CIAO DATE: 2/00

Growth, Poverty and Inequality in Latin America: Searching for the High Road

Roberto Patricio Korzeniewicz and William C. Smith

Rights vs. Efficiency Paper #7
May 7, 1999

Institute for Latin American and Iberian Studies
at Columbia University

 

We would like to thank Gilbert Merkx and the anonymous reviewers of LARR for helpful comments on an earlier version of this article. We would also like to thank Domingo Amuchastegui, Mariela Arenas, John Markoff, Vanessa Gray, and María Eugenia Mujica for their helpful suggestions. Please send comments to: William C. Smith [wsmith@sis.miami.edu], School of International Studies, Univ. of Miami, Coral Gables, FL, 33124, USA, or to Roberto Patricio Korzeniewicz, [rk81@umail.umd.edu], Department of Sociology, University of Maryland-College Park, College Park, MD, 20742, USA.

 

Introduction

The crystallization of the so-called “Washington Consensus” in the late 1980s sparked intense debates regarding the likely social impact of macroeconomic stabilization and structural adjustment. Academic critics and political opponents argued that Washingtonian reforms, and neoclassical economics more broadly, lacked a coherent theory of growth, and were bound to result in long-term negative trends in popular welfare and social inequality. Advocates of neoliberal restructuring, in contrast, while recognizing that market-oriented reforms could lead initially to a decline in output and standards of living, were confident that these reforms eventually would lead to sustainable growth and, as a consequence, greater equality and enhanced social welfare. A decade later we revisit this debate to evaluate recent trends in economic growth, poverty and inequality, and to assess accompanying shifts in the theoretical, policy, and political terrains.

We argue that despite more robust growth in the 1990s, Latin America continues to be characterized by the “empty box syndrome,” the term employed by Fernando Fajnzylber (1990) to highlight the fact that, from a comparative perspective, economic growth in the region has not been accompanied by significant, lasting reductions in poverty and inequality. We also underscore, however, that policy-makers currently are showing a renewed concern regarding this syndrome. Namely, multilateral institutions and supranational development agencies are developing a new broad agreement that entrenched poverty and inequality are major obstacles to economic growth and more prosperous civil societies. We suggest that the restoration of poverty and inequality to a place of prominence in debates about the future of Latin American development offers new opportunities for bridging the yawning conceptual and programmatic chasms that have divided policy-makers in supranational organizations (SNOs), local governing elites, academics, center-left political parties, organized labor, social movements, and nongovernmental organizations (NGOs). We explore these opportunities by discussing a convergence between NGOs and SNOs, and by evaluating the relationship between this convergence and the rise of polycentric development coalitions (PDCs). Finally, we assess the promise of this emerging political agenda to deepen and effectively extend democracy beyond the electoral arena to include basic issues related to the construction of more just societies in the hemisphere.

 

Trends in Poverty and Income Inequality

Over the 1990s, although important issues remain deeply contested, several areas of consensus have emerged in the literature on poverty and inequality in Latin America. We detect three broad areas of agreement—with zones of contention within each—concerning trends in growth, poverty, and inequality in the 1980s and 1990s. We will discuss these areas of consensus before turning our attention to current policy debates.

Trends in the 1980s

Most authors observe that both poverty and inequality worsened substantially in the 1980s. ₁   These outcomes are portrayed in Figure 1, which depicts data that have been widely reproduced in numerous publications of the Inter-American Development Bank. Precise estimates vary within the literature. Londoño, Székely and Duryea (1996) indicate that from 1982 to 1993, the overall number of people living in poverty in Latin America increased from 78 to 150 million. ₂

ECLAC (1997) expresses a consensus in observing that the rise in poverty experienced during the 1980s was widespread, affecting most of the countries in Latin America. ₃   Argentina probably underwent the most dramatic increase in poverty, with the percentage of households in Buenos Aires metropolitan areas below the poverty line rising from 5 percent in 1980 to 16 percent by 1990. Uruguay and Venezuela also experienced a very pronounced deterioration in standards of living in this period. Broadly speaking, countries with the lowest rates of poverty at the beginning of the 1980s experienced the greatest relative deterioration during the remainder of the decade, while those with already high levels of poverty experienced relatively smaller increases.

There is considerable evidence that the increase in poverty (and probably inequality, but less data are available) in the 1980s was generally most pronounced in urban areas (ECLAC 1998; Psacharopoulos et al. 1996: 74). This has been attributed to the differing impact of currency devaluations on tradable and non-tradable goods sectors: while shifts in relative prices associated with currency devaluations hurt workers, the middle classes, and firms in urban areas, they benefited producers and workers associated with agricultural exports (Morley 1995a) or with the most advanced enterprises (ECLAC 1997). There is also broad agreement that the increase in poverty during the 1980s reversed the sustained decline in the number of the poor achieved in previous decades (Birdsall and Londoño 1997), a decline that had resulted from fairly rapid economic growth and migration from rural to urban areas (Morley 1995c: 51). Berry (1997: 4), for example, indicates that “[t]he growth record from 1950 to 1970 would suggest that poverty incidence in 1950 [..] was around 65 percent and probably fell between 1970 and 1980 to around 25 percent.”

There is also a consensus that the economic crises of the 1980s had a pronounced impact on inequality. As Table 1 reveals, virtually all countries in the region experienced rising social inequality (ECLAC 1997). ₄   [see Table 1 at end of paper] The most dramatic growth in inequality took place in Mexico, but inequality also increased significantly in Argentina, Guatemala, Panama, Peru, and Venezuela. Smaller increases in inequality took place in Costa Rica and Brazil. Only Colombia, Paraguay, and Uruguay bucked the regional trend and recorded declines in inequality. ₅

However, there is some disagreement concerning the timing of the rise in inequality. For some, inequality remained stable or even declined before the 1980s (IADB 1998; Londoño 1997; and perhaps Berry 1997). For others, in contrast, inequality had already begun to increase in the decades before the 1980s (Morley 1995c; Edwards 1995). Altimir (1996: 48), for example, argues that “most of the larger and medium-sized Latin American countries ended the long period of postwar growth, during which they developed inwards, with a greater concentration of income than at the outset and almost irrespective of their average rates of growth.” According to Altimir (1995), certain features of import-substitution industrialization (such as social mobilization and state regulation) created the appearance of equality, but often hid deep inequalities inherent in the model. ₆   Despite this debate on the precise timing of the recent rise in inequality, there is unanimity that Latin America in the 1990s suffers from the highest levels of inequality in the world (Birdsall, Graham and Sabot 1998; ECLAC 1998; Edwards 1995; IADB 1998; Lustig 1995b; Lustig and Deutsch 1998; Morley 1995a, 1995b, and 1995c; Psacharopoulos et al. 1996; Ramos 1996; Rosenthal 1996). ₇

Finally, many studies highlight the relationship between poverty and inequality: Ultimately, national trends in poverty (or in the income of the poor) are an outcome of the interaction between aggregate economic growth (or national incomes) and the distribution of income (Lustig and Deutsch 1998; Morley 1997; Ramos 1996; Reynolds 1996). From this point of view, worsening poverty is not simply an outcome of the lack of economic growth. As indicated by Birdsall and Londoño (1997: 13), “at least half of the rise in poverty in the 1980s (50 million additional poor) was due to the deterioration in income distribution.”  For the same reason, Berry (1997: 6) labels poverty in the region as “unnecessary,” as “little poverty would exist if the income share of the bottom few deciles were not so low.”

The debt crisis and the ensuing economic stagnation were the primary factors responsible for worsening poverty and inequality during the 1980s. Inequality became more pronounced because “the wealthy were better able to protect themselves from the impact of recession than the poor” (Psacharopoulos et al. 1996: xi; see also Birdsall and Londoño 1997; Morley 1994, 1995a, 1995b, and 1995c). Several mechanisms have been identified as crucial in mediating the relationship between economic stagnation and rising poverty and inequality. Economic stagnation was accompanied by higher unemployment (Edwards 1995; Lustig 1995b; Morley 1994, 1995b and 1995c). The scarcity of jobs contributed to an erosion of average wages and a growing wage gap between workers employed in formal and informal enterprises, and between more educated and less educated workers (Edwards 1995; Lustig 1995b; Morley 1995b and 1995c; Psacharopoulos et al. 1996; Tardanico and Menjívar Larín 1997). ₈   Rising inflation, which often accompanied economic stagnation, contributed further to both poverty and inequality—holding most of their assets in cash, and with little ability to protect their wages from currency devaluations, the poor in inflationary situations experienced a relative deterioration of income. In contrast, better-off sectors were often able to reap significant profits from the speculative opportunities generated by macroeconomic instability and rampant inflation (Edwards 1995; Lustig 1995b; Morley 1994; Ramos 1995). Finally, recessions in the 1980s were accompanied by sharp cuts in social spending that eroded the non-wage income of the poor (ECLAC 1997; Edwards 1995; Rosenthal 1996).

Contrary to assessments of the role of economic stagnation, there is some dispute about the impact of stabilization and structural adjustment programs. These programs have been designed primarily to correct balance of payments deficits by some combination of increased exports, decreased imports, and an increase in net inflows of capital. While there is broad agreement that such adjustments are unavoidable, there has been greater disagreement on the social impact of the package of market-centered policies that generally have accompanied structural adjustment. Some argue that as implemented, such programs can reduce poverty and inequality by promoting stronger growth (Lustig 1995b; Londoño and Székely 1997; Morley 1995b and 1995c; Sadoulet and de Janvry 1995). Others are skeptical that market-centered reforms, as implemented over the past decade, can allow a more equitable distribution of income. For example, Berry (1997: 6) finds that “market-friendly policy shifts have been systematically associated with an abrupt and significant worsening of income distribution,”  and Portes (1997) argues that reforms have been accompanied by growing unemployment and an intensification of exploitation in informal firms. This debate remains contentious, and often hindered by the lack of appropriate data to evaluate the trends in question (Sheahan and Iglesias 1998).

Trends in the 1990s

Although the resumption of moderate economic growth in the 1990s resulted in some progress in reducing poverty (particularly in urban areas) poverty and inequality remain high, and above the levels reached prior to the debt crisis in the early 1980. The ranks of the poor in the mid-1990s numbered about 210 million, about 50 million above the average for the “lost decade” of the 1980s (ECLAC 1997; Londoño, Székely, and Duryea 1996). ECLAC (1997: 14) figures show that the percentage of poor households declined from 41 percent to 39 percent in the 1990s, but the latter figure is considerably higher than the 35 percent that characterized the early 1980s. Similar trends have been indicate by other studies (e.g., Birdsall and Londoño 1997). Moreover, individuals and households in poverty almost certainly increased after 1998 as a consequence of the regional economic slowdown provoked by the Asian and Russian financial crises and the Brazilian devaluation in early 1999.

