Papers Presented at the Forum
Democracy Forum 2000

Democracy, Social Inclusion and Poverty Eradication:
Squaring the Circle

by Rolando Franco*

Download (Word format)

* Director of the Social Development Division, ECLAC. This document was prepared for the Democratic Forum 2000: Democracy and Poverty. The Missing Links?, organized by the International Institute for Democracy and Electoral Assistance (IDEA) in Stockholm, from 8 to 9 June 2000. It has been enriched by the discussions and contributions delivered at the seminar on democracy, poverty and social exclusion, held in Quito Ecuador from 25 to 26 April 2000 by IDEA, the Inter-American Development Bank, the United Nations Development Programme (UNDP), the Economic Commission for Latin America and the Caribbean (ECLAC) and the Corporation for Development Studies (CORDES).

The views expressed in this document are the sole responsibility of the author and do not necessarily carry the endorsement of the organizing bodies or participants in that seminar.

 Achieving growth, cohesion and freedom all at the same time
may be difficult; it may even be tantamount to squaring the circle,
in other words, something that can never be done perfectly;
but we can make a start (Dahrendorf, 1995)

Introduction

The countries of Latin America must confront simultaneously the challenges of consolidating democracy, pressing ahead with economic reforms and overcoming poverty and social exclusion. Is it necessary to pursue each of these objectives? Are they contradictory or compatible? Can they be considered as mutually reinforcing? Can they be achieved? Are there recommendations for the decision-makers in this area?

There is room for optimism in this regard. Firstly, the market economy has shown that it can contribute to poverty eradication and that it has an affinity with democracy. However, it is only in those countries where economic activity is the responsibility of individuals and groups motivated by their own interest that democracy has managed to survive (Dahl, 199:187). Moreover, such countries have enjoyed wealth creation and, thus, have been in a position to address the problem of poverty eradication.

Secondly, the international context today is favourable to democracy and is also associated with the defence of human rights and the fight against discrimination and poverty. At the end of the Cold War, democracy emerged as the only politically legitimate principle: witness the international support that this type of system receives and the endorsement contained in agreements between countries, such as that of the Southern Common Market (Mercosur) with its "democratic clause". Some recent examples suggest that the "solutions" adopted – however imperfect – were only possible because of international pressure, which overruled the weakness displayed by the democratic regimes in question.

Thirdly, the dominant model compels countries to seek a competitive place in the globalized economy. This objective cannot be achieved. by exploiting cheap labour or depleting natural resources, which has been termed "spurious competitiveness". On the contrary, it demands the incorporation of innovative technologies which raise productivity and employ better educated workers who have the capacity and flexibility necessary for facing the changes in their working life (ECLAC, 1990). Hence, overcoming poverty and inclusion of the whole population is justifiable not only for ethical reasons but also for its societal and economic significance. However, this does not guarantee, nor does it require, democracy. Some Asian countries attest to the fact that such social objectives can be achieved under authoritarian political regimes.

While it is clear that no type of regime fully guarantees good governance and that in any system there should be a measure of sound public management and levels of technical competence and personal integrity, one may be convinced that there is a higher probability of finding good governance within the democratic order, whose moral and technical superiority…stems from its mechanisms for periodic replacement of leaders and from the demands placed on them in terms of accountability (López Pintor, 1999: 376, 377 and 380).

There are no notable signs, even among the most disparate cultures, of lack of popular understanding or repugnance for the concept of electing leaders by personal, secret ballot and of having politicians account for their actions or spell out their intentions for the future (p. 380), even though in many cases, the democratic pluralist formula is culturally far removed from the traditional authoritarian system …which does not imply lack of comprehension or rejection thereof (López Pintor, 1999:381). If this is true of cultures where the authoritarian traditional still holds sway, there is all the more reason to expect this democratic persuasion in Latin America, which boasts a long democratic tradition, not only in terms of the discourse in some countries but also in the day-to-day reality in many others.

These encouraging signs show up, however, in the midst of upheavals. There are drastic changes in the international economic system, in which the countries of the region are struggling to find a place at the expense of socially costly structural reforms, made worse by the repercussions of the international financial crises. Moreover, poverty and inequality and the existence of exclusion mechanisms have always been features of life in Latin America.

