Considering the current and potential future crises brought about by COVID-19, I will use the reflections and proposals offered by the Economic Commission for Latin America and the Caribbean (ECLAC), an organization that should be viewed as a beacon of light for countries in the southern hemisphere. While its recommendations have been ignored by decision-makers, they are supported by the World Bank and the Inter-American Development Bank, precisely because the current crisis has exposed the precarious state of health care, education, housing, and social security systems resulting from decades of neglect.
On the subject of achieving the United Nations’ Sustainable Development Goals, Alicia Bárcena, ECLAC’s Executive Secretary, notes the delayed economic and social development of Latin America as well as the difficulties presented by the current crisis.
The first difficulty is “structural heterogeneity”, which refers to large companies with high productivity but low levels of formal employment coexisting with high levels of informal employment characterized by low productivity. In Latin America, 99% of enterprises are categorized as micro, small or medium-sized, and 70% of employment is in the informal sector.
The second difficulty is the weakness of existing “welfare regimes”, which are the public policies that provide a minimum welfare level for most of its citizens. These policies protect the citizenry from unemployment, provide for them in sickness, old age, and maternity, and endow them with human capital through investment in health and education.
In Latin America, there are universal welfare regimes that are stratified according to occupational insertion (Uruguay, Chile and Argentina); dual regimes with a stratified universalism in urban sectors, but that exclude rural areas (Brazil and Mexico); and small countries with almost no resources for welfare regimes (Central America, except for Costa Rica and Panama, the Dominican Republic, Ecuador and Bolivia).
The third difficulty is associated with the two previous challenges and consists of inequality, which pervades almost all areas of society.
In light of these difficulties, three strategies should form the core of any national debate about overcoming the current crisis, and preparing for future crises. First, reactivate the economy on the foundation of a third, integrated economic sector; second, address structures that generate inequality; and third, develop social policies that are not merely palliative, but that can overcome the ramifications of the nearly 30 years that have passed since the Washington Consensus.
These are urgent measures that must be undertaken to emerge stronger from the COVID-19 pandemic while also contributing to sustainable human development supported by a democratic system capable of facing future challenges with greater possibilities of success.
1. Integrate and Foster a Third Sector of the Economy: The Social Economy Sector
This “third sector” of the economy has already emerged in various European and Latin American countries. In Central America, Honduras created a specific law (Decree 193-85) in the 1980s that defined the social economy sector as the “group of companies and organizations composed of workers that support the primary importance of work, choose a communal ownership of the means of production, and commit any surplus production to activities that improve the standard of living of their members”.
The social economy sector is based on the principles of freedom, economic democracy, justice, solidarity, self-management, participation and pluralism. In 2005, the International Cooperative Alliance (ICA) conducted a diagnostic in Guatemala to determine the characteristics of the social economy sector and its members. “In the social economy sector, a diverse group of organizations (associations or individuals) offer goods and services, and perform economic activities that support the social economy. The identity of these organizations is eminently local, with territorial and sectoral roots, and they are dedicated to defending the interests of workers and entrepreneurs. The associations (of individuals) are participatory in nature, and are markedly democratic in how they manage activities and make decisions, which promotes economic, social and political consensus.”
The ICA diagnostic study identified 737 cooperatives and 12 federations. Taken together, these organizations had capital in 2005 amounting to 1.14 billion quetzales, savings of 2.3 billion quetzales, and fixed assets valued at 5.9 billion quetzales. The study also determined that in 2000, there were 1,200,000 micro, small or medium-sized enterprises that provided employment for 44% of the economically active population.
Similarly, the diagnostic also included a number of microfinance organizations and non-governmental organizations (NGOs) in this third economic sector. However, this study was conducted 15 years ago, and a search for more recent studies only identified the International Labour Organization’s 2012 diagnostic, which focused on the cooperative sector and identified 841 cooperatives and 13 federations.