However, with the probable exception of Colombia, Paraguay, and Uruguay, most countries experienced some decline in the incidence of poverty during the 1990s. In Colombia and Paraguay, rising poverty rates in the early 1990s contrasted with the decline of poverty during the previous decade. In Venezuela, rising poverty in the 1990s exacerbated the deterioration that began in the 1980s. Poverty rose in metropolitan Buenos Aires, remained stable in Mexico, and generally has been characterized by considerable fluctuations in the 1990s (Lustig and Deutsch 1998).

Any slight amelioration of poverty that may have occurred in the 1990s clearly has not been mirrored in inequality trends. Renewed growth has failed to return levels of inequality to their pre-1980s levels (ECLAC 1997 and 1998) despite the “renewed efforts by the public sector to strengthen social programs” (Birdsall and Londoño 1997: 14). As suggested by the data in Table 1 above, countries with the largest increases in inequality in the 1980s (above ten percent) generally showed little relative change in the 1990s (less than five percentage points either way) in their inequality levels. Among the countries for which data are available, Uruguay (where inequality decreased over both periods, particularly in the 1990s) and Paraguay (where inequality declined in the 1980s but increased significantly in the 1990s) are the two most significant outliers (although the data on Paraguay are particularly weak). Confirming this pattern, even the two countries whose economies have grown most rapidly in the current decade have witnessed either rising (Argentina) or little changed (Chile) inequality.

Again, several observers have noted the close relationship between trends in inequality and trends in poverty. Birdsall and Londoño (1997: 13-14), for example, comment that “over the last decade income distribution has worsened, and has exacerbated the negative effects of limited growth on poverty reduction,” and that “the impact of deterioration in income distribution during the 1982-1992 period was so large that it eclipsed the effects of the subsequent recovery in the growth rates of the region.”

Several variables have been identified as generating inequality. At the individual level, education, age, gender, and sectoral characteristics are significant in explaining the wage differentials the literature emphasizes as key to overall inequality (IADB 1998). Of these variables, education is generally identified as most crucial. Summarizing the results of one study, Fiszbein and Psacharopoulos (1995: 80; see, also, Psacharopoulos et al. 1996 and Londoño and Székely 1997) indicate that “one-fourth of total inequality can be explained as inequality between individuals with different levels of schooling.” At the household level, demographic factors, labor force participation, and asset distributions have been identified as important in explaining inequality (ECLAC 1998; Londoño and Székely 1997). Some studies emphasize the impact of natural endowments. A recent report by the IADB (1998), for example, argues that tropical areas historically developed more coercive labor systems, contributing to pronounced inequality in contemporary times. Volatility has also been emphasized as important, as inequality (and poverty) increase during periods of economic recession proportionally more than they decline during periods of economic growth. Finally, in many countries racial and ethnic discrimination, which is highly resilient and largely impervious to economic growth, is a crucial factor exacerbating poverty and regressive income distribution (Fiszbein and Psacharopoulos 1995; López 1995; Lustig 1995b; Whitehead 1996).

To better capture the complexity of developing adequate policies to deal with poverty, some scholars have emphasized the differences between the populations suffering from pobreza dura from the situation facing the so-called nuevos pobres (see, for example, studies of the Argentine case in CIPPA 1991; Minujin et al. 1993; and Minujin and Kessler 1995). According to this distinction, pobreza dura characterizes the situation of the “structural poor” who have never been incorporated into the labor market and who lack the resources (e.g., education, health, information) required to gain access to the opportunities generated by economic growth. In contrast, the “new poor” are comprised of middle and working class people displaced from employment in the formal sector into informality and/or precarious employment; for this group, economic growth affords greater opportunities, as they do possess the skills and resources that are necessary to escape poverty.

The Impact of Growth on Poverty and Inequality

Recent trends have provoked a rethinking of the relationship between growth and poverty and inequality (IADB 1996; ECLAC 1997; Lustig and Deutsch 1998; Morley 1997; Tokman 1997). Until recently, the mainstream literature emphasized the countercyclical relationship between economic growth, on the one hand, and poverty and inequality, on the other hand (Morley 1995a, 1995b, and 1995c; Psacharopoulos et al. 1996; World Bank 1995a). This perspective held that with macroeconomic stabilization and structural adjustment, growth in the traded commodities sector should generate employment opportunities that compensate for the loss of jobs and erosion of incomes in less competitive sectors. These employment opportunities, together with rising productivity, it is generally argued, will eventually promote higher wages (Edwards 1995; Morley 1994).

According to this conventional explanation, expanding employment and rising wages, in turn, will reduce poverty, and affect inequality according to the capacity of the educational system to produce an adequate supply of skilled workers. In other words, given a relatively short supply of skilled workers, wage differentials are expected to widen at first, only to decrease gradually when workers that are more skilled enter the job market (Morley 1994). Growth is also expected to provide “the public sector with much needed resources to support social programs and targeted interventions, without crowding out private initiative and investment” (World Bank 1995a: iii). For these reasons, Edwards (1995: 261) states that “over the medium and long run, faster growth is the main determinant of poverty reduction, improved social conditions and reduced inequality.”

The focus on the centrality of economic growth has by no means waned. But recently analysts more readily acknowledge that economic growth in the 1990s has done far less to ameliorate poverty than stagnation in the 1980s did to deepen it (Tokman 1997). Thus, as we have stressed, even in cases where per capita income fully recovered from the “lost decade,” poverty rates in the 1990s remain at higher levels than in the early years of the crisis (Morley 1997). Indeed, liberalization programs have been accompanied by gradually rising (albeit more narrowly targeted) social expenditures (Edwards 1995). However, high levels of poverty and inequality have stubbornly persisted despite higher social expenditures (ECLAC 1997). Hence, whereas earlier studies focusing on the 1980s had suggested a strong relationship between economic growth and income inequality (although the accuracy of these findings was itself questioned),  trends in the 1990s provide evidence of a much less robust relationship.

Recent analyses indicate that far-reaching transformations in the structure of production might impede growth from reducing inequality. For example, studies by ECLAC (1997 and 1998) find that the employment opportunities generated by market reforms and trade liberalization continue to be in low productivity sectors, thereby further widening the gap between winners (e.g., skilled and educated workers associated with successful enterprises) and losers (e.g., unskilled workers or those employed by low-productivity enterprises in the informal sector). More specifically, according to this interpretation, the opening of economies in the region to the forces of  globalization results in higher returns to better educated persons, while penalizing those with less schooling (ECLAC 1998; IADB 1996 and 1998).

Trends in Argentina provide a particularly dramatic illustration that economic growth, by itself, may be insufficient for tackling poverty and inequality (ECLAC 1998: 25). Here, rapid economic growth in the 1990s (averaging over 7 percent ) was accompanied by a considerable jump in urban unemployment from 6.3 percent 1990 to 18.4 percent in 1995. Despite the recovery in growth following the Mexican financial meltdown, unemployment has only gradually declined, remaining at 13.2 percent in 1998 (MESOP 1998: 55). This unusual combination of rapid growth with high unemployment had a considerable impact on poverty. In the Greater Buenos Aires area, for instance, poverty increased sharply in 1989-1990 (the years of hyperinflation) then briefly declined as a result of the early success of stabilization efforts, only to rise from 13 percent to 20.2 percent between 1994 and 1996 (Lustig and Deutsch 1998: 2). According to an unpublished World Bank study, poverty in Greater Buenos Aires continued to worsen, reaching 29.3 percent in 1998; in the same study 36.1 percent of the national population, or 13.4 million persons, was found to be below the poverty line, including 8.6 percent of the overall population in “indigence” (surviving with insufficient caloric intake due to inadequate incomes). ₉   Inequality in Argentina has also increased dramatically despite rapid economic growth. In 1990, the richest quintile appropriated 50.7 percent of national income versus 4.7 percent for the poorest quintile; in 1998, the top quintile increased its share to 53.9 percent, while the poorest saw its income reduced to only 4 percent (Página/12 1999b).

Close analysis reveals that rates of economic growth have a paradoxical relationship with policies implemented to reduce inequality. Clearly, the experience of the 1980s and early 1990s, when growth was stagnant and inflation was rampant, demonstrates that there was considerable political tolerance for reforms that resulted in rising inequality, as long as these reforms promised a greater likelihood of future economic growth (Przeworski 1991; Acuña and Smith 1994). By the same token, however, while economic recovery and more rapid growth might ignite a cycle of political mobilization as losers try to improve their income, it is also possible that rapid growth might legitimate a high level of tolerance for inequality: “a fairly severe worsening of income distribution over the medium term might not be too difficult to weather if average incomes rise fast enough to spread some of the fruits of growth to those at and near the bottom of the income pyramid” (Berry 1997: 7). From this point of view, national patterns of economic growth, in and of themselves, cannot be expected to trigger efforts to reduce inequality, as both growth and stagnation can reduce the incentives for parties, leaders, NGOs, and other forces, to “invest” in constructing alternative reform agendas or political coalitions. ₁₀

A New Convergence?

On balance, what can we conclude from this review of academic debates over trends in poverty and inequality? Pessimists and critics of Washington-style reforms have been obliged to acknowledge that although inequality indeed rose through the 1980s and remains high in the 1990s, some countries have achieved at least a modest success in combating poverty. By the same token, however, those who earlier had been optimistic about market-oriented reform can no longer claim that economic growth has a strong, direct impact on reducing poverty or social inequality. As the authors of an Inter-American Development Bank publication observe:

Optimism about the pace of social progress is unwarranted by the evidence. While education levels in the region have improved, progress has been slow compared to the rest of the developing world. Persistent social gaps in the accumulation of “human capital” have reinforced the large proportion of people in the region living in poverty and its highly unequal distribution of incomes (IADB 1996: 242).

These recent trends in growth, poverty, and inequality pose new challenges of analysis and interpretation. As we argue in the following sections, these challenges are beginning to alter the orientation of policy debates and political discourse in the region.

 

Contemporary Academic and Policy Debates

Paralleling the analysis of trends in growth, poverty, and inequality, a broad convergence of theoretical and policy perspectives have begun in both the academic literature and the policies of multilateral lending institutions. This convergence is marked by a strong neoclassical and orthodox orientations. Balassa, Bueno, Kuczynski, and Simonsen (1986) were among the first to articulate the new orthodoxy in a coherent fashion. Building upon this early statement, John Williamson’s (1990a and 1990b) famous “Washington Consensus” enunciated in the late 1980s actually was a pragmatic flexibilization of the position of Balassa and his colleagues. Williamson (1993, 1994 and 1997) has since reformulated his original program in response to critics and changing events.

The various iterations of this consensus permeated the declarations, analyses, and policy recommendations of the International Monetary Fund, the World Bank, and the Inter-American Development Bank. Moreover, notwithstanding its structuralist legacy and enduring heterodox inclinations, the United Nations Economic Commission on Latin America and the Caribbean (ECLAC) also evidenced a considerable rapprochement with more mainstream, market-oriented postulates (see, for example, ECLAC 1994). Although the formulation and emphases strike a more progressive cord, the core policy recommendations espoused in recent analyses by the United Nations Development Programme (UNDP 1995, 1996, and 1998) and the recent UN-sponsored summits in Copenhagen on social development (1995) and in Beijing on women (1997) are also broadly similar to the latest variants of the consensus.

