A boy from the "Insurgentes de la Paz" (Peace Insurgents) school receives lessons inside an old bus turned into a class room in the settlement of Pueblo Nuevo, Oaxaca (Courtesy Reuters).
It is campaign season in Mexico, and aside from security issues, front-runners Enrique Peña Nieto of the PRI and Andrés Manuel López Obrador of the PRD are focusing on poverty and inequality. Both criticize the past two PAN governments for not improving the lot of Mexico’s poor, and for perpetuating if not exacerbating an uneven playing field that benefits the few and not the many. In a recent campaign stop in the Southern state of Veracruz, Peña Nieto came down hard on the PAN, saying “[the PRI] knows what Mexico hasn’t achieved in the past decade. We haven’t forgotten that more people are poor, that we haven’t had the economic growth that creates jobs that the public demands.”
But recent data from the World Bank and Mexico’s own household survey call these claims into question. Over the past fifteen years, inequality has fallen consistently, and since 1996 Mexico’s Gini coefficient has dropped by nearly one percent each year (reaching pre-1980s crisis levels – 49.8 – in 2006). Poverty is also down slightly, as five million fewer people live on four dollars a day or less in 2010 than in 2005.
A number of factors are behind these trends. First, macroeconomic stability (even with slow growth) has been particularly beneficial for the poor, who, studies show, are hit the hardest by economic crises. Real wages also improved, due to a mix of broader education and increased worker productivity. Finally, social spending targeting the poor rose. Programs such as Oportunidades (started under President Zedillo as Progresa), give monthly stipends to low income households that keep their kids healthy and in school, and now reach nearly six million families.
Unfortunately, the world financial crisis of 2008 brought this progress to a standstill. In contrast to the rest of Latin America, Mexico has seen an uptick in extreme poverty in its wake, with more families dropping below the poverty line even as the economy recovered in 2010. The big question going forward is whether – and how – Mexico can get back to spreading the gains of strong growth more evenly among the larger population. To make this happen, the next president should learn from the lessons of the last fifteen plus years – and focus on improving education, expanding targeted social programs, and redistributing wealth more generally (for instance through a more progressive tax system). These policies already have and would continue to make a difference in the lives of the many Mexicans that still struggle to make ends meet.
Published in conjunction with Latin America’s Moment at the Council on Foreign Relations.
Undocumented Migrants travel on raft bound for Ciudad Hidalgo, Mexico (Daniel Leclair/Courtesy Reuters).
While two weeks ago Damien Cave’s great New York Times piece highlighted the positive economic factors keeping Mexicans at home, this week the Wall Street Journal adds border crossing dangers to the reasons for a downward trend in undocumented migration. This holds doubly true for Central Americans. A recent RAND study shows that while fewer Mexicans are coming to the United States, fewer are leaving as well, even with the economic downturn. Its authors suggest that this is due to the “target earner hypothesis,” which holds that migrants will not return to their home country until they have earned a prefixed level of savings. I’d add that the increasing costs and dangers of returning must also affect migrants’ calculation.
Though unlikely before the 2012 presidential election, these changing dynamics may open a space again to talk about immigration reform. I recommend CFR’s immigration policy Task Force, published in 2009, for some serious thoughts on what U.S. national interests here comprise, and what should be done.
Lastly, Arturo Valenzuela’s tenure at the State Department has now officially ended. Steve Clemons offers his take, emphasizing the positive steps the outgoing Assistant Secretary of State for Western Hemispheric Affairs took toward establishing a more consistent, less volatile U.S. policy toward Latin America. Let’s hope for continuity rather than change going forward.
Published in conjunction with Latin America’s Moment at the Council on Foreign Relations.
Brazil's President Luiz Inacio Lula da Silva holds up his oil-covered hands at the Cidade Angra dos Reis offshore platform (Ho New/Courtesy Reuters).
Each day it seems Brazil finds more and more oil in the Santos Basin. Its estimated reserves almost doubled this year, totaling over 30 billion barrels (some expect them to rise as high as 50 billion barrels). This launches Brazil’s reserves to 9th in the world, just behind Russia’s.
In the last months of the Lula administration, the government passed legislation that would make Petrobras, the state-controlled oil giant, the operator of these new finds. It grants Petrobras at least a 30% stake in all future joint ventures, with contracts to be awarded to companies offering the largest share of output to the government. These changes, and the increasing role of the state, have led many to question whether the newfound oil may prove a curse rather than a blessing.