The informal economy generates the most employment in Guatemala, but the pandemic has clearly demonstrated that this sector is extremely vulnerable. Enterprises that are not formally constituted are excluded from social protection and promotion policies. But a family microenterprise with social goals that is involved in production, sales and consumption should not be adversely affected by formal establishment of the enterprise. The level of formalization needed would involve a registration process, a sectoral classification, and social protection measures. It also would assist in their assimilation into this social economy network so that they can have a greater impact on the country’s economic and social policies, as well as access to credit, technology and markets that are suited to their size and characteristics.
The new social economy includes economic sectors led by women and non-governmental organizations functioning as service providers. It includes the thousands of repatriated migrants who have experienced the migration process and perhaps have accumulated some capital, as well as families that are still divided, with some members living abroad and continuing to send money back home to their families, at least for the medium term.
Greater promotion of this sector first requires an initial definition and articulation of its attributes, so that it can be incorporated into a governmental, legal and institutional policy framework that will enable the sector to develop, increase its productivity, and participate in political decision-making about the economy and public welfare.
2. A Policy to Promote Food Production and Ecosystem Protection in the Domestic Economy
Food demand will continue to be the largest national and regional market, and Guatemala has strong advantages in this sector due to its microclimates as well as its residents’ ability and experience. In 2018, economist Eduardo Baumeister determined that Guatemala represented 62.2% of Central America’s agricultural land dedicated to non-traditional products. In spite of Guatemala’s productive vitality (mainly in corn and beans), this share has barely increased.
Guatemala is almost self-sufficient in beans, as it produced 96.8% of its consumption in 2013. As for corn, it produced 91.6% of its own consumption in 1978, which later declined to 72.5% in 2013. Another important fact is that small-scale production (family farming) contributes 44.21% of the energy content of the Guatemalan population’s diet. Large-scale, agro-industrial production contributes 33.60%, according to the United Nations Food and Agriculture Organization (FAO).
These facts demonstrate the need to strengthen and develop these economies in order to ensure the supply of food products to the whole country, a situation that other countries do not have to face.
It is particularly important to prioritize this policy. Exports of primary goods will decrease due to the global recession. Value chains have been disrupted in global markets, and their future viability is in doubt because of their ecological footprints, but also due to the health conditions and restricted mobility caused by the pandemic. In addition, we have diminished the natural ecosystems’ capacity to regenerate, and must also take into account the adverse effects of climate change.
This would mean modifying the current productive structure that is based on an agro-export model (extensive monocultures), and instead prioritizing a food economy model that puts an end to chronic malnutrition, complies with ecological imperatives, and is culturally relevant. This model must also promote the sustainable use of natural ecosystems by making use of the most important energy resource in tropical countries such as ours (solar energy), conserving potable water sources, and protecting local and Central American biodiversity and value chains. Lastly, tourism that incorporates greater ecological and cultural sensitivity could be promoted.
To this end, mixed investment (public, private, and social sectors) must be encouraged, and large landowners with under-utilized properties must make them available for these strategic activities. A robust and transparent program for land access and regularization, and a technology and research investment program for innovation and market logistics must be established. I believe that the current Minister of Agriculture supports and recognizes the beneficial impacts of policy and institutional framework like this. I hope he has the support of the executive branch so that it can become government policy.
A harmoniously developed, achievable policy with broad support that has efficient and effective implementation instruments, measurable indicators, and a non-bureaucratic, transparent and corruption-free institutional apparatus could change the face of our rural areas in a reasonable amount of time. It could also strengthen local economies by promoting meaningful levels of rural and national well-being, and yield financial and environmental improvements.
3. A Robust Social Protection Policy
ECLAC has appealed to Latin American countries to develop “universal, redistributive, and solidarity-based policies with a rights-based approach”.
Social protection programs were usually developed within the framework of welfare regimes. For example, Central America’s northern triangle applied an exclusionary model to such programs, offering uneven protection, especially in health care. Social security programs are restricted and universal education only covers primary school. There is a 44.91% shortfall in achieving Guatemala’s annual education plan (Plan Escolar Annual – PEA), which leads to illiteracy and incomplete compulsory primary education. More than four million people between the ages of 15 and 64 do not complete compulsory primary education due to a lack of access to education and dropout.
