A MARKET-FRIENDLY STRATEGY FOR DEVELOPMENT
(Róbinson Rojas)(1998)

Since the mid-1970s in the case of Chile and the early 1980s in the
case of the rest of the countries in the region, Latin America have
been applying "a market-friendly strategy for development" (see
R. Rojas, International capital and intellectual dishonesty).

The model, being based on what I call "free-market fundamentalism",
will develop very well defined features, which will affect one factor
of production (labour) in several negative ways while it will give the
other factor of production (capital) the opportunity to become stronger,
and more efficient. (The effects on the pattern of production,
mainly leading to a fractured and dependent capitalist economy, are
described in
R. Rojas: 15 years of monetarism in Latin America: time to scream ).

The African side of the "market-friendly strategy for development" is
in S. Rasheed/E. Chole: Human development: an African perspective
and U. N.: Survey of Economic and Social conditions in Africa, 1995.

CAPITAL AND LABOUR: HOW MANY PEOPLE?

Any system of production is about standards of living of people. The
capitalist system divide people in two main groups, those who own
capital (goods and services that produce other goods and services), and
those who own the ability/capacity to use those goods and services to
produce other goods and services. Capitalist economics include those two
groups in the notion of factors of production, giving to capital the
dynamic role in the process of production, and to labour a passive role,
becoming active only when capital hires it.

Because of the above, is necessary to be aware how many people is
represented by capital, and how many by labour, in a given society.

Take the Latin American labour force in 1995:
               Total                  197.0 million people
                 of which:
                      employers         6.5 million people
                 urban and rural
                       wage-earners   136.3 million people
                 urban and rural
                  own-account workers  54.2 million people

Let us transform the above data to indicate relations of production:

                 owners of capital      3.3 per cent of labour force
      owners of hired labour power     69.2 per cent of labour force
                 own-account workers   27.5 per cent of labour force

Therefore, the "market-friendly strategy for development" is
economically efficient for 3.3 per cent of the labour force, and
potentially deficient for 96.7% of the labour force in Latin America,
having in mind that the outcome of free-market activities tends to
reward capital proportionally more than labour as an outcome of the
dynamics of maximizing profits instead of maximizing output.

Also, the more developed capitalist relations of production are,
textbook economics indicates that employment will increase at a
slower pace than unemployment, and, as a consequence of income
polarization, economically active population will increase at a faster
pace than working-age population (15-65 years of age).

LATIN AMERICA.- Average annual growth 1980-1995

                      Working age population   2.1%
              Economically active population   2.7%
                      Employment               1.6%
(see TABLE 1)

What we have here is a case of a system of production that is
economically efficient but socially deficient.

"Latin America and the Caribbean. 1980-1995. The economic experience of
the last 15 years", United Nations, ECLAC, 1996, suggests that
the hazards with regard to employment and labour income which are
associated with changes now taking place in Latin America (and Africa,
Asia, and Eastern Europe) are esentially as follows:

1) the possibility that trade liberalization, the downsizing of the
   State apparatus and other such measures may lead to serious loss of
   jobs in activities which may cease to be viable unless support is
   provided for their structuring;

2) the possibility that increases in the international competitiveness
   of rapidly expanding activities may be based on the use of techniques
   that are not labour intensive, which would limit direct job creation;

3) the possibility that, in addition to limit direct job creation, most
   new jobs may be in low-productivity activities, in that large sectors
   of the labour force would therefore remain on the sidelines of the
   modernization process;

4) the possibility that the demand for persons possessing certain skills
   (or for more highly qualified persons even at the same skill or
   educational level) may outstrip the supply, which would open up wide
   wage gaps between strata or even within individual strata that might
   persist over long periods of time;

5) the possibility that a correlation between productivity and wages may
   be lacking in the most dynamic branches of activity due to
   technological and socio-political factors, which would give rise to
   an asymmetrical distribution of income.

Of course, in all these cases, a tendency may arise towards polarization
and the marginalization of certain groups, which would then be reflected
in a deterioration of those groups' positions within the labour market.

Data for employment in "Regional Employment Programme for Latin America
and the Caribbean" (PREALC), 1996, show the following:

LATIN AMERICA.- Employment.- Total growth 1980-1994
                  Open urban unemployment    46%
                  Agricultural activities    19%
                  Informal activities       111%
                  Small private firms       157%
-----------------------------------------
                  Large private firms        16%
                  Public sector              44%
-----------------------------------------
                  Aggregate employment       53%
________________________________________________________________________

Summarizing the meaning of the above data, ECLAC wrote:

"The risk factors mentioned earlier have thus far been the most
significant ones for the region. In the early 1990s, the link between
growth and job creation was weak. Only in a few countries did higher
growth rates lead to decreases in unemployment levels; in others, open
unemployment actually rose.

