30 octubre 2019

Capitalist Democracy in the Region Is in Crisis

There are four types of lies: little lies, moderate lies, big lies and statistics. Inequality hides behind a subtle disguise, behind measurements of economic and social indicators. The big figures of macroeconomics, averages, measurements of per capita income usually give a deceitful picture, and conceal or fail to reflect the real world.

Published in El Cronista on October 29, 2019
Abraham Lincoln used to say that you can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time, particularly if you are fooling the very same people that you have deceived.

This is undoubtedly the case of Chile today where in the context of an aristocratic country, the successful economic model in Latin America (per capita income of USD 28,000 annually for 2020 – IMF) the poverty rate reached 40%, and now is estimated at 8%. However, out of the blue there are insufficient wages, a privately-run pension system [AFP, for its acronym in Spanish] that pays benefits of USD 240 a month, and more than 60% of the population with serious issues in relation to health care coverage, soaring utility rates, costly public transportation, high-priced medicines and remedies, poor access to quality education, low aspirations to hold job positions of greater responsibility, which has translated into paralyzed social mobility where Chilean lower classes do not reach a sustainable middle class reflecting their aspirations. The truth is that 10% of the population holds 80% of the nation’s wealth, and 90% of the population shares the remaining 20%.

Chile’s demonstrations are similar to “yellow vests” in France under President Macron, the Bolivians’ uprising against Evo Morales, Hong Kong protests against the Chinese government, crisis in Peru and Ecuador, the time bomb in Brazil, demonstrations in Puerta del Sol, Madrid, the return to populism and other options where left-wing ideologies take refuge, the déjà vu of the K era in Argentina, the return to Marxist mystics, ironically, the catastrophe in Venezuela and Cuba, after all formulas have failed.

Amartya Sen (Indian, the Nobel Memorial Prize in Economic Sciences in 1998, Professor at Harvard University) in his studies about famine has already argued that poverty is a serious issue but the rising inequality in the most important democracies around the world is a far more serious problem. He has proved that famine is a distribution issue in a context of food surplus in places where indigent populations live, some of which are located inside or under the sphere of developed countries.

The Socialist revision emerges with poor administrations in those countries where the welfare state once flourished as a result of more competitive economies, when globalization defined the map of those who can play in different categories and those who are excluded.

For Sveriges Riksbank (Sweden’s central bank) inequality and poverty are key issues. That is the reason why Angus Deaton was awarded the Nobel Memorial Prize in Economic Sciences in 2015; he argued that the way out of poverty always creates inequality. A disruptive example is China with its marked differences in wealth distribution but an inclusive policy that reduces poverty in big waves.

Again, some days ago experts Abhijit Banerjee (India-MIT), Esther Duflo (France-MIT) and Michael Kremer (USA, Harvard University) were awarded the Nobel Prize in Economic Sciences for their analysis and experimental approach to alleviating global poverty that is in the rise for cyclical and rotating reasons.

The Academy recognized the work of this year’s Laureates who have introduced a new approach to obtaining reliable answers about the best ways to fight global poverty. In brief, it involves dividing this issue into smaller, more manageable, questions – for example, the most effective interventions for improving educational outcomes or child health, with the advancement of new technologies and the role of the corporations that lead the world economy.

It is clear to me that there is a common factor to all the latest social conflicts: the working class and lower middle class and in some cases, the middle class in general are voicing their grievances as a result of their lost purchasing power and discontent for the lack of security, the decadent educational system or poor access to quality education, reduced income for lack of pay rises or an increase in basic costs such as food, energy, clothing and transportation, and taxes and social security.

Whichever the future of Latin American countries, democracy is exposed to a serious governance crisis if the authorities legitimately elected by each community do not design state policies that include the grievances that are part of a new aspirational framework of the social groups that have been excluded or left behind.

The message is a claim for equal opportunities, quality employment with income that increases gradually together with investment, free enterprise and promotion of SMEs and entrepreneurship, education with a focus on employability, investment and savings promotion to foster sustainable growth, diversity and inclusion, and multiple job opportunities in the market.

A legal system should be implemented to boost meritocracy, rewarding efforts and promoting the culture of work, where low-incomers and the unemployed can go back to work through education and training, entering the market with a reasonable and modern legal framework in a context of legal certainty for workers and employers alike.

By Julian A. de Diego
Director of the postgraduate course on Human Resources at the School of Business at UCA.

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