From this point onwards, it is therefore relevant to attempt to examine the negative effects and the non-virtuous combinations existing between democracy, poverty and exclusion.

1. OUTLOOK FOR THE FUTURE: GLOBALIZATION

Efforts will be made to harmonize the objectives mentioned within the framework of a new international economy. While there have been other periods of globalization, the current phase has qualitative differences which make it radically different from any earlier trend.

Globalization, as it now operates, is based on the capacity of certain activities to function in real time at the global level, and relies on information technologies, telecommunications and transport systems, which have interwoven the strategically dominant functions and units in fundamental spheres of human activity (Castells, 1999).

This has repercussions especially in the financial sphere, with huge and instant capital movements affecting the economy of countries throughout the world, since individually they lack the capacity to sustain their currency but have not come together to establish mechanisms to regulate global capital flows.

With respect to merchandise production, the increasing use of technologies associated with the information revolution enables us to produce parts, spares and components in geographically scattered areas and later to bring them together at the place of final assembly. In this way, high technological productivity can be combined with the low costs (labour, environmental, etc.) existing in countries where the factories are located.

Consequently, the reduction of barriers to the international movement of goods, services, capital and technology generates greater interdependency between nations and causes international variables to acquire a greater weight in comparison with domestic variables. Thus, the pursuit of international competitiveness has become the fundamental objective of all countries.

These characteristics place us before one of the great mutations in history (Castro, 1997, p.32), although this should not disguise the fact that, in everyday political debate, globalization is often manipulated as if it were an ideology.

Globalization has implications for both employment and income distribution. In the developed countries, the spread of information technologies has increased opportunities for employment and income for "symbolic analysts", that is, those highly qualified workers whose task it is to produce immaterial, knowledge-intensive goods (Reich, 1993; Rifkin, 1996). Conversely, the assembly-line workers are at a disadvantage because of the growing requirement for computer literacy and because companies are transferring routine production processes to other countries (Thurow, 1992).

Elsewhere in the world, global activities are creating direct manufacturing jobs with a higher productivity than the national average for the host country, although they absorb only a small percentage of the available labour force in those countries. For example, the maquila companies set up in the north of Mexico close to the United States border generate over a million jobs, whereas the active Mexican population is in excess of forty million persons. These industrial plants generally have few technological linkages with the rest of the national economy. However, the situation can be different when the production of such globalized industrial activities is geared to the domestic market of the countries where their factories are located, thus generating technological linkages with other activities.

Services, for their part, do create new jobs, but these come at the expense of jobs in pre-existing companies which are unable to face the competition. Demand tends to become fragmented and specialized. New types of firms emerge, then, which require a qualified labour force, to cater for this demand. This contributes to the decline of mass production, loss of job security and rising unemployment rates, hence, to the emasculation of the worker culture and trade-unionism.

2. THE LOGIC OF INCLUSION/EXCLUSION AND ITS SOCIAL AND POLITICAL IMPLICATIONS

In any social change, there are winners and losers. And this, also, is occurring as a result of the economic transformations underway in the region.

On the one hand, those affected negatively are those that belong to corporate groups that used to participate in the power structure and those employed in companies that had been protected formerly and who today have to face international competition.

On the other hand, emerging among the winners is a well-educated, professionally well-established, urban upper middle class, with close ties to modern private business and consumer patterns that match those of the developed world, and who interact with similar dynamic sectors in the rest of the world. The widening gap between the salaries of university-educated workers and those of the rest of wage-earners causes additional tensions, in view of the adverse distributive trend existing in many countries.

These changes also have an impact on those processes through which social actors give meaning to their action with respect to certain cultural attributes, to which they give priority over possible alternatives, in other words, they affect the identity of individuals (Castells, 1999), which determines not only their self-esteem but also their capacity for social organization and political mobilization.

Globalization also jeopardizes the historical content of institutions and organizations. The State’s management capabilities are overstretched and when it attempts to adapt to the new situation, it is at the expense of the sectoral interests that it has been protecting until then, resulting in the alienation of a sizeable portion of the population. The principle of national identity loses meaning for many of those affected and they attempt to forge an identity in other areas, whether in their oppressed ethnicity, in a sense of belonging to a region or in certain religious beliefs. Most of these social movements reject globalization and criticize the State as the rationalizing entity in this process from which they feel excluded.