"Furthermore, most newly created jobs continue to be in low-
productivity, low-paying sectors, while the share of jobs provided by
formal activities (large private firms and public-sector enterprises
has diminished".

"Just as the situation in the labour market involves more than simply
employment and wage levels in the formal sector, the underutilization
of the labour force does not begin and end with open unemployment. The
varied forms taken on by underemployment in the informal sector are a
reflection of the precarious nature of the employment structure, which
became even more unstable in the 1980s and has not improved since.
"During the period under consideration here, there was a proportionate
increase in occupations associated with lower average levels of
productivity, together with a comparative decline in the incomes of
own-account workers, especially those working in non-professional and
non-technical capacities (ECLAC, "Social Panorama of Latin America.
Edition 1995", Santiago, Chile, United Nations Publication).

The chapter on employment in "Social Panorama" is highly illustrative:
________________________________________________________________________
           POVERTY, EMPLOYMENT AND INCOME DISTRIBUTION IN THE

                         FIRST HALF OF THE 1990s

                        2. Unemployment trends

Recent trends in the Latin American economies make it clear that the
number and type of jobs being created by current economic development
processes limit the dissemination of the benefits of growth within
society.

The overall increase in employment during the recovery periods that
followed the crisis in the 1980s was very significant. The economic
momentum was based largely on the utilization of idle installed capacity
and the rehiring of unemployed workers. Once GDP had exceeded the
pre-crisis levels, and growth was based on capital accumulation,
employment expanded more slowly. At the same time, the resumption of
growth in some countries coincided with the introduction or strengthening
of institutional and macroeconomic reforms.

Thus, during the past two years (1994-1995), high GDP growth rates have
been combined with persistent or rising unemployment levels in some
countries. Furthermore, where stagnation or negative growth occurred in
1995, it had an extremely adverse impact on employment. In Argentina, for
example, the open unemployment rate, which had reached levels of close to
10% in May 1993 and May 1994, rose to nearly 20% at the end of the first
half of 1995.4/ In Mexico, the behaviour of unemployment rates also
confirms this observation: open unemployment levels, while initially
lower than in Argentina, rose steadily from 1992 onward to reach an
average of 3.7% in 1994. In May 1995 the urban unemployment rate was
6.6%, more than double the levels recorded since the mid-1980s.

It is also worth noting what happened to employment in Brazil as a result
of the resumption of growth. Despite a cumulative increase in GDP of close
to 9% during 1993 and 1994, the jobs created were insufficient to absorb
the expanding labour force. As a result, the unemployment rate in the main
urban areas remained above 5%, the highest rate recorded since the
mid-1980s.

Even in Chile, which is the clearest example of sustained economic growth,
the 4.5% growth rate during 1994 was accompanied by an increase of more
than 2 percentage points in urban unemployment (from 4.1% to 6.3%). In
1995, despite having achieved an 8% growth rate, Chile has been unable
to bring unemployment level down to what it was in 1994.

The quality, structure and distribution of employment and the unemployment
levels, all of which are linked to the new forms of growth, are gradually
widening the disparities in this area. A case in point is the pattern of
unemployment among households classified according to per capita income.

While it can be expected that this method of classification will result in
a certain concentration of unemployment among the lower-income deciles,
the concentration seen here is remarkably high and persistent. In many
countries, the open unemployment rate in the first poorest decile is four
or more times higher than the average unemployment rate, while for the
poorest 20% of households, it is three or more times the average rate.

These high rates are proving intractable and are not greatly affected by
the fluctuations in overall unemployment. Moreover, in the second poorest
quintile, the unemployment rate is also above average. In 1992,
unemployment remained high among households in the second quintile, even
in countries which had managed to lower their open unemployment rates to
levels of between 4% and 6%.

In the 20% of highest-income households, however, the unemployment level
is very low and hardly varies with the overall rate, a pattern that shows
it to be frictional unemployment. In all of the countries considered, the
level of such unemployment is between 1% and 3%, except in Panama, where
it reaches 6.1% -but even so, this figure does not account for as much as
one third of Panama's average urban unemployment level(see table I-1).

Source: ECLAC, on the basis of special tabulations of data from ongoing
       household surveys and official figures provided by the countries.
a/ Refers to percentiles of per capita family

income distribution.
b/ Greater Buenos Aires metropolitan area.
   Figures are for October of each year.
c/ Special tabulations of data from national
   socio-economic surveys conducted in 1987, 1990, 1992 and 1994.
d/ Special tabulations of data from national
   household income expenditure surveys. 