The broad consensus in favor of market reforms in the 1980s was rooted in concerns about social and political instability, as important lessons were drawn from cross-regional comparisons. A decade after the Williamson manifesto, new developments, albeit less momentous ones, point toward the crystallization of a more specific set of policies for combating poverty and inequality. Interestingly, the same factors that shaped changes in the earlier period of convergence are again operative, although with a somewhat different valence.

An important concern addressed by the intellectual architects of the original consensus involved the social conflicts and political instability of the 1970s, both linked to the crisis of civilian rule and the decade’s prevalence of authoritarian regimes in the region. Rising instability, associated with so-called “macroeconomic populism,” was linked to the crisis of state-centric development models in closed, protectionist economies (see, for example, Dornbusch and Edwards 1991). In this regard, the collapse of heterodox shock policies (such as the Austral, Cruzado, and Inti plans in Argentina, Brazil, and Peru, respectively) contributed to the growing hegemony of more orthodox, neo-classical policies. In addition, cross-regional comparisons with the then-thriving East Asian economies called attention to the advantages of an alternative model of development based on a “market-friendly” strategy based on trade liberalization and export orientation as engines of growth (Kahler 1990 and 1992; World Bank 1993).

This shift in models, which gathered momentum during the early years of the Thatcher and Reagan administrations, was buttressed by the ongoing intellectual crisis of Keynesian macroeconomics, together with a partial revival of liberalism and monetarism, the brief popularity of theories of rational expectations, and the fleeting interest among a minority of professional economists, coupled with greater enthusiasm among a vocal cohort of activist policy entrepreneurs, in supply-side and related neoconservative perspectives (Krugman 1994; Heilbroner and Milberg 1995). These changes in intellectual fashion account for the pronounced neoclassical stress on “government failure” and the strong preference for market solutions during what came to be labeled as the “first generation” of neoliberal reforms.

By the early to mid-1990s, the terrain of the debate had begun to shift, ma non troppo, once again. By the time of Bill Clinton’s first election and the appearance of  Tony Blair and other advocates of a “Third Way” renewal of social democracy (Giddens 1998) on the scene, the basic consensus on the superiority of market mechanisms was well consolidated. Nevertheless, debate continues on the appropriate mix of state and market regulation, and some fissures on questions that had previously received only secondary attention acquired new salience. For example, some influential figures such as Enrique Iglesias, president of the Inter-American Development Bank, and other highly visible mainstream policy-makers and academic observers became alarmed by the high social costs of the structural adjustment programs in progress and warned that social and political unrest could weaken new democracies and undermine the sustainability of market reform (Naím 1994 and 1995; Domínguez and Lowenthal 1995).

Moreover, new and different “lessons” from the East Asian experience began to receive greater emphasis. Particularly significant was the growing recognition that rapid growth in this region also had to be explained with reference to the fundamental importance of land reform and asset redistribution, investments in infrastructure and human capital, and institutional arrangements reducing transaction costs. Similarly, while export orientation was fundamental, there was a new appreciation that the Asian model also depended on selective regulation of international capital flows, pervasive import restrictions, and extensive political governance of the market (Bresser Pereira 1995; Cummings 1989; Evans 1992 and 1995; Gereffi 1991; Gereffi and Fonda 1992; Gereffi and Wyman 1990; Stiglitz 1996; Wade 1990). ₁₁

Finally, while Keynesian perspectives failed to regain their previous intellectual influence, notable theoretical developments and empirical work in economics sparked renewed interest in the role of endogenous variables (particularly in regard to human capital) in promoting growth. The older conventional wisdom, inspired by Kuznets (1955, 1971; Kaldor 1978; Lewis 1955), emphasized that growth was the best anti-poverty program, and generally held that income distribution had no effect on steady-state growth. Growth in per capita income was believed to be determined primarily by the rate of technological innovation. In these formulations, income distribution could only influence growth rates if an economy was off its steady-state equilibrium.

Strictly speaking, little of this is new. In contrast with previous debates, however, what is novel is the considerable impact of the new growth theories at the multilateral banks in framing debates about the specific policies that are now considered integral components of long-term strategies to promote growth and alleviate poverty and reduce inequalities. ₁₂   These theories not only envision the possibility of multiple long-term equilibria, they also make technical progress endogenous to the model, as a function of structural or behavioral parameters of the economy such as income distribution. In this vein, as Lustig (1997) points out, these theories underscore the reasons why high income inequality can slow economic growth: inequality has a negative impact on investment in education and the accumulation of human capital; in very unequal societies, powerful social groups are able to extract political rents and to advance claims for subsidies and distortionary taxation policies that place the poor at a disadvantage; and high levels of inequality may lead to political instability, which in turn harms investment (Alesina and Perotti 1994 and 1996; Perotti 1993; Persson and Tabellini 1993).

Endogenous growth theories demonstrate how the whole production process can benefit from the efficiency gains and “positive externalities” provided by education and improved health care, for example. These benefits explain, in part, the income gap between rich and poor countries, why poor countries fail to “catch up,” and why they may even be falling further behind. Because these countries lack the domestic savings or have difficulty securing external finance (due to debt repayments and capital flight), they fail to make the investments in human capital (education and health care) that can raise productivity and enable the workforce to adopt the new technologies of a globalized economy (Alesina and Perotti 1994; Barro 1994; Barro and Sala-i-Martín 1995; Psacharopolous 1995).

The analytical framework now coming into favor at the multilateral institutions, draws on these newly influential theories of endogenous growth, but also echoes older work from the 1960s and 1970s (e.g., Becker 1994; Schultz 1993) that provided calculations of the microeconomic rate of return on investment in primary education, as well as earlier cepalina neostructuralist analyses that have long insisted that inequality constrains rapid economic growth (see Sunkel and Zuleta 1990). ₁₃   This partial convergence has by no means resolved all outstanding controversies over the optimal mix of state regulation versus market mechanisms in allocating resources. Nevertheless, taken together, the resulting focus on the importance of investments in education and health for achieving more rapid growth gives rise to three basic premises that are coming to underpin a growing consensus on strategies and policies for combating poverty and inequality:

1. There is no alternative to market-driven economic growth.
2. Economic growth and social welfare are not in a zero-sum relationship and, under certain circumstances, greater equity may be a precondition for more rapid growth; consequently, successfully addressing the social agenda is crucial to the sustainability of market-driven economic growth.
3. If economic growth with greater social equity is to be sustainable, appropriate institutional arrangements and more robust forms of state regulation must complement and govern market mechanisms.

Each of these premises merits brief comment.

The consensus in favor of markets is quite broad but with significant modifications of the fundamentalist dogma of the early years of the Washington Consensus. High levels of inequality are recognized to be pernicious to growth, but heavy reliance on market-driven mechanisms to address inequalities persists. Hence, Birdsall and her colleagues (1997: 126; see also Birdsall, Ross and Sabot 1995a) note that a major contrast between East Asia and Latin America is to be found in

an implicit emphasis on opportunities for the poor in East Asia, versus an emphasis on redistributive transfers in Latin America.. [T]he challenge in Latin America [...] is to find ways to reduce inequalities, not by transfers, but by eliminating consumption subsidies for the rich and increasing the productivity of the poor. Investment in education is a key to sustained growth, not only because it contributes directly through productivity effects, but because it also reduces income inequality.

We insist that many of these arguments are not new. Back in the 1970s, there were already calls to make social expenditures more selective, particularly in the field of education, so as to magnify their impact among the poor (e.g., Ffrench Davis 1976; Fishlow 1976; and Pinto and Di Filippo 1976). However, from a political and policy perspective, the reemergence of these concerns within the market consensus of the late 1990s is highly significant.

The recognition that growth and social welfare are not linked in a zero-sum relationship implies that there is no theoretically necessary tradeoff between policies promoting growth and those combating poverty and inequality. Hence, the new literature interrogates and restates older ideas from different empirical theoretical perspectives to identify lower income inequality as a crucial variable that explains the rapid growth of both human capital and savings in East Asia as compared to Latin America (Jaspersen 1997: 74). In fact, as the theories of endogenous growth argue, reducing inequality may increase the rate of economic growth by promoting : 1) higher savings and investment by poor; 2) greater political and macroeconomic stability (by reducing pressures for public spending and exchange rate overvaluation); 3) greater “x-efficiency” of the poor; and 4) reducing rent-seeking behavior (Birdsall et al. 1997: 108-12; Birdsall and Londoño 1998).

Finally, recognizing the need for state regulation to complement market mechanisms stems from the recognition that under conditions of missing, incomplete, or inefficiently functioning markets, the provision of public goods is an essential function of governments (Greenwald and Stiglitz 1986; Stiglitz 1989). A variety of policy interventions ranging from the specific (such as in the fields of health, education, and public infrastructure) to the more general (such as strengthening property rights and reducing transaction costs through effective legal systems) are required for markets to be efficient, to promote growth, and to have Pareto neutral or improving outcomes (Stiglitz 1998a and 1998b; Maravall, Bresser Pereira, and Przeworski 1993 and 1994).

As these views begin to permeate the debate, it may be less surprising to find mainstream figures such as Williamson (1997: 56) insisting that “the focus of policy needs to shift from cutting back a state that had become bloated to strengthening a number of key state institutions, the efficient functioning of which is important for rapid and/or equitable growth.” More boldly, after leaving his position on the Clinton administration’s Council of Economic Advisors to become chief economist at the World Bank, Stiglitz (1998a: 16) stresses a more activist role for the state in promoting education because he recognizes that  “[l]eft to itself, the market will tend to under provide human capital. It is very difficult to borrow against the prospects of future earnings since human capital cannot be collateralized. These difficulties are especially severe for poorer families.”

In short, since the mid-1980s, there has been a subtle, but explicit shift toward greater skepticism of narrow utilitarian prescriptions regarding the role of the state (e.g., Evans, Reuschemeyer, and Skocpol 1985) and a growing recognition of the importance of formal and informal institutions in resolving coordination problems and addressing social conflicts (North 1990a and 1990b; Knight 1992; Acuña and Tomassi 1999). The early versions of Washington-style reforms focused almost exclusively on macroeconomic stabilization and structural adjustment, with an explicit emphasis on “government failure” as the cause of inflation and allocative inefficiencies; specific measures to address poverty and inequality issues were notably absent. But when analysis of the macroeconomic dynamics of the adjustment and reform process began to show that rising unemployment and worsening poverty typically follow periods of recovery (IADB 1996: Part I, Chapter 1), greater attention was focused on the importance of policy innovations to correct “market failures” in the provision of public goods. Moreover, there is now greater recognition that under democratic conditions, the provision and financing of health and education “solely through private competitive markets” is not politically feasible because markets respond to effective demand, which would sharply limit access by the poor (IADB 1996: 236).