This is expressed in views that may be interpreted as a loss of support for democracy. Thus opinion polls in Latin America show that the preference for democracy is not as strong as in Western Europe, where similar studies were conducted (Lagos, 1998). There are many people whose expectations remain unsatisfied. In the first few phases of adjustment, the need to escape from hyperinflation rallies support (Mora and Araujo, 1992). As fear of chaos dissipates and the model’s distributive capacity proves to be limited and its fruits slow to mature, discouragement and disenchantment set in and criticism of the State, of politicians and of politics grows. At certain times, the positive macroeconomic indicators have been clearly at variance with the negative perception of what was happening. Now that even some macro indicators have deteriorated, this malaise is spreading.

Change invariably weakens social cohesion. Whether this is good or bad depends on the value judgement concerning the quality of the existing society and the future project. In Latin America, where, in general, social protection systems similar to those in Europe (which provide protection from the cradle to the grave, Beveridge dixit), there is as much room for optimism that the changes will benefit the majority – which is yet to been seen – as for greater pessimism because a new form of exclusion is reportedly being superimposed on those inherited from the past, which is nurtured by imagining a past that never existed and which arouses undeserved nostalgia, since the reality also was pervaded by poverty, inequality and exclusion.

3. THE ECONOMIC AND SOCIAL SITUATION IN LATIN AMERICA

Since the debt crisis, most of the countries have made advances in terms of correcting fiscal disequilibria, reducing inflation and boosting exports and foreign investment flows.

Figure 1

However, the results have not been up to expectations. For the region as a whole, the growth rate of the 1990s, 3.3% per year, was 5.5% lower than in previous decades and did not live up to the 6% goal that various international organizations considered necessary in order to move forward with poverty reduction at a reasonable pace. Gains in worker and total productivity have also been low.

Figure 2

Figure 3

Figure 4

Economic growth has been subject to sudden fluctuations. Also, the frequency of financial crises seems to suggest that a number of sources of instability have not been corrected or, in some cases, may even have worsened. This points to the need to establish a new architecture for the international financial system (United Nations, 1999).

Figure 5

Job creation has not kept pace with the increase in the number of job-seekers, pushing up the rate of open unemployment and resulting in seven out of ten jobs being generated in the informal sector. The traditional employment problems of the economies of the region have been aggravated by the substantial entry of women into the work force. Young people are especially affected by the difficulties in finding employment.

Figure 6

Figure 7

Structural heterogeneity has increased: the region now has "world class" corporations, for the most part subsidiaries of transnationals, but also many micro-, small and medium-sized companies that are lagging behind technologically.

One of the positive features of the decade is the effort made to increase social spending, which has reached unprecedented levels. This advance has been accompanied, moreover, by attempts to reform social services, whose results have been variable. It also shows the marked differences between countries in the region with respect to the resources allocated for social programmes.

Figure 8

 
Figure 9

The percentage of households with income below the poverty line declined from 41% in 1990 to 36% in 1997. In the last years of the decade, however, it rose again, and in absolute terms, the poor population stood at 224 million persons.

Figure 10

Figure 11

Attention should be drawn to the wide differences in poverty levels between countries, as shown in the figures included, which also serve to demonstrate the heterogeneity of Latin America and, hence, the inaccuracy of many of the generalizations made concerning the situation there.

Figure 12

Figure 13

Income concentration is also a long-standing problem in Latin America and seems to be getting worse. It is a particularly important element with regard to democracy and measures to overcome poverty and social exclusion, because although there are some positive relations between democracy and the market, there are also conflicts which make this a "stormy marriage" (Dahl, 1999). In pursuing their own benefit, the economic agents have little incentive to worry about other people’s welfare. This seems to lead to growing and extreme economic inequality, which some see as a necessary incentive for the creation of wealth; others, in contrast, consider that this would endanger democracy by upsetting such values as equality among all citizens, the exercise of civil rights and political liberties, and the enjoyment of public goods, as well as affecting the acceptance by the less privileged members of society of a social coexistence arrangement under which they would naturally expect to receive benefits in proportion to their degree of commitment to the collective interest, regardless of individual wealth. Such a situation could threaten the sustainability and governance of the whole system of democracy (De Sebastián, 2000).

