7:20 AM Nov 15, 1995


Geneva 15 Nov (Chakravarthi Raghavan) -- The Latin American countries need to allocate significant additional resources to social policy and more of these have to come out of general revenues in order to reverse the negative effects of the economic crisis of the 1980s - increased poverty and deterioration in public services, according to study just published by the UN Research Institute for Social Development (UNRISD).

The study by Evelyne Huber, Professor of Political Science at the University of North Carolina (USA) -- surveys in detail the social situation in Argentina, Brazil, Chile and Costa Rica and assesses the efforts in these countries to deal with the social situation - with some following market-determined private and individualistic models of reforms while others have attempted to find market-correcting, public and egalitarian solutions.

The study advocates universalistic and egalitarian social policy models, with health care systems based on public facilities and focusing on preventive and primary health care, social pension and insurance schemes financed from public revenues, so that labour costs and national competitivity is not reduced by employer-based contributions and keeping to the minimum welfare programmes involving discretionary power of bureaucrats and politicians.

UNRISD Director, Mr. Dharam Ghai, in a preface says that whether such increased allocations out of general revenues could take place would depend on a number of factors including political coalitions that could be formed in support of tax reform, the capacity of the state to enforce tax legislation, the rate of economic growth and administrative reforms to improve use of existing resources.

In the study, part of a series by UNRISD on 'The Future of the Welfare State', Huber argues that extending the scope for universalistic social policy - in health care, insurance and pensions -- is desirable not only from the standpoint of equity but also from that of efficiency.

The greater the discretionary power to deliver differentiated public services, the larger the opportunities for corruption and patronage, she says, adding that in a region marked by widespread poverty and under- or unemployment, private contributory schemes for social welfare are simply not a viable option for the majority of the people.

Huber says that social policy in Latin America currently is at the cross-roads between market-determined, private, individualistic and inegalitarian models on the one hand, and market-correcting, public, solidaristic and egalitarian models on the other.

"The hegemony of neo-liberalism - in business and banking circles, and international financial institutions, and among governments in core countries and ruling technocrats in many Latin American countries -- during the 1980s seemed to tilt the balance towards the former models.

"Yet, as the social costs of economic neo-liberalism and state abdication of social responsibilities have become all too visible, and questions of governability of new democracies have come to the forefront, the latter models are getting a serious second look, both in international institutions and among governments in the region.

"But the main obstacle to the pursuit of these latter models in the 1990s, is the balance of social and political power that has shifted squarely towards capital and away from organizations representing mass interests, most importantly unions, in the course of structural adjustment policies," she adds.

In most Latin American countries social policy has long been oriented more towards relatively privileged sectors than the poor. Social assistance has been of minimal importance. Social insurance developed in a highly inegalitarian manner and this is also true of the health care systems -- public health facilities for low-income groups have been under-funded in relation to need and compared to facilities for those insured or able to pay. And the economic crisis of the 1980s has had a profound impact - increase in poverty, reduction in social expenditures deterioration of public services and severe fiscal imbalances in social insurance schemes.

In seeking solutions, Huber says, Chile followed the neo-liberal route and Costa Rica the social democratic route; Argentina has adopted elements of privatization while Brazil has de jure, but not de facto, virtually universalized coverage and improved benefits of the poorest sectors.

In Chile, the military regime having crushed political opposition pursued a combination of radical neo-liberal economic restructuring and market-determined, heavily private, individualistic and inegalitarian social policy.

Argentina, after a disastrous neo-liberal attempt, returned to heterodoxy and, when that failed, to renewed neo-liberal initiative. In pension policy, stronger efforts than Chile's were made to maintain parts of the public system - turning it into a public scheme of universalist flat pensions, with supplementary pensions either in public or private administered schemes and raising contributions to the public system from employers. The health care system, yet to be reformed, continues as a dual system. But in contrast to Chile, a large majority of the population is covered by the obras sociales and only a minority has to rely on the public system.

Brazil and Costa Rica, Prof Huber says, resisted rapid implementation of orthodox neo-liberal policy prescriptions and pursued a more statist approach towards regulation of the economy and social policy.

Costa Rica, and to a lesser extent Brazil, made great strides towards a market-correcting, public, universalistic and solidaristic model of social policy in the 1970s and maintained this orientation in the 1980s. The Costa Rican model was inspired by social democratic ideals and had stronger solidaristic and egalitarian elements than social policy in any other Latin American country.

But both Brazil and Costa Rica pursued these universalistic models despite having to deal with much larger traditional rural sectors than Argentina and Chile -- sectors that present particularly difficult problems for coverage by conventional social insurance schemes.

