Which, ACCORDING TO DEPENDENCY THEORISTS, OBSTRUCT DEVELOPMENT IN LATIN AMERICA.
In the beginning of the 21st century Latin America experienced the rise of leftist movements confronting the neoliberal ideologies that dominated the previous decades. The “Turn to the Left” called also “Pink Tide” became a hope to combat the structural problems obstructing development that Latin America inherited from the colonial times. Such efforts had been already made with the rise of import substitution industrialization (ISI) and populism in the 20th century, however, in many cases they did not succeed. The economists from the dependency school in the 1960s and 1970s expanded the structuralist theories focusing on the effects of the exploitation of the periphery by the center (Prebisch, 1950). One of their most important findings was the fact that the ruling elites in the periphery have similar interests with the elites in the developed countries. In consequence, they cooperate to maintain the existing system based on the international division of labor, the class distinction and the global capitalism (Frank, 1966). Such designed international system serves the interests of the richest states promoting dominance and exploitation, preventing poor countries from developing and locking them into a state of underdevelopment. The cases of Rafael Correa in Ecuador and Evo Morales in Bolivia presented in this essay try to examine to what extant the “Pink Tide” governments succeeded in combating the structural problems that kept Latin America in the ticks of this system.
My argument concerning Correa’s rules is that his government has succeeded in this matter only partially. During 10 of “correismo”, his administration managed to change the social structure significantly decreasing the power of the elites that had dominated not only the business but also the National Congress. However, Ecuador’s economic dependency from the most powerful countries was diversified rather than decreased and the ambitious plans to change the structure of the economy, especially exports, largely failed. To support my argument, I briefly describe the situation of Ecuador before Rafael Correa and the major events and policies of his presidency.
Ecuador in the beginning of the 2000s was a perfect example of a peripheral state with high dependency from the United States. Primary products, mainly oil, accounted for 90% of the country’s exports which majority was directed to the United States (Gamso, 2016). In addition to that, Ecuador had strongly applied the “Washington Consensus” policies in the 1980s and 1990s as mass privatization of state-owned enterprises, deregulation of financial and energy markets and even dollarization. Financial liberalization deprived the state from the control of the banking system and put it in the hands of international institutions. The spreading Asian Crisis deeply affected the country in 1999 causing a collapse of the financial system and economic recession connected with the rise of poverty. In 2002 the Ecuadorian society, disappointed with neoliberalism, elected Lucio Gutierrez, a candidate from a coalition of populist, leftist and indigenous parties who after winning the elections alienated himself from the previously announced program and continued the policies of his predecessors. This deceit caused major protests that forced him to step back after being officially removed by the National Congress in 2005.
In the 2006 elections, a new charismatic politician, Rafael Correa, won the presidency with his promise of introducing “21st century socialism”. At that time, in a country that had 7 different presidents during the previous decade, no one expected that new elected Correa would stay in the office for 10 consecutive years beginning the long awaited period of stability in Ecuador. As an economist, Rafael Correa was aware that the country needs fundamental structural changes to release itself from the dependency and start progressive development. The main concept of the new government was the citizen’s revolution “revolucion ciudadana” with the objective of creating a supportive economy, based on the strong state guidance and interventions in the market, that would promote development and wealth redistribution (Sanchez, 2018). Another tool to combat the negative effects of neoliberalism was the national plan for good living “Buen vivir” which comes from the indigenous (Kichwa) concept of harmonious existence “sumak kawsay”. In Ecuador, the “good living” became a political project opposing the capitalist way of development which focuses on accumulation of goods. Instead of that, it promotes sustainable development with the emphasis on a harmonious and collaborative society that respects the mother nature and ethical values. The implementations of those programs would be difficult with the state competencies that were limited by the neoliberal 1998 constitution. Thus, one of the first decisions of Rafael Correa was convening the Constitutional Assembly in 2007. For over six months representatives of all social classes, including numerous indigenous groups, were gathering in the city of Montecristi to design the new constitution. The final act was approved by a referendum with over 60% of popular support. Ecuador’s 2008 constitution created a strong, interventionist state and integrated the concept of “buen vivir” that included the rights of the nature and plurinationalism. In consequence, the neoliberal constitution, that enforced liberal markets, was exchanged for a set of legal norms that switched the regulatory power to the state in both political and economic aspects. The Montecristi Constitution decreased also the power of the Congress which dominated previously by the country’s elite has been regularly removing presidents at its own will. Moreover, a law forbidding the investment of banks in media was introduced. This was another step of decreasing the power of elites which were major owners of local banks. For Correa’s government pursuing an independent policy was one of the key factors for achieving success. In this context, international organizations as the World Bank and the IMF were not allowed to intervene in the country anymore and their conditional credits were rejected. This was a major step against the global capitalist system that determined Ecuador’s dependency. However, Rafael Correa was aware that the first step of implementing the ideas from “revolucion ciudadana” required to focus on short-term goals. Those included the generation of income that could finance social policies, redistribution of wealth and development of urgently needed infrastructure. Thus, it was necessary to extend the extraction of natural resources and increase the taxes which generated a major part of the state’s income. In the long-term, the infrastructure and newly created industries were expected to decrease the country’s dependency on resources. The core projects of this structural diversification included the Yachay Tech University, the national medical company Enfarma and El Oromo oil refinery. Unfortunately, all of them failed.
