Only two countries
in Latin America have processed a significant transformation of
the state as a provider and guarantee of forms of social citizenship
under a full functioning democracy; Costa Rica and Uruguay. Mexico, Argentina and Perú
for different reasons have undermined democratic mechanisms (or
never had them to start with) and checks and balances, in order
to advance structural reform. Chile is a well known success of
the Pinochet regime. Brasil, is still
caught in the paralyses of social sector reform and further structural
economic crises and structural reform has had dear costs and
left important scars on social development and social integration,
which renewed growth has not yet undone.
Countries paid these costs in different ways. How many, who,
for how long and how much of a social cost was placed upon these
societies, I argue, depended on what political game in town administered
this process of creative destruction led by the market. Institutionalized
democracies apparently had to pay the costs of tardiness that
these systems of decision-making bring with them.
In the papers there were good reformers and laggards, and policy
change in the direction suggested by orthodox advice became the
basic criteria to grade countries and chart their future.
Uruguay showed according to some a worrisome tendency to block,
veto, slowdown and negotiate reform. In the numbers, though,
today the country shows that the transition from one model of
development to the other has so far been less cruel and more
fair with its people than in most of the so called good reformers.
A major reason that accounts for this result is the timing and
content that social sector reform presented. Rather than moving
according to the advice of economists and multilateral lending
agencies (MLA's), Uruguay had to deal with one hundred years
of a social state, the social structure it contributed to shape
and a dense democratic political system.
This slowed down reform on the one hand, and modified the prescribed
contents of such reforms on the other.
This paper argues that limited options and deterring mechanisms
for exiting the system of public goods, the degree
of loyalty present in the population regarding those
systems and the activation of voice that dominated
the process of reform achieved two basic outcomes. First it made
highly unfeasible a reform of the social state guided by a purely
market oriented paradigm. Secondly it placed a clear stop in
the process of reform by-default and decline in services and
benefits quality that had taken place between 1960 and 1985.
The final outcome, has so far been a reform that has limited
and in some cases reversed the decline in quality without sacrificing
coverage, and a statist and redistributional emphasis on the
new and old instruments of social protection despite the new
market oriented wisdom in social policy.
Latin American people are today as never before free to "exit"
those organizations, enterprises or even policies they do not
like. Monopolies have been broken, tariffs have disappeared and
private alternatives competing with public goods are available.
Competition blooms everywhere. If that was not enough, our people
can also today produce and make "voice" count as never
before, for never before was democracy so predominant in the
region. Or so the story is told.
Poverty and inequality on the rise, anomic violence increasingly
close to our safe existence, political systems with frail legitimacy
and a sense of having been cheated that many surveys across the
region transpire (see table
8), tell a different
story. What went wrong?
Maybe we should start with the simple fact that most people do
not have the means to "exit" a bad organization or
provider for a better one. You can "exit" if you can
pay for a different product or get another job. A second element
might simply be the quality of the "voice" that can
be produced on the one hand and the responsiveness and accountability
of those in charge of a given organization on the other. Thus
both "exit" and "voice" fail to play the
role of corrective mechanism when the state or other organizations
face decline in quality and efficiency.
These problems are particularly acute when we are referring to
public goods. Increasingly the "exit" option is available
to the most quality conscious and potentially active and persuasive
customers (in other words
the most privileged citizens),
and "voice" is less and less heard or paid attention
when it comes from those with "no exit" options. The
end result is that neither the "exit" mechanism nor
the "voice" option operate as a corrective device to
improve an organizational output, in this case the public goods
provided by the state.
It is naive to believe that increasingly unequal social structures
will solve this tendency by providing remedial public policies
to those with "no exit" options and increasing the
"exit" options to those with the means to do so. The
most devastating process at work in Latin America is that elites
and blessed middle sectors can opt out of public goods. That
quality that public goods once had, -that you could never completely
"exit" them- is becoming less and less evident, and
full fledged private alternatives appear as plausible options.
