Latin America's Growth and Equity Frustrations during Structural Reforms
Author(s)
Ocampo, Jose
Abstract
It is obviously difficult to generalize about the effects of structural economic reform in a region as large and diverse as Latin America. Countries differ in how aggressively economic reforms were pursued; in their level of development, size, geographical proximity to the United States; in the magnitude of their external and fiscal debt overhangs; and in the strength or weakness of their economic, social and political institutions. However, a body of recent evidence suggests that the new development strategy has succeeded in some areas, but not in others. In particular, the new development strategy has been effective in generating export dynamism, attracting foreign direct investment and increasing productivity in leading firms and sectors. In most countries, inflation trends and budget deficits were effectively brought under control, and confidence in the macroeconomic authorities (including newly independent central banks) increased. Reflecting the democratization wave that simultaneously swept over the region, social spending rose and innovations were introduced in the way social policy is undertaken.
Nonetheless, economic growth remained frustratingly low and volatile, and domestic savings and investment remained depressed. Productivity growth has been poor, particularly when measured as output per worker, largely as a result of a growing underutilization of the available labor force. In turn, low economic and productivity growth is associated with the fact that the reform process brought an increasing dualism, with the expansion of “world class” firms (many of them subsidiaries of multinationals) coinciding with increasing unemployment and growth of the informal labor employment. This dualism, together with other factors like the technological biases that led to an increase in the relative demand for skilled labor, generated adverse effects on an already poor income distribution record, weakening the effects of growth on poverty reduction. This paper evaluates the economic reform process in Latin America and how it affected economic and social outcomes. It is based on wide-ranging research undertaken by the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) in recent years; a useful starting point to that research is ECLAC (2003a).