Guatemala’s spending on social programs is low – 6.9% of GDP in 2016. According to data from the Central American Fiscal Studies Institute (Instituto Centroamericano de Estudios Fiscales – ICEFI), education spending is 2.87% of GDP, health spending is 1.11%, and spending on social protection programs is 1.26%.
The most striking fact is that most of the financial burden falls on families, as demonstrated by the spending on health care. Total spending on health care in 2014 was as follows: government – 19%; social security – 17%; families – 58%; and private sector – 6%.
Costa Rica’s good reputation for responding to the pandemic is surely due to the fact that its health care financing structure covers more than 60% of the population with social security. The government contributes about 10% to the system, so only 20% of the cost falls on families.
In his analysis of average monthly household income in Guatemala, Walter López has noted that the households with the lowest monthly income (the bottom two quintiles) spend an average of 25.62% of their monthly income on education, which increases to 33.51% when there are no social assistance programs in place. This is much higher than households with higher monthly income (the top three quintiles), which spend an average of 22.44% to 24.59% on education, without social assistance programs.
So, how have poor families managed to pay for these expenses during all these decades of government neglect? With remittances from family members working abroad. This is especially true for indigenous and rural families, and for those from the most impoverished areas. A decline in remittances can reduce their consumption capacity by up to 50% in the most extreme cases.
Thus, to achieve the UN’s Sustainable Development Goals, a solid and sustained social protection program must be established. Sustained investments in this area would help cushion the impacts of the huge investments needed in times of crisis.
However, the only recent examples of new-generation social protection programs are the current COVID-19 assistance measures, and the weak conditional aid program developed during the UNE (Unidad Nacional de la Esperanza) party’s 2007-2010 administration. This program was discontinued due to political patronage abuses, and because there was a risk that new administrations would continue these quid-pro-quo practices. Although the pandemic assistance measures are temporary and are funded by international loans and public entities, they have the potential to become permanent programs.
In this context, according to ECLAC, for 18 countries including Guatemala, changing the social protection system or developing better defined welfare regimes would mean sustaining monetary transfers to the population below the poverty line amounting to an average of 2.9% of GDP for six months. Achieving universal coverage would require 9.3% of GDP.
ICEFI (2020) estimates that 4.52% of GDP is needed to expand the fight against extreme poverty, and 1.29% of GDP is needed for investments in health care, education, and economic and social infrastructure.
Based on their data and the overwhelming reality of the current situation, ECLAC and ICEFI propose a sustained and progressive effort to build these welfare regimes, which would imply fiscal measures to increase the budgets for health care, education, housing, sanitation, and social security.
This is the only way to attain the goals of extending the coverage and quality of education to the secondary school level, improving the health care system at all three levels and to each age group, and extending social security coverage to include the proposed third sector and other sectors such as migrants and independent workers. Lastly, there must be greater investment in a national housing program that is underpinned by a robust water, energy and sanitation infrastructure, as established in the UN’s 2030 Agenda for Sustainable Development.
1. Alianza Cooperativa Internacional, 2007, Diagnóstico sobre el Sector de la Economía Social en Guatemala, Costa Rica.
2. Comisión Económica para América Latina -CEPAL- 2020, América Latina y el Caribe ante la Pandemia del Covi-19, efectos económicos y sociales, Informe Especial N.1.
----2020, El desafío social en tiempos del COVID-19, Informe Especial N.3.
3. Food and Agriculture Organization of the United Nations, FAOSTAT.
4. López, W., 2020 “¿Regreso a Clases en la Nueva Normalidad? Sí pero con más igualdad”, Plaza Pública.
5. Roldán, U. y Hernández S., 2016, Regímenes de Bienestar en El Salvador, Honduras y Guatemala, excluyentes e informales, CANAMID N.8
6. Instituto Centroamericano de Estudios Fiscales (ICEFI), 2018, base de datos gastos en Salud de la Organización Mundial de Salud.
7. -----2020, Análisis sobre posibles impactos económicos y fiscales de la crisis, potenciada por el COVID-19. Elementos para la reflexión.