Uruguay, we claim, has been an exception. Although increasingly
under attack, public goods remain public, thereby, increasing
the density, intensity, quality and frequency of voice as a corrective
mechanism. This was not always the case. Uruguay during the sixties
had become a country that offered or allowed for few exit options
(many times by law) from the state and its regulation
but "voice" had become ineffectual. The most radical
form of "exit" expanded: exit from the country. Today
Uruguay has combined "exit" and "voice" options
in a more balanced way. A hard and lengthy process of economic
structural reform and of state reform is responsible for this
Most international agencies have viewed Uruguay' structural reforms
as worringsomelly timid. Recently, judgments have become less
harsh and more laudatory of Uruguay's record of reform.
To a large extent this is due to the fact that Uruguay has undertaken,
though in a gradual way, many of the reforms that are commonly
prescribed today. Today, Uruguay has an export oriented economy
with lower tariff barriers and with a more disciplined fiscal
policy. It has also engaged in domestic market reforms, especially
in the financial market. Furthermore it has finally passed laws
that will drastically reform the social security system and public
education. Finally many state monopolies have disappeared, and
other state enterprises make extensive use of private capital
as partners and of enterprises as providers of intermediate goods
or as service providers.
Yet, it is also true, that these reforms have been carried out
long after they were hailed as urgent by the international community
and only after important variations in contents were introduced.
It is also true that many reforms have been rolled back or directly
blocked in its most important components, limiting its impact
and transformational range. In what concerns us -social state
change, reforms have been particularly deviant from the proposed
models. In effect, the social state has reformed itself and is
still in the process of doing so.
But it has done so,
keeping two central characteristics that are precisely the ones
that the new social policy paradigm proposes to eradicate. The
new model that seems to take shape in Uruguay's social state
is one that remains strongly statist and oriented towards redistributional
and social integration goals, instead of moving towards a more
public-private mix geared at problems of human capital investment
and extreme poverty remedial policies.
Despite this rebellious attitude, Uruguay draws today more praise
than critiques. Analysts and agencies loyal to market oriented
reform are content to point out the obedient side of the reformer,
and claim that therein lies the key to success, neglecting the
deviations from the standard menu of reforms. For that is the
real point. In the last twelve years years Uruguay's record of
reform might be mixed, but in a regional comparison, its record
on social and economic development is not: it is unequivocally
In regard to the social outcomes of the last fifteen years, we
believe that it is precisely the fact that Uruguay was to a large
extent a moderate rebel, especially regarding social state reform,
what accounts for its success. The timing and content of social
state reform allowed the country to face some of the harshest
costs of crises and structural adjustment and to adapt to the
new context without giving up some of the redistributional and
integrative instruments the state had.
The historical legacies of a robust social state, the way in
which international constraints and international agencies advice
was selectively filtrated, and a domestic logic in which "loyalty"
effectively regulated the intensity and quality of exit and voice
as corrective mechanisms are the ingredients put together in
this paper to understand the reform of the social state in the
last fifteen years.
1. Bleak prospects, wrong theories.
i. Three false apocalyptic predictions.
Not so long ago, prophets
and analysts charted the future of Uruguay's social health and
developmental chances. Their incapacity to predict what was going
to happen is illuminating and provides us with a starting point
and some keys to understand the current state of affairs.
While two of these
predictions are common knowledge, the third false prediction
belongs regrettably, to one of the authors of this paper , and
dates to a manuscript that was finished around 1992, and finally
published in 1995 (Filgueira
The first prediction pointed out Uruguay's incapacity to push
forward structural reform and adapt to a world in which markets,
risks and trade opportunities are the key to developmental success.
Uruguay es el país del empate -which loosely and
conceptually translated means that Uruguay will give up winning
if that minimizes the risks of loosing, is a popular expression
that this perspective holds to be true and claims is responsible
for Uruguay's ills.
In this view, Uruguay's
doom would come about because of its incapacity to change and
assume risks. Especially regarding economic transformation -and
the concomitant need to change the social state- Uruguay is criticized
for doing too little, too slow, and as it would find out one
day, too late. This incapacity for change would lead to economic
stagnation and eventually to a critical decrease in people's
A radically different prediction, comes not from the liberal
reformers, but from those positioned on the left. Uruguay, in
this view, has been led to the neoliberal model without considering
the social costs of such a model. A doctrine that looks only
at macroeconomic stability, without concerning itself with the
welfare of its people would lead to decline in welfare and a
marked increase in inequality.