Brazil has a better chance than most to achieve the vaunted Norwegian model of oil exploitation, and avoid the pitfalls of the Middle East (or closer to home in Venezuela). In large part this is due to timing. Countries such as Venezuela, Saudi Arabia, or Nigeria found oil at the start of their process of state formation. Oil let them avoid hard choices – in particular the need for a broad based economy to tax (as well as subsequent demands for representation). Brazil already has a vibrant and diversified economy, which won’t easily fade, even with the oil influx.
Second, Brazil has had significant experience in implementing national energy policies. During the 1970s, Brazil faced a situation somewhat similar to that the United States faces today – overreliance on foreign oil during years of volatile pricing. In an effort to limit its dependence, Brazil’s military government boosted hydroelectric power, and created Pro-Alcool, the National Alcohol Program. It created a now world class ethanol industry by offering low-cost loans and credit guarantees, mandating percentages in gasoline, setting government purchase prices, and guaranteeing monopolistic distribution by the state-owned energy company, Petrobras. Forty years later, Brazil is second only to the United States in terms of ethanol production, which powers 20% of its transportation matrix. Now largely self-sufficient, its overall energy portfolio is one of the cleanest in the world. While the pre-salt finds will test this last achievement, Brazil’s history of energy management shows that it can conduct a successful long-term energy policy.
Third, the pre-salt oil is hard to get at. Buried almost four miles below the ocean surface and a mile-thick layer of salt (the reason for the name), it is relatively expensive to extract. Unlike Mexico’s Cantarell fields, which were discovered by a fisherman as the oil seeping to the surface tangled his nets, extraction will require significant technology, expertise, and management. The time and effort needed to extract may work in Brazil’s favor, boosting local human capital and technology companies rather than the reverse. It may also mean that revenues enter the domestic economy more slowly, limiting the inflationary effects on domestic prices and other areas of the economy (avoiding the so-called Dutch disease.). Brazil already faces inflationary pressure—from both industrial expansion and natural resources like timber, iron ore, and beef—but prudent use of oil revenue could help not hinder their already impressive long-term growth prospects.
Finally, and perhaps counterintuitively, Brazil’s vibrant (if messy) democracy may rescue it from a less attractive fate. Hardly immune from patronage, corruption, and the like, Brazil’s democratic politics provide a platform for a multitude of interests and a system of checks and balances between branches and levels of government. This true political back-and-forth and compromise has never fully operated in the Middle East (much to the region’s detriment), and arguably was never firmly established next door in Venezuela. This isn’t to suggest that everyone gets heard in Brazil or that special interests don’t have a louder say than others. But it does give a broader array of political and economic players a voice, something that doesn’t occur under non-democratic regimes.
Taken together this suggests that the pre-salt oil can be what the Brazilians dream about— a means to tackle the big issues of poverty and structural inequality by boosting the social safety net, improving education, investing in infrastructure, and continuing to build foreign reserves to protect against inflation. The technological investment could also spill over into the broader economy, attracting engineers, scientists, and oilfield specialists. There are some positive examples from emerging economies— most notably Chile. Under its democratic leadership, it has managed its copper reserves (making up sixteen percent of GDP and nearly half of all exports—more than enough to curse instead of bless the nation) quite admirably. Let’s hope that Brazil follows a similar path.
Published in conjunction with Latin America’s Moment at the Council on Foreign Relations.
Despite the calm, Chile’s presidential election Sunday was one of the transformative political moments in Latin America in recent years. This transformation did not entail street demonstrations, a new constitution or the introduction of 21st-century socialism–yet it was no less radical. Chile has transitioned toward a more pluralistic democracy and away from two decades of electoral dominance by the Concertación–a coalition of mostly Socialists, Radicals and Christian Democrats forged in opposition to the Pinochet military government (1973-1989).
Right-leaning Alianza candidate Sebastián Piñera won the first-round December vote, outpacing Concertación candidate Eduardo Frei by nearly 15 percentage points. Sunday, by a closer margin, Piñera pulled another victory, making him the first elected conservative Chilean leader in several decades.
This was not an election driven by issues or ideology: Both candidates promised to continue Chile’s market-friendly macroeconomic policies and its popular social welfare programs. Instead it was driven by personal stories. Piñera presented himself as an entrepreneur who would foster greater innovation and competitiveness; Frei as a wise, experienced former president (he led the country from 1994 to 2000).