Figure 14

Great emphasis is usually placed on the assertion that Latin America is the region with the most unequal income distribution in the world. While this is true, it should be noted that the region is very diverse and includes cases where the distribution is comparable with international levels. Furthermore, this inequality should be viewed in the light of the region’s intermediate position in terms of income, so that there is probably little point in comparing it with very poor countries whose superficially better distribution is due mainly to their incapacity to generate wealth.

It is also worth recalling that the demand for better income distribution is relatively recent. In the period immediately after the crisis of the eighties, the aim of governments was to create suitable conditions for recovering economic growth and carrying out poverty relief programmes later. The resurgence of the distribution issue means that the most dramatic phases of stabilization and adjustment are now over.

It is also necessary to determine in each case what levels of economic and social inequality will nevertheless allow a democracy to function reasonably well. It is not just a question of differences of income. There are democratic countries where there are castes, monarchies and aristocracies: dimensions which undoubtedly involve profound inequalities between persons, even in legal terms. It may be that the way to settle this issue would be to lay down certain minimum levels of empowerment granted by society and considered to be essential for forming part of it.  

4. PROBLEMS OF LATIN AMERICAN DEMOCRACIES

1. At its "minimum" level, democracy means periodically holding elections. This is a necessary but not of itself sufficient condition for a mature and consolidated democracy, however. In recent times there has been a rash of "non-liberal democracies" where there are elections but not a State of Law and the government ignores the constitutional limits on its powers and deprives its citizens of their basic rights and freedoms (Zakaria, 1997: 22). Half the countries in the process of democratization are non-liberal democracies, and in Latin America 10 of the 22 main countries display levels of abuse of human rights which are incompatible with the consolidation of [liberal] democracy (Diamond, cited by Zakaria, 1999: 28).

A first effort should therefore be to try to deepen democracy and improve its quality. This means ensuring the full sway of the State of Law, which requires a State with real authority, not shared with "power factors", which can guarantee equality in the eyes of the law throughout the national territory. In many countries of the region there are groups which have "taken over" part of that territory, as in the case of guerrilla movements, drug traffickers, powerful rural landowners, or gangs that rule slum areas in the big cities. In other cases, the State apparatus does not have the capability to carry out its basic functions properly, such as guaranteeing citizen security, preventing police brutality, or ensuring fair legal treatment, especially of the poor or of minority groups (ILPES, 1998: 62-63). At the same time, citizens must be able to defend their rights but they must also recognize their duties and be willing to fulfill them (Hurtado, 1999a).

2. It is also worth recalling that one of the burdens of Latin American democracy is the continued existence of archaic forms of political activity, such as clientage, prebendage or corporativism, which are rooted in "historico-structural factors closely linked with the great inequality that exists in the distribution of income and wealth ….. also expressed in the form of social gaps –often widened by ethnic prejudices- and as the political gulf between the elite and the masses. In such conditions, the elite have a wealth-based concept of power, in which the dividing lines between public and private interests become blurred, and relate with the masses through procedures based on clientage and prebendage. At the root of this kind of social and political relations is the practical negation of the civil and political rights of those considered to be inferiors, who are only expected to be loyal in return for favours. Colonial and slavery-based social structures undoubtedly underlie these forms of relations and inhibit the establishment of democratic social relations" (ILPES, 1998: 61-62). Slavery has repeatedly been unmasked in Brazil as one of the underlying causes of inequality and social and behavioural differences (Cardoso, 1998; Faría and others, 1999).

Most of the countries of the region have undergone changes which have tended to dilute the traditional forms of social control (especially those typical of rural areas) and, while they have not done away with them altogether, have created a potential for modern democracy, although without guaranteeing it.

Making progress in overcoming these problems also means promoting the capacity to resist the pressures of groups which have so far been taking advantage of the State. Cardoso has asserted that since 1930 the State has been privatized, deprived of its public character, and turned into an ill-fare, not a welfare State. The State’s actions are not dictated only by the bureaucracy but also by private interests which have infiltrated into the State and set up links between private and State affairs which disguise private decisions and make them look as State decisions (UNDP, 1994: 27). These distributional coalitions (Flisfisch, 1991) maintain their vigour and do everything they can to defend their privileges, so that systematic and prolonged State action is needed to deal with them.