An additional aspect
of this critique pointed out that the Uruguayan neoliberal project
is of a peculiar kind, betting on a country of services, speculation
and financial institutions, forgetting the productive country,
and thus delivering a big blow to employment and social development.
According to this perspective,
Uruguay would end up as many countries that had performed the
neoliberal reforms without concern for its people. Numbers that
might look promising in the economic front, would not have a
positive effect in social indicators. Rather we would witness
a process of social decay with increasing inequality and the
growth of marginalized sectors.
As with many of these
experiences the end result would be an exclusionary society,
anomic violence, instability and the increasing loss of legitimacy
of the political system. In a worst case scenario this could
very well lead, to renewed economic instability, undoing whatever
good the previous reforms had accomplished at the economic level.
The last prediction proposed a mixed scenario. On the one hand
it was argued that the political context had shown and would
continue to show and important capacity to block major reforms.
This capacity to block reforms included not just the liberalization
of the economy, but very especially the social state (social security, education, health,
housing and labor market regulation).
Instead, a logic of reform by-default would follow. One in which
services and benefits would continue to deteriorate, the overall
pattern of stratification would grow more unequal, and people,
especially the middle and upper middle class would vote with
its feet (or their money) exiting the public system
and moving to private alternatives.
This in turn would
erode the basis of support of such programs leading to further
lack of financial resources, thus starting the vicious cycle
again. In the long run, Uruguay, in a rather perverse way would
adapt to continental standards of reform and its social reality
would look more like the rest of its Latin-American peers.
None of these predictions proved true. Uruguay's economic and
social health has not collapsed, on the contrary it has improved.
Regarding the final prediction, it can be argued that some of
what was advanced has happened. In effect, some sectors services
have deteriorated or at least have not improved (i.e. health, arguably education), people have sought alternatives
in the private sphere though not to the extent predicted and
without completely exiting the public system. As a matter of
fact, an important safety net still exists and reaches the middle
classes which have shown to have a stake in and defend the system.
The other point, which
did not prove true, was the notion of a continued block on reforms
by the political system. Social Security and Education are going
through one of the major transformation of the century. More
flexible and targeted systems have had a more humble development,
but a certain development nonetheless.
Finally what many analysts
saw as vetoes in the process of reform, should, with the advantage
of hindsight, be redefined as steps that contributed critical
ingredients to the final outcomes of reform. Ingredients that
made of such reforms a quite different model than the one being
advocated by market oriented reformers. Thus neither the orthodox
market oriented critique, nor the neodependency argument seem
to fare well with Uruguay's social outcomes. Furthermore, the
hypothesis of a blocked system and a perverse reform by default
also lacks empirical support.
ii. A good case with a bad attitude
Uruguayan pride was
fed recently by the publication and further communication in
the press of the latest reports on social development published
by the Economic Commission for Latin America. Enrique Iglesias
added to that pride by pointing out that Uruguay is the best
example of a balanced strategy of structural reform and social
concern for its population.
Politicians, as could
and should be expected, were eager to point out this data, and
of course, assume responsibility for such rosy state of affairs.
While the Colorado administration was the first to call our attention
to what CEPAL said about Uruguayan social development, a nationalist
newspaper rightly pointed out that the period for which the data
was gathered covered mostly the Lacalle administration, not the
Sanguinneti administrations. The left, through its leaders and
newspapers, claimed that it was what the people and their coalition
did as opposition that explains the social outcome.
Had the colorados or blancos been left free to process reform,
a different picture would be in place. Furthermore leftist opposition
suggested that while numbers tell one story, people and their
fears, concerns and frustration tell another.
What is this bounty that so many political groups and fractions
want to grab for themselves?
Uruguay, between 1985
and 1994 -if we put together the different reports on social
development- has been able to show a steady, and in regional
terms, one could term spectacular improvement in almost all the
traditional indicators regarding social development and welfare
of its population. Poverty, according to CEPAL data, has been
cut in more than half, infant mortality already low, has been
further diminished, unsatisfied basic need (measures
of housing quality and adequacy, family income generating capacity,
and educational indicators)
has also been significantly lowered.
