RBSC

**Sir X** · February 18, 2013, 12:43 AM

Economic Growth with More Equality: Learning From Bolivia

Emily Achtenberg
Rebel Currents
February 15, 2013

Until recently, conventional economic wisdom held that sustained economic growth in any society could only be achieved at the expense of income equality. Today, even free market disciples like The Economist recognize that these goals are not contradictory—and that growing inequality, in fact, is an impediment to economic prosperity.
Recent data on economic growth and inequality for the United States and Bolivia reveal two starkly contrasting portraits.
The United States, after four decades of widening inequality, is experiencing the greatest economic downturn since the Depression. In 2011, while the economy grew by only 1.7% (down from 3% in 2010), income inequality increased by almost as much—the biggest single year increase in two decades. Over the past 30 years, the share of income held by the top 1% has more than doubled, increasing from 8% to 17%, while the share held by the bottom 20% has fallen from 7% to 5%. Currently, the United States has the highest level of income inequality of any developed country.
Poverty rates in the United States have risen 23% since 2006, now leveling off at 15.1%. Today, moreAmericans are living in poverty than at any time in the half-century since the census started publishing these estimates. Due to declining incomes, the U.S. “middle class” is eroding, dropping from 61% of adults 40 years ago to a bare majority now.
As Nobel prize-winning economist Joseph Stiglitz has noted, the United States' declining middle class is too weak to support the consumer spending that has historically fueled our economic growth. Thus, inequality is “squelching our recovery”—but U.S. political leaders have been slow to act on this lesson.
Credit: :La RazónIn contrast, despite the worldwide economic crisis, Bolivia’s economy is on track to increase by at least 5% in 2012, as it did last year. This is among the highest growth rates in Latin America, exceeded only by Chile, Panama, Peru, and Venezuela. Since the start of Evo Morales’s presidency in 2006, Bolivia’s GDP has tripled, and GDP per capita has more than doubled.
At the same time, according to data recently presented by Morales to the Legislative Assembly, income inequality in Bolivia has significantly decreased. In 2011, the richest 10% of the population had 36 times more income than the poorest 10%, down from 96 times more in 1997. “Bolivia is one of the few countries that has reduced inequality,” notes Alicia Bárcena, head of the UN Economic Commission for Latin America and the Caribbean (ECLAC). “The gap between rich and poor has been hugely narrowed.”
Between 2005 and 2011, Bolivia’s poverty rate declined by 26% (from 61% to 45%). The extreme poverty rate fell even more, by 45%. An estimated 1 million people joined the ranks of the “middle class.” The World Bank has officially recognized Bolivia as a lower-middle income country, a ranking that affords more favorable credit terms.
Between 2006 and 2011, Bolivian workers’ purchasing power increased by 41%, as compared to 17% between 1999 and 2005. The minimum wage has risen 127% since 2005, far exceeding the rate of inflation. In contrast, U.S. workers’ real wages have stagnated or fallen, with inflation-adjusted incomes now at their lowest point since 1997. Since 1972, the average hourly wage has risen only 4%.
In Bolivia (unlike the United States), domestic demand fueled by rising incomes and narrowing inequality is a driving force behind the country’s economic prosperity. Local evidence of increased domestic consumption and consumer purchasing power can be seen in places like El Alto, the sprawling indigenous city overlooking La Paz, where banks and fast food outlets are sprouting up and the first supermarkets, shopping centers, and cinemas are being planned. In 2012, there were 8.9 million mobile phones in Bolivia (with a population of around 10.4 million). Construction activity has outpaced the capacity of the domestic producers, with cement now being imported from Peru.
Rating agency Standard and Poor’s gave Bolivia high marks for economic resiliency last October, in underwriting a successful $500 million bond sale—the country’s first venture into the international credit markets since the 1920s.
Behind these positive indicators is Bolivia’s state-led economic policy, including the re-nationalization of strategic sectors divested by past neoliberal governments (such as hydrocarbons, telecommunications, electricity, and some mines). Around 34% of the national economy is now under state control—although private investment (on Bolivia’s terms) is encouraged and has continued, in hydrocarbons and other key sectors.
The vast increase in hydrocarbons and mining revenues under Morales has funded a major expansion of social welfare programs, including highly popular cash transfers targeted to the elderly, pregnant mothers, and school children. It has also supported major infrastructure improvements, a significant increase in the coverage of basic services (such as water, electricity, and domestic gas), and a major expansion of public healthcare and education programs—all boosting the living standards of average Bolivians. El Alto market. Credit: gulfnews.com
To be sure, Bolivia’s economic and redistributive policies are not free of problems and contradictions. As the Fundación Jubileo points out, more than 5 million Bolivians still live in poverty, and extreme poverty persists in rural areas. According to the labor research group CEDLA, the current minimum wage covers only 56% of the average family’s budgetary needs. Many believe that the government should be doing more to alleviate poverty and raise living standards, especially with international reserves now at record levels of $14 billion (58% of GNP).
More fundamentally, Bolivia’s extreme dependence on the hydrocarbons and mining sectors (which now account for 87% of total export earnings) makes the economy vulnerable to the vagaries of commodity prices, and has led to increasing conflicts with indigenous and environmental groups over the adverse impacts of extractive projects. Industrialization, which would at least enable Bolivia to export more value-added goods derived from these sectors, is a major priority of the Morales government but projects have been slow to get off the ground. “What we’re not seeing,” says Bolivian economist Horst Grebe, “is a transformation of the productive economy that is sustainable in the long term.”
Still, in the short run, Bolivia’s achievements in combining economic growth with greater income equality are impressive. The United States could learn a lot from Bolivia's example.

