On 29 May – 2 June 2003, Pugwash Meeting no. 284 was held in Bariloche, Argentina.
“Taller sobre iniquidades económico-sociales en América Latina” (Towards the Solution of Economic Inequities in Latin America and of their Social Consequences)
The First Regional Workshop held within the programme of the Pugwash Study Group named ‘Towards the Solution of Economic Inequities in Latin America and of their Social Consequences’, met in the outskirts of San Carlos de Bariloche, Northern Patagonia, Argentina, from May 29 to June 2, 2003. It was hosted by the ‘Bariloche Group for Science and World Affairs’ (BACyAM Group) and made possible by the generous support of Pugwash Conferences on Science and World Affairs, Pugwash Netherlands, as well as of the following Bariloche based entities: Balseiro Foundation, Bariloche Atomic Centre (Argentine Atomic Energy Commission), City Council, Hayland Travel, and Southern Winds Airlines. One Spanish participant specialized on Latin American issues joined 11 Argentines covering different socio-economic areas, plus some observers from the hosting group.
The search of ways for solving the many problems associated with the alarming present socio-economic situation in most of the Latin American countries has emerged on the regional scene as one of the issues of highest priority. Think tanks of different fields, leaders of industrial and financial corporations as well as of labor unions, some up-dated political parties, and leading NGOs, all over the region, are considering or starting to consider matters related to these problematic issues. It was thus considered that the activities of the Study Group should join this trend and, therefore, begin as soon as possible. One consequence of this determination was that the participation was – as said – mainly Argentine and that a large part of the debates and presentations examined the Argentine crisis and its effects on the steady rise in poverty and inequity. Great effort will be devoted to having a highly diversified Latin American, as well as non Latin American, participation in the follow-ups.
The Workshop focused its analysis and discussions along two main lines:
1) The deterioration of the macroeconomy and productive systems in Latin American countries as a result of over a decade of neoliberal economic policies, including accelerated programs for privatization of state-owned enterprises, the withdrawal of the State from its directing role in Latin American economies, deep commercial aperture, and the liberalization of economic relations within each country.
2) The public policies and juridical framework which allowed a steady rise in poverty and social and economic inequity.
In addition, within the macroeconomic issue, the effects (conditionings) produced by Latin American countries’ huge foreign debts, as well as the impact of globalization, on the region were analyzed with special attention.In what follows, a first view of the matters dealt with has been grouped into four sections. The text is the sole responsibility of the authors. Extended information on the Workshop, the Study Group, and the ‘Bariloche Group for Science and World Affairs’, as well as the text of the papers submitted, are available in http://www.forobariloche.com.ar
I. Macroeconomic Situation and Analysis of Productive Systems
Of all the regions in the world, Latin America is the one which, since the late ’80s, most thoroughly applied policies of economic liberalization, privatization of state-owned enterprises, fast trade liberalization, and withdrawal of the State. At the same time, from 1980 to 2000, the number of poor people in Latin America rose by 75 million to over 200 million. Of the new poor, almost 95% are urban poor. The economic liberalization programs were largely inspired in the so-called Washington Consensus (a set of political and economic guidelines which, as from the late ’80s, became the main defining force behind the doctrine promoted by the central countries and multilateral credit organizations towards Third World countries). Not only did these programs create large numbers of poor and indigent people, but they also produced a spectacular rise of economic and social inequity and increased unemployment rates to over 15%. Furthermore, by promoting the withdrawal of the State from its directing role of previous decades, they caused a rise in illiteracy and school dropout rates as a result of lack of funding for public education, and unprecedented deterioration in the public health systems that most of the population rely on in Latin America.
At the same time, during the 90s there was an extremely high rate of financial and productive capital inflow to Latin America. Together with the privatization process, in most countries this brought about a huge leap in the rate of investment in infrastructure for telecommunications, ports, roads and services in general. Added to the effect of trade liberalization, greater investment led to rapid progress in the overall condition of services and infrastructure, and an ensuing positive impact on the production standards of Latin American enterprises.