3. International competitiveness depends on access to education and knowledge and the capacity to generate and handle information, but it is also influenced by other dimensions that are often overlooked. Investors take decisions not only on the basis of the yield of the project in question but also of the respective country’s rating on international markets, the legal security offered, the existence of clear rules, and social and political stability: in short, effective functioning of the country’s institutions. It is of fundamental importance for the domestic actors, too, that the country should have solid, credible and respected institutions and that both governmental and private organizations should respect the rules and have the capability to attain their goals. Commitment to the country’s own efforts to become competitive depends on the existence of basic guarantees, opportunities for developing potential and pursuing objectives, and suitable conditions for making an effort in this direction. International migrations show that many Latin Americans feel that their own countries do not offer these conditions.

Latin American political institutions suffer from weaknesses which affect the proper functioning of democracy.

i. Imbalances between the different powers of the State. Though the "lost decade" was indeed lost in economic terms, it was nevertheless a period of recovery of democracy and of respect for the actions of the organs of a democratic State. However, the need to tackle the crisis heightened the preference for quick decision-making processes and this altered the balance between the different powers and their control over each other.

The relevant decisions were concentrated in the hands of the Executive, backed up by an influential economic technocracy, and the prevailing view was that attaining economic goals was primarily a technical problem, so that there was a tendency to take politics out of the economic debate (Huneeus, 1997) and sidestep the legislative powers. This view has assuredly been influenced by recognition of the fact that the links between citizens and their representatives are not very solid and that dialogue and coordination by elected representatives with the Executive have also been difficult in many cases (IDB, 2000).

The Judiciary also suffers from serious problems that call for urgent reforms if it is to operate in a modern and efficient manner and be free from all forms of corruption. At present, access to justice is by no means assured for broad sectors of the population, and there are serious delays in doing justice.

ii. The crisis in the political parties and politics. Opinion surveys seem to indicate that the citizens are increasingly estranged from politics. This is probably due to the fact that election campaigns are increasingly based on the media, especially television. Mass meetings, face to face contact with voters and the role of campaign volunteers have lost importance, as have the political fixers who kept the parties going. It is also due to the idea, mentioned earlier, that achieving economic goals is a technical problem, so that political activity now looks less exciting.

In this respect, it is worth analysing, on the one hand, whether this is really a crisis that could even affect democracy itself, as some claim, or on the other hand whether this estrangement, if it really exists, is necessarily a bad thing.

The interest of the citizens in keeping themselves informed and in talking about politics, is greater than was thought. This view is strengthened by the fact that there has not been a decline in participation in Presidential and parliamentary elections, which is an unmistakable sign of support for democracy. Generally speaking, interviewees feel that their votes can indeed change things, except in countries where no reasonable person could expect this in view of the prevailing situation.

It could also be maintained that when people criticize democracy they are usually referring in reality to the performance of governments –especially their economic performance- rather than that of the political institutions themselves. This assessment is backed up by the strong rejection of authoritarianism usually shown (Huneeus, 1997).

With regard to the possible estrangement of the population from politics, this could even be interpreted as a positive aspect: it could be the result of societies which are passing from the first stage of transition to democracy, with an intensive popular participation, to the next stage of consolidation or normalization, where such political hyperactivity is no longer needed (Huneeus, 1997: 77). It could also be an indication that the extreme options have disappeared, giving way to certain political and economic consensuses, so that citizens now need to pay less attention to politics and can devote more time to other aspects of their lives.

In this context, in some cases the political parties are criticized for being too highly-organized and closed and in others for being too weak, which is seen as affecting their functions of processing society’s demands or contributing to governance. It has even been suggested that the parties’ loss of power could affect their public service vocation and their projects for the future, increasing the ever-present danger that they may tend to give priority to securing benefits for their members, thus increasing the danger of corruption and further aggravating the negative reactions of the public, such as skepticism, apathy, abstentionism, voting for other candidates out of sheer dissatisfaction, or rebelliousness (ILPES, 1998).

iii. The role of the media. The communications media are increasingly important. They are "among the institutions which are eroding traditional forms [of authority] all over the world"(López Pintor, 1999: 380-381) and aid in the denunciation of arbitrary acts, corruption and abuse of power on the part of authorities and politicians, often thus making possible the defence of the victims and the solution of problems affecting the community, which may not have any other channels of participation for making its demands heard.