Perhaps the most forceful statement of this theoretical—and political—aggiornamento has occurred among the professional economists at the World Bank. ₁₄   Recent Bank studies with suggestive titles like The Long March (1997) and  Beyond the Washington Consensus: Institutions Matter (1998) implicitly accept the validity of many of the argument raised by critics of the multilateral institutions. Their framing of the issues merits quoting at some length. They note that

[w]ith one exception (namely, the protection of property rights) the policy prescriptions of the “Washington Consensus” ignored the potential role that changes in institutions could play in accelerating the economic and social development of the region; it focused instead on the issues of fiscal discipline, liberalization of trade and investment regimes, deregulation of domestic markets, and privatization of public enterprises [...] The expectation [generated by the advent of Washingtonian reforms] was not only that globalization and the “first-generation” reforms would raise economic growth rates, but that they also would significantly reduce poverty and inequality [...] This has not occurred. (World Bank 1998: 1).

According to this new Bank perspective, although poverty rates may have recently declined somewhat in some countries, this was not due to trade and financial reforms but was the consequence of lower inflation and a return to modest growth. This admission brings the views of the Bank into agreement with the broad consensus previously discussed. Moreover, the authors of these studies agree that formal and informal unemployment has risen in many countries and wage differentials between skilled and unskilled workers have worsened. ₁₅   This rather pessimistic assessment of a decade of WC-style reforms is the basis for their advocacy of “a dialogue among policy-makers, civil society, and the academic community in LAC [Latin America and the Caribbean] on how best to design and reform institutions—that is, on how to ‘supply’ institutional reforms to meet new societal demands” (World Bank 1998: 2).

Notwithstanding this explicit recognition by senior economists at the Bank of the importance of strengthened institutions to govern the process of market reforms, recent calls to “bring the state back in” obviously do not signal a return to dirigiste solutions to redress poverty and inequality directly through centralized transfer mechanisms for the redistribution of income and goods. Rather, the emphasis is on “good governance” and on innovations in indirect policy methods, including social investment funds and targeted social policies to compensate the victims of structural adjustment (Graham 1994). These indirect measures are preferred because they are consistent with the well-established macroeconomic agenda advocated by the Washington-based multilateral financial agencies and also are contribute to rebuilding the state capacity required to address microeconomic issues of specific productive sectors or at the level of the firm (see Naím 1994 and 1995; World Bank 1997; Haggard 1997).

For some at the multilateral banks, the challenge is primarily an issue of how best to increase employment and raise wages, especially for unskilled labor, since it is understood that  trade liberalization and growing integration into the world-economy initially increase inequalities by enhancing opportunities and increasing returns for skilled workers (IADB 1996: 244). Consequently, in the context of globalization, a reduction of poverty requires efforts by governments to enhance access (via training and health programs) for unskilled workers  (Rivera-Batiz 1995). Others argue that workers in the informal economy are the most affected by poverty because they lack legal protection or are less likely to have the resources (education, access to capital and factors of production) to take advantage of the economic opportunities brought by modernization (López 1995; although similar observations were raised much earlier by authors such as Ffrench-Davis 1976). Among proponents of the latter approach, there is also an emphasis on hysteresis, by which a short-term deterioration in income can have long-term effects on recovery by the poor. In both perspectives, market mechanisms by themselves are insufficient to bring people out of poverty.

Recent publications by the Inter-American Development Bank move in the same direction as the World Bank. Recent IADB studies (1996 and 1998) argue that the growth patterns made possible by the macro and structural reforms of the past decade, even if complemented by second generation microeconomic polices, are insufficient to alleviate social inequalities at an acceptable rate. In this view, the underlying causes of “empty box syndrome” stem from the slow accumulation of human capital and the way that political institutions and markets reproduce the existing unequal distribution of physical assets and access to quality education and health care. ₁₆

Out of this comes a general recipe for addressing the social agenda by means of targeted social expenditures with redistributive impacts on growth (Lustig 1995b; Rosenthal 1996). According to Lustig and Deutsch (1998: 4),

a comprehensive poverty reduction strategy needs to focus both on stable and sustained growth and on generating the conditions for equitable growth. Public policies such as providing the poor with equal opportunity to quality education and health services; increasing the assets of the poor through land reform, land titling, and housing programs; fiscal reforms which improve the progressivity of taxes and public spending; correcting market failures in the credit market and eliminating discriminatory practices; and creating mechanisms which protect the poor from adverse shocks are all key ingredients of growth with equity.

As indicated in the executive report of a World Bank study on poverty and income distribution in the region, “educational attainment has the greatest correlation with both income inequality and the probability of being poor. From a policy standpoint, there is a clear association between the provision of education, lessening of income inequality, and poverty reduction” (Psacharopoulos et al. 1996: ix; see also Londoño 1997; Stewart 1997). Londoño (1997: 130) calls for a “human capital shock:” although expensive, “the payoff [..] is high and fast.”  According to this perspective, when the poor have limited access to education (as in situations of higher inequality), growing demand for skilled labor further increases inequality; with greater access of education, a growing number of educated workers would effectively reduce overall inequality (Birdsall, Ross and Sabot 1997: 104-6). For this reason, “improvement in the provision and quality of education represents a key mechanism for reducing overall inequality and lowering the number of individuals living in absolute poverty” (Psacharopoulos et al. 1996: xi; see also Ramos 1995; IADB 1996 and 1998). ₁₇   Simultaneously, recent policy recommendations (e.g., IADB 1998) include measures (such as provision of child care, health, and infrastructural services, elimination of restrictive labor legislation) to facilitate female labor force participation and educational achievement among poor women, with the aim of increasing the income of their households.

Not surprisingly, a comprehensive strategy embraced by all has yet to emerge from these efforts. The institutions in question are very complex in composition, and the emerging analytical perspective discussed in these pages seeks to challenge other programs that guide these institutions. ₁₈   As indicated by some of the relevant policy-makers, however, the ultimate aim of current intellectual formulations is to build “a ‘Latin consensus’ on a second round of reforms—reforms that would address the inequality issue without undermining efficient economic growth” (Birdsall, Graham and Sabot 1998: 2).

These efforts resonate with calls from other quarters to develop what we will term a “high road” to development. Thus, for Foxley (1996) the transition sustained economic growth (which  he calls “phase 3”) requires “two basic political notions”: the perception of a “fair deal” (to be achieved through targeted social practices); and the development of “social capital” (a la Putnam 1993). Similarly, Edwards (1995: 10) indicates that the consolidation of “the market-based programs” and success “in generating Latin America’s definitive takeoff” will “clearly require addressing issues related to poverty and inequality.”  And Sheahan (1997: 11) argues that “[w]hen a country combines the competitive economic model with the kinds of social programs that reduce inequality of opportunities, that powerful combination might well be considered a distinct third model of liberalization: a “competitive-plus-social model.”

Such calls are obviously not new. Hirschman (1971) voiced these concerns in his discussion of “reform mongering coalitions.” And more than twenty years ago, Foxley (1976b: 8) pointed out that

a redistributive strategy, in order to be successful, requires solid political support. The problem may reside in the fact that the social groups to be benefited by redistribution are usually those with the lowest level of organization, internal cohesion, and ability to pressure the state apparatus. It is necessary, then, to design policies that open the way for these groups to participate in power so that the advances they attain become irreversible.

Mindful of the inherently polemical and highly contested nature of these questions, we now turn to a more detailed, but still schematic, discussion of the political and institutional dimensions of current changes in the policy-making consensus.

 

Reconnoitering the High Road

What has been conspicuously missing from these debates and from our arguments so far, is a discussion of the social and political actors in Latin America that could form a broad coalition capable of designing and implementing a strategy combining growth with reduced poverty and greater social equity. This discussion requires us to engage in a “utopistic” excursion into the sociology of the nonexistent, an exercise that emphasizes the imagination of possible political futures rather than the construction of formal policy blueprints. The essential question guiding our discussion, then, is whether a “high road” to economic growth and democracy is likely, or even feasible, in the immediate political future of the region.

Furthermore, we focus on the possible future of social and political coalitions under the assumption that pro-equity institutional configurations and outcomes can only be sustained by such coalitions rather than by mere technocratic initiative. Whereas the “first generation” of reforms (macroeconomic stabilization) was relatively simple and could be enacted by presidents and insulated executive-branch agencies, the reforms of the “second generation” involve an array of microeconomic issues and complex interrelated institutional changes (at national, provincial, and local levels) as well as voluntary coordination with diverse social and economic forces. Therefore, the coalitional underpinnings of these more ambitious reforms are essential, making the new reform agenda political par excellence (Acuña and Tomassi 1999, Sheahan 1997).

Here, we argue that there are embryonic and fragmentary efforts underway in Latin America that make it possible and interesting to visualize a “high road” to economic growth, hemispheric integration, and globalization (Smith 1998). These efforts, were they to coalesce and gather momentum by selectively incorporating some elements of the technocratic programs now beginning to win endorsement by the multilateral banks and allied supranational organizations, might transform and give a new creative thrust to the discourse and practices of progressive political parties, social movements, and reformist policy-makers.

Convergence From Above and Below: The SNO/NGO Coalition.

To understand better the emergent political and institutional shifts at hand, it is useful to consider the growing convergence between Latin American social movements, transnational advocacy networks, and local NGOs and supranational organizations (SNOs). We will illustrate this potential convergence by discussing recent developments within the World Bank (although a similar analyses could be advanced by focusing on other SNOs such as the Inter-American Development Bank and the Pan American Health Organization, or private agencies such as the Ford Foundation and its European counterparts).

The aim to promote “growth with redistribution” has a long-standing tradition within the World Bank. But in the 1960s, the prevailing view among the multilateral banks, and within the social sciences in general, and economics in particular, was that economic growth necessarily had to precede income redistribution, and that efforts to engage in redistribution before sustained economic growth actually could undermine the latter by withholding resources from investment. This perspective was challenged in the 1970s by the introduction of a poverty agenda by the Robert McNamara administration at the World Bank.

The McNamara agenda sought to target poverty and human needs (especially in rural areas) as a development priority. From the perspective of this agenda, “no trade-off was necessary between the goals of output growth and equity for poor countries” (Kapur, Lewis and Webb 1997: 16). Furthermore, rather than relying solely on market processes, the McNamara agenda emphasized the need to build more effective institutions among both private enterprises and public agencies. Clearly, the development of this agenda in the 1970s was linked to broader concerns about how best to prevent social and political unrest in peripheral and semiperipheral countries.