Brazil which originally developed a corporatist, segmented welfare state for the urban sector only, since the 1970s assumed a more universalistic thrust, incorporating the rural sector on a non-contributory basis and at very low level of benefits. The Costa Rican scheme has had a unified design, although implementation remained by and large confined to the urban formal sector until the 1960s, with strong attempts since then to incorporate the rural sector and reach the urban informal sector with health programmes.

Chile developed a two-class welfare system -- publicly supported private scheme, with the staten guaranteeing basic minimums for those whose private pension accounts don't yield a sufficient income, but leaving profits in hands of private companies. Since the high levels of economic growth needed to generate sufficient returns to accumulate large individual pension account weren't likely to prevail, a large proportion of pensions would need public subsidies for a minimum pension. The Chilean model is not a basic income security model, despite the state guarantee of a minimum pension, Huber says.

While the privatization of pensions in the Chilean model has had beneficial effects on the capital market which has grown rapidly since the 1980s, "the primary goal of social policy should be to improve human welfare and combat poverty, not strengthen capital markets," Prof Huber comments adding: "..although, the stronger capital market has helped spur economic growth, it has not generated a development model that provides secure and adequately paying jobs significantly to reduce mass poverty."

Repeated failures of stabilization in Argentina saw a return to neo-liberalism with President Menem who imposed orthodox stabilization package, and embarked on rapid trade liberalization, reduction of public sector employment and privatization of state enterprises, and free convertibility of currency in 1991. But the effort to emulate the Chilean pension reform faced Congressional opposition and forced many modifications and maintained strong state involvement. While the reforms -- pensions, health insurance etc -- maintain aspirations of a universalistic welfare state, the characteristics of the labour market will keep these aspirations from being realized and excludes a substantial part of the population. Supervision and coordination of the health care system are highly deficient - resulting in quality differences between different obras sociales and between them and the public system and, within the public system, driven by interests of private providers and blatant corruption.

Referring to Brazil's "different pattern of participation in world economy" -- subregional integration through Mercosur, more protectionist stance, much larger internal market and more industrially based export structure than Chile's -- Huber notes President Collor's privatization and liberalisation programmes were gradual and selective, lifting tariffs primarily on consumer goods. As a result it has not suffered de-industrialization and the largest proportion of its exports are manufactures. Along with Argentina, Uruguay and Costa Rica, it has one of the highest levels of employer contributions to social security system. While it has the major unresolved problem of fiscal crisis of the state and attendant strong inflationary pressures, the stabilization attempts under President Cordoso has shown promising early results.

"If he is able to forge political coalitions necessary to solve the fiscal crisis, Brazil could become an example of a country undertaking successful adjustment measures not corresponding to the neo-liberal blue-print, while continuing to move towards increase state responsibilities for the welfare of the majority of the population," Huber adds.

Drawing some lessons from the experiences of the four for other Latin American countries at lower levels of development, Huber underlines that the central problems of Latin America are poverty and un- or under-employment -- with poverty not concentrated among elderly and sick but affecting a large proportion of people of working age and their children. Traditional employment-based welfare state schemes are inappropriate solutions, since they perpetuate poverty among the people and their families without access to more or less stable employment in the formal sector.

To address the problems of poverty among the old and sick within the entire population, non-contributory schemes or those with minimal contribution requirements for those in informal sector are needed.

A system of basic flat rate pensions, financed out of general revenue and with entitlement based on citizenship, would meet those needs and it should be complemented by a public system of contributory, non-subsidized, capitalized pensions. While investments of public pension reserves have done poorly in the past in Latin America, this does not mean they have to do poorly in the future. The systems can be designed according to successful European models and investment of the funds would benefit from development of local capital markets and support their development in turn, Huber adds.

Health care she argues is the most important welfare state programme in the Latin America context and it is within the technical, if not political, capabilities of most Latin American governments to establish a universalistic system -- with a combination of contributory and non-contributory coverage, but with same facilities for both. Of particular importance is need to emphasise preventive and primary health care -- on the basis of public provision of services.

If health care programmes are to contribute to national development by improving health of the mass of the population, and thus of the future labour force, health-care systems have to be set up on the basis of public facilities, Prof Huber says.

Private providers, she warns, would claim large amounts of resources for curative medicine and would resist an allocation of resources to preventive and primary care in poor areas. Like privileged groups of beneficiaries, private doctors, hospitals and drug companies are generally in politically strong positions to defend their interests, once they are allowed to assume an important role in the health care systems of a country.