This positive role of the media means that sometimes they are used to promote campaigns aimed at destroying the credibility of political opponents: a practice which also indirectly affects the prestige of politicians and politics as a whole.

4. The legitimacy of the State derives not only from the (elected) origin of its authorities but also from its effectiveness in achieving economic growth and "doing things properly". Latin American State structures generally work badly and should be changed in order to correct their limited capacity to solve problems, which left 64% of the interviewees dissatisfied, on average. Likewise, 60% of those interviewed in seven countries do not have confidence in the State institutions, but this percentage is only a little higher than those lacking confidence in the institutions of civil society. The lowest levels of lack of confidence are those relating to the Armed Forces (46%) and to the Church (27%); in contrast, the level of lack of confidence in the political parties is 72%, 65% in the case of the trade unions, and 63% in the case of business associations.

5. THE OUTSTANDING TASKS

In order to make even-handed progress towards the desired objectives it is necessary to advance simultaneously in the areas of economic and social reforms while intensifying the political reforms, since all these actions will form a virtuous circle and mutually strengthen each other.

1) Consolidating economic growth. Without economic growth there is no possibility of social development or perhaps even of political development. If a country does not manage to integrate into the globalized world, it will hardly have the economic capacity to bring the whole of its population up to minimum levels of well-being. This means acknowledging the importance of building on the advances made in the reduction of fiscal deficits and inflation and taking advantage of the opportunities offered by the international economy, with the participation of the private sector and an efficient State. At the same time, it must be recognized that there are no universally valid solutions. There is no single optimum form of macroeconomic management, or insertion in the world economy, or public-private relations, as is shown by the Latin American region, where diversity of the solutions adopted in all these areas is beginning to be seen as more important than pretended homogeneity.

2) Achieving equitable growth. In pursuing development, equity should be the criterion for measuring the quality of the results obtained. Development needs to be more stable, dynamic and competitive, but it must also be more environmentally sustainable and more integrative in social terms. Furthermore, it must be more coherent. We are now in a different stage from that which was marked by the need to recover the macroeconomic balances and the liberalization of the economies.

The connection between growth and equity is not so simple, however. Countries which have managed to keep up high growth rates have reduced poverty but they have not been able to improve income distribution. There is now a bigger gap between those working in jobs using advanced technology and paying high wages and other workers who, because they have less education, can only find poorly paid work in the informal sector.

3) Tackling the most crucial areas of inequality. In the social field, there is a phenomenon called inter-generational transmission of welfare opportunities: the household of origin is a strong determinant first of the educational opportunities and later of the employment opportunities that will be open to individuals. It could be said that the opportunities for well-being are virtually inherited in this way. Public policies must therefore try to help break this link in order to create true equality of opportunities.

Education is a crucial element in the links between the home and employment, so it seems essential that in order to improve equity –especially now that knowledge has become a vital factor of production- efforts should be made to improve policies in terms of coverage and quality.

Employment is another vital link, because of the growing differences in terms of quality of employment and wages deriving from the heterogeneous production structure characterizing the region. Few jobs are being created in the modern sector, and a large proportion of those entering the labour market with a low level of educational capital must take refuge in the informal sector. Job creation is a serious weak point. A great deal of attention is usually devoted to the modern sectors of production, which offer competitiveness in the international market, but these sectors provide very few jobs. The bulk of employment is generated in the small and medium-sized enterprises and the informal sector, due to wich public policies should be designed which can improve both the job opportunities and the labour performance, remuneration and social security coverage in this sector, and in the services sector.

Figure 15

4) Recognizing new forms of identity. This could reconcile the principle of political citizenship with the assertion of cultural identity. In the past, the dominant criterion in terms of identity has been the national identity, built around the State. As we have already seen, however, new principles of identity are now emerging. Public policies should not seek to impose a particular identity, but should go along with the dynamism displayed by civil society, seeking channels of communication among the new identities emerging and trying to stop them from being exclusive, fundamentalist or separatist.

5) Strengthening cooperation with other States and participation in the international system. In the present circumstances, the State must form alliances with other States, participate in international organizations, and establish areas of regional integration. All these alliances increase the capacity for influence and negotiation, but at the same time reduce sovereignty. The opposite alternative –placing emphasis on national sovereignty- simply leads nowadays to the irrelevance of a State’s decisions.