According to what was put forward at this meeting, the combination of trade liberalization, privatizations and the considerable increase in foreign investment brought about a microeconomic phenomenon characterized by the following features:
1) The ownership of the main local enterprises and industries passed into foreign hands.
2) The incorporation of technology and process re-engineering had a major impact on the efficiency of enterprises and industries.
3) There was an increase in the relative importance of services in the overall economy.
4) A noticeable difference became apparent between some companies that survived competition from imported products by making major changes in their production methods and matching their production costs and quality to international standards, and, on the other hand, the large proportion of companies and industries that were unable to withstand foreign competition and were forced to close down.
5) Although the main cause of the rise in unemployment was the closure of companies due to the impact of foreign competition caused by trade liberalization, unemployment was also produced by microeconomic phenomena like the generational turnover related to the incorporation of technology or process re-engineering and rationalization.
Throughout the discussions on the economic context of inequity in Latin America, there was heated debate about the impact of fixed, overvalued exchange rate policies – as happened in Argentina from 1991 to 2001 – on the loss of competitiveness and the destruction of national economies. Several members of the panel argued that this kind of exchange rate policy was adopted not merely as a result of mistaken political decisions, but rather as a response to the private interests of local and foreign finance and service groups, who were highly privileged by those policies. Another factor mentioned as causing growing instability in the region was the lack of rules controlling the inflow and outflow of financial capital. Thus, not only did the real economy of countries like Argentina suffer the impact of an overvalued currency causing a growing loss of competitiveness of local production, but also the total liberalization of capital flow produced a twofold deleterious effect. On the one hand, there was rapid inflow of financial capital, which made it possible to finance inconsistent fiscal policies and increase consumption with foreign savings. On the other hand, it created vulnerability to external shocks when there was a sudden interruption of international financing during times of crisis, as occurred during the Tequila crisis, South-East Asian crisis and Russian devaluation. All participants fully agreed on the need to apply rules for controlling capital, as Chile does.
It was also pointed out that the conversion from closed economies with high State participation to open economies with no State control produced negative consequences, which were enhanced by the lack of adequate compensation policies. The following lacks were mentioned:
1) Lack of a planned financial system focused on productive investment.
2) Lack of systems and institutions for generating innovation.
3) Lack of training to create skilled human resources.
4) Lack of international negotiation strategies.
5) Lack of promotion of cooperation and association among enterprises.
6) Lack of development of the production network in order to gain economies of scale and specialization.
The issue of poverty in Latin America was also discussed from an ideologically broader point of view. One of the participants argued that one can either consider the issue of poverty from a “mitigation” standpoint, as suggested for example by international financial organizations, or otherwise, one should move towards a system of social relations where changes in public polices and cultural revaluation would enable structural changes to be made. He centered the need for structural change on what he considers to be the current situation of ‘structural productive overcapacity’, where the supply capacity is greater than real future demand. He identified this situation as the cause of many of the aforementioned mistaken public policies and negative effects of globalization. He highlighted the role of education and the media in achieving the major cultural changes he believes are needed in order to attain a more humanistic perception of society.
A small yet significant example of structural change was put forward. As the widespread closure of companies has had a major impact on the rise in unemployment, poverty and inequity, several members of the Study Group suggested seeking and promoting mechanisms to support the continuity of these companies, for example through cooperative systems or by placing the control of an affected company into the hands of its employees. Although Argentina was taken as a case in point, since during its crisis, there was a growing phenomenon of workers taking control of bankrupt companies, one of the participants mentioned a Spanish example, by which, during the mid-seventies, a law was passed to rule the labor stock companies (run by the employees).
Several participants discussed an ideologically deeper issue in the search for solutions to social and economic inequity, asking which should come first: the creation of methods to increase wealth or the creation of methods to improve the social distribution of existing wealth. Of similar relevance was the exchange of opinion on tax policies, with reference to deciding onto which area should taxation be centered: work, capital or profits.