The effort to shift priorities to the area of poverty and inequality encountered several immediate constraints in the 1970s. To begin, the growing prevalence of authoritarian regimes during the 1970s created a hostile environment for such priorities. Also, there was as of yet no clear and generally accepted theoretical framework for these concerns, as even theories of human capital were of recent creation. Furthermore, the leverage of the Bank was curtailed after the mid-1970s because of liquidity problems and the easy availability of commercial bank credit. Finally, there was weak commitment to McNamara’s agenda by the Bank’s staff, and even the institution’s knowledge about poverty, inequality and possible policies was limited.

But an additional issue of considerable importance is that there were practically no effective linkages between the World Bank and local political actors and grassroots social movements. Several studies have suggested the importance of this issue in direct and indirect ways. For example, Ayres (1983: 65) indicates that some of the difficulties faced in the implementation of McNamara’s rural poverty alleviation efforts were because the success of such efforts “required local-level knowledge and expertise that the Bank arguably did not possess in sufficient abundance.” Consequently, in the early 1980s Ayres (1983: 248) concluded his study by observing that “an intensified effort needs to be made to explore the feasibility of utilizing nongovernmental intermediaries as recipients of the transfer of Bank resources. They may be more effective vehicles for the address of poverty alleviation than the governmental intermediaries through which the Bank now almost exclusively lends.” ₁₉

Facing both difficulties in effective implementation and opposition to its aims by a broad range of actors, McNamara’s agenda was rapidly dropped in the subsequent administration of the Bank. According to Kapur, Lewis and Webb (1997: 331) “when Tom Clausen succeeded Robert McNamara as the president in June 1981, the poverty theme, which had been faltering, was abruptly muted in Bank decision making and public statements.” Moreover, as we indicated earlier, the election of Ronald Reagan, Margaret Thatcher, and Helmut Kohl; a reading of the East Asian success stories that emphasized the need to curtail state regulation and instead rely on market mechanisms to promote economic growth; and the pressures generated by the debt crisis, all acted to support a major ideological shift in economic priorities. ₂₀

In retrospect, however, both this ideological shift and the retreat from the poverty and inequality agenda were rather brief. Within the World Bank, poverty and inequality concerns already began to regain priority under the Barber Conable administration (1986-91), and were further strengthened under the presidency of Lewis Preston (1991-95). ₂₁   Whereas the poverty agenda had been dropped in the early 1980s, “[t]hen, almost as suddenly, it reappeared in 1987 and again permeated policy debates and documents, even taking center stage in World Development Report 1990” (Kapur, Lewis and Preston (1997: 331). By 1991, it was being pronounced the Bank’s “overarching objective.”

Clearly, this shift in institutional perspectives is partly explained by broader economic and political changes experienced over the last decade, as indicated elsewhere in this article. However, we should emphasize two important additional issues. First, despite limits to its effective implementation, the McNamara agenda contributed to intellectual and organizational changes within the Bank. Following the departure of McNamara, as indicated in the Bank’s official history, “though poverty lending was delayed, constrained, and later disowned by many in the Bank, the cause may have been given a lasting boost because taboos were broken, concepts changed, and a new generation of staff members—more open to the poverty goal—was inserted into the Bank’s staffing pipeline” (Kapur, Lewis and Preston 1997: 222).

Second, and of more direct importance for our arguments, the 1980s and 1990s witnessed the emergence of NGOs, frequently belonging to transnational advocacy networks, as major political and institutional forces. In part, this rising importance has been reflected in the growing contacts between NGOs and the Bank. Moreover, the focus on civil society and development of a poverty and inequality agenda by the World Bank (as well as by the IADB) in the 1990s can be analyzed as a response to growing pressures from a wide array of non-governmental actors, ranging from other supranational organizations (such as UNICEF and the UNDP) to local and international NGOs and advocacy networks focusing on such issues as human rights, gender and women’s rights, protection of the environment, and the plight of indigenous peoples (Keck and Sikkink 1998). Hence, Kapur, Lewis and Webb (1997: 369) indicate that “to a much greater extent than in the 1970s, the Bank’s dedication to poverty alleviation in the late 1980s was a response to outside pressures,” such as those generated by social movements, NGOs, and transnational networks directly and indirectly through their impact on the media and public opinion. ₂₂

Thus, while critics argue that recent policy and institutional changes from technocratic circles in Washington-based SNOs represent concessions or accommodations by advocates of neoclassical recipes, ₂₃   we are interested in highlighting an alternative interpretation. Many Latin American social movements and NGOs have expressed support, and in fact have helped develop, the new agenda emerging among SNOs, including private US and European foundations. Clearly, local NGOs throughout Latin America have forged numerous, complex ties with supranational organizations, often as an alternative to populist and clientelistic arrangements, while funding research projects, social programs, and training workshops designed to develop new management practices in the social field (see, for example, the detailed study of Keck and Sikkink 1998). Our argument is that through the development of these ties, recent democratic and market transitions have brought together organizations from “above” and “below” to challenge the supremacy of long-standing state-centric institutional arrangements and political practices. ₂₄

Some observers are optimistic about the social and political impact of the growth of NGOs. Reilly (1995: 2), for example argues that “[a]s real-world academies for democracy, NGOs permit people to taste the full menu of rights and responsibilities, including, but not restricted to, voting, which characterizes ‘primary’ citizenship.”  In a similar vein, some international relations theorists speak of “global civil society” (Millennium 1992). Others, in contrast, are more skeptical about the “community face of neoliberalism,” seeing NGOs as instruments of global financial institutions and forms of organization that demobilize autonomous social movements and undercut traditional mechanisms of representation such as trade unions and political parties. ₂₅   Even Reilly (1995: 8) recognizes that “[j]ust as there are inefficient, opportunistic, and bankrupt states or markets, there are inefficient, opportunistic, and bankrupt NGOs” (along similar lines, see Fisher 1997).

Indeed, there are serious ambiguities associated with the burgeoning “third sector.”  For example, Jelin, who sees NGOs as essential actors in the construction of more democratic civil societies, nevertheless notes that

[T]he fact is that NGOs and “private-yet-public” organizations do not have a built-in mechanism of accountability. They do not have a constituency or membership composed of their “sovereign citizens.” They are fundamentally accountable to those who provide funds and to their own ideology and consciousness, hopefully (but only hopefully) based on “good” values, solidarity, compassion, and commitment. Given the relative absence of institutional and societal accountability, there is always the danger of arbitrary action, of manipulation, of lack of transparency in objectives and practices (Jelin 1998: 412; see, also, Jelin 1997).

Such concerns about the accountability of NGOs are likely to become more salient. As NGOs become more influential in shaping the policies of national states and SNOs, many among these NGOs and their leadership are likely to be recruited by the latter—in fact, this might be one of the key mechanisms through which the influence of NGOs expands—and this is also likely to be accompanied by a growing stratification between NGOs (shaped, for example, by access to resources and policy-making and advocacy networks). These transformations are likely to generate growing concerns among observers and participants regarding the impact of bureaucratization and hierarchization on the relationship between NGOs, their leaders, and the social forces these organizations claim to represent (similar transformations and concerns accompanied the development of other social movements in the past, such as labor).

Despite these caveats, much of the recent literature is generally optimistic about the ability of social movements and NGOs to generate new oppositional identities, expand public space, and ensure adequate representation and transparency (e.g., Alvarez, Dagnino, and Escobar 1998). However, many are skeptical of the ability of SNOs to do the same. Along these lines, for example, Nelson (1995: 4) argues that “NGOs’ tendencies to process-oriented programming, emphasis on participation, and partisanship in support of poor people—the very virtues that are said to argue for cooperation—contradict the interests and organizational characteristics of the Bank so directly that systematic, collaborative relations are extremely difficult.”

While dependency on funding certainly poses an important constraint on the discourse and practice of the various components of transnational networks, supranational organizations also need locally-based interlocutors in order to implement their own programmatic and organizational efforts. As a consequence, it is erroneous to see NGOs as highly vulnerable actors. On the contrary, as Jelin (1998: 411) notes:

At the local and national levels, [NGOs] are becoming the mediators between the excluded and the state; between international movements and organizations, and local demands; between international cooperation and the final recipients of aid. They are increasingly recognized as legitimate organizations by governmental agencies. (In some countries, NGOs are even selected by international programs as channels for the transfer of resources, preferring them to governmental agencies in recipient countries). In that vein, local and national NGOs, and their international links, through the formation of a class of professional staff members and voluntary workers, are becoming a major actor in the arena of social issues and processes.

Likewise, our analysis in this section suggests that the policies and organizational dynamics of SNOs respond to a complex array of pressures that include, through both direct and indirect mechanisms, the challenges and issues raised by Latin American social movements and NGOs and their growing presence in transnational networks. From this point of view, the organizational and programmatic changes affecting SNOs such as the World Bank are themselves shaped by broader processes of social and political change, rather than being a mere outcome of economic trends or technocratic shifts in policy design.

The New Face of Social Democracy: Polycentric Development Coalitions

The new discourse and patterns of collaboration between social movements and NGOs and supranational organizations have been evolving hand-in-hand with a broad, but still inchoate, rearticulation of political and social forces. While traditional populist alliances of the old state-centric model have crumbled before the onslaught of market restructuring, hemispheric trade integration, and globalization, an incipient renovation of “social democratic” forces is taking place, incorporating some remnants of conventional political forces (unions, parties, national and local state agencies, and so on) along with new groups potentially linked to the loose SNO/NGO coalition. From our perspective, the inclusion of these latter groups is transforming the logic of plausible social and political alliances.

Provisionally we refer to this rearticulation of political forces as “polycentric development coalitions” (PDCs), which are distinguishable from the state-centric patterns that were characteristic of political arrangements prior to the 1980s. While established political forces (such as existing political parties and trade unions) are generally part of the emerging PDCs, the latter can potentially be broadened to engage directly the various actors of SNO/ONG coalitions mentioned above. While our use of PDCs shares some similarities with recent notions of “associative networks” (Chalmers, Martin and Piester 1997), “social movement webs” (Alvarez, Dagnino, and Escobar 1998), and “polycentric, heterogeneous field of action” (Alvarez 1998), the stress these authors usually place on horizontal ties of solidarity and reciprocity do not preclude the possibility, as stated earlier in regard to NGOs, that in the future stronger hierarchical arrangements might be reconstituted within PDCs.

What kind of ideological and political form might future PDCs assume? Simply to exemplify our argument, we can briefly examine the “Consenso de Buenos Aires,” a document representing a wide array of political forces from many Latin American countries. Ideologically and organizationally, the “Consenso” is a project involving many of the leaders of “new left” parties (Cuahutémoc Cárdenas of the Partido de la Revolución Democrática in Mexico; Carlos “Chacho” Alvarez of the FREPASO in Argentina; Luiz Inácio Lula da Silva and Vicentinho of the Partido dos Trabalhadores in Brazil; and Ricardo Lagos of the Partido Socialista and the Partido por la Democracia in Chile, among others), and “post-Marxist” intellectuals (e.g., Jorge Castañeda and Roberto Mangabeira Unger) to construct a new face for social democracy in the region. The goal is the creation of new democratic alliances bringing together parties, movements, and leaders of the center (whose task would be to “give expression to the nonconformity of the middle class”) and the left (whose task is to “confront inequality” and “combat social exclusion”) with the aim of reshaping the logic of globalization to render it more compatible with the larger objective of strengthening the institutions of representative democracy but also of incorporating a broad array of societal actors in order to extend participation and citizenship well beyond the electoral arena to the realms of culture and the organization of the political economy (Castañeda and Mangabeira Unger 1998; Dagnino 1998).