Piñera’s victory suggests a new era for Chile’s politics. It signifies that the right has finally emerged from the shadow of Pinochet’s military dictatorship to become a viable electoral alternative once more, able to lead an open and dynamic country without a fear of backsliding into the past. It is the end of the pro/anti Pinochet political divide–the guiding cleavage of Chile’s politics since the 1970s.
The Concertación’s loss is also in some ways the result of its successes. While many talk of the economic growth and stability brought by Pinochet’s reforms, it is the policies and actions of the governing Concertación coalition that have truly transformed Chile into a modern state. These successive governments–through sound macroeconomic management combined with the creation of a broad social safety net–succeeded in reducing Chile’s poverty rate from nearly 40% in 1990 to just under 14% today (nearly equivalent to U.S. rates). Chile’s now much larger middle class is more politically independent, and Piñera openly wooed this cohort–ultimately successfully.
While highlighting the diminishing role of Chile’s old political fracture, this election also highlighted a new divide–that between the old and the young. While Frei and Piñera came firmly from the old guard, the spectacular rise of Marco Enriquez-Ominami, a 36-year-old filmmaker and former congressman with the Socialist party, upended politics as usual. He became the most successful independent candidate in Chilean history, winning 20% of the first round votes. His strength lay in an emerging middle class focused on the future and open to political change. Whether we see an Enriquez-Ominami candidacy again in four years, this will surely be the last election where the leading candidates’ formative years occurred under the Pinochet regime.
But Chile’s future political challenge will be how to engage its younger generations. Unlike their parents, seared by the turmoil of the 1970s and 1980s, Chile’s youth is politically apathetic. Less than 10% of 18- to 29-year-olds are even registered to vote. Many older citizens are also disillusioned. Polls show that 60% of the population believes that none of the candidates–or their parties–represent their ideas well. As the leftist Concertación tries to recreate a winning strategy and the right Alianza looks to deepen its victory, opening up the political system is vital. Chileans are demanding new approaches and more diversity. This election shows us that after decades of dominance by first the right and then the left, Chile’s politics are now up for grabs.
This op-ed first appeared on Forbes.com
I recently published this article in the Americas Quarterly policy journal, which was republished in Business Chile.
While some in the United States still talk about the introduction of private individual accounts as the way to “save” social security, even the Chileans are rethinking their once vaunted private pension system. After nearly three decades of private pension management, the Chilean system is again poised for reform. This article looks at the dwindling support for private pension systems in Chile and other Latin American countries, the reasons behind this shift, and the potential directions for this wave of social security reform.
Mexico finally passed a reform of its public sector workers’ social security system, the ISSSTE system. This system covers 3 million people, or roughly 10% of the insured population in Mexico.
Calderon, unlike Fox or even Zedillo before him, was able to cobble together a coalition of support with for the initiative, including many members of the PRI as well as the deputies of the New Alliance party, headed by former PRI heavy weight and powerful leader of the teacher’s union Elba Ester Gordillo. Gordillo was a key figure in the success of this reform as teachers comprise half of ISSSTE’s clientele.
The successful reform represents nothing new in terms of design. All the main elements of the new system – including the creation of individual worker savings accounts, of a publicly managed pension fund manager (named the PENSIONISSSTE), and the payment of recognition bonds for previous contributions to the ISSSTE system were elaborated years ago by the Finance Ministry. What the current success (versus previous failures) shows is Calderon’s political acumen negotiating with Congress as well as the close working relationship he has with many in the PRI. This bodes well for future reforms, in particular the Reform of the State that is now on the table.
In the short term, the ISSSTE reform will not significantly affect Mexico’s finances. If anything, it makes apparent the medium to long-term state obligations to public workers. All those currently in the ISSSTE system will be given generous bonds for previous contributions, guaranteeing high retirement pensions under the new individual system. But in the long term, this reform will link future benefits to the amount of individual savings and accumulation. This change will encourage future public employees to work longer in order to accumulate the funds necessary for an adequate pension. The current average 54 year old retirement age will undoubtedly increase, even without the new minimum ages also incorporated into the law. Now, with this reform finally behind the government, perhaps the Mexican government can address the real retirement problem – which is the half of Mexico’s population remaining outside of any social security system.