Inequality, on the
rise regionally and world wide, has slightly decreased and remained
low thereafter, both measured through the gini coefficient or
in income quintiles participation, placing the country as a low
inequality country even in comparison with some OECD countries.
Furthermore, all this was achieved without sacrificing economic
growth but also without spectacular rates of economic growth,
as in the case of Chile.
Evolution of Selected
Social Indicators for Uruguay
Source: CEPAL, 1994, 1996;
FAS-INE, 1995. (a) data for 1989. (b) Recent analyses by Vigorito
(1998) question these figures, and end up with a gini coefficient
that has esentially remained unchanged for the period under consideration.
|| Urban Poverty
|| Urban Indigence
||Basic Needs Montevideo
|| Gini Coefficient
|| Basic Needs Urban Interior
|| % National Income, of urban poorest 40%
Do these numbers tell
the whole story? Is the left wing opposition's claim reasonable?
Partly so. First, we have to consider that the data stops short
of monitoring social development after the first waves of the
"tequila effect" were felt in the southern cone (especially Argentina and Uruguay).
Most analysts agree that the last year and a half, will show
a deterioration in poverty and income related measures. Secondly
while the recession seems to be over, the high level of unemployment,
that it induced, does not seem to go away. A country that historically
had between 6 and 9 points of open unemployment, hovers between
11 and 13 points today. Still even if this last years have not
been positive in terms of social development, the overall performance
is still remarkably good.
Other critiques point to the way poverty and other social welfare
dimensions are measured.
Some analysts claim that the poverty measures are both dated
and unreliable. New estimations of basic need and the income
needed to reach it have increased poverty from 7 % -the data
offered by CEPAL- to 13 or 14 % depending on minor technical
details. Also, the tool for gathering information, it is said,
is unreliable. In effect, la "encuesta continua de hogares"
has three problems. One is long known and we believe not serious:
income is over and under declared. The second problem is more
serious, and is both and indicator of social problems and a probable
cause of underestimation.
The survey, seems to have recently skipped a few -not more than
a couple- neighborhoods that are not "safe", but that
are supposed to be surveyed in the original sample. The final
problem is that the basket of basic foodstuff is dated, and the
actual one more expensive. In effect, when calculated by the
new method by the Institute of National Statistics, in 1996,
the percentage of households living below the poverty line increased
to 13% (from 6% in 1994). Of course part of that increase
is not simply due to the method, but also to worsening social
In any case, while
these measurement problems are real, they are no less real in
most other countries. Thus, it can reasonably be said that the
trends in terms of social development are in Latin America roughly
comparable, and that the data shows in that sense, Uruguay, as
a regional anomaly, even when compared with its southern cone
Evolution of Poverty
and Inequality for Selected Countries in Latin America
Source: CEPAL, 1997.
A different issue legitimately
brought forward by critics, is to extract from this picture a
self congratulatory idea of what the country looks like when
we compare it with the image that such country has and wishes
for itself and its people.
But, if we accept, that the country has shown improvement in
social conditions, who or what is then responsible for it? This
question admits no simple answer, and is in fact, a good part
of what this paper will deal with. The final answer will probably
satisfy few of the candidates, for social outcomes are more often
than not the product of logics, legacies and resources that no
agent or actor can control, and even of the unintended effects
of these agents actions.
To tighten the scope, this paper concerns itself, with one of
the immediate causes of social welfare: the social state, and
the reform of such social state. We use the term social state
instead of welfare state for reasons already pointed out in Filgueira,
We use this term instead
of social policy, for reasons that should be explained in more
detail. Social policy conveys a technocratic sense of the state's
role in redistributing goods and income. A social state, us we
understand it, is a regime, in the sense proposed by Esping-Andersen,
of which social policies constitute just one, of course rather
A second, also critical
aspect, of the social state, is the regulation of rights and
duties of individuals in the labor market, and its presence or
absence in instances of collective bargaining and labor disputes.