II. Globalization and Inequity
Within the discussions on economy, one of the presentations dealt with the impact of globalization on the social and economic conditions in developing countries and its characterization in Latin America. The presenter did not agree that power has been transferred entirely to a transnational level, hindering or even preventing peripheral countries from establishing their own processes of development and leaving them with no choice but to implement adaptive policies. He believes that to confront the problem of inequity, an alternative, realistic paradigm should be created, whereby each nation would assert its own identity, its own distinctive presence in the world, and, on that basis, generate its own potential for development. He outlined the main trends of globalization as follows:
1) Major increase and transformation of trade, with greater participation of goods and services having high added value. Within manufactured goods, a major increase in those having high added value connected to knowledge.
2) Internationalization of production due to the expansion of multinational companies. Over one third of international trade is within-company, and markets are shaped by the rapid growth of the subsidiaries.
3) Integration of financial markets and generalization of speculative capital flow, especially affecting emerging markets in spite of the fact that they receive no more than 10% of these financial flows.
4) Implementation, by developed countries of regulations that favor the interests of their own enterprises and governments and discriminate against developing countries. The same happens, of course, with access to knowledge.
The main presentation on this topic forwarded the following points in terms of alternative ways:
1) Although globalization is the space in which power is exercised within the aforementioned basic tendencies, there are still alternatives for trade policies and international insertion. As far as financial policies are concerned, a country may either enter globalization passively, without any rules to control financial flow, or it may do so after imposing certain rules. Similarly, as multinational companies expand, a country may either assume that all foreign investment should be welcome and, therefore, eliminate any kind of checks, rules and regulations, or it may establish rules and policies to create a framework for controlling national resources, directing investments towards the production of exportable goods, etc..
2) The process of access to knowledge must be made endogenous, because transplanted knowledge is only a partial process and does not contribute toward the transformation of the productive network.
3) The degree of injustice and inequality existing in a country, depends on the way it reacts to the challenge of globalization. The way in which each country will become part of the international context lies in its own hands. Each country shares globalization according to which policies it implements: either a dynamic one, of expansion of international trade and access to knowledge and innovation, or one of increasing inequality and loss of control over its own resources, as well as over financial flows.
4) The country’s degree of social and economic inequality is a key factor. In countries that have entered globalization ‘successfully’, society is better integrated and inequality more moderate. In contrast, countries with huge social differences, high concentration of wealth, waste, extreme inequality and leaders who tend to be at the service of foreign interest, have not integrated well into globalization. In these countries, economic ideas remain trapped and they are unable to create alternatives to the univocal discourse produced by developed countries.
5) Violence, extremism and terrorism should be viewed as a natural, foreseeable consequence of the high degree of inequality and inequity created by globalization, threatening even the very interests of developed countries themselves. It is their duty to intensify the search for a more equitable, more balanced order.
6) The developing countries must accept that they will not solve their problems on the international scene, but rather through autonomous decisions on public policies. It is essential that they regain control of themselves, after having lost it largely through the conditioning of their foreign debt. There is no lack of resources. The problem is organizational, requiring the construction of a converging political system, where the majorities should be able to create a viable way of becoming integrated into the rest of the world.
During the ensuing discussion, two main ideas arose. On the one hand, the notion that a supra-national integration of Latin America is necessary (based on MERCOSUR), in order to create a critical mass which could attain a certain degree of strategic invulnerability. On the other hand, it was pointed out that a strong MERCOSUR – as a driving force behind a better insertion in the world – would only be possible as a result of the integration of strong countries, as a successful supranational entity can only be achieved if it is based on a group of successful nations.
Two contrasting prospects were outlined: one foresaw the USA succeeding in its present aspirations for world domination and the establishment of a new hegemonic order; while the other foresaw a not too far off multipolar world, with a strong presence of USA, Europe, China and India.
