages of the
It should be clear that an ELR is
a program that needs a certain degree of political will and autonomy, and in
that sense, presents some advantages to the policymaker that help in the
implementation of such a program.
• Constitutes a global strategy against
exclusion and poverty: An ELR program is global, in the sense that it
addresses the problem of exclusion and poverty, by centering on the employment
condition of the individual and restoring the citizenship status absent during
the period of structural adjustment programs. It helps to show figures in terms
of poverty and indigence reduction as goals of the administration.
• It a clear schema of social protection, not
charity: Since an ELR program involves a social service by the individual,
it cannot be considered a mere charity strategy, and should be envisioned as a
social protection schema by the overall community, enhancing the political and
social acceptability of the plan.
• Reduces unemployment: Unemployment is
one of the crucial variables that help in the appraisal of a political
administration; and since the ELR reduces the involuntary unemployed to almost
zero, it can be presented as an achievement.
• Integrates excluded groups: It helps
excluded collectives to extend nets and linkages via equality of opportunities,
at least at the level of the program. It has a high level of self-targeting,
thus making it superior to other type of social programs.
• Allows the identification of problems for
further interventions: Since poverty is multidimensional, the program helps
to identify other problems that are hiding at the household level, under the
sign of unemployment, and aids in the design of complementary interventions.
Social advantages of the ELR
The ELR is meant to reduce the
exclusion that characterized the structural adjustment strategy implemented
during the 80-90s in most of the countries of the region, generating what was
called social disarticulation.
• Solves basic needs insufficiency at the
household level: A large number of households present unsatisfied basic
needs, most of them due to the insufficiency of income, thus, leading to an
increase in school drop-out rates, infant mortality, poor housing, dependency
rate, etc. The provision of a basic income via employment helps to solve that
facet of the problem.
• Improves human capital at individual, local,
and national level: It is well known that the chances of an unemployed
individual is lower the longer the unemployment period is; thus, the reinsertion
into an employment schema that involves training is a very efficient way of
avoiding this process of human capital deterioration.
• Involves beneficiaries in collective plans
and projects: The beneficiaries of the program, some of them with years of
unemployment, can be involved in collective plans, many of them designed at the
grass roots level, restoring the social links and networks locally. Overall, it
enhances the feeling of participation at local level.
• Reduces pressures on the unprotected
informal labor markets: In countries with high informal or non-registered
labor markets, the vulnerability of workers is immense. If all individuals have
the opportunity to get a reasonably paid job, it will induce wage increases and
better working conditions in those markets, some of which are at the fringe of
Local and regional
advantages of the ELR
• It is basically counter-cyclical: As was
stated above, the ELR has an important role in reducing the negative impact of
the business cycle, as well as other effects, such as: climatic problems,
external shocks, etc. at the local level, and avoiding the transfer of those
negative effects to other sectors linked to the main employers in the region.
• Improves infrastructure and proximity
services: Since the beneficiaries will be involved mainly in local
community projects, it provides an improvement on the local infrastructure
(sanitation, housing, better side-walks, irrigation schemas, road maintenance,
schools and hospital maintenance, etc.), as well as services appropriated by the
same local community and small scale business and inhabitants, such as: day
care, school support, health support, etc.
• Generates multiplying and accelerating
effects: Since the pattern of development and accumulation has changed from
a homogeneous one to one with the behavior of “mushrooms,” it is very important
to induce demand at local level in order to recover local activities that were
impacted by the disarticulation process. With an ELR, the injection of local
demand can restore part of those linkages destroyed by the institutional change.
• It is able to articulate with the productive
sectors in order to create stable, good quality jobs: If the domestic
demand is induced and some of the activities developed within the ELR program
can be directed to foster the productive infrastructure of the region, it is
more likely that the business community will take advantage of that potential.
This does not mean that the beneficiaries should play the role of the subsidized
labor force for the private sector, since this has proven to be harmful (due to
several factors that reduce the effectiveness of the ELR).
• Barely distorts local labor markets:
Although this is not a major point in economies that have unemployment rates of
two digits, labor market distortion is one of the arguments stated by those that
defend free markets. Alternatives to subsidizing private employment, however,
result in the piling up of people in the queue, and not generating enough jobs.
On top of that some pervasive effects tend to occur, such as fictitious
turn-over, massive lay-offs at the end of the program, etc.
Silver Bullet. One size fits
Although the ELR is an excellent
alternative for most of the countries that face high unemployment, stagnation of
the economy, and uneven regional development, further analysis on the labor
market and its linkages to the overall economy should be taken into account.
In economies that rely on
self-consumption and where poverty is more linked to the lack of access to
assets and resources such as land or water, an ELR program will have a different
impact upon them.
The same happens to economies
where there is a high unregistered or informal sector, where small-scale firms
are an important source of incomes for the population, or where underemployment
In these instances, it is
important to have a sand table where simulations of the impact of the ELR and
the diffusion of its effects can be traced. The State can thus optimize the
program, and not only reduce unemployment - the most obvious goal, but also
reduce poverty or indigence - the most desirable achievement of the program.
Also at issue is how to define the wage level of the ELR
and its impact at national and local levels, how it will affect local salaries
and local productions, and how seasonal activities can be abandoned by
beneficiaries of the ELR.
Managing the ELR
A massive program in order to
provide employment to large sectors of the population involves significant
managerial capabilities that are not always present, not only in the
administrative structure needed to pay a monthly salary to millions, but also in
the assumption of a portfolio of projects and activities that can be utilized by
the beneficiaries in order to achieve the objectives of the program.
Some of the projects may require
qualifications for workers that are not present. The support of certain
structures from the state or civil society should be organized.
Fraud and stigmatization are
additional problems that will arise for sure and should be confronted. More than
acceptable levels of fraud reduce the social acceptability and legitimacy of the
program, especially in the eyes of taxpayers who may stigmatize the
beneficiaries by talking about their dependency on the program. Only the clear
consciousness of the social benefits of the program, can prevent this type of
Only a massive state intervention
can stop the implosive spiral that induces unemployment, poverty, bankruptcy of
small-scale firms, local government crisis, and its inter-temporal reproduction.
Targeted interventions, aimed at the signs of the problem, rather than the
causes, have proven ineffective and inefficient. The ELR is an alternative that
will restore the linkages and articulations at different levels, promote
development, and above all, reduce poverty and unemployment - the most
disrupting factors in a society.