Nevertheless, Correa’s government was more successful in developing social welfare and infrastructure. With the growing involvement of the state in country’s economy, public administration largely expanded. The number of civil servants almost doubled, as a consequence of rising the number of ministries and secretariats from 15 and 3 to 28 and 11 respectively (Sanchez, 2018). Big investments in public healthcare and education were not limited to the construction of numerous new schools and hospitals but included also the growth in renumerations. Together with an increase in personnel, public wage spending tripled from USD$3.2bln in 2006 to USD$9.6bln in 2014 (Sanchez, 2018). The ability of carrying out this unprecedent expansion of the public sector was connected with the greater efficiency of the state in collecting taxes, many of which were increased, avoiding however targeting the poorer part of the society. Ecuadorian government’s revenue not only tripled during Correa’s term, but the share of tax-revenues became largely more significant than of oil rents (Central Bank of Ecuador). Even though, government expenditures outstripped the incomes for the whole period of Correa’s presidency, enlarging the fiscal deficit. However, despite growing public debt, the successes of the social policy were undisputable. During first seven years of Correa’s rules, poverty decreased from 36% to 22% and the Gini coefficient of inequality from 0.55 to 0.47 (World Bank). The state’s support for people with disabilities has grown from USD$2mln to USD$150mln placing Ecuador amongst the most progressive countries in the region in that aspect (Watts & Jonathan, 2013). One of the key social changes however was the objective to create educated staff needed for moving country’s economy to higher value added production. The Montecristi Constitution made all public universities tuition-free, first time in the history allowing a mass participation in the tertiary education. The government also increased spending on the higher education from 0.7 to 2.1 per cent of GDP and provided scholarships for outstanding students to study overseas (CEPR, 2017). This had significant effects on the social structure, placing foundations for the emergence of a new upper-middle class that could challenge the elite in the future.
Decreasing dependency on United States was achieved not only in political ways as the closure of American military base in Manta, but also in terms of economy. China became a close partner in trade and investments, replacing US as the biggest importer of Ecuadorian oil. What is more, Chinese firms participated in the largest infrastructure projects in Ecuador’s history, bringing at the same time financing through loans. The most significant investments included 8 hydroelectric plants (including the huge Coca Codo Sinclair generating alone 35% of Ecuador’s demand for energy). Apart from that, Correa’s government constructed several water reservoirs, a liquified gas storage plant and hundreds kilometers of roads and highways making Ecuador the country with the best infrastructure in South America. All those projects became a major step of changing the structural features of Ecuador’s development. Since the beginning of his rules, Rafael Correa’s government pursued import substitution industrialization, a strategy proposed by structuralists to replace the post-colonial development path. Ecuador imposed tariffs on a variety of products that competed with local production as well as limitations on import of many commodities. However, the huge oil-backed debt with China exceeding USD$6bln (Gamso, 2016) forced Ecuador to increase the extraction of its main resources. As a result, the country diversified its dependency rather than significantly decreased it. It is clearly visible when looking at the structure of exports. In 2006 oil was the largest exported commodity, followed by primary agriculture products as fish, fruits and cocoa. In 2017 this almost has not changed. What changed however, are the destinations with the decreasing role of US from over 50% to 30% (OEC).
Bolivia’s case has many similarities. The elites of this country, cooperating with MNCs, since decades have been controlling the natural gas and mining sectors at the expense of the labor class which belonged to the poorest in Latin America. I argue that the revolutionary changes introduced by Evo Morales had impact on the transformation of the social structures and similarly to Ecuador’s case, they did not achieve great success in changing the structure of the economy. However, the revival of the indigenous culture as well as decrease of poverty and free of debt (in contrast to Ecuador) economy were unprecedent achievements, which recently face serious threat by the removal of Evo Morales and rise of the military-backed far-right government.