Emily Achtenberg is an urban planner and the author of NACLA’s weekly blog Rebel Currents, covering Latin American social movements and progressive governments

**Sir X** · February 18, 2013, 12:49 AM

Let's play fantasy economics. Things could really get better

A family-oriented nation of fairness, social justice and mutual ownership? It exists – just not all in one place

- Andrew Simms
- The Observer, Saturday 16 February 2013
- Jump to comments (5)

Uruguayan president José Mujica lives on £450 a month, has a guard of two policemen and a three-legged dog, and drives a 1987 VW Beetle. Photograph: Pablo Porciuncula/AFP/Getty Images

Do you grudgingly accept there is no fundamental alternative to how things are, hard times and difficult choices? Then come to Goodland. You might want to live here.
Its president refuses the state mansion. He gives away 90% of his pay, living on the national average wage to share in the struggles of his people. Goodland has a new constitution, written by citizens. When its financial sector fell apart, speculators had to take their losses and the guilty were taken to court, not given a public bailout.
The country has a dynamic, largely mutually owned, local banking system. It avoids bad risk and bends over backwards to help small businesses. In Goodland, human wellbeing is more important than economic growth. There is a national plan for good living, free health and education services, subsidised childcare allowing for a more equal workplace, and support for the elderly. It has a law enshrining protection of its life-supporting ecosystems that stands above all other laws.
Goodland's cities are green and grow healthy, organic food for the inhabitants. A phase-out of most fossil fuels is planned by 2017, and its business sector has large, intelligently connected and productive cooperatives. A shorter working week is available by choice.
Utter fantasy? No. Goodland exists. It is just a little, well, spread out. Each aspect can be enjoyed in the real world, just not all in the same place. It's like fantasy football, where you build your perfect team from all known players, but better. Fantasy economics is not limited by the supply of players, but rather grows from emulating best practices wherever you find them.
The president mentioned above is José Mujica of Uruguay. He lives on about £450 per month. His presidential guard is two policemen and a three-legged dog. He drives a 1987 VW Beetle and criticises the rich countries' development model, berating other world leaders' "blind obsession to achieve growth with consumption".
After financial meltdown in Iceland, the "pots and pans" revolution led to a new citizen-drafted constitution, adoption pending, that actively engaged half the electorate. Rather than making the public pay for the crisis, as Nobel-winning economist Paul Krugman points out, Iceland also "let the banks go bust" and, instead of placating financial markets, "imposed temporary controls on the movement of capital to give itself room to manoeuvre". In Porto Alegre in Brazil, since 1990, citizens meet every week to decide how a big portion of the city's public purse gets spent. It's called participatory budgeting and in seven years led to doubling access to proper sanitation in poor neighbourhoods.
One reason Germany was less hit by the bank crisis is because 70% of the sector is in small or community banks. By comparison, in the UK the big five banks hold 80% of mortgages and 90% of small and medium enterprise accounts. The German banks have a dual mandate, having to be useful as well as profitable. They're also mostly mutually owned, don't indulge in risky speculation, have local knowledge, branch autonomy and decision making.
In Spain, the multi-headed €14bn Mondragón cooperative, with over 80,000 employees, demonstrates that less self-interested company ownership models can succeed at scale. And the successful uptake by the Dutch of a shorter working week suggests we aren't condemned to work ourselves to death, whatever the coalition says.
Bhutan famously measures its success not by using GDP – simply a measure of the amount, not quality, of economic activity – but by assessing Gross National Happiness. This broad, composite indicator uses 151 variables including: good governance, education, health, ecological resilience, community vitality, wellbeing, time use, living standards and cultural diversity.
After the UN General Assembly adopted 22 April as Mother Earth Day, Bolivia adopted its Mother Earth Law in 2010. The law requires all current and future legislation to accept the "ecological limits set by nature". In practice, it means pushing a transition from fossil fuels to renewable energy, and environmentally auditing companies. Elsewhere, Nicaragua committed to a near-complete phase-out of fossil fuels by 2017, while Cuba's organic, urban farming movement has greened cities and boosted public health.
In Ecuador, there is an overarching National Plan for Good Living that rejects "most orthodox approaches to development". It embodies what it calls five revolutions: constitutional and democratic; ethical; economic and agrarian; social; and "in defence of Latin American dignity". The aim is to reassert a country's sovereign authority to put its own social and economic objectives above that of the markets.
As Britain agonises about the affordability of services, Denmark's tax system pays for free health and education, home help for the elderly, and about three-quarters of the cost of childcare. Far from harming the economy, higher taxes stimulate investment in infrastructure, education and R&D.
To suggest Britain has no economic alternatives to its current chosen path is a self-serving political deception. Only our will and imagination restrain us. Here is one, possible, Goodland. Why not build it, or create your own?

Andrew Simms is a fellow of the New Economics Foundation (nef). His book Cancel the Apocalypse: the New Path to Prosperity is published on 28 February by Little Brown. Heather Stewart is away

RBSC

Announcement

Ecuador’s Correa Breezes to 2nd Re-election

Ecuador’s Correa Breezes to 2nd Re-election

Comment

Comment