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the global economy sputters into yet another recession
in the ongoing drama generated by the 2008 financial
crisis, it is easy to be pessimistic. Many countries
that are critical to overall trends in the world economy
seem to be locked into a self-defeating downward spiral
of fiscal austerity measures that add further negative
impulses to economies that are already affected by the
impact of the initial crisis and the winding down of
excessive private debt. So GDP stagnates or declines,
making the indicators that financial markets are obsessed
with (such public deficit or debt to GDP ratios) look
that much worse, further adding to the pressures even
on finance.
Everyone hopes for salvation from higher exports, which
is a false hope in a period when almost all economies
are trying the same thing. A big part of the problem
is the continued dominance of an economic policy model
that has clearly failed, and currently has no answers
to deal with the escalating problems. Clearly this situation
cannot carry on for very long, and on current trends
an unhappy outcome cannot be very distant. But in fact,
this is not actually inevitable – even in this extreme
situation it is possible to imagine some ways out of
the current predicament, if only policy makers have
the imagination and will to embark on a quite different
trajectory.
Fortunately, there are some bright spots of alternative
macroeconomic trajectories, particularly in Latin America.
One example of an alternative strategy that has paid
significant dividends in terms of generating more genuinely
inclusive growth is Argentina. Curiously, this country
regularly gets a hard time in the global financial media
despite its evident success in terms of relatively stable
GDP and employment growth. Could this be because its
strategy had defied so many of the current orthodoxies
that are so clearly failing in most other places? Or
because more knowledge about the actual nature of the
policies that have been applied in Argentina might encourage
more governments to think differently from the current
mainstream?
Consider just some of these facts. Since 2003 (when
Argentina had just been through one of the most severe
financial crises ever experienced by any developing
country) real GDP has grown at an annual rate of around
9 per cent. This has been sustained not just by increasing
exports fed by the global commodity boom (which is the
point generally harped upon by most external commentators)
but by sustained expansion of the domestic market, strengthening
of production and increase in investment, which reached
historically high rates of 23 per cent in the period
2003-09. This was not all or only about public investment
– there were nearly 130,000 new private enterprises
registered between 2003 and 2009. This investment in
turn powered a substantial increase in labour productivity,
which had languished through the earlier two decades.
The increase in the domestic market was in turn led
by labour market dynamics and the expansion of social
protection systems – precisely in the manner advocated
by proponents of wage-led growth. Total employment increased
substantially, much of it in better quality jobs. There
was a significant increase in formal employment, which
increased by 70 per cent between 2002 and 2009. The
ratio of registered workers to total working age population
(which had stagnated for the previous 25 years) increased
by 30 per cent in just these seven years, such that
by 2009. The aggregate unemployment rate fell from 21.5
per cent in 2002 to 7.9 per cent in 2010.
And even during the latest crisis, the economy has shown
substantial resilience in growth and employment terms.
The unemployment rate has not changed and real wages
have not suffered (although partly as a result of this,
it is true that new problems are emerging in the form
of inflation and its consequences). This is due to a
combination of macroeconomic and active labour market
policies, as noted in what follows.
A publication from the Ministry of Labour, Employment
and Social Security of the Government of Argentina (''Work
and Employment in the Bicentenary: Changes in employment
and social protection dynamics for an extended inclusion,
2003-10'', Buenos Aires 2010) highlights some of the
factors behind this impressive achievement.
Basically in 2003 the government sought to change the
economic policy model quite drastically, to move away
from dynamics of exclusion and marginalisation in labour
markets, which had become the norm in the economy since
the mid 1970s. The promotion of quality, productive
and fairly remunerated employment, together with the
expansion and redefinition of social protection, focused
on protecting a greater part of the population, were
the main tools through which the model sought to improve
the living conditions of the people. These turned out
to have significant macroeconomic implications as well,
providing a vibrant source of domestic effective demand
that could encourage the proliferation of new productive
employment.