Furthermore, while social policies suggest the idea of technical
packages, that can be chosen at will, a social state as a regime,
is densely connected with and thus depends for its survival and
transformation on the socio-political system. Finally, social
policies have in the latest times become associated with the
notion of investment in human capital and remedial actions when
the individual or family fails in the market.
The Uruguayan social
state goes well beyond these aims: it decommodifies, contributes
to a pattern of stratification and constitutes a basic ingredient
of labor and employment policy in the country.
From 1985 to our days, Uruguay has undertaken the completion
under a democratic regime of a long and hard process of economic
structural reform. Alongside this reform, the old tools of the
Uruguayan social state had to change, adapt or resist the transformed
economic environment. The timing and combination of the economic
and social state reform in Uruguay, is, we claim, the key to
understand why the country shows today the trend of social development
The shape and form
of these reforms and its relation with economic transformation
depended on political structures, institutions and power, resources
and interests of Uruguayan people combined with external pressures,
both in the form of structural constraints and MLA`s advice,
financing and influence.
iii. Legacies, Growth and Social Policies:
the basis for social development.
That growth has been
the major factor behind Uruguay's social development is certainly
an argument that can be made, and that at first sight sounds
rather convincing. While far from spectacular Uruguay's growth
in the last two decades and a half cannot be put into question.
Between 1972 and 1997 Uruguay has grown at an average yearly
rate of 3.2% in terms of its GDP per cápita. Yet if we
look more closely, growth alone seems to poor of an explanation
to account for the variations across this period and in comparison
to other countries. For example between 1974 and 1982 Uruguay
grew at a rate above the average for the period, yet social indicators
worsen in almost all cases, with the exception of infant mortality
and life expectancy.
Poverty rises, inequality
increases and wages continue a long dive. Furthermore if we compare
growth and social development between Uruguay and other countries
new problems arise. The level of economic growth in Chile, Brasil
and Mexico is for most of the period above Uruguayan growth,
yet social indicators do not reflect this fact.
In a recent panel in Uruguay, Hugo Fernandez-Faingold gave what
probably is the best answer to Uruguay's social health with a
telling example. In the University of Oxford the chief of gardening
was asked how he managed to have such a perfect lawn. He answered
that is was easy: all the even days the garden had to be mowed
from north to south and the odd days from east to west... during
six hundred years. The major reason why Uruguay's social health
is good, is that for the last hundred years Uruguay has invested
strongly in human capital, equality and social integration. This
has allowed the country to accumulate a stock of human and social
capital that constitutes a major safety net for periods of crises
and transformation (Filgueira,
C. 1994). Also,
one hundred years of investment in integration and human capital,
solidified an institutional design and commitment that will not
disappear overnight, simply because resources are scarcer.
That, and that alone maybe the simplest and more accurate answer
to the question posed above. Yet it is also true that countries
with that tradition have lost ground (i.e.
and others without it were able to catch up (i.e.
Costa Rica from the forties to the eighties). Furthermore it is also true that Uruguay's
social health was deteriorating towards the end of the dictatorship,
but strongly recovered with democratic restoration. While we
agree that present day differences can partially be explained
with reference to past investment, the sustainability of that
investment and its adequacy to social needs today, has to be
approached as a relevant question with other explanatory tools.
Inertia is not enough of an explanation.
That is where a third factor comes into play. Policies and especially
recent social sector behavior may constitute the key to understand,
not simply Uruguay's above average social development in the
region historically, but also Uruguay's recent social performance.
When a whole region is undergoing major transformation stubbornness
has to be explained. Nay more, high levels of social expenditure
were maintained in a fiscally constraining reality and the forms
and shapes of social protection changed only partially in the
directions suggested by would-be reformers, and only after repeated
negotiations and vetoes. The Uruguayan social state was under
major strains, from both exogenous and domestic forces. Why the
country chose to reform as it did, inevitably has to take into
account these forces, their complementary resistance carved in
one hundred years of history, and its recent transformational
These in turn should lead us to the political variables that
help us understand the policy choices made in the last 15 years
regarding the reform of the social state.