III. Foreign Debt and Social and Economic Inequity
Two of the presentations and discussion sessions were given entirely to debate the impact of foreign debt on the economies of Latin American countries. Several members of the panel criticized the role of international financial organizations like the IMF, which have for decades imposed structural conditioning on the economies of Latin American countries, mainly in the form of budget adjustment plans tending to generate a tax surplus in order to enable the payment of the services of the foreign debt. It was stated that while most Latin American governments irresponsibly resorted to foreign financing in the face of local mismanagement of economy, international financial organizations also acted irresponsibly because, far from setting limits to the negative debt – tax adjustment circle, they consolidated a model of unpayable foreign debt.
Considering the problem of foreign debt and that countries like Argentina have been in default for over a year, some participants proposed the implementation of strong measures leading to the investigation of the origin of the debt and its successive renegotiations, as well as taking to court any government officials who participated in illegitimate dealings to obtain or refinance foreign debt. There were also proposals that Latin Aemrican countries should renegotiate their foreign debt according to criteria of the ‘common good’ of the people, in other words, that they should pay only the interest and capital of genuine debt after having satisfied the basic needs of the people.
As a tool to exert juridical pressure, though not as an actual solution to the problem of foreign debt, it was proposed that foreign debt should be brought before highly independent organisms such as the International Court of The Hague, in order to have it pronounced legitimate or illegitimate. Within this context, it was recalled that in Latin America, and particularly in Argentina, there is a longstanding tradition and international recognition for the successful legal treatment of Latin American foreign debt, which developed creditor countries had been demanding by means of strong pressure, even armed.
IV. Public Policies and Juridical Framework of Social and Economic Inequity
The final sessions of the Bariloche meeting analyzed the legal and institutional frameworks which have direct or indirect bearing on the creation of conditions that heighten and sustain social and economic inequity. One presentation and the ensuing debate focused on the need to consolidate independent judicial systems, as opposed to the present situation, where the Judicial Power in most Latin American countries depends on the political and economic powers.
One participant argued that “Nowadays, people mistrust the judicial systems, and the weakest social sectors are the most skeptical about the ability of the courts of justice to satisfy their needs.” In response to this, a first proposal was:
1) To increase the independence, impartiality and capacity of judges. Other constitutional powers should not interfere with the Councils of the Judiciary, which should work as autonomous bodies for the administration of justice, and be in charge of training judges, assigning posts and the system of discipline.
2) To increase the competence of the justices of the peace, who are so much involved with communities, enabling many judicial matters to be more swiftly resolved.
3) To recognize Inter-American jurisdiction, such as the San José Court on Human Rights, as more binding. Not only would this increase the jurisdictional guarantees of human rights, but it would also tend to make the work of national judges more rigorous, if their sentences could be appealed and revised before the Inter-American Court of Justice or other such courts which should urgently be created within the framework of regional bodies such as the Pacto Andino or the MERCOSUR.
With regard to this point, the negative aspect of the 1985 reforms to the World Bank and IDB charters on Latin American public policies was mentioned. These reforms enabled the banks to start financing projects involving institutional reform instead of attending to projects involving infrastructure, health, etc. Not only did this interfere with the institutional shaping of those countries, but also the shaping tended to enhance fiscal efficiency criteria rather than the real need for efficiency and judicial independence.
Finally, there was a presentation on independent government control entities, summarized by the following points:
1) Inverting the rule: instead of political power controlling society, there should be a new system whereby society controls political power.
2) Establishing a mechanism whereby governors would be required to account for their actions regularly, and a mechanism enabling them to be divested of power. This would prevent voting from becoming a mere formality whereby citizens periodically express their opinion only to have the ensuing governors doing whatever they please, even when it goes against their campaign promises. The mechanism should be efficient enough to prevent bureaucratic delays when it needs to be applied.