Although the general principles, critique, and denunciations of neoliberalism in the Consenso de Buenos Aires eclipse its specific policy proposals, this document and other similar manifestos can be read as the early stages of an aggiornamento designed to be infused with political realism and to bring progressive policies and strategies into line with the perceived constraints and opportunities of an emerging social order shaped decisively by the logic of global markets. This new-style social democratic discourse (although some of the participants might not accept this label) resonates with endogenous growth theories and recent advances in thinking about growth with equity discussed earlier: 1) there is no alternative to market-driven growth; 2) growth and welfare are not in a zero-sum relationship; and 3) appropriate institutional arrangements for societal and state regulation must complement market mechanisms. Although the precise formulation is quite different, “technocratic” themes of the strategies and policies advocated by the multilateral institutions find unsuspected and surprisingly close parallels in the reworked discourse of the post-Cold War left.

Moreover, beyond abstract premises, there is considerable convergence in several specific areas that might provide fruitful ground for future reforms. As in recent policy recommendations produced by Washington-based SNOs, the “Consenso de Buenos Aires” emphasizes the need to continue advancing regional economic integration as a means to pursue economic growth, endorses efforts to raise domestic savings rates and promote productive investments, and calls for the state to raise fiscal resources through taxes on consumption. Poverty and inequality are targeted as key areas for policy intervention through broadened educational opportunities, enhanced access to health care, and redistributive fiscal policies that target scarce resources to those social sectors in greatest need.

Agreement on such questions has the potential of enabling a mutually reinforcing relationship between growth, equity, and democracy. Economic growth is necessary to provide the fiscal resources to fund investments in social welfare. In addition, along with contributing to growth, enhanced equity is fundamental for social stability and confidence in the permanence of democratic institutions and market reforms. Growth with equity, in turn, might help overcome expectations of zero-sum distributive outcomes, thereby lengthening time horizons and facilitating the social learning required for the abandonment of confrontational strategies and the consolidation of a broad democratic class compromise. As Bulmer-Thomas (1996: 312) notes, “what is needed is a consensus among the main political parties on the substance of reforms required to improve equity over the longer term. That consensus already exists in most Latin American countries on the main elements of the [new economic model]; it is time to extend it to the key determinants of income distribution and poverty.”

Contention, Constraints, and Possibilities

Important areas of contention limit the construction of new polycentric social democratic development coalitions. First, there is disagreement about the optimal extent of state reform. At one end of the spectrum (where, we should emphasize, both supranational organizations and local NGOs are found), the assumption is that the role of the state should be highly restricted to a few activities where markets might not optimize social gains. ₂₆   At the other end, a wide range of actors (from the “Consenso de Buenos Aires” to SNOs) are convinced that the state still has many crucial roles to play in regulating strategic markets (Bradford 1994; Castañeda and Mangabeira Unger 1998; Stiglitz 1998a and 1998b).

The debate over the appropriate level of state regulation involves more specific policy areas. For example, for all but the market fundamentalists, effective state action requires an effective system of taxation, but more disagreement continues to exist over the appropriate means and levels of such taxation (e.g., while there is growing agreement on the effectiveness of taxes on consumption, there are greater discrepancies on whether to maintain or perhaps raise taxes on corporate and individual income). Similarly, in the wake of the recent Asian, Russian, and Brazilian financial crises, many center-left Latin American reformists accept direct foreign investments (particularly in new industries), but call for selective mechanisms (e.g., the Tobin tax on financial transactions and moderate, Chilean-style capital controls) to reduce the volatility of international financial markets and the region’s dependency on the vagaries of flows of “hot” portfolio capital. There is also considerable debate over the extent to which states should intervene in redistributing assets—for example between more competitive and less competitive manufacturing enterprises, between large and small landholders in rural areas, or more broadly between the wealthy and the poor.

Second, there is considerable disagreement about the desired direction of labor reform. For some (e.g., IADB 1996 and 1998), sustained economic growth and the creation of employment opportunities require substantial flexibilization of labor markets, a centerpiece of liberalization programs. ₂₇   For others, substantial, de facto flexibilization has already been achieved, but such reforms have failed to sufficiently expand employment opportunities. From such a perspective, future reforms should be more activist and directly aimed at job creation, upgrading job skills, and the incorporation of appropriate technologies (ECLAC 1997; Tokman 1997). Clearly, this issue is of crucial importance, as such policies affect the posture of trade unions and political parties toward “second generation” reforms. ₂₈

The third issue of contention involves the relationship between democracy, economic growth, and social mobilization. While there is a broad consensus that states have an important regulatory role to play in attacking corruption and rent-seeking and ensuring competition and market transparency, some argue that social mobilization is pivotal to achieving these objectives, while others are more wary about the potential uncertainty that might be inherent in such mobilizations. ₂₉   Indeed, for many political parties, social movements, and NGOs, active social mobilization and the strengthening of the capacity for collective action of subordinate or excluded groups are crucial in promoting further democratization. ₃₀   From this perspective, social mobilization should seek to engage in particular those who have been excluded from power (women, ethnic and racial minorities, children, unorganized and informal sector workers). ₃₁   Furthermore, from the perspective of the participants in the “Consenso,” while “the market should be the principal allocator of resources, [...] it is up to the state to create the conditions for the needs of the poor to be transformed into effective demands that can be processed by [the market].”

Such a strategy might be opposed by a range of social and political forces fearful of any further shifts in the prevailing balance of power. For example, opposition may come from economic elites and policy-makers who might contend that social mobilization could generate political instability and hence endanger macroeconomic equilibrium and access to international capital flows. Leaders from established political parties and corporate organizations might oppose efforts to shift the political agenda or open access to decision-making by broader sectors of the population. Opposition might even be strong among sectors of the labor movement (e.g., teachers and health professionals) threatened by some dimensions of the reforms in question. Finally, the poor are often a weak political constituency, and privileged social sectors and the middle class might form “veto coalitions” opposing policies that favor the former (O’Donnell 1998). In the future, these forces can be expected to coalesce in various combinations to oppose the emergence of PDCs. Hence, the prospects for the success of polycentric coalitions favoring the growth-with-equity model will be constrained and shaped by enduring state-centric political arrangements, some aspects of which might be reinforced by reforms that state elites introduce with the aim of fragmenting and excluding subaltern groups, and of coopting privileged social sectors (Acuña and Smith 1994).

In discussing the implications of these constraints for potential polycentric coalitions, it is useful to consider three alternative models: the “low road,” “middle road,” and “high road” scenarios. In a low road scenario, political elites pursue alliances with some strategic minorities and seek to neutralize the capacity of most social and political forces to engage in oppositional collective action. Political and economic stability in this scenario is facilitated by a dual logic of state power (support for the organization of the allied minority and disarticulation of the rest) and unequal distribution of resources to support clientelistic practices (Acuña and Smith 1994; Roberts 1995; Weyland 1996). The low road scenario is often accompanied by a lack of transparency, a deterioration of accountability, and widespread corruption among office-holders (features that become major obstacles to sustained economic growth). The low road scenario places the transition costs and long-term burden of market reforms and the opening of the economy to global competition on the poor and the unorganized sectors of society, so high and often rising poverty and inequality become additional characteristics of this path. The participation of social movements, NGOs, and contesting political parties in this scenario is generally limited to inclusion in clientelistic networks.

This low road does not exclude the exercise of electoral politics. Indeed, the governments in the region that have pursued such a path (e.g., in Argentina, Brazil, Peru) have gained power through elections. In many instances, the electoral advent of such governments came on the heels of hyperinflation and the catastrophic failure of heterodox stabilization policies in the late 1980s (Smith 1989). Notwithstanding differences among countries and periodic efforts to shift paths and enhance the quality of growth, this is the trajectory that has characterized most of Latin America over the past decade.

An intermediate, middle road scenario combines: (1) a full-blown variant of market reform and sustained economic growth; (2) stable, relatively consolidated democratic regime, but with significant elitist and exclusionary traits; (3) a consistent reduction in unemployment and poverty (achieved through a combination of growth, greater inclusion, and targeted state expenditures) but meager results in reversing persistent inequalities in the distribution of income and wealth. Accompanying these features, policies begin to be adopted to enhance transparency and accountability, and to attack corruption and clientelism. Contesting political parties play a role in governance, and neocorporatist mechanisms involving these parties and interested social and economic actors may complement parliament in effective policy negotiation. Social movements and NGOs tend to play a greater role in shaping policy within this scenario, albeit using channels that at times leads them to be perceived more as “neo-” or “para-” rather than “non-” governmental organizations (Schild 1998).

The experience of Chile over the past decade comes closest to this middle road strategy, and in fact often has come to be portrayed as a “growth with equity” model for other nations in the region to follow. Several features bring the country closer to a “middle” rather than a “high” road. Chile’s success in economic growth is partly indebted to harsh policies implemented by the Pinochet regime, and has been remained framed within enduring authoritarian institutional mechanisms (e.g., non-elected military and conservative representation in the Senate, the “Ley del Cobre” by which ten percent of copper export earnings are automatically allocated to the military, electoral rules that overrepresent conservative minorities, continued dominance of military appointees in the judicial system, and so on). Nevertheless, relatively strong political parties and “encompassing” institutions grouping the peak associations of capital and labor have made it possible to reduce poverty significantly from the peak reached in the mid-1980s (Weyland 1997). Inequality, however, remains well above pre-1973 levels, with scant progress made under the new democracy (Martínez and Díaz 1996).

By contrast to the two previous paths, in the high road scenario of growth and integration into global markets, elected presidents and their economic and political teams reformulate the decision-making process. Strong economic performance, a more equitable distribution of income and wealth, and the abandonment of Hobbesian postures, would be accompanied by a relative deepening of procedural democracy. ₃₂   Transparency and accountability would prevail in the exercise of government, and practices of rule would be largely free from corruption and clientelism. Moreover, in this scenario, social movements and NGOs (and the transnational networks of which they are part) would play a more crucial role in promoting the autonomous participation for subaltern groups and in expanding democratic spaces for public debate. Political parties and other social actors would be strengthened and incorporated more fully into policy design and implementation.