Bolivia in the beginning of the 2000s was one of the most abundant in natural resources Latin American countries and at the same time one of the poorest in economic development, classified as a low-income state. The mass-privatization process at the end of the 20th century reached its culmination in 2000 when the government decided to privatize even water in Cochabamba. This led to nationwide protests that forced the president to retreat from this idea. Nevertheless, further liberal policies were continued, granting multinational corporations major control over the country’s resources. The effect of those policies, combined with a US-backed campaign against indigenous coca planters caused further anti-presidential demonstrations. An unprecedent change came with the 2005 elections won in the first round by the leader of Movement towards Socialism – Evo Morales, a “cocalero” (coca plant grower) from the indigenous nation of Aymara. In a country of 10 million habitants, half of the population declares themselves as indigenous, which is one of the highest rates in Latin America. Most of them belong to the Quechua nation – speakers of the Inca Empire’s language – and Aymara who were conquered first by the Incas and later by Spanish colonizers. According to World Bank data from 2002, 65% of Bolivian population lived in poverty, while half of them were classified even as extreme poverty. Among indigenous people those indicators where even higher. Evo Morales won the elections with promises of ending the “colonial state” and “neoliberal model”. The new model for development proposed by the president stressed the “vivir bien” concept and plurinationalizm, resembling Rafael Correa’s campaign in Ecuador. In terms of economy, the government prepared the National Development Plan (NDP) characterized by neostructuralism and neoextractivism (McNelly, 2019). Neostructuralism combined an exportorientated economic growth with improving labor flexibility, technological progress and competitiveness (Leiva, 2008). Neoextractivism have been differentiated from extractivism with the argument that it funded the progressive policies of the “Pink Tide” governments (Svampa, 2015). Thus, from the beginning of the first term, Evo Morales started a wide process of retaking control over Bolivian industries, pressing multinational corporations to agree on more favorable terms for the state. Gas companies, which previously paid 18% of their profits to the government while retaining 82%, were forced to reverse this proportion. In effect, the USD$173mln that Bolivia received from natural gas extraction in 2002 increased to USD$1.3bln in 2006 (Sivak, 2010). Using the gains generated by the hydrocarbon industries the government started to create a “plural economy” by redistributing the surplus to other sectors such as manufacturing and artisan production, commerce, tourism, housing, agricultural development, transport and other services (McNelly, 2019). This policy had a major impact on the reduction of poverty by improving the infrastructure (massive construction of new roads and provision of electricity and telecommunication services to poorer areas), upgrading the agricultural sector, providing cash transfers to the poorer and increasing the minimum wage by 400%. In effect, poverty decreased from 59% to 37% and extreme poverty from 39% to 18% during the rules of Evo Morales (World Bank). Such an achievement helped also to raise consumption among the lower class which boosted the economic growth.
Bolivia experienced the highest GDP growth in South America in the 2006-2018 period with over 5% a year (World Bank). The main industrialization effort was focused on adding value to primary exports linked to the extractive industries. Those included the construction of liquid separation, plastic and pipefittings plants. A significant part of Bolivian manufacturing sector is formed by the food processing industry with soybean oil as main agriculture product for exportation. In contrast to that, most of the industrialization projects in the mining sector did not succeed due to errors in planning, lack of necessary infrastructure and disagreements with multinational companies involved in such investments. Moreover, there was a lack of significant industrialization efforts in the three main cities of La Paz, Cochabamba and Santa Cruz de la Sierra, which caused discontent of the urban population. In consequence, the structure of Bolivia’s export remained almost unchanged during the rules of Evo Morales. In 2017 mineral products as gas, zinc ore and gold accounted for 70% of exports followed by agricultural goods, mainly soy, constituting over 10% (OEC). Considering the neoextractivist policy, needed for the first stage of improving development as well as difficulties in a successful creation of new manufacturing sectors, this figures does not surprise.
Evo Morales rules have brought a significant structural change in the Bolivian society. Since the beginning of his first term, the new president started works on the creation of a new constitution, more favorable for the indigenous majority of the country. The Constitution Assembly worked for a year to draw the new act, approved in a national referendum which was however delayed by separatist movements of the eastern provinces. The new constitution declares Bolivia as a plurinational, secular and unitary state with 36 indigenous languages and Spanish as official. Each department as well as each public servant was obliged to use/learn one additional official language apart of Spanish. An article regarding coca was also introduced which states that ancestral coca is a cultural patrimony and its production should be protected and regulated by the government. In the years following the constitution, a remarkable emergence of a new upper-middle class of indigenous bourgeois was noticed. In the main Aymara city – El Alto, dozens of “cholets”- extravagant and colorful houses – have appeared as a symbol of thousands “cholitas” (traditionally vested indigenous woman) that have overcame poverty and became the new local business elite. In La Paz a skyscraper in Neo-Andean architecture with omnipresent Wiphala flags has been constructed, which serves as the new government residence.
Latin America’s dependent model of economy inherited since the colonial times have been followed by different governments for such a long time, that it became impossible to combat in a short-time perspective, which was reflected by several failed attempts made by populists and structuralists during the 20th century. However, the “Pink Tide” movements in Ecuador and Bolivia brought major transformations to this system by introducing changes to the social structure, increasing the sovereign power of the state in making political and economic decisions and developing infrastructure. Thus, those governments made the first step to achieve a major structural transformation in the future. Although, their efforts did not bring a full success, the effects of “Pink Tide” governments’ reforms in Ecuador and Bolivia surpassed any previous achievements in this field.
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Author: Mateusz Szerszen