Therefore the economic advantage provided by a boom
in primary commodity exports was not concentrated in
the hands of a few privileged elite groups as had hitherto
been the case, but spread much more widely amongst the
population. And the expansion of public employment and
social protection provided opportunities for employment
diversification within the economy, as well as assisting
the productivity improvements that have been witnessed
in the recent past.
Some of the early changes were legislative or administrative
in nature. In 2004 Law 25,877 for Labour Regulation,
was passed. The National Council for Employment, Productivity
and Minimum Salary was reactivated to decide upon and
enforce minimum wage and salary rules. The National
Plan for Work Regularization (PNRT) was set in motion,
with the goal of expanding the Ministry's capability
to inspect and control the compliance with labour laws
and social security contributions of employers.
Importantly, collective bargaining – which had languished
under the earlier regimes – was brought back to centre
stage, with a dramatic (more than five-fold) increase
in the number of agreements and negotiations approved
each year. In addition, negotiation activity at the
branch level was re-introduced, so as to reach a greater
number of workers and ''collectivise'' the benefits, as
opposed to the ''individualisation'' of employment relationships
that had predominated in the 1990s. As a result, collectively
agreed salaries accounted for 81% of the wage bills
of enterprises in 2009, compared to less than 50% in
-2001. As a result of these changes, the wage share
of national income increased from 34.3 per cent in 2002
to 43.6 per cent in 2008.
Another major element was the doubling of social protection
grants. There was an increase in the value of pensions
and extension in coverage, including the introduction
of social pensions for defined categories. Today it
is estimated that the pension system covers 84 per cent
of the elderly population.
At the same time, social protection for children and
adolescents was extended, going from 37 per cent coverage
(in terms of monetary transfers) in 1997 to 86 per cent
in 2009. Some of this was the result of the expansion
of registered employment, which allowed an extension
of the coverage of family allowances. Those who were
excluded from this have benefited from the creation
of a non-contributive sub-system: the Universal Per-Child
Allowance for Social Protection, which currently reaches
about 3.5 million children.
As a result of this emphasis on inclusion and social
protection, social spending expenditures of the government
amounted to nearly a quarter of GDP in 2008. This and
other measure outlined obviously had a direct effect
on income distribution. Argentina was known as one of
the more unequal countries in the world, and income
inequality had been steadily increasing since the mid-1970s.
In the past decade this was finally reversed, as the
Gini coefficient for income distribution improved by
16 per cent between 2002 and 2009.
In the current crisis, these measures have been sought
to be maintained and even expanded. There has been a
focus on countercyclical macroeconomic policies, including
public works, housing plans, incentives for stimulation
of productive sectors, exports pre-financing loans,
loans for small enterprises. In all policies implemented,
an employment preservation clause was included as a
requirement to access and maintain the benefits and
subsidies. In addition, the reach of the Productive
Recovery Program (REPRO, through which the state subsidises
part of the workers' salaries in enterprises in a critical
situation) was extended. Fiscal incentives were provided
for formal hiring and regularisation of non registered
employment. There was also a strengthening of the active
training and employment policies targeted to people
that needed to further develop their skills in order
to enhance their occupational insertion opportunities.
Active income policies were maintained, so that as of
the last quarter of 2008 the raises in retirement and
pension transfers were guaranteed by law. Collective
labour bargaining was sustained. There was a reduction
in income taxes for salaried workers, and the amounts
of the family allowances were increased. Also, there
were monetary transfer programmes for vulnerable or
impoverished groups.
Obviously these policies make severe fiscal demands,
and the current inflationary pressures in Argentina
do suggest that further increases will have to be moderated.
However, this very different approach to social and
economic distribution and the positive macroeconomic
effects that it has generated thus far show that there
are other viable economic trajectories that can deliver
both growth and economic justice. This in turn provides
valuable lessons for the rest of the world.
*
This article was originally published in the Frontline
Volume 29-Issue 17, Aug. 25-Sep. 07, 2012.
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