Since this high road approach envisions more active state participation in the implementation of social policies and growth inducement, ₃₃   there are theoretically persuasive reasons (see Bresser Pereira, Maravall, and Przeworski 1994; Acuña and Smith 1994) to believe that a renovated social-democratic project could generate a stable macroeconomic equilibrium with dynamic growth similar to that achieved in the middle range option. However, at the same time it would place greater emphasis on equity and more generous and expansive compensation (via safety nets, social investments, skill retraining) for the “losers” in competitive integration into the global economy. Historical comparisons and the expected consequences of broadened social and political participation in the decision-making process make the distributional properties of this social democratic scenario much more advanced, certainly, than in the low- and middle-road strategies.

The challenge for the advocates of the high road path is to provide effective leadership as they construct broad “reform mongering” coalitions (Hirschman 1971) that address the changing concerns of the middle class, formal and informal workers, women, environmentalists, and indigenous peoples. Such an effort would seek to preempt the participation of these constituencies in veto coalitions that appeal to nostalgia for statist protectionism and the illusion that the subsidies and rent-seeking privileges of import-substitution can be easily restored.

Social movements and NGOs linked to transnational networks are likely to play a pivotal role in shaping the relative success of these efforts. However, we should stress that in each of the three alternative roads, the NGO-SNO alliance can play very different roles. Optimists might argue that the organizational characteristics of local social movements and NGOs will make it more likely that polycentric coalitions will succeed in promoting high road strategies and deepening democratization beyond the politico-institutional realm. However, we should also recognize the possibility of a more problematic outcome in which the growth of such organizations might provide legitimacy for neopopulist leaders to pursue the further dismantling of the welfare state, and even for the development of new corporatist linkages between the state and political clients.

Here, it is useful to draw some parallels to the adoption of Keynesian-inspired models of growth in the postwar period (Esping-Anderson 1990). The adoption of such models was not only uneven throughout the world (with the welfare state generally reaching the furthest development in core countries) but also was accompanied by democratization of some aspects of social and political life (for example, in regard to labor relations) in some countries but dictatorship and exclusionary corporatism in others. The future development of the growth with equity model might be characterized by a similar unevenness among nations.

As discussed earlier, the adoption of a growth-with-equity model in Latin America might be hindered by the specific legacy of political forces and institutional arrangements within the different nations in question. ₃₄   But what might give the high road strategy an added impetus is precisely the fact that such a strategy is ultimately propelled by a broad configuration of forces. First, support for the model comes from groups that operate above and below state-centric arrangements, and that are gradually pushing these arrangements toward a new institutional matrix embedded in the new political discourses, organizational forms, and political alliances that we have discussed as characteristic of polycentric coalitions. Second, since comparative economic performance is pivotal, the adoption of the high road strategy might be facilitated to the extent to which it becomes implemented broadly throughout (or even outside) the region. If adoption of high-road strategies were to be accompanied by perceived success (as measured by economic growth, performance in poverty and inequality, and deepening democracy) in one or a few countries, the growth-with-equity model could achieve a “critical mass,” lowering the perceived costs of adopting similar strategies in other countries. ₃₅

Ultimately, the relative success of each path is likely to be measured in the extent to which they are effective in overcoming the persistent legacy of poverty, inequality, and authoritarianism in the region. The “high road,” as delineated in this article, represents less a blueprint for development than a preliminary effort to specify some of the measures and transformations that can guide us in assessing whether a given strategy of growth is moving closer to, or more distant from, the equally substantive goals of equity and democracy.

The achievement of a high road path to globalization is a tall order. Realism and past experience counsels that strong coalitions bent on blocking such experiments are highly probable, and that in many countries such coalitions are likely to succeed, to varying degrees, in imposing their preferences. Consequently, relatively stable outcomes falling far short of an optimal equilibrium combining democratic deepening and growth with equity are certainly possible, and perhaps even probable. Success will demand a fortuitous combination of capable leadership and propitious regional and world economic circumstances. In any case, the imagined future discussed in this article will ultimately give way to a broad spectrum of blueprints and outcomes, produced by many architects in pursuit of their own diverse goals.

 

Conclusion

The original Washington Consensus consisted of a minimalist platform that was appropriated by some to advance low-road paths to globalization. In this article we have attempted to demonstrate that as we approach the year 2000, a new consensus is developing among SNOs that efforts to promote sustained economic growth can only be strengthened by poverty abatement, greater equity, more robust institutional arrangements, and a deepening of substantive democracy. There is also a broader political consensus among social movements, NGOs, and progressive political forces that deepening poverty and egregious inequalities constrict political and social citizenship and diminish its quality. The main question of the new century will be whether economic reform and integration into the world-economy will continue to be managed from above by technocratic forces and elites seeking to restrict reforms to the procrustean bed of neoliberalism and to contain mobilization and popular participation, or will now become one of the axes that serves to define what we have called polycentric development coalitions. As in the past, the relative strength of progressive political and institutional configurations favoring a high road path to globalization will be a reflection, not simply or even primarily of structural forces, but of the ability of the social forces in question to effectively develop their imagination and deploy their will on behalf of creative, and necessarily utopian, political projects.

 

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Tables and Figures

Table 1: Income Distribution (as Measured by Gini Coefficients) in Selected Latin American Countries, 1980-1994.
	1980	1981	1982	1983	1984	1985	1986	1987	1988	1989	1990	1991	1992	1993	1994
Argentina
Urban (3)	0.365						0.406				0.423		0.408		0.439
Bolivia
Urban (1)										0.482			0.478
Urban (2)							0.516			0.525
Urban (3)													0.467		0.434
Brazil
Urban (1)								0.543			0.535			0.512
Rural (1)								0.472			0.458			0.476
National (4)	0.590	0.570	0.580	0.590	0.590	0.600	0.590	0.600	0.620	0.640	0.610
Chile
Urban (1)								0.485			0.471		0.474		0.479
Rural (1)								0.387			0.486		0.415		0.414
National (5)	0.530	0.520	0.540	0.540	0.550	0.530	0.540	0.530
Colombia
Urban (1)	0.518						0.455				0.450		0.454
Urban (2)	0.585									0.532
Urban (3)														0.518	0.505
Rural (3)														0.505	0.494
Costa Rica
Urban (3)		0.328							0.364		0.345		0.362		0.363
Rural (3)		0.355							0.358		0.351		0.358		0.372
National (2)		0.475								0.460
Guatemala
Urban (1)							0.464			0.479
Rural (1)							0.472			0.432
National (2)							0.579			0.595
National (6)		0.480					0.530			0.570
Honduras
Urban (3)											0.487		0.461		0.459
Rural (3)											0.465		0.415		0.467
Mexico
Urban (3)					0.321					0.424			0.414		0.405
Rural (3)					0.323					0.345			0.341		0.330
National (2)					0.506					0.550
Panama
Urban (3)							0.430			0.460		0.448			0.451
Rural (3)							0.451			0.432		0.431			0.411
Paraguay
Asunción (3)							0.404				0.357		0.391		0.417
Asunción (2)				0.451							0.398
Peru
Lima (2)						0.428				0.438
Uruguay
Urban (3)		0.379					0.385				0.353		0.301		0.300
Venezuela
Urban (3)		0.306					0.384				0.378		0.380		0.387
Rural (3)		0.288					0.370				0.316		0.331		0.349
National (2)		0.428								0.441
Sources: (1) ECLAC 1995; (2) Psacharopoulos 1993; (3) ECLAC 1997; (4) Barros, Mendonça, and Rocha 1995; (5) Mujica and Larranaga,

 

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Endnotes

Endnotes

Note 1: See Altimir (1994, 1995, and 1996); Berry (1997); ECLAC (1997); Londoño, Székely, and Duryea (1996); Lustig (1995b); Morley (1994, 1995a, 1995b, 1995c, and 1997); Psacharopoulos, Morley, Fiszbein, Lee, and Wood (1996); Rosenthal (1996); Tokman (1997); and Veltmeyer, Petras and Vieux (1997).  Back.

Note 2: Because of its size, the rise in poverty in Brazil in the 1980s and the small decline in the early 1990s disproportionately affected calculations of the absolute dimensions of Latin America’s impoverished population (Psacharopoulos et al. 1996: 72).  Back.

Note 3: There are some disagreements about trends. For example, Fiszbein and Psacharopoulos (1995) and Psacharopoulos et al. (1996) argue that poverty rates (and income inequality) in the 1980s declined in urban Colombia, Costa Rica, and urban Uruguay.  Back.

Note 4: As an indicator of inequality, this article uses Gini Coefficients, ranging from 0 (low inequality) to 1 (high inequality). Of course, data on inequality (and poverty) are often of limited or irregular coverage and are not always comparable, so evaluations such as those presented in these pages must always be considered as tentative assessments.  Back.

Note 5: Colombia and Paraguay were less affected by the debt crisis, while Uruguay by the late 1980s was in a phase of “extended recovery” following severe recessions earlier in the decade (Morley 1995c: 46). Morley (1994: 7) argues that inequality also declined in Costa Rica during the period under consideration.  Back.

Note 6: Reynolds (1996) traces the origins of high levels of inequality in the region to a legacy of very concentrated land ownership, the “Kuznets” effect of industrialization, and the lack of an effort by governments to lower inequality. Ramos (1996) and Glade (1996) add racial and ethnic inequality as a crucial variable. For an overview of trends in inequality prior to the 1980s, see Altimir (1995) and Sheahan and Iglesias (1998).  Back.

Note 7: Lustig (1995b: 2), for example, indicates that in the 1990s, “the wealthiest 20 percent of the population in Latin America had an average income 10 times higher than that of the poorest 20 percent compared to 6.7 times in other low- and middle-income countries for which data are available.” Morley (1995c: 43) indicates that “around 1980 the average Gini coefficient of seven Latin countries for which national household surveys are available was .52, whereas the average Gini for six Asian countries for the early 1970s was only .36.”  Back.

Note 8: Rosenthal (1996: 17) observes that because of high fertility rates in the 1960s, the recession of the 1980s coincided with a “large number of people [who] were entering the work force for the first time.”  Back.

Note 9: Argentine press reports (see Página/12 1999a) indicate that a recent study by the World Bank finds a much higher level of poverty (38 percent) in Argentina at the national level, with poverty rates in certain regions, such as the Northeast and Northwest, above 50 percent. The very changes in the type and scope of data collected, and the intense debates in Argentina surrounding the publications this data are indicative of the institutional transformations discussed in this article. According to the same World Bank report , in the poorest northern provinces more than 50 percent of the population was impoverished, with indigence rates of 17-19 percent.  Back.

Note 10: Furthermore, while some expect inequality to be incompatible with democracy and political consensus (Edwards 1995), this is itself an open question (see Acuña and Smith 1994; Altimir 1996; Rosenthal 1996).  Back.

Note 11: Changes in the lessons drawn from the East Asia experience are likely to become more pronounced with the current crisis (see, for example, Stiglitz 1998a, 1998b, and 1998c).  Back.