The above discussion makes it clear that strong growth and the
dissemination of technological progress have major consequences for
employment among only a few deciles, while having indirect consequences
for the lowest deciles. Thus, very high and sustained economic growth
would be needed in order for the unemployment levels of these deciles to
fall. In other words, decreases in open unemployment are far from being
evenly distributed among households at different levels. Improvements are
of benefit mainly to households in the five, six or seven highest-income
deciles, and only when unemployment falls to very low levels do these
benefits reach enough families to reduce unemployment among the two or
three poorest deciles.

Hence, the current level of economic growth has yet to reduce the high
concentrations of unemployment in the lowest deciles, a situation that
goes beyond the mere rotation of unemployment among various households.
Meanwhile, the situation of households in these deciles is determined by
a number of factors. 

 First, few of their members work (somewhat fewer than one person
per household on average), and those who do earn very low pay; they
have no investment income, and the transfers and subsidies which they
receive consist of very small amounts; lastly, they have no assets, or
virtually none. These households therefore have hardly any links with
the formal sectors of the economy. For that reason, economic growth has
a limited impact, whether direct or indirect, on unemployment among the
lowest deciles, except in the case of very high and sustained growth
rates.

4/ These figures are for May of each year and refer to the
   25 large urban areas covered by the Argentine National Institute of
   Statistics and Censuses employment survey. In May 1993 unemployment
   stood at 9.9%, and it reached 10.7% in May 1994.

________________________________________________________________________

TABLE 1
             LATIN AMERICA AND THE CARIBBEAN: OPEN URBAN UNEMPLOYMENT
                              (annual average rates)
                                      Cuadro VII-1
             AMERICA LATINA Y EL CARIBE: DESEMPLEO URBANO ABIERTO
                                (Tasas anuales medias)
          ---------------------------------------------------------------
                          1980   1990   1991   1992   1993   1994 1995/a
                        -------------------------------------------------

          America Latina   6.2    5.8    5.8    6.2    6.2    6.3    7.1

          Argentina        2.6    7.5    6.5    7.0    9.6   11.5   17.5
          Bolivia b/       ...    7.3    5.8    5.4    5.8    3.1    3.6
          Brasil c/        6.3    4.3    4.8    5.8    5.4    5.1    4.6
          Chile d/        11.7    6.5    7.3    4.9    4.1    6.3    5.3
          Colombia e/     10.0   10.5   10.2   10.2    8.6    8.9    8.9
          Costa Rica       6.0    5.4    6.0    4.3    4.0    4.3    5.7
          Ecuador f/       ...    6.1    8.5    8.9    8.9    7.8    7.7
          El Salvador      ...   10.0    7.9    8.2    8.1    7.0    7.0
          Guatemala g/     2.2    6.5    6.4    5.7    5.5    5.2    4.3
          Honduras         ...    7.8    7.4    6.0    7.1    4.0    4.6
          México           4.5    2.7    2.7    2.8    3.4    3.7    6.3
          Nicaragua h/     ...   11.1   14.2   17.8   21.8   20.7   18.2
          Panamá i/        9.9   20.0   19.3   17.5   15.6   16.0   16.2
          Paraguay j/      4.1    6.6    5.1    5.3    5.1    4.4    5.2
          Perú k/          7.1    8.3    5.9    9.4    9.9    8.8    7.1
          Uruguay l/       7.4    8.5    8.9    9.0    8.3    9.2   10.3
          Venezuela        6.6   11.0   10.1    8.1    6.8    8.9   10.9
          ---------------------------------------------------------------
Fuente :  CEPAL, sobre la base de cifras oficiales. (Source: ECLAC)
a/ Cifras preliminares.
b/ Ciudades capitales.
c/ Areas metropolitanas de Rio de Janeiro, Sao Paulo, Belo Horizonte,
   Porto Alegre, Salvador y Recife.
d/ Región metropolitana de Santiago.
e/ Siete áreas metropolitanas.
f/ Incluye el desempleo oculto.
g/ Total nacional, estimaciones oficiales.
h/ Total nacional, estimaciones oficiales; desde 1993, nacional urbano,
   sobre la base de la Encuesta de hogares.
i/ Región metropolitana. Incluye el desempleo oculto.
j/ Area metropolitana de Asunción; desde 1994, nacional urbano.
k/ Lima metropolitana.
l/ 1980, Montevideo.
________________________________________________________________________

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