Revisiting a Success Story

Solid economic growth, combined with social policies: This was the recipe for success followed by many Latin American countries like Brazil. Now, the boom in exports has ended – all at the cost of social advances made in recent years. Is it time to question previous reform policies?

Most economies in Latin America and the Caribbean have been hit hard by the end of the export boom. The 2016 edition of the Transformation Index of the Bertelsmann Stiftung (BTI), which has monitored 129 developing and transformation countries since 2006, shows weakened economic performance and macroeconomic stability in the four major economies of Argentina, Brazil, Mexico and Venezuela over the last four years.

Millions of people who have only recently managed to lift themselves out of poverty and into a precarious middle class, are facing a slide back down the social ladder: They fear a loss in social status and are therefore rightfully demanding improved governance, more effective anti-corruption measures and better policy responses from their leaders.

Given these developments, it is all the more unsettling that the quality of governance in most of Latin America’s largest countries has eroded significantly. BTI indicators of steering capability – prioritization, implementation and policy learning – show a marked decline. The reasons behind this are varied and range from problems such as political paralysis in Brazil to the compromised credibility of governments in Mexico and Peru to a failure to efficiently coordinate or steer policymaking in Argentina under Fernández Kirchner and in Venezuela under Maduro. Still, as Argentinian and Venezuelan voters have demonstrated, poor leadership is bound to be punished some day at the voting booth.

Economically, the continent’s core problems are well known: first, the dependence on commodity exports, negatively affecting productivity and competitiveness; and second, the high level of social inequality. Politically, the discrepancy between a widespread political participation and restricted rule of law is pronounced in most countries. This mismatch is highly problematic, as political power legitimized by elections is not sufficiently controlled, and the systems are thus vulnerable to autocratic tendencies, corruption and populism.

Given the strong symbiosis between political empowerment and socioeconomic development, it is fruitless to place these two inclusionist agendas in competition with each other. Instead, they should be pursued in conjunction with each other.

• Socioeconomic advances will not lead to real and durable integration if not backed by solid democratic institutions that guarantee political participation with a strong rule of law, including, in particular, the prosecution of office abuse. In that sense, the ongoing crisis in Brazil is less an indicator of failure of the formerly governing Workers’ Party (PT), and more a calling for a profound overhaul of the corrupt political system as such. The PT’s cardinal mistake was trying to reform within the existing system instead of working to reform the system itself.
• In turn, liberalization in the political and economic sense will soon run aground if the socioeconomic side of the coin is neglected. As will economic development. Without investments in health, education and infrastructure, increases in productivity and consensus-building can only go so far.

This calls for a comprehensive inclusionist agenda that combines democratic consolidation with a socioeconomic development agenda. Long-term analyses of BTI results clearly show that especially the criterion of rule of law highly correlates with governance quality. This suggests that a transparent, accountable government that moves away from inter-elite or inter-party dealings is most likely to be successful in making headway with such an enormous task.

So, is it time to fundamentally challenge previous reforms? Yes, because without democratic consolidation and an end to clientelism, corruption and exclusive elite bargaining, inclusive socioeconomic advances can be neither sustainable nor empowering. And no, because socioeconomic investments are still the way forward, but need to be broadened to include health, education and infrastructure.

Dr. Hauke Hartmann is Senior Expert at the Bertelsmann Stiftung and directs the BTI project “Shaping Change – Strategies of Development and Transformation”.

This article was originally written for the Argentinian newspaper “Clarín” and appeared there in an abbreviated version on June 8, 2016.

Photo: Protesters in São Paulo call for the impeachment of President Dilma Rousseff, by Agência Brasil, via commons.wikimedia.org, CC BY 3.0 br