Note 12: There has been little cross-fertilization between recent endogenous growth theories and ongoing empirical work. In fact, as one of our anonymous referees pointed out, many empirically oriented researchers tend not to take such theory seriously, while theorists frequently are not aware of new empirical findings. Moreover, some of the more policy-oriented researchers note that work of the new growth theorists frequently “embody assumptions that are poor guides to policy choices” (Birdsall and Londoño 1998, 111).  Back.

Note 13: In fact, as we indicate below, some elements of ECLAC’s (1990, 1992a, 1992b, 1996) distinctive project for a “productive transformation with equity” have recently found considerable resonance in empirical findings of numerous studies by World Bank staff and consultants (see Psacharopolous and Tzannatos 1992; Psacharopolous 1995; Birdsall, Ross, and Sabot 1995b), as well as with recent IADB proposals regarding poverty, inequality, and growth.  Back.

Note 14: See Acuña and Tommasi (1999) for a review of the contributions of the new institutional economics, the new institutionalism, and the new political economy to recent innovations in mainstream discourse at the multilateral institutions.  Back.

Note 15: The authors of this report note that “[c]onsequently, income-distribution problems have not improved in many countries, and have deteriorated in others, which resulted in poverty rates that remain unacceptably high. In addition, economic insecurity for the poor and middle-classes, linked to job insecurity and income volatility, has tended to increase” (World Bank 1998: 1). For similar acceptance of points long articulated by critics of the WC, see IADB (1996).  Back.

Note 16: IADB statistical projections (1996, Part I) indicate that completion of the cycle of “first generation” reforms would raise the region’s potential growth to about 5.5 percent but that this would still be insufficient to enable Latin American to catch up with the rest of the world.  Back.

Note 17: If the region’s current average of 5 years of education were raised to 6.8 years by 2005, for example, while macroeconomic reforms were completed, potential economic growth would rise to 6.5 percent, a pace that would contribute significantly to reducing both poverty and inequality. If the region could achieve an average schooling of 9 years by 2020, the education gap with the rest of the world would be eliminated and inequality could be reduced to levels approximating that of other regions in the world (IADB 1996, Part III).  Back.

Note 18: As Bresser Pereira (1995: 218) indicates, the World Bank (and this can be extended to other institutions) does not commit to a single, coherent theory of development: “The Bank is a practical or pragmatic institution that avoids rhetoric and ideology as much as possible. Besides, it is a big institution. Its directors and its staff come from all parts of the world and represent a diversified and contradictory set of interests and ideologies.”  Back.

Note 19: Along similar lines, Kapur, Lewis and Webb (1997: 40) indicate that greater efforts to promote local participation were needed because “equity considerations apart, painful experience had shown that there were sound reasons (in fields such as agriculture, population, health and nutrition) to expand the participation of beneficiaries if project effectiveness was to be improved.”  Back.

Note 20: This ideological shift had an immediate impact on intellectual leadership within the Bank: “[g]iven the new wave of neoclassical economic orthodoxy that was building in the intellectual communities around the Bank, Chenery’s replacement was especially significant. Clausen [the new Bank president] chose Anne Krueger, an able, unflinching neoclassical trade economist, and she, in turn, replaced large fractions of the Bank’s central economics establishment until she had a highly compatible staff” (Kapur, Lewis and Webb 1997: 22).  Back.

Note 21: Already under Conable, “the adjustment umbrella with which the institution had been so preoccupied since 1980 was stretched in two ways—one, to protect the poor against adjustment shocks to their jobs and incomes, and two, to add to the macro adjustment targets an assortment of related matters that spelled out the quality of life for the poor and disadvantaged, among others” (Kapur, Lewis and Webb 1997: 29).  Back.

Note 22: For example, in the late 1980s, “Frank Vogl, of the External Affairs Department, proposed a public relations effort to head off what he saw as potentially troublesome pressure on the women-in-development theme: ‘I most strongly believe that the issue of women in development is a major one that could enter the political arena in a major way at anytime, with interest groups urging the Board to do far more in this sector. Such interest groups are, in my opinion, likely if aroused to be at least as influential as groups working on environmental issues. We dare not be caught by surprise’” (Kapur, Lewis and Webb 1997: 367).  Back.

Note 23: From such a critical perspective, the hidden agenda behind efforts to gain greater efficiency in the delivery of social services by means of privatization, targeting, and decentralization is to continue cutting social spending (Stewart 1997). Poverty is not seen as a consequence of market reforms or of the underlying economic system, but as a social and individual pathology. Consequently, social spending to alleviate poverty is evaluated negatively as an “expense” not as an investment in human capital or physical infrastructure. Furthermore, according to critics, social targeting fails to either improve the reach of the relevant programs among the truly poor, or effectively restrict access to targeted resources among the undeserving middle class or relatively well off formal sector workers. Such reforms often seem to be short-term “compensatory” palliatives, frequently tied to electoral bids of incumbent presidents, and are insufficient either to propel new political realignments favoring a different economic strategy or to serve as an effective redistributive mechanism. For this view, see Vilas (1996), who offers a spirited critique of neoliberal social policies and an insightful comparison with Keynesian-Fordist policies during the previous phase of import-substitution industrialization. There also is a growing debate on whether compensatory programs along the lines of supported by the multilateral banks (e.g., Bolivia’s Fondo de Emergencia Social, Mexico’s Pronasol and Procampo, Peru’s Fondo Nacional de Compensaci?n y Desarrollo Social, and so on) play a role in eroding the capacity for collective action by the poor, in buttressing the political and electoral support of neopopulist caudillos bent on implementing neoliberal reforms, and in modernizing traditional forms of clientelism and patronage. For insights into this debate, contrast Bruhn (1996), Roberts (1996) and Weyland (1996), for example, with Piester (1997) and Segarra (1997).  Back.

Note 24: NGOs also are developing strong linkages with government at a more localized level: “Municipal governments will increasingly become the setting where people who experienced secondary citizenship through membership in NGOs may graduate into a fuller realization of citizenship” (Reilly 1995: 2). The strategy of moving “above and below” a targeted agency is broader than SNO-NGO alliance. Hence, in Mexico, some argue that “membership organizations must make pacts with federal technocrats in order to counteract local clientelistic elites” (Reilly 1995: 24).  Back.

Note 25: See Petras (1997: 11) and Veltmeyer, Petras, and Vieux (1997: 86), who charge that “what the NGOs create is a new strata of dependent administrators based on external resources who are in direct competition with socio-political movements for the loyalty and activity of the poor.” See Macdonald (1994) for a more nuanced and less extreme view. For the opposite view from the perspective of the supranational agencies, see World Bank (1995, 1996), IADB (1994) and PAHO 1998). On the dilemmas of funding and institutionalization, also see Lehmann and Bebbington (1998) and the essays in Reilly (1995).  Back.

Note 26: Thus, “[i]n an unexpected convergence, the antistatism of neoliberalism has found a partner in the basista hostility to bureaucracy cultivated by the NGO movement” (Lehmann and Bebbington 1998: 261).  Back.

Note 27: The World Bank takes a hard line on labor reforms: “Although reversals of past liberalization attempts have been partially influenced by inappropriate labor market policies, we do not know of any recent liberalization attempt where unemployment problems have led to reversals” (Primo Braga, Nogués and Rajapatirana 1997: 106).  Back.

Note 28: For O’Donnell (1998), many unions are likely to limit their political action to supporting those in the formal labor force (rather than extending their support to the unemployed or those in the informal sector), thereby complicating their participation as core actors in a high road coalition.  Back.

Note 29: The former position characterizes the approach of the World Bank and the Inter-American Development Bank. See also Williamson (1993), who defends strengthening tax agencies and enhancing the autonomy of independent central banks to “insulate” them from electoral politics, an idea that to critics entails potentially anti-democratic implications. For some on the left, such as Chilean socialists and perhaps the FREPASO or the PRD, an emphasis on accountability through public participation is essential. Relying only on technical oversight by regulatory agencies runs the risk of “capture” by the new private, monopoly interests to be regulated.  Back.

Note 30: For example, Markoff (1997) stresses that the “the great challenge of the twenty-first century, if democratization is to have a meaningful future, will involve developing ways to make the transnational structures of power, from the ‘emerging Europe’ to the far more difficult challenge of the planetary networks of finance, responsive to those affected by their actions.”  Back.

Note 31: After all, as noted by the “Consenso de Buenos Aires,” “in our fragmented and heterogeneous societies, almost no one is just a citizen: the number of groups, sectors, minorities, regions and ethnic groups victimized by some additional form of discrimination or oppression beyond that those present in all societies [generates] a politics of permanent effervescence. Women, young people, workers, indigenous communities, blacks and mulattos, minorities with specific sexual orientations, oppressed ethnic groups, marginalized religious sects, and many other groups deprived of the fullness of their rights and aspirations should be stimulated to mobilize, to conquer [their] space, and [pursue] their rights and interests” (Castañeda and Mangabeira 1998).  Back.

Note 32: From a somewhat different, but converging theoretical perspective that gives signal importance to the extent of “encompassingness” of institutions in civil society and the state in generating equitable outcomes under democratic conditions, see Weyland (1996 and 1997). For interesting proposals for deepening democracy and enhancing the equity of the Chilean model, see Hardy (1995) and Comisión Económica PSCH (1998) for proposals being discussed by Socialist party economists for a possible third Concertación government. Note, also, the similarities of these Chilean proposals to the “Consenso de Buenos Aires” (Castañeda, et al. 1998) platform discussed below.  Back.

Note 33: This strategy represents an attempt to base democratic stability on broad social and political pacts that would assure major collective actors that their interests would not be seriously undermined by structural adjustment and global market forces. This scenario resonates with proposals calling for “the building of a new developmental state [that] has to reside in a mix of de-regulation and re-regulation. It requires that the state walk a narrow path of letting the market operate without choking it and, at the same time, playing a coordinating and overseeing role that private firms left to themselves would not assume”(Cavarozzi 1992).  Back.

Note 34: This is largely unexplored terrain in which a variety of contradictory hypotheses might be entertained. Careful comparative research will be required to identify the various constellations of factors (traditions of clientelism and particularism, cohesion of state apparatuses, strength and “encompassingness” of class and sectoral organizations, and so on) favoring or blocking the emergence and/or limiting the success of polycentric development coalitions of a social democratic coloration.  Back.

Note 35: Furthermore, as the current financial crisis and contagion effects in the region suggest, globalization hurts a broad range of domestic groups, including employers and the middle class. Consequently, it is possible that such groups may find it increasingly attractive to abandon low road, maximalist strategies with attendant zero-sum distributive outcomes when they perceive the payoff matrix turning very negative, i.e., when the risks of “hanging separately” surpass the risks of cooperation. Incipient debates among economists and less globalized business elites, unions, consumers, who have been suddenly spooked by financial globalization, about the benefits of controls on capital flows, exchange rate regimes, etc. and the advantage of industrial policies may be indicative of the fact that the prospects of polycentric coalitions and high road alternatives for post-Fordist social democracy might not be so “utopian” after all.  Back.