3) Establishing that one of the conditions to become a controller is not to have acted in bodies subject to control for the past ten years.
4) Creating bodies that really work (unlike current ones) to control public enterprises. Analyzing the feasibility of creating organizations formed by the consumers of these companies’ services to carry out a twofold control: on the control bodies and on the companies. A simple mechanism should be implemented for cases of members of the control bodies neglecting their duties. In addition, analyzing the possibility of having the Judicial Power handle this kind of control. This, in many cases, would involve first solving the problem of the lack of a judicial police force depending directly on the judges, to enable the immediate application of their resolutions.
5) Creating a body to control Justice. In Argentina, the situation in the Council of the Judiciary is sufficient to show not only that a control body is necessary, but also that judicial control cannot be in the hands of members of the Judicial Power. This would entail creating new rules in most Latin American countries. For example, during the first four years of the Council of the Judiciary in Argentina, there were over 600 denouncements but only three minor sanctions. The judicial corporation is closed and there is no way to control members effectively when the controllers are also members.
6) Creating systems to control the security forces, particularly the police force (control of the army was not considered). It is entirely unacceptable that the public should be unaware of any human rights violations that may occur at police stations, in spite of the fact that these violations may be serious, sometimes even leading to death. Police stations should be controlled, though not permanently. Systematic checking should be carried out, not by government officials but by agents designated by human rights associations or lawyers’ associations.
The content of these proposals was broken down and reinforced in the ensuing discussion. The following topics were given special attention: (a) implementation of mechanisms to divest government officials of power as a key tool to empower society, (b) the importance of having bodies to defend competence, (c) the possibility of analyzing radio and television media as public services, since they act in spheres which are definitely not private, (d) the major rise in social awareness of consumer rights and duties towards public service enterprises (especially public conviction against these companies aspiring to the right of unlimited returns).
– Buch, Tomás – Consultant of a local advanced technology company. Writer on social aspects of technology. Member of the BACyAM Group.
– Cafiero, Mario – Member of Argentine Parliament. Specialized in economic-financial issues, particularly foreign debt and banking procedures.
– Colomer Viadel, José – President, Spanish Council for Ibero American Studies. Professor of Constitutional Law, Autonomous University of Madrid and University of Valencia. Specialized in advanced participative democracy, particularly socio-economic aspects.
– D’Atri, Darío – Journalist, specialized in local and international economic matters. Member of the BACyAM Group.
– Ferrer, Aldo – Economist. Leading collaborator in the elaboration of the “Plan Fénix”, an alternative project for present Argentine economic policies. Formerly: Minister of Economy; President, Bank of the Province of Buenos Aires [one of the three main public banks of Argentina], and of other public agencies. Author of many articles and books.
– Espeche Gil, Miguel Ángel – Jurist and career diplomat. Expert in juridical aspects of foreign debt and international law. Former Ambassador in many countries.
– Kosacoff, Bernardo – Head, Argentine branch, Economic Commission for Latin America and the Caribbean [CEPAL]. Expert in industrial policies.
– Kozulj, Roberto – Economist, social communicator. Specialized in cultural development and energy. Adviser in economy, poverty and energy, at CEPAL, World Energy Forum, UN University, Latin American nations. Full Professor, Institute for Energy Economy, Bariloche.
– Lozada, Martín – Jurist. Specialized in international justice, human rights and privatization of security. Member of the American Society of Jurists. Member of the BACyAM Group.
– Lozada, Salvador – Renowned former judge. Specialized in foreign debt and human rights. Member of the BACyAM Group.
– Szmukler, Beinusz – Member, Argentine Council of the Judiciary; President, American Society of Jurists.
– Viglione, Abel – Chief economist, Latin American Economic Research Foundation [FIEL]. Specialized in industrial policy issues.
– Other BACyAM Group members attending: Jorge Gil, Octavio Gorraiz, Karen Hallberg, Humberto Raiti, Walter Scheuer.